<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AMERIPATH, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8099 65-0642485
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
7289 GARDEN ROAD, SUITE 200
RIVIERA BEACH, FLORIDA 33404
(561) 845-1850
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
---------------------
JAMES C. NEW
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERIPATH, INC.
7289 GARDEN ROAD, SUITE 200
RIVIERA BEACH, FLORIDA 33404
(561) 845-1850
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
DANIEL H. ARONSON, ESQ. JOHN J. HUBER, ESQ.
GREENBERG, TRAURIG, HOFFMAN, LATHAM & WATKINS
LIPOFF, ROSEN & QUENTEL, P.A. 1001 PENNSYLVANIA AVENUE
515 E. LAS OLAS BOULEVARD, SUITE 1500 SUITE 1300
FORT LAUDERDALE, FLORIDA 33301 WASHINGTON, DC 20004
(954) 765-0500 (202) 637-2200
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share.......... $99,820,000 $30,249
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 930,000 shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
Dated November 27, 1996
6,200,000 SHARES
AMERIPATH, INC.
COMMON STOCK
---------------------
Of the 6,200,000 shares of Common Stock offered hereby (the "Shares"), 5,700,000
shares are being offered by AmeriPath, Inc. (the "Company") and 500,000 shares
are being offered by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." Prior to
this offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price
will be $14.00 per share. See "Underwriting." The Company has
applied to have the Shares approved for quotation on the
Nasdaq National Market under the symbol "PATH."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE $ $ $ $
TOTAL(3) $ $ $ $
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,500,000.
(3) The Company and the Selling Stockholders have granted the several
Underwriters a 30-day option to purchase up to an additional 930,000 shares
of Common Stock to cover over-allotments, if any. If all such shares are
purchased, the total price to public, underwriting discounts and
commissions, proceeds to Company and proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively. See
"Underwriting."
---------------------
The Shares are offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject any order
in whole or in part and subject to certain other conditions. It is expected that
delivery of the Shares will be made in New York, New York, on or about
, 1997.
---------------------
DEAN WITTER REYNOLDS INC.
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
<PAGE> 3
[MAP OF EASTERN HALF OF UNITED STATES,
SHOWING LOCATION OF FACILITIES AT WHICH COMPANY OPERATES]
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent public
accountants and with quarterly reports for each of the first three quarters of
each fiscal year containing unaudited consolidated financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
i
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 1
Risk Factors........................... 6
The Company............................ 13
Use of Proceeds........................ 15
Dividend Policy........................ 15
Dilution............................... 16
Capitalization......................... 17
Selected Consolidated Financial Data... 19
Unaudited Pro Forma Consolidated
Financial Data....................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
<CAPTION>
PAGE
-----
<S> <C>
Business............................... 36
Management............................. 48
Certain Transactions................... 53
Principal and Selling Stockholders..... 55
Description of Capital Stock........... 56
Shares Eligible for Future Sale........ 58
Underwriting........................... 60
Legal Matters.......................... 61
Experts................................ 61
Additional Information................. 62
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
---------------------
UNTIL , 1997 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the Consolidated Financial Statements and related notes
thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option. Unless the context otherwise requires, references to: (a) the
Company or AmeriPath include AmeriPath, Inc., its predecessor, its subsidiaries
and the professional association and professional corporations (collectively,
the "PA Contractors") which are separate legal entities that contract with the
Company to provide pathology services in certain states; (b) AmPath mean only
AmeriPath, Inc.; (c) Affiliated Physicians mean physicians employed by
subsidiaries of AmPath or by the PA Contractors; and (d) the Practices mean
AmPath's subsidiaries and the PA Contractors, collectively.
AmeriPath is the leading physician practice management company focused on
anatomic pathology services. AmeriPath provides practice management services to
pathologists in both outpatient and hospital inpatient laboratories, enabling
the pathologists to concentrate on the practice of medicine. Through its 12
Practices, the Company, as of November 22, 1996, had 80 pathologists and
employed a total of 565 people. The pathologists provide services in 12
outpatient pathology laboratories, 46 hospital inpatient laboratories and 17
outpatient surgery centers in five states. Of these pathologists, 77 are board
certified and three are board eligible in anatomic pathology. Thirty-five of the
pathologists are also board certified in a subspecialty of anatomic pathology,
including dermatopathology (diseases of the skin), hematopathology (diseases of
the blood) and cytopathology (diseases of the cells).
The practice of pathology includes anatomic pathology, which involves the
diagnosis of diseases through examination of tissues and cells, and clinical
pathology, which involves the chemical testing and analysis of body fluids, such
as blood and urine. Clinical pathology involves an interpretation of
standardized laboratory test results, a process which is frequently automated,
while anatomic pathology typically requires the involvement of a pathologist in
making a specific diagnosis. Anatomic pathologists do not treat patients but
rather assist physicians by establishing a definitive diagnosis. In addition,
anatomic pathologists may consult with attending physicians regarding treatment
plans. In these capacities, the anatomic pathologist serves as the "physician's
physician," creating what is often a long-term relationship. Attending
physicians remove specimens which are then transported to a laboratory, either
by courier or by overnight delivery service. Once received at the laboratory, a
specimen is processed and mounted onto a slide by a laboratory technician for
examination by a pathologist.
Based on information published by the American Medical Association, there
are 14,000 practicing pathologists in the United States. According to the
American Society of Dermatopathology, in 1994 approximately 900 practicing
pathologists specialized in dermatopathology. The Company expects the provision
of anatomic pathology services to continue to grow primarily due to the aging of
the United States population, increased incidence of cancer and medical
advancements that allow for earlier diagnosis and treatment of diseases.
During 1996, the Company acquired 11 anatomic pathology practices (the
"Recent Acquisitions") in five states: six practices in Florida, two practices
in Ohio and one practice in each of Alabama, Kentucky and Texas. The Company and
its Affiliated Physicians provide management and physician services in the
Company's outpatient laboratories and in inpatient laboratories owned by
hospitals. Eight Practices have exclusive contracts with a total of 46 hospitals
to manage their inpatient laboratories and provide professional pathology
services. Four of these eight Practices also have established outpatient
laboratories that focus on outpatient referral sources. Generally under a
hospital contract, the Practice provides the medical director for the hospital's
laboratory who is responsible for the laboratory's anatomic and clinical
pathology operations. Through their relationships with the medical staff of the
hospitals and the local medical community, inpatient based Practices also
provide anatomic pathology services to office based physicians, thereby
capitalizing on the trend towards more procedures being performed in an
outpatient setting. Since a Practice's profitability is largely based upon test
volume, increased outpatient test volume enhances the productivity of the
Affiliated Physicians and leverages the existing fixed cost structure of the
inpatient laboratories. The four other Practices operate exclusively in
outpatient laboratories and provide services to attending physicians, national
clinical laboratories and managed care organizations. The outpatient pathology
services provided by the Practices are focused primarily on dermatopathology,
which relates to the examination of skin biopsies.
1
<PAGE> 6
The Company's objective is to enhance its position as the leading provider
of anatomic pathology practice management services through the following
strategies:
- Focus on Anatomic Pathology. The Company believes that its focus on
anatomic pathology provides it with a competitive advantage in the
acquisition of anatomic pathology practices and that a significant
opportunity exists to acquire anatomic pathology practices that are
seeking to affiliate with a physician practice management company with
experienced management and access to capital. As a result of the
Company's focus on anatomic pathology, the Affiliated Physicians are able
to form an internal network for consultations and to offer specialized
services to their clients. The Company believes that its focus allows it
to develop expertise in managing both inpatient and outpatient pathology
practices.
- Acquire Leading Practices. The Company expects to increase its share in
existing markets and enter into new markets through acquisitions. The
Company's acquisition criteria include market demographics, size,
profitability, local prominence, payor relationships and opportunities
for growth of the acquired practice. The Company intends to continue to
source acquisitions by capitalizing on the professional reputations of
the Practices and the Affiliated Physicians, the Company's management
experience and the benefits of being part of a public company, including
increased resources and improved access to capital. In existing markets,
the Company targets acquisitions that can expand its presence, add new
services, such as dermatopathology, and provide operational efficiencies
for the Practices in that market. In new markets, the Company seeks to
acquire prominent practices to serve as a platform for expansion.
- Expand Sales and Marketing Efforts. The Company focuses on generating
internal growth for the Practices by augmenting their existing physician
and contractual relationships with a professional sales and marketing
program. Since specimens can be transported, the Company's sales and
marketing efforts focus on expanding the geographic scope of the
Practices. The Company is seeking to extend its existing contracts with
national clinical laboratories to include multiple Practices that cover a
broad geographic area. The Company believes that its regional business
model can offer national clinical laboratories and managed care
organizations a convenient single source for anatomic pathology services.
- Increase Contracts with Hospitals. The Company seeks to gain additional
exclusive hospital contracts through acquisitions of anatomic pathology
practices, as well as through expansion of the Company's existing
relationships with multi-hospital systems. The Company believes that
multi-hospital systems will benefit from contracting with a single
provider of pathology services in a geographic region. The Company's
management of inpatient laboratories can also facilitate the growth of
the Company's outpatient services in the same region.
- Achieve Operational Efficiencies. The Company intends to achieve
operational efficiencies by centralizing certain functions, enhancing
Practice efficiency and utilization and using its size to negotiate
discounts on equipment, supplies and services. The Company intends to
centralize financial reporting, payroll and benefits administration and
regulatory compliance. The Company plans to introduce "bench-marking"
programs to enhance the efficiency of the Practices. In certain markets,
the Company intends to develop a regional business model with centralized
administrative functions, common marketing plans and integrated courier
systems.
Through the implementation of these strategies, the Company intends to
develop integrated networks of anatomic pathology practices on a regional basis.
The Company is currently developing a regional business model in Florida, where
it owns seven anatomic pathology practices that extend from Miami to Orlando and
from Fort Myers to Tampa. Together, these Practices employ 62 Affiliated
Physicians, have contracts with 29 hospitals and 17 outpatient surgery centers
and operate six outpatient laboratories. The Company's Vice President of Sales
supervises ten professional sales personnel who focus their efforts on sales to
direct referral sources at the local level. The Company has centralized its
marketing efforts for managed care organizations, multi-hospital systems and
national clinical laboratories. The Company intends to leverage its size and
geographic coverage to expand its contracts with national clinical laboratories
and managed care organizations from a local to regional basis. The Company's
contract with a national clinical laboratory for the exclusive provision of
anatomic pathology services in five Florida counties was expanded in November
1996 to include 59 of Florida's 67 counties. During 1997, the Company plans to
install a management information system that is designed to expand and enhance
the financial reporting capabilities of the Practices.
2
<PAGE> 7
THE OFFERING
Common Stock Offered by the
Company............................. 5,700,000 shares
Common Stock Offered by the Selling
Stockholders...................... 500,000 shares(1)
Common Stock Outstanding After the
Offering............................ 16,947,856 shares(1)
Use of Proceeds by the Company...... Net proceeds of $72.7 million to the
Company will be used: (i) to repay the
outstanding principal amount of and
accrued interest on the Company's 10%
Junior Subordinated Notes due December
31, 2001 (the "Junior Notes"); (ii) to
repay the outstanding principal amount
of and accrued interest on the
Company's 8% Senior Subordinated Notes
due December 31, 1998 (the "Senior
Notes"); (iii) to pay accrued and
unpaid dividends on the Convertible
Preferred Stock; and (iv) the balance
to repay a portion of the outstanding
indebtedness under the Company's
revolving credit facility (the "Credit
Facility"). See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol.............................. "PATH"
- ---------------
(1) The number of shares outstanding after the offering and the information set
forth in this Prospectus, unless otherwise indicated: (i) reflects a 40 for
one stock split effected as of August 1, 1994 and a 1.8 for one stock split
effected as of , 1996, each by means of a stock dividend; (ii)
assumes the conversion of the Company's Series A 6% redeemable cumulative
convertible preferred stock (the "Convertible Preferred Stock") into shares
of Common Stock immediately prior to the consummation of this offering;
(iii) includes 1,729,933 shares of Common Stock (the "Restricted Stock")
issued during November 1996 pursuant to the Stock Rights Surrender &
Restricted Stock Grant Agreements (collectively, the "Restricted Stock
Agreements") which resulted in the surrender of contingent rights to
receive Common Stock (the "Contingent Shares") that had been granted to the
sellers of nine Practices in connection with the Recent Acquisitions (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Acquisitions"); (iv) excludes 1,620,000 shares of
Common Stock reserved for issuance under the Company's Amended and Restated
1996 Stock Option Plan (the "Option Plan"), of which options to purchase
990,011 shares of Common Stock have been granted and options to purchase
97,200 shares of Common Stock were exercisable at November 22, 1996 (See
"Management -- Option Plan"); and (v) excludes 180,000 shares of Common
Stock reserved for issuance under the Company's 1996 Director Stock Option
Plan (the "Director Option Plan"), of which no options have been granted.
See "Management -- Director Option Plan."
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------ ----------------------------------
1995 1996
------------------------ ------------------------
PRO FORMA PRO FORMA
1992 1993 1994(1) ACTUAL AS ADJUSTED(2) 1995 ACTUAL AS ADJUSTED(2)
------- ------- ------- ------- -------------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue............... $11,443 $13,419 $14,461 $16,024 $ 82,281 $12,176 $20,840 $ 63,316
Operating costs:
Cost of services........ 8,791 10,803 6,780 8,271 37,760 6,147 10,234 28,952
Selling, general and
administrative
expense............... 1,696 1,634 2,287 2,644 12,733 1,931 4,026 10,657
Provision for doubtful
accounts.............. 787 953 1,003 1,161 7,702 910 1,655 5,804
Amortization expense.... -- -- -- -- 4,504 -- 357 3,366
-------- -------- -------- -------- -------- -------- -------- --------
Total operating
costs.......... 11,274 13,390 10,070 12,076 62,699 8,988 16,272 48,779
-------- -------- -------- -------- -------- -------- -------- --------
Income from operations.... 169 29 4,391 3,948 19,582 3,188 4,568 14,537
Interest expense.......... (62) (48) (1,584) (1,504) (2,579) (1,151) (1,637) (1,695)
Other income (expense),
net..................... 10 9 (46) (46) 42 (13) (143) (44)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes............ 117 (10) 2,761 2,398 17,045 2,024 2,788 12,798
Provision for income
taxes(3)................ -- -- 696 900 7,170 759 1,075 5,364
-------- -------- -------- -------- --------- -------- -------- --------
Net income (loss)......... $ 117 $ (10) $ 2,065 $ 1,498 $ 9,875 $ 1,265 $ 1,713 $ 7,434
========= ========= ========= ========= ========= ========= ========= =========
Supplemental pro forma
data:(4)
Pro forma net income per
share................. $ .19 $ .56 $ .16 $ .20 $ .42
========= ========= ========= ========= =========
Pro forma weighted
average shares
outstanding........... 8,085 17,639 8,085 8,532 17,639
========= ========= ========= ========= =========
OPERATING DATA(5):
Pathologists.............. 5 5 6 6 75 6 55 80
Hospital contracts........ -- -- -- -- 43 -- 34 46
Outpatient laboratories... 1 1 1 1 15 1 9 12
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------
PRO PRO FORMA
ACTUAL FORMA(6) AS ADJUSTED(7)
-------- --------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents....................................................... $ 193 $ 4,008 $ 4,008
Total assets.................................................................... 50,793 142,342 142,342
Long term debt, including current portion....................................... 44,684 96,031 24,242
Convertible Preferred Stock(8).................................................. 6,123 6,123 --
Stockholders' equity (deficit)(1)............................................... (9,416) 13,744 91,656
</TABLE>
4
<PAGE> 9
(1) In connection with a recapitalization consummated on February 14, 1994 (the
"Recapitalization"), the Company: (i) issued 3,208,120 shares of
Convertible Preferred Stock for $5.5 million; (ii) issued to the purchasers
of Convertible Preferred Stock $7.5 million principal amount of the Junior
Notes; (iii) issued 1,425,600 shares of Common Stock for $1.0 million; (iv)
issued to the purchasers of Common Stock (a) $3.5 million principal amount
of the Senior Notes and (b) $2.5 million principal amount of 8%
non-negotiable subordinated contingent notes (the "ALA Contingent Notes");
and (v) made cash distributions to the purchasers of Common Stock of
approximately $20.5 million, financed partially by borrowings under the
Company's line of credit with the First National Bank of Boston. The
Company recorded a charge of approximately $24.0 million to retained
earnings as a distribution to the holders of Common Stock. Cost of services
includes $3.1 million and $4.4 million in 1992 and 1993, respectively,
representing compensation paid to stockholders in excess of the
compensation of such stockholders following the Recapitalization. Net
income for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1995 and 1996 does not reflect dividends payable on the
Convertible Preferred Stock. See "Certain Transactions -- Recapitalization"
and Note 1 to Consolidated Financial Statements.
(2) Reflects (i) the Recent Acquisitions, and (ii) the sale of the Shares
offered by the Company hereby, at an assumed initial public offering price
of $14.00 per share, and the application of the estimated net proceeds
therefrom, as if such transactions had been effected on January 1, 1995.
The Recent Acquisitions were financed in part by borrowings of $78.6
million under the Credit Facility, which replaced the Company's line of
credit, and involved the issuance of 2,037,308 shares of Common Stock and
the 1,729,933 shares of Restricted Stock subsequent to September 30, 1996.
(3) Prior to the Recapitalization, the Company elected to be taxed as a
Subchapter S corporation for federal income tax purposes and, accordingly,
consolidated statements of operations in 1992 and 1993 and a portion of
1994 do not include a provision for income taxes.
(4) For all periods presented, pro forma net income per share is computed on
the basis of the weighted average number of shares of common stock and
common stock equivalents, including (i) the number of shares of Common
Stock issuable upon conversion of the Convertible Preferred Stock; (ii)
Common Stock issued by the Company during the 12 months immediately
preceding the date of this Prospectus; (iii) with respect to the "Actual"
columns above, the Restricted Stock issued in connection with the Recent
Acquisitions completed prior to September 30, 1996 and with respect to "Pro
Forma" columns above, the Restricted Stock issued in connection with all of
the Recent Acquisitions; and (iv) shares of Common Stock which become
issuable pursuant to the grant of Common Stock options, using the treasury
stock method and an assumed initial public offering price of $14.00 per
share.
(5) Operating data is measured as of the end of the period indicated.
(6) Pro forma to reflect (i) six Recent Acquisitions which were completed in
the fourth quarter of 1996 (the "Fourth Quarter Recent Acquisitions"); and
(ii) the issuance of (a) the 1,729,933 shares of Restricted Stock and (b)
85,999 shares of Common Stock for loan fees related to the Credit Facility
(collectively, the "Fourth Quarter Stock Issuances"), as if each such
transaction had occurred on September 30, 1996.
(7) Pro forma as adjusted to reflect the conversion of the Convertible
Preferred Stock and the sale of the Shares offered by the Company hereby at
an assumed initial public offering price of $14.00 per share, and the
application of the estimated net proceeds therefrom, as if both
transactions had occurred as of September 30, 1996.
(8) Includes Convertible Preferred Stock of $5.2 million plus accrued and
unpaid dividends of $925,000 at September 30, 1996.
5
<PAGE> 10
RISK FACTORS
Reliance upon Government Programs. The Company derived 55.9%, 55.8% and
34.9% of its net collections for the year ended December 31, 1995, the nine
months ended September 30, 1996 and on a pro forma basis the nine months ended
September 30, 1996, respectively, from payments made by government sponsored
healthcare programs (principally Medicare and Medicaid). Regulatory changes can
result in reduction in reimbursement rates, limitations in reimbursement,
program reductions or elimination of coverage for certain individuals under the
programs. Such regulatory changes could have a material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction." Legislation could result in a reduction of Medicare
and Medicaid funding or an increase in state discretion over the funding of
Medicaid, or a combination thereof. Increased state discretion in Medicare and
Medicaid funding, coupled with the fact that such expenditures comprise a
substantial and growing share of state budgets, could lead to significant
reductions in reimbursement. Since these programs generally reimburse on a fee
schedule basis, rather than a charge-related basis, the Company generally cannot
increase its revenue by increasing the amount it charges for services provided.
To the extent the Company's costs increase, the Company may not be able to
recover such cost increases from government payors. In addition, because of cost
containment measures and market changes in non-governmental payors, the Company
may not be able to shift cost increases to, or recover them from,
non-governmental payors. Future increases in services provided by health
maintenance organizations ("HMOs") and other managed care organizations to
Medicare, Medicaid and other government program beneficiaries will result in a
change in referral practices, and may result in the elimination or reduction of
referrals or payments to providers, such as the Company. Some states have
recently enacted legislation to require that all Medicaid patients be treated by
HMOs, and similar legislation may be enacted in other states, which could result
in the redirection of certain referrals away from the Company or reduce
reimbursement for services provided for such patients. Funds received under
these programs are subject to audit with respect to the proper billing for
laboratory and physician services and, accordingly, retroactive adjustments of
revenue from these programs may occur. Government sponsored healthcare program
changes which result in the Company being unable to recover cost increases
through price increases or otherwise, could have a material adverse effect on
the Company's financial condition and results of operations. See
"Business -- Government Regulation."
Risks Relating to Acquisition Strategy. The Company's strategy includes
growth through acquisitions of practices that provide anatomic pathology
services. The Recent Acquisitions were the Company's first actions in
implementing this strategy as well as its first purchases of pathology
practices. In implementing its acquisition strategy, the Company will compete
with other potential acquirors, some of which may have greater financial
resources than the Company. Competition for acquisitions may intensify due to
ongoing consolidation in the healthcare industry, which may increase the costs
of capitalizing on acquisition opportunities. Several companies, both publicly
traded and privately held, which may have greater resources than the Company are
pursuing the acquisition of practices. In addition, companies in other
healthcare segments such as hospitals and managed care organizations, many of
which have greater financial and other resources than the Company, may pursue
the acquisition of practices. While the Company believes that it will be able to
compete for acquisitions, particularly in an environment of reduced
reimbursement rates, there can be no assurance that new competitors will not
enter the market, the Company will be able to identify and complete future
acquisitions or competitors will not make it more difficult for the Company to
complete acquisitions on favorable terms. While the Company routinely evaluates
acquisition candidates and is continually engaged in on going discussions, at
present the Company is not involved in negotiations with any such candidate, nor
has it reached any agreement or understanding with respect to any future
acquisition. In pursuing its acquisition strategy, the Company intends to expand
its presence in areas where the Company currently operates as well as in new
markets. Although the Company believes that it is in compliance with applicable
anti-trust laws, there can be no assurance that governmental authorities would
not view the Company as being dominant in a particular market and, therefore,
cause the Company to divest itself of any particular practice. Acquisitions
involve numerous short and long term risks, including diversion of management's
attention, failure to retain key personnel and contracts of the acquired
practices, government investigations of the activities of practices prior to
being acquired, inability to integrate acquired businesses
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without material disruption, amortization of acquired intangible assets and the
effects of contingent purchase price payments and one-time acquisition expenses.
There can be no assurance that the Recent Acquisitions or any future acquisition
will be successfully integrated into the Company's operations or that practices,
once acquired, will grow. Consummation of acquisitions could result in the
incurrence or assumption by the Company of additional indebtedness, including
contingent indebtedness, or the issuance of additional equity. The issuance of
shares of Common Stock to make an acquisition may result in dilution to the
Company's stockholders. There can be no assurance that the Company will be able
to implement its acquisition strategy, or that this strategy will ultimately be
successful. See "Use of Proceeds," and "Business -- Business Strategy."
Risks Relating to Growth. In addition to acquisitions, the Company intends
to continue to grow through internal expansion. The Company's growth strategy
requires: (i) capital investment; (ii) compliance with present or future laws
and regulations that may differ from those pursuant to which the Company
currently operates; (iii) further development of the Company's corporate
management and operational, financial and accounting resources to accommodate
and manage growth; and (iv) the ability to expand the Affiliated Physician and
employee base and to train, motivate and manage its employees. While the Company
is in the process of integrating the marketing activities, courier networks and
management information systems of the Practices and of implementing consistent
billing systems, accounting policies and internal control procedures in each
Practice, delays in completing or the inability to successfully complete such
processes could have a material adverse effect on the Company's financial
condition and results of operations. Although the Company is taking steps to
manage rapid growth, there can be no assurance that the Company will be able to
do so efficiently or that the Company's growth rate will continue in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Physician, PA Contractor and Other Contractual
Relationships" and "Business -- Government Regulation."
Dependence on Pathologists. The Company's business is dependent upon
recruiting and retaining pathologists, particularly those with subspecialties,
such as dermatopathology. While the Company has been able to recruit and retain
the Affiliated Physicians, no assurance can be given that the Company will be
able to continue to do so on terms similar to its current arrangements. The
relationship between the pathologists and their respective local medical
communities is important to the profitability of the Practices. In the event
that a significant number of Affiliated Physicians terminate their relationships
with the Company or the PA Contractors or become unable or unwilling to continue
their employment, the Company's business would be materially adversely affected.
See "Business -- Physician, PA Contractor and Other Contractual Relationships"
and "Business -- Affiliation Structure."
Reimbursement Risks. Virtually all of the Company's net revenue in 1995,
the nine months ended September 30, 1996 and on a pro forma basis the nine
months ended September 30, 1996 was derived from charging for services on a
fee-for-service basis. Accordingly, the Company assumes the financial risk
related to collection, including the potential uncollectibility of accounts,
long collection cycles for accounts receivable and delays attendant to
reimbursement by third party payors, such as governmental programs, private
insurance plans and managed care organizations. Increases in write-offs of
doubtful accounts, delays in receiving reimbursement or potential retroactive
adjustments resulting from audits by government payors may require the Company
to borrow funds to meet its current obligations. The Company's financial
condition and results of operations would be adversely affected if it were
unable to borrow funds on terms acceptable to the Company. See
"Business -- Government Regulation."
Cancellation or Non-renewal of Hospital Contracts; Dependence on Hospital
Contracts. Hospital contracts maintained by the Company's subsidiaries and the
PA Contractors generally have terms of one to five years and are cancelable by
the hospital upon notice of 30 to 180 days. While the Practices have been able
to successfully negotiate renewal of such contracts in the past, no assurance
can be given that such contracts with hospitals will not be canceled or will be
renewed in the future. Loss of any particular hospital contract would result in
a loss of net revenue from that contract as well as from outpatient net revenue
that may be derived from the relationship with a hospital and its medical staff.
In addition, consolidation in the hospital industry may result in fewer
hospitals or fewer laboratories as hospitals move to combine their operations.
At November 22, 1996, the Company's subsidiaries and the PA Contractors had 46
hospital contracts, 20 of
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which were with hospitals owned by Columbia/HCA Healthcare Corporation
("Columbia/HCA"). For the nine months ended September 30, 1996 and on a pro
forma basis for the same period, 15.9% and 22.1%, respectively, of net revenue
was generated directly from contracts with hospitals owned by Columbia/HCA. If
the Company's hospital contracts are canceled, not renewed or not replaced with
other contracts on at least as favorable terms, the Company's financial
condition and results of operations would be materially adversely affected. See
"Business -- Physician, PA Contractor and Other Contractual Relationships."
Unpaid Contingent Acquisition Consideration. In connection with the Recent
Acquisitions, the Company has agreed to pay to sellers of ten Practices
additional consideration in the form of debt obligations (the "Contingent
Notes"), payment of which is contingent upon the Practice achieving its
specified profitability criteria over periods ranging from three to five years
from the date of acquisition. The principal amount of Contingent Notes to be
paid cannot be determined until the contingency periods terminate and
achievement of the profitability criteria is determined. If the maximum criteria
for the contingency payments with respect to each Recent Acquisition are
achieved, the Company will be obligated to make cash payments of $31.7 million
between December 31, 1996 and September 30, 2001. Lesser amounts of cash will be
paid if the maximum financial criteria are not met. Payments pursuant to the
Contingent Notes will result in an increase to the purchase price for such
Practice and an adjustment to goodwill attributable to such Practice. Although
the Company believes that it will be able to make such cash payments from
internally generated funds or proceeds of future borrowings, there can be no
assurance that the Company will be able to do so. The Contingent Notes are
payable annually only if the Practice attains its specified profitability
criteria. To the extent profitability goals are met, the incremental cash
generated from operations would exceed the cash required to satisfy the
Company's contingent obligations in any one year in which a payment is to be
made. Since the profitability criteria are calculated on a cumulative basis over
the period of the Contingent Notes, the performance of a Practice in one year
may affect the payment of the Contingent Notes in another year. In the event the
profitability criteria for a Practice are not met in a particular year, the
shortfall in that year may be satisfied by excess profitability in a later year,
in which event a payment would be made in that later year. To the extent that
the maximum profitability criteria are exceeded in any particular year, the
amount of the excess will be carried backward to a prior year when the
profitability criteria were not satisfied or forward to a subsequent year in
determining whether the profitability criteria for such year have been met. This
cumulative effect may cause contingent payments to be made with respect to a
year in which profitability criteria would not have been met if such year was
evaluated separately, and could cause contingent payments with respect to
multiple years to become due in a single or later year. Payments of Contingent
Notes will affect the Company's earnings per share and may cause volatility in
the market price of the Common Stock. While the Company has discontinued the use
of Contingent Shares, the Company expects to continue to use Contingent Notes as
partial consideration for acquisitions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 3 to the
Consolidated Financial Statements.
Risks Related to Intangible Assets. The Recent Acquisitions resulted in
significant increases in net identifiable intangible assets and goodwill. Net
identifiable intangible assets, which include hospital contracts, physician
referral lists and laboratory contracts acquired in the Recent Acquisitions were
approximately $26.7 million at September 30, 1996 and $59.9 million on a pro
forma basis at September 30, 1996 representing approximately 52.6% and 42.2%,
respectively, of the Company's total assets. Net identifiable intangible assets
are recorded at fair value on the date of acquisition and are being amortized
over periods ranging from 10 to 40 years, or a weighted average of 27.2 years.
Goodwill, which relates to the excess of cost over the fair value of net assets
of businesses acquired, was approximately $10.1 million at September 30, 1996
and $57.7 million on a pro forma basis at September 30, 1996 representing
approximately 19.8% and 40.6%, respectively, of the Company's total assets. The
Company amortizes goodwill on a straight line basis over periods ranging from 15
to 35 years, or a weighted average of 34.5 years. There can be no assurance that
the value of intangible assets will ever be realized by the Company. On an
ongoing basis, the Company makes an evaluation based on undiscounted cash flows,
whether events and circumstances indicate that all or a portion of the carrying
value of intangible assets may no longer be recoverable, in which case an
additional charge to earnings may be necessary. Although at September 30, 1996
the net amortized balance of intangible assets is not considered to be impaired,
any future determination requiring the write off of a significant portion of
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unamortized intangible assets could have a material adverse effect on the
Company's financial condition and results of operations. See Notes 2 and 6 to
the Consolidated Financial Statements.
Possible Reform of Healthcare Industry. Federal and state governments have
recently focused significant attention on healthcare reform. It is not possible
to predict which, if any, proposal that has been or will be considered will be
adopted. There can be no assurance that the healthcare regulatory environment
will not change so as to restrict the Company's existing operations, impose
additional requirements on the Company or limit the expansion of the Company's
business. Costs of compliance with changes in government regulations may not be
subject to recovery by the Company through price increases. Some of the
proposals under consideration, or others which may be introduced, could, if
adopted, have a material adverse effect on the Company's financial condition and
results of operations. See "Business -- Government Regulation."
Competition. The healthcare industry generally, and physician practice
management specifically, is highly competitive and has been subject to continual
changes in the method in which healthcare services are provided and the manner
in which healthcare providers are selected and compensated. The Company believes
that private and public reforms in the healthcare industry emphasizing cost
containment and accountability have resulted in increased competition and will
result in an increasing shift of hospital and related medical facilities from
individual or small practices to large practices and physician practice
management companies. The Company also competes and will continue to compete
with independent and national clinical laboratories and anatomic pathology
practices. In addition, some hospitals, clinics, healthcare companies, managed
care organizations and insurance companies provide services similar to those
provided by the Company. Companies in other healthcare industry segments, such
as managers of other hospital-based specialties or large physician practices,
some of which have financial and other resources greater than those of the
Company, may become competitors in providing pathology services. There can be no
assurance that the Company will be able to compete effectively or that
additional competitors will not enter the market. See "Business -- Competition."
State Laws Regarding Prohibition of Corporate Practice of Medicine. The
laws of many states prohibit business corporations, such as AmPath and its
subsidiaries, from exercising control over the medical judgments or decisions of
physicians and from engaging in certain financial arrangements, such as fee
splitting with physicians. These laws and their interpretations vary from state
to state and are enforced by both the courts and regulatory authorities, each
with broad discretion. Expansion of the operations of the Company to certain
jurisdictions may require structural and organizational modifications of the
Company's form of relationship with practices. Wherever possible, AmPath has,
and will continue to establish, wholly-owned subsidiaries incorporated in the
respective state that will own and operate practices in that state. In states
with laws that prohibit such structure, AmPath will establish its relationships
through long term management services agreements with professional corporations.
In Texas and Ohio, a subsidiary of AmPath contracts with the PA Contractors
(each of which is owned by an Affiliated Physician or a trust of which AmPath is
the sole beneficiary), which in turn employ or contract with physicians to
provide necessary physician services to facilities for which the Company
provides practice management services. AmPath plans to organize a controlled
non-profit corporate subsidiary in Texas by June 1997 which will assume the
management contract from the PA Contractor organized in Texas (the "Texas PA").
In Texas and Ohio, a wholly-owned subsidiary of AmPath performs only laboratory,
technical and non-medical administrative services and does not exercise
influence or control over the practice of medicine by the physicians employed by
the PA Contractors nor does the subsidiary practice medicine or represent such
to the public or to clients. Although the Company believes that it is in
compliance and that the Texas non-profit corporate subsidiary will comply with
applicable state laws and regulations relating to the corporate practice of
medicine, there can be no assurance that regulatory authorities or other parties
will not assert that AmPath or a subsidiary is engaged in the corporate practice
of medicine in such states or that the management and administration fees paid
to the Company by the PA Contractors constitute fee splitting or the corporate
practice of medicine. If such a claim was successfully asserted, AmPath could be
subject to civil and criminal penalties and could be required to restructure its
contractual arrangements. Such results or the inability of AmPath to
successfully restructure its relationships to comply with such statutes could
have a material adverse effect on the Company's financial condition and results
of operations. See "Business -- Affiliation Structure" and " -- Physician, PA
Contractor and Other Contractual Relationships."
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Effect of Government Regulation. The Company's business is subject to
extensive and increasing regulation by federal and state governments. Laws and
regulations governing the Company's activities include anti-kickback and
self-referral laws, fraud and abuse statutes and licensing requirements. Federal
anti-kickback laws and regulations prohibit any knowing and willful offer,
payment, solicitation or receipt of any form of remuneration, either directly or
indirectly, in return for, or to induce: (i) the referral of an individual for a
service for which payment may be made by Medicare and Medicaid or certain other
federal healthcare programs; or (ii) the purchasing, leasing, ordering or
arranging for, or recommending the purchase, lease or order of, any service or
item for which payment may be made by Medicare, Medicaid or certain other
federal healthcare programs. Violations of federal anti-kickback rules are
punishable by monetary fines, civil and criminal penalties and exclusion from
participation in Medicare and Medicaid programs. The Company relies upon
referrals of patient tests from physicians. Subject to certain exceptions, laws
known as "Stark I" and "Stark II" prohibit Medicare or Medicaid payments for
certain services furnished by an entity pursuant to referrals by a physician who
has a financial relationship with the entity through ownership, investment or a
compensation arrangement. This prohibition is broad and extends to immediate
family members of the physician and to the other physicians in a group practice.
See "Business -- Government Regulation." Possible sanctions against the Company
and the physician for violation of these laws include civil monetary penalties,
exclusion from Medicare and Medicaid programs and forfeiture of amounts
collected in violation of such prohibitions. The Company will notify physicians
of the restrictions on referrals by physicians who own capital stock of the
Company and will seek a certification of compliance from all physicians who
refer tests to the Company. Each of the states in which the Company does
business, except Alabama, has similar anti-kickback, anti-fee splitting and
self-referral laws, which apply to all payors and impose substantial penalties
for violations. Certain of these laws contain exceptions for relationships with
pathologists and group practices. Many of the Affiliated Physicians have a
financial interest in the Company as a result of the acquisition of their
respective practices. These interests include Contingent Notes and Common Stock
which have been used by AmPath to purchase at fair market value the assets or
stock of the Practices. While the Company believes that it has structured its
operations and transactions to comply with existing laws and regulations, the
federal and state self-referral and fraud and abuse laws and regulations are
broadly written, and the possibility exists that the Company's operations may be
deemed to violate the federal or state fraud and abuse or self-referral
prohibitions. Further, there can be no assurance that physicians who own capital
stock of the Company will not violate these laws or that the Company will have
knowledge of the identity of all beneficial owners of its capital stock. The
Company's relationships, including fee payments, among the PA Contractors,
hospital clients and physicians have not been examined by federal or state
authorities under these laws and regulations. The Medicare and Medicaid fraud
and abuse provisions apply to laboratories participating in such programs. These
provisions include prohibitions of improper and unnecessary billing for tests
under these programs. Penalties for violations of these federal laws include
exclusion from participation in Medicare and Medicaid programs, asset
forfeitures and civil and criminal penalties. Although the Company believes it
is in compliance with these laws and regulations, there can be no assurance that
federal or state regulatory authorities will not challenge the Company's current
or future activities under these laws. See "Business -- Government Regulation."
Professional Liability and Insurance. The Company's business entails an
inherent risk of claims of liability for acts of Affiliated Physicians and
laboratory technicians. The Company periodically becomes involved as a defendant
in medical malpractice lawsuits, some of which are currently ongoing, and is
subject to the attendant risk of substantial damage awards. See
"Business -- Legal Proceedings." Certain of the Company's contracts with
hospitals require the Company to indemnify certain parties for losses resulting
from the negligence of Affiliated Physicians. While the Company believes it has
adequate professional liability insurance coverage for itself and each of the
Affiliated Physicians, there can be no assurance that a future claim or claims
will not be successful or if successful will not exceed the limits of available
insurance coverage or that such coverage will continue to be available at
acceptable costs and on favorable terms. See "Business -- Insurance."
Dependence on Key Personnel. The success of the Company is dependent upon
the efforts and abilities of its key management personnel, particularly the
President and Chief Executive Officer, James C. New, and Executive Vice
President and Chief Financial Officer, Robert P. Wynn. The loss of service of
one or both of
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these persons could have a material adverse effect on the Company's financial
condition and results of operations. See "Management -- Employment Agreements."
Control by Current Stockholders. Upon completion of this offering, Summit
Ventures III, L.P., Summit Subordinated Debt Fund, L.P. and Summit Investors II,
L.P. (collectively, "Summit") will beneficially own an aggregate of
approximately 31.5% of the outstanding shares of Common Stock and the Company's
Chief Executive Officer, Chief Financial Officer and Affiliated Physicians will
beneficially own an aggregate of approximately 33.8% of the outstanding shares
of Common Stock. Accordingly, Summit, Schroder, such executive officers and
Affiliated Physicians will be able, if acting together, to elect all of the
Company's directors, determine the outcome of all corporate actions requiring
approval of the Board of Directors or stockholders and to control the business
affairs and policies of the Company. Such control may also have the effect of
delaying or preventing a change in control of the Company and consequently may
adversely affect the market price of the Common Stock. See "Management" and
"Principal and Selling Stockholders."
No Prior Market; Volatility of Stock Price. Prior to this offering, there
has been no public market for the Common Stock, and there can be no assurance
that an active trading market will develop or be sustained after this offering.
The initial public offering price will be determined by negotiation among the
Company, the Selling Stockholders and the representatives of the Underwriters.
See "Underwriting." There has been significant volatility in the market price of
securities of healthcare companies that often has been unrelated to the
operating performance of such companies. The Company believes that various
factors, such as legislative and regulatory developments, quarterly variations
in the actual or anticipated results of operations of the Company, and lower
revenues or earnings than those anticipated by securities analysts in the
financial results of the Company, the overall economy and the financial markets,
could cause the price of the Common Stock to fluctuate substantially.
Immediate and Substantial Dilution. The purchasers of the Shares will
experience immediate and substantial dilution in net tangible book value of
approximately $14.43 per share of Common Stock as a result of the sale of
5,700,000 shares of Common Stock offered by the Company hereby. See "Dilution."
Shares Eligible for Future Sale. After consummation of this offering,
10,747,856 shares, representing 63.4% of the outstanding shares of Common Stock,
will be eligible for future sale in the public market at prescribed times
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to the exercise of registration rights. Sales of
such shares in the public market, or the perception that such sales may occur,
could adversely affect the market price of the Common Stock or impair the
Company's ability to raise additional capital in the future through the sale of
equity securities. See "Dilution," "Shares Eligible for Future Sale" and
"Underwriting."
Anti-Takeover Provisions; Possible Issuance of Preferred Stock. Certain
provisions of the Company's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") and Restated Bylaws (the "Bylaws") may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt that a stockholder might consider in its best interest. Such provisions
of the Certificate of Incorporation and Bylaws: (i) divide the Company's Board
of Directors into three classes, each of which will serve for different
three-year periods; (ii) provide that the stockholders may not take action by
written consent, but only at duly called annual or special meetings of
stockholders; (iii) provide that special meetings of the stockholders may be
called only by the Chairman of the Board of Directors, a majority of the entire
Board of Directors or the Chief Executive Officer; and (iv) establish certain
advance notice procedures for nomination of candidates for election as directors
and for stockholder proposals to be considered at annual stockholders' meetings.
The Certificate of Incorporation also authorizes the Board of Directors to
determine the rights, preferences, privileges and restrictions of unissued
series of the Company's authorized preferred stock (the "Preferred Stock") and
to fix the number of shares and the designation of any such series, without any
vote or action by stockholders. Thus, the Board of Directors can authorize and
issue shares of Preferred Stock with voting or conversion rights that could
adversely affect the voting or other rights of holders of the Common Stock.
Further, certain provisions of the Delaware General Corporation Law ("DGCL") may
have
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the effect of delaying, deferring or preventing a change in control of the
Company. See "Description of Capital Stock -- Anti-takeover Effects of Certain
Provisions of Delaware Law and the Certificate of Incorporation and Bylaws."
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THE COMPANY
AmeriPath is the leading physician practice management company focused on
anatomic pathology services. AmeriPath provides practice management services to
pathologists in both outpatient and hospital inpatient laboratories, enabling
the pathologists to concentrate on the practice of medicine. Through the
Practices, the Company, as of November 22, 1996, employed or had contracts with
PA Contractors that employed 80 pathologists and employed 565 people. The
Affiliated Physicians provide services in 12 outpatient laboratories owned and
operated by the Company, 46 hospital inpatient laboratories and 17 outpatient
surgery centers in five states. Of these pathologists, 77 are board certified
and three are board eligible in anatomic pathology. Thirty-five of the
Affiliated Physicians are also board certified in a subspecialty of anatomic
pathology, including dermatopathology, hematopathology and cytopathology.
The Company completed the Recapitalization in 1994 pursuant to which the
Company's predecessor, ALA, acquired the assets of E. G. Poulos, M.D., M. J.
Demaray, M.D. and A. P. Kowalczyk, M.D., P.A. ("PDK"), an outpatient pathology
practice formed in 1982 in Ft. Lauderdale, Florida. The Recapitalization
resulted in a more diversified stockholder base with the investment by Summit
and Schroder. In February 1996, AmPath was formed as a holding company (the
"Share Exchange") and acquired the practice of Demaray and Poulos, P.A. ("D&P"),
an inpatient practice based in Fort Lauderdale, Florida, that provides pathology
services to three hospitals. The acquisition of D&P expanded the Company's
presence in Broward County, Florida. See "Certain Transactions."
The Company's principal executive offices are located at 7289 Garden Road,
Suite 200, Riviera Beach, Florida 33404 and its telephone number is (561)
845-1850.
RECENT ACQUISITIONS
In January 1996, with the appointment of James C. New as the Company's
President and Chief Executive Officer, the Company accelerated the acquisition
program it initiated in 1995. Since June 1996, the Company has completed ten
acquisitions of anatomic pathology practices in the following five states: five
practices in Florida, one practice in Alabama, one practice in Kentucky, two
practices in Ohio and one practice in Texas. The Recent Acquisitions, which
include the ten acquisitions and the acquisition of D&P, established the Company
as the leading physician practice management company focused on anatomic
pathology. All references to numbers of facilities, contracts and employees,
including pathologists, are as of November 22, 1996.
FLORIDA
Since June 1996, AmeriPath completed five acquisitions in Florida which,
together with the prior acquisitions of PDK and D&P, established the Company as
the leading provider of anatomic pathology services in Florida and established
the Company's model for growth.
Derrick and Associates Pathology, Inc. ("Derrick") was acquired in June
1996. Based in Orlando and founded in 1975, Derrick employs 143 people,
including 24 pathologists and provides a broad range of pathology
subspecialties, including dermatopathology. Derrick provides anatomic pathology
services at 14 hospitals and 13 outpatient surgery centers throughout Central
and Southern Florida and operates one of the largest outpatient anatomic
pathology laboratories in Florida. The acquisition of Derrick established the
Company's presence in Central Florida.
Amazon and Rosen, M.D., Inc. d/b/a Florida Pathology Associates ("FPA") was
also acquired in June 1996. Based in Miami and founded in 1988, FPA employs 14
people, including two pathologists, and operates the pathology laboratory in the
Columbia Miami Heart Institute, a Columbia/HCA hospital. The acquisition of FPA
established the Company's presence in Dade County.
Volusia Pathology Group, M.D., Inc. ("Volusia") was acquired in October
1996. Based in Ormond Beach and founded in 1970, Volusia employs 33 people,
including seven pathologists. Volusia's operations are primarily hospital based,
with three hospital contracts in the Daytona area. Volusia also operates an
outpatient anatomic pathology laboratory.
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Drs. Seidenstein, Levine & Associates, Inc. ("Seidenstein") was also
acquired in October 1996. Based in Ft. Myers and founded in 1983, Seidenstein
employs 42 people, including nine pathologists who provide anatomic pathology
services at five hospitals and three outpatient surgery centers owned by
Columbia/HCA. Seidenstein also manages an outpatient anatomic pathology
laboratory and an outpatient clinical laboratory owned by Columbia/HCA.
Gulf Coast Pathology Associates, Inc. ("Gulf Coast") was acquired in
November 1996. Based in Cape Coral and founded in 1986, Gulf Coast employs 31
people, including five pathologists, and has contracts with three hospitals and
four outpatient surgery centers. Gulf Coast also operates two outpatient
clinical laboratories. Together with the acquisition of Seidenstein, Gulf Coast
provides the Company strategic, marketing and other operational synergies on the
West Coast of Florida.
ALABAMA
SkinPath, P.C. ("SkinPath") was acquired in August 1996. Based in
Birmingham and founded in 1995, SkinPath employs 20 people, including three
pathologists, and operates an outpatient dermatopathology laboratory. SkinPath
represented the Company's first entry into a market outside Florida and
established its presence in Alabama.
KENTUCKY
Pathology Associates, P.S.C. and Technical Pathology Services,
Inc. (collectively, "Pathology Associates") was acquired in August 1996. Based
in Lexington and founded in 1988, Pathology Associates employs 58 people,
including eight pathologists. Pathology Associates operates two outpatient
cytology laboratories and an outpatient histology laboratory and has contracts
with 16 hospitals. The acquisition of Pathology Associates represented the
Company's initial acquisition in the Midwest and established the Company's
presence in Kentucky.
OHIO
Beno Michel, M.D., Inc. d/b/a Cutaneous Pathology & Immunofluorescense
Laboratory ("CPI") was acquired in October 1996. Based in Cleveland and founded
in 1976, CPI employs 16 people, including three pathologists who each specialize
in dermatopathology. CPI operates an outpatient dermatopathology laboratory and
a dermatology practice.
David R. Barron, M.D., Inc. d/b/a Richfield Laboratory of Dermatopathology
("Richfield Labs") was also acquired in October 1996. Richfield Labs, founded in
1968, employs 32 people, including three pathologists, and operates the largest
outpatient dermatopathology laboratory in Cincinnati. Together with CPI,
Richfield Labs established the Company as the leading provider of practice
management services for outpatient anatomic pathology services in Ohio.
TEXAS
Freeman-Cockerell Laboratories, Inc. ("Freeman") was acquired and entered
into a long-term management agreement with the Texas PA in October 1996. Based
in Dallas and founded in 1994, Freeman employs 40 people and the Texas PA, also
based in Dallas and founded in 1993, employs one pathologist who operates an
outpatient dermatopathology laboratory. The acquisition of Freeman and the
affiliation with the Texas PA established the Company's presence in Texas.
14
<PAGE> 19
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 5,700,000
shares of Common Stock offered by the Company hereby, based upon an assumed
initial public offering price of $14.00 per share, are estimated to be
approximately $72.7 million ($ if the Underwriters exercise the
over-allotment option in full).
The Company intends to apply the net proceeds from this offering as
follows: (i) approximately $7.5 million to repay the outstanding principal
amount of and accrued interest on the Junior Notes; (ii) approximately $3.5
million to repay the outstanding principal amount of and accrued interest on the
Senior Notes; (iii) approximately $1.1 million to pay the accrued and unpaid
dividends on the Convertible Preferred Stock; and (iv) to repay a portion of the
outstanding indebtedness under the Credit Facility.
The Junior Notes, which are held by Summit and Schroder, mature on December
31, 2001, and bear interest at an annual rate of 10%. The Senior Notes, which
are held by Drs. Poulos, Demaray and Kowalczyk, mature on December 31, 1998 and
bear interest at an annual rate of 8%. See "Certain Transactions."
The Company currently maintains an $85.0 million Credit Facility for
acquisition and working capital purposes with a syndicate of banks (the "Banks")
led by The First National Bank of Boston, as agent (the "Agent"). The Credit
Facility provides for borrowings of up to $85.0 million: (i) for working capital
in an amount limited to a maximum of 80% of the Company's eligible accounts
receivable; and (ii) to fund acquisitions, which borrowings may be made up to
$85.0 million if borrowings are not otherwise used for working capital purposes.
The Credit Facility requires the Company to make quarterly payments of an annual
commitment fee equal to 0.375% of the unused portion of the commitment. All
outstanding advances are due and payable on December 31, 1998. The Company has
pledged its assets, including the capital stock of its subsidiaries, as
collateral. The Credit Facility bears interest at variable interest rates based,
at the Company's option, on the Agent's base rate or the Eurodollar rate plus
2.50%. As of November 22, 1996, $80.9 million was outstanding under the Credit
Facility at an annual effective interest rate of 8.29%. The Credit Facility
provides that the Company may reborrow funds which it has previously borrowed
and repaid. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
In the event the Underwriters exercise their over-allotment option, net
proceeds to the Company from such exercise will be applied to reduce the
remaining outstanding balance under the Credit Facility.
The Company will not receive any of the proceeds from the sale of the
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders."
DIVIDEND POLICY
Other than the Company's stock dividends declared in connection with (i)
the 40 for one stock split effected as of August 1, 1994 and (ii) the 1.8 for
one stock split effected as of , 1996, the Company has not declared
or paid, nor does it currently intend to declare or pay, any dividends on its
Common Stock. The Company intends to retain all earnings for the operation and
expansion of its business. The declaration and payment of future dividends will
be at the discretion of the Board of Directors, subject to such factors as the
Board of Directors may deem relevant, including future earnings, results of
operations, capital requirements, the general financial condition of the
Company, general business conditions and contractual restrictions, such as the
Credit Facility, as well as such other factors as the Board of Directors may
deem relevant. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Prior to the Recapitalization, the Company's predecessor elected to be
treated as a Subchapter S corporation under Section 1361(a) of the Internal
Revenue Code of 1986, as amended. The aggregate amount of the shareholders'
compensation and distributions were $4.2 million in 1992 and $5.5 million in
1993. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
15
<PAGE> 20
DILUTION
The net tangible book value (deficit) of the Company at September 30, 1996,
was approximately $(37.2) million, or $(12.75) per share of Common Stock. Net
tangible book value (deficit) per share represents the amount of total assets of
the Company, less: (i) goodwill and identifiable intangible assets; (ii) total
liabilities (not including the deferred income tax liability recorded in
accordance with SFAS 109, Accounting for Income Taxes, for differences between
the assigned values and the tax bases of the indentifiable intangible assets
recognized in purchase business combinations); and (iii) Convertible Preferred
Stock, divided by the number of outstanding shares of Common Stock. The increase
in net tangible book value (deficit) per share of $9.38 attributable to the
Fourth Quarter Recent Acquisitions assumes those transactions were completed as
of September 30, 1996. The decrease in net tangible book value (deficit) per
share of $6.83 attributable to the issuance of the Restricted Stock in November
1996 assumes those issuances were made at September 30, 1996. The decrease in
net tangible book value (deficit) per share of $0.31 resulted from the issuance
of shares of Common Stock for loan fees related to the Credit Facility. The
decrease in net tangible book value (deficit) per share of $7.87 attributable to
the conversion of the Convertible Preferred Stock assumes the conversion of
3,088,116 shares of the Convertible Preferred Stock using a conversion rate of
1.8 for one, into Common Stock immediately prior to the consummation of this
offering. After giving effect to the sale of 5,700,000 shares offered by the
Company hereby at an assumed initial public offering price of $14.00 per share,
and the application of estimated net proceeds therefrom, the pro forma net
tangible book value (deficit) of the Company at September 30, 1996 would have
been approximately $(7.3) million, or $(0.43) per share. This represents an
immediate decrease in net tangible book value (deficit) of $6.69 per share to
existing stockholders and an immediate dilution of $14.43 per share to new
investors. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $ 14.00
Net tangible book value (deficit) per share at September 30,
1996............................................................. $(12.75)
Pro Forma (increase) decrease in net tangible book value (deficit)
attributable to:
Fourth Quarter Recent Acquisitions............................... (9.38)
Issuance of Restricted Stock..................................... 6.83
Issuance of Common Stock for loan fees........................... 0.31
Conversion of Convertible Preferred Stock........................ 7.87
New investors.................................................... 6.69
-------
Pro forma net tangible book value (deficit) per share after the
offering......................................................... (0.43)
------
Dilution per share to new investors................................ $ 14.43
======
</TABLE>
The following table sets forth, on a pro forma basis, at September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing holders of
Common Stock and by new investors purchasing shares of Common Stock offered
hereby:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........ 11,247,856 66.4% $ 31,006,300 28.0% $ 2.76
New investors(1)................ 5,700,000 33.6 79,800,000 72.0 14.00
---------- ---- ----------- ----
Total................. 16,947,856 100.0% $110,806,300 100.0%
========== ==== =========== ====
</TABLE>
- ---------------
(1) Includes 5,558,609 shares of Common Stock that will be issued upon
conversion of the Convertible Preferred Stock, 957,299 shares issued in
connection with the Recent Acquisitions, 1,729,933 Restricted Shares issued
pursuant to the Restricted Stock Agreements and 85,999 shares issued for
loan fees related to the Credit Facility. See "Certain
Transactions -- Recapitalization," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Recent Acquisitions."
The sale of Common Stock by the Selling Stockholders in this offering will
reduce the number of shares held by the existing stockholders to 10,747,856,
or 63.4% of the total number of shares of Common Stock to be outstanding
after this offering, and will increase the number of shares to be purchased
by new investors to 6,200,000 or 36.6% of the total shares of Common Stock
to be outstanding after this offering. See "Principal and Selling
Stockholders."
The foregoing tables assume no exercise of outstanding options. At
September 30, 1996, there were outstanding options to purchase 930,611 shares of
Common Stock at a weighted average exercise price of $3.97 per share. Options to
purchase 90,000 shares are exercisable at September 30, 1996. See
"Management -- Option Plan" and Note 11 of Notes to Consolidated Financial
Statements.
16
<PAGE> 21
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996, (i) on an actual basis (ii) on a pro forma
basis assuming the Fourth Quarter Recent Acquisitions and the Fourth Quarter
Stock Issuances had been consummated on September 30, 1996 and (iii) on a pro
forma basis, as adjusted to give effect to the sale of the Common Stock offered
by the Company hereby and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Unaudited Pro Forma Consolidated Financial Data,
the Consolidated Financial Statements and related notes thereto and the other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Credit Facility............................................... $ 30,844 $ 80,241 $ 19,452
Senior Notes.................................................. 3,500 3,500 --
Junior Notes.................................................. 7,500 7,500 --
Subordinated Notes(1)......................................... 2,840 4,677 4,677
Note payable(2)............................................... -- 113 113
Convertible Preferred Stock:
Series A 6% redeemable cumulative convertible preferred
stock, $.01 par value, 5,000,000 shares authorized;
3,088,116 shares issued and outstanding at September 30,
1996(3)(4)............................................... 6,123 6,123 --
Common stockholders' equity (deficit):
Common stock, $.01 par value, 8,000,000 shares authorized;
2,916,016 issued and outstanding; 5,689,247 shares issued
and outstanding, pro forma and 16,947,856 shares issued
and outstanding pro forma as adjusted(4)(5).............. 16 57 169
Additional paid-in capital -- accumulated deficit remaining
from conversion from Subchapter S corporation tax
status(7)................................................ (13,240) 9,879 87,679
Note receivable from executive officer(6)................... (270) (270) (270)
Retained earnings(7)........................................ 4,078 4,078 4,078
-------- -------- -------
Total common stockholders' equity (deficit)......... (9,416) 13,744 91,656
-------- -------- -------
Total capitalization................................ $ 41,391 $ 115,898 $ 115,898
======== ======== =======
</TABLE>
- ---------------
(1) Includes current maturities of $782,000 actual and $1.1 million pro forma.
(2) Represents a note assumed in connection with the acquisition of Gulf Coast.
See Notes 7 and 9 to the financial statements of Fernandez and Kalemeris,
P.A. d/b/a Gulf Coast Pathology Associates.
(3) Prior to the consummation of this offering, the holders of the Convertible
Preferred Stock will convert the shares of Convertible Preferred Stock into
shares of Common Stock. See "Principal and Selling Stockholders" and
"Certain Transactions -- Preferred Stockholders."
(4) Immediately prior to the consummation of this offering, the Company will
amend the Certificate of Incorporation to increase the number of authorized
shares of Common Stock to 30,000,000 and to provide for 2,000,000 shares of
Preferred Stock. See "Description of Capital Stock."
(5) Excludes (i) 1,620,000 shares of Common Stock reserved for issuance under
the Option Plan, of which options to purchase 930,611 shares and 990,011
shares of Common Stock have been granted and options to purchase 90,000
shares and 97,200 shares of Common Stock were exercisable at September 30,
1996 and September 30, 1996 on a pro forma basis, respectively, and (ii)
180,000 shares of Common Stock reserved for issuance under the Director
Option Plan, of which no options have been granted. See
"Management -- Option Plan" and "-- Director Option Plan." Includes
1,729,933 shares of Common
17
<PAGE> 22
Stock issued in November 1996 pursuant to the Restricted Stock Agreements
that resulted in the surrender of contingent rights to receive Contingent
Shares. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Recent Acquisitions."
(6) Represents a loan to the Chief Executive Officer in connection with his
purchase of Common Stock. See "Certain Transactions."
(7) The Recapitalization resulted in a charge of approximately $24.0 million to
retained earnings as a distribution to the common stockholders at that
time. The remaining deficit was transferred to additional paid-in capital
upon conversion from Subchapter S corporation tax status in 1994. See Note
1 to the Consolidated Financial Statements.
18
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data set forth below as of and for each
of the four years in the period ended December 31, 1995 and as of and for the
nine months ended September 30, 1996, have been derived from the Company's
consolidated financial statements, audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports which are included in this Prospectus and
elsewhere in the Registration Statement. The Selected Consolidated Financial
Data of the Company as of and for the year ended December 31, 1991 and as of and
for the nine months ended September 30, 1995 have been derived from the
unaudited consolidated financial statements of the Company which, in the opinion
of the Company, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. The results of operations for the nine months ended September 30, 1996
are not necessarily indicative of the results for any other interim period or
full year. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Unaudited Pro Forma Condensed Consolidated Financial Data, the Consolidated
Financial Statements and the related notes thereto and the other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -----------------
1991 1992 1993 1994(1) 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue................................ $8,070 $11,443 $13,419 $14,461 $16,024 $12,176 $20,840
Operating costs:
Cost of services......................... 4,800 8,791 10,803 6,780 8,271 6,147 10,234
Selling, general and administrative
expense................................ 1,640 1,696 1,634 2,287 2,644 1,931 4,026
Provision for doubtful accounts.......... 234 787 953 1,003 1,161 910 1,655
Amortization expense..................... -- -- -- -- -- -- 357
------ ------- ------- ------- ------- ------- -------
Total operating costs............. 6,674 11,274 13,390 10,070 12,076 8,988 16,272
------ ------- ------- ------- ------- ------- -------
Income from operations..................... 1,396 169 29 4,391 3,948 3,188 4,568
Interest expense........................... (121) (62) (48) (1,584) (1,504) (1,151) (1,637)
Other income (expense), net................ (2) 10 9 (46) (46) (13) (143)
------ ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.......... 1,273 117 (10) 2,761 2,398 2,024 2,788
Provision for income taxes(2).............. -- -- -- 696 900 759 1,075
------ ------- ------- ------- ------- ------- -------
Net income (loss).......................... $1,273 $ 117 $ (10) $ 2,065 $ 1,498 $ 1,265 $ 1,713
====== ======= ======= ======= ======= ======= =======
Supplemental pro forma data:(3)
Pro forma net income per share........... $ .19 $ .16 $ .20
======= ======= =======
Pro forma weighted average shares
outstanding............................ 8,085 8,085 8,532
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994(1) 1995 1996
------ ------ ------ -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................... $ 99 $ 113 $ 322 $ 103 $ 58 $ 193
Total assets................................ 2,116 2,437 2,676 10,264 9,992 50,793
Long term debt, including current portion... 826 752 513 17,005 15,146 44,684
Convertible Preferred Stock(4).............. -- -- -- 5,735 6,085 6,123
Stockholders' equity (deficit)(1)........... 1,052 1,169 913 (13,281) (12,133) (9,416)
</TABLE>
19
<PAGE> 24
(1) In connection with the Recapitalization, the Company: (i) issued 3,208,120
shares of Convertible Preferred Stock for $5.5 million; (ii) issued to the
purchasers of Convertible Preferred Stock $7.5 million principal amount of
the Junior Notes; (iii) issued 1,425,600 shares of Common Stock for $1.0
million; (iv) issued to the purchasers of Common Stock (a) $3.5 million
principal amount of the Senior Notes and (b) $2.5 million principal amount
of ALA Contingent Notes; and (v) made cash distributions to the purchasers
of Common Stock of approximately $20.5 million financed partially by
borrowings under the line of credit with the First National Bank of Boston.
The Company recorded a charge of approximately $24.0 million to retained
earnings as a distribution to the holders of Common Stock. Cost of services
includes $2.1 million, $3.1 million and $4.4 million in 1991, 1992 and
1993, respectively, representing compensation paid to stockholders in
excess of the compensation of such stockholders following the
Recapitalization. Net income for the years ended December 31, 1994 and 1995
and the nine months ended September 30, 1995 and 1996 does not reflect
dividends payable on the Convertible Preferred Stock. See "Certain
Transactions -- Recapitalization" and Note 1 to Consolidated Financial
Statements.
(2) Prior to the Recapitalization, the Company elected to be taxed as a
Subchapter S corporation for federal income tax purposes and, accordingly,
the consolidated statements of operations in 1992 and 1993 and a portion of
1994 do not include a provision for income taxes.
(3) For all periods presented, pro forma net income per share is computed on the
basis of the weighted average number of shares of common stock and common
stock equivalents, including (i) the number of shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock; (ii) Common
Stock issued by the Company during the 12 months immediately preceding the
date of this Prospectus; (iii) the Restricted Stock issued in connection
with the five Recent Acquisitions completed prior to September 30, 1996;
and (iv) shares of Common Stock which become issuable pursuant to the grant
of Common Stock options, using the treasury stock method and an assumed
initial public offering price of $14.00 per share.
(4) Includes Convertible Preferred Stock of $5.2 million plus accrued and unpaid
dividends of $925,000 at September 30, 1996.
20
<PAGE> 25
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet at September
30, 1996 and the Unaudited Pro Forma Consolidated Statements of Operations for
the year ended December 31, 1995 and the nine months ended September 30, 1996
give effect to: (i) the Recent Acquisitions; and (ii) the consummation of this
offering and the application of the estimated net proceeds therefrom as if these
transactions had occurred at January 1, 1995 with respect to the consolidated
statements of operations and as if the Fourth Quarter Recent Acquisitions had
been completed on September 30, 1996 with respect to the Pro Forma Consolidated
Balance Sheet. See "The Company -- Recent Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Acquisitions." The Unaudited Pro Forma Consolidated
Financial Data should be read in conjunction with the Consolidated Financial
Statements and related notes thereto.
Three Recent Acquisitions are PA Contractors. The financial statements of
these Practices will be consolidated with the Company because AmeriPath has
unilateral control over the assets and operations of the PA Contractors.
Notwithstanding the lack of voting control by AmeriPath, consolidation is
necessary to present fairly the financial position and results of operations of
the Company because of the existence of a parent-subsidiary relationship by
means other than record ownership of the PA Contractors' voting stock. Control
of the PA Contractors is permanent, rather than temporary, under the terms of
purchase agreements, management agreements, trust agreements and other
agreements executed in connection with the acquisition transactions. See Note 2
to the Consolidated Financial Statements.
The Unaudited Pro Forma Consolidated Data has been prepared by the Company
based, in part, on the financial statements of the Recent Acquisitions which
financial statements are included elsewhere in the Prospectus, adjusted where
necessary to the Company's basis of accounting policies used in the Consolidated
Financial Statements. The Unaudited Pro Forma Consolidated Data is not intended
to be indicative of the results that would have occurred if the Recent
Acquisitions had occurred on the dates indicated or which may be realized in the
future.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOURTH ACQUISITION
QUARTER PRO FORMA PRO FORMA OFFERING PRO FORMA
HISTORICAL ACQUISITIONS(A) ADJUSTMENTS(B) TOTAL ADJUSTMENTS(C) AS ADJUSTED
---------- --------------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... $ 193 $ 3,815 $ -- $ 4,008 $ -- $ 4,008
Accounts receivable, net........ 7,944 5,438 -- 13,382 -- 13,382
Inventories..................... 142 -- -- 142 -- 142
Other current assets............ 840 252 -- 1,092 -- 1,092
------- ------- ------- -------- -------- --------
Total current assets...... 9,119 9,505 -- 18,624 -- 18,624
Property and equipment, net....... 3,055 887 -- 3,942 -- 3,942
Goodwill, net..................... 10,068 345 47,279 57,692 -- 57,692
Identifiable intangibles, net..... 26,726 -- 33,200 59,926 -- 59,926
Other............................. 1,825 113 220(d) 2,158 -- 2,158
------- ------- ------- -------- -------- --------
Total assets.............. $ 50,793 $10,850 $ 80,699 $142,342 $ -- $ 142,342
======= ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and accrued
expenses...................... $ 4,406 $ 4,695 $ 939(d) $ 10,040 $ -- $ 10,040
Current portion of long-term
debt.......................... 782 300 -- 1,082 -- 1,082
Deferred tax liability.......... 1,152 496 -- 1,648 -- 1,648
Other current liabilities....... 109 -- 1,326 1,435 -- 1,435
------- ------- ------- -------- -------- --------
Total current
liabilities............. 6,449 5,491 2,265 14,205 -- 14,205
------- ------- ------- -------- -------- --------
Credit Facility................... 30,844 -- 49,397 80,241 (60,789) 19,452
Senior Notes...................... 3,500 -- -- 3,500 (3,500) --
Junior Notes...................... 7,500 -- -- 7,500 (7,500) --
Subordinated Notes................ 2,058 397 1,140 3,595 -- 3,595
Note payable...................... -- 113 -- 113 -- 113
Deferred tax liability............ 3,735 -- 9,586 13,321 -- 13,321
------- ------- ------- -------- -------- --------
Total long-term
liabilities............. 47,637 510 60,123 108,270 (71,789) 36,481
------- ------- ------- -------- -------- --------
Convertible Preferred Stock....... 6,123 -- -- 6,123 (6,123) --
Total common stockholders' equity
(deficit)....................... (9,416) 4,849 18,311 13,744 77,912 91,656
------- ------- ------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficit)............... $ 50,793 $10,850 $ 80,699 $142,342 $ -- $ 142,342
======= ======= ======= ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
21
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------------------------
RECENT PRO FORMA OFFERING PRO FORMA
HISTORICAL ACQUISITIONS(E) ADJUSTMENTS(F) PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- --------------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.............. $ 16,024 $68,042 $ (1,785) $82,281 $ -- $82,281
Operating costs:
Cost of services....... 8,271 46,011 (16,522) 37,760 -- 37,760
Selling, general and
administrative
expense.............. 2,644 10,773 (684) 12,733 -- 12,733
Provision for doubtful
accounts............. 1,161 6,634 (93) 7,702 -- 7,702
Amortization expense... 4,504(g) 4,504 -- 4,504
------- ------- -------- ------- ------ -------
Total operating
costs......... 12,076 63,418 (12,795) 62,699 -- 62,699
------- ------- -------- ------- ------ -------
Income from operations... 3,948 4,624 11,010 19,582 -- 19,582
Interest expense......... (1,504) (126) (7,146)(h) (8,776) 6,197(k) (2,579)
Other income (expense),
net.................... (46) 185 (116)(i) 23 19(l) 42
------- ------- -------- ------- ------ -------
Income before income
taxes.................. 2,398 4,683 3,748 10,829 6,216 17,045
Provision for income
taxes.................. 900 476 3,370(j) 4,746 2,424(j) 7,170
------- ------- -------- ------- ------ -------
Net income............... $ 1,498 $ 4,207 $ 378 $ 6,083 $ 3,792 $ 9,875
======= ======= ======== ======= ====== =======
Supplemental pro forma
data:
Pro forma net income
per share............ $ .19 $ .51 $ .56
======= ======= =======
Pro forma weighted
average shares
outstanding(m)....... 8,085 11,939 17,639
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------------------------------------------------------
RECENT PRO FORMA OFFERING PRO FORMA
HISTORICAL ACQUISITIONS(E) ADJUSTMENTS(F) PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- --------------- -------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue.............. $ 20,840 $43,487 $ (1,011) $63,316 $ -- $63,316
Operating costs:
Cost of services....... 10,234 29,683 (10,965) 28,952 -- 28,952
Selling, general and
administrative
expense.............. 4,026 7,772 (1,141) 10,657 -- 10,657
Provision for doubtful
accounts............. 1,655 4,149 -- 5,804 -- 5,804
Amortization expense... 357 20 2,989(g) 3,366 -- 3,366
------- ------- -------- ------- ------ -------
Total operating
costs......... 16,272 41,624 (9,117) 48,779 -- 48,779
------- ------- -------- ------- ------ -------
Income from operations... 4,568 1,863 8,106 14,537 -- 14,537
Interest expense......... (1,637) (71) (4,521)(h) (6,229) 4,534(k) (1,695)
Other income (expense),
net.................... (143) 27 58(i) (58) 14(l) (44)
------- ------- -------- ------- ------ -------
Income before income
taxes.................. 2,788 1,819 3,643 8,250 4,548 12,798
Provision for income
taxes.................. 1,075 259 2,256(j) 3,590 1,774(j) 5,364
------- ------- -------- ------- ------ -------
Net income............... $ 1,713 $ 1,560 $ 1,387 $ 4,660 $ 2,774 $ 7,434
======= ======= ======== ======= ====== =======
Supplemental pro forma
data:
Pro forma net income
per share............ $ .20 $ .39 $ .42
======= ======= =======
Pro forma weighted
average shares
outstanding(m)....... 8,532 11,939 17,639
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
22
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<S> <C>
(a) Represents the historical balance sheets of the Fourth Quarter Recent Acquisitions as
if the transactions had occurred as of September 30, 1996.
(b) Reflects the total estimated costs of $72.2 million for the Fourth Quarter Recent
Acquisitions consisting of (i) $49.4 million in cash, (ii) $1.5 million principal
amount of Subordinated Notes, (iii) $9.2 million of Common Stock (957,299 shares); (iv)
$10.9 million of Restricted Stock (1,399,036 shares) pursuant to the Restricted Stock
Agreements; and (v) $1.2 million of estimated transaction costs. The aggregate purchase
price has been allocated, on a preliminary basis, to the net assets acquired based on
their estimated fair market value and to identifiable intangible assets based on
reports of independent consultants. The identifiable intangible assets relate to
hospital contracts, physician referral lists and laboratory contracts acquired in the
Recent Acquisitions. The remaining $47.6 million of the unallocated purchase price has
been recorded as goodwill. The Company expects to perform a final analysis of the
purchase price in the near future and does not anticipate material changes to the
preliminary allocation. In addition, the Company issued $2.6 million of additional
Restricted Stock (330,898 shares) related to the five Recent Acquisitions completed
prior to September 30, 1996 pursuant to the Restricted Stock Agreements. The following
summarizes the acquisition pro forma adjustments related to the above transactions (in
thousands):
Total estimated costs for the Fourth Quarter Recent
Acquisitions............................................ $ 72,239
Add: additional Restricted Stock.......................... 2,574
Net assets of Fourth Quarter Recent Acquisitions.......... 4,849
Net assets distributable to former owners................. (1,326)
Repayment of Fourth Quarter Recent Acquisition debt....... 397
Goodwill recorded in the historical financial statements
of Fourth Quarter Recent Acquisitions................... (345)
--------
Less: net tangible assets acquired........................ 3,575
--------
Net intangible assets acquired............................ 71,238
Add: deferred tax liability recorded on identifiable
intangibles............................................. 9,586
--------
Total intangible assets................................... 80,824
Less identifiable intangible assets....................... 33,200
--------
Estimated goodwill........................................ 47,624
Less: goodwill recorded in the historical financial
statements of Fourth Quarter Recent Acquisitions........ 345
--------
Adjustment to increase goodwill........................... $ 47,279
========
In connection with certain Fourth Quarter Recent Acquisitions, net assets of $1.3
million included in the historical financial statements of those acquired Practices are
distributable to the sellers of such Practices, in accordance with the acquisition
agreements.
(c) Reflects the conversion of the Convertible Preferred Stock and the sale of the Shares
offered by the Company hereby, at an assumed initial public offering price of $14.00
per share, and the application of the estimated net proceeds therefrom, as if both
transactions had occurred on September 30, 1996.
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Gross proceeds from this offering...................................... $ 79,800
Underwriting discounts and commissions................................. (5,586)
Estimated expenses of this offering.................................... (1,500)
--------
Net proceeds................................................. 72,714
Repayment of Junior Notes.............................................. (7,500)
Repayment of Senior Notes.............................................. (3,500)
Payment of Convertible Preferred Stock cumulative dividends............ (925)
Repayment of Credit Facility........................................... (60,789)
--------
Net increase in cash and cash equivalents.................... $ --
========
(d) Included is the $1.2 million of transaction costs (Note b) and the effect of the
issuance of 85,999 shares of Common Stock for loan fees related to the Credit Facility
of $480,000, of which $260,000 reduced accounts payable accrued liabilities and
$220,000 increased deferred debt issue costs included in other assets. Such shares have
been recorded at their estimated fair market value at the date of the respective credit
facility agreement and amendments thereto. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital Resources."
</TABLE>
23
<PAGE> 28
<TABLE>
<S> <C>
(e) With respect to the year ended December 31, 1995, represents the historical results of
operations of the Recent Acquisitions as if these transactions occurred at January 1,
1995; with respect to the nine months ended September 30, 1996, represents the
historical results of operations of the Recent Acquisitions from January 1, 1996
through the date of acquisition for the five Recent Acquisitions completed prior to
September 30, 1996 and through September 30, 1996 for the Fourth Quarter Recent
Acquisitions.
(f) The pro forma adjustments to net revenue, cost of services, selling, general and
administrative expense and the provision for doubtful accounts include adjustments to:
(1) exclude the net revenue and related expenses attributable to an inpatient
laboratory in a hospital that was closed (the "Closed Hospital") prior to the date of
acquisition of Derrick; (2) eliminate the net revenue and related expenses attributable
to the dermatology practice of Beno Michel, M.D. (the "Derm Practice") that were
included in the historical financial statements of CPI, but will not be included in the
operations of the Company; (3) eliminate certain non recurring expenses directly
related to the Recent Acquisitions and related transactions ("Non Recurring"); and (4)
reduce cost of services to reflect the reduction in physician compensation, including
bonuses and other compensation, to the amounts that will be paid to the Affiliated
Physicians after the acquisition of the Practices in accordance with their employment
agreements with the Company ("Physician Compensation"). The following table summarizes
these adjustments:
</TABLE>
<TABLE>
<CAPTION>
CLOSED PHYSICIAN
DECEMBER 31, 1995 HOSPITAL DERM PRACTICE NON RECURRING COMPENSATION TOTAL
-------------------------------------------- -------- ------------- ------------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenue................................. $ (551) $(1,234) $ -- $ -- $ (1,785)
Cost of services............................ -- (906) -- (15,616) (16,522)
Selling, general and administrative
expense................................... (41) (151) (492) -- (684)
Provision for doubtful accounts............. (93) -- -- -- (93)
SEPTEMBER 30, 1996
Net revenue................................. $ -- $(1,011) $ -- $ -- $ (1,011)
Cost of services............................ -- (775) -- (10,190) (10,965)
Selling, general and administrative
expense................................... -- (125) (1,016) -- (1,141)
(g) Represents the amortization expense for both net identifiable intangible assets and
goodwill. The net identifiable intangible assets total approximately $59.9 million and
are being amortized over periods ranging from 10 to 40 years. The goodwill is
approximately $57.7 million and is being amortized over periods ranging from 15 to 35
years. The amounts and amortization periods of the intangible assets were estimated by
management based upon reports of independent consultants. In addition, the adjustment
includes the estimated amortization of goodwill related to the Contingent Notes which
would have been payable based on the Recent Acquisitions' pro forma profitability.
(h) Represents interest expense related to amounts borrowed to finance the Recent
Acquisitions as if such borrowings had occurred as of the beginning of the periods
presented. The amount of the outstanding borrowings under the Credit Facility
represents cash of approximately $78.6 million for the purchase prices of the Recent
Acquisitions and related transaction fees at an interest rate of 8.5% and 8.25% for
1995 and for the nine months ended September 30, 1996, respectively. In addition, the
adjustment includes interest expense in connection with the Subordinated Notes.
(i) Represents an adjustment to record the amortization of deferred debt issuance costs as
if the current Credit Facility was in place from the beginning of the periods
presented.
(j) Represents the incremental tax effect of the pro forma and offering adjustments related
to the Recent Acquisitions and the provision for income taxes related to three Recent
Acquisitions for the year ended December 31, 1995 and two Recent Acquisitions for the
nine months ended September 30, 1996, none of which provided for such taxes in their
historical financial statements because of the election by such entities to be taxed as
Subchapter S corporations for federal income tax purposes.
(k) Reflects a reduction in interest expense in connection with the repayment of certain
outstanding debt of the Company with the estimated net proceeds of this offering as
described under "Use of Proceeds," as if the transactions had occurred as of the
beginning of the periods presented.
</TABLE>
24
<PAGE> 29
<TABLE>
<S> <C>
(l) Reflects the elimination of the amortization of deferred debt issuance costs related to
the repayment of the principal amounts of the Junior Notes and Senior Notes with a
portion of the estimated net proceeds of this offering.
(m) For all periods presented, pro forma net income per share is computed based on the
weighted average numbers of shares of common stock and common stock equivalents,
including (i) the number of shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock; (ii) Common Stock issued by the Company during the 12
months immediately preceding the date of this Prospectus; (iii) the Restricted Stock;
and (iv) shares of Common Stock which become issuable pursuant to the grant of Common
Stock options, using the treasury stock method and an assumed initial public offering
price of $14.00 per share.
</TABLE>
25
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's results of operations and
financial condition should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Data, the Consolidated Financial Statements and related
notes thereto and other financial information included elsewhere in this
Prospectus.
INTRODUCTION
Prior to implementing the acquisition program, the Company's operations
consisted of providing outpatient anatomic pathology services, principally
dermatopathology. With the Recent Acquisitions, the Company acquired three
Practices that provide exclusively outpatient anatomic pathology services and
eight Practices that provide both inpatient anatomic pathology services under
exclusive contracts with hospitals as well as outpatient anatomic pathology
services. The Company intends to pursue acquisitions of inpatient and outpatient
anatomic pathology practices.
The Company provides anatomic pathology and related histological services
with particular emphasis on dermatopathology (diseases of the skin),
hematopathology (diseases of the blood), and cytopathology (diseases of the
cells), as well as surgical pathology (diagnostic services in connection with
surgical procedures).
Outpatient pathology services are performed in free-standing, independent
pathology laboratories owned and operated by the Company or in hospital-owned
laboratories operated by the Company. Services performed are billed to patients,
Medicare, Medicaid, other third party payors, national clinical laboratories and
attending physicians on a fee-for-service basis, which cover both the
professional and technical components of such services.
Inpatient pathology services are performed pursuant to exclusive
contractual arrangements with hospitals. Net revenue for inpatient pathology
services is dependent in large part on the level of inpatient admissions at the
hospitals. Generally, such arrangements provide that a pathologist will provide
diagnostic pathology services for the hospital's staff physicians and serve as
the medical director of the hospital's laboratory with responsibility for the
clinical laboratory and histology departments, as well as the hospital's blood
bank and microbiology services. In exchange for these services, the Company
bills patients, Medicare, Medicaid and other third party payors for the
professional component of the services provided by the pathologists on a fee-
for-service basis. In certain cases, the Company is paid an annual fee for an
Affiliated Physician to serve as the medical director of the laboratory.
Currently, the aggregate annual amount of such fees is approximately $1.9
million.
The Company typically bills government programs (principally Medicare and
Medicaid), indemnity insurance companies, managed care organizations, national
clinical laboratories, physicians and patients. Net revenue differs from amounts
billed for services due to: (i) Medicare and Medicaid reimbursements at annually
established rates; (ii) payments from managed care organizations at discounted
fee-for-service rates; (iii) negotiated reimbursement rates with other third
party payors; (iv) rates negotiated under sub-contracts with national clinical
laboratories for the provision of anatomic pathology services; and (v)
discounted and uncollectible amounts, principally from private pay patients.
In recent years, there has been a shift away from traditional indemnity
insurance companies to managed care as employers and other payors move their
participants into lower cost plans. The Company benefits more from patients
covered by Medicare and traditional indemnity insurance than managed care
organizations and national clinical laboratories, many of whom contract with
managed care organizations to provide anatomic pathology services. The Company
has contracts with managed care organizations and national clinical laboratories
and is attempting to increase the number of such contracts in an attempt to
increase test volume. Since the majority of the Company's operating costs are
fixed, increases in volume resulting from contracts at discounted rates enhance
the Company's profitability. Historically, net revenue from capitated contracts
has represented an insignificant amount of net revenue. See "Risk
Factors -- Reliance upon Government Programs."
26
<PAGE> 31
The Company estimates that, on a pro forma basis for the nine months ended
September 30, 1996, approximately one-third of net revenue was attributable to
government sponsored healthcare programs (principally Medicare and Medicaid).
The federal government sets reimbursement rates for services performed for
patients covered by Medicare on an annual basis. Medicare reimbursement rates
may also impact Medicaid and other reimbursement rates. From 1993 through 1996,
Medicare rates for the Company's primary reimbursement code in Florida
increased, on average, 4.0% per year. Effective January 1, 1997, the same
Medicare reimbursement rate is scheduled to decrease by 5.3% to 6.0% in Florida,
where a majority of the Company's net revenue from Medicare is derived. The
Company plans to mitigate the adverse effects of the reimbursement reduction on
net revenue and earnings through implementation of its strategy, specifically
(i) increasing marketing efforts to expand referral services and (ii) reducing
costs through implementation of operating and production efficiencies. While the
Company cannot predict future Medicare reimbursement rates, the Company believes
it will be able to offset any future reimbursement rate decreases by increasing
net revenue and maintaining profitability of the Practices through
implementation of its strategies. No assurance can be given that the Company
will be able to maintain or increase its net revenue or profitability.
Prior to the Recapitalization, the Company elected to be treated as a
Subchapter S corporation for federal income tax purposes and accordingly was not
subject to federal and certain state income taxes during such period. During
1996 the Company ceased the unprofitable operation of a clinical laboratory and
acquired one Practice whose operations include two outpatient clinical
laboratories. Many anatomic pathology practices operate clinical pathology
laboratories incidental to their businesses. In implementing its acquisition
strategy, the Company may acquire other practices that provide outpatient
clinical pathology services. The Company believes that operating clinical
laboratories will continue to be incidental to its business. See "Business --
Government Regulation."
RECENT ACQUISITIONS
The Recent Acquisitions were funded with various combinations of cash,
Common Stock, debt and contingent consideration. The aggregate non-contingent
purchase price paid for the Recent Acquisitions was approximately $107.2
million, $78.6 million of which was paid in cash, $4.5 million of which was paid
in Subordinated Notes and $24.0 million of which was paid in shares of Common
Stock, at a weighted average price of $6.38 per share. The cash portion of the
purchase prices was financed with borrowings under the Credit Facility. The
Contingent Notes are payable based upon the Practices' achievement of specified
profitability objectives over periods ranging from 1996 to 2001. The contingent
payments vary in duration of payment and the minimum and maximum amounts to be
paid upon the achievement of profitability objectives relating to the Practice.
Generally, the amount of the contingent consideration to be paid cannot be
determined until the earlier of the termination of the contingency period or
until a profitability objective has been met. If the Practices achieve minimum
specified profitability objectives, the Company would be obligated to make
aggregate contingent payments of at least $12.2 million between 1997 and 2001.
No amounts would be paid if the minimum profitability objectives are not met. If
the Practices achieve the maximum profitability objectives, the Company would
make aggregate contingent payments of $31.7 million between 1997 and 2001. Since
the profitability criteria are calculated on a cumulative basis over the period
of the Contingent Notes, the performance of a Practice in one year may affect
the payment of the Contingent Notes in another year. In the event the
profitability criteria for a Practice are not met in a particular year, the
shortfall in that year may be satisfied by excess profitability in a later year
in which event a payment would be made in that later year. To the extent that
the maximum profitability criteria are exceeded in any particular year, the
amount of the excess will be carried backward to a prior year when the
profitability criteria were not satisfied or forward to a subsequent year in
determining whether the profitability criteria for such year have been met. This
cumulative effect may cause contingent payments to be made with respect to a
year in which profitability criteria would not have been met if such year was
evaluated separately, and could cause contingent payments with respect to
multiple years to become due in a single or later year. Additional
consideration, if any, paid in cash under these contingent arrangements will be
accounted for as an additional purchase price for the Practice. See "Risk
Factors -- Unpaid Contingent Acquisition Consideration."
27
<PAGE> 32
Other than the acquisition of the assets of D&P, each of the Recent
Acquisitions represented the purchase of all of the outstanding capital stock of
the acquired entity. See "Business-Affiliation Structure." Each of the Recent
Acquisitions was accounted for as a purchase of the underlying net assets. The
Recent Acquisitions have resulted in a significant increase in intangible
assets. At September 30, 1996, net intangible assets were $36.8 million,
including $26.7 million of net identifiable intangible assets and $10.1 million
of goodwill, principally due to the Recent Acquisitions completed in the nine
months ended September 30, 1996. Virtually all of the aggregate purchase price
of approximately $107.2 million was recorded as either net identifiable
intangible assets or goodwill. At September 30, 1996, on a pro forma basis,
approximately $59.9 million represents net identifiable intangible assets and
$57.7 million represents goodwill. Net identifiable intangible assets include
hospital contracts, physician referral lists and laboratory contracts acquired
in connection with the Recent Acquisitions and will be amortized on a straight
line basis over periods ranging from 10 to 40 years. For the year ended December
31, 1995, and the nine months ended September 30, 1996, amortization of net
identifiable intangible assets on a pro forma basis for the Recent Acquisitions
was $2.6 million and $2.0 million, respectively. Goodwill represents the excess
of cost over the fair value of the net assets of the Recent Acquisitions and
will be amortized on a straight line basis over periods ranging from 15 to 35
years. For the year ended December 31, 1995, and the nine months ended September
30, 1996 amortization of goodwill on a pro forma basis for the Recent
Acquisitions was $1.9 million and $1.4 million, respectively. These amortization
amounts will increase on an annual basis in the event that the contingent
payments are made pursuant to the Contingent Notes. There can be no assurance
that the value of the intangible assets will ever be realized by the Company.
The Company will evaluate the carrying values attributed to intangible assets on
an on-going basis. In the event of an impairment of the values attributed to
goodwill or identifiable intangible assets, there would be a charge to earnings
that could have a material adverse effect on the Company's financial condition
and results of operations. See "Risk Factors -- Risks Related to Intangible
Assets."
28
<PAGE> 33
PRACTICES
As of November 22, 1996, the Company provides pathology services through 12
Practices:
<TABLE>
<CAPTION>
AFFILIATED HOSPITAL OUTPATIENT 1995
PRACTICE LOCATION PHYSICIANS PERSONNEL CONTRACTS LABORATORY NET REVENUE
- --------------------------- ------------------- ---------- --------- --------- ---------- -----------
(IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
American Laboratory Fort Lauderdale, FL 6 127 -- X $16,024
Associates
Cutaneous Pathology & Beachwood, OH 3 16 -- X $ 3,798
Immunofluorescence
Laboratory(1)
D&P Pathology Fort Lauderdale, FL 9 9 3 $ 2,548
Derrick and Associates Orlando, FL 24 143 14 X $21,706
Pathology
Florida Pathology Miami Beach, FL 2 14 1 $ 3,055
Associates
Freeman-Cockerell Dallas, TX 1 40 -- X $ 3,160
Laboratories
Gulf Coast Pathology Cape Coral, FL 5 31 3 X $ 8,786
Associates
Pathology Associates Lexington, KY 8 58 16 $ 4,934
Richfield Laboratory of Cincinnati, OH 3 32 -- X $ 6,202
Dermatopathology
Drs. Seidenstein, Levine & Fort Myers, FL 9 42 5 $ 6,181
Associates
SkinPath Birmingham, AL 3 20 1 X $ 1,847
Volusia Pathology Group Ormond Beach, FL 7 33 3 X $ 5,825
-- --- -- -----------
Totals 80 565 46 $84,066
======= ======= ======= =========
</TABLE>
- ---------------
(1) The net revenue of the dermatology practice ($1.2 million for 1995) less
operating expenses is paid to the seller of this Practice.
29
<PAGE> 34
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of net revenue (patient billings net
of contractual allowances).
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
---------------------------------------------
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER
DECEMBER 31, 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs:
Cost of services................................. 80.5 46.9 51.6 50.5 49.1
Selling, general and administrative expense...... 12.2 15.8 16.5 15.9 19.3
Provision for doubtful accounts.................. 7.1 6.9 7.2 7.5 7.9
Amortization expense............................. -- -- -- -- 1.7
----- ----- ----- ----- -----
Total operating costs.................... 99.8 69.6 75.3 73.9 78.0
----- ----- ----- ----- -----
Income (loss) from operations...................... 0.2 30.4 24.7 26.1 22.0
Interest expense................................... (0.4) (11.0) (9.4) (9.4) (7.9)
Other income (expense), net........................ 0.1 (0.3) (0.3) (0.1) (0.7)
----- ----- ----- ----- -----
Income (loss) before income taxes.................. (0.1) 19.1 15.0 16.6 13.4
Provision for income taxes......................... -- 4.8 5.6 6.2 5.2
----- ----- ----- ----- -----
Net income (loss).................................. (0.1)% 14.3% 9.4% 10.4% 8.2%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1996 as Compared to Nine Months Ended September
30, 1995
The Company completed the acquisition of five Practices in the first nine
months of 1996, the results of which are included in the Company's operating
results from the date of acquisition. Changes in operations between the nine
months ended September 30, 1995 and the nine months ended September 30, 1996
were primarily due to these acquisitions.
Net revenue increased by $8.7 million, or 71.2%, to $20.8 million for the
nine months ended September 30, 1996 from $12.2 million for the nine months
ended September 30, 1995. The increase was attributable to $8.9 million from the
five Recent Acquisitions, and $632,000 from same practice growth, offset by the
decline in net revenue of $891,000 from the Company's clinical laboratory which
ceased operations on May 31, 1996. Same practice net revenue increased $632,000,
compared to the same period in 1995, due to an increase in test volume and an
increase in the Medicare reimbursement rate for surgical biopsies of 2.6% which
became effective on January 1, 1996. References to same practice mean Practices
at which the Company provided services for the entire period for which the
amount is calculated and the entire prior comparable period.
Cost of services increased by $4.1 million, or 66.5%, to $10.2 million for
the nine months ended September 30, 1996 from $6.1 million for the nine months
ended September 30, 1995. The increase was attributable primarily to $4.8
million from the five Recent Acquisitions and a decrease of $690,000
attributable to the Company's clinical laboratory which ceased operations on May
31, 1996. Same practice cost of services decreased by $74,000 for the nine
months ended September 30, 1996 compared to the same period in 1995 due to
increased productivity by the Affiliated Physicians.
Selling, general and administrative expense increased by $2.1 million, or
108.5%, to $4.0 million for the nine months ended September 30, 1996 from $1.9
million for the nine months ended September 30, 1995. Of this increase, $1.2
million, or 63.8%, was attributable to the Practices acquired during the nine
months ended September 30, 1996. The remaining increase was due to the
appointment of a Chief Executive Officer, as of January 1, 1996, increased
staffing levels in marketing, billing and accounting and costs incurred to
expand the Company's administrative support infrastructure and complete the
transition to an upgraded billing system.
30
<PAGE> 35
Provision for doubtful accounts increased by $745,000, or 81.9%, to $1.7
million for the nine months ended September 30, 1996 from $910,000 for the nine
months ended September 30, 1995. This increase was primarily attributable to the
Practices acquired in the nine months ended September 30, 1996. The provision
for doubtful accounts as a percentage of net revenue was 7.9% and 7.5% for the
nine months ended September 30, 1996 and 1995, respectively. The provision for
doubtful accounts as a percentage of net revenue is higher for inpatient
services than for outpatient services due primarily to a larger concentration of
indigent and private pay patients and longer billing and collection cycles for
inpatient services.
Amortization expense was $357,000 for the nine months ended September 30,
1996 was attributable to amortization of goodwill and net identifiable
intangible assets from acquired Practices. There was no amortization expense
during the nine months ended September 30, 1995.
Interest expense increased by $486,000, or 42.2%, to $1.6 million for the
nine months ended September 30, 1996 from $1.2 million for the nine months ended
September 30, 1995. This increase was attributable to indebtedness incurred to
finance the acquisition of five Practices.
The effective income tax rate was approximately 38.6% for the nine months
ended September 30, 1996 as compared to 37.5% for the nine months ended
September 30, 1995. The Company anticipates an increase in its effective tax
rate due to the non-deductibility of amortization expense relating to intangible
assets resulting from certain of the Recent Acquisitions.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenue increased by $1.5 million, or 10.8%, to $16.0 million for the
year ended December 31, 1995 from $14.5 million for the year ended December 31,
1994. Of this increase, $891,000 was attributable to an increase in outpatient
net revenue resulting from volume and price increases implemented for certain
services during 1994. The remaining $673,000 was attributable to an increase in
net revenue from the Company's clinical laboratory.
Cost of services increased by $1.5 million, or 22.0%, to $8.3 million for
the year ended December 31, 1995 from $6.8 million for the year ended December
31, 1994. Of this increase, $800,000 was due to the addition of two Affiliated
Physicians, additional non-physician personnel and increased variable operating
costs for anatomic pathology services and $700,000 was due to increased variable
operating costs, additional non-physician personnel and overtime costs and
allocation of additional overhead for the Company's clinical laboratory. As a
percentage of net revenue, cost of services increased to 51.6% in 1995 from
46.9% in 1994.
Selling, general and administrative expense increased by $357,000, or
15.6%, to $2.6 million for the year ended December 31, in 1995, from $2.3
million for the year ended December 31, 1994. This increase was primarily
attributable to an increase in marketing costs, including the employment of two
additional full-time marketing representatives, and the addition of billing
personnel as the Company began a conversion and upgrade of its billing system.
Provision for doubtful accounts increased by $158,000, or 15.8%, to $1.2
million for the year ended December 31, 1995 from $1.0 million for the year
ended December 31, 1994. This increase was attributable to increases in net
revenue. Provision for doubtful accounts, as a percentage of net revenue,
increased from 6.9% to 7.2% due to the increase in the Company's clinical
laboratory operations which typically have a higher level of doubtful accounts
due to smaller per patient billings and a greater concentration of private pay
patients.
Interest expense decreased by $80,000, or 5.1%, to $1.5 million for the
year ended December 31, 1995 from $1.6 million in 1994. This decrease was
attributable to a reduction in the amount of outstanding indebtedness and a
reduction in interest rates to 8.75% from 9.5% on the line of credit.
The effective income tax rate was approximately 37.5% for the year ended
December 31, 1995 compared to 25.2% for the year ended December 31, 1994, due to
the Company's conversion from Subchapter S tax status as of February 14, 1994.
Taxable income for the period January 1, 1994 to February 14, 1994 was
attributable to the shareholders prior to the Recapitalization.
31
<PAGE> 36
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
The Company completed the Recapitalization on February 14, 1994.
Net revenue increased by $1.0 million, or 7.8%, to $14.5 million for the
year ended December 31, 1994, as compared to $13.4 million for the year ended
December 31, 1993. This increase was primarily attributable to an increase in
test volume and an increase in the Medicare reimbursement rates for surgical
pathology services by 3.6%, effective January 1, 1994.
Cost of services decreased by $4.0 million, or 37.2%, to $6.8 million for
the year ended December 31, 1994 from $10.8 million for the year ended December
31, 1993. This decrease was attributable to a reduction in compensation to the
shareholders prior to the Recapitalization.
Selling, general and administrative expense increased by $653,000, or
40.0%, to $2.3 million for the year ended December 31, 1994 from $1.6 million
for the year ended December 31, 1993. Of this increase, $515,000 was
attributable to the addition of marketing and management personnel.
Provision for doubtful accounts increased by $50,000, to $1.0 million for
the year ended December 31, 1994 from $950,000 for the year ended December 31,
1993. This increase was attributable to increases in net revenue. Provision for
doubtful accounts, as a percentage of net revenue, decreased from 7.1% to 6.9%
of net revenue for the years ended December 31, 1993 and 1994, respectively.
Interest expense increased by $1.5 million to $1.6 million for the year
ended December 31, 1994 from $48,000 for the year ended December 31, 1993
primarily due to interest on the line of credit and the Senior Notes and Junior
Notes issued in connection with the Recapitalization.
The effective income tax rate was approximately 25.2% for the year ended
December 31, 1994 due to the fact that the Company's taxable income for the
period January 1, 1994 to February 14, 1994 was included in the income tax
returns of the shareholders prior to the Recapitalization. In 1993, the Company
elected to be taxed as a Subchapter S corporation for federal income tax
purposes and the taxation of the earnings thereof was the responsibility of the
individual shareholders. Therefore no provision was made for federal or state
income taxes in 1993.
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QUARTERLY RESULTS
The following table presents certain unaudited quarterly financial data for
each of the quarters in the years ended December 31, 1994 and 1995 and the
quarters ended March 31, June 30 and September 30, 1996. This information has
been prepared on the same basis as the Consolidated Financial Statements
appearing elsewhere in this Prospectus and include, in the opinion of the
Company, all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the quarterly results when read in conjunction with
the Consolidated Financial Statements and related notes thereto. The Company has
historically experienced fluctuations in its third quarter results due to
seasonal population variations in Florida. The addition of Practices in the
Midwest is expected to reduce this seasonal fluctuation. The operating results
for any quarter are not necessarily indicative of results for any future period
or for the full year.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1994 CALENDAR QUARTERS 1995 CALENDAR QUARTERS 1996 CALENDAR QUARTERS
--------------------------------- --------------------------------- -------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND THIRD
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue................... $3,491 $3,672 $3,442 $3,856 $3,910 $4,248 $3,960 $3,906 $4,853 $4,837 $11,150
Operating costs:
Cost of services............ 1,534 1,696 1,748 1,802 1,968 2,130 2,049 2,124 2,403 2,141 5,690
Selling, general and
administrative expense.... 524 573 518 672 631 663 637 713 924 898 2,204
Provision for doubtful
accounts.................. 259 229 228 287 283 296 310 272 309 336 1,010
Amortization Expense........ 357
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Total operating
costs............... 2,317 2,498 2,494 2,761 2,882 3,089 2,996 3,109 3,636 3,375 9,261
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Income from operations........ 1,174 1,174 948 1,095 1,028 1,159 964 797 1,217 1,462 1,889
Interest expense.............. (380) (355 ) (402) (447 ) (401) (384 ) (366) (353 ) (374) (393 ) (870)
Other income (expense), net... (14) (14 ) (13) (5 ) (21) 27 (19) (33 ) (2) (199 ) 58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Income before income taxes.... 780 805 533 643 606 802 579 411 841 870 1,077
Provision for income taxes.... 197 203 134 162 227 301 218 154 317 290 468
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Net income............ $ 583 $ 602 $ 399 $ 481 $ 379 $ 501 $ 361 $ 257 $ 524 $ 580 $ 609
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Recapitalization, the Company's principal cash requirements
were to fund working capital in order to support growth of net revenue and to
fund compensation and distributions to the shareholders prior to the
Recapitalization because of the Company's election to be treated as a Subchapter
S corporation. The Company funded such requirements principally with cash
generated from operations. Cash flows generated from operations were $424,000
for the year ended December 31, 1993 and $2.3 million for each of the years
ended December 31, 1994 and 1995. For the nine months ended September 30, 1996,
cash flows generated from operations were $2.2 million.
Pursuant to the Recapitalization, the Company acquired the assets and
assumed the liabilities of PDK for consideration consisting of $20.5 million in
cash, $3.5 million in the form of Senior Notes and $2.5 million in the form of
the ALA Contingent Notes. In the Recapitalization, the Company issued an
aggregate of $5.5 million of Convertible Preferred Stock and issued the Junior
Notes in the aggregate principal amount of $7.5 million. In the
Recapitalization, the Company also entered into the line of credit and borrowed
$7.5 million thereunder. See "Certain Transactions." The Recapitalization
resulted in a significant increase in the Company's interest expense beginning
in the first three months of 1994. In April 1996, the ALA Contingent Notes were
repaid by the issuance of 194,400 shares of Common Stock.
Following the Recapitalization, the Company's principal cash requirements
have been to fund acquisitions and debt service and provide working capital to
support growth of net revenue. The Company has funded these requirements with
cash generated from operations and with borrowings under the line of credit and
the Credit Facility. The Credit Facility replaced the line of credit in May
1996. In connection with the Recent Acquisitions, the Company borrowed $78.6
million under the Credit Facility. At September 30, 1996 and December 31, 1995,
the Company had working capital of $2.7 million and $1.6 million, respectively,
including $193,000 and $58,000, respectively, in cash and cash equivalents. In
addition, practices acquired by the
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<PAGE> 38
Company are typically required to have working capital at closing sufficient to
fund one month of operations or one payroll period.
Accounts receivable are primarily derived from fees due from patients and
other third party payors. These receivables are presented in the Consolidated
Financial Statements net of allowances for contractual adjustments and doubtful
accounts. The provision for uncollectible accounts, which is charged to
operations, is based on an evaluation of expected collections, based on an
analysis of current and past due accounts, historical collections experience in
relation to amounts billed and other relevant information. Contractual
adjustments result from the difference between the Company's scheduled rates for
services performed and the amount of reimbursement from government and other
third party payors for such services. See Note 4 to the Consolidated Financial
Statements.
At November 22, 1996, of the $85.0 million available under the Credit
Facility, $80.9 million was outstanding. Borrowings under the Credit Facility
bear interest, at the Company's option, at the Agent's base rate (8.25% at
November 22, 1996) or the Eurodollar rate plus 2.50%. At November 22, 1996,
amounts outstanding under the Credit Facility had an effective interest rate of
8.29%. The Credit Facility provides for up to $85.0 million through two lines of
credit: (i) a revolving working capital line of credit in an amount equal to a
maximum of 80% of the Company's eligible accounts receivable, which at September
30, 1996 amounted to available funds of $5.6 million, of which $4.2 million was
outstanding; and (ii) as a revolving line of credit available to fund
acquisitions and which may be up to $85.0 million if borrowings are not
otherwise used for working capital purposes. Pursuant to the Credit Facility,
the Company has pledged its assets, including the stock of the subsidiaries, as
security. The Credit Facility also contains covenants which require the Company
to maintain certain financial ratios (including minimum net income and operating
cash flow to total debt service), limit the amount of additional indebtedness
and annual capital expenditures the Company can incur, prohibit the payment of
dividends and specify restrictions on investments, mergers and sales of assets.
Additionally, the Company is required to obtain the consent of the Banks for
individual acquisitions utilizing bank debt in excess of $10.0 million. At
November 22, 1996, the Company was in compliance with the covenants in the
Credit Facility. See Note 8 to the Consolidated Financial Statements.
Historically, the Company's capital expenditures have been primarily for
laboratory equipment, management information systems and leasehold improvements.
Total capital expenditures were $488,000, $492,400 and $582,000 in 1994, 1995
and for the nine months ended September 30, 1996, respectively. The Company has
been assessing, and will continue to assess, the capabilities of the various
systems acquired in connection with each of the Recent Acquisitions, and is in
the process of replacing, upgrading and integrating the systems into a single
network. See "Business -- Management Information Systems." Priority has been
given to enhancements in billing and information systems. Planned capital
expenditures are expected to be approximately $1.2 million in the fourth quarter
of 1996 and between $1.2 million and $2.0 million in 1997.
The net proceeds of this offering, estimated to be $72.7 million, will be
used to repay the outstanding principal amount and accrued interest on the
Junior Notes and the Senior Notes, the accrued dividends on the Convertible
Preferred Stock and a portion of the outstanding indebtedness under the Credit
Facility. See "Use of Proceeds." As a result, after giving effect to this
offering and the application of the net proceeds therefrom, the Company will
have reduced its aggregate indebtedness from $96.0 million to $24.2 million. The
Company may reborrow under the Credit Facility to fund future acquisitions,
working capital and for general corporate purposes. In connection with the
repayment of the Junior Notes and Senior Notes, the Company will write-off
approximately $99,000 of deferred financing costs associated with the incurrence
of these obligations which write-off will be reflected in the first quarter of
1997.
The Company anticipates that its outstanding indebtedness following the
consummation of this offering will be $19.6 million under the Credit Facility
and the Contingent Notes and Subordinated Notes issued in connection with the
Recent Acquisitions. The Company expects to make further borrowings under the
Credit Facility in the short term to fund acquisitions. The Company anticipates
that funds generated by operations and funds available under the Credit Facility
will be sufficient to meet working capital requirements and finance capital
expenditures and, together with the issuance of shares of Common Stock and
Contingent Notes, acquisitions for the short term. Further, in the event
payments under the Contingent Notes become
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<PAGE> 39
due, the Company believes that the incremental cash generated from operations
would exceed the cash required to satisfy the Company's contingent obligations
in any one year in which a payment is to be made. In addition to the issuance of
equity and debt securities pursuant to the Company's acquisition strategy, the
Company may be required to seek additional financing through increases to this
Credit Facility, negotiation of credit facilities with other banks or public or
private placements of equity or debt securities. No assurance can be given that
the Company will be able to extend the Credit Facility, secure additional bank
borrowings or complete additional debt or equity financings on terms favorable
to the Company.
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<PAGE> 40
BUSINESS
GENERAL
AmeriPath is the leading physician practice management company focused on
anatomic pathology services. AmeriPath provides practice management services to
pathologists in both outpatient and hospital inpatient laboratories, enabling
the pathologists to concentrate on the practice of medicine. Through its 12
Practices, the Company, as of November 22, 1996, had 80 pathologists and
employed a total of 565 people. The pathologists provide services in 12
outpatient pathology laboratories owned and operated by the Company, 46 hospital
inpatient laboratories and 17 outpatient surgery centers in five states. Of
these pathologists, 77 are board certified and three are board eligible in
anatomic pathology. Thirty-five of the pathologists are also board certified in
a subspecialty of anatomic pathology, including dermatopathology,
hematopathology and cytopathology.
The Company and its Affiliated Physicians provide practice management and
physician services in outpatient laboratories, owned by the Company, and in
inpatient laboratories, owned by a hospital. Eight practices have exclusive
contracts with a total of 46 hospitals to manage their inpatient laboratories
and provide professional pathology services. Four of these eight Practices have
established outpatient laboratories that focus upon outpatient referral sources.
Generally under these contracts, the Company provides the medical director for
the hospital laboratory, who is responsible for the laboratory's operations,
including anatomic and clinical pathology, as well as the hospital's blood bank
and microbiology services. These Practices capitalize on their relationships
with the medical staff of the hospitals and the local medical community to
expand their provision of anatomic pathology services to office based
physicians. By offering services to office based physicians, the Practices
capitalize on the trend towards more procedures being performed in an outpatient
setting. Since a Practice's profitability is largely based upon test volume,
increased outpatient test volumes enhance the productivity of the Physicians and
leverage the existing fixed cost structure of the inpatient laboratories. The
four other Practices operate in outpatient laboratories and provide services to
attending physicians, national clinical laboratories and managed care
organizations. The outpatient pathology services provided by the Practices are
focused primarily on dermatopathology, which relates to the examination of skin
biopsies.
ANATOMIC PATHOLOGY
The practice of pathology includes anatomic pathology, which involves the
diagnosis of diseases through examination of tissues and cells, and clinical
pathology, which involves the chemical testing and analysis of body fluids, such
as blood and urine. Clinical pathology involves an interpretation of
standardized laboratory test results, a process which is frequently automated,
while anatomic pathology typically requires the involvement of a pathologist in
making a specific diagnosis. Anatomic pathologists do not treat patients, but
rather assist physicians by establishing a definitive diagnosis for many
diseases. In addition, anatomic pathologists may consult with attending
physicians regarding treatment plans. In these capacities, the anatomic
pathologist serves as the "physician's physician," creating what is often a
long-term relationship. Attending physicians remove specimens which are then
transported to a laboratory, either by courier or by overnight delivery service.
Once received at the laboratory, a specimen is processed and mounted onto a
slide by a laboratory technician for examination by a pathologist. Since
specimens may be transported, samples can be diagnosed by a pathologist from a
remote location. Therefore, pathologists are generally not needed "on-site" to
make a diagnosis, which enhances utilization of available capacity in outpatient
and inpatient laboratories and allows the Practice to service a wider geographic
area.
An anatomic pathologist must have an understanding of a broad range of
medical specialties. Subspecialities within anatomic pathology include the
examination and diagnosis of skin biopsies taken by a dermatologist
(dermatopathology), of tissue samples, such as prostate or breast, taken during
a surgical procedure (surgical pathology), diagnostic analysis of diseases and
disorders in blood, bone marrow and lymph nodes (hematopathology) and
interpretation of pap smears, fine needle aspiration, biopsies, washings and
brushings and body fluids (cytopathology). While physical examination or
radiology procedures may suggest a diagnosis for many diseases, the definitive
diagnosis is generally established by the anatomic pathologist.
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Based on information published by the American Medical Association, the
number of practicing pathologists in the United States is approximately 14,000.
According to the American Society of Dermatopathology, approximately 900
practicing pathologists specialized in dermatopathology in 1994. The Company has
targeted outpatient pathology services and inpatient pathology services at
hospitals with 400 or fewer beds. Based on a study prepared for the Company, the
Company believes that the domestic market as of 1995 for non-hospital pathology
services (approximately 3,300 outpatient laboratories) was approximately $2.1
billion and inpatient pathology services at hospitals with 400 or fewer beds was
approximately $1.1 billion. The Company expects the provision of anatomic
pathology services to grow primarily due to the aging of the United States
population, increased incidence of cancer and medical advancements that allow
for earlier diagnosis and treatment of diseases. As an example, according to The
Journal of the American Academy of Dermatology, the number of new cases of
non-melanoma skin cancer diagnosed in 1977 was 480,000 as compared to over
900,000 new cases diagnosed in 1994. As an example estimates published by The
American Cancer Society in 1996 indicate that 50% of the U.S. population who
live to age 65 or older will develop some form of skin cancer during their
lifetimes.
Most hospitals operate a pathology laboratory to provide urgent anatomic
pathology services, as well as more routine testing, for the physicians on
staff. Laboratories operated by a hospital or by a single independent pathology
practice are limited in the range of specialty services that they can provide
and in their available referral sources for utilization of the pathologists, and
are often constrained by time and expense associated with administrative
functions. Cost containment pressures and medical advancements are expected to
decrease the number of tests being performed in hospitals and increase the
number of procedures that will be performed by a physician in an outpatient
setting. Further, as hospitals consolidate their operations and increase the
outsourcing of certain services, the Company expects growth in outpatient
pathology services to continue to outpace the growth in inpatient pathology
services. As a result of these trends, the Company believes that there will be
greater utilization of outpatient pathology laboratories, such as those operated
by the Company.
Cost containment pressures are also causing hospitals to increase their
utilization of outside contract management companies to manage specialized
functions, improve physician utilization and reduce the hospital's
responsibility for certain administrative duties. Physician practice management
companies, such as the Company, can provide a hospital with professional
management of its pathology laboratory staff, including recruiting and
scheduling, as well as the assumption of certain financial risks and
administrative duties associated with physician billing and collections,
utilization and outcome data and payment of physician malpractice insurance
premiums.
Although the selection of a pathologist is primarily made by individual
physicians, a trend is evolving toward decisions being made by managed care
organizations and other insurance plans. While the majority of referrals by
managed care organizations for outpatient anatomic pathology services are made
directly to pathology practices on a local basis, in certain cases managed care
organizations contract with national clinical laboratories. Generally, national
clinical laboratories subcontract anatomic pathology services to large practices
that can provide a comprehensive range of anatomic pathology services. The
Company believes that hospitals, managed care organizations and national
clinical laboratories will continue to contract for the provision of anatomic
pathology services.
Historically, the anatomic pathology industry has been highly fragmented,
with the majority of the services being provided by relatively small practices.
There is an evolving trend among pathologists to form larger practices that can
provide a broad range of outpatient and inpatient services and enhance the
utilization of the pathologists. The Company believes this trend can be
attributed to several factors, including cost containment pressures by
government and other third-party payors, increased competition and rising costs
of operating a medical practice. In addition, given the current trends of
increasing outpatient services and outsourcing and consolidation by hospitals,
pathologists are seeking to align themselves with larger practices and physician
practice management companies that can assist providers in the evolving
healthcare environment. Larger practices and physician practice management
companies can also offer physicians certain advantages, such as negotiating
contracts with hospitals, managed care providers and national clinical
laboratories, marketing of professional services, providing continuing education
and career advancement
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opportunities, making available a broad range of specialists with whom to
consult, providing access to capital and business experience, establishing and
implementing billing and collection procedures and expanding the Practice's
geographic coverage area. Each of these factors support the pathologists in the
efficient management of the complex and time-consuming, non-medical aspects of
their practice.
BUSINESS STRATEGY
The Company's objective is to enhance its position as the leading provider
of anatomic pathology practice management services by implementing the following
strategies:
Focus on Anatomic Pathology. The Company believes that its focus on
anatomic pathology provides it with a competitive advantage in the
acquisition of anatomic pathology practices and that a significant
opportunity exists to acquire pathology practices that are seeking to
affiliate with a physician practice management company with experienced
management and access to capital. As a result of the Company's focus on
anatomic pathology, the Affiliated Physicians are able to form an internal
network for consultations and to offer specialized services to their
clients. The Company believes that its focus allows it to develop expertise
in managing both inpatient and outpatient pathology practices.
Acquire Leading Practices. The Company expects to increase its share
in existing markets and enter additional markets through acquisitions. The
Company's acquisition criteria include market demographics, size,
profitability, local prominence, payor relationships and opportunities for
growth of the acquired Practice. The Company intends to continue to source
acquisitions by capitalizing on the professional reputations of the
Practices and the Affiliated Physicians, the Company's management
experience and the benefits of being part of a public company, including
increased resources and improved access to capital. In existing markets,
the Company targets acquisitions that can expand its presence, add new
services, such as dermatopathology, and provide operational efficiencies
for the Practices in that market. In new markets, the Company seeks to
acquire prominent practices to serve as a platform for expansion.
Expand Sales and Marketing Efforts. The Company focuses on generating
internal growth by augmenting the Practices' existing physician and
contractual relationships with a professional sales and marketing program.
The Company's marketing program is designed to (i) increase relationships
with physicians over a broader geographic region, (ii) expand contracts
with national clinical laboratories, and (iii) capitalize on existing
managed care relationships. Since specimens can be transported, the
Company's sales and marketing efforts focus on expanding the geographic
scope of the Practices. Four Practices contract with national clinical
laboratories to provide outpatient anatomic pathology services. These
contracts generally are exclusive to the individual Practice and are
limited to the local area. The Company is seeking to extend its existing
contracts with national clinical laboratories to include multiple Practices
that cover a broad geographic region. The Company believes that this
regional business model can offer national clinical laboratories a
convenient single source alternative for anatomic pathology services. The
Company also intends to apply its regional business model in obtaining
managed care contracts.
Increase Contracts with Hospitals. The Company seeks to gain
additional exclusive hospital contracts through acquisitions of anatomic
pathology practices, as well as through the expansion of the Company's
existing relationships with multi-hospital systems. The Company believes
that multi-hospital systems will benefit from contracting with a single
provider of pathology services in a geographic region. The Company's
management of inpatient laboratories also facilitates the growth of the
Company's outpatient services in the same region.
Achieve Operational Efficiencies. The Company believes that the
Practices will benefit from the management and administrative support the
Company provides. To maximize operational efficiencies, the Company is
implementing systems in which a small corporate staff develops policies
that are implemented by the Practices locally, on a day-to-day basis. The
corporate staff will also provide oversight, centralize reporting and other
administrative functions. The Company intends to achieve operational
efficiencies by centralizing certain functions, enhancing Practice
efficiency and utilization and
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using its size to negotiate discounts on laboratory equipment, other
medical supplies and health and malpractice insurance. The Company intends
to centralize financial reporting, payroll and benefits administration, and
regulatory compliance. The Company plans to introduce "bench-marking"
programs to enhance the efficiency of the Practices. In certain markets,
the Company intends to develop a regional business model with centralized
administrative functions, common marketing plans, and integrated courier
systems.
REGIONAL BUSINESS MODEL
Through the implementation of its strategies, the Company intends to
develop integrated networks of anatomic pathology practices on a regional basis.
These networks will consist of a number of practices that together, (i) have a
substantial market presence; (ii) offer a broad range of services; (iii) have an
extensive referral base; and (iv) possess complementary strengths and offer
operating efficiencies. The Company is currently developing its regional
business model in Florida. The Company believes that Florida represents an
attractive market due to its population demographics, including the growth of
the general population and a large population of senior citizens, as well as the
Company's familiarity and understanding of the anatomic pathology market in
Florida. The Company owns seven anatomic pathology practices in Florida that
extend from Miami to Orlando and from Fort Myers to Tampa. Together, these
Practices employ a total of 399 persons, including 58 Affiliated Physicians,
have contracts with 29 hospitals and 16 outpatient surgery centers and operate
six outpatient laboratories. In addition, five of the Affiliated Physicians
maintain faculty affiliations at medical schools in Florida, including the
University of Miami and the University of Florida, which positions enhance their
relationships with the medical community in Florida. The Company's contract with
SmithKline Beecham PLC ("SmithKline"), a national clinical laboratory, to
provide anatomic pathology services, on an exclusive basis, in seven counties in
Florida was expanded in November 1996 to include 59 of Florida's 67 counties.
The Company believes that this regional business model offers short and
long term benefits to the Company, attending physicians, third party payors and
patients. The Company is integrating the administrative functions, including the
billing and collection function, of three Practices and expects such integration
to result in enhanced operational efficiencies. The Company has consolidated
outpatient billing for two Practices at the Company's Fort Lauderdale
administrative office. The Company's courier system for transporting specimens
enables the Practices to penetrate areas outside their current markets and
enhance the utilization of their laboratory facilities. The Company is also
integrating and coordinating the marketing personnel of the Practices to
effectively promote the Practices to physicians, hospitals, managed care
organizations and national clinical laboratories to enhance the growth of the
Company. This marketing effort is based upon promoting the broad geographic
coverage and extensive professional services the Company offers. The Company's
strategy is to leverage its size to extend contracts with national clinical
laboratories to all of the Practices in Florida. The Company intends to market
its services under the name "AmeriPath" to develop a branded set of products and
services to payors and other clients. The Company plans to integrate the
Practices' management information systems into a single system that will expand
the financial and clinical reporting capabilities of each of the Practices. The
Company believes that implementation of this regional model will increase the
revenues of the Practices in the region. The Company plans to apply this
regional business model to Practices in other states.
AFFILIATION STRUCTURE
AmPath is a holding company that manages pathology practices through eight
subsidiaries and long-term contracts with the three PA Contractors. Each
Practice is either a subsidiary or a PA Contractor. AmPath controls all
non-medical functions of the Practices, including financial reporting, human
resources, payroll, billing, employee benefits and accounting. In Texas and
Ohio, the Affiliated Physicians are employed by the PA Contractors. In Florida,
Alabama and Kentucky, the Affiliated Physicians are employed by AmPath
subsidiaries. The subsidiaries and PA Contractors also own and operate the
outpatient laboratories. See " -- Physician, PA Contractor and Other Contractual
Relationships."
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In Texas and Ohio, states that prohibit the corporate practice of medicine,
the Company or one of its subsidiaries has entered into a 40 year management
contract with a PA Contractor. Pursuant to the terms of these contracts, the
Company provides laboratory support services and all non-medical administrative
support functions to the PA Contractor. See "-- Physician, PA Contractors and
Other Contractual Relationships."
The Board of Directors and management formulate strategies and policies
which are implemented locally on a day-to-day basis by each Practice. Each
Practice has a Managing Director who reports to the Company's Chief Operating
Officer. Management, particularly the Company's Medical Director and Chief
Operating Officer, develop and review standards for the Affiliated Physicians
and their medical practices. The Chief Operating Officer supervises all
employment matters with respect to Affiliated Physicians and staffing decisions
at the Practices. The Company coordinates marketing activities, negotiates
managed care and national clinical laboratory contracts and creates and
supervises the implementation of budgeting, accounting, billing, finance,
personnel and administrative policies. The Company is currently consolidating
the accounting procedures and financial reporting systems of the Practices and
is implementing cash management and other fiscal control programs. The Company
is also developing personnel policies and uniform benefit plans for all
employees of the Company.
The Company employs, or has long-term contracts with PA Contractors who
employ, 80 pathologists, 77 of whom are board certified and three of whom are
board eligible in anatomic pathology. Thirty-five of the pathologists have
additional subspecialty board certifications in such areas as dermatopathology,
hematopathology and cytopathology. The experience and certification of the
Affiliated Physicians provide opportunities for immediate consultation in
complex cases among the internal network of Affiliated Physicians. Pathology is
a specialized field of medicine and is a core requirement in a dermatologist's
training. Through teaching at medical institutions, an Affiliated Physician has
an opportunity to develop a reputation and following among residents and
practicing physicians. Eleven Affiliated Physicians have teaching positions with
a university or an affiliation with another institution for training and
continuing medical education of physicians, particularly dermatologists. In
addition to salary and bonuses, the Company provides Affiliated Physicians with
benefit plans, group health insurance and physician malpractice insurance. See
"-- Insurance" and "-- Physician, PA Contractor and Other Contractual
Relationships."
The Company owns and operates 12 outpatient laboratories that provide
pathology services for dermatologists, gynecologists, gastroenterologists,
hematologists and surgeons, among other medical specialists. The Company is
responsible for (i) recruiting, training, employing and managing the technical
and support staff of the Practices; (ii) establishing and maintaining courier
services to transport specimens; (iii) negotiating and maintaining leases for
the outpatient facilities; (iv) providing clerical, accounting, purchasing,
payroll, legal and bookkeeping and computer services and personnel of the
Practices; and (v) complying with applicable laws and regulations. All of the
Company's outpatient laboratories are licensed under the guidelines established
by the federal Clinical Laboratory Improvement Act ("CLIA") and applicable state
statutes and are managed by the medical director of the laboratory. Seven
outpatient laboratories are accredited by the College of American Pathology. The
Company's quality assurance and quality improvement programs are designed to
assure that all laboratories are in compliance with applicable law. Each of the
Company's laboratories has a management information system and modern laboratory
instrumentation that enables laboratory personnel to track, process, report and
archive biopsies and other specimens.
The Practices contract with hospitals to provide pathology services. The
Company staffs each hospital with at least one pathologist who generally serves
as the medical director of the laboratory, which facilitates the hospital's
compliance with licensing requirements. The Company is responsible for
recruiting, staffing and scheduling the Affiliated Physicians in the hospital's
inpatient laboratories. In addition to providing pathology services, the medical
director of the laboratory is responsible for (i) the overall management of the
laboratory, including quality of care, professional discipline, and utilization
review; (ii) serving as a liaison to the hospital administrators and medical
staff; and (iii) maintaining professional and public relations in the hospital
and the community. Three Practices have both outpatient laboratories and
hospital contracts which allow outpatient specimens to be processed and examined
in inpatient laboratories, which enhances utilization of Affiliated Physicians
in inpatient facilities. In 42 hospital contracts, technical personnel are
employed by the hospital,
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rather than by the Company. In three Practices, the Company has a centralized
histology laboratories which serves the needs of multiple hospitals.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that the integration of its laboratory information,
billing and collections and financial reporting systems will enable it to cost
effectively monitor the operations of the Practices, enhance utilization of the
Affiliated Physicians, develop practice protocols and archives and provide the
Company with a competitive advantage in negotiating national clinical laboratory
and managed care contracts. Each of the Company's laboratories has a management
information system and modern laboratory instrumentation that enables laboratory
personnel to track, process, report and archive biopsies and other specimens. In
1995, the Company acquired an outpatient billing and collections software
program and upgraded its computer hardware to increase operating efficiency and
storage capacity at its Fort Lauderdale administrative office. The Company is in
the process of installing a complete general ledger and financial reporting
system to handle the accounting for the Practices and facilitate the
consolidation of billing and financial information.
Historically, the Company and three of the Practices have outsourced their
inpatient billing and collections functions to Medaphis Physician Services
Corporation ("Medaphis"), a national provider of physician billing services. The
Company entered into a new contract with Medaphis in September 1996 to provide
inpatient billing services for 20 hospital contracts with rates tied to billing
volume. Prior to their acquisition, the Practices either managed their billing
and collections in house or outsourced those functions. In the course of
acquiring the Practices, the Company analyzed and evaluated each of the billing
and collections systems. Based on such evaluations, the Company assumed
outpatient billing for two Practices at the Company's centralized billing
operation at its Fort Lauderdale administrative office and may transfer
additional inpatient billing for two Practices to Medaphis. The Company invested
$332,000 and $302,000 in information systems in 1995 and for the nine months
ended September 30, 1996, respectively, and plans to invest approximately $1.2
million in the fourth quarter of 1996 and $500,000 in 1997 to increase the
capacity of its centralized outpatient billing system and laboratory information
systems at its Fort Lauderdale administrative office. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." In 1997, the Company expects to
complete the integrated management information system that electronically links
the accounting, billing and collection systems of the Practices. While no
assurance can be given, the Company intends to complete an integrated management
information system that electronically links the laboratory information systems
of its existing Practices in 1998.
MARKETING
The Company's marketing efforts are focused on physicians, hospital and
outpatient surgery center administrators, national clinical laboratories and
managed care organizations. Prior to being acquired by the Company, the
Practices' marketing efforts were primarily based upon the professional
reputations and individual efforts of the pathologists. The Company believes
that there is an opportunity to capitalize on the professional reputations of
the Affiliated Physicians by hiring experienced personnel and applying
professional sales and marketing techniques to the Practices. Historically, the
Practices marketed outpatient services primarily to dermatologists. The Company
intends to increase its volume of business by also directing its marketing
efforts to other medical specialists, including gynecologists, urologists and
gastroenterologists. Since specimens may be sent by courier service or overnight
delivery, the Company will utilize its sales professionals to expand the
potential geographic market for each Practice beyond its local physician
community. Several of the Practices currently market their outpatient services
to a broad geographic area including neighboring states. The Company intends to
augment its 14 person sales force with additional sales personnel. These
representatives will report to the Company's Vice President of Sales, who
assists in the development of the Company's marketing strategies and is
responsible for their implementation.
The Company has contracts with 46 hospitals, 20 of which are owned by
Columbia/HCA, the country's largest publicly-owned hospital company. The Company
plans to dedicate members of its professional sales force to meet the needs of
multi-hospital systems with facilities of 400 or fewer beds. The Company
believes it
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<PAGE> 46
can assist multi-hospital systems which currently have numerous contracts for
pathology services by serving as a single source provider of pathology services.
The Company's marketing effort will be directed toward consolidating the various
contracts of multi-hospital systems on a regional basis and thus facilitating
more efficient operation of multiple laboratories owned by such systems. See
"-- Regional Business Model."
Four Practices have an aggregate of six contracts with two national
clinical laboratories, SmithKline and Laboratory Corporation of America Holdings
("LabCorp"), on a local basis. The Company is directing marketing efforts to
national clinical laboratories to expand these contracts on a regional basis to
additional Practices as well as to enter into new contracts. In addition, the
Company is seeking to secure new contracts and expand existing contracts with
managed care organizations for the provision of anatomic pathology services. The
Company is prepared to enter into flexible arrangements with managed care
organizations, including on a discounted fee-for-service or capitated contract
basis. The Company does not believe that contracting directly with managed care
organizations will adversely affect the Company's relationships with national
clinical laboratories because anatomic pathology services are not part of a
national clinical laboratory's core business.
CLIENT AND PAYOR RELATIONSHIPS
The Company provides services to a wide variety of healthcare providers and
payors including physicians, government programs, indemnity insurance companies,
managed care organizations and national clinical laboratories. Physicians that
are not affiliated with a hospital or managed care organization are a principal
source of the Company's business. Fees for anatomic pathology services rendered
to the physicians are billed either to the physicians, the patient, or the
patient's third party payor. The Company's hospital contracts grant it the
exclusive right and responsibility to manage the pathology services at the
hospital. In this capacity, the Practices provide pathology services to staff
physicians and support personnel and administrative services for the laboratory,
as well as an Affiliated Physician who serves as the medical director of the
laboratory. Upon initiation, the contracts typically have terms of one to five
years. Thereafter, the contracts typically renew for additional terms of one
year unless otherwise terminated by either party. Since most of the contracts
have passed their initial term, 35 hospital contracts are currently subject to
renewal on an annual basis. One of the 11 remaining contracts is subject to
renewal in 1997. The contracts typically provide that the hospital may terminate
the agreement prior to the expiration of the initial or renewal term. With
respect to 42 hospital contracts, technical laboratory support personnel are
employed by the hospital, rather than by the Company. The Company is responsible
for the training and supervision of technical personnel who are employed by the
hospitals. As the medical director of the laboratory, the Affiliated Physician
may be responsible for hiring and terminating laboratory personnel. Neither the
Company nor any Practice prior to its acquisition has lost a contract in a
hospital with ongoing operations.
The national clinical laboratories that contract with managed care
organizations perform clinical laboratory services and generally subcontract
anatomic pathology services to large practices. Under these contracts, the
practices bill national clinical laboratories on a fee schedule basis. The
Company's contracts with national clinical laboratories provide for the
exclusive subcontracting of anatomic pathology services for clients of the
national clinical laboratories in a defined geographic area. These contracts
have terms of one to three years and generally provide for automatic renewal for
additional one to three year terms. The Company's relationships with managed
care organizations typically provide for the provision of services to their
participants on the basis of an agreed upon fee schedule.
PHYSICIAN, PA CONTRACTOR AND OTHER CONTRACTUAL RELATIONSHIPS
The Company employs pathologists, or contracts with the PA Contractors who
employ pathologists, to provide medical services in hospitals and in other
inpatient and outpatient laboratories. The employment agreements typically have
terms of five years and generally can be terminated at any time upon 60 to 180
days' notice. The Affiliated Physicians generally receive a base salary and a
performance bonus. The Affiliated Physicians are required to hold a valid
license to practice medicine in the jurisdiction in which the pathologist
practices and, with respect to inpatient services, to become a member of the
medical staff at the contracting hospital with privileges in pathology. The
Company is responsible for billing patients, physicians and third
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<PAGE> 47
party payors for services rendered by the Affiliated Physicians. Substantially
all of the Affiliated Physicians have agreed, for a period of one to two years
after termination of employment, not to compete with AmeriPath or the PA
Contractor within a defined geographic area and not to solicit Affiliated
Physicians, other employees or certain clients of the Company. See "Risk
Factors -- Professional Liability and Insurance."
AmeriPath has management agreements with three PA Contractors in Texas and
Ohio (the "PA Management Agreements"). In Texas, the Texas PA is owned by an
Affiliated Physician, who is licensed in the state of Texas and is also an
officer of the PA Contractor. In Ohio, the PA Contractors are owned by a trust,
of which AmPath is the sole beneficiary. Under the PA Management Agreements, the
Company has control over all non-medical functions of the PA Contractors,
including all administrative, management, billing and support functions. The PA
Contractors pay AmeriPath a management fee for its services. In Ohio, the fee is
equal to the net revenue of the pathology practice. In Texas, the management fee
consists of a flat base fee, which is determined on an annual basis according to
the operating plan of the Practice, and a performance-based percentage fee,
which may be paid if the performance of the Practice exceeds budgeted targets.
The management fee may be adjusted from time to time to reflect industry
standards, the range of services provided by the PA Contractor and the level of
performance of AmeriPath. Each of the PA Management Agreements have terms of 40
years and are subject to renegotiation at the end of such term. See "Risk
Factors -- Government Regulation" and "Risk Factors -- Dependence on
Pathologists."
Acquisition Management Services, Inc. ("AMS") has served as the Company's
consultant in implementing its acquisition program. AMS has assisted the Company
with matters relating to human resources, due diligence, financial analyses,
valuations, projections, strategic analyses and negotiation of the Recent
Acquisitions. AMS performs its services for the Company on a non-exclusive,
independent contractor basis and is indemnified by the Company for actions other
than fraud, gross neglect or willful misconduct. Since the Company believes that
AMS's services have increased the efficiency of the Company's acquisition
process, the Company expects to continue to use AMS's services in the near term.
GOVERNMENT REGULATION
The Company's operations and relationships are subject to a variety of
governmental and regulatory requirements relating to the conduct of its
business. The Company is also subject to laws and regulations which relate to
business corporations in general. The Company believes that it exercises care in
an effort to structure its practices and arrangements with hospitals and
physicians to comply with relevant federal and state law and believes that such
arrangements and practices comply with all applicable statutes and regulations.
The Company derived 55.9%, 55.8% and 34.9% of its net collections for the
year ended December 31, 1995 and the nine months ended September 30, 1996 and on
a pro forma basis for the nine months ended September 30, 1996, respectively,
from payments made by government-sponsored healthcare programs (principally
Medicare and Medicaid). The decrease in the percentage of net revenue is
attributable to government sponsored healthcare programs resulting primarily
from the acquisition of Practices outside Florida. These programs are subject to
substantial regulation by the federal and state governments. Any change in
reimbursement regulations, policies, practices, interpretations or statutes that
places substantial limitations on reimbursement amounts or practices could
adversely affect the Company's financial condition and results of operations.
Increasing budgetary pressures at both the federal and state level and the
rapidly escalating costs of healthcare and reimbursement programs have led, and
may continue to lead, to significant reductions in government reimbursements for
certain medical charges and elimination of coverage for certain individuals
under these programs. Federal legislation could result in a reduction of
Medicare and Medicaid funding or an increase in state discretionary Medicaid
funding, or a combination thereof. Particularly in view of the fact that
Medicaid is a substantial and growing portion of state budgets, increases in
state discretion could result in payment reductions. Although governmental
payment reductions have not materially affected the Company in the past, it is
possible that changes in the future could have a material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction." In addition, Medicare, Medicaid and other
government sponsored healthcare programs are increasingly shifting to managed
care. Some states have
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<PAGE> 48
recently enacted legislation to require that all Medicaid patients be treated by
managed care organizations, and similar legislation may be enacted in other
states, which could result in reduced payments to the Company for such patients.
Funds received under these programs are subject to audit with respect to the
proper billing for physician services and, accordingly, retroactive adjustments
of revenue from these programs may occur. The Company expects that there will
continue to be proposals to reduce or limit Medicare and Medicaid
reimbursements. The Company cannot predict at this time whether or when any of
such proposals will be adopted or, if adopted and implemented, what effect such
proposals would have on the Company. There can be no assurance that payments
under government sponsored healthcare programs will remain at levels comparable
to present levels. See "Risk Factors -- Reliance Upon Government Programs" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction."
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration intended to compensate for the referral of Medicare,
Medicaid and certain other federal health program patients or patient care
opportunities, or in return for the purchase, lease or order of items or
services that are covered by Medicare, Medicaid or certain other government
health programs. In addition, absent an applicable exception, federal law
prohibits the referral of Medicare or Medicaid patients for designated health
services, which include laboratory services, to entities which have specific
types of financial relationships with the referring physician. One of the
relationships that results in a prohibition of referrals is ownership of certain
securities. Although there is an exception in the law for the ownership of
certain publicly held securities, the Common Stock does not currently qualify
for this exception. Consequently, no physician owning Common Stock will be able
to make referrals to the Company. The Company intends to notify referring
physicians of this prohibition. Violation of these laws can result in
substantial penalties and exclusion from the Medicare and Medicaid programs.
Each of the states in which the Company does business, except Alabama, have
anti-kickback, anti-fee splitting and self-referral laws that are similar to the
federal laws, apply to all payors and impose substantial penalties for
violations. Certain of these laws contain exceptions for relationships with
pathologists and group practices. Although the Company believes that its
operations do not violate these federal or state laws, which are commonly known
as the "anti-kickback" and "self-referral" statutes, there can be no assurance
that its activities will not be challenged by regulatory authorities seeking to
enforce these laws. See "Risk Factors -- Effect of Government Regulation."
Business corporations are generally not permitted under state law to
practice medicine, exercise control over the medical judgments or decisions of
physicians, or engage in certain practices such as fee-splitting with
physicians. In states where the Company is not permitted to practice medicine,
the Company performs only non-medical administrative services, does not
represent to the public or its clients that it offers medical services and does
not exercise influence or control over the practice of medicine by the PA
Contractors or the Affiliated Physicians employed by the PA Contractors.
Accordingly, the Company believes it is not in violation of applicable state
laws relating to the practice of medicine. In states where judicial or
governmental interpretations exist that may prohibit the corporate practice of
medicine, the Company contracts with the PA Contractors (which are owned by a
licensed physician employed by the respective PA Contractor), which in turn
employ or contract with physicians to provide necessary physician services.
There can be no assurance that regulatory authorities or other parties will not
assert that the Company is engaged in the corporate practice of medicine. If
such a claim were successfully asserted in any jurisdiction, AmeriPath could be
subject to civil and criminal penalties under such jurisdiction's laws and could
be required to restructure its contractual arrangements. In addition, expansion
of the operations of the Company to other "corporate practice" states will
require similar structural and organizational modification of the Company's form
of relationship with PA Contractors or hospitals. Such results or the inability
to successfully restructure contractual arrangements could have a material
adverse effect on the Company's financial condition and results of operations.
See "Risk Factors -- State Laws Regarding Prohibition of Corporate Practice of
Medicine."
The Medicare and Medicaid fraud and abuse provisions apply to laboratories
participating in such programs. These provisions include prohibitions of
improper and unnecessary billing for tests under these programs. Penalties for
violations of these federal laws include exclusion from participation in
Medicare and Medicaid programs, asset forfeitures and civil and criminal
penalties.
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In addition to current regulation, state and federal government sponsored
continue to focus significant attention on reforming the healthcare system in
the United States. A broad range of healthcare reform measures have been
introduced in Congress and in certain state legislatures. The U.S. Congress is
considering major reductions in the rate of increase of Medicare and Medicaid
spending as part of efforts to balance the budget of the United States. Although
the Company cannot predict whether these or other reductions in the Medicare or
Medicaid programs will be adopted, the adoption of such proposals could have a
material adverse effect on the Company's business. There can be no assurance
that any proposed or future healthcare legislation or other changes in the
administration or interpretation of government sponsored healthcare programs
will not have an adverse effect on the financial condition and results or
operations of the Company. Concern about such proposals has been reflected in
the volatility of the stock prices of companies in healthcare and related
industries. See "Risk Factors -- Possible Reform of Healthcare Industry" and
"-- No Prior Market; Volatility of Stock Price."
CLIA extends federal oversight to virtually all laboratories by requiring
that laboratories be certified by the government. Many laboratories must also
meet governmental quality and personnel standards, undergo proficiency testing
and be subject to biennial inspection. Rather than focusing on location, size or
type of laboratory, this extended oversight is based on the complexity of the
test performed by the laboratory. In 1992, the Department of Health and Human
Services ("HHS") published regulations implementing CLIA. The quality standards
and enforcement procedure regulations became effective in 1992. The quality
standards regulations divide all tests into three categories (waivered, moderate
complexity and high complexity) and establish varying requirements depending
upon the complexity of the test performed. A laboratory that performs high
complexity tests must meet more stringent requirements than a laboratory that
performs only moderate complexity tests, while those that perform only one or
more of eight routine "waivered" tests may apply for a waiver from most
requirements of CLIA. The Company's outpatient laboratories are certified by
CLIA to perform high complexity testing. Generally, the HHS regulations require
laboratories that perform high complexity or moderate complexity tests, to
implement systems that ensure the accurate performance and reporting of tests
results, establish quality control systems and have proficiency testing
conducted by approved agencies, and biennial inspections. The sanction for
failure to comply with these regulations may be suspension, revocation or
limitation of a laboratory's CLIA certificate necessary to conduct business,
significant fines and criminal penalties. The loss of a license, imposition of a
fine or future changes in such federal, state and local laws and regulations (or
in the interpretation of current laws and regulations) could have a material
adverse effect on the Company's financial condition and results of operations.
The Company is also subject to state regulation. CLIA provides that a state may
adopt more stringent regulations than federal law. For example, state law may
require that laboratory personnel meet certain qualifications, specify certain
quality controls, maintain certain records and undergo proficiency testing.
In addition, the Company is subject to licensing and regulation under
federal, state and local laws relating to the handling and disposal of medical
specimens, infectious and hazardous waste and radioactive materials as well as
to the safety and health of laboratory employees. All Company laboratories are
operated in accordance with applicable federal and state laws and regulations
relating to the disposal of all laboratory specimens and other biohazardous
waste and the Company utilizes licensed vendors for disposal of such specimens.
Although the Company believes that it is currently in compliance with such
federal, state and local laws, failure to comply could subject the Company to
denial of the right to conduct business, fines, criminal penalties or other
enforcement actions.
In addition to its comprehensive regulation of safety in the workplace, the
federal Occupational Safety and Health Administration ("OSHA") has established
extensive requirements relating to workplace safety for healthcare employers,
including clinical laboratories, whose workers may be exposed to blood-borne
pathogens, such as HIV and the hepatitis B virus. These regulations require work
practice controls, protective clothing and equipments, training, medical
follow-up, vaccinations and other measures designed to minimize exposure to, and
transmission of, blood-borne pathogens. Regulations of the Department of
Transportation, the Public Health Services and the U.S. Postal Service also
apply to the transportation of laboratory specimens.
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INSURANCE
The Company's business entails an inherent risk of claims of physician
professional liability. Prior to the Recent Acquisitions, the Practices had
coverages ranging from $500,000 to $5.0 million per occurrence, and $1.0 million
to $8.0 million in the annual aggregate. In October 1996, the Company
consolidated its medical liability coverages with Steadfast Insurance Company
(Zurich-American), whereby each of the Affiliated Physicians is insured with
primary limits of $1.0 million per occurrence and $5.0 million in the annual
aggregate, and share with the Company in surplus coverage of up to $15 million
per occurrence, and $20.0 million in the aggregate. The policy also provides
prior acts coverage for each of the Affiliated Physicians with respect to the
Practices prior to the their acquisition by the Company. Pursuant to the terms
of the purchase agreements for the Recent Acquisitions, the Company has certain
limited rights of indemnification from the sellers of the Practices. The Company
also maintains property and umbrella liability insurance policies. While the
Company believes that its insurance is adequate for the Company's business,
there can be no assurance that a future successful claim will not exceed the
limits of available insurance coverage or that such coverage will continue to be
available at acceptable costs and on favorable terms. See "Risk
Factors -- Professional Liability and Insurance" and "-- Legal Proceedings."
COMPETITION
The Company is under competitive pressures for the acquisition of pathology
practices. Several companies, both publicly traded and privately held and which
may have greater resources than the Company, are pursuing the acquisition of
practices. In addition, companies in other healthcare segments, such as
hospitals and HMOs, many of which have greater financial and other resources
than the Company, may pursue the acquisition of practices. There can be no
assurance that new competitors will not enter the market, or that such
competition will not make it more difficult for the Company to acquire practices
on favorable terms. The Company competes for acquisitions on the basis of the
reputation of the Practices, its management experience and its focus on anatomic
pathology.
The Company also competes and will continue to compete with independent
national clinical laboratories and anatomic pathology practices. In addition,
some hospitals, clinics, healthcare companies, managed care organizations and
insurance companies provide services similar to those provided by the Company.
Companies in other healthcare industry segments such as managers of other
hospital-based specialties or large physician group practices, some of which
have financial and other resources greater than those of the Company, may become
competitors in providing pathology services. The Company believes that the
professional reputation of the pathologist, the price charged for pathology
services, the scope of services offered, the ability to operate laboratories and
geographic coverage are the principal competitive factors in selecting a
provider of pathology services. In several markets, the Company believes it has
a competitive advantage due to its size and ability to provide services over a
broad geographic area.
SERVICE MARKS
The Company has registered the service mark "AmeriPath" and
"Ameripath -- Integrated Pathology Services" with the United States Patent and
Trademark Office, and has also filed applications for registration of the
Company's name and logo.
EMPLOYEES
At November 22, 1996, there were 565 persons, including 80 Affiliated
Physicians, employed by or under contract with the Company. Of the Affiliated
Physicians, 73 are employed by subsidiaries of the Company and seven are
employed by PA Contractors. The Company's employees include 236 laboratory
technicians, 56 couriers, 193 billing, marketing and administrative staff, of
which 13 personnel are located at the Company's executive offices. None of the
Company's employees are subject to collective bargaining agreements. The Company
believes that its relations with its employees are good.
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PROPERTIES
The Company leases its executive offices located in Riviera Beach, Florida
(approximately 4,000 square feet), its billing and administrative office in Fort
Lauderdale, Florida (approximately 3,500 square feet) and leases 16 other
facilities: ten in Florida, one in Alabama, two in Kentucky, two in Ohio and one
in Texas. See "Certain Transactions." These facilities are used for laboratory
operations, administrative and billing and collections operations and storage
space. The 16 facilities encompass an aggregate of approximately 71,000 square
feet, have an aggregate annual rent of approximately $742,000 and have lease
terms expiring from 1997 to 2006. As laboratory leases are scheduled to expire,
the Company will consider whether to extend or renegotiate the existing lease or
move the facility to another location within the defined geographic area of the
Practice.
LEGAL PROCEEDINGS
During the ordinary course of business, the Company has become and may in
the future be subject to pending and threatened legal actions and proceedings.
The Company may have liability with respect to its own employees as well as with
respect to hospital employees who are under the supervision of Affiliated
Physicians. The majority of the pending legal proceedings involve claims of
medical malpractice, particularly cytology, and are generally covered by
insurance. Based upon the investigations conducted to date, the Company believes
that the outcome of such legal actions and proceedings, individually or in the
aggregate, will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity. If liability results from medical
malpractice claims, there can be no assurance that the Company's medical
malpractice insurance coverage will be adequate to cover liabilities arising out
of such proceedings. See "Risk Factors -- Professional Liability and Insurance."
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
--------------------------------------- --- ---------------------------------------
<S> <C> <C>
James C. New(1)(2)..................... 51 President, Chief Executive Officer and
Director
Alan Levin, M.D........................ 45 Chief Operating Officer and Director
Robert P. Wynn......................... 50 Executive Vice President and Chief
Financial Officer
Michael J. Demaray, M.D................ 51 Executive Vice President, Medical
Director and Director
Annette L. Bell........................ 38 Vice President of Sales
Stephen V. Fuller...................... 41 Vice President of Human Resources
Thomas S. Roberts(1)(2)(3)............. 33 Chairman of the Board
Timothy Kilpatrick, M.D................ 41 Director and Managing Director of
Derrick
E. Roe Stamps, IV(3)................... 51 Director
</TABLE>
- ---------------
(1) Member of Acquisition Review Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
The Company's Board of Directors intends to appoint at least two additional
directors who are not affiliated with the Company within 90 days of the
consummation of this offering. The additional directors will serve on the
Compensation Committee and the Audit Committee and have not been identified as
of the date of this Prospectus.
James C. New has been the President, Chief Executive Officer and a director
of AmeriPath since January 1996. Prior to joining AmeriPath, Mr. New served as
President and as a director of RehabClinics, Inc., one of the largest outpatient
rehabilitation companies in the country, which he formed in 1991. RehabClinics
completed its initial public offering in June 1992 and merged with NovaCare,
Inc. in February 1994. Mr. New was President of NovaCare, Inc.'s Outpatient
Division from 1994 to 1995. Prior to founding RehabClinics, Inc., he served as
President of Greater Atlantic Health Service and Physicians Choice of
Southeastern Pennsylvania, a start-up HMO. From 1993 through 1996, Mr. New was
the Chairman of the Acquisition Committee of the Board of Directors of Pet
Practice, Inc. From 1978 to 1985, Mr. New served in various executive positions
at Textron, Inc. and Emerson Electric, Inc.
Alan Levin, M.D. has been Chief Operating Officer since September 1996. He
became a director and an Affiliated Physician in June 1996 after the Company
acquired Derrick. Prior to that, he served on the Board of Directors of Derrick
since 1987, as Treasurer from 1990 to 1994, and President from 1994 until the
acquisition of Derrick. Dr. Levin has 14 years experience as a pathologist and
is board certified in anatomic and clinical pathology. He serves as the medical
director of the inpatient pathology laboratory at Columbia Medical Center, Port
St. Lucie, Florida, and as a member of that hospital's Board of Trustees. Since
1990, he has served as an advisor to Florida's State Agency for Healthcare
Administration. Dr. Levin received his B.A. from Emory University and his M.D.
from the University of Miami Medical School. He performed his medical oncology
internship at Jackson Memorial Hospital and completed his anatomic and clinical
pathology residency at Mount Sinai Medical Center in Miami, Florida.
Robert P. Wynn has served as the Executive Vice President and Chief
Financial Officer since February 1996. He served as Vice President and Chief
Operating Officer of ALA from August 1993 to 1996. Mr. Wynn was Vice President
and Chief Financial Officer of International Magnetic Imaging, Inc. ("IMI"),
from May
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1991 until August 1993. Prior to joining IMI, Mr. Wynn, a certified public
accountant, was an audit partner with Deloitte, Haskins & Sells (predecessor to
Deloitte & Touche LLP). Mr. Wynn has over 26 years of experience in finance and
accounting. Mr. Wynn received his B.S. in Accounting from King's College in
Pennsylvania.
Michael J. Demaray, M.D. has been a director and the Medical Director of
AmeriPath since the Share Exchange in 1996 and was a director of ALA from the
Recapitalization to 1996. Dr. Demaray is also an Affiliated Physician. Along
with Dr. Poulos, he founded ALA in 1982 and was Vice President of that entity
until February 1996. He has 20 years experience as a pathologist and is
board-certified in anatomic and clinical pathology, as well as in
dermatopathology. He serves as Director of Pathology at each of Columbia
Northwest Regional Hospital in Margate, Florida and Columbia Pompano Beach
Medical Center in Pompano Beach, Florida. In addition, Dr. Demaray is an
Associate Pathologist at North Ridge Medical Center in Fort Lauderdale, Florida.
Dr. Demaray received his B.A. from DePauw University and his M.D. from Michigan
State University. He completed his residency in pathology at Jackson Memorial
Hospital at the University of Miami.
Annette L. Bell has been Vice President of Sales since September 1996. She
was Director of Sales and Marketing for ALA from 1990 to 1996 and for AmeriPath
since February 1996. From 1987 to 1989, Ms. Bell held various positions with HSN
Health Services, Inc., a subsidiary of Home Shopping Network, Inc., including
District Sales Manager. Ms. Bell has over 15 years experience in sales and
marketing. She attended Purdue University and Pensacola Christian College.
Stephen V. Fuller has been Vice President of Human Resources since November
1996. From 1993 to 1996, he served as Vice President, Human Resources for
Columbia Miami Heart Institute, a 315-bed full service hospital. From 1991 to
1993, Mr. Fuller served as Director, Human Resources for Delray Community
Hospital, an acute care trauma hospital with over 200 beds and 1,400 employees.
From 1990 to 1991, he served as Vice President, Human Resources for Hialeah
Hospital, a 411-bed hospital with 1,250 employees. Mr. Fuller is a Certified
Senior Professional in Human Resources with over 15 years experience in
healthcare human resources. He received his Bachelor of Science in Personnel
Management and Industrial Relations from Auburn University and his Masters of
Business Administration from Nova Southeastern University.
Thomas S. Roberts has been a director of the Company since the Share
Exchange in 1996 and was a director of ALA from the Recapitalization to 1996.
Mr. Roberts is a General Partner of Summit Partners, a general partnership
venture capital firm which is the general partner of various venture capital
funds (including Summit Ventures III, L.P. and Summit Investors II, L.P., and
Summit Subordinated Debt Fund, L.P., stockholders of the Company). Mr. Roberts
has been employed with Summit Partners in various positions since 1989. Mr.
Roberts is also a director of AMX Corporation, Catalyst International, Inc.,
Intelligroup, Inc. and PowerCerv Corporation, as well as several privately held
companies.
Timothy Kilpatrick, M.D. has been a director of the Company and an
Affiliated Physician since June 1996 when the Company acquired Derrick. He has
also been Managing Director of Derrick since October 1996. Dr. Kilpatrick was a
shareholder and employee of Derrick since 1986. From 1995 until June 1996, Dr.
Kilpatrick was Vice President of Derrick and from 1992 until June 1996, Chairman
of its Strategic Planning Committee. He has 11 years experience as a pathologist
and is board certified in anatomic and clinical pathology, as well as in
Dermatopathology. Dr. Kilpatrick received his B.S. from the University of
Florida and his M.D. from the University of Florida, College of Medicine. He
completed his residency in pathology at Bowman Gray School of Medicine.
E. Roe Stamps, IV has been a director of the Company since the Share
Exchange in 1996 and was a director of ALA from the Recapitalization to 1996.
Mr. Stamps has more than 22 years experience in venture capital investing and is
the Managing General Partner of Summit Partners. He has served on the board of
numerous private and public companies. Mr. Stamps is currently the Chairman of
the Board of Boca Research, Inc. and is a director of Pediatrix Medical Group,
Inc.
After this offering, the Company expects that it will pay each director who
is neither an employee nor associated with one of the Company's principal
stockholders a $1,000 fee for each meeting of the Board of
49
<PAGE> 54
Directors attended in person by such director, $500 for each meeting of a
committee of the Board of Directors attended in person, which meeting is not
held in conjunction with a regular Board of Directors meeting, and fees of $500
and $250 for each Board of Directors meeting and committee meeting, respectively
attended by telephone conference. The Company expects that outside directors
will also be eligible to receive options to purchase shares of Common Stock
pursuant to the Directors Option Plan. The Company also reimburses all directors
for out-of-pocket expenses incurred in connection with the rendering of services
as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1996, the Board of Directors established a Compensation Committee to
administer the Option Plan consisting of Messrs. Roberts and Stamps. All
compensation decisions affecting Mr. New were approved by the Company's
directors, exclusive of Mr. New.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the total
compensation paid or accrued by the Company, for services rendered during 1995,
to the Company's Chief Executive Officer and certain other officers whose total
1995 salary and bonus exceeded $100,000 (collectively the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------------
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)
- ------------------------------------------------------------------- ------ --------- --------
<S> <C> <C> <C>
James C. New(2).................................................... 1995 $ -- $ --
President and Chief Executive Officer
Alan Levin, M.D.(3)................................................ 1995 -- --
Chief Operating Officer
Michael J. Demaray, M.D.(4)........................................ 1995 350,000 0
Executive Vice President and Medical Director
Robert P. Wynn(5).................................................. 1995 128,725 25,000
Executive Vice President and Chief Financial Officer
Annette L. Bell(6)................................................. 1995 64,592 58,927
Vice President of Sales
</TABLE>
- ---------------
(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in such columns. The aggregate
amount of perquisites and other personal benefits provided to each Named
Officer is less than 10% of the total annual salary and bonus of such
officer.
(2) Mr. New's employment with the Company commenced in January 1996. See
"-- Employment Agreements" for a description of Mr. New's current
compensation.
(3) Dr. Levin was employed by Derrick during 1995. His employment with the
Company commenced in June 1996 in connection with the acquisition of
Derrick. As of September 1996, Dr. Levin became the Chief Operating Officer
of AmPath. See "-- Employment Agreements" for a description of Dr. Levin's
current compensation.
(4) Dr. Demaray was employed by ALA during 1995. Dr. Demaray is currently
employed as an Affiliated Physician and is also employed by AmPath as its
Medical Director.
(5) Mr. Wynn was employed by ALA during 1995, and was acting in the capacity of
ALA's chief executive officer. Mr. Wynn is currently employed by AmPath as
its Executive Vice-President and Chief Financial Officer.
(6) Ms. Bell was employed by ALA during 1995. Bonus amounts paid to Ms. Bell
include commissions.
OPTIONS
The Company did not grant any options to the Named Officers during the year
ended December 31, 1995.
50
<PAGE> 55
Year End Option Table. The following table sets forth information
regarding exercise of options and the number and value of options held at
December 31, 1995 by each of the Named Officers. No options were exercised
during 1995 by such executives.
AGGREGATE UNEXERCISED OPTIONS AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END(#) AT YEAR END($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- ------------------------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James C. New(2)................................. -- -- -- --
Alan Levin, M.D.(2)............................. -- -- -- --
Michael J. Demaray, M.D......................... -- -- -- --
Robert P. Wynn.................................. 86,400 129,600 $ 1,113,696 $ 1,670,544
Annette L. Bell(2).............................. -- -- -- --
</TABLE>
- ---------------
(1) The value of the options is based on the difference between the option
exercise price $1.11 and the initial public offering price of the Common
Stock (based upon an assumed initial public offering price of $14.00)
multiplied by the number of shares of Common Stock underlying the option.
No market existed for the Common Stock prior to this offering.
(2) Does not include options to purchase 360,011, 36,000 and 18,000 shares of
Common Stock granted to Mr. New, Dr. Levin and Ms. Bell, respectively, in
1996.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. New effective
January 1, 1996. The agreement provides that Mr. New will receive a base salary
of $275,000 per year. In addition, for the year ending December 31, 1996 Mr. New
will receive a bonus equal to 25% of his base salary and up to an additional 25%
of his base salary upon attaining mutually agreed upon objectives relating to
the Company's performance. Upon termination of his employment by the Company for
reasons other than disability, death or cause, Mr. New will receive his base
salary and benefits for a period of 12 months. In connection with his
employment, Mr. New purchased 216,007 shares of Common Stock of the Company from
Summit and Schroder, and the Company granted him an option to purchase 360,011
shares of Common Stock.
In connection with the Recapitalization, the Company assumed ALA's
employment agreement with Mr. Wynn. The agreement, as amended, provides that Mr.
Wynn shall receive a base salary of $142,000 per year and may receive a
discretionary bonus based on his performance. In addition, for the year ended
December 31, 1996, Mr. Wynn shall receive a bonus equal to 35% of his base
salary upon attaining mutually agreed upon objectives relating to the Company's
performance. Upon termination of his employment without cause, Mr. Wynn shall
receive his base salary for a period of twelve months.
The Company entered into an employment with Dr. Levin as an Affiliated
Physician as of June 30, 1996 in connection with the acquisition of Derrick.
Effective October 1, 1996, the Company entered into an additional agreement with
Dr. Levin pursuant to which Dr. Levin became Chief Operating Officer of AmPath
and amended his employment agreement with AmeriPath Florida, Inc., the Florida
subsidiary of AmPath. The agreements provide for an annual salary of $255,000,
$155,000 of which is paid by AmPath and $100,000 of which is paid by AmeriPath
Florida, Inc. Beginning in 1997, Dr. Levin will be eligible to receive a bonus
of up to $25,000 per year, subject to achievement of performance objectives of
the Company. Upon termination by the Company other than for cause, Dr. Levin
will receive his annual salary for one year. In connection with his employment
as Chief Operating Officer, the Company granted options to purchase 36,000
shares of Common Stock.
In addition to their roles as executive officers and directors of the
Company, Drs. Levin, Demaray and Kilpatrick are also Affiliated Physicians and
have entered into separate employment agreements with the Company that govern
their relationship with the Company as an Affiliated Physician. These agreements
have
51
<PAGE> 56
terms of five years and provide for annual base salaries of $255,000, $350,000
and $255,000, respectively. Each employment agreement provides for a covenant
not to compete during such Affiliated Physicians' employment with a subsidiary
of AmeriPath and thereafter, for a period of two years with respect to Drs.
Levin and Kilpatrick and 18 months with respect to Dr. Demaray.
Pursuant to their respective employment agreements, Drs. Levin, Demaray and
Kilpatrick have agreed to devote their full business time to providing services
to the Company. The Company expects that Dr. Levin will devote approximately 80%
of his professional time to his responsibilities as Chief Operating Officer,
with the balance of his professional time being devoted to his activities as an
Affiliated Physician. The Company expects that Dr. Demaray will devote
approximately 30% of his professional time to his responsibilities as Executive
Vice President and Medical Director, with the balance of his professional time
being devoted to his activities as an Affiliated Physician.
Certain executive officers hold options to purchase Common Stock granted
under the Option Plan. Such options may be terminated by the Compensation
Committee of the Board of Directors upon: (i) a merger, consolidation or similar
corporate transaction in which ownership of more than 50% of the voting power of
the Company's voting stock is transferred; or (ii) a sale or other disposition
of all or substantially all of the Company's assets.
EMPLOYEE BENEFIT PLAN
The Company established a 401(k) retirement plan (the "401(k) Plan"), which
covers substantially all eligible employees who have reached age 21 and have
completed one year of service (as defined in the 401(k) Plan). Under the terms
of the 401k Plan, employees may contribute up to 15% of their compensation, as
defined. Employer contributions are discretionary. During 1994, 1995 and the
first nine months of 1996, the Company elected not to make a contribution to the
401k Plan.
OPTION PLAN
Under the Option Plan, 1,620,000 shares of Common Stock are reserved for
issuance upon exercise of stock options. The Option Plan is designed to retain
and motivate key employees and consultants or advisors who have an opportunity
to contribute to the success of the Company. After this offering, the
Compensation Committee will administer and interpret the Option Plan and be
authorized to grant options thereunder to all eligible employees of and
consultants or advisors to the Company, except that no incentive stock options
(as defined in Section 422 of the Internal Revenue Code) may be granted to a
consultant or advisor who is not also an employee of the Company or a
subsidiary.
The Option Plan provides for the granting of both incentive stock options
and nonqualified stock options. Options are granted under the Option Plan on
such terms and at such prices as determined by the Compensation Committee,
except that the per share exercise price of incentive stock options cannot be
less than the fair market value of the Common Stock on the date of grant. Each
option is exercisable after the period or periods specified in the option
agreement, but no option may be exercisable after the expiration of ten years
from the date of grant. Options granted to an individual who owns (or is deemed
to own) at least 10% of the total combined voting power of all classes of stock
of the Company or its subsidiary must have an exercise price of at least 110% of
the fair market value of the Common Stock on the date of grant and a term of no
more than five years. Incentive stock options granted under the Option Plan are
not transferable other than by will or by the laws of descent and distribution.
Nonqualified options granted under the Option Plan may be transferred with the
consent of the Compensation Committee, which consent may be given at the time
such options are granted. Unless otherwise determined by the Compensation
Committee, individuals holding options may exercise such options by delivering
cash or Common Stock pursuant to the cashless exercise procedures. The Option
Plan also authorizes the Company to make or guarantee loans to optionees to
enable them to exercise their options. Such loans must: (i) provide for recourse
to the optionee; (ii) bear interest at a rate no less than the prime rate of
interest of the Company's principal lender; and (iii) be secured by the shares
of Common Stock purchased. The Board of Directors and the Compensation Committee
the authority to amend or terminate the Option Plan, provided that no such
action may impair the rights of the holder of
52
<PAGE> 57
any outstanding option without the written consent of such holder, and provided
further that certain amendments of the Option Plan are subject to stockholder
approval. Unless terminated sooner, the Option Plan will continue in effect
until all options granted thereunder have expired or been exercised, provided
that no incentive stock options may be granted ten years after the effective
date of the Option Plan, which is February 15, 1996.
As of November 22, 1996, the Company has outstanding options to purchase an
aggregate of 990,011 shares of Common Stock under the Option Plan at a weighted
average exercise price of $4.23 per share, of which options, to purchase 97,200
shares of Common Stock are currently exercisable at November 22, 1996.
DIRECTOR OPTION PLAN
Under the Director Option Plan, 180,000 shares of Common Stock are reserved
for issuance upon exercise of stock options granted thereunder. The purpose of
the Director Option Plan is to attract and retain qualified and competent
persons to serve as members of the Board of Directors and to provide such
directors with additional incentive to contribute to the success of the Company
by providing them with an opportunity to have an equity interest in the Company.
The Board of Directors or a committee thereof administering the Director
Option Plan, (the "Administrator") is authorized to grant options ("Director
Options") thereunder and to determine the terms and conditions applicable to
such Director Options. Directors who are not employees of the Company are
eligible to receive Director Options. Directors receive an initial grant of an
option to purchase 5,000 shares of Common Stock upon their initial election to
the Board of Directors. Each Director Option is exercisable during the period
specified in the agreement evidencing the grant of such Director Option, but no
option may be exercisable ten years after the day of grant. The Board of
Directors and the Administrator have the authority to amend or terminate the
Director Option Plan without the consent of such optionholder, and provided
further that certain amendments of the Director Option Plan are subject to
stockholder approval. Unless terminated sooner, the Director Option Plan will
continue in effect until all Director Options granted thereunder have expired or
been exercised, provided that no options may be granted ten years after the
effective date of the Director Option Plan, which, subject to stockholder
approval, is November 21, 1996.
No Director Options have been granted as of the date hereof.
CERTAIN TRANSACTIONS
RECAPITALIZATION
Pursuant to the Recapitalization: (i) ALA acquired substantially all of the
assets and assumed substantially all of the liabilities of PDK for $20.5 million
in cash, $3.5 million principal amount of Senior Notes and $2.5 million
principal amount of Contingent Notes; (ii) Summit and Schroder Incorporated,
Schroder Ventures Limited Partnership and Schroder Ventures U.S. Trust
(collectively, "Schroder") purchased 3,088,116 shares of the Convertible
Preferred Stock for $5.5 million; and (iii) ALA issued an aggregate of 1,425,600
shares of common stock to Drs. Demaray, Poulos and Kowalczyk, the owners of PDK,
for an aggregate purchase price of $1.0 million. Summit and Schroder will
convert their shares of Convertible Preferred Stock into an aggregate of
5,558,609 shares of Common Stock prior to consummation of this offering.
Additionally, the Company issued an aggregate $7.5 million principal amount of
Junior Notes to Summit and Schroder and borrowed $7.5 million under its line of
credit to finance a portion of the acquisition of the net assets from PDK. A
financing fee of $190,000 was paid to Summit in connection with these
transactions. The Company has reserved 5,558,609 shares of Common Stock for the
conversion of the Convertible Preferred Stock.
In the Recapitalization, each of Drs. Demaray, Poulos and Kowalczyk
received the following from the Company: (i) a cash distribution of $6.8
million; (ii) Senior Notes in the principal amounts of $1.2 million; and (iii)
Contingent Notes in the principal amounts of $833,000. The Contingent Notes were
payable in annual installments of $500,000, plus interest thereon, in years 1994
through 1998, if operating earnings exceeded a specified annual level. If the
specified operating earnings levels were not achieved, the amounts payable for
that year, including the related accrued interest, were to be canceled. The
specified levels of
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<PAGE> 58
operating earnings for the years ended December 31, 1995 and 1994 were not
achieved; therefore, $500,000 of the principal amount of the Contingent Notes
for each such year and related accrued interest were canceled. In April 1996,
the remaining obligations under the Contingent Notes were canceled in exchange
for an aggregate of 194,400 shares of Common Stock (64,800 shares to each of
Drs. Demaray, Poulos and Kowalczyk). In connection with the termination in
January 1996 by the Company of the D&P Option and the acquisition by the Company
of substantially all of the assets of D&P, the Company paid $851,684 to each of
Drs. Demaray and Poulos.
In connection with the formation of AmPath in February 1996, each of
Summit, Schroder and Dr. Demaray, Poulos and Kowalczyk exchanged their
respective holdings of Junior Notes, Senior Notes, Convertible Preferred Stock
and Common Stock of ALA for the same number and type of debt and equity
securities of the Company.
In February 1996, Summit and Schroder converted, in the aggregate, 120,004
shares of the Convertible Preferred Stock to 216,007 shares of Common Stock and
then sold such shares to Mr. New for an aggregate consideration of $450,000
pursuant to the terms of Mr. New's employment agreement. In connection with his
purchase of 216,007 shares of Common Stock from Summit and Schroder, Mr. New
borrowed $270,000 from the Company, payable in full on January 1, 2001, with
interest accruing at 8% and payable currently. The loan is secured by a pledge
of 126,000 shares of the Common Stock.
AGREEMENTS WITH CERTAIN STOCKHOLDERS
The Company leases an outpatient laboratory in Fort Lauderdale, Florida
from an entity owned by the spouses of Drs. Demaray, Poulos and Kowalczyk. The
lease expires on March 31, 1998 and contains options to renew for two additional
five-year periods. The lease requires monthly rental payments of $10,973, plus
sales taxes, property taxes, insurance, utilities and maintenance costs. Rent
paid under this lease was $139,583 in 1995 and $104,687 for the nine months
ended September 30, 1996. The Company believes that the terms of the lease are
comparable to those which would be available to an unaffiliated entity on the
basis of an arms-length negotiation. Certain of the Company's subsidiaries have
entered into other leases with certain of the sellers of the Practices pursuant
to the terms of the purchase agreements for certain of the Recent Acquisitions.
Such sellers are Affiliated Physicians who are not executive officers or
directors of the Company. The Company believes that such leases are on terms
comparable to those which would be available to an unaffiliated entity on the
basis of an arms-length negotiation.
Prior to the acquisition of D&P from Drs. Demaray and Poulos, ALA had
entered into certain transactions with D&P. ALA paid D&P a fee for the staffing
of three D&P frozen section laboratories. Such fee paid to the Company was
$120,300 during the year ended December 31, 1995. The Company also provided
certain administrative support services to D&P for which the Company was paid
$2,400 for the year ended December 31, 1995.
SHAREHOLDERS' AGREEMENT
Certain of the current directors were elected to the Board of Directors
pursuant to the terms of a shareholders' agreement among the Company's
stockholders (the "Shareholders' Agreement"). Effective upon the consummation of
this offering, the Shareholders' Agreement will terminate and will no longer
control the selection of the Board of Directors.
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<PAGE> 59
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of November 22, 1996 and
as adjusted to reflect the sale of the Common Stock offered hereby by: (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock; (ii) each director and Named Officer of the
Company; and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the persons listed below have sole voting
and investment power with respect to all shares of Common Stock owned by them,
except to the extent such power may be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER THE
OWNED(2) NUMBER OF OFFERING(2)
---------------------- SHARES -------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT(3) OFFERED NUMBER PERCENT
- -------------------------------------------------- --------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Summit(4)......................................... 5,344,816 47.5% 5,344,816 31.5%
James C. New(5)................................... 288,007 2.5 -- 288,007 1.7
Alan Levin, M.D................................... 78,925 * -- 78,925 *
Michael J. Demaray, M.D........................... 540,000 4.8 -- 540,000 3.2
Robert P. Wynn(6)................................. 86,400 * -- 86,400 *
Annette L. Bell................................... -- -- -- -- --
Timothy M. Kilpatrick, M.D........................ 78,925 * -- 78,925 *
Thomas S. Roberts(4).............................. 5,344,816 47.5 -- 5,344,816 31.5
E. Roe Stamps, IV(4).............................. 5,344,816 47.5 -- 5,344,816 31.5
All directors and executive officers as a group
(9 persons)(4)(5)(6)............................ 6,417,073 56.3 6,417,073 37.5
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 7289 Garden Road, Suite 200, Riviera Beach, Florida 33404.
(2) Based on 11,247,856 shares of Common Stock outstanding prior to this
offering and 16,947,856 shares of Common Stock outstanding immediately
after this offering. Pursuant to the rules of the Commission, shares of the
Common Stock which a person has the right to acquire within 60 days of the
date hereof pursuant to the exercise of stock options or the conversion of
a convertible security are deemed to be outstanding for the purpose of
computing the percentage ownership of such person but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person.
(3) Percentages reflect the conversion by Summit and Schroder of an aggregate of
3,088,116 shares of Convertible Preferred Stock into an aggregate of
5,558,609 shares of Common Stock prior to the consummation of this
offering. See "Certain Transactions."
(4) Includes 2,086,029.2, 19,823.6 and 863,490.2 shares of Convertible Preferred
Stock held by Summit Ventures III, L.P., Summit Investors II, L.P. and
Summit Subordinated Debt Fund, L.P., respectively, each of which is a
limited partnership, the general partner of which is Summit Partners, a
general partnership. These shares of Convertible Preferred Stock will be
converted into 5,344,816 shares of Common Stock prior to the consummation
of this offering. Thomas S. Roberts is a director of the Company and is a
General Partner of Summit Partners. E. Roe Stamps is a director of the
Company and is Managing General Partner of Summit Partners. Mr. Roberts and
Mr. Stamps both disclaim beneficial ownership of the shares of Convertible
Preferred Stock and Common Stock. The address of Summit and Messrs. Roberts
and Stamps is 600 Atlantic Avenue, Suite 2800, Boston, Massachusetts
02210-2227.
(5) Includes 72,000 shares subject to stock options exercisable within 60 days.
(6) Includes 86,400 shares subject to stock options exercisable within 60 days.
55
<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 8,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Convertible
Preferred Stock, par value $.01 per share. As of November 22, 1996, an aggregate
of 5,689,247 shares of Common Stock were outstanding and held of record by 47
stockholders and 3,088,116 shares of Convertible Preferred Stock were
outstanding and held of record by Summit and Schroder. Summit and Schroder are
expected to convert all of the shares of Convertible Preferred Stock into shares
of Common Stock on a 1.8 for one basis prior to the consummation of this
offering. Prior to the consummation of this offering and subsequent to the
conversion by Summit and Schroder of the shares of Convertible Preferred Stock
into Common Stock, the Certificate of Incorporation will be amended to provide
authorized capital of 30,000,000 shares of Common Stock and 2,000,000 shares of
Preferred Stock. Copies of the Certificate of Incorporation and Bylaws have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part and are incorporated herein by reference.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders, including the election of directors. Since
the Common Stock does not have cumulative voting rights, the holders of a
majority of the outstanding shares voting for election of directors can elect
all members of the Board of Directors. A majority vote is also sufficient for
other actions that require the vote or concurrence of stockholders. Dividends
may be paid to holders of Common Stock when and if declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." Upon
liquidation or dissolution of the Company, holders of Common Stock will be
entitled to share ratably in the assets of the Company legally available for
distribution to stockholders in the event of liquidation or dissolution.
The holders of Common Stock have no preemptive or conversion rights. The
shares of Common Stock offered hereby will be, when issued and paid for, fully
paid and not liable to further call or assessment.
PREFERRED STOCK
The Convertible Preferred Stock will be converted by Summit and Schroder
into shares of Common Stock on a 1.8 for one basis prior to consummation of this
Offering. Upon any conversion of the Convertible Preferred Stock, all
accumulated and unpaid dividends on the Convertible Preferred Stock, whether or
not declared, since the date of issue up to and including the date of conversion
thereof will become due and payable. See "Use of Proceeds."
Although the Company has no present plans to issue shares of Preferred
Stock, Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Board of Directors. The
Board of Directors, without obtaining stockholder approval, could issue the
Preferred Stock with voting and/or conversion rights and thereby dilute the
voting power and equity of the holders of Common Stock and adversely affect the
market price of such stock. See "Risk Factors -- Anti-Takeover Provisions;
Possible Issuance of Preferred Stock."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company is subject to the provisions of Section 203 of the DGCL.
Subject to certain exceptions, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the Board of Directors or
unless the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting
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<PAGE> 61
stock. This statute could prohibit or delay the accomplishment of mergers or
other attempts to takeover or change control of the Company and, accordingly,
may discourage attempts to acquire the Company.
In addition, certain provisions of the Certificate of Incorporation and
Bylaws, which will be in effect upon the consummation of this offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares of Common Stock.
Classified Board of Directors. The Board of Directors will be divided into
three classes of directors serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year.
These provisions, when coupled with the provision of the Certificate of
Incorporation authorizing only the Board of Directors to fill vacant
directorships or increase the size of the Board of Directors, may deter a
stockholder from removing incumbent directors and simultaneously gaining control
of the Board of Directors by filling the vacancies created by such removal with
its own nominees.
Stockholder Action; Special Meeting of Stockholders. The Certificate of
Incorporation provides that stockholders may not take action by written consent,
but only at duly called annual or special meetings of stockholders. The
Certificate of Incorporation further provides that special meetings of
stockholders of the Company be called only by the Chairman of the Board of
Directors, a majority of the Board of Directors or the President of the Company.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company, not less
than 120 days nor more than 150 days prior to the first anniversary of the date
of the Company's notice of annual meeting provided with respect to the previous
year's annual meeting; provided, that if no annual meeting was held in the
previous year or the date of the annual meeting has been changed to be more than
30 calendar days earlier than or 60 calendar days after such anniversary, notice
by the stockholder, to be timely, must be so received not more than 90 days nor
later than the later of (i) 60 days prior to the annual meeting or (ii) the
close of business on the tenth day following the date on which notice of the
date of the meeting is given to stockholders or made public, whichever first
occurs. The Bylaws also specify certain requirements for a stockholder's notice
to be in proper written form. These provisions may preclude stockholders from
bringing matters before the stockholders at an annual meeting or from making
nominations for directors at an annual meeting.
Authorized But Unissued Shares. The authorized but unissued shares of
Common Stock and Preferred Stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved Common Stock and Preferred Stock may
enable the Board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
otherwise, and thereby discourage or prevent a change of control of the Company.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. The
Certificate requires the affirmative vote of the holders of at least 80% of the
combined voting power of the outstanding shares of capital stock of the Company
entitled to vote for the election of directors to amend or repeal any of the
Certificate of Incorporation provisions discussed above. Such 80% vote is also
required to amend or repeal any of the Bylaws provisions discussed above,
although such Bylaws provisions may also be amended or repealed by a majority
vote of the entire Board of Directors. Such 80% stockholder vote would be in
addition to any separate class vote that might in the future be required
pursuant to the terms of any Preferred Stock that might be outstanding at the
time any such amendments are submitted to stockholders.
57
<PAGE> 62
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Certificate of Incorporation contains certain provisions permitted
under the DGCL relating to the liability of directors. These provisions
eliminate a director's liability for monetary damages for a breach of fiduciary
duty, except in certain circumstances involving certain wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. The Certificate of
Incorporation also contains provisions indemnifying the directors and officers
of the Company to the fullest extent permitted by the DGCL. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
TRANSFER AGENT
The transfer agent and registrar of the Common Stock is American Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares or the availability of such shares for sale will have on the market
price of the Common Stock. Nevertheless, sales of substantial amounts of Common
Stock in the public market may have an adverse impact of such market price.
Upon consummation of this offering, the Company will have 16,947,856 shares
of Common Stock outstanding, based upon the number of shares outstanding as of
November 22, 1996. Of these shares, the 5,700,000 shares sold in this offering
( shares if the Underwriters over-allotment is exercised in full) will
be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates").
SALES OF RESTRICTED SHARES
There are 10,747,856 outstanding shares of Common Stock (the "Restricted
Shares") which are deemed "restricted securities" under Rule 144 and may not be
sold unless they are registered under the Securities Act or unless an exemption,
such as the exemption provided by Rule 144, is available. All of the Restricted
Shares are subject to the lock-up agreements described below (the "Lock-up
Agreements"). All of these shares may be eligible for sale in the public market
in accordance with Rule 144 under the Securities Act, subject to the terms of
the Lock-up Agreements. Certain security holders have the right to have their
Restricted Shares registered by the Company under the Securities Act as
described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least two years, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
169,478 shares after this offering) or (ii) the average weekly trading volume in
the Common Stock in the over-the-counter market during the four calendar weeks
preceding the date on which notice of such sale is filed with the Commission. In
addition, under Rule 144(k), a person who is not an Affiliate and has not been
an Affiliate for at least three months prior to the sale and who has
beneficially owned the Restricted Shares for at least three years may resell
such shares without compliance with the foregoing requirements. In meeting the
two and three year holding periods, a holder of Restricted Shares can include
the holding periods of a prior owner who was not an Affiliate. The Commission
has proposed to amend the holding periods under Rule 144 by reducing the two
year period to one year and the three year period to two years. The proposed
amendments have not yet been adopted by the Commission.
58
<PAGE> 63
OPTIONS
As of November 22, 1996, options to purchase a total of 990,011 shares of
Common Stock were outstanding. All of these shares are subject to the Lock-up
Agreements. Pursuant to Rule 701, persons who purchase shares upon exercise of
options granted prior to the Company becoming subject to the provisions of the
Securities Exchange Act of 1934 (the "Exchange Act") and which were otherwise
granted pursuant to Rule 701 are entitled to sell such shares in reliance upon
Rule 144 commencing 90 days after the date of this offering without regard to
the holding period, volume limitations or other restrictions of Rule 144, if
such persons are not affiliates, and without regard to the holding period
requirements of Rule 144, if such persons are affiliates. Additionally, the
Company intends to file one or more registration statements on Form S-8 under
the Securities Act to register all shares of Common Stock subject to outstanding
stock options and Common Stock issuable pursuant to the Option Plan. The Company
expects to file these registration statements promptly following the
consummation of this offering, and such registration statements are expected to
become effective upon filing. Shares covered by these registration statements
will thereupon be eligible for sale in the public markets, subject to the
Lock-up Agreements, to the extent applicable.
LOCKUP AGREEMENTS
The Company and holders of 10,747,856 shares of Common Stock outstanding
immediately prior to this offering and options to purchase an aggregate of
990,011 shares of Common Stock have agreed not to, directly or indirectly,
without the prior written consent of Dean Witter Reynolds Inc., offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock, or any securities exercisable for or convertible into
Common Stock for a period of 180 days following the date of consummation of this
Offering. See "Underwriting."
REGISTRATION RIGHTS
Following the consummation of this offering, Summit and Schroder will be
entitled to require the Company to register under the Securities Act a total of
5,558,609 shares of outstanding Common Stock (the "Registrable Shares"). Under
certain circumstances and subject to certain limitations, Summit and Schroder
may require the Company, on two occasions, to file a registration statement
under the Securities Act with respect to the Registrable Shares and the Company
must use all commercially reasonable efforts to effect such registration. In
addition, in the event the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of a
security holder, Summit and Schroder may be entitled to include the Registrable
Shares in such registration, subject to certain limitations on the number of
shares to be included in the registration by the underwriter of such offering.
Following the consummation of this offering, Drs. Demaray, Poulos and
Kowalczyk will also have the right, under certain circumstances and subject to
certain limitations, to require the Company to register up to an aggregate
1,425,600 shares of Common Stock under the Securities Act. In addition, in the
event the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of a security
holder, these persons may be entitled to include their shares in such
registration, subject to certain limitations on the number of shares to be
included in the registration by the underwriter of such offering. Furthermore,
in the event the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of a security
holder, the Banks may be entitled to include up to 85,999 shares of Common Stock
in such registration, subject to certain limitations on the number of shares to
be included in the registration by the underwriter of such offering.
59
<PAGE> 64
UNDERWRITING
The Underwriters named below, for whom Dean Witter Reynolds Inc., Hambrecht
& Quist, Piper Jaffray Inc. and The Robinson-Humphrey Company Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (a copy of which has been
filed as an exhibit to the Registration Statement), to purchase from the Company
and the Selling Stockholders the number of shares of Common Stock set forth
opposite their respective names in the table below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------------- ----------
<S> <C>
Dean Witter Reynolds Inc.................................................
Hambrecht & Quist........................................................
Piper Jaffray Inc........................................................
The Robinson-Humphrey Company Inc........................................
----------
Total.......................................................... 6,200,000
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the shares (other than those
subject to the over-allotment option) if any are purchased.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
through negotiations between the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in making such determination
are prevailing market conditions and general economic conditions, the market
capitalization of publicly traded companies which the Company, the Selling
Stockholders and the Representatives believe to be comparable to the Company,
the revenues and earnings of the Company in recent periods, the experience of
the Company's management, the economic characteristics of the business in which
the Company competes, estimates of the business potential of the Company, the
present state of the Company's development and other factors deemed relevant.
The Underwriters have advised the Company and the Selling Stockholders that
they propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus and
to certain dealers (who may include the Underwriters) at such public offering
price less a concession not to exceed $ per share. Such dealers may
reallow a concession not to exceed $ per share to other dealers. After
the initial public offering, the public offering price may be reduced and
concessions and reallowances to dealers may be changed by the Underwriters. The
Representatives have informed the Company that the Underwriters do not intend to
confirm sales to any account over which they exercise discretionary authority.
The Representatives intend to make a market in the Common Stock after completion
of this offering.
The Company and the Selling Stockholders have granted to the Underwriters
an option, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to an additional 930,000 shares of Common Stock at
the initial public offering price, less underwriting discounts and commissions
to cover over-allotments, if any. After commencement of this offering, the
Underwriters may confirm sales subject to the over-allotment option.
60
<PAGE> 65
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.
The Company, the officers and directors of the Company, the Selling
Stockholders and certain other stockholders have agreed that they will not,
during the period commencing on the date hereof and ending 180 days after the
date of this Prospectus, without the prior written consent of Dean Witter
Reynolds Inc. (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock (whether such shares or
such securities are now owned by such officers, directors, Selling Stockholders
or stockholders or are hereafter acquired); (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of shares of Common Stock whether any transaction
described in clause (i) or (ii) above is to be settled by delivery of shares of
Common Stock or other securities, in cash or otherwise.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida. Certain legal matters
will be passed upon for the Underwriters by Latham & Watkins, Washington, D.C.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedule of AmeriPath, Inc. as of December 31, 1994 and 1995
and September 30, 1996 and for the years ended December 31, 1993, 1994 and 1995
and the nine months ended September 30, 1996, included in this prospectus and
elsewhere in the registration statement, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The combined financial statements of Clay J. Cockerell, M.D., P.A. and
Freeman-Cockerell Laboratories, Inc. as of December 31, 1994 and 1995 and
September 30, 1996 and for the years ended December 31, 1994 and 1995 and the
nine months ended September 30, 1996, and of Pathology Associates P.S.C. and
Technical Pathology Services, Inc. as of December 31, 1994 and 1995 and July 31,
1996 and for the years ended December 31, 1994 and 1995 and the seven months
ended July 31, 1996, included in this prospectus, have been audited by Deloitte
& Touche, LLP, independent auditors, as stated in their reports appearing
herein, and are included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Beno Michel, M.D., Inc., Drs. Seidenstein,
Levine & Associates, P.A. and Volusia Pathology Group, M.D., P.A. as of December
31, 1994 and 1995 and September 30, 1996 and for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1996, of David R. Barron,
M.D., Inc. and Fernandez and Kalemeris, P.A. as of December 31, 1995 and
September 30, 1996 and for the year ended December 31, 1995 and the nine months
ended September 30, 1996, of SkinPath P.C. as of December 31, 1995 and July 31,
1996 and for the period ended December 31, 1995 and the seven months ended July
31, 1996, of Derrick and Associates Pathology, Inc. and Amazon and Rosen, M.D.,
P.A. as of December 31, 1994 and 1995 and June 30, 1996 and for the years ended
December 31, 1994 and 1995 and the six months ended June 30, 1996, and of
Demaray and Poulos, P.A. for the year ended December 31, 1994 and 1995, included
in this prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and are included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
61
<PAGE> 66
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement. For further information with respect to
the Company and the Common Stock offered hereby, reference is hereby made to
such Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement and incorporated by reference
herein. Copies of the Registration Statement may be obtained from the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549,
and the following regional offices of the Commission: Seven World Trade Center,
New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the public
reference section of the Commission at its Washington office upon payment of the
fees prescribed by the Commission, or may be examined without charge at the
offices of the Commission, or accessed through the Commission's Internet address
at http://www.sec.gov.
62
<PAGE> 67
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
THE REGISTRANT
AMERIPATH, INC. AND SUBSIDIARIES
Independent Auditors' Report......................................................... F-4
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996
and Pro Forma September 30, 1996 (Unaudited)....................................... F-5
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and
1995 and the Nine Months Ended September 30, 1995 (Unaudited) and 1996............. F-6
Consolidated Statements of Convertible Preferred Stock and Common Stockholders'
Equity (Deficit) for the years ended December 31, 1993, 1994 and 1995 and the Nine
Months Ended September 30, 1996.................................................... F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the Nine Months Ended September 30, 1995 (Unaudited) and 1996............. F-8
Notes to Consolidated Financial Statements........................................... F-9
ACQUIRED BUSINESSES
DEMARAY AND POULOS, P.A.
Independent Auditors' Report......................................................... F-26
Balance Sheets as of December 31, 1994 and 1995...................................... F-27
Statements of Operations and Retained Earnings for the years ended December 31, 1994
and 1995........................................................................... F-28
Statements of Cash Flows for the years ended December 31, 1994 and 1995.............. F-29
Notes to Financial Statements........................................................ F-30
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
Independent Auditors' Report......................................................... F-33
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996.................... F-34
Statements of Operations and Retained Earnings for the years ended December 31, 1994
and 1995 and the Six Months Ended June 30, 1995 (Unaudited) and 1996............... F-35
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the Six
Months Ended June 30, 1995 (Unaudited) and 1996.................................... F-36
Notes to Financial Statements........................................................ F-37
DERRICK AND ASSOCIATES PATHOLOGY, INC.
Independent Auditors' Report......................................................... F-41
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996.................... F-42
Statements of Operations for the years ended December 31, 1994 and 1995 and the Six
Months Ended June 30, 1995 (Unaudited) and 1996.................................... F-43
Statements of Shareholders' Equity for the years ended December 31, 1994 and 1995 and
the Six Months Ended June 30, 1996................................................. F-44
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the Six
Months Ended June 30, 1995 (Unaudited) and 1996.................................... F-45
Notes to Financial Statements........................................................ F-46
SKINPATH, P.C.
Independent Auditors' Report......................................................... F-52
Balance Sheets as of December 31, 1995 and July 31, 1996............................. F-53
Statements of Operations and Retained Earnings for the Period from January 5, 1995
(Inception) through December 31, 1995 and Seven Months Ended July 31, 1996......... F-54
Statements of Cash Flows for the Period from January 5, 1995 (Inception) through
December 31, 1995 and the Seven Months Ended July 31, 1996......................... F-55
Notes to Financial Statements........................................................ F-56
</TABLE>
F-1
<PAGE> 68
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PATHOLOGY ASSOCIATES, P.S.C. AND TECHNICAL PATHOLOGY SERVICES, INC.
Independent Auditors' Report......................................................... F-60
Combined Balance Sheets as of December 31, 1994 and 1995 and July 31, 1996........... F-61
Combined Statements of Operations for the years ended December 31, 1994 and 1995 and
the Seven Months Ended July 31, 1995 (Unaudited) and July 31, 1996................. F-62
Combined Statements of Stockholders' Equity for the year ended December 31, 1994 and
1995 and the Seven Months Ended July 31, 1996...................................... F-63
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995 and
the Seven Months Ended July 31, 1995 (Unaudited) and July 31, 1996................. F-64
Notes to Combined Financial Statements............................................... F-65
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
Independent Auditors' Report......................................................... F-70
Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996............... F-71
Statements of Operations for the years ended December 31, 1994 and 1995 and the Nine
Months Ended September 30, 1995 (Unaudited) and 1996............................... F-72
Statements of Shareholders' Equity for the years ended December 31, 1994 and 1995 and
the Nine Months Ended September 30, 1996........................................... F-73
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the Nine
Months Ended September 30, 1995 (Unaudited) and 1996............................... F-74
Notes to Financial Statements........................................................ F-75
DAVID R. BARRON, M.D., INC. D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
Independent Auditors' Report......................................................... F-79
Balance Sheets as of December 31, 1995 and September 30, 1996........................ F-80
Statements of Operations for the year ended December 31, 1995 and the Nine Months
Ended September 30, 1995 (Unaudited) and 1996...................................... F-81
Statements of Stockholders' Equity for the year ended December 31, 1995 and the Nine
Months Ended September 30, 1996.................................................... F-82
Statements of Cash Flows for the year ended December 31, 1995 and the Nine Months
Ended September 30, 1995 (Unaudited) and 1996...................................... F-83
Notes to Financial Statements........................................................ F-84
BENO MICHEL, M.D., INC. D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
Independent Auditors' Report......................................................... F-87
Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996............... F-88
Statements of Operations for the years ended December 31, 1994 and 1995 and the Nine
Months Ended September 30, 1995 (Unaudited) and 1996............................... F-89
Statements of Stockholders' Equity for the years ended December 31, 1994 and 1995 and
the Nine Months Ended September 30, 1996........................................... F-90
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the Nine
Months Ended September 30, 1995 (Unaudited) and 1996............................... F-91
Notes to Financial Statements........................................................ F-92
DRS. SEIDENSTEIN, LEVINE & ASSOCIATES, P.A.
Independent Auditors' Report......................................................... F-95
Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996............... F-96
Statements of Operations and Retained Earnings for the years ended December 31, 1994
and 1995 and the Nine Months Ended September 30, 1995 (Unaudited) and 1996......... F-97
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the Nine
Months Ended September 30, 1995 (Unaudited) and 1996............................... F-98
Notes to Financial Statements........................................................ F-99
</TABLE>
F-2
<PAGE> 69
<TABLE>
<CAPTION>
PAGE
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<S> <C>
CLAY J. COCKERELL, M.D., P.A. AND FREEMAN-COCKERELL LABORATORIES, INC.
Independent Auditors' Report......................................................... F-103
Combined Balance Sheets as of December 31, 1994 and 1995 and September 30, 1996...... F-104
Combined Statements of Income and Retained Earnings for the years ended December 31,
1994 and 1995 and the Nine Months Ended September 30, 1995 (Unaudited) and 1996.... F-105
Combined Statements of Cash Flows for the years ended December 31, 1994 and 1995 and
the Nine Months Ended September 30, 1995 (Unaudited) and 1996...................... F-106
Notes to Combined Financial Statements............................................... F-107
FERNANDEZ AND KALEMERIS, P.A. D/B/A GULF COAST PATHOLOGY ASSOCIATES
Independent Auditors' Report......................................................... F-111
Balance Sheets as of December 31, 1995 and September 30, 1996........................ F-112
Statements of Operations and Retained Earnings for the year ended December 31, 1995
and the Nine Months Ended September 30, 1995 (Unaudited) and 1996.................. F-113
Statements of Cash Flows for the year ended December 31, 1995 and the Nine Months
Ended September 30, 1995 (Unaudited) and 1996...................................... F-114
Notes to Financial Statements........................................................ F-115
</TABLE>
F-3
<PAGE> 70
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
AmeriPath, Inc.:
We have audited the accompanying consolidated balance sheets of AmeriPath, Inc.
and Subsidiaries (the "Company") as of December 31, 1994 and 1995 and September
30, 1996 and the related consolidated statements of operations, convertible
preferred stock and common stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1995 and the nine
months ended September 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1994
and 1995 and September 30, 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 and the
nine months ended September 30, 1996 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
November 19, 1996
F-4
<PAGE> 71
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- -------- ------------- -------------
(UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 103 $ 58 $ 193 $ 193
Accounts receivable, net............................... 1,741 2,114 7,944 7,944
Inventories............................................ 168 162 142 142
Other current assets................................... 195 130 840 840
-------- -------- -------- --------
Total current assets............................ 2,207 2,464 9,119 9,119
-------- -------- -------- --------
PROPERTY AND EQUIPMENT, NET.............................. 1,011 1,214 3,055 3,055
-------- -------- -------- --------
OTHER ASSETS:
Deferred tax asset..................................... 6,654 6,018
Goodwill, net.......................................... 10,068 10,068
Identifiable intangibles, net.......................... 26,726 26,726
Other.................................................. 392 296 1,825 1,825
-------- -------- -------- --------
Total other assets.............................. 7,046 6,314 38,619 38,619
-------- -------- -------- --------
TOTAL ASSETS.................................... $ 10,264 $ 9,992 $ 50,793 $ 50,793
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 805 $ 894 $ 4,515 $ 4,515
Current portion of long-term debt...................... 782 782
Deferred tax liability................................. 1,152 1,152
-------- -------- -------- --------
Total current liabilities....................... 805 894 6,449 6,449
-------- -------- -------- --------
LONG-TERM DEBT:
Credit Facility........................................ 6,005 4,146 30,844 30,844
Senior Notes due to common stockholders................ 3,500 3,500 3,500 3,500
Junior Notes due to preferred stockholders............. 7,500 7,500 7,500 7,500
Subordinated Notes..................................... 2,058 2,058
DIVIDEND PAYABLE -- CONVERTIBLE PREFERRED STOCK.......... 925
DEFERRED TAX LIABILITY................................... 3,735 3,735
COMMITMENTS AND CONTINGENCIES (Notes 10, 13 and 14)
CONVERTIBLE PREFERRED STOCK
Series A 6% Redeemable Cumulative Convertible Preferred
Stock -- $.01 par value, 5,000 shares authorized;
3,208, 3,208 and 3,088 shares issued and outstanding
at December 31, 1994 and 1995, and September 30,
1996, respectively; $6.2 million minimum aggregate
liquidation preference at September 30, 1996......... 5,735 6,085 6,123
-------- -------- -------- --------
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 8,000 shares authorized,
792, 792, 1,620 and 4,708 shares issued and
outstanding at December 31, 1994 and 1995, September
30, 1996 and pro forma (unaudited), respectively..... 8 8 16 47
Additional paid-in capital -- Accumulated deficit
remaining from conversion from Subchapter S
corporation tax status............................... (15,024) (15,024) (13,240) (8,073)
Note receivable from officer........................... (270) (270)
Retained earnings...................................... 1,735 2,883 4,078 4,078
-------- -------- -------- --------
Total common stockholders' deficit.............. (13,281) (12,133) (9,416) (4,218)
-------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT.............. $ 10,264 $ 9,992 $ 50,793 $ 50,793
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 72
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------- ---------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue.................................... $13,419 $14,461 $16,024 $12,176 $20,840
Operating costs:
Cost of services............................. 10,803 6,780 8,271 6,147 10,234
Selling, general and administrative
expense................................... 1,634 2,287 2,644 1,931 4,026
Provision for doubtful accounts.............. 953 1,003 1,161 910 1,655
Amortization expense......................... 357
------- ------- ------- ------- -------
Total operating costs................ 13,390 10,070 12,076 8,988 16,272
------- ------- ------- ------- -------
Income from operations......................... 29 4,391 3,948 3,188 4,568
Interest expense............................... (48) (1,584) (1,504) (1,151) (1,637)
Other income (expense), net.................... 9 (46) (46) (13) (143)
------- ------- ------- ------- -------
Income (loss) before income taxes.............. (10) 2,761 2,398 2,024 2,788
Provision for income taxes..................... 696 900 759 1,075
------- ------- ------- ------- -------
Net income (loss).............................. $ (10) $ 2,065 $ 1,498 $ 1,265 $ 1,713
======= ======= ======= ======= =======
Pro forma net income per share information (unaudited) (Note 18):
Pro forma net income per share............... $ .19 $ .16 $ .20
======= ======= =======
Pro forma common and common equivalent shares
outstanding............................... 8,085 8,085 8,532
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 73
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
CONVERTIBLE PAID-IN-CAPITAL--
PREFERRED STOCK COMMON ACCUMULATED DEFICIT
------------------------------------------- STOCK REMAINING FROM CONVERSION RETAINED
ADDITIONAL ---------------- FROM SUBCHAPTER S EARNINGS
SHARES AMOUNT PAID-IN-CAPITAL TOTAL SHARES AMOUNT CORPORATION TAX STATUS (DEFICIT)
------- ------- --------------- ------ ------ ------ ------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31,
1992..................... $ 1,168
Dividend distribution to
common stockholders.... (246)
Net loss................. (10)
----- --- ------ ------ ----- --- ------ -------
BALANCES, DECEMBER 31,
1993..................... 912
Issuance of common
stock.................. 20 $ 1,000
Issuance of Convertible
Preferred Stock........ 80 $ 1 $ 5,499 $5,500
Cost of issuance......... (95) (95) (17)
Distribution to common
stockholders in
Recapitalization....... (24,011)
Tax benefit arising from
Recapitalization....... 7,100
Conversion from
Subchapter S
Corporation tax
status................. (23,099) 23,099
Stock split -- 40:1 --
August 1, 1994......... 3,128 31 (31) 772 $ 8 (8)
Accrued dividends on
Convertible Preferred
Stock.................. 330 330 (330)
Net income............... 2,065
----- --- ------ ------ ----- --- ------ -------
BALANCES, DECEMBER 31,
1994..................... 3,208 32 5,703 5,735 792 8 (15,024) 1,735
Accrued dividends on
Convertible Preferred
Stock.................. 350 350 (350)
Net income............... 1,498
----- --- ------ ------ ----- --- ------ -------
BALANCES, DECEMBER 31,
1995..................... 3,208 32 6,053 6,085 792 8 (15,024) 2,883
Conversion of Convertible
Preferred Stock to
common stock........... (120) (1) (206) (207) 120 1 206
Dividends paid on
Convertible Preferred
Stock converted........ (31) (31)
Settlement of ALA
Contingent Notes....... 108 1 241 (242)
Stock issued in
connection with
acquisition............ 600 6 1,337
Accrued dividends on
Convertible Preferred
Stock.................. 276 276 (276)
Net income............... 1,713
----- --- ------ ------ ----- --- ------ -------
BALANCES, SEPTEMBER 30,
1996..................... 3,088 $ 31 $ 6,092 $6,123 1,620 $ 16 $ (13,240) $ 4,078
===== === ====== ====== ===== === ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 74
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------- ---------------------
1993 1994 1995 1995 1996
----- ------- ------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ (10) $ 2,065 $ 1,498 $ 1,265 $ 1,713
Adjustments to reconcile net income (loss) to net cash
flows provided by operating activities:
Depreciation and amortization......................... 275 341 329 245 827
(Gain) loss on disposal of assets..................... (10) 28 49
Deferred income taxes................................. 446 636 536 105
Provision for doubtful accounts....................... 953 1,003 1,161 910 1,655
Changes in assets and liabilities:
Increase in accounts receivable..................... (782) (1,354) (1,534) (1,278) (715)
(Increase) decrease in inventories.................. (35) (49) 6 (8) 20
(Increase) decrease in other current assets......... (161) (166) 39 (108) (712)
(Increase) decrease in other assets................. (37) 21 20 (859)
Increase (decrease) in accounts payable, accrued
expenses, and other liabilities.................. 184 86 118 488 170
----- ------- ------- ------- --------
Net cash flows provided by operating
activities..................................... 424 2,325 2,302 2,070 2,253
----- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................... (228) (492) (488) (368) (582)
Purchase of subsidiaries, net of cash acquired.......... (27,320)
----- ------- ------- ------- --------
Net cash flows used in investing activities...... (228) (492) (488) (368) (27,902)
----- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term credit facility.............. 7,493
Repayments of borrowings under long-term credit
facility.............................................. (1,488) (1,859)
Issuance of common stock................................ 1,000
Issuance of Convertible Preferred Stock................. 5,500
Issuance of Junior Notes................................ 7,500
Debt and stock issuance costs........................... (525)
Principal payments on long-term debt.................... (500) (492) (19) (613)
Proceeds from issuance of long-term debt................ 261
Net borrowings (repayments) under Credit Facility....... 498 (529) (1,758) 26,698
Note receivable from officer............................ (270)
Dividends paid/distributions to common stockholders..... (246) (20,511) (28) (31)
----- ------- ------- ------- --------
Net cash flows provided by (used in) financing
activities..................................... 13 (2,052) (1,859) (1,805) 25,784
----- ------- ------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... 209 (219) (45) (103) 135
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 113 322 103 103 58
----- ------- ------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 322 $ 103 $ 58 $ $ 193
===== ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest................................................ $ 48 $ 1,540 $ 1,504 $ 1,151 $ 1,425
Income taxes............................................ $ $ 409 $ 63 $ 10 $ 961
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 75
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
AmeriPath, Inc. was incorporated in February 1996 to be the leading
physician management company focused on providing anatomic pathology
services. The Company provides practice management services to pathologists
in both outpatient and hospital inpatient laboratories, with particular
focus on dermatopathology (pathology related to diseases of the skin).
Unless the context otherwise requires, references to the Company or
AmeriPath include AmeriPath, Inc., its predecessors, American Laboratory
Associates ("ALA"), its subsidiaries and the professional association and
professional corporations which are separate legal entities that contract
with the Company to provide pathology services in certain states
(collectively, the "PA Contractors").
Such services are provided under contractual arrangements with hospitals
and in free-standing, independent laboratory settings. The contractual
arrangements with hospitals vary, but essentially provide that, in exchange
for physician representatives of the Company serving as the medical
director of a hospital's anatomic and clinical laboratory operations, the
Company is able to bill and collect the professional component of the
charges for medical services rendered by the Company's health care
professionals. In some cases, the Company is also paid an annual fee for
providing the medical director for the hospital laboratory. The Company
also owns and operates outpatient pathology laboratories, for which it is
able to bill patients and third party payors, principally on a
fee-for-service basis, covering both the professional and technical
components of such services. In addition, the Company contracts directly
with national clinical laboratory companies and managed care organizations,
principally on a fee-for-service basis.
ALA was organized in December 1993 to acquire the net assets of E.G.
Poulos, M.D., M.J. Demaray, M.D. and A.P. Kowalczyk, M.D., P.A. ("PDK") a
full service reference laboratory providing clinical laboratory testing and
anatomic pathology services, principally dermatopathology services.
Effective January 1, 1994, ALA and PDK entered into a series of
transactions which resulted in a recapitalization (the "Recapitalization").
ALA issued 19,800 shares of common stock (792,000 shares after the August
1, 1994 stock split) to the owners of PDK for $1,000 in cash and 80,203
shares of voting Series A 6% Redeemable Cumulative Convertible Preferred
Stock (the "Convertible Preferred Stock") (3,208,120 shares after August 1,
1994 stock split) to other investors, primarily Summit Partners, for $5,500
in cash. (See Note 9). In addition, ALA issued 10% Junior Subordinated
Notes due 2001 (the "Junior Notes") in the amount of $7,500 to the
purchasers of the Convertible Preferred Stock and obtained a line of credit
to finance a portion of the acquisition of the net assets from PDK. A
financing fee of $190 was paid to Summit.
In connection with the Recapitalization, ALA made distributions of cash of
$20,511 and issued 8% Senior Subordinated Notes due 1998 (the "Senior
Notes") in the principal amount of $3,500 to PDK. Since there was no change
in the common stockholders, and due to the mandatory redemption features of
the Convertible Preferred Stock, the transactions have been accounted for
as a recapitalization for financial accounting purposes, and the amounts of
cash paid, and Senior Notes issued, have been charged to retained earnings
as distributions to the common stockholders. The assets and liabilities of
PDK continued to be accounted for by the Company at PDK's historical cost.
For income tax purposes, the Recapitalization transaction is treated as a
purchase of assets, with the net assets acquired recorded at their fair
values, and the excess of cost over the fair value of net assets acquired
amortized as a deduction over a period of 15 years as statutorily required
by tax laws and regulations.
Subsequent to the Recapitalization, and in connection with the formation of
the Company in February 1996, the shareholders of ALA and AmeriPath entered
into a series of exchange transactions,
F-9
<PAGE> 76
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
whereby the equity interests held in ALA were exchanged for identical
interests in the Company. The operations of ALA are now conducted through a
wholly owned subsidiary of the Company, AmeriPath Florida, Inc.
On August 1, 1994, the Company effected as a stock dividend a 40:1 stock
split for its common and preferred shares.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of AmeriPath,
Inc. and its wholly owned subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated.
The companies included in the consolidation at September 30, 1996 are
listed in Note 3. Three of the companies acquired subsequent to September
30, 1996 are PA Contractors. The financial statements of the PA Contractors
will be consolidated with the Company because AmeriPath has unilateral
control over the assets and operations, and has substantially all of the
risks and rewards of ownership of the PA Contractors. Notwithstanding that
actual majority ownership is not held by AmeriPath, consolidation is
necessary to present fairly the financial position and results of
operations of the Company because of the existence of a parent-subsidiary
relationship by means other than record ownership of PA Contractors' voting
common stock of these acquired practices. Control of the PA Contractors is
permanent, rather than temporary, under the terms of purchase agreements,
management agreements, trust agreements and other agreements executed in
connection with the acquisition transactions.
PERVASIVENESS OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments that are not actively traded are based
on market prices of similar instruments and/or valuation techniques using
market assumptions. Although management uses its best judgment in
estimating the fair value of these financial instruments, there are
inherent limitations in any estimation technique. Therefore, the fair value
estimates presented herein are not necessarily indicative of the amounts
which the Company could realize in a current transaction.
The Company's consolidated financial instruments consist mainly of cash and
cash equivalents, accounts receivable, accounts payable, the line of credit
and long-term debt. The carrying amounts of the Company's cash and cash
equivalents, accounts receivable and accounts payable approximate fair
value due to the short-term nature of these instruments. The Company's
Credit Facility bears interest at a variable market rate, and thus has a
carrying amount that approximates fair value.
The fair value of long-term debt is estimated based on discounted cash
flows using current interest rates for financial instruments with similar
characteristics and maturity. The carrying amount of the Senior Notes and
Junior Notes aggregated $11,000 and the fair value at September 30, 1996
and December 31, 1995 was $10,400.
F-10
<PAGE> 77
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid instruments with maturities at
the time of purchase of three months or less.
INVENTORIES
Inventories, consisting of laboratory supplies, are stated at the lower of
cost, determined on a first-in-first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment under capital leases
is stated at the net present value of the future minimum lease payments at
the inception of the related leases. Routine maintenance and repairs are
charged to expense as incurred, while cost of betterments and renewals are
capitalized.
Depreciation and amortization are calculated on a straight-line basis and
accelerated methods, over the estimated useful lives of the respective
assets which lives range from 3 to 7 years. Leasehold improvements are
amortized over the shorter of the term of the related lease, including
renewal options, or the useful life of the asset (20 years).
INTANGIBLE ASSETS
Identifiable intangible assets include hospital contracts, physician
referral lists and laboratory contracts acquired in connection with
acquisitions. Such assets are recorded at fair value on the date of
acquisition as determined by management based on independent consultants'
reports and are being amortized over the estimated periods to be benefited,
ranging from 10 to 40 years.
Goodwill relates to the excess of cost over the fair value of net assets of
the businesses acquired. Amortization is calculated on a straight line
basis over periods ranging from 15 to 35 years. The overall business
strategy of the Company includes the acquisition and integration of
independent pathology practices and related support services. The Company
believes that this strategy creates synergies, achieves operating
efficiencies and responds to the cost containment objectives of payors, all
of which will provide benefits for the foreseeable future.
Management assesses on an ongoing basis, based on undiscounted cash flows,
if there has been a permanent impairment in the carrying value of its
intangible assets and, if so, the amount of any such impairment would be
determined by comparing anticipated discounted future operating income from
acquired businesses with the carrying value of the related intangible
assets. In performing this analysis, management considers such factors as
current results, trends and future prospects, in addition to other relevant
factors.
DEFERRED DEBT ISSUANCE COSTS
In connection with the Recapitalization and subsequent financings, the
Company incurred costs in connection with bank financing and issuing other
debt. These costs have been capitalized and are being amortized on a
straight-line basis over the respective terms of the related debt (2 and 8
years). Such amounts are included in other assets in the consolidated
balance sheet.
REVENUE RECOGNITION
The Company recognizes revenue at the time services are performed. Unbilled
receivables are recorded for services rendered during, but billed
subsequent to, the reporting period. Net revenue is reported at the
F-11
<PAGE> 78
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
estimated realizable amounts from patients, third-party payors and others
for services rendered. Revenue under certain third-party payor agreements
is subject to audit and retroactive adjustments. Provision for estimated
third-party payor settlements and adjustments are estimated in the period
the related services are rendered and adjusted in future periods as final
settlements are determined. The provision and the related allowance are
adjusted periodically, based upon an evaluation of historical collection
experience with specific payors for particular services, anticipated
collection levels with specific payors for new services, industry
reimbursement trends, and other relevant factors.
Unbilled receivables are recorded for services rendered during, but billed
subsequent to, the reporting period. Such receivables, net of allowances,
as of September 30, 1996 amounted to approximately $941. Unbilled
receivables as of December 31, 1994 and 1995 were insignificant.
INCOME TAXES
The Company's provision for income taxes includes federal and state income
taxes currently payable and changes in deferred tax assets and liabilities.
Deferred income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes and
represent the estimated future tax effects resulting from temporary
differences between financial and tax reporting bases of assets and
liabilities.
PDK elected to be taxed as a Subchapter S corporation and the taxation of
the earnings thereof was the responsibility of the individual shareholders.
The 1993 and 1994 earnings attributable to the period prior to consummation
of the Recapitalization were allocated to PDK and were not subject to
corporate federal and state income taxes.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
including identifiable intangible assets and goodwill related to those
assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. SFAS No. 121 requires that
long-lived assets, including identifiable intangible assets held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Measurement of an impairment loss for such long-lived assets
and identifiable intangibles should be based on the fair value of the
asset. Long-lived assets and certain identifiable intangibles to be
disposed of are required to be reported generally at the lower of the
carrying amount or fair value less cost to sell. SFAS No. 121 is effective
for fiscal years that begin after December 15, 1995. Adoption of the
statement did not have a material effect on the Company's financial
statements.
INTERIM FINANCIAL DATA
The unaudited consolidated statements of operations and cash flows for the
nine months ended September 30, 1995 include, in the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the Company's consolidated results of operations and cash
flows. The data disclosed in these notes to the consolidated financial
statements for the nine months ended September 30, 1995 is unaudited.
Operating results for the nine month period ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
F-12
<PAGE> 79
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
The unaudited pro forma consolidated balance sheet at September 30, 1996
gives effect to the planned conversion of 3,088,116 shares of Convertible
Preferred Stock (see Note 18) into common stock as if such conversion had
occurred as of September 30, 1996. Prior to the completion of the offering,
the holders of all outstanding Convertible Preferred Stock will convert
such shares into the same number of shares of common stock of the Company.
Accrued dividends of $925 will be payable upon conversion of the
Convertible Preferred Stock.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
3. ACQUISITIONS
During 1996, the Company has completed eleven acquisitions (the "Recent
Acquisitions") of anatomic pathology practices (the "Practices"). The
consideration given by the Company in the Recent Acquisitions was a
combination of cash, subordinated notes, common stock, contingent notes
and/or contingently issuable common stock. In November 1996, pursuant to
Stock Surrender and Restricted Stock Grant Agreements, the Company issued
961,074 shares of its common stock in exchange for the surrender of all
rights to the contingently issuable common stock. The shares issued
pursuant to such agreements are restricted as to transfer, which
restrictions lapse over three to five years, based solely on the passage of
time. The Recent Acquisitions have been accounted for using the purchase
method of accounting. The aggregate consideration paid, and to be paid, is
based on a number of factors, including each Practice's demographics, size,
local prominence, position in the marketplace and historical cash flows
from operations. Assessment of these and other factors, including
uncertainties regarding the health care environment, resulted in the
sellers of each of the Practices and the Company being unable to reach
agreement on the final purchase price for each of the Practices. The
Company agreed to pay a minimum purchase price and has agreed to pay an
additional purchase price consideration to all of the sellers of each of
the Practices in proportion to their respective ownership interest in each
Practice. The additional payments are contingent upon the achievement of
stipulated levels of operating earnings (as defined) by each of the
Practices over periods of three to five years from the date of acquisition
as set forth in the respective agreements, and are not contingent on the
continued employment of the sellers of the Practices. The amount of the
payments cannot be determined until the achievement of the operating
earnings levels during the terms of the respective agreements. If the
maximum specified levels of operating earnings for each Practice are
achieved, the Company would make aggregate maximum payments of $31,686 over
three to five years. A lesser amount of payments would be made if the
maximum levels of operating earnings specified in each acquisition
agreement are not met. No amounts would be paid if the minimum level of
operating earnings specified in each acquisition agreement is not met.
Additional payments, if any, under these agreements, will be accounted for
as an additional cost of the Practices.
F-13
<PAGE> 80
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The total consideration paid by the Company in the Recent Acquisitions
included cash of $78,626, subordinated notes in the aggregate principal
amount of $4,511 and 2,092,912 shares of common stock (aggregate value of
$24,024). The following table presents for each Recent Acquisition, the
date acquired, the total consideration paid, excluding the contingent
payments, if any, Common Stock issued by the Company, and the maximum
contingent payments:
<TABLE>
<CAPTION>
MAXIMUM
COMMON STOCK CONTINGENT
ISSUED (SHARES) PAYMENTS
DATE TOTAL ---------------------- ----------------
ACQUIRED CONSIDERATION AT IN NOVEMBER PERIOD
RECENT ACQUISITIONS: IN 1996 PAID CLOSING 1996 (YEARS) AMOUNT
------------------------------ ----------- ------------- -------- ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Through September 30, 1996:
Demaray and Poulos, P.A..... January 1 $ 1,679
Derrick and Associates
Pathology, Inc............ July 1 16,844 600,005 5 $8,000
Amazon and Rosen, M.D.,
P.A....................... July 1 6,333 66,666 5 2,000
SkinPath, P.C............... August 1 4,470 57,500 3 1,594
Pathology Associates,
P.S.C..................... August 1 6,795 59,666 5 750
Subsequent to September 30,
1996:
Clay J. Cockerell, M.D.,
P.A. and Freeman-Cockerell
Laboratories, Inc......... October 1 4,806 50,000 5 1,050
Volusia Pathology Group,
M.D., P.A................. October 3 7,344 6,666 87,675 5 1,841
David R. Barron, M.D.,
Inc....................... October 4 17,700 153,333 100,000 5 3,650
Drs. Seidenstein, Levine &
Associates, P.A........... October 10 15,657 75,834 189,567 5 4,551
Beno Michel, M.D., Inc...... October 15 8,832 96,000 50,000 3 1,500
Fernandez & Kalemeris, M.D.,
P.A....................... November 1 16,700 200,000 300,000 5 6,750
</TABLE>
Although the allocation of the purchase price for the above acquisitions
and the valuation of the shares issued subsequent to September 30, 1996,
are subject to adjustment when the Company obtains final information,
management believes that any such adjustments will not be material in
relation to the Company's consolidated financial statements. Information
with respect to the amortization periods for intangible assets is presented
in Note 6.
The Company does not have actual majority ownership of the common stock of
Clay J. Cockerell, M.D., P.A., David R. Barron, M.D., Inc. and Beno Michel,
M.D., Inc. (the "PA Contractors"). These acquisitions are accounted for as
business combinations and the financial statements of such acquired
practices will be included in the Company's consolidated financial
statements because the Company has unilateral control over, and has
substantially all of the risks and rewards of ownership of, these acquired
practices. Notwithstanding that actual majority ownership is not held by
the Company, consolidation is necessary to present fairly the financial
position and results of operations of the Company because of the existence
of a parent-subsidiary relationship by means other than record ownership of
the voting common stock of these acquired practices. Control of these
acquired practices is permanent rather than temporary under the terms of
the purchase agreements, management agreements and other agreements
executed in connection with the acquisition transactions.
The accompanying consolidated financial statements include the results of
operations of the Recent Acquisitions that have been made by the Company
from the date acquired through September 30, 1996.
F-14
<PAGE> 81
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following unaudited pro forma information presents the combined results
of the Company's operations and the results of operations of all of the
Recent Acquisitions for the year ended December 31, 1995 and the nine
months ended September 30, 1996, after giving effect to amortization of
goodwill and identifiable intangible assets, interest expense on the
long-term debt incurred in the Recent Acquisitions, and the reduced level
of certain specific operating expenses (primarily compensation and related
expenses attributable to the former owners) in accordance with the
agreements related to the Recent Acquisitions, as if the acquisitions had
been consummated on January 1, 1995. Such unaudited pro forma information
is based on the historical financial information of all of the Recent
Acquisitions and does not include operational or other changes which might
have been effected pursuant to the Company's management.
The unaudited pro forma information for the year ended December 31, 1995
and the nine months ended September 30, 1996 presented below is for
illustrative information purposes only and is not necessarily indicative of
results which would have been achieved or results which may be achieved in
the future:
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Net revenue................................................ $ 82,281 $63,316
========== ==========
Net income................................................. $ 6,083 $ 4,660
========== ==========
Net income per share....................................... $ .51 $ .39
========== ==========
</TABLE>
Common and common equivalent shares used in calculating net income per
share include the effects of the planned conversion of the Convertible
Preferred Stock and the planned stock split as discussed in Note 18.
4. ACCOUNTS RECEIVABLE AND NET REVENUE
Accounts receivable are recorded at net realizable value. The allowance for
contractual and other adjustments and uncollectible accounts is based on
historical experience and judgments about future events. Accordingly, the
actual amounts experienced could vary significantly from the recorded
allowances.
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Gross accounts receivable:
Outpatient services................................. $3,240 $4,037 $ 7,109
Hospitals services.................................. 10,011
------ ------ -------
3,240 4,037 17,120
Less allowance for contractual and other adjustments
and uncollectible accounts.......................... (1,499) (1,923) (9,176)
------ ------ -------
Accounts receivable, net.............................. $1,741 $2,114 $ 7,944
====== ====== =======
</TABLE>
The Company grants credit for services without collateral. Management
believes that the risk relating to accounts receivable is limited by the
diversity and number of contracting hospitals, physician practices,
patients, payors, and the geographic dispersion of the Company's
operations. On December 31, 1995 and September 30, 1996, accounts
receivable are for services in the states of Florida, Alabama and Kentucky.
F-15
<PAGE> 82
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Net revenue consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Gross revenue.......................... $15,353 $17,027 $19,121 $14,143 $29,102
Less contractual and other
adjustments.......................... (1,934) (2,566) (3,097) (1,967) (8,262)
------- ------- ------- ------- -------
Net revenue.................. $13,419 $14,461 $16,024 $12,176 $20,840
======= ======= ======= ======= =======
</TABLE>
A significant portion of the Company's net revenue is generated through
contracts with 34 hospitals, as of September 30, 1996, primarily as a
result of the Recent Acquisitions discussed in Note 3. Columbia/HCA
Healthcare Corporation owns or manages 14 of these hospitals. Generally,
these contracts have remaining terms of less than five years and contain
renewal provisions. Some of the contracts contain clauses that allow for
termination by either party with relatively short notice. Although the
Company, through the Practices, has had relationships with these hospitals
for extended periods of time, the termination of one or more of these
contracts would have a material adverse effect on the Company's financial
position and results of operations.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
(YEARS) 1994 1995 1996
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Laboratory and data processing......... 5 $ 1,743 $ 1,951 $ 3,196
Leasehold improvements................. 20 372 471 865
Furniture and fixtures................. 7 125 160 327
Mobile lab units....................... 3 99 99 303
Automotive vehicles.................... 3 13 46 99
Construction in progress............... 40 7 82
------- ------- -------
2,392 2,734 4,872
Less accumulated depreciation.......... (1,381) (1,520) (1,817)
------- ------- -------
Property and equipment, net............ $ 1,011 $ 1,214 $ 3,055
======= ======= =======
</TABLE>
Depreciation expense was $275, $275 and $257 for the years ended December
31, 1993, 1994 and 1995, respectively, and $191 and $287 for the nine month
periods ended September 30, 1995 (unaudited) and 1996, respectively.
F-16
<PAGE> 83
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. INTANGIBLE ASSETS
Intangible assets and the related accumulated amortization and amortization
periods are as follows:
<TABLE>
<CAPTION>
AMORTIZATION
PERIODS
RECORDED (YEARS)
SUBSEQUENT TO ----------------
SEPTEMBER 30, SEPTEMBER 30, WEIGHTED
1996 1996 RANGE AVERAGE
------------- -------------- ----- --------
<S> <C> <C> <C> <C>
Hospital contracts........................... $15,050 $ 13,900 35-40 36.5
Physician referral lists..................... 11,431 17,500 17-19 18.3
Laboratory contracts......................... 500 1,800 10 10.0
------- -------
26,981 $ 33,200
=======
Accumulated amortization..................... (255)
-------
Balance, net................................. $26,726
=======
Goodwill..................................... $10,145 $ 47,624 15-35 34.5
Accumulated amortization..................... (77)
-------
Balance, net................................. $10,068
=======
</TABLE>
The weighted average amortization period for identifiable intangible assets
and goodwill, is 30.6 years.
The amounts recorded subsequent to September 30, 1996 include the Recent
Acquisitions that were consummated subsequent to September 30, 1996 and the
additional goodwill of $13,455 recorded in connection with the issuance of
961,074 shares of Common Stock pursuant to the Stock Surrender & Restricted
Stock Grant Agreements. See Note 3.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
----------- SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
<S> <C> <C> <C>
Accounts payable............................................ $318 $287 $ 1,973
Accrued compensation........................................ 261 432 1,180
Accrued interest............................................ 21
Income taxes payable........................................ 42 227
Other accrued expenses...................................... 226 133 1,114
---- ---- ------
$805 $894 $ 4,515
==== ==== ======
</TABLE>
F-17
<PAGE> 84
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
8. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- ------- -------------
<S> <C> <C> <C>
Credit Facility..................................... $ 6,005 $ 4,146 $30,844
Senior Notes due to common stockholders, principal
and any unpaid interest thereon, due and payable
on December 31, 1998; interest is payable
currently at the stated rate of 8%................ 3,500 3,500 3,500
Junior Notes due to preferred stockholders,
principal and any unpaid interest thereon, due and
payable on December 31, 2001; interest is payable
currently at the stated rate of 10%............... 7,500 7,500 7,500
Subordinated Notes issued in connection with the
Recent Acquisitions, payable in varying amounts
through 2001, with interest at the rate of 7%..... 2,840
------- ------- -------
17,005 15,146 44,684
Less current portion................................ (782)
------- ------- -------
Long term debt, net of current portion.............. $17,005 $15,146 $43,902
======= ======= =======
</TABLE>
As of September 30, 1996, the maturities of short-term and long-term debt
were as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................ $ 135
1997............................................................ 782
1998............................................................ 35,126
1999............................................................ 3,048
2000............................................................ 2,815
2001............................................................ 2,778
-------
Total........................................................... $44,684
=======
</TABLE>
On May 29, 1996, the Company replaced its line of credit with a new
revolving line of credit (the "Credit Facility") with the First National
Bank of Boston, as lender and agent (the "Agent"), under which the Company
could borrow up to $40 million for working capital and acquisition
purposes. The Credit Facility was amended in October 1996, and the
aggregate amount available was increased to $85 million. Outstanding
advances under the Credit Facility are due and payable on December 31,
1998. Borrowings under the Credit Facility bear interest at variable rates
based, at the Company's option, on the bank's base rate or the sum of 2.50%
plus the Eurodollar rate. The Credit Facility also requires the quarterly
payment of an annual commitment fee equal to 0.375% of the unused portion
of the commitment until the commitment is terminated. Subsequent to
September 30, 1996, the Company issued to the Agent, 47,777 shares of
Common Stock in lieu of commitment fees. Such shares have been recorded at
the estimated fair market value at the date of the respective credit
facility agreement and amendments thereto.
The Credit Facility contains covenants which, among other things, require
the Company to maintain certain financial operating ratios and impose
certain limitations or prohibitions on the Company with respect to the
incidence, guaranty or assumption of indebtedness, the payment of
dividends, cash
F-18
<PAGE> 85
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
distributions, limitations on new debt issuance, sale of assets, leasing
commitments and annual capital expenditures, and contains provisions which
preclude mergers and acquisitions under certain circumstances and places.
All of the Company's assets are pledged as collateral under the agreement.
At September 30, 1996, the effective interest rate was approximately 8.29%.
The Company obtained a waiver from the Agent with respect to noncompliance
with the debt service coverage ratio requirements for the year ended
December 31, 1995. The Company believes that it is in compliance with all
of its existing covenants at September 30, 1996.
9. CONVERTIBLE PREFERRED STOCK
The Convertible Preferred Stock has an annual dividend rate of 6% of the
original purchase price and such dividends are cumulative from the date of
original issuance and payable when and as declared by the Company's Board
of Directors. In the event of liquidation or dissolution of the Company,
the amount distributed for each share is the greater of (i) $1.71 which is
subject to adjustment for certain capital transactions, plus unpaid
dividends (the "Liquidation Amount") or (ii) such amount as would have been
payable had the shares been converted to common stock. The Convertible
Preferred Stock is convertible into common stock of the Company at any
time, at the option of the holders at a conversion rate of one share of
common stock for each share, subject to adjustment for certain capital
transactions. Upon conversion, all accumulated and unpaid dividends, up to
the date of conversion are payable in cash.
During the nine months ended September 30, 1996 the Company paid accrued
dividends in the amount of $31 on the 120,004 shares converted into the
same number of shares of common stock by the holders of the Convertible
Preferred Stock in connection with the acquisition of shares of common
stock by the Company's Chief Executive Officer (See Note 14).
The preferred stockholders have voting rights equal to the number of shares
of common stock into which their shares may be converted. At the election
of the holders of at least 51% of the Convertible Preferred Stock, the
Company shall redeem, for the Liquidation Amount, all of the Convertible
Preferred Stock in 1999, 2000, and 2001. Also, if prior to the earlier of
the liquidation, merger, sale or change in control (as defined) of the
Company or December 31, 2001, the Company has not consummated a qualified
public offering (as defined), the owners of not less than 20% of the
Convertible Preferred Stock may require the Company to redeem their stock
for fair market value, but not less than the original purchase price. These
redemption requirements terminate upon consummation of a qualified public
offering. Since the Company believes that it is probable that the preferred
shares will not be redeemed, accretion in excess of accumulated dividends
has not been recorded.
The holders of the Convertible Preferred Stock have certain preemptive
rights in the event of the issuance of common stock, and certain
registration rights with expenses to be borne by the Company. As of
September 30, 1996, the Company has reserved 3,088,116 shares of common
stock for the conversion of the Convertible Preferred Stock.
F-19
<PAGE> 86
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10. LEASE COMMITMENTS
The Company leases various office and laboratory space, and certain
equipment pursuant to operating lease agreements. The following information
includes the related party leases discussed in Note 14. Future minimum
lease commitments consisted of the following at September 30, 1996:
<TABLE>
<S> <C>
1996............................................................. $ 133
1997............................................................. 511
1998............................................................. 490
1999............................................................. 452
2000............................................................. 437
2001............................................................. 404
Thereafter....................................................... $1,180
-------
$3,607
=======
</TABLE>
Rent expense under operating leases for 1993, 1994, and 1995 was $153,
$170, and $205 respectively, and $147 and $248 for the nine months ended
September 30, 1995 (unaudited) and 1996, respectively.
11. OPTION PLAN
The Company's Stock Option Plan (the "Option Plan") provides for the grant
of options to purchase shares of common stock to key employees and others.
The plan provides that the option price shall not be less than the fair
market value of the shares on the date of the grant. At September 30, 1996,
517,006 shares of common stock are reserved for issuance pursuant to
options granted under the Option Plan. All options granted have 10 year
terms and vest and become exercisable at the rate of 20% a year, following
the date of grant.
The Company's Director Option Plan provides for the grant of options to
purchase shares of common stock to Directors who are not employees of the
Company. All options to be granted under the Director Option Plan will have
10 year terms and become exercisable during the period specified in the
agreement evidencing the grant of such Director Option. As of September 30,
1996, no options have been granted under the Director Option Plan.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"), and the related interpretations in accounting for
its employee stock options because, as discussed below, the alternative
fair value accounting provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options
approximates the fair value of the underlying stock on the date of grant,
no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date
of grant using the Black-Scholes Option Pricing Model with the following
weighted-average assumptions for 1995 and 1996: risk-free interest rates
ranging from 5.18% to 6.85%; no volatility factors of the expected market
price of the Company's common stock has been included because the Company
was a private entity when the options were granted; and a weighted average
expected life of the option of 4.1 years. The estimated fair value of the
options was immaterial at the dates of grant, and therefore, the Company
has not provided pro forma net income or earnings per share information.
F-20
<PAGE> 87
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Black-Scholes Option Pricing Model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require highly
subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different than those of traded options, and because changes
in the assumptions can materially affect the fair value estimate, in
management's opinion, the existing models may not necessarily provide a
reliable single measure of the fair value of its employee stock options.
A summary of the Company's stock option activity, and related information
is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Granted 1994................................................ 130,000 $2.00
-------
Outstanding December 31, 1994............................... 130,000 $2.00
Granted in 1995............................................. 10,000 $3.00
-------
Outstanding December 31, 1995............................... 140,000 $2.00-$3.00
Granted in 1996............................................. 377,006 $3.00-$18.00
-------
Outstanding September 30, 1996.............................. 517,006 $2.00-$18.00
=======
</TABLE>
Options to purchase 50,000 shares are exercisable at September 30, 1996.
The weighted-average remaining contractual life of those options
outstanding at September 30, 1996 is 9.1 years.
During October 1996, 33,000 options were granted with an exercise price of
$15 per share.
12. EMPLOYEE BENEFIT PLANS
The Company established a 401(k) retirement plan (the "401(k) Plan") which
covers substantially all eligible employees as defined in the 401(k) Plan.
Under the terms of the 401(k) Plan, employees may contribute up to 15% of
their compensation, as defined. Employer contributions are discretionary.
During the years ended December 31, 1993, 1994 and 1995, and the nine
months ended September 30, 1996, the Company elected not to make
contributions to the 401(k) Plan.
In addition, in connection with the Recent Acquisitions completed through
September 30, 1996, the Company has assumed the obligations under certain
defined contribution plans which cover substantially all eligible employees
of the acquired practices. The Company has not made any contributions from
the dates of acquisition through September 30, 1996. The Company is in the
process of establishing a uniform benefit plan for all employees.
13. COMMITMENTS AND CONTINGENCIES
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. The Company
has not accrued a loss for unreported incidents or for losses in excess of
insurance coverage, as the amount, if any, cannot be reasonably estimated
and the probability of an adverse outcome cannot be determined at this
time. It is the opinion of management that the ultimate resolution of any
unasserted claims will not have a material adverse effect on the Company's
financial position or results of operations.
ALA Contingent Notes -- In connection with the Recapitalization, the
Company issued Subordinated Contingent notes in the amount of $2,500 which
have an interest rate of 8% (the "ALA Contingent Notes"). The ALA
Contingent Notes are payable in annual installments of $500, plus interest
thereon, in
F-21
<PAGE> 88
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
years 1994 through 1998, if operating earnings (as defined) exceed a
specified annual level. If the specified operating earnings levels are not
achieved, the amounts payable for that year, including the related accrued
interest, would be canceled. Operating earnings for the years ended
December 31, 1994 and 1995 were not achieved, therefore, the ALA Contingent
Notes of $500 and related accrued interest for 1995 and 1994 were canceled.
In April 1996, the Board of Directors approved the redemption and
cancellation of any remaining liabilities under the ALA Contingent Notes in
exchange for 108,000 shares of the Company's common stock. The shares were
valued based on an independent third party's valuation, and the transaction
was recorded, based on the fair value of the shares issued.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue for the years ended December 31, 1993, 1994 and 1995 and the nine
months ended September 30, 1996 is from payments by government-sponsored
health care programs, principally Medicare and Medicaid, and is subject to
audit and adjustments by applicable regulatory agencies. Failure to comply
with any of these laws or regulations, the results of regulatory audits and
adjustments, or changes in the amounts payable for the Company's services
under these programs could have a material adverse effect on the Company's
financial position and results of operations.
14. RELATED PARTY TRANSACTIONS
Operating Leases -- The Company leases its Fort Lauderdale laboratory
facilities from an entity beneficially owned by three of the Company's
common stockholders. The present term of the lease expires March 31, 1998
and contains options to renew for two additional five-year periods. The
lease requires monthly rental payments of $11, plus sales tax, and the
Company is also obligated to pay property taxes, insurance, utilities, and
maintenance. Lease payments made under the lease were $134, $140 and $140
in 1993, 1994 and 1995, respectively, and $105 and $105 during the nine
months ended September 30, 1995 (unaudited) and 1996, respectively.
Note Receivable from Officer -- In connection with the employment of the
Company's Chief Executive Officer, the Company provided financing of $270
to facilitate the purchase of 120,004 shares of the Company's issued and
outstanding stock from certain holders of the Convertible Preferred Stock.
The note is payable in full on January 1, 2001 and bears interest at the
rate of 8%, which is payable currently. A portion of the underlying shares
purchased (70,000 shares) are pledged as collateral.
Shareholders' compensation -- Cost of services include $4,445 in 1993 of
compensation paid to ALA's shareholders in excess of the compensation of
such individuals following the Recapitalization.
F-22
<PAGE> 89
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
15. INCOME TAXES
The provision for income taxes for the years ended December 31, 1994 and
1995, and for the periods ended September 30, 1995 (unaudited) and 1996
consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
----------- --------------------
1994 1995 1995 1996
---- ---- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal............................................. $214 $224 $ 189 $ 845
State............................................... 36 40 34 125
---- ---- ---- ----
Total current............................... 250 264 223 970
---- ---- ---- ----
Deferred:
Federal............................................. 381 541 456 85
State............................................... 65 95 80 20
---- ---- ---- ----
Total deferred.............................. 446 636 536 105
---- ---- ---- ----
Total provision for income taxes............ $696 $900 $ 759 $1,075
==== ==== ==== ====
</TABLE>
PDK elected to be taxed as a Subchapter S corporation for federal income
tax purposes and, accordingly, there is no provision for income taxes for
1993 and for the portion of taxable income for 1994 attributable to PDK
prior to the Recapitalization.
The effective tax rate on income before income tax is reconciled to
statutory federal income tax rates as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- -------------------
1994 1995 1995 1996
----- ----- ----------- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Statutory federal rate............................. 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit.......................................... 2.4 3.7 3.7 3.4
Subchapter S corporation earnings attributable to
PDK.............................................. (11.1)
Other.............................................. (0.1) (0.2) (0.2) 1.2
----- ----- ---- ----
Effective rate..................................... 25.2% 37.5% 37.5% 38.6%
===== ===== ==== ====
</TABLE>
F-23
<PAGE> 90
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following is a summary of the deferred income tax assets and
liabilities as of December 31, 1994 and 1995 and September 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1994 1995 1996
------ ------ -------------
<S> <C> <C> <C>
Deferred Tax Assets:
Amortizable tax basis of intangibles arising in
Recapitalization.................................... $6,294 $5,757 $ 5,340
Property and equipment................................. 297 133 10
Allowance for doubtful accounts........................ 77 142 285
Accrued liabilities.................................... 224
Other.................................................. 28 20
------ ------ -------
Total Deferred Tax Assets................................ 6,696 6,052 5,859
------ ------ -------
Deferred Tax Liabilities:
Change from cash to accrual basis by Acquisitions...... $ (1,662)
Identifiable intangible assets acquired................ (9,038)
Other.................................................. $ (42) $ (34) (46)
------ ------ -------
Total Deferred Tax Liabilities........................... (42) (34) (10,746)
------ ------ -------
Net Deferred Tax Asset/(Liability)............. $6,654 $6,018 $ (4,887)
====== ====== =======
</TABLE>
The Recapitalization discussed in Note 1 is treated for income tax purposes
as the purchase of assets. A deferred tax benefit of $7,100 was recorded in
connection with the Recapitalization, which amount represents management's
best estimate of the tax effect of deductions in future income tax returns
of the amortization of the increase in tax basis of the assets over the
historical amounts used for financial accounting purposes.
16. SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental information presents the non-cash impact on the
balance sheet of assets acquired and liabilities assumed in the Recent
Acquisitions consummated during the nine months ended September 30, 1996:
<TABLE>
<S> <C>
Assets acquired............................................................ $47,885
Liabilities assumed........................................................ (14,729)
Debt issued................................................................ (2,975)
Common stock issued........................................................ (1,343)
-------
Cash paid.................................................................. 28,838
Less cash acquired......................................................... (1,518)
-------
Net cash paid.................................................... $27,320
=======
</TABLE>
F-24
<PAGE> 91
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
17. CLINICAL PATHOLOGY OPERATIONS OF AMERICAN LABORATORY ASSOCIATES
In May 1996, the Company ceased the clinical pathology operations of
American Laboratory Associates. The following summarizes the amounts of net
revenue and operating costs, including in 1996 a loss of $184 on exiting
the activity, included in the accompanying consolidated statements of
income:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------
1993 1994 1995 1995 1996
------ ------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues....................... $2,159 $1,712 $2,385 $ 1,938 $1,046
Operating costs.................... 1,883 2,179 2,814 2,142 1,376
</TABLE>
18. PRO FORMA NET INCOME PER SHARE INFORMATION (UNAUDITED)
The Company is planning to issue shares of its common stock in an initial
public offering early in 1997. Immediately prior to the offering, the
outstanding shares of Convertible Preferred Stock will be converted into
the 1.8 of shares of common stock, and the Company will effect a 1.8 for 1
split of its common stock. In view of the planned conversion of the
Convertible Preferred Stock and stock split, historical net income per
share is not presented. Pro forma net income per share is presented giving
effect to the conversion of the Convertible Preferred Stock and the stock
split. The following presents the calculation of pro forma common shares
and common equivalent shares outstanding for each period (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
AND
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Shares outstanding at beginning of period.......... 792 792
Effects of shares subsequently issued:
Conversion of Convertible Preferred Stock in
January 1996.................................. 120
Settlement of ALA Contingent Notes in April
1996(1)....................................... 108 108
Recent Acquisitions completed through September
30, 1996...................................... 248
Effects of stock options(1)........................ 383 383
----- -----
1,283 1,651
Effect of planned stock split...................... 1,027 1,322
Planned conversion of Convertible Preferred
Stock............................................ 5,775 5,559
----- -----
Pro forma common and common equivalent shares
outstanding...................................... 8,085 8,532
===== =====
</TABLE>
- ---------------
(1) Pursuant to the requirements of the Securities and Exchange Commission
(the "Commission"), common stock issued by the Company during the 12
months immediately preceding the initial filing of the registration
statement with the Commission, plus the effects of common stock
equivalents relating to the grant of options during the same period
using the treasury stock method and an assumed initial public offering
price of $14.00 per share, have been included in the calculation of pro
forma number of common and common stock equivalents outstanding for all
periods presented.
F-25
<PAGE> 92
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Demaray and Poulos, P.A.:
We have audited the accompanying balance sheets of Demaray and Poulos, P.A. (the
"Company") as of December 31, 1994 and 1995 and the related statements of
operations and retained earnings and of cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
1995, and the results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
September 27, 1996
F-26
<PAGE> 93
DEMARAY AND POULOS, P.A.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $ 1,831 $ 3,211
Accounts receivable (net of allowances for contractual adjustments
and doubtful accounts of $884,068 and $990,282 at December 31,
1994 and 1995, respectively)...................................... 478,177 479,746
-------- --------
Total current assets......................................... 480,008 482,957
PROPERTY AND EQUIPMENT, NET (Note 3)................................... 1,961 1,151
OTHER ASSETS:
Cash surrender value of life insurance............................... 87,166
Other assets......................................................... 36
-------- --------
TOTAL........................................................ $569,171 $484,108
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 43,216 $ 17,172
Accrued compensation................................................. 24,325 28,016
Deferred compensation liability (Note 7)............................. 87,166
-------- --------
Total current liabilities.................................... 154,707 45,188
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 200 shares authorized, issued and
outstanding....................................................... 200 200
Retained earnings.................................................... 414,264 438,720
-------- --------
Total shareholders' equity................................... 414,464 438,920
-------- --------
TOTAL........................................................ $569,171 $484,108
======== ========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 94
DEMARAY AND POULOS, P.A.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
NET REVENUE (Note 4).................................................. $2,936,977 $2,547,908
---------- ----------
COSTS OF SERVICES:
Physician compensation -- owners.................................... 654,000 528,000
Physician compensation -- other..................................... 1,142,784 1,157,890
Consulting -- second opinions....................................... 163,447 88,544
Other............................................................... 222,438 197,296
---------- ----------
Total costs of services..................................... 2,182,669 1,971,730
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Administration...................................................... 9,210 11,575
Deferred compensation plan.......................................... 9,387 17,447
Billing service..................................................... 226,462 195,257
Bad debt expense.................................................... 426,347 357,566
---------- ----------
Total general and administrative expenses................... 671,406 581,845
---------- ----------
OPERATING INCOME (LOSS)............................................... 82,902 (5,667)
OTHER INCOME, NET..................................................... 5,174 30,123
---------- ----------
NET INCOME............................................................ 88,076 24,456
RETAINED EARNINGS, BEGINNING OF YEAR.................................. 326,188 414,264
---------- ----------
RETAINED EARNINGS, END OF YEAR........................................ $ 414,264 $ 438,720
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 95
DEMARAY AND POULOS, P.A.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 88,076 $ 24,456
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization..................................... 590 810
Changes in assets and liabilities:
Increase in accounts receivable................................. (145,314) (1,569)
Increase (decrease) in accounts payable, accrued compensation
and deferred compensation liability............................ 43,173 (109,519)
Decrease in other assets........................................ 14,419 87,202
--------- ---------
Net cash provided by operating activities.................... 944 1,380
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................................ (2,331)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................... (1,387) 1,380
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........................... 3,218 1,831
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR................................. $ 1,831 $ 3,211
========= =========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 96
DEMARAY AND POULOS, P.A.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
1. ORGANIZATION AND BUSINESS
Demaray and Poulos, P.A. (the "Company") is a firm of licensed physicians
in Fort Lauderdale, Florida organized in January 1982 as a Florida
Professional Association to provide hospital-based pathology services. The
Company generates substantially all of its revenue through contracts with
three hospitals in South Florida. Two of these hospitals, representing
approximately 50% of the Company's revenues, are owned by Columbia/HCA
Healthcare Corporation. The arrangements with hospitals are contracts
whereby the hospitals agree, in exchange for the Company's services, to
authorize the Company and its healthcare professionals to bill and collect
the professional component of the charges for medical services rendered by
the Company's healthcare professionals. These contracts have terms of less
than two years and contain clauses that allow termination without cause by
either party with sixty days notice. The Company has had relationships with
the hospitals for approximately ten years; however, the termination of one
or more of these agreements would have a material adverse effect on the
Company's financial position and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash Equivalents -- The Company considers all cash and any highly liquid
debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets, ranging from 5
to 7 years, using accelerated methods.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Unbilled receivables are recorded for services rendered during, but billed
subsequent, to the reporting period. Such receivables, net of allowances,
as of December 31, 1994 and 1995 amounted to $216,000 and $112,000,
respectively.
Income Taxes -- The Company has elected to be taxed as a Subchapter S
corporation for federal income tax purposes. There is no provision for
income taxes since those taxes are the responsibility of the individual
shareholders.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- The carrying amounts of cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value due to their short-term maturity.
F-30
<PAGE> 97
DEMARAY AND POULOS, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 was as follows:
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Medical equipment.................................................... $9,856 $9,856
Less accumulated depreciation........................................ (7,895) (8,705)
------ ------
Property and equipment, net.......................................... $1,961 $1,151
====== ======
</TABLE>
4. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be collected under Medicare and Medicaid programs, and public and private
insurance and managed care contracts under applicable laws, regulations,
and program instructions. Collectable amounts are generally less than the
established rates. Final determination of certain amounts earned for
certain patients is subject to review by appropriate program
representatives. Charity and other adjustments represent services provided
to patients for which fees are not expected to be collected at the time the
service is provided.
Net revenue consists of the following for the years ended December 31, 1994
and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Gross charges at established rates............................ $5,191,975 $4,863,912
Less allowances for contractual, charity and other
adjustments................................................. (2,254,998) (2,316,004)
---------- ----------
Net revenue......................................... $2,936,977 $2,547,908
========== ==========
</TABLE>
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third party payor agreements. The
mix of receivables from patients and third-party payors at December 31,
1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Medicare................................................................. 23 % 18 %
Medicaid................................................................. 1 1
Humana managed care...................................................... 14 11
Third-party payors, including other managed care......................... 59 65
Private pay patients..................................................... 3 5
--- ---
100 % 100 %
=== ===
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with American Laboratory
Associates, Inc., a wholly owned subsidiary of AmeriPath, Inc., a majority
of whose common stock is owned by the Company's shareholders. American
Laboratory Associates, Inc. operates three "frozen section" laboratories
which are staffed by physician employees of the Company. Revenue recognized
by the Company under this arrangement amounted to $115,800 and $120,300
during the years ended December 31, 1994 and 1995, respectively. American
Laboratory Associates, Inc. also provides certain administrative support
services
F-31
<PAGE> 98
DEMARAY AND POULOS, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for which the Company paid $200 per month during the years ended December
31, 1994 and 1995. (See Note 9).
7. EMPLOYEE BENEFIT PLANS
401(k) Plan -- The Company established a 401(k) retirement plan (the
"Plan"), which covers substantially all eligible employees who have reached
age 21 and have completed one year of service (as defined in the Plan).
Under the terms of the Plan, employees may contribute up to 15% of their
compensation, as defined. Employer contributions are discretionary. During
the years ended December 31, 1994 and 1995, the Company elected not to make
a contribution to the Plan.
Deferred Compensation Plan -- The Company established a non-qualified
deferred compensation plan in 1989. The plan is funded by the purchase of
insurance policies owned by the Company on the lives of key employees. Each
year deferred compensation expense was recorded for the premiums paid and
adjusted by the change in cash surrender value of the policies for the
year. Deferred compensation expense was $9,387 and $17,447 for the years
ended December 31, 1994 and 1995. In accordance with the plan, the Company
was ultimately obligated to transfer ownership of policies to the key
employees. During 1995, the plan was terminated and the ownership of the
remaining insurance policies was distributed to the employees.
8. COMMITMENTS AND CONTINGENCIES
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored health care programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management
is not aware of any claims against the Company. In addition, the Company
has not accrued a loss for unreported incidents or for losses in excess of
insurance coverage, as the amount, if any, cannot be reasonably estimated
and the probability of an adverse outcome cannot be determined at this
time. It is the opinion of management that the ultimate resolution of any
claims that may be asserted will not have a material adverse effect on the
financial position or results of operations of the Company.
9. SUBSEQUENT EVENT
Effective January 1, 1996, the Company sold all of its assets and
liabilities to a wholly-owned subsidiary of AmeriPath, Inc.
F-32
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Amazon and Rosen, M.D., P.A. d/b/a Florida Pathology Associates:
We have audited the accompanying balance sheets of Amazon and Rosen, M.D., P.A.
d/b/a Florida Pathology Associates (the "Company") as of December 31, 1994 and
1995 and June 30, 1996, and the related statements of operations and retained
earnings and of cash flows for the years ended December 31, 1994 and 1995 and
the six months ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and 1995
and June 30, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1994 and 1995 and the six months ended June 30, 1996,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
September 27, 1996
F-33
<PAGE> 100
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER DECEMBER JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 1,141 $ 2,480 $ 15,541
Accounts receivable (net of allowances for contractual
adjustments and doubtful accounts of $464,381, $660,318
and $716,992 at December 31, 1994 and 1995 and June 30,
1996, respectively)....................................... 447,298 504,333 500,064
-------- -------- --------
Total current assets................................. 448,439 506,813 515,605
-------- -------- --------
PROPERTY AND EQUIPMENT, NET (Note 3)........................... 28,936 20,765 16,612
OTHER ASSETS................................................... 757 50 50
-------- -------- --------
TOTAL................................................ $478,132 $527,628 $532,267
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 36,228 $ 33,656 $ 19,817
Due to shareholders.......................................... 21,166 19,056 17,056
Note payable to bank......................................... 35,683 9,372
Income taxes payable (Note 6)................................ 11,404 13,853
Deferred tax liability (Note 6).............................. 158,475 181,563 185,254
-------- -------- --------
Total current liabilities............................ 251,552 255,051 235,980
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 100 shares authorized, issued and
outstanding............................................... 100 100 100
Additional paid-in capital................................... 1,900 1,900 1,900
Retained earnings............................................ 224,580 270,577 294,287
-------- -------- --------
Total shareholders' equity........................... 226,580 272,577 296,287
-------- -------- --------
TOTAL................................................ $478,132 $527,628 $532,267
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 101
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
------------ ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE (Note 4)........................... $2,390,016 $3,055,092 $ 1,542,224 $1,781,192
---------- ---------- ---------- ----------
COSTS OF SERVICES:
Physician compensation -- owners............. 1,132,400 1,618,800 766,263 914,500
Physician compensation -- other.............. 314,640 359,776 171,998 182,586
Other........................................ 264,003 306,826 147,810 154,159
---------- ---------- ---------- ----------
Total costs of services.............. 1,711,043 2,285,402 1,086,071 1,251,245
---------- ---------- ---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Administration............................... 79,492 87,977 45,295 79,065
Billing service.............................. 174,654 221,885 129,939 123,431
Bad debt expense............................. 160,778 380,260 239,391 286,642
---------- ---------- ---------- ----------
Total general and administrative
expenses........................... 414,924 690,122 414,625 489,138
---------- ---------- ---------- ----------
OPERATING INCOME............................... 264,049 79,568 41,528 40,809
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense............................. (3,535) (1,711) (1,103) (241)
Other income................................. 3,410 2,632 2,367 686
---------- ---------- ---------- ----------
Total other (expense) income, net.... (125) 921 1,264 445
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES....... 263,924 80,489 42,792 41,254
PROVISION FOR INCOME TAXES..................... 104,172 34,492 16,090 17,544
---------- ---------- ---------- ----------
NET INCOME..................................... 159,752 45,997 26,702 23,710
RETAINED EARNINGS, BEGINNING OF PERIOD......... 64,828 224,580 224,580 270,577
---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD............... $ 224,580 $ 270,577 $ 251,282 $ 294,287
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 102
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996
------------ ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 159,752 $ 45,997 $ 26,702 $ 23,710
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation................................ 20,092 19,073 11,246 4,153
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................. (286,407) (57,035) (20,999) 4,269
Increase (decrease) in accounts payable,
income tax payable and due to
shareholders........................... 27,404 6,722 (5,463) (13,390)
Increase in deferred income tax
liability.............................. 104,172 23,088 11,525 3,691
(Increase) decrease in other assets....... (494) 708 707
--------- -------- -------- --------
Net cash provided by operating
activities........................... 24,519 38,553 23,718 22,433
--------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.......... (10,903) (5,360)
--------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt........... (24,486) (26,311) (12,907) (9,372)
--------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 33 1,339 5,451 13,061
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD... 1,108 1,141 1,141 2,480
--------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD......... $ 1,141 $ 2,480 $ 6,592 $ 15,541
========= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.................................... $ 3,535 $ 1,711 $ 1,103 $ 241
========= ======== ======== ========
Income Taxes................................ $ $ 2,340 $ $ 9,771
========= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 103
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1996
1. ORGANIZATION AND BUSINESS
Amazon and Rosen, M.D., P.A. d/b/a Florida Pathology Associates (the
"Company") is a firm of licensed physicians in Miami, Florida organized in
August 1988 as a Florida Professional Association to provide hospital-based
pathology services. The Company generates substantially all of its revenues
through a contract with one hospital in South Florida. This contract has a
term of five years through September 1999. Under the contract, the hospital
agrees, in exchange for the Company's services, to authorize the Company
and its healthcare professionals to bill and collect the professional
component of the charges for medical services rendered by the Company's
healthcare professionals.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash Equivalents -- The Company considers all cash and any highly liquid
debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets, ranging from 3
to 7 years, using accelerated methods.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Unbilled receivables are recorded for services rendered during, but billed
subsequent, to the reporting period. Such receivables, net of allowances,
as of December 31, 1994 and 1995 and June 30, 1996 amounted to
approximately $124,000, $92,000 and $66,000, respectively.
Income Taxes -- The Company's provision for income taxes includes federal
and state income taxes currently payable and changes in deferred tax assets
and liabilities. Deferred income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109, and represents the
estimated future tax effects resulting from temporary differences between
financial and tax reporting bases of assets and liabilities.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- The carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and notes payable
approximate fair value due to their short-term maturity.
Interim Financial Data -- The unaudited statements of operations and
retained earnings and of cash flows for the six months ended June 30, 1995
include, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Company's
results of operations and cash flows. Operating results for the six month
period ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
F-37
<PAGE> 104
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and June 30, 1996 was
as follows:
<TABLE>
<CAPTION>
DECEMBER DECEMBER JUNE 20,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Furniture, fixtures and equipment....................... $95,185 $106,087 $106,087
Less accumulated depreciation........................... (66,249 ) (85,322) (89,475)
------- ------- -------
Property and equipment, net............................. $28,936 $ 20,765 $ 16,612
======= ======= =======
</TABLE>
4. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be collected under Medicare and Medicaid programs, and public and private
insurance and managed care contracts under applicable laws, regulations,
and program instructions. Collectable amounts are generally less than the
established rates. Final determination of certain amounts earned for
certain patients is subject to review by appropriate program
representatives. Charity and other adjustments represent services provided
to patients for which fees are not expected to be collected at the time the
service is provided.
Net revenue consists of the following for the years ended December 31, 1994
and 1995 and the six months ended June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER DECEMBER JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Gross charges at established rates................. $2,760,935 $4,243,300 $2,541,450
Less allowances for contractual, charity and other
adjustments...................................... (550,919) (1,368,208) (850,258)
---------- ---------- ----------
2,210,016 2,875,092 1,691,192
Medical director fees.............................. 180,000 180,000 90,000
---------- ---------- ----------
Net revenue........................................ $2,390,016 $3,055,092 $1,781,192
========== ========== ==========
</TABLE>
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third party payor agreements. The
mix of receivables from patients and third-party payors at December 31,
1994 and 1995 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER DECEMBER JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Medicare.............................................. 54% 48% 48%
Medicaid.............................................. 1 2 2
Third-party payors, including managed care............ 22 32 33
Private pay patients.................................. 23 18 17
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
F-38
<PAGE> 105
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The provision for income taxes in the accompanying statements of operations
for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Current:
Federal........................................ $ 10,093 $ 12,147
State.......................................... 1,311 1,706
------- -------
11,404 13,853
------- -------
Deferred:
Federal........................................ $ 89,319 19,796 3,165
State.......................................... 14,853 3,292 526
-------- ------- -------
104,172 23,088 3,691
-------- ------- -------
Total.................................. $104,172 $ 34,492 $ 17,544
======== ======= =======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
---- ---- -------------
<S> <C> <C> <C>
Statutory federal income tax rate........................ 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit.... 3.7% 3.8% 3.6%
Other.................................................... 1.8% 5.1% 4.9%
---- ---- ----
Effective tax rate..................................... 39.5% 42.9% 42.5%
====== ====== ======
</TABLE>
The significant components of the net deferred income tax liability at
December 31, 1994 and 1995 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ---------
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Allowance for contractuals and bad debts....... $ 179,135 $ 254,718 $ 276,580
Tax cash basis items........................... (337,610) (436,281) (461,834)
------------ ----------- - ---------
$ (158,475) $ (181,563) $(185,254)
============ ============ =========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management
is not aware of any claims against the Company. In addition,
F-39
<PAGE> 106
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Company has not accrued a loss for unreported incidents or for losses
in excess of insurance coverage, as the amount, if any, cannot be
reasonably estimated and the probability of an adverse outcome cannot be
determined at this time. It is the opinion of management that the ultimate
resolution of any claims that may be asserted will not have a material
adverse effect on the financial position or results of operations of the
Company.
8. SUBSEQUENT EVENT
Effective July 1, 1996, the Company's shareholders sold all of the
Company's issued and outstanding common stock to AmeriPath, Inc.
F-40
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Derrick and Associates Pathology, Inc.:
We have audited the accompanying balance sheets of Derrick and Associates
Pathology, Inc. (the "Company") as of December 31, 1994 and 1995 and June 30,
1996, and the related statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and 1995
and June 30, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1994 and 1995 and the six months ended June 30, 1996,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Orlando, Florida
October 1, 1996
F-41
<PAGE> 108
DERRICK AND ASSOCIATES PATHOLOGY, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $1,199,117 $1,105,141 $ 723,801
Investments (Note 3)..................................... 757,243 955,817
Accounts receivable (net of allowances for contractual
adjustments and doubtful accounts of $4,822,221,
$5,053,200, and $5,188,251 at December 31, 1994 and
1995 and June 30, 1996, respectively)................. 4,067,442 4,780,539 4,648,363
Amounts receivable from shareholders..................... 196,887
Prepaid expenses and other current assets................ 337,766 264,138 493,521
---------- ---------- ----------
Total current assets............................. 6,361,568 7,105,635 6,062,572
PROPERTY AND EQUIPMENT, NET (Note 4)....................... 805,044 880,911 1,056,457
OTHER ASSETS............................................... 82,900 98,200 67,488
---------- ---------- ----------
TOTAL............................................ $7,249,512 $8,084,746 $7,186,517
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit (Note 2)............................. $1,750,100 $1,600,100
Current portion of long-term debt (Note 6)............... 190,671 $ 96,974
Accounts payable......................................... 190,821 218,164 380,427
Accrued liabilities (Note 5)............................. 354,859 366,884 381,009
Accrued profit sharing contribution...................... 564,357 545,006 200,612
Deferred income taxes (Note 11).......................... 1,423,000 1,708,000 1,680,000
---------- ---------- ----------
Total current liabilities........................ 4,283,137 4,628,825 2,739,022
---------- ---------- ----------
LONG-TERM DEBT (Note 6).................................... 217,440
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY: (Note 8)
Common stock:
Class A common stock, $1.00 par value, 2,000 shares
authorized, 1,300 shares issued and outstanding at
December 31, 1994, 1,200 shares issued and
outstanding at December 31, 1995, and 1,300 shares
issued and outstanding at June 30, 1996............. 1,300 1,200 1,300
Class B non-voting common stock, $1.00 par value,
1,000 shares authorized, 30 shares issued and
outstanding at June 30, 1996........................ 30
Additional paid-in capital............................... 1,275,599 1,232,804 2,459,122
Retained earnings........................................ 1,742,130 2,004,477 1,987,043
---------- ---------- ----------
3,019,029 3,238,481 4,447,495
Less note receivable from shareholder.................... (52,654)
---------- ---------- ----------
Total shareholders' equity....................... 2,966,375 3,238,481 4,447,495
---------- ---------- ----------
TOTAL............................................ $7,249,512 $8,084,746 $7,186,517
========== ========== ==========
</TABLE>
See notes to financial statements.
F-42
<PAGE> 109
DERRICK AND ASSOCIATES PATHOLOGY, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------- ---------------------------
1994 1995 1995 1996
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE (Note 9):
Hospital net revenue (net of allowances for
contractual, charity, and other adjustments
of $11,042,842, $11,739,344, $5,986,271, and
$7,554,196 for the years ended December 31,
1994 and 1995 and the six months ended June
30, 1995 (unaudited) and 1996,
respectively)............................... $11,714,580 $12,654,421 $ 6,352,212 $ 5,914,302
Histology net revenue (net of allowances for
contractual, charity, and other adjustments
of $1,319,158, $1,026,590, $514,088, and
$516,059 for the years ended December 31,
1994 and 1995 and the six months ended June
30, 1995 (unaudited) and 1996,
respectively)............................... 7,525,119 7,607,769 3,642,315 4,306,770
Cytology net revenue (net of allowances for
contractual, charity, and other adjustments
of $207,122, $71,340, $47,642, and $28,092
for the years ended December 31, 1994 and
1995 and the six months ended June 30, 1995
(unaudited) and 1996, respectively)......... 1,366,047 1,320,007 670,741 539,536
Other......................................... 88,019 124,127 114,157 42,183
----------- ----------- ----------- -----------
Total net revenue...................... 20,693,765 21,706,324 10,779,425 10,802,791
----------- ----------- ----------- -----------
COSTS AND EXPENSES (Notes 7 and 10):
Cost of services rendered..................... 15,361,591 13,854,132 7,691,438 7,381,725
Selling, billing, and administrative
expenses.................................... 3,204,069 3,473,635 1,384,846 1,929,293
Provision for uncollectible accounts (net of
recoveries of $553,531, $666,251, $369,816,
and $270,867 for the years ended December
31, 1994 and 1995 and the six months ended
June 30, 1995 (unaudited) and 1996,
respectively)............................... 2,405,646 3,618,851 1,758,610 1,504,914
Interest expense.............................. 32,081 36,091 34,217 12,493
----------- ----------- ----------- -----------
Total costs and expenses............... 21,003,387 20,982,709 10,869,111 10,828,425
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES......................................... (309,622) 723,615 (89,686) (25,634)
PROVISION (BENEFIT) FOR INCOME TAXES (Note
11)........................................... (132,534) 290,000 (4,500) (8,200)
----------- ----------- ----------- -----------
NET INCOME (LOSS)............................... $ (177,088) $ 433,615 $ (85,186) $ (17,434)
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-43
<PAGE> 110
DERRICK AND ASSOCIATES PATHOLOGY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
NOTE
CLASS CLASS RECEIVABLE
A B ADDITIONAL FROM
COMMON COMMON PAID-IN RETAINED SHAREHOLDER
STOCK STOCK CAPITAL EARNINGS (NOTE 8) TOTAL
------ ------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1994................. $1,300 $ $1,275,599 $1,919,218 $ (107,923) $3,088,194
Net loss...................... (177,088) (177,088)
Principal payments received on
note receivable from
shareholder................ 55,269 55,269
------ ------ ---------- ---------- ----------- ----------
DECEMBER 31, 1994............... 1,300 1,275,599 1,742,130 (52,654) 2,966,375
Net income.................... 433,615 433,615
Issuance of common stock (Note
8)......................... 100 193,848 193,948
Repurchase and retirement of
common stock (Note 8)...... (200 ) (236,643) (171,268) (408,111)
Principal payments received on
note receivable from
shareholder................ 52,654 52,654
------ ------ ---------- ---------- ----------- ----------
DECEMBER 31, 1995............... 1,200 1,232,804 2,004,477 3,238,481
Net loss...................... (17,434) (17,434)
Issuance of Class A common
stock (Note 8)............. 100 193,848 193,948
Issuance of Class B non voting
common stock (Note 8)...... 30 1,032,470 1,032,500
------ ------ ---------- ---------- ----------- ----------
JUNE 30, 1996................... $1,300 $ 30 $2,459,122 $1,987,043 $ $4,447,495
====== ====== ========== ========== =========== ==========
</TABLE>
See notes to financial statements.
F-44
<PAGE> 111
DERRICK AND ASSOCIATES PATHOLOGY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------- -------------------------
1994 1995 1995 1996
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................. $ (177,088) $ 433,615 $ (85,186 ) $ (17,434)
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation...................................................... 386,255 347,286 162,716 187,039
Deferred income taxes............................................. 8,000 290,000 (12,500 ) 3,000
(Gain) loss on disposition of fixed assets........................ (823) 13,906 3,161 9,570
Amortization of original issue discount........................... (7,374) (30,707) (21,053 ) (7,864)
Shareholders' compensation related to stock bonus................. 972,500
(Increase) decrease in:
Accounts receivable............................................. (271,512) (713,097) (333,383 ) 132,176
Amounts receivable from shareholders............................ (196,887)
Prepaid expenses and other current assets....................... (130,343) 68,628 47,792 (229,383)
Other assets.................................................... (288)
Increase (decrease) in:
Accounts payable................................................ (7) 27,343 661,218 162,263
Accrued liabilities............................................. (98,625) 12,025 1,991,261 14,125
Accrued profit sharing contribution............................. 545,163 (19,351) (253,507 ) (344,394)
---------- ---------- ----------- -----------
Net cash provided by operating activities................... 253,646 429,648 2,160,519 684,423
---------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities held to maturity........................... (749,870) (942,867) (508,179 )
Proceeds from redemption of securities held to maturity........... 775,000 510,000 963,681
Proceeds from sale of equipment................................... 1,425 25,365 7,060 4,580
Purchases of property and equipment............................... (216,825) (462,424) (306,352 ) (376,735)
Increase in other assets.......................................... (13,860) (15,300)
---------- ---------- ----------- -----------
Net cash provided by (used in) investing activities......... (979,130) (620,226) (297,471 ) 591,526
---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock.......................................... 193,948 253,948
Net (payments) proceeds from bank line of credit.................. 250,100 (150,000) (1,750,000 ) (1,600,100)
Note principal payments received from shareholders................ 55,269 52,654 32,011
Payments on long-term debt........................................ (311,137)
---------- ---------- ----------- -----------
Net cash (used in) provided by financing activities......... 305,369 96,602 (1,717,989 ) (1,657,289)
---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH..................................... (420,115) (93,976) 145,059 (381,340)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................... 1,619,232 1,199,117 1,199,117 1,105,141
---------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $1,199,117 $1,105,141 $1,344,176 $ 723,801
========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments (receipts) during the period for:
Interest........................................................ $ 13,473 $ 24,951 $ 7,543 $ 22,181
========== ========== =========== ===========
Income taxes.................................................... $ 139,345 $ 4,740 $ (137,395 ) $
========== ========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
The Company purchased and retired 200 shares of common stock through the
issuance of $408,111 of long-term debt during the year ended December 31, 1995.
The Company purchased and retired 100 shares of common stock through the
issuance of $193,948 of long-term debt during the six months ended June 30,
1995.
See notes to financial statements.
F-45
<PAGE> 112
DERRICK AND ASSOCIATES PATHOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1996
1. ORGANIZATION AND BUSINESS
Derrick and Associates Pathology, Inc. (the "Company") (f/k/a Derrick and
Associates Pathology, P.A.) is engaged in providing hospital-based
pathology services to various hospitals as well as pathology laboratory
services to hospitals, clinics, physicians, and others throughout Central
and South Florida. On May 23, 1996, the Company's shareholders executed an
agreement to sell their interests in the Company to AmeriPath Florida, Inc.
The transaction was completed as of June 26, 1996, with an effective date
of July 1, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash Equivalents -- The Company considers all cash and any highly liquid
debt instruments purchased with a maturity of three months or less at time
of purchase to be cash equivalents.
Investments -- Marketable debt securities are classified as held to
maturity, available for sale or trading depending upon the intent and
ability of the Company. Held to maturity investments are recorded at
amortized cost; trading securities are recorded at fair value with
unrealized gains and losses included in earnings; and available for sale
securities are recorded at fair value with unrealized gains and losses
included as a separate component of shareholders' equity. The Company has
classified all of its investments as held to maturity. Accordingly, all
such investments have been recorded at amortized cost.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets (ranging from 3
to 10 years) using accelerated methods.
Bank Line of Credit -- The Company had a $2,500,000 line of credit with a
bank which was due on demand, bore interest at the prime rate plus 0.5%.
The note was collateralized by accounts receivable and inventory. In May
1996, the line of credit agreement was terminated by the Company and the
assets encumbered thereunder were released by the bank.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenue net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Unbilled receivables are recorded for services rendered during, but billed
subsequent, to the reporting period. Such receivables, net of allowances,
as of December 31, 1994 and 1995 and June 30, 1996 amounted to
approximately $859,000, $1,176,000 and $1,288,000, respectively.
Income Taxes -- Deferred income taxes are provided on elements of income
that are recognized for financial accounting purposes in periods different
than when such items are recognized for income tax purposes.
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributed to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
F-46
<PAGE> 113
DERRICK AND ASSOCIATES PATHOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- Regarding cash and cash equivalents,
accounts receivable, accounts payable, and note payable, the carrying
amounts approximate fair value.
Reclassifications -- Certain amounts shown in the 1994 and 1995 financial
statements have been reclassified to conform to the June 30, 1996
presentation.
Interim Financial Data -- The unaudited statements of operations and cash
flows for the six months ended June 30, 1995 include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Company's results of operations and cash
flows. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
3. INVESTMENTS
The amortized cost of securities held to maturity approximates their fair
value at December 31, 1994 and 1995. Securities held to maturity consist of
the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
MATURITY AMORTIZED
RATE DATE COST
---- -------- ---------
<S> <C> <C> <C>
1994
Bankers Acceptance......................................... 5.25 02/13/95 $ 198,717
Federal Home Loan Bank note................................ 5.60 05/23/95 303,153
Federal Home Loan Bank note................................ 5.80 08/14/95 255,373
---------
$ 757,243
=========
1995
Bankers Acceptance......................................... 5.60 01/08/96 $ 399,558
Federal Home Loan Bank note................................ 6.42 04/24/96 263,620
Bankers Acceptance......................................... 5.20 06/17/96 292,639
---------
$ 955,817
=========
</TABLE>
F-47
<PAGE> 114
DERRICK AND ASSOCIATES PATHOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and June 30, 1996 was
as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------- JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Laboratory and data processing equipment........ $ 1,707,159 $ 1,966,081 $ 2,148,099
Automotive vehicles............................. 260,708 322,624 343,554
Leasehold improvements.......................... 157,578 170,258 185,747
Furniture and fixtures.......................... 135,599 142,611 145,516
----------- ----------- -----------
2,261,044 2,601,574 2,822,916
Less accumulated depreciation................... (1,456,000) (1,720,663) (1,766,459)
----------- ----------- -----------
Property and equipment, net..................... $ 805,044 $ 880,911 $ 1,056,457
=========== =========== ===========
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1994 and 1995 and June 30, 1996 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Payroll................................................ $280,874 $286,171 $280,291
Group insurance........................................ 65,000 65,000 71,225
Other.................................................. 8,985 15,713 29,493
-------- -------- --------
$354,859 $366,884 $381,009
======== ======== ========
</TABLE>
6. LONG-TERM DEBT
Long-term debt at December 31, 1995 and June 30, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------- --------
<S> <C> <C>
Note payable to a former shareholder in annual instalments of
$96,974, including interest at 7.19%, matures March 1997.... $ 193,948 $ 96,974
Note payable to a former shareholder in annual instalments of
$40,156, including interest at 5.91%, fully repaid in
1996........................................................ 214,163
-------- --------
408,111 96,974
Less current portion.......................................... (190,671) (96,974)
-------- --------
Total long-term debt.......................................... $ 217,440 $
======== ========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases its principal facility under a
noncancelable agreement which expires in December 2002. The lease requires
monthly rental payments of $11,571, plus sales taxes, and the Company is
also obligated to pay insurance, utilities, and normal maintenance. The
rent is subject to an annual increase based upon the consumer price index.
The Company also leases other facilities from other unrelated parties. Rent
expense was approximately $147,000 and $153,000 for the years ended
December 31, 1994 and 1995, respectively, and $85,000 for the six months
ended June 30, 1996.
Future minimum rental payments required for the next five years and
thereafter under operating leases, that have initial or remaining
noncancelable lease terms in excess of one year as of June 30, 1996 amount
to $131,160 per year through December 2002.
F-48
<PAGE> 115
DERRICK AND ASSOCIATES PATHOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Employment Agreements -- The Company has entered into employment agreements
with each of its physicians and one other employee. These employment
agreements generally provide for certain annual base salaries and renew
annually unless written notice is given by either party.
Stock Purchase Agreement -- The Company was obligated under a Stock
Restriction and Purchase Agreement with its stockholders to purchase all of
the common stock owned by a shareholder upon his death, disability, normal
retirement, or withdrawal from the Company. The purchase price was
determined by an annual valuation. In connection with the sale of the
Company (see Note 1), these agreements were terminated.
Professional Liability Insurance Coverage -- The Company maintains
professional liability coverage for the Company and its physicians and
employees with a commercial insurance company on a claims-made basis. The
Company has procedures in place to monitor coverage and incidents of
significance. Management believes that an accrual for incurred but not
reported claims is not necessary at June 30, 1996.
Legal Proceedings -- The Company is subject to a number of lawsuits
relating to matters arising in the ordinary course of its business. The
claims are insured but subject to deductibles. The amount of liability, if
any, from the litigation cannot be determined with certainty; however,
management is of the opinion that the outcome of the litigation will not
have a material adverse impact on the Company's financial position or
results of operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides, are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
8. SHAREHOLDERS' EQUITY
At December 31, 1994, the Company had a note receivable from a shareholder
totaling $52,654. The note was classified as a reduction in shareholders'
equity, bore interest at 8.5% and matured on July 7, 1995.
During the year ended December 31, 1995, 200 shares of common stock were
repurchased by the Company for $408,011. As of December 31, 1995, these
shares were canceled and retired. In addition, 100 shares of common stock
were issued for $193,948.
During the six months ended June 30, 1996, the Company issued 100 shares of
Class A common stock for $193,948 and 30 shares of Class B non-voting
common stock valued at $1,032,500 were issued to six employees for cash
consideration of $60,000 with the remainder as a bonus.
9. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be reimbursable by Medicare and Medicaid programs, and public and private
insurance contracts under applicable laws, regulations, and program
instructions. Reimbursable amounts are generally less than the established
gross charges. Final determination of certain amounts earned for certain
patients is subject to review by appropriate program representatives.
Charity and other adjust-
F-49
<PAGE> 116
DERRICK AND ASSOCIATES PATHOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ments represent services provided to patients for which fees are not
expected to be collected at the time the service is provided.
Net revenue attributable to SmithKline Beecham PLC was $2,271,652,
$2,113,904, and $1,239,676 for the years ended December 31, 1994 and 1995
and the six months ended June 30, 1996, respectively.
10. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified profit sharing plan (the "Plan") for all
of its eligible employees. The Plan includes a 401(k) feature, which allows
participants to make pretax contributions and provides for matching and
discretionary contributions by the Company. Contributions by the Company
for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996 totaled approximately $564,000, $545,000, and $201,000,
respectively.
11. INCOME TAXES
The provision (benefit) for income taxes in the accompanying statements of
operations for the years ended December 31, 1994 and 1995 and the six
months ended June 30, 1996 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Federal income taxes:
Current.......................................... $(140,534) $ $(11,200)
Deferred......................................... 8,000 290,000 3,000
--------- -------- --------
Total provision (benefit) for income
taxes.................................. $(132,534) $290,000 $ (8,200)
========= ======== ========
</TABLE>
The Company's effective tax (benefit) rate differs from the statutory
federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1994 1995 1996
----- ---- --------
<S> <C> <C> <C>
Statutory federal income tax (benefit) rate................. (34.0)% 34.0% (34.0)%
State income taxes, net of federal tax benefits............. (3.6) 3.6 (3.6)
Benefit of net operating loss carryforwards................. 5.7
Other....................................................... (5.2) 2.4
----- ---- -----
Effective tax (benefit) rate................................ (42.8)% 40.0% (31.9)%
===== ==== =====
</TABLE>
The sources and amounts of deferred income tax assets and liabilities at
December 31, 1994 and 1995 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1994 1995 JUNE 30, 1996
--------------------------- --------------------------- ---------------------------
CURRENT ASSETS NONCURRENT CURRENT ASSETS NONCURRENT CURRENT ASSETS NONCURRENT
(LIABILITIES) ASSETS (LIABILITIES) ASSETS (LIABILITIES) ASSETS
-------------- ---------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Use of cash basis
of accounting
for income tax
purposes........ $ (1,443,000) $ $ (1,725,000) $ $ (1,697,000) $
Net operating loss
carryforwards
and tax
credits......... 20,000 58,000 17,000 53,000 17,000 22,000
----------- ------- ----------- ------- ----------- -------
Total... $ (1,423,000) $ 58,000 $ (1,708,000) $ 53,000 $ (1,680,000) $ 22,000
=========== ======= =========== ======= =========== =======
</TABLE>
F-50
<PAGE> 117
DERRICK AND ASSOCIATES PATHOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payor agreements. The
mix of receivables from patients and third-party payors at December 31,
1994 and 1995 and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
---- ---- --------
<S> <C> <C> <C>
Medicare...................................................... 18 % 15 % 21%
Medicaid...................................................... 14 11 9
Humana........................................................ 8 5 3
Third-party payors and other managed care..................... 30 40 40
Private-pay patients.......................................... 24 23 19
Other......................................................... 6 6 8
--- --- ---
100 % 100 % 100%
=== === ===
</TABLE>
F-51
<PAGE> 118
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
SkinPath, P.C.:
We have audited the accompanying balance sheets of SkinPath, P.C. (the
"Company") as of December 31, 1995 and July 31, 1996, and the related statements
of operations and retained earnings and of cash flows for the period January 5,
1995 (inception) through December 31, 1995 and the seven months ended July 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and July
31, 1996, and the results of its operations and its cash flows for the period
January 5, 1995 (inception) through December 31, 1995 and the seven months ended
July 31, 1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
October 15, 1996
F-52
<PAGE> 119
SKINPATH, P.C.
BALANCE SHEETS
DECEMBER 31, 1995 AND JULY 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996
------------ --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................ $257,509 $ 68,676
Accounts receivable (net of allowances for contractual adjustments
and doubtful accounts of $41,762 and $122,578 at December 31, 1995
and July 31, 1996, respectively).................................. 230,423 316,196
-------- --------
Total current assets......................................... 487,932 384,872
PROPERTY AND EQUIPMENT, NET (Note 3)................................. 432,180 433,522
-------- --------
TOTAL........................................................ $920,112 $818,394
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................................... $ 41,540 $ 15,552
Accrued expenses..................................................... 208,802 97,394
Dividends payable.................................................... 59,282
Current portion of long-term debt (Note 4)........................... 278,818 119,837
-------- --------
Total current liabilities.................................... 588,442 232,783
-------- --------
Long-term debt (Note 4).............................................. 136,182 293,001
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 500 shares authorized, issued and
outstanding....................................................... 500 500
Additional paid in capital........................................... 4,500 4,500
Retained earnings.................................................... 190,488 287,610
-------- --------
Total stockholders' equity................................... 195,488 292,610
-------- --------
TOTAL........................................................ $920,112 $818,394
======== ========
</TABLE>
See accompanying notes to the financial statements.
F-53
<PAGE> 120
SKINPATH, P.C.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
PERIOD FROM JANUARY 5, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 AND
SEVEN MONTHS ENDED JULY 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996
------------ ----------
<S> <C> <C>
NET REVENUE (Note 5)................................................. $1,846,939 $1,468,475
------------ ----------
COST OF SERVICES:
Physician compensation -- owner.................................... 473,376 497,465
Physician compensation -- other.................................... 254,855 308,803
Other.............................................................. 307,097 194,190
------------ ----------
Total cost of services..................................... 1,035,328 1,000,458
------------ ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Marketing.......................................................... 29,244 43,138
Administration..................................................... 132,010 107,226
Patient accounts................................................... 125,555 78,790
Bad debt expense................................................... 31,558 76,198
Depreciation and amortization...................................... 38,759 47,613
------------ ----------
Total general and administrative expenses.................. 357,126 352,965
------------ ----------
OPERATING INCOME..................................................... 454,485 115,052
INTEREST EXPENSE..................................................... 23,715 17,930
------------ ----------
NET INCOME........................................................... 430,770 97,122
DIVIDENDS............................................................ 240,282
RETAINED EARNINGS, BEGINNING OF PERIOD............................... 190,488
------------ ----------
RETAINED EARNINGS, END OF PERIOD..................................... $ 190,488 $ 287,610
============ ==========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE> 121
SKINPATH, P.C.
STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 5, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 AND
SEVEN MONTHS ENDED JULY 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996
------------ ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 430,770 $ 97,122
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation and amortization.................................. 38,759 47,613
Changes in assets and liabilities:
Increase in accounts receivable.............................. (230,423) (85,773)
Increase (decrease) in accounts payable and accrued
expenses.................................................... 250,342 (137,395)
-------- --------
Net cash flows provided by (used in) operating
activities.............................................. 489,448 (78,433)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............................. (470,939) (48,956)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............................ 5,000
Borrowings from banks............................................. 655,000 335,000
Re-payments of amounts borrowed from banks........................ (240,000) (337,162)
Dividends paid to stockholders.................................... (181,000) (59,282)
-------- --------
Net cash flows provided by (used in) financing
activities.............................................. 239,000 (61,444)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................................... 257,509 (188,833)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................... 257,509
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................ $ 257,509 $ 68,676
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................ $ 23,715 $ 17,930
======== ========
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE> 122
SKINPATH, P.C.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JANUARY 5, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 AND
SEVEN MONTHS ENDED JULY 31, 1996
1. ORGANIZATION AND BUSINESS
SkinPath, P.C. (the "Company") is a firm of licensed physicians in
Birmingham, Alabama organized in January 1995 as an Alabama Professional
Corporation to provide outpatient dermatopathology services. Operations
commenced in April 1995. The Company generates substantially all of its
revenue from patient referrals from referring dermatologists and other
physicians. Approximately 55% and 53% of gross revenues were from referrals
by 10 physicians for the period January 5, 1995 (inception) through
December 31, 1995 and the seven months ended July 31, 1996, respectively.
Approximately, 11% and 9% of gross revenues were from referrals by one
physician for the period January 5, 1995 (inception) through December 31,
1995 and the seven months ending July 31, 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash Equivalents -- The Company considers all cash and any highly liquid
debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets, ranging from 3
to 7 years, using the straight line method. Leasehold improvements are
amortized over the term (9 years) of the lease, including renewal periods.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustments. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Income Taxes -- The Company has elected Subchapter S corporation status
under the Internal Revenue Code. There is no provision for income taxes
since those taxes are the responsibility of the individual stockholders.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- The carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and notes payable
to bank approximate fair value due to their short-term maturity.
F-56
<PAGE> 123
SKINPATH, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and July 31, 1996 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996
------------ --------
<S> <C> <C>
Furniture and fixtures......................................... $ 44,735 $ 49,000
Laboratory and data processing equipment....................... 247,042 280,270
Leasehold improvements......................................... 179,162 190,624
-------- --------
470,939 519,894
Less Accumulated Depreciation and Amortization................. (38,759) (86,372)
-------- --------
Property and equipment, net.......................... $432,180 $433,522
======== ========
</TABLE>
Depreciation expense was $38,759 and $47,613 for the period January 5, 1995
(inception) through December 31, 1995 and the seven months ended July 31,
1996, respectively.
4. LONG-TERM DEBT
Long-term debt at December 31, 1995 and July 31, 1996 consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996
------------ --------
<S> <C> <C>
Notes payable to bank.......................................... $415,000 $412,838
Less current portion........................................... (278,818) (119,837)
-------- --------
Long-term debt....................................... $136,182 $293,001
======== ========
</TABLE>
During 1995, the Company entered into three loan agreements with a bank. In
April 1995, the Company entered into a $240,000 line of credit bearing an
interest rate of 8.75% which was repaid December 1995. In December 1995,
the Company borrowed $240,000 bearing an interest rate of 7.60%, which was
repaid in July 1996. Additionally, in December of 1995 the Company borrowed
$175,000 bearing an interest rate of 7.75%. Principal and interest on this
loan are due in equal monthly payments for a term of 48 months. This loan
was subsequently repaid August 1996. The outstanding loans at December 31,
1995 were secured by all leasehold improvements, fixtures, equipment and
accounts receivable.
During 1996, the Company entered into two loan agreements with a bank. In
April 1996, the Company borrowed $75,000 bearing an interest rate of 8.25%
which was repaid July 1996. Additionally, in July 1996 the Company borrowed
$260,000 bearing an interest rate of 8.75%. Principal and interest on this
loan were due in equal monthly installments for a term of 36 months. This
loan was repaid in August 1996.
5. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be collected under Medicare and Medicaid programs, and public and private
insurance and managed care contracts under applicable laws, regulations,
and program instructions. Collectable amounts are generally less than the
established rates. Final determination of certain amounts earned for
certain patients is subject to review by appropriate program
representatives. Charity and other adjustments represent services provided
to patients for which fees are not expected to be collected at the time the
service is provided.
F-57
<PAGE> 124
SKINPATH, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net revenue consists of the following for the period January 5, 1995
(inception) through December 31, 1995 and the seven months ended July 31,
1996:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
1995 1996
------------ ----------
<S> <C> <C>
Gross charges at established rates........................... $1,923,477 $1,523,710
Less allowances for contractual, charity and other
adjustments................................................ (76,538) (55,235)
---------- ----------
Net revenue........................................ $1,846,939 $1,468,475
========== ==========
</TABLE>
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third party payor agreements. The
mix of receivables from patients and third-party payors at December 31,
1995 and July 31, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Medicare................................................................. 36 % 15 %
Blue Cross............................................................... 20 22
Managed Care............................................................. 8 11
Other third-party payors................................................. 17 16
Private pay patients..................................................... 19 36
--- ---
100 % 100 %
=== ===
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with J & R Leasing, Inc.,
a majority of whose common stock is owned by the Company's stockholders.
The Company leases certain equipment from J & R Leasing, Inc. The total
lease payments for the period January 5, 1995 (inception) through December
31, 1995 and the seven months ended July 31, 1996 were $8,700 and $13,550,
respectively (See Note 9).
8. EMPLOYEE BENEFIT PLANS
The Company established the Money Purchase Pension Plan (the "Plan"), a
defined contribution plan, which covers substantially all eligible
employees who have reached age 21 and have completed one year of service
(as defined in the Plan). The Company makes annual contributions to the
Plan according to a formula as defined in the Plan. Employees are fully
vested after 6 years of service. During the period January 5, 1995
(inception) through December 31, 1995 and the seven months ended July 31,
1996, the Company contributed approximately $52,000 and $47,000,
respectively, to the Plan.
F-58
<PAGE> 125
SKINPATH, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases office space, certain equipment and
an automobile under agreements expiring at various dates through 2003.
Approximate future minimum lease payments for operating leases at ended
July 31, 1996 are as follows:
<TABLE>
<CAPTION>
12 MONTHS FUTURE MINIMUM
ENDED JULY 31, LEASE PAYMENTS
--------------- --------------
<S> <C>
1997............................................................... $ 52,060
1998............................................................... 44,665
1999............................................................... 34,800
2000............................................................... 34,800
2001............................................................... 40,800
Thereafter......................................................... 81,600
--------
Total....................................................... $288,725
========
</TABLE>
The office lease is for 3 years with two 3 year renewal options.
Additionally, the Company has the option to purchase the building for a
fixed price until July 1, 1997.
Rental Expense -- Rental expense was approximately $49,600 and $39,100 for
the period January 5, 1995 (inception) through December 31, 1995 and the
seven months ended July 31, 1996, respectively. Included in rental expense
are amounts paid to related parties (see Note 5 -- Related Party
Transactions).
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management
is not aware of any claims against the Company. In addition, the Company
has not accrued a loss for unreported incidents or for losses in excess of
insurance coverage, as the amount, if any, cannot be reasonably estimated
and the probability of an adverse outcome cannot be determined at this
time. It is the opinion of management that the ultimate resolution of any
claims that may be asserted will not have a material adverse effect on the
Company's financial position or results of operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustments
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
10. SUBSEQUENT EVENT
Effective August 1, 1996, the Company's stockholders sold all of the
Company's issued and outstanding common stock to AmeriPath, Inc.
F-59
<PAGE> 126
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Pathology Associates, P.S.C. and Technical Pathology Services, Inc.:
We have audited the accompanying combined balance sheets of Pathology
Associates, P.S.C. and Technical Pathology Services, Inc. (collectively, the
"Company") as of December 31, 1994, 1995 and July 31, 1996, and the related
combined statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and the seven months ended July 31, 1996.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1994, 1995 and July 31, 1996, and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1995 and the seven months ended
July 31, 1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Cincinnati, Ohio
October 2, 1996
F-60
<PAGE> 127
PATHOLOGY ASSOCIATES, P.S.C AND
TECHNICAL PATHOLOGY SERVICES, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JULY 31, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JULY 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................... $ 207,858 $ 159,558 $ 413,697
Marketable securities (Note 3)........................... 237,195 281,921 293,543
Accounts receivable (net of allowances for contractual
adjustments and doubtful accounts of $400,000 (1994)
and $350,000 (1995 and 1996).......................... 896,927 881,510 826,402
Income taxes receivable (Note 9)......................... 10,920 64,082
Prepaid expenses and other current assets................ 27,416 14,636 54,430
---------- ---------- ----------
Total current assets............................. 1,380,316 1,401,707 1,588,072
PROPERTY AND EQUIPMENT, NET (Note 4)....................... 154,790 104,709 84,019
DEFERRED TAX BENEFIT (Note 9).............................. 18,308
OTHER INVESTMENTS.......................................... 55,000 55,000 52,000
---------- ---------- ----------
TOTAL............................................ $1,608,414 $1,561,416 $1,724,091
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 41,882 $ 47,567 $ 27,385
Current portion of note payable (Note 5)................. 62,508
Accrued vacation......................................... 36,202 35,905 40,616
Income taxes payable (Note 9)............................ 91,515
Accrued liabilities...................................... 106,487 77,896 199,942
Accrued profit sharing contribution (Note 8)............. 35,480 28,246 14,000
Deferred tax liability (Note 9).......................... 315,712
---------- ---------- ----------
Total current liabilities........................ 535,763 189,614 435,966
---------- ---------- ----------
NOTE PAYABLE (Note 5)...................................... 65,000
---------- ---------- ----------
DEFERRED TAX LIABILITY (Note 9)............................ 296,188 198,588
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6).....................
STOCKHOLDERS' EQUITY (Note 8):
Common stock (Note 10)................................... 48,327 48,327 48,327
Treasury stock, at cost (Note 10)........................ (605) (605) (605)
Unrealized gain on marketable securities (Note 3)........ 7,512 44,976 56,598
Retained earnings........................................ 1,017,417 917,916 985,217
---------- ---------- ----------
Total stockholders' equity....................... 1,072,651 1,010,614 1,089,537
---------- ---------- ----------
TOTAL............................................ $1,608,414 $1,561,416 $1,724,091
========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-61
<PAGE> 128
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
SEVEN MONTHS ENDED JULY 31, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
----------------------- ------------------------
1994 1995 1995 1996
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE (Note 7):
Net pathology revenue (net of allowance for
contractual, charity and other adjustments
of $1,320,327 (1994), $857,874 (1995) and
$646,109 (1996))........................... $4,193,719 $4,084,770 $ 2,370,833 $2,446,961
Medical director fees......................... 802,888 849,047 415,988 466,015
---------- ---------- ---------- ----------
Total net revenue..................... 4,996,607 4,933,817 2,786,821 2,912,976
---------- ---------- ---------- ----------
COSTS AND EXPENSES (Notes 6, 8):
Cost of services.............................. 1,706,280 1,822,165 997,664 960,068
Physician compensation -- owner............... 945,000 626,885 286,347 416,827
Physician compensation -- other............... 882,080 1,004,083 516,807 630,980
Selling, billing, and administrative
expenses................................... 1,549,744 1,319,147 712,681 718,991
Provision for uncollectible accounts (net of
recoveries of $88,341 (1994), $101,307
(1995) and $71,765 (1996).................. 156,371 232,403 147,479 127,325
---------- ---------- ---------- ----------
Total costs and expenses.............. 5,239,475 5,004,683 2,660,978 2,854,191
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS................... (242,868) (70,866) 125,843 58,785
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense.............................. (647) (8,342) (5,297)
Investment income............................. 477,805 118,142 25,436 5,072
Miscellaneous income, net..................... 9,664 1,804 2,612 19,422
---------- ---------- ---------- ----------
Total other income.................... 486,822 111,604 28,048 19,197
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES......................................... 243,954 40,738 153,891 77,982
PROVISION FOR INCOME TAXES (Note 9)............. 37,125 19,239 11,985 10,681
---------- ---------- ---------- ----------
NET INCOME............................ $ 206,829 $ 21,499 $ 141,906 $ 67,301
========== ========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-62
<PAGE> 129
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
SEVEN MONTHS ENDED JULY 31, 1996
<TABLE>
<CAPTION>
COMMON TREASURY UNREALIZED
STOCK STOCK GAIN ON
(NOTE (NOTE MARKETABLE RETAINED
10) 10) SECURITIES EARNINGS TOTAL
------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993........................... $48,327 $ (605) $ 855,588 $ 903,310
Dividends................................. (45,000) (45,000)
Unrealized gain........................... $ 7,512 7,512
Net income................................ 206,829 206,829
------- ------ ------- -------- ----------
DECEMBER 31, 1994........................... 48,327 (605) 7,512 1,017,417 1,072,651
Dividends................................. (121,000) (121,000)
Unrealized gain........................... 37,464 37,464
Net income................................ 21,499 21,499
------- ------ ------- -------- ----------
DECEMBER 31, 1995........................... 48,327 (605) 44,976 917,916 1,010,614
Unrealized gain........................... 11,622 11,622
Net income................................ 67,301 67,301
------- ------ ------- -------- ----------
JULY 31, 1996............................... $48,327 $ (605) $ 56,598 $ 985,217 $1,089,537
======= ====== ======= ======== ==========
</TABLE>
See notes to combined financial statements.
F-63
<PAGE> 130
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
SEVEN MONTHS ENDED JULY 31, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JULY 31, JULY 31,
1994 1995 1995 1996
------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 206,829 $ 21,499 $141,906 $ 67,301
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................. 63,049 77,194 27,238 28,766
Deferred income taxes........................ 5,143 (1,216) (97,600)
(Increase) decrease in:
Accounts receivable........................ 7,342 15,417 182,094 55,108
Prepaid expenses and other assets.......... 20,455 (40,382) (1,942) 24,288
Increase (decrease) in:
Accounts payable........................... 3,477 5,685 15,613 (20,182)
Accrued liabilities........................ (46,910) (28,888) (21,418) 218,272
Accrued profit sharing contribution........ 20,480 (7,234) (13,982) (14,246)
--------- --------- --------- ---------
Net cash provided by operating
activities............................ 279,865 42,075 329,509 261,707
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities.......................... (200,436) (7,262)
Proceeds from sale of other investments......... 3,000
Purchases of property and equipment............. (51,021) (27,113) (8,076)
--------- --------- --------- ---------
Net cash used in investing activities... (251,457) (34,375) (5,076)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable.......... 200,000
Payments on notes payable....................... (42,605) (135,000) (2,492)
Dividends....................................... (45,000) (121,000)
--------- --------- --------- ---------
Net cash used in financing activities... (87,605) (56,000) (2,492)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH................... (59,197) (48,300) 329,509 254,139
CASH AT BEGINNING OF PERIOD....................... 267,055 207,858 207,858 159,558
--------- --------- --------- ---------
CASH AT END OF PERIOD............................. $ 207,858 $ 159,558 $537,367 $413,697
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments during the period for:
Interest..................................... $ 647 $ 8,342 $ 5,297
========= ========= ========= =========
Income taxes (net of refunds received)....... $ 95,815 $ 72,401 $(38,114)
========= ========= ========= =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
A valuation adjustment, increasing the value of marketable securities to
market, of $7,512 was established in 1994. This amount represents the unrealized
gain on the securities in 1994. This valuation adjustment was increased in 1995
by $37,464 and in 1996 by $11,622.
See notes to combined financial statements.
F-64
<PAGE> 131
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND THE
SEVEN MONTHS ENDED JULY 31, 1996
1. ORGANIZATION AND BUSINESS
Pathology Associates, P.S.C. is a professional association of licensed
physicians engaged in providing hospital-based pathology services to
various hospitals as well as pathology laboratory services to hospitals,
clinics, physicians, and others throughout Kentucky. Combined with these
statements are the financial statements of Technical Pathology Services,
Inc., a company owned and controlled by the majority owner of Pathology
Associates, P.S.C. All significant intercompany balances and transactions
have been eliminated. Pathology Associates, P.S.C. and Technical Pathology
Services, Inc. are collectively referred to as the "Company" throughout
these financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Marketable Securities -- Marketable securities are to be classified as held
to maturity, available for sale or trading, based upon the intent and
ability of the Company to hold such investments. The Company has classified
all of its investments as available for sale. Accordingly, they are
recorded at fair value with unrealized gains and losses included as a
separate component of stockholders' equity. Cost of each investment is
determined on the specific identification method. See Note 3.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets using the
straight line method, generally over 5 years.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- Regarding cash, accounts receivable,
accounts payable, and notes payable, the carrying amounts approximate fair
value.
Other Investments -- Other investments consist of units owned in several
companies related to the pathology industry which are accounted for at
historical cost, as there is not a readily determinable market value for
these units.
Interim Financial Data -- The unaudited combined statements of operations
and cash flows for the seven months ended July 31, 1995 include, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's combined results of
operations and cash flows. Operating results for the seven month period
ended July 31, 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996.
F-65
<PAGE> 132
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. MARKETABLE SECURITIES
The cost, market value and unrealized gains (losses) for the securities
available for sale at December 31, 1994, 1995 and July 31, 1996 are as
follows:
<TABLE>
<CAPTION>
UNREALIZED
MARKET GAIN
1994 COST VALUE (LOSS)
------------------------------------------------------- -------- -------- ----------
<S> <C> <C> <C>
Tax Free Mutual Fund................................... $200,000 $197,360 $ (2,640)
Equity securities...................................... 29,683 39,835 10,152
-------- -------- --------
Total........................................ $229,683 $237,195 $ 7,512
======== ======== ========
<CAPTION>
1995
-------------------------------------------------------
<S> <C> <C> <C>
Tax Free Mutual Fund................................... $207,262 $225,270 $ 18,008
Equity securities...................................... 29,683 56,651 26,968
-------- -------- --------
Total........................................ $236,945 $281,921 $ 44,976
======== ======== ========
<CAPTION>
1996
-------------------------------------------------------
<S> <C> <C> <C>
Tax Free Mutual Fund................................... $207,262 $237,206 $ 29,944
Equity securities...................................... 29,683 56,337 26,654
-------- -------- --------
Total........................................ $236,945 $293,543 $ 56,598
======== ======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994, 1995 and July 31, 1996 is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Laboratory and data processing equipment............... $423,195 $438,443 $446,519
Automotive vehicles.................................... 21,235 21,235 21,235
Leasehold improvements................................. 32,078 32,078 32,078
Computer software...................................... 4,850 12,815 12,815
Furniture and fixtures................................. 34,177 38,077 38,077
-------- -------- --------
515,535 542,648 550,724
Less accumulated depreciation.......................... (360,745) (437,939) (466,705)
-------- -------- --------
Property and equipment, net............................ $154,790 $104,709 $ 84,019
======== ======== ========
</TABLE>
5. NOTES PAYABLE
Notes payable at December 31, 1994, 1995 and July 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Note payable to a bank, interest due monthly at the bank's prime
rate of interest (8.25% at July 31, 1996 and 8.5% at December 31,
1995), matures September 1996.................................... $65,000 $62,508
======= =======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases office facilities under
noncancelable agreements which expire at various dates through January
1999. The leases require monthly rental payments of $5,574, plus sales
taxes, and the Company is also obligated to pay insurance, utilities, and
normal maintenance. One of the leases has annual rent increases based on
the increase in the Consumer Price Index or 5%, whichever is
F-66
<PAGE> 133
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
less. The Company also leases two automobiles under noncancelable
agreements which expire at various dates through October 1998. Rent paid
under these leases amounted to $75,412, $77,600 and $47,446 for the years
ended December 31, 1994 and 1995 and the seven months ended July 31, 1996,
respectively.
Future minimum rental payments required for the next five years under these
operating leases, that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 1995 are as follows:
1996 -- $80,286; 1997 -- $49,630, 1998 -- $33,254; and 1999 -- $2,542.
Employment Agreements -- The Company has entered into employment agreements
with each of its physicians and one other employee. These employment
agreements generally provide for certain annual base salaries and bonuses.
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. In
addition, the Company has not accrued a loss for unreported incidents or
for losses in excess of insurance coverage, as the amount, if any, cannot
be reasonably estimated and the probability of an adverse outcome cannot be
determined at this time. It is the opinion of management that the ultimate
resolution of any claims that may be asserted will not have a material
adverse effect on the Company's financial position or results of
operations.
Legal Proceedings -- The Company is subject to a number of lawsuits
relating to matters arising in the ordinary course of its business. The
claims are insured but subject to deductibles. The amount of liability, if
any, from the litigation cannot be determined with certainty; however,
management is of the opinion that the outcome of the litigation will not
have a material adverse effect on the Company's financial position or
results of operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
7. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be reimbursable by Medicare and Medicaid programs, and public and private
insurance contracts under applicable laws, regulations, and program
instructions. Reimbursable amounts are generally less than the established
gross charges. Final determination of certain amounts earned for certain
patients is subject to review by appropriate program representatives.
Charity and other adjustments represent services provided to patients for
which fees are not expected to be collected at the time the service is
provided.
The Company also has contracts with certain laboratories to provide medical
director services.
8. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified profit sharing plan (the "Plan") for all
of its eligible employees. The Plan includes a 401(k) feature, which allows
participants to make pretax contributions and provides for matching and
discretionary contributions by the Company. Contributions by the Company
for the years
F-67
<PAGE> 134
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 1994 and 1995 and for the seven months ended July 31,
1996 totaled $37,200, $27,800 and $14,000, respectively.
9. INCOME TAXES
As of January 1, 1995, the Company elected to be taxed as a Subchapter S
corporation for federal income tax purposes and consequently, is not liable
for federal and most state income taxes, but rather, the stockholders'
proportionate share of the Company's net income or loss is included in the
stockholders taxable income for those jurisdictions. However, at the date
of change, there were certain built in gains for which the Company remains
liable.
Deferred tax assets at December 31, 1994 of $18,308 result from temporary
differences arising from differing book and tax treatment for one of the
Company's other investments. Deferred tax liabilities at December 31, 1994
of $315,712 result from temporary differences as the Company is a cash
basis tax payor. As of January 1, 1995, deferred tax assets and liabilities
were reassessed as a result of the election to be taxed as a Subchapter S
corporation. The remaining deferred tax liability at December 31, 1995 and
at July 31, 1996 relates to the built in gains that existed at the date of
the election and will be paid out over a ten year period.
The provision for income taxes in the accompanying statements of operations
for the years ended December 31, 1994 and 1995 and the seven months ended
July 31, 1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Federal:
Current................................................ $27,079 $19,524 $ 97,600
Deferred............................................... 5,143 (1,216) (97,600)
State.................................................... 4,903 931 10,681
------- ------- --------
Total.......................................... $37,125 $19,239 $ 10,681
======= ======= ========
</TABLE>
10. COMMON STOCK
Common stock of Pathology Associates, P.S.C. consists of two classes of
stock; Class A is no par, non-voting stock with 2,000 shares authorized and
none outstanding.; Class B is no par, voting stock with 5,000 shares
authorized, 450 shares issued and outstanding.
Common stock of Technical Pathology Services, Inc. consists of no par value
stock, with 2,000 shares authorized, 1,000 issued and 960 shares
outstanding.
F-68
<PAGE> 135
PATHOLOGY ASSOCIATES, P.S.C. AND
TECHNICAL PATHOLOGY SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
11. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payor agreements. The
mix of receivables from patients and third-party payors at December 31,
1994, 1995 and July 31, 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Medicare........................................................ 13 % 12 % 14 %
Medicaid........................................................ 17 15 12
Third-party payors and other managed care....................... 67 68 70
Private pay patients............................................ 3 5 4
--- --- ---
100 % 100 % 100 %
=== === ===
</TABLE>
12. SUBSEQUENT EVENT
Effective August 1, 1996, the Company's stockholders sold all of the
Company's issued and outstanding common stock to AmeriPath, Inc.
F-69
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Volusia Pathology Group, M.D., P.A.:
We have audited the accompanying balance sheets of Volusia Pathology Group,
M.D., P.A. (the "Company") as of December 31, 1994 and 1995 and September 30,
1996, and the related statements of operations, shareholders' equity, and cash
flows for the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and 1995
and September 30, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Orlando, Florida
November 1, 1996
F-70
<PAGE> 137
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
-------- ---------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $124,274 $ 272,904 $ 38,458
Accounts receivable (net of allowances for contractual
adjustments and doubtful accounts of $814,752,
$939,960, and $1,192,323, respectively)............... 576,242 678,924 757,452
Prepaid expenses and other current assets................ 21,082 20,205 24,379
-------- ---------- -------------
Total current assets............................. 721,598 972,033 820,289
PROPERTY AND EQUIPMENT, NET (Note 3)....................... 29,050 28,096 46,388
OTHER ASSETS............................................... 6,995 4,495 4,495
-------- ---------- -------------
TOTAL............................................ $757,643 $1,004,624 $ 871,172
======== ========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 28,763 $ 28,892 $ 26,186
Accrued liabilities...................................... 283,496 420,771 475,612
Accrued profit sharing contribution...................... 48,289 40,005
Income tax payable....................................... 35,679 92,962 17,692
Deferred tax liability (Note 8).......................... 92,492 79,023 105,292
-------- ---------- -------------
Total current liabilities........................ 488,719 661,653 624,782
-------- ---------- -------------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Class A common stock, voting, $1 par value, 400 shares
authorized; 244.16 issued............................. 244 244 244
Class B common stock, nonvoting, $1 par value, 600 shares
authorized; 555.84 issued............................. 556 556 556
Retained earnings........................................ 268,124 342,171 253,014
-------- ---------- -------------
268,924 342,971 253,814
Treasury stock, Class A common stock, voting, 132.16
shares and Class B common stock, nonvoting, 22.82
shares................................................ (7,424)
-------- ---------- -------------
Total shareholders' equity....................... 268,924 342,971 246,390
-------- ---------- -------------
TOTAL............................................ $757,643 $1,004,624 $ 871,172
======== ========== =============
</TABLE>
See notes to financial statements.
F-71
<PAGE> 138
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE (Note 6):
Hospital net revenue (net of allowances for
contractual, charity and other
adjustments of $1,374,656, $1,471,307,
$1,135,917 (unaudited) and $958,369,
respectively)............................ $4,722,295 $4,892,462 $ 3,675,355 $ 3,804,589
Histology net revenue (net of allowances for
contractual, charity, and other
adjustments of $229,208, $280,459,
$216,527 (unaudited) and $193,638,
respectively)............................ 787,387 932,599 690,747 768,713
---------- ---------- ---------- ----------
Total net revenue................... 5,509,682 5,825,061 4,366,102 4,573,302
COSTS AND EXPENSES (Notes 5 and 7):
Physicians' Compensation-Owner.............. 3,100,500 3,130,500 2,089,000 2,293,497
Cost of services rendered................... 829,066 955,271 762,677 865,747
Selling, billing, and administrative
expenses................................. 829,663 826,101 626,181 759,766
Provisions for uncollectible amounts (net of
recoveries of $40,679, $42,392, $30,238
(unaudited) and $32,180, respectively)... 709,947 793,876 609,431 792,450
---------- ---------- ---------- ----------
Total costs and expenses............ 5,469,176 5,705,748 4,087,289 4,711,460
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES....................................... 40,506 119,313 278,813 (138,158)
PROVISION (BENEFIT) FOR INCOME TAXES (Note
8).......................................... 14,950 45,266 107,081 (49,001)
---------- ---------- ---------- ----------
NET INCOME (LOSS)............................. $ 25,556 $ 74,047 $ 171,732 $ (89,157)
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-72
<PAGE> 139
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
CLASS CLASS
A B
COMMON COMMON RETAINED TREASURY
STOCK STOCK EARNINGS STOCK TOTAL
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
JANUARY 1, 1994................................. $244 $556 $242,568 $ $243,368
Net income.................................... 25,556 25,556
---- ---- -------- ------- --------
DECEMBER 31, 1994............................... 244 556 268,124 268,924
Net income.................................... 74,047 74,047
---- ---- -------- ------- --------
DECEMBER 31, 1995............................... 244 556 342,171 342,971
Repurchase of Class B common stock............ (1,093) (1,093)
Repurchase of Class A common stock............ (6,331) (6,331)
Net loss...................................... (89,157) (89,157)
---- ---- -------- ------- --------
SEPTEMBER 30, 1996.............................. $244 $556 $253,014 $ (7,424) $246,390
==== ==== ======== ======= ========
</TABLE>
See notes to financial statements.
F-73
<PAGE> 140
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
-------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 25,556 $ 74,047 $ 171,732 $ (89,157)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation........................... 11,080 6,744 5,058 6,708
Deferred income taxes.................. (11,562) (13,469) 54,392 26,269
(Increase) decrease in:
Accounts receivable.................. (75,993) (102,682) (58,147) (78,528)
Prepaid expenses..................... 5,771 877 (8,127) (4,174)
Increase (decrease) in:
Accounts payable..................... (26,432) 129 (3,763) (2,706)
Accrued liabilities.................. 151,911 137,275 (39,980) 54,841
Accrued profit sharing
contribution...................... (22,228) (8,284) (42,822) (40,005)
Income tax payable................... 26,512 57,283 51,237 (75,270)
-------- --------- --------- ---------
Net cash provided by (used in)
operating activities............ 84,615 151,920 129,580 (202,022)
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....... (25,333) (5,790) (5,790) (25,000)
Increase (decrease) in other assets....... (4,200) 2,500
-------- --------- --------- ---------
Net cash used in investing
activities...................... (29,533) (3,290) (5,790) (25,000)
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock................ (7,424)
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH............. 55,082 148,630 123,790 (234,446)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................... 69,192 124,274 124,274 272,904
-------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................... $124,274 $ 272,904 $ 248,064 $ 38,458
======== ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- Income taxes paid.......... $ $ 1,452 $ 1,452 $
======== ========= ========= =========
</TABLE>
See notes to financial statements.
F-74
<PAGE> 141
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. ORGANIZATION AND BUSINESS
Volusia Pathology Group, M.D., P.A. (the "Company") is a professional
association of licensed physicians engaged in providing hospital-based
pathology services to various hospitals as well as pathology laboratory
services to hospitals, clinics, physicians, and others in Volusia County,
Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash Equivalents -- The Company considers all cash and any highly liquid
debt instruments purchased with a maturity of three months or less at time
of purchase to be cash equivalents.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets, which range from
5 to 39 years, using accelerated methods.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Income Taxes -- Deferred income taxes are provided on elements of income
that are recognized for financial accounting purposes in periods different
than when such items are recognized for income tax purposes.
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributed to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Concentrations of Credit Risk -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally
of cash and cash equivalents and accounts receivable. The Company places
its cash and cash equivalents with high credit quality institutions.
Concentrations of credit risk with respect to accounts receivable is
limited due to the large number and geographic distribution of patients,
third-party payors, and clients.
F-75
<PAGE> 142
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The mix of receivables from patients and third-party payors at December 31,
1994 and 1995 and September 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1994 1995 1996
----- ----- -------------
<S> <C> <C> <C>
Medicare........................................... 15.2% 11.5% 9.7%
Medicaid........................................... 3.4 2.8 2.7
Third-party payors and other managed care.......... 49.7 56.3 54.7
Private pay patients............................... 31.7 29.4 32.9
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- Regarding cash and cash equivalents,
accounts receivable, and accounts payable, the carrying amounts approximate
fair value.
Interim Financial Data -- The unaudited statements of operations and cash
flows for the nine months ended September 30, 1995 include, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Company's results of operations and cash
flows. Operating results for the nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995 and September 30, 1996
was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Laboratory and data processing equipment............. $126,188 $131,978 $ 156,978
Automotive vehicles.................................. 10,885 10,885 10,885
Leasehold improvements............................... 5,631 5,631 5,631
-------- -------- --------
142,704 148,494 173,494
Less accumulated depreciation........................ (113,654) (120,398) (127,106)
-------- -------- --------
Property and equipment, net.......................... $ 29,050 $ 28,096 $ 46,388
======== ======== ========
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1994 and 1995 and September 30, 1996
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Accrued compensation................................. $124,589 $272,731 $ 86,170
Accrued vacation..................................... 158,760 147,794 240,922
Deferred compensation................................ 145,867
Other................................................ 147 246 2,653
-------- -------- --------
$283,496 $420,771 $ 475,612
======== ======== ========
</TABLE>
F-76
<PAGE> 143
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases its principal facility and other
equipment under noncancelable agreements which expire on dates ranging from
March 1998 to June 2001.
Future minimum rental payments required for the next five years and
thereafter under operating leases, that have initial or remaining
noncancelable lease terms in excess of one year as of September 30, 1996
are as follows: 1997 -- $60,719; 1998 -- $59,136; 1999 -- $20,384;
2000 -- $1,467; and 2001 -- $1,221.
Rent expense was approximately $56,000, $53,000 and $37,000 for the years
ended December 31, 1994 and 1995 and the nine months ended September 30,
1996, respectively.
Employment Agreements -- The Company has entered into employment agreements
with each of its physicians. These employment agreements generally provide
for certain annual base salaries and renew annually unless written notice
is given by either party.
In April 1996, the Company entered into an employment agreement obligating
the Company to pay approximately $4,400 per month for services through
October 1998. As part of the agreement, the Company has pledged 66.08
shares of the Class A voting common stock and 22.82 shares of the Class B
nonvoting common stock it owns as collateral for such payments.
In April 1996, the Company entered into an employment agreement obligating
the Company to pay approximately $5,500 per month through April 1998 for
services previously rendered. The balance payable as of September 30, 1996
is included in accrued liabilities. As part of the agreement, the Company
pledged 66.08 shares of the Class A voting common stock it owns as
collateral for such payments.
Professional Liability Insurance Coverage -- The Company is insured with
respect to general liability and medical malpractice risks on a claims made
basis. Management is not aware of any claims pending against the Company.
In addition, the Company has not accrued a loss for unreported incidents or
for losses in excess of insurance coverage, as the amount, if any, cannot
be reasonably estimated and the probability of an adverse outcome cannot be
determined at this time. It is the opinion of management that the ultimate
resolution of any claims that may be asserted will not have a material
adverse effect on the Company's financial position or results of
operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
6. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be reimbursable by Medicare and Medicaid programs, and public and private
insurance contracts under applicable laws, regulations, and program
instructions. Reimbursable amounts are generally less than the established
gross charges. Final determination of certain amounts earned for certain
patients is subject to review by appropriate program representatives.
Charity and other adjustments represent services provided to patients for
which fees are not expected to be collected at the time the service is
provided.
F-77
<PAGE> 144
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE BENEFIT PLAN
The Company sponsored a qualified profit sharing plan (the "Plan") for all
of its eligible employees. The Plan included a 401(k) feature, which
allowed participants to make pretax contributions and provided for matching
and discretionary contributions by the Company. Contributions by the
Company for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996 totaled approximately $152,000, $196,000, and
$141,000, respectively.
On September 18, 1996, the Board of Directors elected to terminate the Plan
as a result of the Company's pending acquisition by AmeriPath, Inc. In
accordance with the terms of the Plan, the account balances of all
participating employees became fully vested.
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Federal income taxes:
Current............................................ $ 26,512 $ 58,735 $ (75,270)
Deferred........................................... (11,562) (13,469) 26,269
-------- -------- --------
Total provision (benefit) for income
taxes.................................... $ 14,950 $ 45,266 $ (49,001)
======== ======== ========
</TABLE>
The Company's effective tax (benefit) rate differs from the statutory
federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
<S> <C> <C> <C>
Statutory federal income tax (benefit) rate................ 34.0% 34.0% (34.0)%
State income taxes, net of federal tax benefits............ 3.6 3.6 (3.6)
Other...................................................... (.7) .3 2.1
---- ---- ----
Effective tax (benefit) rate..................... 36.9% 37.9% (35.5)%
==== ==== ====
</TABLE>
The only temporary difference which gives rise to deferred tax liabilities
is the use of the accrual basis of accounting for financial statement
purposes and the cash basis of accounting for income tax purposes.
9. SUBSEQUENT EVENT
On October 3, 1996, the Company was acquired by AmeriPath, Inc. for cash,
notes, and common stock aggregating $6,037,000 and other contingent
consideration to be determined over the next five years.
F-78
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
David R. Barron, M.D., Inc.
d/b/a Richfield Laboratory of Dermatopathology:
We have audited the accompanying balance sheets of David R. Barron, M.D., Inc.
d/b/a Richfield Laboratory of Dermatopathology (the "Company") as of December
31, 1995 and September 30, 1996 and the related statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1995 and the
nine months ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
September 30, 1996 and the results of its operations and its cash flows for the
year ended December 31, 1995 and the nine months ended September 30, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Cincinnati, Ohio
November 8, 1996
F-79
<PAGE> 146
DAVID R. BARRON, M.D., INC.
D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................ $1,561,785 $ 1,788,977
Accounts receivable (net of allowance for doubtful accounts of
$232,852 and $194,977)........................................ 1,350,733 1,009,977
Prepaid expenses and other current assets........................ 28,778 21,490
------------ ------------
Total current assets..................................... 2,941,296 2,820,444
PROPERTY AND EQUIPMENT, NET (Note 3)............................... 177,960 216,967
------------ ------------
TOTAL.................................................... $3,119,256 $ 3,037,411
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 50,649 $ 12,280
Accrued payroll taxes............................................ 1,641,102
Accrued compensation............................................. 198,233 63,099
Accrued liabilities.............................................. 33,540
------------ ------------
Total current liabilities................................ 282,422 1,716,481
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4).............................
STOCKHOLDERS' EQUITY:
Common stock (no par value, 500 shares authorized, 50 shares
issued and outstanding)....................................... 3,970 3,970
Retained earnings................................................ 2,852,864 1,336,960
------------ ------------
2,856,834 1,340,930
Less treasury stock.............................................. (20,000) (20,000)
------------ ------------
Total stockholders' equity............................... 2,836,834 1,320,930
------------ ------------
TOTAL.................................................... $3,119,256 $ 3,037,411
============ ============
</TABLE>
See notes to financial statements.
F-80
<PAGE> 147
DAVID R. BARRON, M.D., INC.
D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
NET REVENUE (Note 5):
Pathology net revenue.................................. $6,202,016 $ 4,538,044 $ 4,396,487
Other.................................................. 15,761
---------- ---------- ----------
Total net revenue.............................. 6,202,016 4,538,044 4,412,248
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of services rendered.............................. 1,307,411 925,379 1,121,118
Physician compensation -- owners....................... 2,577,307 2,002,445 2,636,000
Physician compensation -- other........................ 42,308 21,154 163,847
Selling, general and administrative.................... 629,373 530,251 579,280
---------- ---------- ----------
Total costs and expenses....................... 4,556,399 3,479,229 4,500,245
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS............................ 1,645,617 1,058,815 (87,997)
Other income............................................. 32,449 28,714 2,140
---------- ---------- ----------
NET INCOME (LOSS).............................. $1,678,066 $ 1,087,529 $ (85,857)
========== ========== ==========
</TABLE>
See notes to financial statements.
F-81
<PAGE> 148
DAVID R. BARRON, M.D., INC.
D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON TREASURY RETAINED
STOCK STOCK EARNINGS TOTAL
------ -------- ----------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994................................. $3,970 $(20,000) $ 2,854,117 $ 2,838,087
Distributions to stockholders................... (1,679,319) (1,679,319)
Net income...................................... 1,678,066 1,678,066
------ -------- ----------- -----------
DECEMBER 31, 1995................................. 3,970 (20,000) 2,852,864 2,836,834
Distributions to stockholders................... (1,430,047) (1,430,047)
Net loss........................................ (85,857) (85,857)
------ -------- ----------- -----------
SEPTEMBER 30, 1996................................ $3,970 $(20,000) $ 1,336,960 $ 1,320,930
====== ======== =========== ===========
</TABLE>
See notes to financial statements.
F-82
<PAGE> 149
DAVID R. BARRON, M.D., INC.
D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ 1,678,066 $ 1,087,529 $ (85,857)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities...................
Depreciation....................................... 53,441 16,109 49,945
Decrease (increase) in:
Accounts receivable.............................. (80,234) (97,062) 340,756
Prepaid expenses and other assets................ 4,328 13,068 7,288
(Decrease) increase in:
Accounts payable................................. 29,122 3,848 (38,369)
Accrued liabilities.............................. (33,229) (65,142) 1,607,562
Accrued compensation............................. 137,539 1,615,334 (135,134)
----------- ----------- -----------
Net cash provided by operating activities..... 1,789,033 2,573,684 1,746,191
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................... (54,405) (4,337) (88,952)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders......................... (1,679,319) (1,479,319) (1,430,047)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 55,309 1,090,028 227,192
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ 1,506,476 1,506,476 1,561,785
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 1,561,785 $ 2,596,504 $ 1,788,977
=========== =========== ===========
</TABLE>
See notes to the financial statements.
F-83
<PAGE> 150
DAVID R. BARRON, M.D., INC.
D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
1. ORGANIZATION AND BUSINESS
David R. Barron, M.D., Inc. d/b/a Richfield Laboratory of Dermatopathology
(the "Company") is a corporation engaged in providing dermatological
pathology services to various hospitals, clinics, physicians, and others
throughout the Midwest and Eastern United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash Equivalents -- The Company considers all cash and any highly liquid
debt instruments purchased with a maturity of three months or less at time
of purchase to be cash equivalents.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets using accelerated
methods. Estimated useful lives range between 5 and 7 years.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- Regarding cash and cash equivalents,
accounts receivable and accounts payable, the carrying amounts approximate
fair value.
Income Taxes -- The Company elected to be taxed as a Subchapter S
corporation for federal income tax purposes. Upon election, the Company is
no longer liable for federal and state income taxes, but rather the
stockholders' proportionate share of the Company's net income or loss is
includable in the stockholders' taxable income for those jurisdictions.
Interim Financial Data -- The unaudited statements of operations and cash
flows for the nine months ended September 30, 1995 include, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the Company's results of operations and cash
flows. Operating results for the nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
F-84
<PAGE> 151
DAVID R. BARRON, M.D., INC.
D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and September 30, 1996 is as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Laboratory and data processing equipment....................... $193,025 $ 221,493
Land improvements.............................................. 2,057 2,057
Leasehold improvements......................................... 13,525 13,525
Furniture and fixtures......................................... 144,108 204,592
-------- ---------
352,715 441,667
Less accumulated depreciation.................................. (174,755) (224,700)
-------- ---------
Property and equipment, net.................................... $177,960 $ 216,967
======== =========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases its principal facility from the
majority stockholder under a noncancelable agreement which expires in
December 2002. The lease requires monthly rental payments of $6,375 and the
Company is also obligated to pay insurance, utilities, and normal
maintenance. The rent is subject to an annual increase based upon the
consumer price index. Rent paid under this lease amounted to approximately
$82,000 and $64,000 for the year ended December 31, 1995 and the nine
months ended September 30, 1996, respectively.
Future minimum rental payments required for the next five years and
thereafter under operating leases, that have initial or remaining
noncancelable lease terms in excess of one year are as follows: 1996 --
$19,000; 1997 through 2002 -- $77,000 annually.
Employment Agreements -- The Company has entered into employment agreements
with four of its physicians. These employment agreements generally provide
for certain annual base salaries and renew annually.
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. In
addition, the Company has not accrued a loss for unreported incidents or
for losses in excess of insurance coverage as the amount, if any, cannot be
reasonably estimated and the probability of an adverse outcome cannot be
determined at this time. It is the opinion of management that the ultimate
resolution of any claims that may be asserted will not have a material
adverse effect on the Company's financial position or results of
operations.
Legal Proceedings -- The Company is subject to several lawsuits relating to
matters arising in the ordinary course of its business. The claims are
insured but subject to deductibles. The amount of liability, if any, from
the litigation cannot be determined with certainty; however, management is
of the opinion that the outcome of the litigation will not have a material
adverse effect on the Company's financial position or results of
operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides, are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
F-85
<PAGE> 152
DAVID R. BARRON, M.D., INC.
D/B/A RICHFIELD LABORATORY OF DERMATOPATHOLOGY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be reimbursable by Medicare and Medicaid programs, and public and private
insurance contracts under applicable laws, regulations, and program
instructions. Reimbursable amounts are generally less than the established
gross charges. Final determination of certain amounts earned for certain
patients is subject to review by appropriate program representatives.
Charity and other adjustments represent services provided to patients for
which fees are not expected to be collected at the time the service is
provided.
Net revenue attributable to a major customer was approximately $1,066,000
and $750,000 for the year ended December 31, 1995 and the nine months ended
September 30, 1996, respectively.
6. EMPLOYEE BENEFIT PLAN
The Company maintains a qualified profit sharing plan for all of its
eligible employees. The plan includes a 401(k) feature, which allows
participants to make pretax contributions and provides for discretionary
contributions by the Company. Contributions by the Company were
approximately $60,000 and $55,000 for the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively.
7. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash and accounts
receivable. The Company grants credit without collateral to its patients,
most of whom are local residents and are insured under third party payor
agreements. The mix of receivables from patients and third-party payors at
September 30, 1996 is as follows:
<TABLE>
<S> <C>
Third-party payors and other managed care....................................... 38%
Private pay patients............................................................ 33%
Physicians...................................................................... 29%
</TABLE>
The December 31, 1995 mix of receivables is not presented herein as it was
not readily attainable due to the Company not retaining this information.
8. SUBSEQUENT EVENT
Effective October 1, 1996, the Company's stockholders executed an agreement
to sell their interests in the Company to AmeriPath, Inc.
F-86
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Beno Michel, M.D., Inc.
d/b/a Cutaneous Pathology & Immunofluorescense Laboratory:
We have audited the accompanying balance sheets of Beno Michel, M.D., Inc. d/b/a
Cutaneous Pathology & Immunofluorescense Laboratory (the "Company") as of
December 31, 1994 and 1995 and September 30, 1996, and the related statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1994 and 1995 and the nine months ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and 1995
and September 30, 1996, and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Cincinnati, Ohio
November 1, 1996
F-87
<PAGE> 154
BENO MICHEL, M.D., INC.
D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $102,517 $ 89,574 $ 270,999
Accounts receivable (net of allowances for contractual
adjustments and doubtful accounts of $154,452, $180,906
and $185,325 at 1994, 1995 and 1996, respectively)
(Notes 4 and 7)......................................... 568,330 740,699 767,513
Prepaid expenses and other current assets.................. 4,496 5,006 13,009
-------- -------- ----------
Total current assets............................... 675,343 835,279 1,051,521
PROPERTY AND EQUIPMENT, NET (Note 3)......................... 105,636 61,811 27,543
OTHER ASSETS................................................. 8,597 8,597 8,597
-------- -------- ----------
TOTAL.............................................. $789,576 $905,687 $ 1,087,661
-------- -------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................... $ 7,950 $ 8,251 $ 30,593
Current portion of long term debt (Note 6)................. 16,648
Accrued compensation....................................... 53,630 70,116 113,902
Other accrued liabilities.................................. 135,620 96,872 76,066
Deferred tax liability (Note 5)............................ 111,179
Income taxes payable (Note 5).............................. 1,500 127,679 4,642
-------- -------- ----------
Total current liabilities.......................... 326,527 302,918 225,203
-------- -------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8).......................
STOCKHOLDERS' EQUITY (Note 9):
Common stock, (no par value, 500 shares authorized, 100
shares issued and outstanding).......................... 500 500 500
Retained earnings.......................................... 462,549 602,269 861,958
-------- -------- ----------
Total stockholders' equity......................... 463,049 602,769 862,458
-------- -------- ----------
TOTAL.............................................. $789,576 $905,687 $ 1,087,661
======== ======== ==========
</TABLE>
See notes to financial statements.
F-88
<PAGE> 155
BENO MICHEL, M.D., INC.
D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------- --------------------------
1994 1995 1995 1996
---------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE (Note 4):
Practice net revenue......................... $ 919,391 $1,222,909 $ 902,906 $ 999,620
Laboratory net revenue....................... 2,321,272 2,575,105 1,852,390 2,033,002
---------- ---------- ---------- ----------
Total net revenue.................... 3,240,663 3,798,014 2,755,296 3,032,622
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of services rendered.................... 584,564 687,082 489,358 618,313
Physician compensation -- owner.............. 1,645,000 960,000 720,000 540,000
Physician compensation -- other.............. 618,577 872,085 611,450 704,886
Selling, billing and administrative
expenses.................................. 267,284 267,421 211,869 279,000
Marketing expenses........................... 34,554 37,679 26,804 42,493
Interest (income) expense, net............... (69) 72 (211) 12,344
---------- ---------- ---------- ----------
Total costs and expenses............. 3,149,910 2,824,339 2,059,270 2,197,036
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES....... 90,753 973,675 696,026 835,586
PROVISION FOR INCOME TAXES (Note 5)............ 19,552 15,000 9,500 13,000
---------- ---------- ---------- ----------
NET INCOME........................... $ 71,201 $ 958,675 $ 686,526 $ 822,586
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-89
<PAGE> 156
BENO MICHEL, M.D., INC.
D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ --------- ---------
<S> <C> <C> <C>
JANUARY 1, 1994................................................ $500 $ 391,348 $ 391,848
Net income................................................... 71,201 71,201
---- --------- ---------
DECEMBER 31, 1994.............................................. 500 462,549 463,049
Net income................................................... 958,675 958,675
Stockholder distribution..................................... (818,955) (818,955)
---- --------- ---------
DECEMBER 31, 1995.............................................. 500 602,269 602,769
Net income................................................... 822,586 822,586
Stockholder distribution..................................... (562,897) (562,897)
---- --------- ---------
SEPTEMBER 30, 1996............................................. $500 $ 861,958 $ 862,458
==== ========= =========
</TABLE>
See notes to financial statements.
F-90
<PAGE> 157
BENO MICHEL, M.D., INC.
D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------------------
1994 1995 1995 1996
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 71,201 $ 958,675 $ 686,526 $ 822,586
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................. 60,465 57,469 48,596 41,422
Deferred income taxes.................... 18,052 (111,179)
(Increase) decrease in:
Accounts receivable.................... (106,188) (172,369) (92,684) (26,814)
Prepaid expenses and other assets...... 132 (510) (52,230) (8,003)
Increase (decrease) in:
Accounts payable....................... (5,680) 301 2,023 22,288
Accrued liabilities and income taxes
payable............................. 33,454 103,917 (69,208) (100,003)
--------- --------- --------- ---------
Net cash provided by operating
activities........................ 71,436 836,304 523,023 751,476
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (13,644) (7,154)
--------- --------- --------- ---------
Net cash used in investing
activities........................ (13,644) (7,154)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders............... (818,955) (552,740) (562,897)
Payments on long term debt.................. (52,347) (16,648) (16,648)
--------- --------- --------- ---------
Net cash provided by financing
activities........................ (52,347) (835,603) (569,388) (562,897)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 19,089 (12,943) (46,365) 181,425
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD...................................... 83,428 102,517 102,517 89,574
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 102,517 $ 89,574 $ 56,152 $ 270,999
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments during the period for:
Interest................................. $ 2,962 $ 283 $ $ 13,722
========= ========= ========= =========
Income taxes............................. $ $ $ $ 111,179
========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-91
<PAGE> 158
BENO MICHEL, M.D., INC.
D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. ORGANIZATION AND BUSINESS
Beno Michel, M.D., Inc. d/b/a Cutaneous Pathology & Immunofluorescense
Laboratory (the "Company"), located in Beachwood, Ohio, a suburb of
Cleveland, is a professional association of licensed physicians engaged in
the practice of dermatology as well as serving as an independent laboratory
specializing in skin pathology and immunofluoresence testing. The
dermatology practice serves patients in the greater Cleveland area while
the laboratory serves the northern and southern Ohio, Connecticut,
Massachusetts and New York state markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash Equivalents -- The Company considers all cash and money market
accounts to be cash equivalents.
Property and Equipment -- Property and equipment are recorded at cost and
depreciated over the estimated useful lives of the assets using the
straight-line method, ranging from 4 to 10 years.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Fair Value of Financial Instruments -- Regarding cash and cash equivalents,
accounts receivable, accounts payable, and notes payable, the carrying
amounts approximate fair value
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of net revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Interim Financial Data -- The unaudited statements of operations and cash
flows for the nine months ended September 30, 1995 include, in the opinion
of management, all adjustment (consisting of normal recurring adjustments)
necessary to present fairly the Company's results of operations and cash
flows. Operating results for the nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
F-92
<PAGE> 159
BENO MICHEL, M.D., INC.
D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994, 1995 and September 30, 1996 is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
Laboratory and data processing equipment........... $ 215,123 $ 227,162 $ 234,316
Furniture and fixtures............................. 69,674 71,279 71,279
Leasehold improvements............................. 69,582 69,582 69,582
--------- --------- ---------
354,379 368,023 375,177
Less accumulated depreciation...................... (248,743) (306,212) (347,634)
--------- --------- ---------
Property and equipment, net........................ $ 105,636 $ 61,811 $ 27,543
========= ========= =========
</TABLE>
4. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be reimbursable by Medicare and Medicaid programs, and public and private
insurance contracts under applicable laws, regulations, and program
instructions. Reimbursable amounts are generally less than the established
gross charges. Final determination of certain amounts earned for certain
patients is subject to review by appropriate program representatives.
Charity and other adjustments represent services provided to patients for
which fees are not expected to be collected at the time the service is
provided.
5. INCOME TAXES
As of January 1, 1995 the Company elected to be taxed as a Subchapter S
corporation for federal income tax purposes and consequently, is not liable
for federal and most state income taxes, but rather, the stockholders'
proportionate share of the Company's net income or loss is included in the
stockholders' taxable income for those jurisdictions. However, at the date
of the change, there were certain built-in gains for which the Company
remains liable. The remaining tax liability at December 31, 1995 relates to
the built in gains that existed at the date of the election and were paid
in 1996.
Deferred tax liabilities at December 31, 1994 of $111,179 result from
temporary differences as the Company is a cash basis tax payor. As of
January 1, 1995, deferred tax liabilities were reassessed as a result of
the election to be taxed as a Subchapter S corporation.
The provision for income taxes for the years ended December 31, 1994 and
1995 and the nine months ended September 30, 1996 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
------- --------- -------------
<S> <C> <C> <C>
Federal:
Current.......................................... $ 111,179
Deferred......................................... $18,052 (111,179)
Local.............................................. 1,500 15,000 $13,000
------- --------- -------
Total.................................... $19,552 $ 15,000 $13,000
======= ========= =======
</TABLE>
F-93
<PAGE> 160
BENO MICHEL, M.D., INC.
D/B/A CUTANEOUS PATHOLOGY & IMMUNOFLUORESCENSE LABORATORY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG TERM DEBT
At December 31, 1994, the Company had a balance remaining on a note payable
to a bank. The note originated in April, 1990 and was payable in monthly
installments of $4,167 over 5 years, with interest of 8.5%. The balance of
the note was paid in 1995.
7. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payor agreements. The
major third-party payors are Medicare, Medicaid, and various commercial
insurance companies.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases its principal office facility under
a noncancelable agreement which expires in April, 1999. The lease requires
monthly rental payments of $8,597, plus sales taxes, and the Company is
also obligated to pay insurance, utilities, and normal maintenance. Rent
paid under this lease amounted to approximately $77,300, $103,100 and
$77,300 for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996, respectively.
Future minimum rental payments required under this operating lease are as
follows: 1996 -- $103,100; 1997 -- $103,100; 1998 -- $103,100, and
1999 -- $34,400.
Employment Agreements -- The Company has entered into employment agreements
with each of its physicians. These employment agreements generally provide
for certain annual base salaries and renew annually unless written notice
is given by either party.
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. In
addition, the Company has not accrued a loss for unreported incidents or
for losses in excess of insurance coverage, as the amount, if any, cannot
be reasonably estimated and the probability of an adverse outcome cannot be
determined at this time. It is the opinion of management that the ultimate
resolution of any claims that may be asserted will not have a material
adverse effect on the Company's financial position or results of
operations.
Legal Proceedings -- The Company is subject to one lawsuit relating to
matters arising in the ordinary course of its business. The claims are
insured but subject to deductibles. The amount of liability, if any, from
the litigation cannot be determined with certainty; however, management is
of the opinion that the outcome of the litigation will not have a material
adverse effect on the Company's financial position or results of
operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
9. SUBSEQUENT EVENT
Effective October 1, 1996, the Company's stockholder executed an agreement
to sell its interest in the Company to AmeriPath, Inc.
F-94
<PAGE> 161
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Drs. Seidenstein, Levine and Associates, P.A.:
We have audited the accompanying balance sheets of Drs. Seidenstein, Levine and
Associates, P.A. (the "Company") as of December 31, 1994 and 1995 and September
30, 1996 and the related statements of operations and retained earnings and of
cash flows for the years ended December 31, 1994 and 1995 and the nine months
ended September 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and 1995
and September 30, 1996 and the results of its operations and its cash flows for
the years ended December 31, 1994 and 1995 and the nine months ended September
30, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche, LLP
Certified Public Accountants
Fort Lauderdale, Florida
October 19, 1996
F-95
<PAGE> 162
DRS. SEIDENSTEIN, LEVINE AND ASSOCIATES, P.A.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995, AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 22,740 $ 479 $ 439,052
Investments (Note 3)................................. 11,000 11,000 72,875
Accounts receivable (net of allowance for contractual
adjustments and doubtful accounts of $2,822,682,
$2,337,359 and $2,747,338 at December 31, 1994,
1995, and September 30, 1996, respectively)....... 1,458,199 1,329,508 1,321,103
Prepaid expenses and other assets.................... 59,214 110,714 103,573
---------- ---------- ----------
Total current assets......................... 1,551,153 1,451,701 1,936,603
---------- ---------- ----------
PROPERTY AND EQUIPMENT, NET (Note 4)................... 40,285 130,789 180,657
---------- ---------- ----------
TOTAL........................................ $1,591,438 $1,582,490 $ 2,117,260
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued liabilities.................................. $ 68,965 $ 118,112 $ 581,299
Accrued profit sharing (Note 5)...................... 199,195 216,733 191,288
Income taxes payable (Note 9)........................ 185,911
Deferred tax liability (Note 9)...................... 429,719 405,000 236,330
---------- ---------- ----------
Total current liabilities.................... 697,879 739,845 1,194,828
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, 100 shares authorized,
issued and outstanding............................ 100 100 100
Retained earnings.................................... 893,459 842,545 860,457
Unrealized gain on available for sale securities..... 61,875
---------- ---------- ----------
Total shareholders' equity................... 893,559 842,645 922,432
---------- ---------- ----------
TOTAL........................................ $1,591,438 $1,582,490 $ 2,117,260
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-96
<PAGE> 163
DRS. SEIDENSTEIN, LEVINE AND ASSOCIATES, P.A.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE -- (Note 6)....................... $5,692,348 $6,181,074 $ 4,617,160 $ 5,480,005
---------- ---------- ---------- -----------
Costs and expenses:
Cost of services rendered................... 3,920,890 4,476,193 3,031,332 3,425,686
Selling, billing and administrative
expenses................................. 991,341 1,410,973 968,967 1,260,481
Provision for bad debts..................... 407,011 369,541 336,162 758,685
---------- ---------- ---------- -----------
Total costs and expenses............ 5,319,242 6,256,707 4,336,461 5,444,852
---------- ---------- ---------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES....................................... 373,106 (75,633) 280,699 35,153
PROVISION (BENEFIT) FOR INCOME TAXES.......... 142,696 (24,719) 169,100 17,241
---------- ---------- ---------- -----------
NET INCOME (LOSS)............................. 230,410 (50,914) 111,599 17,912
RETAINED EARNINGS, BEGINNING OF PERIOD........ 663,049 893,459 893,459 842,545
---------- ---------- ---------- -----------
RETAINED EARNINGS, ENDING OF PERIOD........... $ 893,459 $ 842,545 $ 1,005,058 $ 860,457
========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-97
<PAGE> 164
DRS. SEIDENSTEIN, LEVINE AND ASSOCIATES, P.A.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------- ----------------------
1994 1995 1995 1996
--------- --------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $ 230,410 $ (50,914) $ 111,599 $ 17,912
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................ 20,768 35,787 25,899 36,276
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable.............................. (446,049) 128,691 (39,758) 8,405
(Increase) decrease in prepaid expenses and
other assets............................ (10,012) (51,500) (28,621) 7,141
Increase (decrease) in accounts payable,
accrued liabilities, and accrued
profit-sharing.......................... 64,201 66,685 (41,567) 437,742
Increase (decrease) in deferred income
taxes................................... 142,696 (24,719) 80,100 (168,670)
Increase in income taxes payable........... 89,000 185,911
--------- --------- -------- --------
Net cash provided by operating
activities............................ 2,014 104,030 196,652 524,717
CASH FLOWS FROM INVESTING ACTIVITY:
Acquisition of property and equipment........... (2,569) (126,291) (86,488) (86,144)
--------- --------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS..................................... (555) (22,261) 110,164 438,573
CASH AND CASH EQUIVALENTS, BEGINNING.............. 23,295 22,740 22,740 479
--------- --------- -------- --------
CASH AND CASH EQUIVALENTS, ENDING................. $ 22,740 $ 479 $ 132,904 $439,052
========= ========= ======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Unrealized gain on available for sale
securities................................... $ 61,875
========
</TABLE>
See accompanying notes to financial statements.
F-98
<PAGE> 165
DRS. SEIDENSTEIN, LEVINE & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. ORGANIZATION AND BUSINESS
Drs. Seidenstein, Levine and Associates, P.A. (the "Company") was
incorporated in Florida on January 4, 1984 for the purpose of providing
hospital-based pathology, diagnostic, and laboratory services. The Company
employs nine pathologists which staff five contracted hospitals and three
contracted surgery centers all of which are owned by Columbia/HCA
Healthcare Corporation ("Columbia"). The Company also provides managing and
billing services for the Columbia Hospital Outreach Program. All of the
Company's revenue is derived from the agreements with Columbia and its
affiliated hospitals, surgery and outreach centers. The contracts with the
hospitals and centers vary in length from 1 to 5 years. A number of the
contracts also contain cancellation clauses which allow either party to
terminate the agreement without cause with a 180-day notification period.
Termination of the agreements would have a material adverse effect on the
financial position or results of operations of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash and Cash Equivalents -- The Company considers all cash and any highly
liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Investments -- Marketable equity securities are classified as available for
sale or trading depending upon the intent and ability of the Company.
Trading securities are recorded at fair value with unrealized gains and
losses included in earnings; and available for sale securities are recorded
at fair value with unrealized gains and losses included as a separate
component of shareholders' equity. The Company has classified all of its
investments as available for sale. Accordingly, all such investments have
been recorded at fair value with unrealized gains and losses included as a
separate component of stockholders' equity.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets which
range from three to seven years. Expenditures for routine maintenance and
repairs are charged to expense as incurred.
Income Taxes -- The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributed
to differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustments. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Unbilled receivables are recorded for services rendered during, but billed
subsequent to, the reporting period. Such receivables, net of allowances,
as of December 31, 1994 and 1995 and for the nine months ended September
30, 1996 amounted to $75,268, $127,230 and $79,006, respectively.
F-99
<PAGE> 166
DRS. SEIDENSTEIN, LEVINE & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- The carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate fair value.
Concentrations of Credit Risk -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally
of cash and cash equivalents and accounts receivable. The Company places
its cash and cash equivalents with high credit quality institutions. With
respect to accounts receivable, the Company grants credit without
collateral to its patients, most of whom are local residents and are
insured under third party-payor agreements. Concentrations of credit risk
with respect to accounts receivable is limited due to the large number and
geographic distribution of patients, third-party payors, and clients.
Interim Financial Data -- The unaudited statements of operations and
retained earnings and of cash flows for the nine months ended September 30,
1995 include, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Companies'
results of operations and cash flows. Operating results for the nine month
period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
3. INVESTMENTS
Investments securities consist of one stock that was classified as
available for sale for purposes of SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities. The security's cost is $11,000
and did not have a readily determinable market value until 1996. The
security's fair value as of September 30, 1996 is $72,875 with a unrealized
gain of $61,875 included in shareholders' equity.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1994 and 1995, and September 30,
1996 of each year consisted of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Furniture and fixtures................................. $119,710 $246,001 $332,145
Less accumulated depreciation.......................... (79,425) (115,212) (151,488)
-------- -------- --------
Property and equipment, net............................ $ 40,285 $130,789 $180,657
======== ======== ========
</TABLE>
Depreciation expense totaled $20,766, $35,787 and $36,276 for the years
ended December 31, 1994 and 1995, and the nine months ended September 30,
1996, respectively.
5. EMPLOYEE PROFIT SHARING PLAN
The Company has a profit sharing plan covering all full-time employees who
meet eligibility requirements. Employer contributions are made to the plan
at the discretion of the Company's Board of Directors. Contributions of
$199,195, $216,733 and $191,288 were made for the years ended December 31,
1994 and 1995, and the nine months ended September 30, 1996, respectively.
F-100
<PAGE> 167
DRS. SEIDENSTEIN, LEVINE & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. NET REVENUE
Net revenue consists of gross charges, net of contractual, charity, and
other adjustments. Contractual adjustments are based on the difference
between charges at established rates and amounts estimated by management to
be reimbursable by Medicare and Medicaid programs, and public and private
insurance and managed care contracts under applicable laws, regulations,
and program instructions. Collectible amounts are generally less than the
established rates. Final determination of certain amounts earned for
certain patients is subject to review by appropriate program
representatives. Charity and other adjustments represent services provided
to patients for which fees are not expected to be collected at the time the
service is provided.
Net revenue consists of the following for the years ended December 31, 1994
and 1995, and the nine months ended September 30, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Gross charges at established rates................. $6,507,565 $7,416,632 $6,919,592
Less allowances for contractual, charity and other
adjustments...................................... (815,217) (1,235,558) (1,439,587)
---------- ---------- ----------
Net revenue.............................. $5,692,348 $6,181,074 $5,480,005
========== ========== ==========
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company's shareholders are employed by the Company as physicians and
accordingly, receive compensation for their services to the Company. The
compensation included in cost of services rendered for these individuals
was $2,736,999, $3,099,000 and $2,188,125 for the years ended December 31,
1994 and 1995, and for the nine months ended September 30, 1996,
respectively. Of this amount, $397,125 is included in accounts payable and
accrued liabilities as of September 30, 1996.
The Company leases part of its office facilities from a partnership whose
partners are the Company's shareholders. Rent expense for this lease was
$55,200 for the years ended December 31, 1994 and 1995 and $41,400 for the
nine months ended September 30, 1996, exclusive of any sales taxes.
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments -- As discussed in Note 7, the Company leases part of its
office facilities from a partnership whose partners consist of the
Company's shareholders. The building is located adjacent to the South West
Florida Regional Medical Center and is organized as a professional
condominium. The Company also leases additional office space in the same
professional condominium from an unrelated party. The lease expires
February 28, 2003 and requires minimum monthly payments of $1,063. This
lease includes a provision allowing the lessee to cancel the lease after
December 31, 1996 with 60 days notice. Rent expense was $55,968, $69,775
and $54,021 for the years ended December 31, 1994 and 1995, and the nine
months ended September 30, 1996, respectively.
Contingency -- A former employee of the Company who resigned in May 1996
allegedly violated the terms of the restrictive covenant contained in her
employment agreement. The former employee has threatened litigation for
wrongful termination if a breach of contract action is pursued. The Company
has elected not to contest the breach of contract issue at this time. No
accrual for any liabilities that may result from this matter has been
included in the accompanying financial statements.
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management
is not aware of any claims against the Company. In addition, the Company
has not accrued a loss for unreported incidents or for losses in excess of
insurance coverage,
F-101
<PAGE> 168
DRS. SEIDENSTEIN, LEVINE & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONCLUDED)
as the amounts, if any, cannot be reasonably estimated and the probability
of an adverse outcome cannot be determined at this time. It is the opinion
of management that the ultimate resolution of any claims that may be
asserted will not have a material adverse effect on the Company's financial
position or results of operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustments
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
9. INCOME TAXES
The provision for income taxes in the accompanying statements of operations
for the years ended December 31, 1994 and 1995 and for the nine months
ended September 30, 1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Federal and state income taxes:
Current.............................................. $185,911
Deferred............................................. $142,696 $(24,719) (168,670)
------- ------- --------
$142,696 $(24,719) $ 17,241
======= ======= ========
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.............................. 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefits................ 3.7 3.1 7.2
Other.......................................................... 0.6 (4.4) 7.8
---- ---- ----
Effective tax rate............................................. 38.3% 32.7% 49.0%
==== ==== ====
</TABLE>
The sources and amounts of deferred income tax assets and liabilities at
December 31, 1994 and 1995 and September 30, 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
CURRENT ASSETS CURRENT ASSETS CURRENT
(LIABILITIES) (LIABILITIES) (LIABILITIES)
-------------- -------------- -------------
<S> <C> <C> <C>
Use of cash basis of accounting for income
tax purposes............................... $ (470,653) $ (415,954) $ (236,330)
Net operating loss carryforward and tax
credits.................................... 40,934 10,954
--------- --------- ---------
Total.............................. $ (429,719) $ (405,000) $ (236,330)
========= ========= =========
</TABLE>
10. SUBSEQUENT EVENT
Effective October 10, 1996, the Company's shareholders sold all of the
Company's issued and outstanding common stock to AmeriPath, Inc.
F-102
<PAGE> 169
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Clay J. Cockerell, M.D., P.A.
and Freeman-Cockerell Laboratories, Inc.:
We have audited the accompanying combined balance sheets of Clay J. Cockerell,
M.D., P.A. and Freeman-Cockerell Laboratories, Inc. (collectively, the
"Companies") as of December 31, 1994 and 1995 and September 30, 1996 and the
related combined statements of income and retained earnings and of cash flows
for the years ended December 31, 1994 and 1995 and the nine months ended
September 30, 1996. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Companies as of December 31,
1994 and 1995 and September 30, 1996 and the results of their operations and
their cash flows for the years ended December 31, 1994 and 1995 and the nine
months ended September 30, 1996 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Certified Public Accountants
Dallas, Texas
November 12, 1996
F-103
<PAGE> 170
CLAY J. COCKERELL, M.D., P.A. AND
FREEMAN-COCKERELL LABORATORIES, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 23,503 $190,402 $ 288,988
Accounts receivable (net of allowances for contractual
adjustments and doubtful accounts of $180,000,
$195,000 and $235,000 at December 31, 1994 and 1995
and September 30, 1996, respectively)............... 340,935 374,879 448,000
Receivable from stockholder............................ 101,161 94,947
Other current assets................................... 1,017 10,772 6,997
---------- ------- -----------
Total current assets........................... 466,616 671,000 743,985
PROPERTY AND EQUIPMENT, NET (Note 3)..................... 297,039 214,163 277,535
OTHER ASSETS............................................. 1,693 44,084 44,085
---------- ------- -----------
TOTAL.......................................... $765,348 $929,247 $ 1,065,605
========== ======= ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4)................................. $580,844 $485,913 $ 396,908
Accounts payable and other............................. 42,607 16,479 99,481
Accrued payroll and benefits........................... 31,149 37,517 41,292
---------- ------- -----------
Total current liabilities...................... 654,600 539,909 537,681
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDER'S EQUITY:
Clay J. Cockerell, M.D., P.A.:
Common stock, $1 par value, 10,000 shares
authorized, 1,000 issued and outstanding.......... 1,000 1,000 1,000
Freeman-Cockerell Laboratories, Inc.:
Common stock, $.10 par value, 1,000,000 shares
authorized, 10,000 issued and outstanding......... 1,000 1,000 1,000
Retained earnings...................................... 108,748 387,338 525,924
---------- ------- -----------
Total stockholder's equity..................... 110,748 389,338 527,924
---------- ------- -----------
TOTAL.......................................... $765,348 $929,247 $ 1,065,605
========== ======= ===========
</TABLE>
See accompanying notes to combined financial statements.
F-104
<PAGE> 171
CLAY J. COCKERELL, M.D., P.A. AND
FREEMAN-COCKERELL LABORATORIES, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- -----------------------------
1994 1995 1995 1996
---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE................................... $2,613,165 $3,160,059 $ 2,388,589 $ 2,770,000
COST OF SERVICES (Note 7)..................... 1,007,226 1,220,086 878,686 1,061,425
---------- ---------- ---------- ----------
GROSS MARGIN.................................. 1,605,939 1,939,973 1,509,903 1,708,575
MARKETING AND ADMINISTRATION:
Marketing................................... 56,980 64,097 47,941 73,200
Administration.............................. 1,197,236 1,316,070 1,043,258 1,187,529
Bad debts................................... 85,000 14,925 11,163 40,000
---------- ---------- ---------- ----------
Total marketing and administration
expenses.......................... 1,339,216 1,395,092 1,102,362 1,300,729
---------- ---------- ---------- ----------
OPERATING PROFIT.............................. 266,723 544,881 407,541 407,846
INTEREST EXPENSE.............................. 69,285 55,841 41,765 22,699
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES....................................... 197,438 489,040 365,776 385,147
PROVISION FOR CURRENT INCOME TAXES (Note 8)... 23,983 20,799 15,557 4,308
---------- ---------- ---------- ----------
NET INCOME.................................... 173,455 468,241 350,219 380,839
RETAINED EARNINGS (DEFICIT), BEGINNING OF
PERIOD...................................... (48,744) 108,748 108,748 387,338
DISTRIBUTIONS TO STOCKHOLDER.................. (15,963) (189,651) (141,848) (242,253)
---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD.............. $ 108,748 $ 387,338 $ 317,119 $ 525,924
========== ========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-105
<PAGE> 172
CLAY J. COCKERELL, M.D., P.A. AND
FREEMAN-COCKERELL LABORATORIES, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
----------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1995 1996
--------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 173,455 $ 468,241 $ 350,219 $ 380,839
Adjustments to reconcile net income to
net cash flows provided by operating
activities:
Depreciation.......................... 160,626 138,173 103,346 69,737
Changes in assets and liabilities:
Accounts receivable................. (65,362) (33,944) (70,231) (73,121)
Other current assets................ (5,332) (52,147) (12,000) (3,775)
Accounts payable and other.......... 27,252 (26,128) 146,162 33,619
Accrued payroll and benefits........ 6,408 50,819 53,158
--------- --------- --------- ---------
Net cash flows provided by
operating activities........... 290,639 500,603 568,315 460,457
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.... (111,530) (55,338) (42,856) (125,560)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in receivable from
Shareholder........................... (65,114) 6,216 (7,302) 94,947
Payments on notes payable................ (60,299) (94,931) (84,323) (89,005)
Issuance of common stock................. 1,000
Cash distributions to Stockholder........ (15,963) (189,651) (141,848) (242,253)
--------- --------- --------- ---------
Net cash flows used in financing
activities..................... (140,376) (278,366) (233,473) (236,311)
--------- --------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............................. 38,733 166,899 291,986 98,586
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... (15,230) 23,503 23,503 190,402
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 23,503 $ 190,402 $ 315,489 $ 288,988
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest.............................. $ 69,285 $ 55,841 $ 42,030 $ 22,699
========= ========= ========= =========
Income taxes.......................... $ 23,982 $ 20,799 $ 15,557 $ 4,308
========= ========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
F-106
<PAGE> 173
CLAY J. COCKERELL, M.D., P.A. AND
FREEMAN-COCKERELL LABORATORIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. ORGANIZATION AND BUSINESS
Clay J. Cockerell, M.D., P.A. ("CJC") and Freeman-Cockerell Laboratories,
Inc. ("FCL") (collectively "the Companies") were organized in August 1993
and January 1994, respectively. The Companies provide outpatient anatomic
pathology services, principally dermatopathology services. The issued and
outstanding shares of the Companies are held by Clay J. Cockerell, M.D.
(the "Stockholder").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Combination and Basis of Presentation -- The combined financial statements
include the accounts of CJC and FCL. All significant intercompany
transactions have been eliminated in combination.
Cash and Cash Equivalents -- The Companies consider all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
Property and Equipment -- Property and equipment is recorded at cost.
Depreciation is provided using accelerated methods for all assets over
their estimated lives as follows:
<TABLE>
<S> <C>
Leasehold improvements...................................................... 9 years
Furniture and fixtures...................................................... 7 years
Equipment................................................................... 5 years
</TABLE>
Revenue Recognition -- The Companies recognize revenue at the time services
are performed. Net revenue is reported at the estimated realizable amounts
from patients, third-party payors and others for services rendered. Revenue
under certain third-party payor agreements is subject to audit and
retroactive adjustments. Provision for estimated third-party payor
settlements and adjustments are estimated in the period the related
services are rendered and adjusted in future periods as final settlements
are determined.
Income Taxes -- The Stockholder has elected that CJC be taxed as a
Subchapter S corporation for federal income tax purposes. As a result,
income tax is not imposed at the corporate level and CJC's income or loss
is reportable by the Stockholder for federal income tax purposes.
FCL is taxed as a C corporation under the Internal Revenue Code. Deferred
income taxes represent the estimated future tax effects resulting from
temporary differences between the financial and tax reporting bases of
assets and liabilities of FCL. FCL has no significant temporary
differences.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
Financial Instruments -- The Companies believe that the carrying amounts of
cash, accounts receivable, accounts and notes payable are a reasonable
estimate of their fair value.
Interim Financial Data -- The unaudited statements of operations and
retained earnings and of cash flows for the nine months ended September 30,
1995 include, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Companies'
results of operations and cash flows. Operating results for the nine months
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
F-107
<PAGE> 174
CLAY J. COCKERELL, M.D., P.A. AND
FREEMAN-COCKERELL LABORATORIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Leasehold improvements........................... $ 51,014 $ 59,809 $ 59,809
Furniture and fixtures........................... 55,778 89,280 100,075
Equipment........................................ 329,329 342,328 464,642
-------- -------- --------
436,121 491,417 624,526
Less accumulated depreciation.................... (139,082) (277,254) (346,991)
-------- -------- --------
Property and equipment, net...................... $297,039 $214,163 $ 277,535
======== ======== ========
</TABLE>
4. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
9.25% Bank note payable, paid in October 1996.... $414,825 $363,792 $ 312,812
8.75% Bank note payable, paid in October 1996.... 166,019 122,121 84,096
-------- -------- --------
$580,844 $485,913 $ 396,908
======== ======== ========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Companies lease the office and laboratory facility
and certain equipment under leases requiring future minimum rental payments
as follows:
<TABLE>
<S> <C>
1996................................................................... $ 26,162
1997................................................................... 86,973
1998................................................................... 73,549
1999................................................................... 64,488
2000................................................................... 58,908
2001................................................................... 59,552
Thereafter............................................................. 105,042
--------
Total........................................................ $ 474,674
========
</TABLE>
Lease expense was approximately $64,618, $123,234, and $69,139 for the
years ended December 31, 1994 and 1995, and the nine months ended September
30, 1996, respectively.
Liability Insurance -- CJC is insured with respect to general liability and
medical malpractice risks on a claims made basis. Management is not aware
of any claims against CJC or FCL. The Companies have not accrued losses for
unreported incidents or for losses in excess of insurance coverage, as the
amount, if any, cannot be determined at this time. It is the opinion of
management that the ultimate resolution of any unasserted claims will not
have a material adverse effect on the Companies' financial position or
results of operations.
Employment Agreement -- The stockholder has a five year employment
agreement with CJC, providing for a minimum annual salary of $250,000.
F-108
<PAGE> 175
CLAY J. COCKERELL, M.D., P.A. AND
FREEMAN-COCKERELL LABORATORIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Companies provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Companies' net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustment
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Companies' services under these
programs could have a material adverse effect on the Companies' financial
position or results of operations.
6. EMPLOYEE BENEFIT PLAN
The Companies have established a 401(k) retirement plan (the "Plan") which
covers substantially all eligible employees who have reached age 21 and
have completed one year of service (as defined in the Plan). Under the
terms of the Plan, employees may contribute up to the maximum percentage
allowable of their compensation, as defined. Employer contributions are
discretionary. During the years ended December 31, 1994 and 1995, and the
nine months ended September 30, 1996 the Companies made contributions to
the Plan of $0, $0 and $1,000, respectively.
7. RELATED PARTY TRANSACTIONS
The Companies utilize the courier services of an affiliate of the
stockholder. Total payments to the affiliate approximated $100,000 to
$200,000 for each of the years ended December 31, 1994 and 1995 and for the
nine months ended September 30, 1996, respectively.
8. INCOME TAXES
The effective tax rates on income before provision for income taxes are
reconciled to statutory federal income tax rates as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------- SEPTEMBER 30,
1994 1995 1996
---- ---- -------------
<S> <C> <C> <C>
Statutory federal income tax rate......................... 34 % 34 % 34%
Subchapter S corporation earnings attributable to
Stockholder............................................. (21 ) (28 ) (30)
Surtax rate............................................... (1 ) (2 ) (3)
--- --- ---
Effective rate............................................ 12 % 4 % 1%
=== === ===
</TABLE>
9. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Companies to
concentration of credit risk, consist principally of accounts receivable.
The Company grants credit without collateral to its patients, most of whom
are Texas residents and are insured under third party payor agreements. The
mix of receivables
F-109
<PAGE> 176
CLAY J. COCKERELL, M.D., P.A. AND
FREEMAN-COCKERELL LABORATORIES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
from patients and third-party payors at December 31, 1994 and 1995 and
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Medicare................................................. 30% 22% 20%
Managed care............................................. 4 6 4
Other third-party payor.................................. 41 51 60
Private pay patients..................................... 25 21 16
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
10. SUBSEQUENT EVENTS
On September 30, 1996, the Stockholder entered into an agreement to sell
the outstanding shares of FCL to AmeriPath, Inc. ("AmeriPath") and to enter
into a management agreement pursuant to which an affiliate of AmeriPath
will manage certain aspects of CJC.
F-110
<PAGE> 177
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Fernandez and Kalemeris, P.A. d/b/a
Gulf Coast Pathology Associates:
We have audited the accompanying balance sheets of Fernandez and Kalemeris, P.A.
d/b/a/ Gulf Coast Pathology Associates (the "Company"), as of December 31, 1995
and September 30, 1996, and the related statements of operations and retained
earnings and cash flows for the year ended December 31, 1995 and for the nine
months ended September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
September 30, 1996, and the results of its operations and its cash flows for the
year ended December 31, 1995 and the nine months ended September 30, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
November 13, 1996
F-111
<PAGE> 178
FERNANDEZ AND KALEMERIS, P.A. D/B/A
GULF COAST PATHOLOGY ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 178 $ 915,969
Accounts receivable (net of allowance for contractual adjustments
and doubtful accounts of $1,602,671 and $1,598,489 at December
31, 1995 and September 30, 1996, respectively).................. 1,147,703 1,134,276
Prepaid expenses and other assets.................................. 53,267 83,030
---------- ----------
Total current assets....................................... 1,201,148 2,133,275
---------- ----------
PROPERTY AND EQUIPMENT, NET (Note 3)................................. 203,530 138,370
OTHER ASSETS......................................................... 56,223 56,223
GOODWILL (Note 9).................................................... 365,090 345,089
---------- ----------
TOTAL...................................................... $1,825,991 $ 2,672,957
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 239,924 $ 187,951
Accrued liabilities................................................ 73,268 53,781
Accrued bonuses.................................................... 440,530
Accrued profit sharing (Note 5).................................... 61,945 123,890
Income taxes payable (Note 8)...................................... 329,613
Current portion of long term debt and capital lease obligation
(Notes 7 and 9)................................................. 115,847 124,573
Current portion of loans from shareholders (Note 6)................ 49,990 175,439
Deferred tax liability (Note 8).................................... 230,569 154,717
---------- ----------
Total current liabilities.................................. 771,543 1,590,494
---------- ----------
LONG-TERM DEBT AND CAPITAL LEASE (Notes 7 and 9)..................... 207,696 113,088
LOANS FROM SHAREHOLDERS (Note 6)..................................... 219,538
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $1.00 par value, 7,500 shares authorized, 2,000
shares issued and outstanding................................... 2,000 2,000
Retained earnings.................................................. 625,214 967,375
---------- ----------
Total shareholders' equity................................. 627,214 969,375
---------- ----------
TOTAL...................................................... $1,825,991 $ 2,672,957
========== ==========
</TABLE>
See notes to financial statements.
F-112
<PAGE> 179
FERNANDEZ AND KALEMERIS, P.A. D/B/A
GULF COAST PATHOLOGY ASSOCIATES
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
NET REVENUE (Note 4)..................................... $8,786,149 $ 6,424,090 $ 6,253,588
Cost of services rendered:
Physicians' compensation -- owners (Note 6)............ 4,589,858 3,292,078 2,180,011
Physicians' compensation -- other...................... 919,938 683,824 729,354
Other.................................................. 1,673,592 1,163,031 1,702,168
---------- ---------- ----------
Total cost of services rendered................ 7,183,388 5,138,933 4,611,533
Selling, general, and administrative expenses............ 568,742 366,248 482,310
Provision for bad debt................................... 834,684 618,349 562,823
---------- ---------- ----------
Total expenses................................. 8,586,814 6,123,530 5,656,666
========== ========== ==========
INCOME BEFORE PROVISION FOR INCOME TAXES................. 199,335 300,560 596,922
PROVISION FOR INCOME TAXES............................... 76,047 123,464 253,761
---------- ---------- ----------
NET INCOME............................................... 123,288 177,096 343,161
DIVIDENDS................................................ 2,000 1,000 1,000
RETAINED EARNINGS, BEGINNING............................. 503,926 503,926 625,214
---------- ---------- ----------
RETAINED EARNINGS, ENDING................................ $ 625,214 $ 680,022 $ 967,375
========== ========== ==========
</TABLE>
See notes to financial statements.
F-113
<PAGE> 180
FERNANDEZ AND KALEMERIS, P.A. D/B/A
GULF COAST PATHOLOGY ASSOCIATES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 123,288 $ 177,096 $ 343,161
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 90,777 67,817 84,511
Loss on disposal of equipment..................... 4,065
Changes in assets and liabilities:
(Increase) decrease in accounts receivable...... (332,182) (118,938) 13,427
(Increase) in prepaid expenses and other
assets....................................... (12,658) (5,928) (29,763)
(Decrease) in accounts payable, accrued
liabilities, and accrued profit-sharing...... (75,434) (289,093) (9,515)
Increase in accrued bonuses..................... 655,762 440,530
Increase (decrease) in deferred income taxes.... 76,047 2,869 (75,852)
Increase in income taxes payable................ 363,400 329,613
--------- --------- ----------
Net cash provided by (used in) operating
activities................................. (130,162) 852,985 1,100,177
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................ (88,243) (76,350) (3,415)
Acquisition of pathology practice.................... (80,000)
--------- --------- ----------
Net cash used in investing activities........ (168,243) (76,350) (3,415)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to shareholders....................... (2,000) (1,000) (1,000)
Payments on long-term debt and capital lease......... (12,499) (8,971) (85,882)
Payments on loans from shareholders.................. (62,273) (51,230) (94,089)
--------- --------- ----------
Net cash used in financing activities........ (76,772) (61,201) (180,971)
--------- --------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (375,177) 715,434 915,791
CASH AND CASH EQUIVALENTS, BEGINNING................... 375,355 375,355 178
--------- --------- ----------
CASH AND CASH EQUIVALENTS, ENDING...................... $ 178 $ 1,090,789 $ 915,969
========= ========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for
Interest.......................................... $ 32,663 $ 28,936 $ 21,872
========= ========= ==========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
As disclosed in Note 9, the Company purchased a pathology practice in 1995 for
$400,000, $80,000 of which was paid in cash and the remainder of which was
financed.
See notes to financial statements.
F-114
<PAGE> 181
FERNANDEZ AND KALEMERIS, P.A. D/B/A
GULF COAST PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. ORGANIZATION AND BUSINESS
Fernandez and Kalemeris, P.A. d/b/a Gulf Coast Pathology Associates (the
"Company") is a firm of licensed physicians organized in July 1985 as a
Florida Professional Association to provide hospital-based and outpatient
pathology services. The Company generates approximately 60% of its net
revenue from a hospital contract with Lee Memorial Health Systems ("Lee").
This contract covers three hospitals in Southwest Florida. The Company
performs and bills for the professional component at the hospitals. The
hospital contract expires in December 1999 and contains clauses that allow
termination without cause by either party with sixty days notice. The
Company has had a relationship with Lee for approximately ten years;
however, the termination of this contract would have a material adverse
effect on the Company's financial position and results of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Company are as
follows:
Cash and Cash Equivalents -- The Company considers all cash and any highly
liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated using accelerated and
straight-line methods over the estimated useful lives of the assets which
range from five to ten years. Expenditures for routine maintenance and
repairs are charged to expense as incurred.
Income Taxes -- The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the future tax consequences attributed
to differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Revenue Recognition -- The Company recognizes revenue at the time services
are performed. The Company provides services to certain patients covered by
various third-party payor programs including the federal Medicare program.
Revenue under certain third-party arrangements is subject to audit and
retroactive adjustment. Billings for services reimbursed by third-party
payors are included in revenues net of allowances for the estimated
differences between the amounts billed and the allowable program rates.
Adjustments to the estimated payment amounts are recorded based on the
final payment settlement with the third-party payors.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments -- The carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable, and accrued
expenses approximate fair value due to their short-term maturity. The
carrying amount of long-term debt approximates fair value. It is not
practical to determine the fair value of loans from shareholders.
F-115
<PAGE> 182
FERNANDEZ AND KALEMERIS, P.A. D/B/A
GULF COAST PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of Credit Risk -- Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally
of accounts receivable. The Company grants credit without collateral to its
patients, most of whom are local residents and are insured under
third-party payor agreements. The major third-party payors are Medicare,
Medicaid, Blue Cross/Blue Shield and various commercial insurance
companies.
Interim Financial Data -- The unaudited statements of operations and
retained earnings and of cash flows for the nine months ended September 30,
1995 include, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Company's
results of operations and cash flows. Operating results for the nine months
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
3. PROPERTY AND EQUIPMENT, NET
Property and equipment at December 31, 1995 and September 30, 1996 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Transportation equipment..................................... $ 141,729 $ 141,729
Laboratory equipment......................................... 487,786 491,201
Leasehold improvements....................................... 71,228 65,450
Furniture, fixtures and other equipment...................... 22,983 22,983
------------ -------------
723,726 721,363
Accumulated depreciation..................................... (520,196) (582,993)
------------ -------------
Property and equipment, net.................................. $ 203,530 $ 138,370
========== ==========
</TABLE>
Depreciation expense totaled $88,555 and $64,510 for the year ended
December 31, 1995 and the nine months ended September 30, 1996,
respectively.
4. NET REVENUE
Net revenue consists of gross charges, net of contractual and other
adjustments. Contractual adjustments are based on the difference between
charges at established rates and amounts estimated by management to be
reimbursable by Medicare and Medicaid programs, and public and private
insurance and managed care contracts under applicable laws, regulations,
and program instructions. Collectable amounts are generally less than the
established rates. Final determination of certain amounts earned for
certain patients is subject to review by appropriate program
representatives. Other adjustments represent services provided to patients
for which fees are not expected to be collected at the time the service is
provided.
5. EMPLOYEE PROFIT SHARING PLAN
The Company has a profit sharing plan covering all full-time employees who
meet eligibility requirements. Employer contributions are made to the plan
at the discretion of the Company's Board of Directors. Contributions of
$132,198 and $123,890 were made for the year ended December 31, 1995 and
the nine months ended September 30, 1996, respectively.
6. RELATED PARTY TRANSACTIONS
The Company's shareholders are employed by the Company as physicians and,
accordingly, receive compensation for their services to the Company. The
compensation included in cost of services rendered
F-116
<PAGE> 183
FERNANDEZ AND KALEMERIS, P.A. D/B/A
GULF COAST PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for these individuals was $4,589,858 and $2,180,011 for the year ended
December 31, 1995 and for the nine months ended September 30, 1996,
respectively.
The Company leases part of its office facilities from a partnership whose
partners are the Company's shareholders. Rent expense from this lease was
$151,584 for the year ended December 31, 1995 and $113,688 for the nine
months ended September 30, 1996, exclusive of any sales taxes.
The Company has loans from shareholders at stated interest rates ranging
from 8% to 12.5%. It is anticipated that these loans will be repaid within
the next twelve months.
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments -- Future minimum lease payments under a capital lease
and noncancellable operating leases at September 30, 1996 were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASE
--------- -------
<S> <C> <C>
1997............................................................ $19,461 $19,647
1998............................................................ 19,400 7,557
1999............................................................ 20,370
2000............................................................ 1,704
------- -------
$60,935 27,204
=======
Interest on capital lease....................................... (2,122)
-------
Present value of capital lease payments......................... 25,082
Current portion................................................. (17,718)
-------
Long-term portion............................................... $ 7,364
=======
</TABLE>
The Company leases two office sites and an automobile under operating
leases. In addition, the Company occupies four other sites but does not
have signed lease agreements for those sites. Two of those sites are rent
free. Rent expense was $161,733 and $117,162 for the year ended December
31, 1995 and the nine months ended September 30, 1996, respectively.
Liability Insurance -- The Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management
is not aware of any claims against the Company. In addition, the Company
has not accrued a loss for unreported incidents or for losses in excess of
insurance coverage, as the amounts, if any, cannot be reasonably estimated
and the probability of an adverse outcome cannot be determined at this
time. It is the opinion of management that the ultimate resolution of any
claims that may be asserted will not have a material adverse effect on the
Company's financial position or results of operations.
Healthcare Regulatory Environment and Reliance on Government
Programs -- The healthcare industry in general, and the services that the
Company provides are subject to extensive federal and state laws and
regulations. Additionally, a significant portion of the Company's net
revenue is from payments by government-sponsored healthcare programs,
principally Medicare and Medicaid, and are subject to audit and adjustments
by applicable regulatory agencies. Failure to comply with any of these laws
or regulations, the results of regulatory audits and adjustments, or
changes in the amounts payable for the Company's services under these
programs could have a material adverse effect on the Company's financial
position or results of operations.
F-117
<PAGE> 184
FERNANDEZ AND KALEMERIS, P.A. D/B/A
GULF COAST PATHOLOGY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES
The provision for income taxes in the accompanying statements of operations
for the year ended December 31, 1995 and the nine months ended September
30, 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Federal and state income taxes:
Current......................................................... $329,613
Deferred........................................................ $76,047 (75,852)
-------- --------
$76,047 $253,761
======== ========
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate for the following reasons:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Statutory federal income tax rate.................................... 34.0% 34.0%
State income taxes, net of federal tax benefits...................... 3.7 5.1
Other................................................................ .5 3.4
------ ------
Effective tax rate................................................... 38.2% 42.5%
====== ======
</TABLE>
The sources and amounts of deferred income tax assets and liabilities at
December 31, 1995 and September 30, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
CURRENT ASSETS CURRENT
(LIABILITIES) (LIABILITIES)
-------------- -------------
<S> <C> <C>
Use of cash basis of accounting for income tax
purposes............................................... $ (320,230) $ (154,717)
Net operating loss carryforward and tax credits.......... 89,661
---------- --------
Total.......................................... $ (230,569) $ (154,717)
========== ========
</TABLE>
9. ACQUISITION
In November 1995, the Company purchased a pathology practice in Port
Charlotte, Florida ("Port Charlotte") for $400,000. The Company assumed
certain operating leases and responsibility for the laboratory licensure
and staffing. The entire purchase price was attributable to goodwill, which
is being amortized over 15 years. Amortization expense for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 was
$2,222 and $20,001, respectively. The acquisition was financed with a
$320,000 note, which is non-interest bearing, and $80,000 in cash. The note
is being repaid in 32 monthly installments of $10,000. The note has been
discounted at 8%. The current portion of the note at December 31, 1995 and
September 30, 1996 was $100,653 and $106,855, respectively. Port
Charlotte's operations did not have a significant impact on the Company's
operations. Accordingly, the pro forma net revenue and results of
operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996 are not materially different from the Company's results
of operations.
10. SUBSEQUENT EVENT
Effective November 1, 1996, the Company's shareholders sold all of the
Company's issued and outstanding common stock to AmeriPath, Inc.
F-118
<PAGE> 185
AMERIPATH, INC.
6,200,000 SHARES
COMMON STOCK
PROSPECTUS
DEAN WITTER REYNOLDS INC.
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
<PAGE> 186
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........................ $27,809
NASD filing fee............................................................ $10,482
Nasdaq National Market listing fee......................................... *
Printing expenses.......................................................... *
Accounting fees and expenses............................................... *
Legal fees and expenses.................................................... *
Fees and expenses (including legal fees) for qualifications under state
securities laws.......................................................... *
Registrar and Transfer Agent's fees and expenses........................... *
Miscellaneous.............................................................. *
-------
Total................................................................. $ *
=======
</TABLE>
- ---------------
* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
The Company intends to pay all expenses of registration with respect to shares
being sold by the Selling Stockholders hereunder, with the exception of
underwriting discounts and commissions.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 145 of the Delaware General
Corporations Law to indemnify its directors and officers to the extent provided
in such statute. The Company's Amended and Restated Certificate of
Incorporation, filed as Exhibit 3.2 to this Registration Statement, provides
that the Company shall indemnify its executive officers and directors to the
fullest extent permitted by law either now or hereafter.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought, nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.
The Company intends to obtain prior to the closing of this offering
directors and officers liability insurance for the benefit of its directors and
certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Effective June 30, 1996, the Company consummated the acquisition of Derrick
and in connection therewith issued an aggregate of 600,005 shares of Common
Stock to the 19 shareholders of Derrick. On October 13, 1996, the Company
consummated the acquisition of Seidenstein and in connection therewith issued an
aggregate of 75,834 shares of Common Stock to the three shareholders of
Seidenstein. On September 30, 1996, the Company consummated the acquisition of
Richfield Labs and in connection therewith issued an aggregate of 153,333 shares
of Common Stock to the two shareholders of Richfield Labs. On October 15, 1996,
the Company consummated the acquisition of CPI and in connection therewith
issued
II-1
<PAGE> 187
an aggregate of 96,000 shares of Common Stock to the shareholder of CPI. On
September 30, 1996, the Company consummated the acquisition of Volusia and in
connection therewith issued an aggregate of 6,666 shares of Common Stock to one
of the eight shareholders of Volusia. On November 4, 1996, the Company
consummated the acquisition of Gulf Coast and in connection therewith issued an
aggregate of 200,000 shares of Common Stock to the two shareholders of Gulf
Coast. On November 19, 1996, the Company entered into 21 separate agreements
with respect to the issuance of shares of Common Stock in exchange for the
surrender of contingent rights to receive Common Stock in the future. In
connection with such agreements, the following shares were issued: 44,444 to Les
B. Rosen, M.D.; 22,222 to Kip Amazon, M.D.; 28,750 to each of Robert E. Jones,
Jr., M.D. and James E. Elder, M.D.; 77,820 to David R. Barron, M.D.; 22,180 to
Ruth S. Kleier, M.D.; 50,000 to Beno Michel, M.D.; 12,525 to each of James
Arocho, M.D., Jane Chen, M.D., William Douglas, M.D., Thomas Greer, M.D., Steven
Popok, M.D., James Roberts, M.D. and Lori Shehi, M.D.; 50,000 to Clay J.
Cockerell, M.D.; 59,666 to James E. Dunnington, M.D.; 63,189 to each of Lawrence
Seidenstein, M.D., Steven E. Levine, M.D. and David M. Reardon, M.D.; and
150,000 to each of George C. Kalemeris, M.D. and Richard Fernandez, M.D.
Each of the above issuances of shares of Common Stock was exempt from
registration under the Securities Act pursuant to an exception provided by
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement*
3.1 -- AmeriPath's Amended and Restated Certificate of Incorporation*
3.2 -- AmeriPath's Amended and Restated Bylaws*
5.1 -- Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the
validity of the Common Stock being registered*
10.1 -- Amended and Restated 1996 Stock Option Plan
10.2 -- Employment Agreement, dated as of October 24, 1995, between AmeriPath and James C.
New
10.3 -- Employment Agreement, dated as of August 2, 1993, as amended, between ALA and Robert
P. Wynn.
10.4 -- Employment Agreement, dated as of January 1, 1994, between AmeriPath and Michael J.
Demaray, M.D.
10.5 -- Employment Agreement, dated June 30, 1996, between AmeriPath and Alan Levin, M.D.
10.6 -- Employment Agreement, dated as of September 30, 1996, between AmeriPath Florida and
Alan Levin, M.D., as amended
10.7 -- Employment Agreement, dated as of June 30, 1996, between AmeriPath Florida and
Timothy Kilpatrick, M.D.
10.8 -- Credit Agreement, dated as of May 29, 1996, among AmeriPath, Inc., the subsidiaries
of AmeriPath, Inc. from time to time party thereto, the lenders from time to time
party thereto and The First National Bank of Boston
10.9 -- Amendment No. 1 to Credit Agreement, dated as of August 30, 1996, between AmeriPath,
Inc., its Subsidiaries and The First National Bank of Boston
10.10 -- Amendment No. 2 to Credit Agreement, dated as of November 4, 1996, between
AmeriPath, Inc., its Subsidiaries and The First National Bank of Boston
10.11 -- Office Lease dated as of June 1, 1995 by and between American Laboratory Associates,
Inc. and Haile Plantation Corporation*
10.12 -- Stock Purchase Agreement, dated as of May 23, 1996, among AmeriPath, Inc., Derrick &
Associates and the shareholders of Derrick & Associates
10.13 -- Stock Purchase Agreement, dated as of September 30, 1996, by and among AmeriPath,
Inc., David R. Barron, M.D., Inc., Ruth S. Kleier, M.D. and David R. Barron, M.D.
10.14 -- Stock Purchase Agreement, dated as of October 31, 1996 among AmeriPath, Inc., Gulf
Coast Pathology Associates, Inc., Richard Fernandez, M.D., and George Kalemeris,
M.D.
10.15 -- Form of Stock Rights Surrender & Restricted Stock Grant Agreement
10.16 -- 1996 Director Stock Option Plan
</TABLE>
II-2
<PAGE> 188
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
10.17 -- American Laboratory Associates, Inc. Series A Preferred Stock, Common Stock and
Junior Subordinated Note Purchase Agreement, dated as of January 1, 1994*
22.1 -- Subsidiaries of AmeriPath*
23.1 -- Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be
included in its opinion to be filed as Exhibit 5.1)*
23.2 -- Consent and Report on Schedules of Deloitte & Touche LLP
23.3 -- Consent of Deloitte & Touche LLP (Fort Lauderdale, Florida)
23.4 -- Consent of Deloitte & Touche LLP (Orlando, Florida)
23.5 -- Consent of Deloitte & Touche LLP (Cincinnati, Ohio)
23.6 -- Consent of Deloitte & Touche LLP (Dallas, Texas)
24.1 -- Reference is made to the Signatures section of this Registration Statement for the
Power of Attorney contained therein
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules:
The following supplemental schedules can be found on the indicated
pages of this Registration Statement.
<TABLE>
<CAPTION>
ITEM PAGE
------------------------------------------------------------------------------ ----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts.............................. S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule e and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of
Florida, on November 27, 1996.
AMERIPATH, INC.
By: /s/ JAMES C. NEW
------------------------------------
James C. New
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints James C. New and Robert P. Wynn his true
and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this registration statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ ------------------------ ------------------
<C> <S> <C>
/s/ JAMES C. NEW President, Chief November 27, 1996
- ------------------------------------------------ Executive Officer and
James C. New Director (principal
executive officer)
/s/ ALAN LEVIN, M.D. Chief Operating Officer November 27, 1996
- ------------------------------------------------ and Director
Alan Levin, M.D.
/s/ ROBERT P. WYNN Executive Vice President November 27, 1996
- ------------------------------------------------ and Chief Financial
Robert P. Wynn Officer (principal
financial officer and
principal accounting
officer)
/s/ MICHAEL J. DEMARAY, M.D. Executive Vice November 27, 1996
- ------------------------------------------------ President, Medical
Michael J. Demaray, M.D. Director and Director
/s/ THOMAS S. ROBERTS Chairman of the Board November 27, 1996
- ------------------------------------------------ and Director
Thomas S. Roberts
/s/ TIMOTHY KILPATRICK, M.D. Director November 27, 1996
- ------------------------------------------------
Timothy Kilpatrick, M.D.
/s/ E. ROE STAMPS, IV Director November 27, 1996
- ------------------------------------------------
E. Roe Stamps, IV
</TABLE>
II-4
<PAGE> 190
AMERIPATH, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND NINE MONTHS ENDED SEPTEMBER 30,
1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BEGINNING STATEMENT OTHER WRITE-OFFS AND ENDING
DESCRIPTION BALANCE OF OPERATIONS INCREASES(1) OTHER ADJUSTMENTS BALANCE
- -------------------------------------- --------- ------------- ------------ ----------------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowances for contractual, other
adjustments and uncollectible
accounts............................ $ 796 $ 2,887 $ 0 $ (2,398) $ 1,285
====== ====== ====== ======== ======
Year ended December 31, 1994:
Allowances for contractual, other
adjustments and uncollectible
accounts............................ $ 1,285 $ 3,569 $ 0 $ (3,355) $ 1,499
====== ====== ====== ======== ======
Year ended December 31, 1995:
Allowances for contractual, other
adjustments and uncollectible
accounts............................ $ 1,499 $ 4,258 $ 0 $ (3,834) $ 1,923
====== ====== ====== ======== ======
Nine months ended September 30, 1996:
Allowances for contractual, other
adjustments and uncollectible
accounts............................ $ 1,923 $ 9,917 $7,368 $ (10,032) $ 9,176
====== ====== ====== ======== ======
</TABLE>
- ---------------
(1) Represents the allowances for contractual, other adjustments and
uncollectible accounts related to the recent acquisitions completed on or
before September 30, 1996.
S-1
<PAGE> 1
EXHIBIT 10.1
AMERIPATH, INC.
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
----------------------------------------
1. PURPOSE. The purpose of this Plan is to advance the
interests of AMERIPATH, INC., a Delaware corporation (the "Company"), and its
Subsidiaries by providing an additional incentive to attract and retain
qualified and competent persons who are key to the Company or its Subsidiaries,
including key employees of and consultants or advisors to the Company or its
Subsidiaries, whose efforts and judgment the success of the Company and its
Subsidiaries is largely dependent, through the encouragement of stock ownership
in the Company by such persons.
2. DEFINITIONS. As used herein, the following terms shall
have the meaning indicated:
(a) "Board" shall mean the Board of Directors of
the Company.
(b) "Cause" shall mean any of the following:
(i) a determination by the Company that there has
been a willful or grossly negligent failure by the Optionee to perform
his duties as an employee or Non-Employee Eligible Individual of the
Company;
(ii) any conduct by the Optionee that either results
in the conviction of a felony under the laws of the United States of
America or any state thereof, or of an equivalent crime under the laws
of any other jurisdiction;
(iii) any act by the Optionee that the Company
determines to be in willful or wanton disregard of the Company's best
interest, or which results, or is intended to result, directly or
indirectly, in improper gain or personal enrichment of the Optionee at
the expense of the Company;
(iv) a determination by the Company that the
Optionee has willfully or materially failed to comply with any rules,
regulations, policies or procedures of the Company, or that the
Optionee has engaged in any act, behavior or conduct showing such
willful or wanton disregard of the interests of the Company or
occasioned by a deliberate violation or disregard of standards of
behavior that the
<PAGE> 2
Company has a right to expect of its employees or of Non-Employee
Eligible Individuals; or
(v) if the Optionee, while employed by the Company
and for two years thereafter, fails to safeguard, and divulges,
communicates, uses to the detriment of the Company or for the benefit
of any person or persons, or misuses in any way, any Confidential
Information.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the committee appointed pursuant
to Section 13 hereof to administer the Plan.
(e) "Common Stock" shall mean the Company's Common Stock,
par value $.01 per share.
(f) "Confidential Information" shall mean any and all
information pertaining to the Company (including information relating to its
services, marketing practices, management agreements, clients, customers,
prospects, sources of prospects, suppliers, financial condition, results of
operations, costs and methods of doing business, owners and ownership structure)
that is not generally available to the public.
(g) "Covered Employee" shall mean any individual who, at the
time of the grant of an Option, is (i) the Chief Executive Officer of the
Company or is acting in such capacity ("CEO"), (ii) among the four highest
compensated officers of the Company (other than the CEO), or (iii) otherwise
considered to be a "Covered Employee" within the meaning of Section 162(m) of
the Code.
(h) "Effective Date" shall mean February 15, 1996.
(i) "Fair Market Value" of a Share on any date of reference
shall be the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding such date, unless the Committee in its sole
discretion shall determine otherwise in a fair and uniform manner. For this
purpose, the "Closing Price" of the Common Stock on any business day shall be
(i) if the Common Stock is listed or admitted for trading on any United States
national securities exchange, or if actual transactions are otherwise reported
on a consolidated transaction reporting system, the last reported sale price of
the Common Stock on such exchange or reporting system, as reported in any
newspaper of general circulation, (ii) if the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), or any similar system of automated dissemination of quotations of
securities prices in common use, the mean between the closing high bid and low
asked quotations for such day of the Common Stock on such system, or (iii) if
neither clause (i) or (ii) is applicable, the mean between the high bid and low
asked quotations for the Common Stock as reported by the National Quotation
2
<PAGE> 3
Bureau, Incorporated if at least two securities dealers have inserted both bid
and asked quotations for the Common Stock on at least 5 of the 10 preceding
days. If the information set forth in clauses (i) through (iii) above is
unavailable or inapplicable to the Company (e.g., if the Company's Common Stock
is not then publicly traded), then the "Fair Market Value" of a Share shall be
the fair market value (i.e., the price at which a willing seller would sell a
Share to a willing buyer when neither is acting under compulsion and when both
have reasonable knowledge of all relevant facts) of a share of the Common Stock
on the business day immediately preceding such date as the Committee in its
sole and absolute discretion shall determine in a fair and uniform manner.
(j) "Incentive Stock Option" shall mean an incentive stock
option as defined in Section 422 of the Code.
(k) "Non-Employee Eligible Individual" shall refer to an
advisor or consultant to the Company who contributes or has an opportunity to
contribute to the success of the Company or any Subsidiary.
(l) "Non-Statutory Stock Option" shall mean an
Option which is not an Incentive Stock Option.
(m) "Option" (when capitalized) shall mean any
option granted under this Plan.
(n) "Optionee" shall mean a person to whom a stock
option is granted under this Plan or any person who succeeds to the rights of
such person under this Plan by reason of the death of such person or otherwise.
(o) "Outside Director" shall mean a member of the
Board who (i) is not a current employee of the Company or any Affiliate, (ii)
is not a former employee of the Company or any Affiliate who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year; (iii) has not been an officer of the
Company or any Affiliate; (iv) does not receive remuneration either directly or
indirectly, in any capacity other than as a director; and (v) satisfies any
other conditions that shall from time to time be required to qualify as an
"outside director" under Section 162(m) of the Code and the regulations
thereunder and as a "Non-Employee Director" under Rule 16b-3 promulgated under
the Securities Exchange Act. For this purpose, "Remuneration" shall have the
meaning afforded that term pursuant to Treasury Regulations issued under
Section 162(m) of the Code, and shall exclude any de minimis remuneration
excluded under those Treasury Regulations.
(p) "Plan" shall mean this Stock Option Plan of the
Company.
(q) "Securities Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
3
<PAGE> 4
(r) "Share" shall mean a share of the Common Stock.
(s) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. SHARES AND OPTIONS. The Company may grant to Optionees
from time to time Options to purchase an aggregate of up to Nine Hundred
Thousand (900,000) Shares, first, from Shares held in the Company's treasury
and, if no such treasury Shares are available (including treasury Shares called
by the Company pursuant to applicable shareholder agreements, if any), from
authorized and unissued Shares. Upon the grant of any Option hereunder, such
treasury or authorized and unissued Shares shall be reserved for issuance to
permit exercise under this Plan. If any Option granted under the Plan shall
terminate, expire, or be canceled or surrendered as to any Shares, new Options
may thereafter be granted covering such Shares. An Option granted hereunder
shall be either an Incentive Stock Option or a Non-Statutory Stock Option as
determined by the Committee at the time of grant of such Option and shall
clearly state whether it is an Incentive Stock Option or Non-Statutory Stock
Option. All Incentive Stock Options shall be granted within 10 years from the
effective date of this Plan.
4. DOLLAR LIMITATION. Options otherwise qualifying as
Incentive Stock Options hereunder will not be treated as Incentive Stock
Options to the extent that the aggregate Fair Market Value (determined at the
time the Option is granted) of the Shares, with respect to which Options
meeting the requirements of Code Section 422(b) are exercisable for the first
time by any individual during any calendar year (under all stock option or
similar plans of the Company and any Subsidiary), exceeds $100,000.
5. CONDITIONS FOR GRANT OF OPTIONS.
(a) Each Option shall be evidenced by an option agreement
that may contain any term deemed necessary or desirable by the Committee,
provided such terms are not inconsistent with this Plan or any applicable law.
Optionees shall be those persons selected by the Committee who are employees of
the Company or any subsidiary (including employees who are directors or officers
of the Company or any Subsidiary) or who are Non-Employee Eligible Individuals,
but shall not include EVANGELOS POULOS, MICHAEL DEMARAY or ALEXANDER KOWALCZYK.
Any person who files with the Committee, in a form satisfactory to the
Committee, a written waiver of eligibility to receive any Option under this Plan
shall not be eligible to receive any Option under this Plan for the duration of
such waiver.
(b) In granting Options, the Committee shall take into
consideration the contribution the person has made or has the opportunity to
make with respect to the
4
<PAGE> 5
success of the Company or its Subsidiaries and such other factors as the
Committee shall determine. The Committee shall also have the authority to
consult with and receive recommendations from officers and other personnel of
the Company and its Subsidiaries with regard to these matters. The Committee
may from time to time in granting Options under the Plan prescribe such other
terms and conditions concerning such Options as it deems appropriate,
including, without limitation, (i) prescribing the date or dates on which the
Option becomes exercisable, (ii) providing that the Option rights accrue or
become exercisable in installments over a period of years, or upon the
attainment of stated goals, or both, or (iii) relating an Option to the
continued employment of the Optionee for a specified period of time, provided
that such terms and conditions are not more favorable to an Optionee than those
expressly permitted herein.
(c) The Options granted to employees or Non-Employee
Eligible Individuals under this Plan shall be in addition to regular salaries,
pension, life insurance or other benefits related to their employment with or
service as a Non-Employee Eligible Individual to the Company or its
Subsidiaries. Neither the Plan nor any Option granted under the Plan shall
confer upon any person any right to employment or continuance of employment by
or service as a Non-Employee Eligible Individual the Company or its
Subsidiaries.
(d) Notwithstanding any other provisions of the Plan to the
contrary, an Incentive Stock Option shall not be granted to any person owning
directly or indirectly (through attribution under Section 424(d) of the Code) at
the date of grant, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company (or of its parent or subsidiary, as
those terms are defined in Section 424 of the Code, at the date of grant) unless
the option price of such Option is at least 110% of the Fair Market Value of the
Shares subject to such Option on the date the Option is granted, and such Option
by its terms is not exercisable after the expiration of five years from the date
such Option is granted.
(e) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, the aggregate number of Shares
with respect to which Options may be granted to any one Optionee may not exceed
300,000, subject to adjustment as provided in Section 10(a) hereof.
(f) Notwithstanding any other provision of this Plan, and in
addition to any other requirements of this Plan, Options may not be granted to a
Covered Employee unless the grant of such Option is authorized by, and all of
the terms of such Options are determined by, a Committee that is appointed in
accordance with Section 13 of this Plan and all of whose members are Outside
Directors.
(g) Incentive Stock Options may not be granted to any
Non-Employee Eligible Individual.
5
<PAGE> 6
6. EXERCISE PRICE. The exercise price per Share of any Option
shall be any price determined by the Committee; PROVIDED, HOWEVER, that the
exercise price of any Incentive Stock Option shall not be less than the Fair
Market Value of the Shares underlying the Option (as determined in the sole
and absolute discretion of the Committee in a fair and uniform manner) on the
date such Incentive Stock Option is granted.
7. EXERCISE OF OPTIONS. An Option shall be deemed exercised
when (i) the Company has received written notice of such exercise in accordance
with the terms of the Option, (ii) full payment of the aggregate option price
of the Shares as to which the Option is exercised has been made, and (iii)
arrangements that are satisfactory to the Committee in its sole discretion have
been made for the Optionee's payment to the Company of the amount that is
necessary for the Company or Subsidiary employing the Optionee to withhold in
accordance with applicable Federal or state tax withholding requirements.
Unless further limited by the Committee in any Option, the option price of any
Shares purchased pursuant to the exercise of such Option shall be paid in cash,
by certified or official bank check, by money order, with Shares owned by the
Optionee that have been owned by the Optionee for more than 6 months on the
date of surrender or such other period as may be required to avoid a charge to
the Company's earnings for financial accounting purposes, by authorization for
the Company to withhold Shares issuable upon exercise of the Option, by
arrangement with a broker that is acceptable to the Committee where payment of
the Option price is made pursuant to an irrevocable direction to the broker to
deliver all or a part of the proceeds from the sale of the Option Shares to the
Company in payment of the Option price, or by a combination of the above. The
Committee in its sole discretion may accept a personal check in full or partial
payment for any Shares so purchased. If the exercise price is paid in whole or
in part with Shares, the value of the Shares surrendered shall be their Fair
Market Value on the date the Option is exercised. The Company in its sole
discretion may, on an individual basis or pursuant to a general program
established in connection with this Plan, lend money to an Optionee, guarantee
a loan to an Optionee, or otherwise assist an Optionee to obtain the cash
necessary to exercise all or a portion of an Option granted hereunder or to pay
any tax liability of the Optionee attributable to such exercise. If the
exercise price is paid in whole or part with the Optionee's promissory note,
such note shall (i) provide for full recourse to the maker, (ii) be
collateralized by the pledge of the Shares that the Optionee purchases upon
exercise of such Option, (iii) bear interest at the prime rate of the Company's
principal lender, and (iv) contain such other terms as the Board or Committee
in its sole discretion shall reasonably require. No Optionee shall be deemed to
be a holder of any Shares subject to an Option unless and until a stock
certificate or certificates for such Shares are issued to such person(s) under
the terms of this Plan. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as expressly provided in Section 10 hereof.
8. EXERCISABILITY OF OPTIONS. Any Option shall become
exercisable in such amounts, at such intervals, upon such events or occurrences
and upon such other terms and conditions as shall be provided in the individual
option agreement evidencing such Option
6
<PAGE> 7
(sometimes referred to herein as the "Option"), except as otherwise provided in
this Section 8:
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise provided in any Option, each
outstanding Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall include
a series of transactions occurring within 60 days or occurring
pursuant to a plan), that has the result that stockholders of the
Company immediately before such transaction cease to own at least 51%
of the voting stock of the Company or of any entity that results from
the participation of the Company in a reorganization, consolidation,
merger, liquidation or any other form of corporate transaction;
(ii) if the stockholders of the Company shall approve a
plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the approved
merger, consolidation, reorganization, liquidation or dissolution is
subsequently abandoned); or
(iii) if the stockholders of the Company shall approve a
plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such
plan is subsequently abandoned).
(c) The Committee may in its sole discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to any Option or previously acquired by the exercise of any
Option.
9. TERMINATION OF OPTION PERIOD.
(a) Unless otherwise expressly provided in any Option, the
unexercised portion of any Option shall automatically and without notice
terminate and become null and void at the time of the earliest to occur of the
following:
(i) one year after the date on which the Optionee's
employment or service as a Non-Employee Eligible Individual is
terminated by the Company for any reason, including, but not limited
to, a total and permanent (mental or physical) disability within the
meaning of Code Section 22(e)(3)) as determined by a medical doctor
satisfactory to the Committee, other than by reason of (A) Cause, or
(B) the Optionee's death;
7
<PAGE> 8
(ii) immediately upon the termination by the Company of the
Optionee's employment or service as a Non-Employee Eligible
Individual for Cause;
(iii) ninety days after the voluntary termination of
employment or service as a Non-Employee Eligible Individual by
the Optionee;
(iv) the later of (A) one year after the date of
termination of the Optionee's employment or service as a
Non-Employee Eligible Individual by reason of death of the Optionee
(other than an Optionee who terminated employment by reason of total
and permanent disability), or (B) three months after the date of death
of the Optionee (who terminated employment or service as a Non-Employee
Eligible Individual by reason of total and permanent disability) if the
death shall occur during the one year period specified in Subsection
9(a)(i) hereof.
(b) The Committee in its sole discretion may, by giving
written notice ("cancellation notice") to the Optionee, cancel, effective upon
the date of the consummation of any corporate transaction described in
Subsection 8(b)(ii) or (iii) hereof, any Option that remains unexercised on such
date. Such cancellation notice shall be given a reasonable period of time prior
to the proposed date of such cancellation and may be given either before or
after approval of such corporate transaction.
(c) Upon termination of an Option pursuant to the foregoing
provisions of this Section 9, any Option not exercisable pursuant to Section 8
of this Plan shall be canceled.
10. ADJUSTMENT OF SHARES.
(a) If, at any time while the Plan is in effect or
unexercised Options are outstanding, there shall be any increase or decrease in
the number or nature of issued and outstanding Shares through the declaration of
a stock dividend, through any recapitalization, reclassification, stock split,
combination or Company exchange of Shares (other than any such exchange or
issuance of Shares through which Shares are issued to effect an acquisition of
another business or entity), then and in such event:
(i) appropriate adjustment shall be made by the Committee
in the maximum number of Shares available for grant under the
Plan, so that the same percentage of the Company's issued and
outstanding Shares shall continue to be subject to being so optioned;
and
(ii) appropriate adjustment shall be made by the
Committee in the number of Shares and the exercise price per
Share thereof then subject to any outstanding Option, so that the same
percentage of the Company's issued and outstanding Shares shall remain
subject to purchase at the same aggregate exercise price.
8
<PAGE> 9
(b) Subject to the specific terms of any Option, the
Committee may change the terms of Options outstanding under this Plan, with
respect to the option price or the number of Shares subject to the Options, or
both, when, in the Committee's sole judgement and discretion, such adjustments
become appropriate by reason of a corporate transaction described in Subsection
8(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein or
determined by the Committee, the issuance by the Company of shares of its
capital stock of any class, or securities convertible into or exchangeable for
shares of capital stock of any class, either in connection with a direct or
underwritten sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number of or exercise price of
Shares then subject to outstanding Options granted under the Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reclassifications, reorganizations or
other changes in the Company's capital structure or its business; (ii) any
merger or consolidation of the Company or to which the Company is a party; (iii)
any issuance by the Company of debt securities, or preferred or preference
stock, that would rank senior to or above the Shares subject to outstanding
Options; (iv) the dissolution or liquidation of the Company; (v) any sale,
transfer, encumbrance, pledge or assignment of all or any part of the assets or
business of the Company; or (vi) any other corporate act or proceeding, whether
of a similar character or otherwise.
11. TRANSFERABILITY OF OPTIONS.
(a) No Incentive Stock Option, and unless the Committee's
prior written consent is obtained (which consent may be obtained at the time an
Option is granted) and the transaction does not violate the requirements of Rule
16b-3 promulgated under the Securities Exchange Act no Non-Qualified Stock
Option, shall be subject to alienation, assignment, pledge, charge or other
transfer other than by the Optionee by will or the laws of descent and
distribution, and any attempt to make any such prohibited transfer shall be
void. Each Option shall be exercisable during the Optionee's lifetime only by
the Optionee, or in the case of a Non-Qualified Stock Option that has been
assigned or otherwise transferred with the Committee's prior written consent,
only by the assignee consented to by the Committee.
(b) Unless the Committee's prior written consent is obtained
(which consent may be obtained at the time an Option is granted) and the
transaction does not violate the requirements of Rule 16b-3 promulgated under
the Securities Exchange Act, no Shares acquired by an Officer, as that term is
defined under Rule 16b-3, of the Company
9
<PAGE> 10
or Director pursuant to the exercise of an Option may be sold, assigned,
pledged or otherwise transferred prior to the expiration of the six-month
period following the date on which the Option was granted.
12. ISSUANCE OF SHARES.
(a) Notwithstanding any other provision of this Plan, the
Company shall not be obligated to issue any Shares unless it is advised by
counsel of its selection that it may do so without violation of the applicable
Federal and State laws pertaining to the issuance of securities, and may require
any stock so issued to bear a legend, may give its transfer agent instructions,
and may take such other steps, as in its judgment are reasonably required to
prevent any such violation.
(b) As a condition of any sale or issuance of Shares upon
exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee to the
Company, at the time any Option is exercised, that he is
acquiring the Shares to be issued to him for investment and not with a
view to, or for sale in connection with, the distribution of any such
Shares; and
(ii) a representation, warranty and/or agreement to be
bound by any legends that are, in the opinion of the Committee,
necessary or appropriate to comply with the provisions of any
securities law deemed by the Committee to be applicable to the issuance
of the Shares and are endorsed upon the Share certificates.
13. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Committee, which
shall consist of not less than two Directors, each of whom shall be Outside
Directors. The Committee shall have all of the powers of the Board with respect
to the Plan. Any member of the Committee may be removed at any time, with or
without cause, by resolution of the Board and any vacancy occurring in the
membership of the Committee may be filled by appointment by the Board.
(b) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan shall be final and conclusive.
10
<PAGE> 11
(c) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
(d) The Board may reserve to itself the power to grant
Options to employees or Directors of the Company or any Subsidiary who are not
Covered Employees. If and to the extent that the Board reserves such powers,
then all references herein to the Committee shall refer to the Board with
respect to the Options granted by the Board.
14. WITHHOLDING OR DEDUCTION FOR TAXES. If at any time specified
herein for the making of any issuance or delivery of any Option or Common Stock
to any Optionee, any law or regulation of any governmental authority having
jurisdiction in the premises shall require the Company to withhold, or to make
any deduction for, any taxes or take any other action in connection with the
issuance or delivery then to be made, such issuance or delivery shall be
deferred until such withholding or deduction shall have been provided for by
the Optionee or beneficiary, or other appropriate action shall have been taken.
15. INTERPRETATION.
(a) The Plan shall be administered and interpreted so that
all Incentive Stock Options granted under the Plan will qualify as Incentive
Stock Options under Section 422 of the Code. If any provision of the Plan should
be held invalid for the granting of Incentive Stock Options or illegal for any
reason, such determination shall not affect the remaining provisions hereof, and
the Plan shall be construed and enforced as if such provision had never been
included in the Plan.
(b) This Plan shall be governed by the internal laws of the
State of Delaware.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan or affect the meaning
or interpretation of any part of the Plan.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
(e) As it is the intent of the Company that the Plan comply
in all respects with Rule 16b-3 promulgated under the Securities Exchange Act
("Rule 16b-3"), any ambiguities or inconsistencies in construction of the Plan
shall be interpreted to give effect to such intention, and if any provision of
the Plan is found not to be in compliance with Rule 16b-3, such provision shall
be deemed null and void to the extent required to permit the Plan to comply with
Rule 16b-3. The Board and the Committee each may from time
11
<PAGE> 12
to time adopt rules and regulations under, and amend, the Plan in furtherance
of the intent of the foregoing.
16. AMENDMENT AND DISCONTINUATION OF THE PLAN. Either the Board or
the Committee may from time to time amend the Plan or any Option; provided,
however, that, except to the extent provided in Section 10, no such amendment
may, without approval by the stockholders of the Company, (a) materially
increase the benefits accruing to participants under the Plan, (b) materially
increase the number of securities which may be issued under the Plan, or (c)
materially modify the requirements as to eligibility for participation in the
Plan; and provided further, that, except to the extent provided in Section 9,
no amendment or suspension of the Plan or any Option issued hereunder shall
substantially impair any Option previously granted to any Optionee without the
consent of such Optionee. Shareholder approval also shall be required for any
amendment to the Plan if and to the extent such approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Common Stock may then be listed or
quoted.
17. EFFECTIVE DATE. The Plan became effective on February 15,
1996 and is hereby amended and restated effective as of November 21, 1996.
12
<PAGE> 1
EXHIBIT 10.2
SUMMIT PARTNERS
ONE BOSTON PLACE * BOSTON, MASSACHUSETTS 02108
TEL 617-742-5500 * FAX 617-742-6138
October 24, 1995
CONFIDENTIAL
Mr. James C. New
1318 East Meetinghouse Road
Lower Gwynedd, PA 19002
Dear Jim:
On behalf of the Board of Directors of American Laboratory Associates, Inc.
(ALA), it is my pleasure to offer you the position of Chief Executive Officer of
the company and a seat on its Board. You will report to the Board of Directors
assuming full general management responsibility for the company's operations
and will serve at the discretion of the Board in this role.
The Board is delighted to offer you the opportunity to purchase three (3)
percent of common stock at a valuation of the company of $15 million. The
Board further extends to you the opportunity to borrow up to sixty (60) percent
of the purchase price of the stock under terms approximating market rate. Our
understanding is that it would be your intent to execute that stock purchase
coincident with your employment by the company. Additionally, the Board will
execute an option for you on five (5) percent of the company's common stock
subject to the terms of the company's option program at a valuation of $12
million for the company. The Board believes, as we know you do, that ALA
represents an extraordinary value creation opportunity. Through stock
ownership, we all share in that opportunity, and we are delighted that the
leadership for ALA's value enhancement will be from you.
Beyond stock ownership, the Board is offering you a significant cash
compensation package beginning with a base salary of $16,666 per month. In
addition, for calendar 1996, the Board will guarantee you an additional
twenty-five (25) percent of your base salary or $50,000 in incentive
compensation reflecting its expectation that the company will meet its 1996
budget and in acknowledgment that 1997 will be the first budget developed
entirely under your leadership. An additional twenty-five (25) percent of your
base, or $50,000, is also available, to be paid according to mutually agreed
upon objectives between you and the Board, as well as performance of the
company in excess of budget. Should the company's performance prove
extraordinary, the Board will consider additional compensation to you. The
Board will review your base compensation at year-end 1996, while intending
to retain the foregoing bonus structure, less any guarantees.
So far as benefits are concerned, ALA will assume premium costs for the
long-term disability and life policies to be rolled over from Novacare up to a
maximum of $15,000 per annum. In addition, ALA will assist you in enrolling in
a mutually agreed upon health insurance program, which, we assume, will
ultimately involve your enrollment in a program otherwise offered to other
employees of the company. You will also be eligible to enroll in all the
normal benefits programs of the company. We will provide you with additional
information on the company's benefits programs by separate cover.
<PAGE> 2
Mr. James C. New
October 24, 1995
Page Two
In the event that you are separated from the company, other than for
disability, death or cause, with cause to be defined to our mutual satisfaction
by separate cover, you will receive salary continuation plus benefits for a
period of twelve (12) months. Salary and benefits continuation will not apply
should you resign from the company, unless that resignation has been requested
by the company for reasons other than for cause, in which case a mutually
satisfactory severance package, if any, will be negotiated.
Each of us on the Board of Directors could not be happier with the prospect of
your joining us as the Chief Executive Officer of ALA. We share a collective
sense of the extraordinary opportunity our company has to lead its field and,
in so doing, to create extraordinary value for its clients and investors. We
welcome you and would ask that you signify your acceptance of the terms of this
offer by signing and returning an original copy of this letter to me in the
space provided. You may retain the second copy for your records. We will
develop a mutually agreeable starting date for you and look forward to a
prosperous and successful association with you.
Sincerely,
/s/ Tom Roberts
---------------
Thomas S. Roberts
Director
AGREED TO AND ACCEPTED BY:
/s/ James C. New
- ----------------
James C. New
10/31/95
- ----------------
Date
<PAGE> 1
EXHIBIT 10.3
[AMERICAN LABORATORY ASSOCIATES LETTERHEAD]
August 2, 1993
Mr. Robert P. Wynn
2757 N.W. 28th Street
Boca Raton, FL 33434
Dear Bob:
We are pleased to make you an offer to join American Laboratory Associates
("ALA") in the position of Chief Operating Officer, starting August 2, 1993. In
that position you will have overall responsibility for the lab operations,
including finance and accounting, billing and collections, personnel and
administration. Matters relating to quality control and quality assurance will
be reported directly to us.
You will be compensated at the rate of $8,333.33 per month, and paid biweekly.
Your performance will be reviewed annually as of July 31, when you will be
eligible for a salary increase.
In addition to your regular compensation, you will be eligible for an annual
cash performance bonus. The amount of any bonus will be determined in the sole
discretion of ALA, based on written performance criteria. Any such bonus will
be payable as soon as possible after the annual performance review is conducted.
You initially will be eligible for three weeks' paid vacation, increasing to
four after your fifth anniversary date with ALA. You will also be paid for the
six holidays presently recognized by ALA. In addition you will be permitted to
attend the requisite number of continuing education courses necessary to
maintain your CPA certificate, which at the discretion of ALA will not be
counted in determining the amount of annual paid vacation. You will schedule
your vacations and other paid absences in a manner that shall enable you to
meet your obligations to ALA.
You will also be eligible to participate in the group insurance and other
fringe benefits programs available to ALA personnel and will be reimbursed for
travel and other business related expenses incurred in performance of your
responsibilities to ALA.
In the event a future incentive compensation arrangement based on the
performance and equity value of ALA is implemented you will be eligible to
participate as a key employee.
Your employment with ALA may be terminated, with or without cause, by either
ALA or you at any time. In the event of termination without cause, the
terminating party shall give the other party a one month's notice. You shall be
entitled to your base salary through the effective date of termination and a
pro-rata portion of earned and unused vacation time.
Should your employment be terminated by ALA without cause, you will be entitled
to severance pay equal to one month's salary for each full year of service with
ALA, based on your salary at the time of termination. In no event however, will
the amount of such severance pay be less than six, nor more than twelve months
pay. Also, in the event there is a change in the present controlling ownership
of ALA, the amount of such severance automatically becomes twelve months.
The following shall entitle ALA to terminate your employment for cause:
(1) your being convicted of a criminal offense involving a felony or moral
turpitude;
(2) any act or omission on your part which is grossly and materially contrary
to the business interests, reputation, or goodwill of ALA; or
(3) if in the reasonable judgement of ALA, your job performance is inadequate.
Yours truly,
/s/ Alexander P. Kowalczyk
- ------------------------------
Alexander P. Kowalczyk, M.D.
American Laboratory Associates
AGREED AND ACCEPTED
/s/ Robert P. Wynn
- -------------------
Robert P. Wynn
- -------------------
Date
<PAGE> 2
[AMERICAN LABORATORY ASSOCIATES, INC. LETTERHEAD]
To: Human Resources and Payroll
From: Compensation Committee of the Board of Directors
Subject: Compensation - Robert P. Wynn
Date: 1/4/96
- ------------------------------------------------------------------
Please be advised that the Compensation Committee of the Board of Directors
agreed that in light of his performance that Mr. Robert P. Wynn's base
compensation be increased by ten thousand dollars ($10,000) to $142,000
($5,461.53) effective as of January 1, 1995.
Please make the appropriate adjustments in Mr. Wynn's next payroll check.
For the Compensation Committee of the
Board of Directors
/s/ Alexander P. Kowalczyk
- -------------------------------------
Alexander P. Kowalczyk, M.D.
<PAGE> 1
EXHIBIT 10.4
AMERICAN LABORATORY ASSOCIATES, INC.
EMPLOYMENT AGREEMENT
AGREEMENT entered into as of January 1, 1994, by and between AMERICAN
LABORATORY ASSOCIATES, INC., a Delaware corporation (the "Company"), and
Michael J. Demaray, M.D. of 4100 Vinkemulder Road, Coconut Creek, Florida 33073
(the "Employee").
The Employee has agreed to serve the Company as its Vice President.
The Company wishes to engage his services in such capacity, on the terms and
conditions hereinafter provided. Execution and delivery of this Agreement by
the Employee is a condition precedent to execution, delivery and consummation
of a certain Asset Purchase Agreement dated as of January 1, 1994 by and among
the Company, E. G. Poulos, M.D., M. J. Demaray, M.D., & A. P. Kowalczyk, M.D.,
P.A., a Florida professional corporation (the "Seller") and the Principal
Shareholders named therein (the "Purchase Agreement").
ACCORDINGLY, in consideration of the mutual promises contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Employee hereby agrees with the Company as
follows:
1. Employment by the Company.
1.1 Duties. The Company hereby agrees to employ the Employee, and the
Employee hereby agrees to serve as the Vice President and to carry out such
duties consistent with such position, as he may be assigned from time to time
by the President of the Company (so long as one of Drs. Poulos, Demaray or
Kowalczyk is President) or its Board of Directors (so long as such duties are
not significantly inconsistent with the duties of such Employee as an employee
of the Seller as in effect immediately prior to the execution, delivery and
consummation of the Purchase Agreement) including, without limitation,
supervising the day to day operations of the Company, advising the Board of
Directors in assessing the technical merits and capabilities of future
equipment purchases by the Company, and supervising and assisting in making
Company senior management decisions, subject to the approval of the Board of
Directors. The Employee shall report to the Board of Directors of the Company.
The Employee's employment shall continue for the Term (as that term is defined
in Section 2). The Company expressly acknowledges and agrees that in no event
shall the Employee be required to perform pathological procedures relating to
abortion or fetal tissue research.
<PAGE> 2
During the Term, the Employee shall devote himself to the affairs of
the Company on a full-time basis and shall not engage in any other business,
either on a full-time or part-time basis, as an employee, consultant or in any
other capacity, whether or not he receives any compensation therefore without
the prior consent of the Board of Directors of the Company; provided, however,
that nothing herein shall be construed as preventing the Employee from (a)
making and managing personal investments, so long as such activities do not
significantly interfere with his duties to the Company; (b) engaging in
community and/or charitable activities, so long as such activities do not
interfere with his duties to the Company; and (c) Preventing such Employee from
rendering services to Demaray & Poulos, P.A. (the "Professional Association"),
so long as the Professional Association complies in all material respects with
the terms of a certain Pathology Services Agreement with the Company dated
as of January 1, 1994. The Employee shall not be required, in connection with
his performance of services hereunder, to relocate to a location outside of the
Fort Lauderdale, Florida area; it being acknowledged, however, that reasonable
travel may be required in connection with the Employee's performance of
services hereunder.
1.2 Salary and Benefits. In consideration for the performance by
the Employee of his duties hereunder, the Company shall pay or provide to the
Employee a compensation package consisting of the following:
(a) a salary at the annual rate of Three Hundred Fifty
Thousand ($350,000) Dollars, payable in equal biweekly installments from
January 1, 1994 (the "Salary");
(b) participation in the Company's Senior Executive Bonus Plan
(as hereinafter defined);
(c) reimbursement of all reasonable expenses actually incurred
or paid by the Employee during the Term in the performance of the Employee's
duties under this Agreement and within guidelines established from time to time
by the Board of Directors, upon presentation of expense statements, vouchers
other supporting information in form satisfactory to the Company; and
(d) the benefits set forth on Schedule A attached hereto.
1.3 Senior Executive Bonus Plan. The Senior Executive Bonus Plan
(the "Bonus Plan") shall be administered by the Board of Directors, and
participation therein shall be limited
- 2 -
<PAGE> 3
to the Principal Shareholders (as that term is defined in the Purchase
Agreement). Each year, an amount equal to seven percent (7%) of the positive
difference, if any, in the Company's Operating Earnings (as herein defined) for
such year, as compared to the Base Operating Earnings (as herein defined),
shall be made available for payment to the Employee under the Senior Executive
Bonus Plan. The term "Operating Earnings" shall mean, with respect to any
year, the consolidated operating income of the Company and its Subsidiaries for
such year, before deduction for (i) interest paid in such year, (ii) income tax
payable for such year, (iii) any bonus payable under the Bonus Plan with
respect to such year, (iv) audit expenses for such year to the extent they
exceed $3,800, (v) charges for amortization or depreciation, (vi) any fees or
expenses incurred by the Company in connection with the acquisition
contemplated in the Purchase Agreement, or the financing thereof, (vii) any
fees or expenses incurred by the Company in connection with any proposed
private financing, acquisition or disposition if such financing, acquisition or
disposition is not consummated within the year in which such fees or expenses
were incurred, and (viii) any fees or expenses of the Company in connection
with any public offering, whether or not such public offering is consummated
within the year in which such fees or expenses were incurred, but after
deduction for base salary payable to the Employee pursuant to Section 1.2(a),
and base salary payable to any of the other Principal Shareholders. The term
"Base Operating Earnings" shall mean the highest of (i) $5,200,000, (ii) the
Operating Earnings earned by the Company for the year ended December 31, 1993,
and (iii) the highest Operating Earnings earned during any fiscal year after
1993 and before the year in question. Payments under the Plan shall be made
within 30 days after receipt of audited financial statements for the year with
respect to which such bonus payments are made. The Bonus Plan shall terminate
as of the date the Company consummates its first underwritten public offering
("IPO) of securities under the Securities Act of 1933, as amended, and no bonus
shall be payable with respect to any subsequent period. Following an IPO the
Compensation Committee shall devise a management incentive bonus plan for
future years to replace the Plan, which replacement plan shall be designed to
compensate management with respect to the year in which the IPO occurs on a
basis substantially equivalent to the bonus which would have been payable under
the Plan and which shall be appropriate for a publicly-held company of the
Company's size in the Company's line of business. In the event that the
principal and interest under each of the Senior Notes, Contingent Notes and
Junior Notes (as defined in the Purchase Agreement) has not been paid when due,
no bonus shall be payable under the Plan until such payments of principal and
interest have been brought current. If any bonus payable under
- 3 -
<PAGE> 4
the Plan is not paid when due, and such non-payment is not attributable to the
Company's inability to pay as contemplated by the immediately preceding
sentence, then the amount of such bonus payable shall accrue interest,
calculated on the basis of a 360 day year, at the prime rate of interest
announced publicly from time to time by The First National Bank of Boston,
plus 3% per annum, compounded annually.
2. Term; Termination.
2.1 The term of this Agreement shall commence effective as of
January 1, 1994 and shall continue in full force and effect through
December 31, 1998, subject to earlier termination as provided in Section 2.
Thereafter, the term may be extended to terms mutually acceptable to the
Employee and the Company. The term of this Agreement shall be referred to
herein as the "Term".
2.2 Termination by the Company for Cause. This Agreement may be
terminated at any time by the Company for "cause", effective upon written
notice to the Employee. For the purposes of this Agreement, "cause" shall mean
only one or more of the following, as determined by a majority of the members
of the Board of Directors, which majority must include the two directors of the
Company designated under Section 6(c) of that certain Shareholders Agreement
dated as of the date hereof among the Company and all of the shareholders of
the Company:
(i) The Employee is convicted of, or pleads guilty or nolo
contendere to, a felony;
(ii) The Employee engages in willful misconduct in connection
with the performance of his services hereunder, or is grossly negligent
in the performance of such services, and such willful misconduct or
gross negligence continues for thirty (30) days after written notice
thereof is given to the Employee by the Company, which notice shall
specify in reasonable detail the alleged misconduct or negligence; or
(iii) The Employee willfully fails to perform services for the
Company which are substantially comparable in quality and quantity to
those performed for the Seller prior to execution of the Purchase
Agreement, and such failure continues for thirty (30) days after
written notice thereof is given to the Employee by the Company, which
notice shall specify in reasonable detail the alleged failure; or
- 4 -
<PAGE> 5
(iv) The Employee willfully violates any provision of Section
4 hereof or any provision of Section 3 hereof, and in the case
of any such violation of Section 3, such violation has a material
and adverse effect on the Company.
2.3 Death. In the event of the death of the Employee during the Term,
his employment by the Company shall automatically terminate as of the date of
his death.
2.4 Disability. In the event of the Disability of the Employee, as
defined herein, his employment shall automatically terminate as of the date of
such Disability. The term "Disability" shall mean the inability of the
Employee to perform material duties specified in Section 1.1 due to physical or
mental disablement, which inability continues for a period of one hundred
twenty (120) consecutive days, or two hundred (200) days in total within any
consecutive twelve month period, as determined by the Company. During such 120
consecutive day or 200 day period the Employee shall remain a salaried employee
of the Company, and shall continue to receive his full salary and all benefits
as herein provided, including those under the Option Agreement.
2.5 Termination by the Company Without Cause. The Company may
terminate the Employee at any time without cause.
2.6 Termintion by the Employee for Good Reason. The Employee may
terminate his employment hereunder for Good Reason before the expiration of
the Term, upon written notice to the Company setting forth in reasonable
detail the nature of such Good Reason. For the purposes of this Agreement,
"Good Reason" shall mean only one or more of the following:
(i) A material breach by the Company of its obligations under
this Agreement (other than those noted in clause (ii) of this
Section 2.6), the Investment Agreement or the Purchase Agreement
which breach continues for a period of thirty (30) days after
written notice thereof has been delivered to the Company,
specifying such breach in reasonable detail;
(ii) Non-payment by the Company of any its obliation to make
payments under this Agreement or under the 8% Non-Negotiable
Senior Subordinated Note due December 31, 1998 (the "Senior
Note") or the 8% Non-Negotiable Subordinated Contingent Note (the
"Contingent Note" and together with the Senior Note, the
"Notes"), which non-payment continues for a period of fifteen
(15) days after payment was due, but not
- 5 -
<PAGE> 6
including any non-payment by the Company of its obligations
under such Notes upon proper exercise of any rights of set-off
under the Purchase Agreement or pursuant to the terms of that
certain Intercreditor Agreement (as defined in the Purchase
Agreement); or
(iii) The Board of Directors shall request that the Employee
take any action which, in the written opinion of independent
counsel reasonably acceptable to the Company, is in violation of
any federal or state statute or regulation, and after receiving
such written opinion, the Board of Directors persists in such
request; or
(iv) The Company shall require that the Employee render
services on a principal basis at a facility of the Company which
is more than thirty miles distant from the Company's current
principal office; or
(v) The Company shall require the Employee to perform
pathological procedures related to abortion fetal tissue
research.
2.7 Termination by the Employee Without Good Reason. The Employee
may, upon 120 days prior notice to the Company, terminate this Agreement at any
time without Good Reason.
2.8 Rights of the Employee Upon Termination. Upon the termination of
this Agreement, the Employee shall have the following rights:
(a) In the event of termination for any reason, the Employee
shall be entitled to: (i) salary and other benefits provided herein (other
than participation in the Plan, except as provided herein) through the date of
such termination, (ii) reimbursement for reimbursable expenses incurred prior
to the date of termination, (iii) payment under any insurance policy or
benefit program maintained for the Employee's benefit prior to the date of
such termination, and (iv) indemnification and coverage under director and
officer liability insurance, such as is provided, with respect to his
employment prior to the date of such termination.
(b) In addition to the benefits specified in subparagraph (a),
in the event the Company terminates this Agreement without cause under Section
2.5, or the Employee terminates with Good Reason under Section 2.6, the Company
shall pay to the Employee a lump sum of $150,000 and (except as specified in
this Section 2.8) the parties shall have no further obligations hereunder.
- 6 -
<PAGE> 7
(c) In addition to the benefits specified in subparagraphs (a)
and (b), in the event the Company terminates this Agreement without cause under
Section 2.5 or the Employee terminates this Agreement for Good Reason under
Section 2.6, (i) the outstanding principal amount of the Senior Note shall
accelerate as provided in the Purchase Agreement, (ii) the Employee shall
receive a pro rata portion of any bonus earned under the Plan or any
replacement thereof, based on the portion of the year during which he was
employed by the Company, and (iii) the resepctive covenants applicable to the
Employee and set forth under Section 4.1 of this Agreement shall lapse,
terminate and be of no further force or effect.
(d) Execept as otherwise provided in subparagraphs (a), (b)
and (c), in the event of termination of the Employee's employment hereunder for
any reason, neither he nor his legal representative, estate or heirs shall be
entitled to receive any further compensation or benefits hereunder, and the
Employee agrees that he shall have no other right or cause of action against
the Company on account of compensation or benefits which the Employee would
have received had he remained employed for the entire Term.
3. Confidentiality.
3.1 Acknowledgement. The Employee agrees and acknowledges that in the
course of rendering services to the Company and its clients he will have access
to and will become acquainted with confidential information about the
professional, business and financial affairs of the Company or any of its
direct or indirect subsidiaries and its clients and may have contributed to or
may in the future contribute to such information. The Employee further
recognizes that he is being employed as a key employee, that the Company is
engaged in a highly competitive business, and that the success of the Company
in the marketplace depends upon its good will and reputation for quality and
dependability. The Employee recognizes that in order to guard the legitimate
interests of the Company it is necessary for the Company to protect all such
confidential information, good will and reputation.
3.2 Proprietary Information. In the course of his service to the
Company, the Employee may have access to confidential know-how, business
documents or information, marketing data, client lists and trade secrets which
are confidential. Such information shall hereinafter be called "Proprietary
Information" and shall include any and all items enumerated in the preceding
sentence which come within the scope of the business activities of the Company
as to which the Employee has had or may have access, whether previously
existing, now
- 7 -
<PAGE> 8
existing or arising hereafter, whether or not conceived or developed by others
or by the Employee alone or with others during the period of his service to the
Company, and whether or not conceived or developed during regular working
hours. "Proprietary Information" shall not include (a) any information which
is in the public domain during the period of service by the Employee or becomes
public thereafter, provided such information is not in the public domain as a
consequence of disclosure by the Employee in violation of this Agreement and
(b) any information not considered confidential information by similar
enterprises operating in the clinical laboratory industry or otherwise in the
ordinary course.
3.3 Fiduciary Obligations. The Employee agrees and acknowledges that
Proprietary Information is of critical importance to the Company and a
violation of this Section 3 may seriously and irreparably impair and damage the
Company's businesses. The Employee therefore agrees, while he is an employee
of the Company and at all times thereafter, to keep all Proprietary Information
confidential for the sole benefit of the Company.
3.4 Non-Disclosure. The Employee shall not disclose, directly or
indirectly (except as required by law), any Proprietary Information to any
person other than (a) the Company, (b) authorized employees thereof at the time
of such disclosure, (c) such other persons, including prospective investors or
lenders, to whom the Employee has been instructed to make disclosure by the
Board, or (d) the Employee's counsel so long as such counsel agrees to keep
all Proprietary Information confidential (in the case of clauses (b) and (c)
only to the extent required in the course of the Employee's service to the
Company). At the termination of employment hereunder, the Employee shall
deliver to the Company all notes, letters, documents and records which may
contain Proprietary Information which are then in his possession or control and
shall not retain or use any copies or summaries thereof.
4. Non-Competition and Non-Solicitation.
4.1 Non-Competition Covenant. The Employee covenants and agrees that
during the Restricted Covenant Period (as that term is defined below), the
Employee shall not, whether for his own account or for any other person or
organization other than the Company, (a) manage, operate, control, assist
(directly or indirectly), or participate in the management, operation or
control of, (b) serve as a Director, officer, partner, employee or consultant
of, or own more than five percent of the outstanding voting securities of, or
(c) lease property to, any enterprise which, within the Restricted Area (as
that term is
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<PAGE> 9
defined below), carries on the businesses of: (1) providing pathological
services, or any other business in which the Company is engaged during the
Term. The Employee further agrees that, during the Restrictive Covenant
Period, he shall not knowingly call upon, solicit, divert, attempt to solicit
or divert, or conduct or carry on any business with any of the former clients,
current clients or potential clients of the Company known to the Employee
(including for this purpose only those former clients who were clients during
the last twelve (12) months of his employment with the Company), without in
each case obtaining the prior written consent of the Company. Nothing herein
shall be deemed to prohibit the Employee from maintaining an ownership interest
in, or rendering services to, the Professional Association so long as it
complies in all material respects with the terms of the Pathology Services
Agreement and the Option Agreement.
4.2 Non-Solicitation of Employees. The Employee further agrees that
during the Restricted Covenant Period he will not knowingly, directly or
indirectly, (a) solicit the employment of any employee, agent or consultant of
the Company who was such at any time during the last twelve months of the
Employee's employment with the Company, or (b) induce any employee of the
Company to leave the employ of the Company, unless in each case the Employee
obtains the prior written consent of the Company.
4.3 Definitions. For the purposes of this Section 4, the term
"Restricted Covenant Period" shall mean the period commencing on the date
hereof and terminating on the date eighteen months after the Employee's
employment with the Company ends; provided, however, that in the event the
Employee's employment is terminated pursuant to Section 2.5 or 2.6, or the term
of the Employee's employment hereunder is not extended after December 31, 1998
on terms as favorable to the Employee in all significant respects as those
contained in this Agreement, then the Restrictive Covenant Period shall mean
the period commencing on the date hereof and ending on the date the Employee's
employment with the Company terminates. For the further purposes of this
Section 4, the term "Restricted Area" shall mean the United States.
4.4 No Conflicting Agreement. The Employee represents and warrants to
the Company that he is not bound by the provisions of any agreement with a
current or former employer which would prohibit or significantly limit the
Employee's ability to render services to the Company as herein provided. The
Employee further represents to the Company that in the course of rendering
services hereunder he will not divulge to the Company any proprietary
information of any other party to whom
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<PAGE> 10
the Employee owes an obligation of non-disclosure. Nothing herein shall be
deemed to prohibit the Employee from maintaining an ownership interest in, or
rendering services to, the Professional Association so long as it complies in
all material respects with the terms of the Pathology Services Agreement and
the Option Agreement.
5. Remedy for Breach.
Each party recognizes that any breach of the provisions of this
Agreement is likely to result in irreparable injury to the other and agrees
that the other party shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either in law or
in equity, to obtain damages for any breach of this Agreement; to enforce the
specific performance of this Agreement by the first party; and to enjoin the
first party from activities in violation of this Agreement or seek other
appropriate equitable relief.
6. Miscellaneous.
6.1 Entire Agreement; Modification. This Agreement contains the
entire understanding of the Company and the Employee with respect to the
subject matter contained herein and may be altered, amended or superseded only
by an agreement in writing, signed by both parties or the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought. No action or course of conduct shall constitute a waiver of any of the
terms and conditions of this Agreement, unless such waiver is agreed to in
writing, and then only to the extent so specified. A waiver of any of the
terms and conditions of this Agreement on one occasion shall not constitute a
waiver of the other terms and conditions of this Agreement, or of such terms
and conditions on any other occasion.
6.2 Successors and Assigns. This Agreement shall be binding upon the
Employee, and inure to the benefit of his administrators, executors, heirs and
assigns, although the obligations of the Employee are personal and may be
performed only by him. This Agreement shall also be binding upon and inure to
the benefit of the Company and its subsidiaries, successors and assigns,
including any corporation with which or into which the Company or its
successors may be merged or which may succeed to its assets or business.
6.3 Captions. Captions in this Agreement are for convenience of
reference and do not define or limit any term in this Agreement.
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<PAGE> 11
6.4 Severability. The Employee and the Company hereby expressly agree
that the provisions of this Agreement are severable and, in the event that any
court of competent jurisdiction shall determine that any provision or covenant
herein contained is invalid in whole or in part, such court shall have the
authority to modify such provision to the extent necessary to make it
enforceable, and such provision, as amended, and the remaining provisions shall
remain in full force and effect.
6.5 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be considered to have the force and effect of
an original.
6.6 Notices. Any notice permitted or required hereunder shall be hand
delivered or sent by first class mail, postage prepaid, to the Employee at the
address set forth above or to the Company at the following address: 6061
Northeast 14th Avenue, Fort Lauderdale, Florida 33334, Attention: Chairman, or
in either case to such other address as either party shall have given the other
notice. Notice shall be deemed to have been received when had delivered or
three (3) days after having been mailed.
6.7 Governing Law. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the
internal laws of the State of Florida.
* * * * * *
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf and the Employee has hereunder set his hand and seal, all
as of the date first above written.
AMERICAN LABORATORY ASSOCIATES,
INC.
By: /s/ Thomas S. Roberts
------------------------------------
Name: Thomas S. Roberts
Title: Chairman
EMPLOYEE:
/s/ Michael J. Demaray, M.D.
---------------------------------------
Michael J. Demaray, M.D.
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<PAGE> 13
SCHEDULE A
Additional Benefits
1. The Company shall provide to the Employee 4 weeks paid vacation on an
annual basis. The Employer may not accrue unused vacation time, and no
payment will be made in lieu of vacation.
2. The Company shall provide to the Employee worker's compensation, life
insurance, medical reimbursement, long-term disability, medical and
dental coverage as are generally made available to its employees.
3. The Company shall provide that the Employee be eligible to participate
in any 401(k) plan established by the Company.
4. The Company will reimburse all reasonable expenses actually incurred
or paid by Employee in connection with medical licensing and
credentialing necessary for the Employee to maintain his professional
licenses, upon presentation of expense statements, vouchers or other
supporting information in form satisfactory to the Company. In addition,
the Company will reimburse for all reasonable expenses incurred or paid by
Employee in connection with the Employee's active participation in medical
societies and in connection with continuing professional educational
programs necessary to maintain his professional licenses, upon
presentation of expense statements, vouchers or other supporting
information in form satisfactory to the Company.
5. The Company will pay annual premiums on medical malpractice insurance
for the coverage presently held by the Employee ($2,000,000/$4,000,000)
including tail coverage.
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<PAGE> 1
Exhibit 10.5
AMERIPATH FLORIDA, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") entered into as of June 30,
1996, by and between AMERIPATH FLORIDA, INC., a Florida corporation (the
"Company") and a wholly-owned subsidiary of AmeriPath, Inc., a Delaware
corporation ("AmeriPath"), and Alan Levin, M.D. (the "Employee").
Prior to the date hereof, the Employee served as an employee of and
rendered professional services, as a Doctor of Medicine specializing in
Pathology, to Derrick and Associates Pathology, P.A., a Florida professional
service corporation organized under Chapter 621 of the Florida Statutes
("Derrick & Associates"). Pursuant to a certain Stock Purchase Agreement (the
"Purchase Agreement") dated as of May 23, 1996 by and among AmeriPath, Derrick &
Associates, the Employee and other shareholders of Derrick & Associates, all of
the issued and outstanding capital stock of Derrick & Associates has been
purchased by and sold to AmeriPath (the "Acquisition"), effective the date
hereof. Execution and delivery of this Agreement by the Employee is a condition
precedent to consummation of the Acquisition.
Accordingly, and in connection with the transactions and agreements
referred to above, the Employee has agreed to terminate his existing employment
with Derrick & Associates and to enter into this employment agreement with, and
become employed by and render professional services as a Doctor of Medicine
specializing in Pathology to, the Company, and the Company has agreed to engage
the Employee to render such services on the Company's behalf, in each case on
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises and
the mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Employee and the Company, intending to be legally bound,
hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to render professional services as
a Doctor of Medicine specializing in Pathology, and the Employee accepts such
employment. The Employee has voluntarily terminated his employment with
Derrick & Associates.
<PAGE> 2
2. TERM. The Company employs the Employee for a period commencing the
date hereof and ending on June 30, 2001, subject to termination prior to such
date pursuant to Section 16 hereof. At the end of such five (5) year period,
this Agreement will automatically continue in effect for an additional one (1)
year term unless either the Employee or the Company gives written notice to the
other party at least one hundred twenty (120) days prior to June 30, 2001 of
such party's determination to terminate the Employee's employment hereunder. If
such notice is given, then the Employee's employment will terminate on June 30,
2001 (or on such other date as the parties mutually agree). If such notice is
not given, then the Employee's employment will continue hereunder until June 30,
2002, subject to termination prior to such date pursuant to Section 16 hereof.
3. DUTIES AND PERFORMANCE. The Employee agrees to devote the
Employee's best efforts and full professional time to providing services in the
practice of medicine on the Company's behalf, and the Employee shall maintain
the Company's standards and professional ethics and those of the medical
profession. In addition to rendering professional services as the Company's
employee, the Employee is also expected as part of the Employee's duties as the
Company's employee to engage in marketing activities designed to promote the
Company's practice. The Employee is not to practice medicine other than with
the Company during the term of this Agreement (and thereafter, pursuant to
Section 20 hereof), nor is the Employee to engage in any other gainful
occupation without the Company's prior written consent. The preceding sentence
is not intended to prohibit the Employee from engaging in the practice of
medicine in the course of the Employee's duties as a member of the U.S.
Military, either active or reserve, or the National Guard. The Employee may
also engage in personal investment activities as long as those investments are
non-participatory by the Employee and do not detract from the Employee's
ability to perform the Employee's duties to the Company or participate in
community activities. Additional duties of the Employee are set forth below in
this Agreement.
4. QUALIFICATIONS AND LICENSURE. The Employee shall at all times
during the term of this Agreement: (i) be certified by the American Board of
Pathology in both clinical and anatomic pathology; (ii) maintain an unlimited
and unrestricted license to practice medicine in the State of Florida; (iii)
maintain appropriate medical staff membership and privileges at all medical
facilities where necessary as determined by the Company; (iv) comply with the
Florida Board of Medicine and the Company's continuing medical education ("CME")
requirements; (v) carry out the Employee's responsibilities on a professional,
ethical and diligent basis in order to serve the best interests of the Company's
patients, customers and clients; and (vi) comply with such other requirements
applicable to all of the Company's physician employees as the Board of Directors
of the Company may hereinafter impose.
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<PAGE> 3
5. MEDICAL FACILITIES; LOCATION. At present, the Company furnishes
pathology and laboratory services to the medical facilities listed on Annex A to
this Agreement. That list may change from time to time as the Company enters
into contracts with additional hospitals and/or facilities or as existing
contracts with medical facilities terminate. The Employee agrees to accept
assignment for duty in any location in Florida at which the Company renders
pathology services during the term of this Agreement and to perform such duties
as the Company may direct.
6. CONFORMITY WITH LAWS, RULES, REGULATIONS AND POLICIES. In
performing the Employee's duties under this Agreement, the Employee shall
comply with all applicable laws, rules and regulations, ordinances and
standards of any governmental, quasi-governmental or private authority having
either mandatory or voluntary jurisdiction over the Company, the Employee, or
any medical facility for which the Company provides services, and with the
written bylaws, rules and regulations, policies and procedures of any medical
facility for which the Company provides services.
7. SALARY; FRINGE BENEFITS. During the term of Employee's
employment under this Agreement, in consideration for all services rendered
for and on behalf of the Company, Employee shall be entitled to receive a
salary at the annual rate of $255,000, payable in accordance with the Company's
regular payroll practices in effect from time to time. The Employee's salary
will be subject to periodic review by the Company's Board of Directors, and the
Company may, in its sole and absolute discretion, but shall not be required to,
determine to increase the Employee's salary from time to time. In addition to
the Employee's salary, the Employee will also be entitled to fringe benefits
comparable to those which the Company provides to other physician employees
having tenure, experience, specialties, responsibilities, educational
background and other qualifications similar to those of the Employee.
8. REIMBURSEMENT OF EXPENSES. Upon submission of proper
documentation, the Company will reimburse the Employee's Reasonable Expenses
(as such term is defined below) incurred in connection with the Employee's
employment by the Company, subject to compliance with reimbursement policies
from time to time adopted by the Company. For purposes of this Section 8,
"Reasonable Expenses" shall mean and include the following types of expenses
which are actually paid or incurred by the Employee:
(i) the following expenses, provided that the aggregate
of all such expenses shall not exceed $6,000 in any calendar year:
a. license fees, membership dues in professional
organizations, and subscriptions to professional and business journals
and books.
b. necessary travel, room, board, registration fees
and other expenses incurred in attending professional or business
seminars, post graduate educational courses, meetings or conventions,
but only if the Employee's attendance
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<PAGE> 4
is for the purpose of improving the Employee's professional or
business ability or education, maintaining the Employee's professional
or business competence and proficiency, or at the request of the
Company or otherwise benefiting the Company.
c. entertainment and public relations expenses if
ordinary and necessary and in furtherance of the Company's business.
(ii) additional expenses incurred by Employee, so long as
such expenses are ordinary and reasonable expenses in the course of and
pursuant to the performance of his duties hereunder and in furtherance of the
best interests of the Company; provided, however, that any such additional
expenses which exceed $500.00 shall be submitted to and approved in advance by
the Medical Director (as such term is defined in Section 15 hereof).
9. REIMBURSEMENT BY EMPLOYEE OF DISALLOWED COMPENSATION OR EXPENSES.
If, as a result of an audit of the Company's corporate income tax returns, the
Internal Revenue Service disallows as a deduction any compensation paid by the
Company to the Employee, or any expenses or reimbursements paid by the Company
to the Employee or on the Employee's behalf, the Employee will repay to the
Company the amount so disallowed after such disallowance is final and
nonappealable. The Employee's obligation to make such repayments shall continue
even if the Employee is no longer employed by the Company or this Agreement has
been terminated.
10. MALPRACTICE INSURANCE.
a. While The Employee is Employed By The Company. The Company
may, if the Company chooses, maintain policies of professional liability
insurance on the Employee and the Company's other employees in such amounts and
on such terms as the Company may determine. Should the Company decide to
purchase such insurance, the Employee will comply with any requirements or
standards imposed on the Employee or the Company by the terms of the insurance,
and the Employee will furnish such information as the insurer or the Company
shall require. Nothing in this Agreement shall require the Company to furnish
malpractice insurance, either at all or in any amount, on the Employee.
b. Tail Coverage.
(1) If the Employee's employment terminates for any
reason other than death or economic necessity (e.g., if the
Company loses a Contract at a facility and can no longer
support one or more physician employees working there), then,
except as hereinafter provided, the Company shall have the
option, but not the obligation, of purchasing malpractice
insurance "tail" coverage, for the period of the applicable
statute of limitations, to provide coverage for the Employee's
professional acts prior to the date of termination. If the
Company acquires this "tail" coverage, its cost shall be
payable by the Employee or the Employee's estate, as
applicable. If the Employee or the
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<PAGE> 5
Employee's estate fails to provide and pay for such tail
coverage, then the Company shall have the right to obtain such
tail coverage and deduct its cost from payments otherwise
payable to the Employee or the Employee's estate under this
Agreement.
(2) If the Employee's employment is terminated by
reason of the Employee's death, or if the Company terminates
the Employee's employment because of economic necessity, the
cost of such "tail" coverage, if obtained, shall be paid by
the Company without offset. Notwithstanding the foregoing, if,
after termination of employment, the Employee continues in the
practice of medicine and maintains malpractice insurance that
includes coverage for the Employee's acts prior to termination
of employment, then the Employee shall cause the Company to be
a named insured as to those prior acts.
11. FEES; PAYMENTS. The Company has, and hereby reserves, the sole
and exclusive authority to determine the fees (or a procedure for establishing
the fees) to be charged to the Company's patients, customers and clients. All
fees for professional services rendered by the Employee during the term of
this Agreement shall be the Company's sole and exclusive property (subject to
the contract rights of certain third parties). If, for any reason, any checks
or other payments for such services are made payable to the Employee, the
Employee will endorse and deliver those checks or payments to the Company.
The Employee also hereby authorizes the Company to endorse and negotiate on
the Employee's behalf any such checks or payments. In addition, the Employee
agrees, upon the Company's request, to account to the Company for any such
fees which may have been received by the Employee.
12. ACCEPTANCE OF PATIENTS. The Company shall have the sole and
exclusive authority to determine who will be accepted as patients of the
Company's practice and to designate, or establish a procedure for designating,
which professional employee of the Company will handle each such patient.
13. PROFESSIONAL POLICIES AND PROCEDURES. The Company shall at all
times have the exclusive authority to establish professional policies and
procedures to be followed by the Employee in rendering professional services on
the Company's behalf, and the Employee agrees to follow those policies and
procedures established by the Company from time to time.
14. MEDICAL RECORDS AS COMPANY PROPERTY. All medical records,
charts, case histories, x-rays, specimens, tissue samples and lab reports and
analyses of or concerning patients of the Company ("Medical Records") received
by the Employee shall be and remain the Company's property.
15. PAID VACATION AND TIME OFF; SICK LEAVE. (a) The Employee shall be
entitled to a total of six (6) weeks of paid leave time per year (pro rated for
any period of
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<PAGE> 6
employment of less than an entire year), said leave time to include vacation
time, other time off and such time as may be taken by the Employee to satisfy
the Employee's applicable CME requirements. All leave time must be coordinated
with and approved by the medical director for the Company's Orlando Division
(as such term is defined in Section 30c below) from time to time appointed by
the Board of Directors of the Company (the "Medical Director") to ensure
adequate coverage of the Company's patients, customers and clients. All paid
leave time must be taken during the year in which it is earned and available,
and thus will not be carried forward or usable in any subsequent year. No cash
payments will be made by the Company in respect of any earned but unused paid
leave time.
(b) In addition to the paid time off indicated in Section
15(a), Employee shall be entitled to (i) up to five (5) days off per calendar
year, with pay, due to the illness or incapacity of Employee, and (ii) such
additional number of days off per calendar year, with pay, due to the illness or
incapacity of Employee, as shall be approved by the Medical Director.
16. TERMINATION OF AGREEMENT.
a. Termination for Cause. The Company may, in its sole
and absolute discretion, terminate the employment of Employee hereunder, at any
time prior to the expiration of Employee's employment term(s) hereunder,
immediately upon written notice to the Employee, or at such later time as the
Company may specify in such notice, if such termination is for "cause". As
used in this Agreement, the term "cause" includes, but is not limited to, the
following:
(1) If in the reasonable judgment of the
Company's Board of Directors, the Employee becomes unfit to
properly practice pathology on the Company's behalf;
(2) If the Employee's right to practice
medicine in any state is suspended, restricted, revoked,
lapsed (other than a lapse due to the Employee's voluntary
failure to maintain such license after becoming a nonresident
of that state), or is otherwise placed under probation or
otherwise formally acted against;
(3) If the Employee willfully damages the
Company's property, business, reputation or goodwill;
(4) If the Employee is convicted of a crime
other than a minor traffic violation;
(5) If the Employee is continually inattentive
to, or neglectful of, the duties to be performed by the
Employee, which inattention or neglect is not the result of
illness or injury;
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<PAGE> 7
(6) If the Employee uses any mood altering or
controlled substances except as prescribed by a physician, or
if the Employee uses alcohol habitually or to excess;
(7) If the Employee willfully injures any
independent contractor, employee, or agent of the Company;
(8) If the Employee willfully injures any
person in the course of the performance of services for or
on behalf of the Company;
(9) If the Employee discloses to a competitor
or other unauthorized person confidential, proprietary or
secret information of or regarding the Company;
(10) If the Employee is charged with gross
misconduct of either a professional or personal nature;
(11) If the Employee's medical staff privileges
or membership in any medical facility are suspended,
restricted, revoked (other than a revocation occurring solely
because the Employee has voluntarily ceased to perform
medical services at such hospital with the Company's
consent), placed under probation or proctoring or otherwise
adversely acted against;
(12) If a guardian or conservator for the
Employee is appointed by a court of competent jurisdiction;
(13) If the Employee solicits business on behalf
of a competitor or potential competitor;
(14) If the Employee sexually harasses any
employee or contractor of the Company or commits any act which
otherwise creates an offensive work environment for employees
or contractors of the Company;
(15) If the Employee accepts other employment
that places restrictions or limitations on the Employee's
ability to continue rendering professional services under this
Agreement;
(16) If the Company's Board of Directors
determines that the Company is in jeopardy of losing a
contract with a medical facility for which the Employee is
rendering pathology services because the administration of
such medical facility is dissatisfied with the Employee's
performance; or
(17) If the Employee fails to comply with any of
the material terms or conditions of this Agreement, any
agreement between the Company and
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<PAGE> 8
a medical facility for which the Company provides services,
or the written bylaws, rules, regulations, policies or
procedures of a medical facility for which the Company
provides services.
The Company shall not be limited to termination as a remedy
for any injurious, improper or illegal act by the Employee, but may also seek
damages, injunction, or such other remedy as the Company may deem appropriate
under the circumstances. If the Employee's employment is terminated for cause,
the Employee agrees to vacate the Company's offices on or before the effective
date of the termination and to return and deliver to the Company at such time
all Company property.
b. Termination by Employee. Provided that the Company does
not have "cause" to terminate the Employee pursuant to Subsection "a" above, the
Employee may voluntarily terminate the Employee's employment with the Company
hereunder at any time and for any reason, by giving written notice of such
determination not less than 120 days prior to the date such termination is to
be effective. Alternatively, and notwithstanding the preceding sentence, the
Company may accept the Employee's termination immediately upon written notice
to the Employee, or at such later time as the Company may specify in such
notice, provided that the Company shall be required to pay the Employee
severance pay, at the Employee's annual salary rate, for a period of 120 days
from the date of termination.
c. Termination by Company without Cause. The Company may,
in its sole and absolute discretion in accordance with the procedure described
under Subsection "d" below, terminate the employment of Employee hereunder, at
any time prior to the expiration of Employee's employment term(s) hereunder,
without "cause" (as such term is defined in Subsection "a" above), or otherwise
without any cause, reason or justification, provided that the Company provides
to Employee at least one hundred twenty (120) days' prior written notice (the
"Termination Notice") of such termination. In the event of any such termination
by the Company, (i) Employee's employment with the Company shall cease and
terminate on the date specified in the Termination Notice (or, if no date is
so specified, on the date which is 120 days following the date of such notice),
and (ii) Employee shall be entitled to receive and be paid solely Employee's
salary then in effect, through the date which is 120 days following the
termination date, payable over such 120-day period at the Company's regular and
customary intervals for the payment of salaries as then in effect, and the
Company shall have no further obligation or liability to Employee hereunder.
d. Procedure for Termination by Company without Cause.
(i) Except in the case of a termination without
cause of the Employee under the circumstances identified in clause (ii)
below of this Subsection "d", any termination of the Employee's employment
hereunder pursuant to Subsection "c" above shall first be considered,
recommended and approved by a committee (the "Employment Committee") consisting
of (a) two physician employees working out of the Company's Orlando Division,
who initially, and for so long as they are employed by the Company, shall be
Alan Levin, M.D. and Timothy M. Kilpatrick, M.D., and thereafter shall be
appointed
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<PAGE> 9
and designated by a majority of the physician employee's then working
out of the Company's Orlando Division, one of whom shall be the Medical
Director (but neither of whom may be the Employee), and (b) one physician, who
is an employee of the Company or of any Affiliate of the Company, which
physician shall be appointed and designated by the Board of Directors of
AmeriPath.
(ii) If, at any time, either of the following two
events or circumstance shall occur:
(1) the Operating Earnings (as such term
is defined under Subsection "c" of Section 30 hereof) for the 12 full
calendar month period preceding the date in question (i.e., the date
the termination of employment is considered), are equal to or less
than $3,500,000; or
(2) the termination, for any cause,
reason or justification whatsoever, or lapsing of any contract the
Company has with a hospital or medical facility which contract
produced annual revenue of $500,000 or more (a) prior to the date
hereof, to Derrick & Associates, and (b) after the date which is one
year from the date hereof, to the Company.
then, in either such event, the Company may, in its sole and absolute
discretion, terminate the employment of Employee hereunder pursuant to
Subsection "c" above, without "cause" (as such term is defined in Subsection "a"
above), or otherwise without any cause, reason or justification, which
termination (i) may first be considered by the Committee for a period not to
exceed thirty (30) days from the first written notice on the issue to the
Medical Director from the Board of Directors of AmeriPath, and (ii) is subject
to authorization and approval only by the Board of Directors of AmeriPath, in
their sole and absolute discretion.
17. THE EMPLOYEE'S DUTIES UPON EXPIRATION OR TERMINATION. If
this Agreement expires or is otherwise terminated for any reason:
a. Unless the Employee and the Company otherwise agree
in writing, the Employee will immediately resign from all (i) director,
officer, fiduciary and/or trustee positions held with the Company, and (ii)
staff and similar privileges at any medical facility for which the Company has
rendered medical services at any time during the two-year period prior to the
expiration or termination of this Agreement.
b. The Employee will immediately return to the Company
all books and records of the Company in the Employee's possession, including,
but not limited to, books and records relating to pathology services rendered
by the Employee under this Agreement, Medical Records, meeting minutes, board
summaries and financial reports or data.
18. DISABILITY. The Company's Board of Directors may from time to
time, but shall not be required to, establish, modify or terminate a disability
policy or policies to apply
- 9 -
<PAGE> 10
to its physician employees. If the Company establishes any disability policy
during the term of this Agreement, the Employee agrees to comply with and be
bound by such policy.
19. LIMITATIONS ON AUTHORITY. Unless the Company has given the
Employee its express written consent, the Employee has no actual, apparent, or
implied authority to:
a. Pledge the credit or assets of the Company (or any
Affiliate of the Company) or any of the Company's other employees.
b. Bind the Company (or any Affiliate of the Company)
under any contract, agreement, note, mortgage or other instrument.
c. Release or discharge any debt due the Company (or
any Affiliate of the Company).
d. Sell, mortgage, transfer or otherwise dispose of any
of the Company's assets (or any assets of any Affiliate of the Company).
20. NON-COMPETITION AND NON-SOLICITATION AGREEMENT.
(a) The Employee acknowledges that during the course of the
Employee's employment the Employee has and will receive confidential and
proprietary information from and concerning the Company. The Employee also
acknowledges that the Company has made and/or will make substantial investments
in the development of the Company's good will and in the Employee's professional
development. The capital expended to develop this good will directly benefits
the Employee and should continue to do so in the event that the relationship
between the Company and the Employee is terminated. Likewise, other capital
investments made and to be made by the Company to assist in the Employee's
professional development (including but not limited to those items listed below)
have conferred and will confer a direct economic benefit on the Employee. During
the course of the Employee's tenure with the Company, the Employee will have
received the following economic benefits as a result of capital expenditures by
the Company:
a. Placement in an ongoing practice of pathology
with an established revenue base.
b. The opportunity to establish a professional
relationship among clients served by the Company.
c. Marketing support enabling the Employee to
expand the Employee's own pathology practice and to become known by additional
clients.
d. The provision of contract management to enable
the Employee to obtain provider status in managed care plans.
- 10 -
<PAGE> 11
e. The opportunity to develop special areas of
expertise leading to requests for consultations on specific areas of pathology
practice.
f. The establishment of methodologies, practice
parameters and quality assurance programs to enhance the practice of pathology.
g. The development and implementation of
information systems and reporting formats, unique to the practice of pathology,
to make the provision of pathology services more efficient, and to maximize the
time available to the Employee for the performance of pathology (as opposed to
attending to administrative functions).
h. Financial support and practice coverage to
facilitate participation in continuing education opportunities.
i. Financial support and practice coverage enabling
the Employee to pursue additional board certifications.
j. Financial support and practice coverage to
participate in professional development and professional associations.
k. Participation in proprietary strategic planning
sessions which focus on professional and business aspects of the practice of
pathology and growth opportunities.
The Employee agrees that the Company is entitled to protect these business
interests and investments and to prevent the Employee from using or taking
advantage of the foregoing economic benefits to the Company's detriment.
(b) Accordingly, the Employee specifically agrees that,
during the Employee's employment with the Company and during the Restricted
Period (as defined in Subsection "c" below), the Employee shall not:
(i) engage in the practice of pathology within the
Counties of Palm Beach, Orange, Seminole, Osceola, Lake, Volusia,
Pinellas, Marion, St. Lucie or Polk in the State of Florida, or in any
other County in any State in which the Company, or any Affiliate of the
Company, is then doing business or providing services (the "Restricted
Territory"); or
(ii) from any facility or location, whether within or
without the Restricted Territory, (x) perform pathology services for
any patient, laboratory or health care provider located in the
Restricted Territory or (y) perform pathology services for any patient,
laboratory or health care provider who is or was (within six months of
the date in question) a customer, client or patient of the Company, or
any Affiliate of the Company; except that it shall not be a violation
of this Agreement
- 11 -
<PAGE> 12
for the Employee to perform pathology services in the Restricted
Territory during the Restricted Period (a) as an employee of a local,
federal or state government or agency; (b) in performing the
Employee's duties as a member of the United States military services or
the National Guard; or (c) on a locum tenens basis;
provided, however, that, for purposes of this Section 20(b), the term
"Affiliate" shall not mean or include any Acquiring Person Affiliate (as such
term is defined in Section 30(c)).
(c) As used in this Agreement, the term "RESTRICTED PERIOD"
shall mean and include a period of two (2) years from the effective date of the
Employee's termination of employment with the Company (regardless of the cause,
reason or justification of any such termination); provided, however, that
(i) in the event of a termination of Employee's employment
by the Company hereunder without "cause" pursuant to Sections 16c and
16d hereof, the Employment Committee (as such term is defined in
Section 16d(i) hereof), in its sole and absolute discretion, may, in
connection with its termination deliberation, reduce the Restricted
Period to not less than a period of one (1) year from the effective
date of the Employee's termination of employment with the Company
(and, in the event that the Committee so reduces the Restricted
Period, the Company shall provide the Employee with notice of such
reduced Restricted Period); or
(ii) in the event of a termination of Employee's employment
hereunder without "cause" pursuant to Sections 16c and 16d hereof, if
the Company fails to make payment of the amount(s) required to be paid
under Section 16c hereof, and such failure shall continue uncured for a
period of more than thirty (30) days following notice from the
Employee, then the Restricted Period shall be a period of zero (0)
days; or
(iii) in the event AmeriPath fails to pay the amount of
principal or interest which becomes and is due and payable under the
Contingent Note held by the Employee, and such failure shall continue
uncured for a period of more than thirty (30) days, in the case of a
principal payment, or more than forty (40) days, in the case of an
interest payment, then the Restricted Period shall be a period of zero
(0) days.
(d) The Employee further agrees that during the Restricted
Period the Employee will not knowingly, directly or indirectly, (a) solicit the
employment of any employee, agent or consultant of the Company who was such at
any time during the twelve (12) months preceding the Employee's termination of
employment with the Company, or (b) induce any employee of the Company to leave
the employ of the Company, unless in each case the Employee obtains the prior
written consent of the Company.
- 12 -
<PAGE> 13
(e) The Employee and the Company understand that no amount of
money would adequately compensate the Company for damages which the Employee and
the Company acknowledge will be suffered by the Company as a result of the
Employee's violation of this Section 20. In recognition of the substantial
nature of such potential damages, the Employee agrees that the Company shall be
entitled to specific performance of this provision, and to injunctive and other
equitable relief, and that the Employee will be responsible for the payment of
court costs and reasonable attorneys' fees incurred by the Company in enforcing
the covenant set forth herein, if such a violation occurs. This Section 20 shall
survive the termination of this Agreement and the termination of the Employee's
employment with the Company. The Employee acknowledges that the enforcement of
this covenant is not contrary to the public health, safety, or welfare in that
the population in the areas set forth herein is adequately served by qualified
pathologists. Further, the Employee acknowledges that the Employee's breach of
this covenant would cause irreparable injury to the Company.
21. CONFIDENTIALITY.
a. Acknowledgement. The Employee acknowledges and agrees that
in the course of rendering services to the Company and its clients, the Employee
will have access to and will become acquainted with confidential and proprietary
information about the professional, business and financial affairs of the
Company, its Affiliates and its patients, clients and customers, and that the
Employee may have contributed to or may in the future contribute to such
information. The Employee further recognizes that the Employee is being employed
as a key employee, that the Company is engaged in a highly competitive business,
and that the success of the Company in the marketplace and business depends upon
its good will and reputation for integrity, quality and dependability. The
Employee recognizes that in order to guard the legitimate interests of the
Company it is necessary for the Company to protect all such confidential and
proprietary information, good will and reputation.
b. Proprietary Information. In the course of the Employee's
service to the Company, the Employee may have access to confidential know-how,
business documents or information, marketing data, client lists and trade
secrets which are confidential. Such information shall hereinafter be called
"Proprietary Information" and shall include any and all items enumerated in the
preceding sentence which come within the scope of the business activities of the
Company as to which the Employee has had or may have access, whether previously
existing, now existing or arising hereafter, whether or not conceived or
developed by others or by the Employee alone or with others during the period of
his or her service to the Company, and whether or not conceived or developed
during regular working hours. "Proprietary Information" shall not include (a)
any information which is in the public domain during the period of service by
the Employee or becomes public thereafter, provided such information is not in
the public domain as a consequence of disclosure by the Employee in violation of
this Agreement, and (b) any information not considered confidential information
- 13 -
<PAGE> 14
by similar enterprises operating in the clinical or anatomical laboratory
industry or otherwise in the ordinary course.
c. Fiduciary Obligations. The Employee agrees and
acknowledges that the Proprietary Information is of critical importance to the
Company and a violation of this Section 21 may seriously and irreparably
impair and damage the Company's businesses. The Employee therefore agrees,
while he is an employee of the Company and at all times thereafter, to keep all
Proprietary Information strictly confidential for the sole benefit of the
Company.
d. Non-Disclosure. The Employee shall not disclose,
directly or indirectly (except as required by law), any Proprietary Information
to any person other than (a) the Company, (b) persons who are authorized
employees of the Company at the time of such disclosure, (c) such other
persons, including prospective investors or lenders, to whom the Employee has
been instructed to make disclosure by the Company's Board of Directors, or (d)
the Employee's counsel, so long as such counsel agrees to keep all Proprietary
Information confidential (in the case of clauses (b) and (c), only to the
extent required in the course of the Employee's service to the Company). Upon
any termination of Employee's employment hereunder, the Employee shall deliver
to the Company all notes, letters, documents, tapes, discs, recorded data and
records which may contain Proprietary Information which are then in the
Employee's possession or control and shall not retain or use any copies,
summaries or extracts thereof.
22. INVALID PROVISION. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of Section 20 or 21 is
declared to be void, invalid or unenforceable in any way whatsoever, the Company
shall have the right immediately to terminate this Agreement and shall have no
further duties or obligations whatsoever under this Agreement. In this regard,
the Employee and the Company have specifically agreed and acknowledged that the
provisions of Sections 20 and 21 are extremely material and of the essence to
this Agreement. In addition, if the scope of any restriction or covenant
contained herein should be or become too broad or extensive to permit
enforcement thereof to its fullest extent, then such restriction or covenant
shall be enforced to the maximum extent permitted by law, and the Employee
hereby consents and agrees that (a) it is the parties intention and agreement
that the covenants and restrictions contained herein be enforced as written, and
(b) in the event a court of competent jurisdiction should determine that any
restriction or covenant contained herein is too broad or extensive to permit
enforcement thereof to its fullest extent, the scope of any such restriction or
covenant may be modified accordingly in any judicial proceeding brought to
enforce such restriction or covenant, but should be modified to permit
enforcement of the restrictions and covenants contained herein to the maximum
extent the court, in its judgment, will permit.
23. APPLICABLE LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Florida.
- 14 -
<PAGE> 15
24. BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding on the Employee and the Company and the Employee's and
the Company's respective heirs, personal representatives, successors and
assigns; provided, however, that the Employee shall have no right to assign the
Employee's rights or duties under this contract to any other person. In the
event of the Company's sale, merger or consolidation, the Employee specifically
agrees that the Company may assign its rights and obligations hereunder to the
Company's successor, assign or purchaser (so long as such successor, assign or
purchaser assumes the obligations of the Company hereunder). In addition, and in
any event, the Company may, at any time, assign its rights and obligations under
this Agreement to any Person that is an Affiliate of the Company or of AmeriPath
or to any other Person which, after any such assignment, employs at least two-
thirds of the physician employees employed by the Orlando Division of the
Company immediately prior to the assignment.
25. NOTICES. Any required notice under this Agreement shall be
made and delivered in writing. Delivery of such notice shall be made (x) if to
the Company, to AmeriPath Florida, Inc., 6061 N.E. 14th Avenue, Fort
Lauderdale, FL 33334, Attention: President, and (y) if to the Employee, to the
last known address of Employee as listed in the Company's employment records.
Delivery of such notice shall be deemed to have occurred (i) in the case of
hand delivery, when personally delivered to the other party at such party's
address; or (ii) in the case of mailing, three (3) days after such notice has
been deposited in the United States mails, postage prepaid, by certified or
registered mail, with return receipt requested, and addressed to the other
party as set forth in this Agreement; or (iii) in any other case, when actually
received by the other party. Either party may change the address to which
notices are to be given by giving written notice of such change to the other
party in accordance with this Section 25.
26. ATTORNEYS' FEES AND COSTS. In any action, suit or proceeding
to enforce the terms and conditions of this Agreement, the prevailing party
shall receive all costs and attorney's fees incurred in enforcing its rights
under this Agreement.
27. AMENDMENT. This Agreement may not be modified or amended in
any manner other than in a written document signed by both parties.
28. LEGISLATIVE LIMITATIONS. Notwithstanding any other provision of
this Agreement, if the governmental agencies (or their representatives) which
administer Medicare or Medicaid, or any other third party payor, or any other
federal, state or local government or agency passes, issues or promulgates any
law, rule, regulation, standard or interpretation at any time while this
Agreement is in effect which prohibits, restricts, limits or in any way
adversely changes the method or amount of reimbursement, compensation or payment
for services rendered by the Company (or its physician employees) under this
Agreement, or which otherwise adversely affects either the Employee's or the
Company's rights or obligations hereunder, then (i) the parties hereto shall,
promptly upon notice from either party, negotiate in good faith to amend this
Agreement to provide for such reimbursement, compensation or payment for
services in a manner consistent with any
- 15 -
<PAGE> 16
prohibition, restriction, limitation and/or which takes into account any
adverse change in reimbursement, compensation or payment for physician
services, and (ii) in the event the parties are unable to reach agreement
within ten (10) days after said notice is given, the Company shall have the
option of either (x) assigning this Agreement (and the Company's rights and
obligations hereunder) to an Affiliate (if such assignment cures or
substantially alleviates such prohibition, restriction, limitation or adverse
change) or (y) terminating this Agreement, and the rights and obligations of
each of the parties hereunder, as of midnight on such tenth (10th) day.
29. PROVISIONS OF GENERAL APPLICATION.
a. Board of Directors. Where a provision contained in this
Agreement requires the action, adoption, review or approval of, or provides for
certain power, authority or judgment of, the Board of Directors of the Company
or of AmeriPath, such action, adoption, review, approval, power, authority or
judgment may be exercised, taken or made by a committee of the Board of
Directors appointed by the Board of Directors to consider and take action with
respect to the physician employees of the Company, such as the Employee, who
work at or out of the Company's Orlando Division.
b. The "Company"; Affiliates. Where a provision contained in
this Agreement requires or permits the action, adoption, review or approval of,
or provides for certain power, authority or judgment of, the Company, such
action, adoption, review, approval, power, authority or judgment may be
exercised, taken or made by an Affiliate of the Company, or by AmeriPath or its
Affiliates, if such Affiliate of the Company, or AmeriPath or its Affiliates, is
required or permitted to exercise, take or make such action, adoption, review,
approval, power, authority or judgment through or by virtue of a Contract to
which the Company is a party.
30. MISCELLANEOUS.
a. Exclusive Agreement. The terms of the Employee's
employment with the Company are exclusively governed by the terms of this
Agreement. Any and all prior agreements, arrangements, promises,
representations, discussions or understandings which either of the parties may
have had concerning the Employee's employment are hereby canceled, superseded
and of no further force or effect.
b. Confidentiality. The Company and the Employee
acknowledge and agree that this Agreement and each of the provisions hereof
shall be treated as confidential and, except to the extent required by
applicable law or regulations, or as deemed reasonably necessary by the Company
to facilitate due diligence in connection with acquisitions or financings,
neither the Employee nor the Company shall disclose the terms of the Agreement,
or provide copies hereof, to any third party without the prior written consent
of the other party.
- 16 -
<PAGE> 17
c. Definitions.
(1) "Acquiring Person Affiliate" shall mean and
include (a) any Person who becomes an Affiliate of the Company
after the date hereof through the acquisition of all of the
assets or stock of AmeriPath, and/or (b) any Person who
becomes an Affiliate of the Company after the date hereof
through a merger with or into AmeriPath in which such Person
(and not AmeriPath) survives; provided, however, that the term
"Acquiring Person Affiliate" shall not mean or include any
Person who was an Affiliate of the Company or AmeriPath
immediately prior to the consummation of either of the
transactions described under clauses (a) or (b) of this
Subsection (c)(1).
(2) "Affiliate" shall mean and include, with regard
to any Person, (a) any Person, directly or indirectly,
controlled by, under common control of, or controlling such
Person, (b) any Person, directly or indirectly, in which such
Person holds, of record or beneficially, five percent or more
of the equity or voting securities, (c) any Person that holds,
of record or beneficially, five percent or more of the equity
or voting securities of such Person, (d) any Person that,
through Contract, relationship or otherwise, exerts a
substantial influence on the management of such Person's
affairs, (e) any Person that, through Contract, relationship
or otherwise, is influenced substantially in the management of
their affairs by such Person, or (f) any director, officer,
partner or individual holding a similar position in respect
of such Person. Any partnership, managing partner, and any
and all professional service corporation(s) party to a
partnership agreement to which the Company or an Affliate of
the Company is a party, shall be deemed to be "Affiliates"
of the Company for purposes of this Agreement.
(3) "Contingent Note" means and includes the 7%
Non-Negotiable Subordinated Contingent Note issued by
AmeriPath, as borrower, to the Employee, as the holder,
pursuant to the Purchase Agreement and in connection with the
Acquisition.
(4) "Contract" means and includes any agreement,
contract, commitment, instrument or other binding arrangement,
obligation or understanding, whether written or oral.
(5) "Operating Earnings" means with respect to any
year, shall mean the income of or attributable to the Derrick
& Associates Business (as defined below) for such full (i.e.,
January 1 through December 31) year, before deduction for (in
each case, with respect to the Derrick & Associates Business)
(i) interest paid in such year, (ii) income tax payable for
such year, (iii) charges for amortization of goodwill,
including without limitation any amortization of goodwill
recorded in connection with this transaction or
- 17 -
<PAGE> 18
amortization of any payments made under the Contingent
Notes, (iv) any extraordinary items, as such term is used in
accordance with generally accepted accounting principles,
with respect to Derrick & Associates or the Derrick &
Associates Business, and (v) any fees or expenses incurred by
Derrick & Associates in connection with the transactions
contemplated by this Agreement. All such calculations shall
be determined in accordance with generally accepted
accounting principles, as consistently applied by AmeriPath.
For purposes hereof, the term "Derrick & Associates Business"
shall mean and include the business, operations, contracts,
assets and liabilities of Derrick & Associates (as such is
constituted immediately prior to the Acquisition), which
Derrick & Associates Business following the Acquisition shall
consist of the business, operations, contracts, assets and
liabilities of, and the results of operations, revenues and
expenses associated with, (i) the contracts with hospitals
and out-patient facilities in effect from time to time, to
which Derrick & Associates, prior to the Acquisition, and the
Orlando Division (as such term is defined below), following
the Acquisition, is a party, and which are serviced by the
physicians who from time to time are employed by the Company
and who report to the medical director for the Company's
Orlando Division (collectively, such physicians being
referred to herein as the "Orlando-Based Pathologists"), and
(ii) the Company's employment of, and employment agreements
with, any and all Orlando-Based Pathologists.
(6) "Orlando Division" means and includes the
business and operations of the Company which, prior to
consummation of the Acquisition, constituted the business and
operations of Derrick and Associates Pathology, P.A.
(7) "Person" means and includes any corporation,
partnership, joint venture, company, syndicate, organization,
association, trust, entity, authority or natural person.
(8) "Restricted Period" shall have the meaning
set forth in Section 20(c) hereof.
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<PAGE> 19
AMERIPATH FLORIDA, INC.
By: /s/ Robert P. Wynn
-------------------------------
Name: Robert P. Wynn
----------------------------
Title: Chief Operating Officer
---------------------------
Date: June 30, 1996
EMPLOYEE:
/s/ Alan Levin
----------------------------------
Name: Alan Levin, M.D.
-----------------------------
Date:
----------------------
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<PAGE> 20
ATTACHMENT A
LIST OF MEDICAL FACILITIES SERVED BY
AMERIPATH FLORIDA, INC.
Columbia Largo Medical Center
Columbia Medical Center Daytona
Columbia Medical Center Port St. Lucie
Columbia Ocala Regional Medical Center
Columbia Park Medical Center
Florida Hospital Kissimmee
Health Central
Heart of Florida
Osceola Regional Hospital
Princeton Hospital
South Lake Memorial Hospital
Winter Park Memorial Hospital
North Ridge Medical Center
Pompano Beach Medical Center
Northwest Medical Center
A-1
<PAGE> 1
EXHIBIT 10.6
AmeriPath, Inc.
September 30, 1996
Alan Levin, M.D.
21 Island Road
Stuart, FL 34996
Dear Dr. Levin:
We are pleased to confirm our offer for you to join AmeriPath, Inc.
(the "Company") as its Chief Operating Officer. Your new duties commence October
1, 1996. You will be working out of the Company's Corporate Headquarters in
Riviera Beach, Florida, handling the day-to-day operations of the Company, as
directed by management, and reporting directly to the Company's Chief Executive
Officer, James C. New (and, as needed from time to time, to the Board of
Directors). You are also responsible for appointing your successor at AmeriPath
Florida, Inc.'s Orlando Division (f/k/a Derrick and Associates Pathology).
Your aggregate annual compensation will remain at $255,000 ($9,807.69
bi-weekly). $155,000 of your annual salary will be paid by the Company. The
remaining $100,000 will be paid by the Orlando Division pursuant to an amended
employment agreement (a form of amendment is included herewith). Effective the
year beginning January 1, 1997, you will be eligible to receive a bonus of up to
$25,000 per annum, subject to the achievement of mutually agreeable performance
objectives to be determined prior to January 1, 1997. You shall also receive one
year of salary continuation following a termination, other than for cause, by
the Company.
In consideration of your services as the Company's Chief Operating
Officer, you will also be entitled to options to purchase AmeriPath Common Stock
as follows: (1) 10,000 stock options will be granted during October 1996 at the
then fair market value of the AmeriPath Common Stock, as determined by an
appropriate evaluation of the Company's Common Stock as of September 30, 1996,
or such later date as is appropriate to value the Common Stock, and (2) 20,000
stock options will be granted at the effective date of the Company's initial
public offering, which options shall be priced at the price at which the Common
Stock is offered to the public in such offering. The options, granted pursuant
to the Company's 1996 Stock Option Plan, as amended, and a standard form of
non-qualified option agreement, vest evenly over five years from the date of
grant.
If the above terms of your engagement with the Company are acceptable
to you, please sign below signifying your acceptance of this agreement, execute
the attached amendment to your employment agreement (adjusting your salary
payable by the Orlando Division therein) and return signed originals of the same
to me.
<PAGE> 2
Alan Levin, M.D.
September 30, 1996
Page 2
Thank you very much. We at AmeriPath, Inc. look forward to working
with you.
Sincerely,
James C. New
Agreed and Accepted on
this September 30, 1996.
- ------------------------------
ALAN LEVIN, M.D.
<PAGE> 3
Exhibit 10.6
AMERIPATH FLORIDA, INC.
FIRST AMENDMENT TO THE
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT to the Employment Agreement (the "Amendment")
entered into as of September 30, 1996, by and between AMERIPATH FLORIDA, INC.,
a Florida corporation (the "Company") and a wholly-owned subsidiary of
AmeriPath, Inc., a Delaware corporation ("AmeriPath"), and ALAN LEVIN, M.D. (the
"Employee").
R E C I T A L S
A. The Company and the Employee entered into an Employment
Agreement, dated as of June 30, 1996, a copy of which is attached hereto as
Exhibit "A" (the "Employment Agreement").
B. Section 27 of the Employment Agreement provides that the
Employment Agreement may be amended by a written instrument executed by the
Company and the Employee.
C. The Company and the Employee desire to amend the terms of
the Employment Agreement in the manner set forth in this Amendment.
A G R E E M E N T
In consideration of the foregoing premises and the mutual promises
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged hereby, the parties hereto, intending to be
bound legally, hereby agree as follows:
1. The recitals set forth above are true and correct in all
respects and are incorporated herein and made a part hereof.
2. All capitalized terms used in this Amendment without
definition shall have the meanings assigned thereto in the Employment Agreement.
3. Section 7 of the Employment Agreement is hereby amended by
deleting the clause "Employee shall be entitled to receive a salary at the
annual rate of $255,000" appearing in the first sentence of such section, and
replacing such deleted clause with the following clause:
Employee shall be entitled to receive a salary at the annual rate of
$100,000.
<PAGE> 4
4. All other terms and conditions of the Employment Agreement
shall remain unchanged.
IN WITNESS WHEREOF, the undersigned have each executed this Amendment as
of the date first above-written.
AMERIPATH FLORIDA, INC.
By: /s/ Robert P. Wynn
----------------------------
Robert P. Wynn
Chief Operating Officer
EMPLOYEE:
/s/ Alan Levin
-------------------------------
ALAN LEVIN, M.D.
<PAGE> 5
EXHIBIT "A"
EMPLOYMENT AGREEMENT
A-1
- 1 -
<PAGE> 1
Exhibit 10.7
AMERIPATH FLORIDA, INC.
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") entered into as of June 30,
1996, by and between AMERIPATH FLORIDA, INC., a Florida corporation (the
"Company") and a wholly-owned subsidiary of AmeriPath, Inc., a Delaware
corporation ("AmeriPath"), and Timothy M. Kilpatrick, M.D. (the "Employee").
Prior to the date hereof, the Employee served as an employee of and
rendered professional services, as a Doctor of Medicine specializing in
Pathology, to Derrick and Associates Pathology, P.A., a Florida professional
service corporation organized under Chapter 621 of the Florida Statutes
("Derrick & Associates"). Pursuant to a certain Stock Purchase Agreement (the
"Purchase Agreement") dated as of May 23, 1996 by and among AmeriPath, Derrick &
Associates, the Employee and other shareholders of Derrick & Associates, all of
the issued and outstanding capital stock of Derrick & Associates has been
purchased by and sold to AmeriPath (the "Acquisition"), effective the date
hereof. Execution and delivery of this Agreement by the Employee is a condition
precedent to consummation of the Acquisition.
Accordingly, and in connection with the transactions and agreements
referred to above, the Employee has agreed to terminate his existing employment
with Derrick & Associates and to enter into this employment agreement with, and
become employed by and render professional services as a Doctor of Medicine
specializing in Pathology to, the Company, and the Company has agreed to engage
the Employee to render such services on the Company's behalf, in each case on
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises and
the mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Employee and the Company, intending to be legally bound,
hereby agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions of this
Agreement, the Company employs the Employee to render professional services as
a Doctor of Medicine specializing in Pathology, and the Employee accepts such
employment. The Employee has voluntarily terminated his employment with
Derrick & Associates.
<PAGE> 2
2. TERM. The Company employs the Employee for a period commencing the
date hereof and ending on June 30, 2001, subject to termination prior to such
date pursuant to Section 16 hereof. At the end of such five (5) year period,
this Agreement will automatically continue in effect for an additional one (1)
year term unless either the Employee or the Company gives written notice to the
other party at least one hundred twenty (120) days prior to June 30, 2001 of
such party's determination to terminate the Employee's employment hereunder. If
such notice is given, then the Employee's employment will terminate on June 30,
2001 (or on such other date as the parties mutually agree). If such notice is
not given, then the Employee's employment will continue hereunder until June 30,
2002, subject to termination prior to such date pursuant to Section 16 hereof.
3. DUTIES AND PERFORMANCE. The Employee agrees to devote the
Employee's best efforts and full professional time to providing services in the
practice of medicine on the Company's behalf, and the Employee shall maintain
the Company's standards and professional ethics and those of the medical
profession. In addition to rendering professional services as the Company's
employee, the Employee is also expected as part of the Employee's duties as the
Company's employee to engage in marketing activities designed to promote the
Company's practice. The Employee is not to practice medicine other than with
the Company during the term of this Agreement (and thereafter, pursuant to
Section 20 hereof), nor is the Employee to engage in any other gainful
occupation without the Company's prior written consent. The preceding sentence
is not intended to prohibit the Employee from engaging in the practice of
medicine in the course of the Employee's duties as a member of the U.S.
Military, either active or reserve, or the National Guard. The Employee may
also engage in personal investment activities as long as those investments are
non-participatory by the Employee and do not detract from the Employee's
ability to perform the Employee's duties to the Company or participate in
community activities. Additional duties of the Employee are set forth below in
this Agreement.
4. QUALIFICATIONS AND LICENSURE. The Employee shall at all times
during the term of this Agreement: (i) be certified by the American Board of
Pathology in both clinical and anatomic pathology; (ii) maintain an unlimited
and unrestricted license to practice medicine in the State of Florida; (iii)
maintain appropriate medical staff membership and privileges at all medical
facilities where necessary as determined by the Company; (iv) comply with the
Florida Board of Medicine and the Company's continuing medical education ("CME")
requirements; (v) carry out the Employee's responsibilities on a professional,
ethical and diligent basis in order to serve the best interests of the Company's
patients, customers and clients; and (vi) comply with such other requirements
applicable to all of the Company's physician employees as the Board of Directors
of the Company may hereinafter impose.
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<PAGE> 3
5. MEDICAL FACILITIES; LOCATION. At present, the Company furnishes
pathology and laboratory services to the medical facilities listed on Annex A to
this Agreement. That list may change from time to time as the Company enters
into contracts with additional hospitals and/or facilities or as existing
contracts with medical facilities terminate. The Employee agrees to accept
assignment for duty in any location in Florida at which the Company renders
pathology services during the term of this Agreement and to perform such duties
as the Company may direct.
6. CONFORMITY WITH LAWS, RULES, REGULATIONS AND POLICIES. In
performing the Employee's duties under this Agreement, the Employee shall
comply with all applicable laws, rules and regulations, ordinances and
standards of any governmental, quasi-governmental or private authority having
either mandatory or voluntary jurisdiction over the Company, the Employee, or
any medical facility for which the Company provides services, and with the
written bylaws, rules and regulations, policies and procedures of any medical
facility for which the Company provides services.
7. SALARY; FRINGE BENEFITS. During the term of Employee's
employment under this Agreement, in consideration for all services rendered
for and on behalf of the Company, Employee shall be entitled to receive a
salary at the annual rate of $255,000, payable in accordance with the Company's
regular payroll practices in effect from time to time. The Employee's salary
will be subject to periodic review by the Company's Board of Directors, and the
Company may, in its sole and absolute discretion, but shall not be required to,
determine to increase the Employee's salary from time to time. In addition to
the Employee's salary, the Employee will also be entitled to fringe benefits
comparable to those which the Company provides to other physician employees
having tenure, experience, specialties, responsibilities, educational
background and other qualifications similar to those of the Employee.
8. REIMBURSEMENT OF EXPENSES. Upon submission of proper
documentation, the Company will reimburse the Employee's Reasonable Expenses
(as such term is defined below) incurred in connection with the Employee's
employment by the Company, subject to compliance with reimbursement policies
from time to time adopted by the Company. For purposes of this Section 8,
"Reasonable Expenses" shall mean and include the following types of expenses
which are actually paid or incurred by the Employee:
(i) the following expenses, provided that the aggregate
of all such expenses shall not exceed $6,000 in any calendar year:
a. license fees, membership dues in professional
organizations, and subscriptions to professional and business journals
and books.
b. necessary travel, room, board, registration fees
and other expenses incurred in attending professional or business
seminars, post graduate educational courses, meetings or conventions,
but only if the Employee's attendance
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<PAGE> 4
is for the purpose of improving the Employee's professional or
business ability or education, maintaining the Employee's professional
or business competence and proficiency, or at the request of the
Company or otherwise benefiting the Company.
c. entertainment and public relations expenses if
ordinary and necessary and in furtherance of the Company's business.
(ii) additional expenses incurred by Employee, so long as
such expenses are ordinary and reasonable expenses in the course of and
pursuant to the performance of his duties hereunder and in furtherance of the
best interests of the Company; provided, however, that any such additional
expenses which exceed $500.00 shall be submitted to and approved in advance by
the Medical Director (as such term is defined in Section 15 hereof).
9. REIMBURSEMENT BY EMPLOYEE OF DISALLOWED COMPENSATION OR EXPENSES.
If, as a result of an audit of the Company's corporate income tax returns, the
Internal Revenue Service disallows as a deduction any compensation paid by the
Company to the Employee, or any expenses or reimbursements paid by the Company
to the Employee or on the Employee's behalf, the Employee will repay to the
Company the amount so disallowed after such disallowance is final and
nonappealable. The Employee's obligation to make such repayments shall continue
even if the Employee is no longer employed by the Company or this Agreement has
been terminated.
10. MALPRACTICE INSURANCE.
a. While The Employee is Employed By The Company. The Company
may, if the Company chooses, maintain policies of professional liability
insurance on the Employee and the Company's other employees in such amounts and
on such terms as the Company may determine. Should the Company decide to
purchase such insurance, the Employee will comply with any requirements or
standards imposed on the Employee or the Company by the terms of the insurance,
and the Employee will furnish such information as the insurer or the Company
shall require. Nothing in this Agreement shall require the Company to furnish
malpractice insurance, either at all or in any amount, on the Employee.
b. Tail Coverage.
(1) If the Employee's employment terminates for any
reason other than death or economic necessity (e.g., if the
Company loses a Contract at a facility and can no longer
support one or more physician employees working there), then,
except as hereinafter provided, the Company shall have the
option, but not the obligation, of purchasing malpractice
insurance "tail" coverage, for the period of the applicable
statute of limitations, to provide coverage for the Employee's
professional acts prior to the date of termination. If the
Company acquires this "tail" coverage, its cost shall be
payable by the Employee or the Employee's estate, as
applicable. If the Employee or the
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<PAGE> 5
Employee's estate fails to provide and pay for such tail
coverage, then the Company shall have the right to obtain such
tail coverage and deduct its cost from payments otherwise
payable to the Employee or the Employee's estate under this
Agreement.
(2) If the Employee's employment is terminated by
reason of the Employee's death, or if the Company terminates
the Employee's employment because of economic necessity, the
cost of such "tail" coverage, if obtained, shall be paid by
the Company without offset. Notwithstanding the foregoing, if,
after termination of employment, the Employee continues in the
practice of medicine and maintains malpractice insurance that
includes coverage for the Employee's acts prior to termination
of employment, then the Employee shall cause the Company to be
a named insured as to those prior acts.
11. FEES; PAYMENTS. The Company has, and hereby reserves, the sole
and exclusive authority to determine the fees (or a procedure for establishing
the fees) to be charged to the Company's patients, customers and clients. All
fees for professional services rendered by the Employee during the term of
this Agreement shall be the Company's sole and exclusive property (subject to
the contract rights of certain third parties). If, for any reason, any checks
or other payments for such services are made payable to the Employee, the
Employee will endorse and deliver those checks or payments to the Company.
The Employee also hereby authorizes the Company to endorse and negotiate on
the Employee's behalf any such checks or payments. In addition, the Employee
agrees, upon the Company's request, to account to the Company for any such
fees which may have been received by the Employee.
12. ACCEPTANCE OF PATIENTS. The Company shall have the sole and
exclusive authority to determine who will be accepted as patients of the
Company's practice and to designate, or establish a procedure for designating,
which professional employee of the Company will handle each such patient.
13. PROFESSIONAL POLICIES AND PROCEDURES. The Company shall at all
times have the exclusive authority to establish professional policies and
procedures to be followed by the Employee in rendering professional services on
the Company's behalf, and the Employee agrees to follow those policies and
procedures established by the Company from time to time.
14. MEDICAL RECORDS AS COMPANY PROPERTY. All medical records,
charts, case histories, x-rays, specimens, tissue samples and lab reports and
analyses of or concerning patients of the Company ("Medical Records") received
by the Employee shall be and remain the Company's property.
15. PAID VACATION AND TIME OFF; SICK LEAVE. (a) The Employee shall be
entitled to a total of six (6) weeks of paid leave time per year (pro rated for
any period of
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<PAGE> 6
employment of less than an entire year), said leave time to include vacation
time, other time off and such time as may be taken by the Employee to satisfy
the Employee's applicable CME requirements. All leave time must be coordinated
with and approved by the medical director for the Company's Orlando Division
(as such term is defined in Section 30c below) from time to time appointed by
the Board of Directors of the Company (the "Medical Director") to ensure
adequate coverage of the Company's patients, customers and clients. All paid
leave time must be taken during the year in which it is earned and available,
and thus will not be carried forward or usable in any subsequent year. No cash
payments will be made by the Company in respect of any earned but unused paid
leave time.
(b) In addition to the paid time off indicated in Section
15(a), Employee shall be entitled to (i) up to five (5) days off per calendar
year, with pay, due to the illness or incapacity of Employee, and (ii) such
additional number of days off per calendar year, with pay, due to the illness or
incapacity of Employee, as shall be approved by the Medical Director.
16. TERMINATION OF AGREEMENT.
a. Termination for Cause. The Company may, in its sole
and absolute discretion, terminate the employment of Employee hereunder, at any
time prior to the expiration of Employee's employment term(s) hereunder,
immediately upon written notice to the Employee, or at such later time as the
Company may specify in such notice, if such termination is for "cause". As
used in this Agreement, the term "cause" includes, but is not limited to, the
following:
(1) If in the reasonable judgment of the
Company's Board of Directors, the Employee becomes unfit to
properly practice pathology on the Company's behalf;
(2) If the Employee's right to practice
medicine in any state is suspended, restricted, revoked,
lapsed (other than a lapse due to the Employee's voluntary
failure to maintain such license after becoming a nonresident
of that state), or is otherwise placed under probation or
otherwise formally acted against;
(3) If the Employee willfully damages the
Company's property, business, reputation or goodwill;
(4) If the Employee is convicted of a crime
other than a minor traffic violation;
(5) If the Employee is continually inattentive
to, or neglectful of, the duties to be performed by the
Employee, which inattention or neglect is not the result of
illness or injury;
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<PAGE> 7
(6) If the Employee uses any mood altering or
controlled substances except as prescribed by a physician, or
if the Employee uses alcohol habitually or to excess;
(7) If the Employee willfully injures any
independent contractor, employee, or agent of the Company;
(8) If the Employee willfully injures any
person in the course of the performance of services for or
on behalf of the Company;
(9) If the Employee discloses to a competitor
or other unauthorized person confidential, proprietary or
secret information of or regarding the Company;
(10) If the Employee is charged with gross
misconduct of either a professional or personal nature;
(11) If the Employee's medical staff privileges
or membership in any medical facility are suspended,
restricted, revoked (other than a revocation occurring solely
because the Employee has voluntarily ceased to perform
medical services at such hospital with the Company's
consent), placed under probation or proctoring or otherwise
adversely acted against;
(12) If a guardian or conservator for the
Employee is appointed by a court of competent jurisdiction;
(13) If the Employee solicits business on behalf
of a competitor or potential competitor;
(14) If the Employee sexually harasses any
employee or contractor of the Company or commits any act which
otherwise creates an offensive work environment for employees
or contractors of the Company;
(15) If the Employee accepts other employment
that places restrictions or limitations on the Employee's
ability to continue rendering professional services under this
Agreement;
(16) If the Company's Board of Directors
determines that the Company is in jeopardy of losing a
contract with a medical facility for which the Employee is
rendering pathology services because the administration of
such medical facility is dissatisfied with the Employee's
performance; or
(17) If the Employee fails to comply with any of
the material terms or conditions of this Agreement, any
agreement between the Company and
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<PAGE> 8
a medical facility for which the Company provides services,
or the written bylaws, rules, regulations, policies or
procedures of a medical facility for which the Company
provides services.
The Company shall not be limited to termination as a remedy
for any injurious, improper or illegal act by the Employee, but may also seek
damages, injunction, or such other remedy as the Company may deem appropriate
under the circumstances. If the Employee's employment is terminated for cause,
the Employee agrees to vacate the Company's offices on or before the effective
date of the termination and to return and deliver to the Company at such time
all Company property.
b. Termination by Employee. Provided that the Company does
not have "cause" to terminate the Employee pursuant to Subsection "a" above, the
Employee may voluntarily terminate the Employee's employment with the Company
hereunder at any time and for any reason, by giving written notice of such
determination not less than 120 days prior to the date such termination is to
be effective. Alternatively, and notwithstanding the preceding sentence, the
Company may accept the Employee's termination immediately upon written notice
to the Employee, or at such later time as the Company may specify in such
notice, provided that the Company shall be required to pay the Employee
severance pay, at the Employee's annual salary rate, for a period of 120 days
from the date of termination.
c. Termination by Company without Cause. The Company may,
in its sole and absolute discretion in accordance with the procedure described
under Subsection "d" below, terminate the employment of Employee hereunder, at
any time prior to the expiration of Employee's employment term(s) hereunder,
without "cause" (as such term is defined in Subsection "a" above), or otherwise
without any cause, reason or justification, provided that the Company provides
to Employee at least one hundred twenty (120) days' prior written notice (the
"Termination Notice") of such termination. In the event of any such termination
by the Company, (i) Employee's employment with the Company shall cease and
terminate on the date specified in the Termination Notice (or, if no date is
so specified, on the date which is 120 days following the date of such notice),
and (ii) Employee shall be entitled to receive and be paid solely Employee's
salary then in effect, through the date which is 120 days following the
termination date, payable over such 120-day period at the Company's regular and
customary intervals for the payment of salaries as then in effect, and the
Company shall have no further obligation or liability to Employee hereunder.
d. Procedure for Termination by Company without Cause.
(i) Except in the case of a termination without
cause of the Employee under the circumstances identified in clause (ii)
below of this Subsection "d", any termination of the Employee's employment
hereunder pursuant to Subsection "c" above shall first be considered,
recommended and approved by a committee (the "Employment Committee") consisting
of (a) two physician employees working out of the Company's Orlando Division,
who initially, and for so long as they are employed by the Company, shall be
Alan Levin, M.D. and Timothy M. Kilpatrick, M.D., and thereafter shall be
appointed
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<PAGE> 9
and designated by a majority of the physician employee's then working
out of the Company's Orlando Division, one of whom shall be the Medical
Director (but neither of whom may be the Employee), and (b) one physician, who
is an employee of the Company or of any Affiliate of the Company, which
physician shall be appointed and designated by the Board of Directors of
AmeriPath.
(ii) If, at any time, either of the following two
events or circumstance shall occur:
(1) the Operating Earnings (as such term
is defined under Subsection "c" of Section 30 hereof) for the 12 full
calendar month period preceding the date in question (i.e., the date
the termination of employment is considered), are equal to or less
than $3,500,000; or
(2) the termination, for any cause,
reason or justification whatsoever, or lapsing of any contract the
Company has with a hospital or medical facility which contract
produced annual revenue of $500,000 or more (a) prior to the date
hereof, to Derrick & Associates, and (b) after the date which is one
year from the date hereof, to the Company.
then, in either such event, the Company may, in its sole and absolute
discretion, terminate the employment of Employee hereunder pursuant to
Subsection "c" above, without "cause" (as such term is defined in Subsection "a"
above), or otherwise without any cause, reason or justification, which
termination (i) may first be considered by the Committee for a period not to
exceed thirty (30) days from the first written notice on the issue to the
Medical Director from the Board of Directors of AmeriPath, and (ii) is subject
to authorization and approval only by the Board of Directors of AmeriPath, in
their sole and absolute discretion.
17. THE EMPLOYEE'S DUTIES UPON EXPIRATION OR TERMINATION. If
this Agreement expires or is otherwise terminated for any reason:
a. Unless the Employee and the Company otherwise agree
in writing, the Employee will immediately resign from all (i) director,
officer, fiduciary and/or trustee positions held with the Company, and (ii)
staff and similar privileges at any medical facility for which the Company has
rendered medical services at any time during the two-year period prior to the
expiration or termination of this Agreement.
b. The Employee will immediately return to the Company
all books and records of the Company in the Employee's possession, including,
but not limited to, books and records relating to pathology services rendered
by the Employee under this Agreement, Medical Records, meeting minutes, board
summaries and financial reports or data.
18. DISABILITY. The Company's Board of Directors may from time to
time, but shall not be required to, establish, modify or terminate a disability
policy or policies to apply
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<PAGE> 10
to its physician employees. If the Company establishes any disability policy
during the term of this Agreement, the Employee agrees to comply with and be
bound by such policy.
19. LIMITATIONS ON AUTHORITY. Unless the Company has given the
Employee its express written consent, the Employee has no actual, apparent, or
implied authority to:
a. Pledge the credit or assets of the Company (or any
Affiliate of the Company) or any of the Company's other employees.
b. Bind the Company (or any Affiliate of the Company)
under any contract, agreement, note, mortgage or other instrument.
c. Release or discharge any debt due the Company (or
any Affiliate of the Company).
d. Sell, mortgage, transfer or otherwise dispose of any
of the Company's assets (or any assets of any Affiliate of the Company).
20. NON-COMPETITION AND NON-SOLICITATION AGREEMENT.
(a) The Employee acknowledges that during the course of the
Employee's employment the Employee has and will receive confidential and
proprietary information from and concerning the Company. The Employee also
acknowledges that the Company has made and/or will make substantial investments
in the development of the Company's good will and in the Employee's professional
development. The capital expended to develop this good will directly benefits
the Employee and should continue to do so in the event that the relationship
between the Company and the Employee is terminated. Likewise, other capital
investments made and to be made by the Company to assist in the Employee's
professional development (including but not limited to those items listed below)
have conferred and will confer a direct economic benefit on the Employee. During
the course of the Employee's tenure with the Company, the Employee will have
received the following economic benefits as a result of capital expenditures by
the Company:
a. Placement in an ongoing practice of pathology
with an established revenue base.
b. The opportunity to establish a professional
relationship among clients served by the Company.
c. Marketing support enabling the Employee to
expand the Employee's own pathology practice and to become known by additional
clients.
d. The provision of contract management to enable
the Employee to obtain provider status in managed care plans.
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<PAGE> 11
e. The opportunity to develop special areas of
expertise leading to requests for consultations on specific areas of pathology
practice.
f. The establishment of methodologies, practice
parameters and quality assurance programs to enhance the practice of pathology.
g. The development and implementation of
information systems and reporting formats, unique to the practice of pathology,
to make the provision of pathology services more efficient, and to maximize the
time available to the Employee for the performance of pathology (as opposed to
attending to administrative functions).
h. Financial support and practice coverage to
facilitate participation in continuing education opportunities.
i. Financial support and practice coverage enabling
the Employee to pursue additional board certifications.
j. Financial support and practice coverage to
participate in professional development and professional associations.
k. Participation in proprietary strategic planning
sessions which focus on professional and business aspects of the practice of
pathology and growth opportunities.
The Employee agrees that the Company is entitled to protect these business
interests and investments and to prevent the Employee from using or taking
advantage of the foregoing economic benefits to the Company's detriment.
(b) Accordingly, the Employee specifically agrees that,
during the Employee's employment with the Company and during the Restricted
Period (as defined in Subsection "c" below), the Employee shall not:
(i) engage in the practice of pathology within the
Counties of Palm Beach, Orange, Seminole, Osceola, Lake, Volusia,
Pinellas, Marion, St. Lucie or Polk in the State of Florida, or in any
other County in any State in which the Company, or any Affiliate of the
Company, is then doing business or providing services (the "Restricted
Territory"); or
(ii) from any facility or location, whether within or
without the Restricted Territory, (x) perform pathology services for
any patient, laboratory or health care provider located in the
Restricted Territory or (y) perform pathology services for any patient,
laboratory or health care provider who is or was (within six months of
the date in question) a customer, client or patient of the Company, or
any Affiliate of the Company; except that it shall not be a violation
of this Agreement
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<PAGE> 12
for the Employee to perform pathology services in the Restricted
Territory during the Restricted Period (a) as an employee of a local,
federal or state government or agency; (b) in performing the
Employee's duties as a member of the United States military services or
the National Guard; or (c) on a locum tenens basis;
provided, however, that, for purposes of this Section 20(b), the term
"Affiliate" shall not mean or include any Acquiring Person Affiliate (as such
term is defined in Section 30(c)).
(c) As used in this Agreement, the term "RESTRICTED PERIOD"
shall mean and include a period of two (2) years from the effective date of the
Employee's termination of employment with the Company (regardless of the cause,
reason or justification of any such termination); provided, however, that
(i) in the event of a termination of Employee's employment
by the Company hereunder without "cause" pursuant to Sections 16c and
16d hereof, the Employment Committee (as such term is defined in
Section 16d(i) hereof), in its sole and absolute discretion, may, in
connection with its termination deliberation, reduce the Restricted
Period to not less than a period of one (1) year from the effective
date of the Employee's termination of employment with the Company
(and, in the event that the Committee so reduces the Restricted
Period, the Company shall provide the Employee with notice of such
reduced Restricted Period); or
(ii) in the event of a termination of Employee's employment
hereunder without "cause" pursuant to Sections 16c and 16d hereof, if
the Company fails to make payment of the amount(s) required to be paid
under Section 16c hereof, and such failure shall continue uncured for a
period of more than thirty (30) days following notice from the
Employee, then the Restricted Period shall be a period of zero (0)
days; or
(iii) in the event AmeriPath fails to pay the amount of
principal or interest which becomes and is due and payable under the
Contingent Note held by the Employee, and such failure shall continue
uncured for a period of more than thirty (30) days, in the case of a
principal payment, or more than forty (40) days, in the case of an
interest payment, then the Restricted Period shall be a period of zero
(0) days.
(d) The Employee further agrees that during the Restricted
Period the Employee will not knowingly, directly or indirectly, (a) solicit the
employment of any employee, agent or consultant of the Company who was such at
any time during the twelve (12) months preceding the Employee's termination of
employment with the Company, or (b) induce any employee of the Company to leave
the employ of the Company, unless in each case the Employee obtains the prior
written consent of the Company.
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<PAGE> 13
(e) The Employee and the Company understand that no amount of
money would adequately compensate the Company for damages which the Employee and
the Company acknowledge will be suffered by the Company as a result of the
Employee's violation of this Section 20. In recognition of the substantial
nature of such potential damages, the Employee agrees that the Company shall be
entitled to specific performance of this provision, and to injunctive and other
equitable relief, and that the Employee will be responsible for the payment of
court costs and reasonable attorneys' fees incurred by the Company in enforcing
the covenant set forth herein, if such a violation occurs. This Section 20 shall
survive the termination of this Agreement and the termination of the Employee's
employment with the Company. The Employee acknowledges that the enforcement of
this covenant is not contrary to the public health, safety, or welfare in that
the population in the areas set forth herein is adequately served by qualified
pathologists. Further, the Employee acknowledges that the Employee's breach of
this covenant would cause irreparable injury to the Company.
21. CONFIDENTIALITY.
a. Acknowledgement. The Employee acknowledges and agrees that
in the course of rendering services to the Company and its clients, the Employee
will have access to and will become acquainted with confidential and proprietary
information about the professional, business and financial affairs of the
Company, its Affiliates and its patients, clients and customers, and that the
Employee may have contributed to or may in the future contribute to such
information. The Employee further recognizes that the Employee is being employed
as a key employee, that the Company is engaged in a highly competitive business,
and that the success of the Company in the marketplace and business depends upon
its good will and reputation for integrity, quality and dependability. The
Employee recognizes that in order to guard the legitimate interests of the
Company it is necessary for the Company to protect all such confidential and
proprietary information, good will and reputation.
b. Proprietary Information. In the course of the Employee's
service to the Company, the Employee may have access to confidential know-how,
business documents or information, marketing data, client lists and trade
secrets which are confidential. Such information shall hereinafter be called
"Proprietary Information" and shall include any and all items enumerated in the
preceding sentence which come within the scope of the business activities of the
Company as to which the Employee has had or may have access, whether previously
existing, now existing or arising hereafter, whether or not conceived or
developed by others or by the Employee alone or with others during the period of
his or her service to the Company, and whether or not conceived or developed
during regular working hours. "Proprietary Information" shall not include (a)
any information which is in the public domain during the period of service by
the Employee or becomes public thereafter, provided such information is not in
the public domain as a consequence of disclosure by the Employee in violation of
this Agreement, and (b) any information not considered confidential information
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<PAGE> 14
by similar enterprises operating in the clinical or anatomical laboratory
industry or otherwise in the ordinary course.
c. Fiduciary Obligations. The Employee agrees and
acknowledges that the Proprietary Information is of critical importance to the
Company and a violation of this Section 21 may seriously and irreparably
impair and damage the Company's businesses. The Employee therefore agrees,
while he is an employee of the Company and at all times thereafter, to keep all
Proprietary Information strictly confidential for the sole benefit of the
Company.
d. Non-Disclosure. The Employee shall not disclose,
directly or indirectly (except as required by law), any Proprietary Information
to any person other than (a) the Company, (b) persons who are authorized
employees of the Company at the time of such disclosure, (c) such other
persons, including prospective investors or lenders, to whom the Employee has
been instructed to make disclosure by the Company's Board of Directors, or (d)
the Employee's counsel, so long as such counsel agrees to keep all Proprietary
Information confidential (in the case of clauses (b) and (c), only to the
extent required in the course of the Employee's service to the Company). Upon
any termination of Employee's employment hereunder, the Employee shall deliver
to the Company all notes, letters, documents, tapes, discs, recorded data and
records which may contain Proprietary Information which are then in the
Employee's possession or control and shall not retain or use any copies,
summaries or extracts thereof.
22. INVALID PROVISION. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement. If any provision of Section 20 or 21 is
declared to be void, invalid or unenforceable in any way whatsoever, the Company
shall have the right immediately to terminate this Agreement and shall have no
further duties or obligations whatsoever under this Agreement. In this regard,
the Employee and the Company have specifically agreed and acknowledged that the
provisions of Sections 20 and 21 are extremely material and of the essence to
this Agreement. In addition, if the scope of any restriction or covenant
contained herein should be or become too broad or extensive to permit
enforcement thereof to its fullest extent, then such restriction or covenant
shall be enforced to the maximum extent permitted by law, and the Employee
hereby consents and agrees that (a) it is the parties intention and agreement
that the covenants and restrictions contained herein be enforced as written, and
(b) in the event a court of competent jurisdiction should determine that any
restriction or covenant contained herein is too broad or extensive to permit
enforcement thereof to its fullest extent, the scope of any such restriction or
covenant may be modified accordingly in any judicial proceeding brought to
enforce such restriction or covenant, but should be modified to permit
enforcement of the restrictions and covenants contained herein to the maximum
extent the court, in its judgment, will permit.
23. APPLICABLE LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Florida.
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<PAGE> 15
24. BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding on the Employee and the Company and the Employee's and
the Company's respective heirs, personal representatives, successors and
assigns; provided, however, that the Employee shall have no right to assign the
Employee's rights or duties under this contract to any other person. In the
event of the Company's sale, merger or consolidation, the Employee specifically
agrees that the Company may assign its rights and obligations hereunder to the
Company's successor, assign or purchaser (so long as such successor, assign or
purchaser assumes the obligations of the Company hereunder). In addition, and in
any event, the Company may, at any time, assign its rights and obligations under
this Agreement to any Person that is an Affiliate of the Company or of AmeriPath
or to any other Person which, after any such assignment, employs at least two-
thirds of the physician employees employed by the Orlando Division of the
Company immediately prior to the assignment.
25. NOTICES. Any required notice under this Agreement shall be
made and delivered in writing. Delivery of such notice shall be made (x) if to
the Company, to AmeriPath Florida, Inc., 6061 N.E. 14th Avenue, Fort
Lauderdale, FL 33334, Attention: President, and (y) if to the Employee, to the
last known address of Employee as listed in the Company's employment records.
Delivery of such notice shall be deemed to have occurred (i) in the case of
hand delivery, when personally delivered to the other party at such party's
address; or (ii) in the case of mailing, three (3) days after such notice has
been deposited in the United States mails, postage prepaid, by certified or
registered mail, with return receipt requested, and addressed to the other
party as set forth in this Agreement; or (iii) in any other case, when actually
received by the other party. Either party may change the address to which
notices are to be given by giving written notice of such change to the other
party in accordance with this Section 25.
26. ATTORNEYS' FEES AND COSTS. In any action, suit or proceeding
to enforce the terms and conditions of this Agreement, the prevailing party
shall receive all costs and attorney's fees incurred in enforcing its rights
under this Agreement.
27. AMENDMENT. This Agreement may not be modified or amended in
any manner other than in a written document signed by both parties.
28. LEGISLATIVE LIMITATIONS. Notwithstanding any other provision of
this Agreement, if the governmental agencies (or their representatives) which
administer Medicare or Medicaid, or any other third party payor, or any other
federal, state or local government or agency passes, issues or promulgates any
law, rule, regulation, standard or interpretation at any time while this
Agreement is in effect which prohibits, restricts, limits or in any way
adversely changes the method or amount of reimbursement, compensation or payment
for services rendered by the Company (or its physician employees) under this
Agreement, or which otherwise adversely affects either the Employee's or the
Company's rights or obligations hereunder, then (i) the parties hereto shall,
promptly upon notice from either party, negotiate in good faith to amend this
Agreement to provide for such reimbursement, compensation or payment for
services in a manner consistent with any
- 15 -
<PAGE> 16
prohibition, restriction, limitation and/or which takes into account any
adverse change in reimbursement, compensation or payment for physician
services, and (ii) in the event the parties are unable to reach agreement
within ten (10) days after said notice is given, the Company shall have the
option of either (x) assigning this Agreement (and the Company's rights and
obligations hereunder) to an Affiliate (if such assignment cures or
substantially alleviates such prohibition, restriction, limitation or adverse
change) or (y) terminating this Agreement, and the rights and obligations of
each of the parties hereunder, as of midnight on such tenth (10th) day.
29. PROVISIONS OF GENERAL APPLICATION.
a. Board of Directors. Where a provision contained in this
Agreement requires the action, adoption, review or approval of, or provides for
certain power, authority or judgment of, the Board of Directors of the Company
or of AmeriPath, such action, adoption, review, approval, power, authority or
judgment may be exercised, taken or made by a committee of the Board of
Directors appointed by the Board of Directors to consider and take action with
respect to the physician employees of the Company, such as the Employee, who
work at or out of the Company's Orlando Division.
b. The "Company"; Affiliates. Where a provision contained in
this Agreement requires or permits the action, adoption, review or approval of,
or provides for certain power, authority or judgment of, the Company, such
action, adoption, review, approval, power, authority or judgment may be
exercised, taken or made by an Affiliate of the Company, or by AmeriPath or its
Affiliates, if such Affiliate of the Company, or AmeriPath or its Affiliates, is
required or permitted to exercise, take or make such action, adoption, review,
approval, power, authority or judgment through or by virtue of a Contract to
which the Company is a party.
30. MISCELLANEOUS.
a. Exclusive Agreement. The terms of the Employee's
employment with the Company are exclusively governed by the terms of this
Agreement. Any and all prior agreements, arrangements, promises,
representations, discussions or understandings which either of the parties may
have had concerning the Employee's employment are hereby canceled, superseded
and of no further force or effect.
b. Confidentiality. The Company and the Employee
acknowledge and agree that this Agreement and each of the provisions hereof
shall be treated as confidential and, except to the extent required by
applicable law or regulations, or as deemed reasonably necessary by the Company
to facilitate due diligence in connection with acquisitions or financings,
neither the Employee nor the Company shall disclose the terms of the Agreement,
or provide copies hereof, to any third party without the prior written consent
of the other party.
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<PAGE> 17
c. Definitions.
(1) "Acquiring Person Affiliate" shall mean and
include (a) any Person who becomes an Affiliate of the Company
after the date hereof through the acquisition of all of the
assets or stock of AmeriPath, and/or (b) any Person who
becomes an Affiliate of the Company after the date hereof
through a merger with or into AmeriPath in which such Person
(and not AmeriPath) survives; provided, however, that the term
"Acquiring Person Affiliate" shall not mean or include any
Person who was an Affiliate of the Company or AmeriPath
immediately prior to the consummation of either of the
transactions described under clauses (a) or (b) of this
Subsection (c)(1).
(2) "Affiliate" shall mean and include, with regard
to any Person, (a) any Person, directly or indirectly,
controlled by, under common control of, or controlling such
Person, (b) any Person, directly or indirectly, in which such
Person holds, of record or beneficially, five percent or more
of the equity or voting securities, (c) any Person that holds,
of record or beneficially, five percent or more of the equity
or voting securities of such Person, (d) any Person that,
through Contract, relationship or otherwise, exerts a
substantial influence on the management of such Person's
affairs, (e) any Person that, through Contract, relationship
or otherwise, is influenced substantially in the management of
their affairs by such Person, or (f) any director, officer,
partner or individual holding a similar position in respect
of such Person. Any partnership, managing partner, and any
and all professional service corporation(s) party to a
partnership agreement to which the Company or an Affliate of
the Company is a party, shall be deemed to be "Affiliates"
of the Company for purposes of this Agreement.
(3) "Contingent Note" means and includes the 7%
Non-Negotiable Subordinated Contingent Note issued by
AmeriPath, as borrower, to the Employee, as the holder,
pursuant to the Purchase Agreement and in connection with the
Acquisition.
(4) "Contract" means and includes any agreement,
contract, commitment, instrument or other binding arrangement,
obligation or understanding, whether written or oral.
(5) "Operating Earnings" means with respect to any
year, shall mean the income of or attributable to the Derrick
& Associates Business (as defined below) for such full (i.e.,
January 1 through December 31) year, before deduction for (in
each case, with respect to the Derrick & Associates Business)
(i) interest paid in such year, (ii) income tax payable for
such year, (iii) charges for amortization of goodwill,
including without limitation any amortization of goodwill
recorded in connection with this transaction or
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<PAGE> 18
amortization of any payments made under the Contingent
Notes, (iv) any extraordinary items, as such term is used in
accordance with generally accepted accounting principles,
with respect to Derrick & Associates or the Derrick &
Associates Business, and (v) any fees or expenses incurred by
Derrick & Associates in connection with the transactions
contemplated by this Agreement. All such calculations shall
be determined in accordance with generally accepted
accounting principles, as consistently applied by AmeriPath.
For purposes hereof, the term "Derrick & Associates Business"
shall mean and include the business, operations, contracts,
assets and liabilities of Derrick & Associates (as such is
constituted immediately prior to the Acquisition), which
Derrick & Associates Business following the Acquisition shall
consist of the business, operations, contracts, assets and
liabilities of, and the results of operations, revenues and
expenses associated with, (i) the contracts with hospitals
and out-patient facilities in effect from time to time, to
which Derrick & Associates, prior to the Acquisition, and the
Orlando Division (as such term is defined below), following
the Acquisition, is a party, and which are serviced by the
physicians who from time to time are employed by the Company
and who report to the medical director for the Company's
Orlando Division (collectively, such physicians being
referred to herein as the "Orlando-Based Pathologists"), and
(ii) the Company's employment of, and employment agreements
with, any and all Orlando-Based Pathologists.
(6) "Orlando Division" means and includes the
business and operations of the Company which, prior to
consummation of the Acquisition, constituted the business and
operations of Derrick and Associates Pathology, P.A.
(7) "Person" means and includes any corporation,
partnership, joint venture, company, syndicate, organization,
association, trust, entity, authority or natural person.
(8) "Restricted Period" shall have the meaning
set forth in Section 20(c) hereof.
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<PAGE> 19
AMERIPATH FLORIDA, INC.
By: /s/ Robert P. Wynn
-------------------------------
Name: Robert P. Wynn
----------------------------
Title: Chief Operating Officer
---------------------------
Date: June 30, 1996
EMPLOYEE:
/s/ Timothy M. Kilpatrick
----------------------------------
Name: Timothy M. Kilpatrick, M.D.
-----------------------------
Date:
----------------------
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<PAGE> 20
ATTACHMENT A
LIST OF MEDICAL FACILITIES SERVED BY
AMERIPATH FLORIDA, INC.
Columbia Largo Medical Center
Columbia Medical Center Daytona
Columbia Medical Center Port St. Lucie
Columbia Ocala Regional Medical Center
Columbia Park Medical Center
Florida Hospital Kissimmee
Health Central
Heart of Florida
Osceola Regional Hospital
Princeton Hospital
South Lake Memorial Hospital
Winter Park Memorial Hospital
North Ridge Medical Center
Pompano Beach Medical Center
Northwest Medical Center
A-1
<PAGE> 1
EXHIBIT 10.8
================================================================================
AMERIPATH, INC.
CREDIT AGREEMENT
Dated as of May 29, 1996
THE FIRST NATIONAL BANK OF BOSTON, Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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1. Definitions; Certain Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. The Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1. Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.1. Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.2. Maximum Amount of Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.3. Borrowing Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.4. Loan Accounts; Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.2.1. Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.2.2. Requests for Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.2.3. Form and Expiration of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2.4. Lenders' Participation in Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2.5. Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.2.6. Payment of Drafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2.7. Uniform Customs and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.2.8. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2.9. Modification, Consent, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3.1. Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3.2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.3.3. Specifically Prohibited Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.4. Nature of Obligations of Lenders to Make Extensions of Credit . . . . . . . . . . . . . . . . . . . 26
3. Interest; Eurodollar Pricing Options; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2. Eurodollar Pricing Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.1. Election of Eurodollar Pricing Options . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.2. Notice to Lenders and the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.3. Selection of Eurodollar Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.4. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.5. Violation of Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2.6. Funding Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3. Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4. Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.5. Reserve Requirements, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.7. Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.8. Regulatory Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.9. Computations of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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4.1. Payment at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2. Contingent Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2.1. Excess Credit Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.2.2. Letter of Credit Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.3. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.5. Reborrowing; Application of Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5.1. Reborrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5.2. Order of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.5.3. Payments for Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5. Conditions to Extending Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.1. Conditions on Initial Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.1.1. Revolving Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.1.2. Perfection of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.1.3. Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1.4. Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1.5. Payment of Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1.6. Derrick Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1.7. Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2. Conditions to Making Each Permitted Acquisition Advance. . . . . . . . . . . . . . . . . . . . . . 36
5.2.1. Permitted Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2.2. Notes and Credit Documents; Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.2.3. Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.3. Conditions to Each Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3.1. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3.2. Legality, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3.3. Proper Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3.4. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6. General Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.1. Taxes and Other Charges; Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.1.1. Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.1.2. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2. Conduct of Business, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2.1. Types of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2.2. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2.3. Statutory Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2.4. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2.5. Compliance with Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.3.1. Business Interruption Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<TABLE>
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6.3.2. Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3.3. Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3.5. Flood Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.4. Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.4.1. Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.4.2. Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.4.3. Monthly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.4.4. Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.4.5. Notice of Litigation, Defaults, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4.6. ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.4.7. Other Information; Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5. Certain Financial Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5.1. Minimum Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5.2. Consolidated Senior Debt Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5.3. Consolidated Total Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.5.4. Consolidated Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.6. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.7. Guarantees; Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.8. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.9. Investments and Permitted Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.10. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.11. Asset Dispositions and Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.12. Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.13. Issuance of Stock by Subsidiaries; Subsidiary Distributions . . . . . . . . . . . . . . . . . . . . 52
6.13.1. Issuance of Stock by Subsidiaries of the Company . . . . . . . . . . . . . . . . . . . . . 52
6.13.2. No Restrictions on Subsidiary Distributions . . . . . . . . . . . . . . . . . . . . . . . 52
6.14. Voluntary Prepayments of Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.15. Derivative Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.16. Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.17. ERISA, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.18. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.19. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.19.1. Compliance with Law and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.19.2. Notice of Claims, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.20. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.1. Organization and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.1.1. The Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.1.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.2. Financial Statements and Other Information; Material Agreements . . . . . . . . . . . . . . . . . . 54
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7.2.1. Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . 54
7.2.2. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.3. Agreements Relating to Financing Debt, Investments, etc. . . . . . . . . . . . . . . . . . . . . . . 55
7.4. Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.5. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.6. Operations in Conformity With Law, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.7. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.8. Authorization and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.9. No Legal Obstacle to Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.10. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.11. Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.12. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.13. Certain Business Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.13.1. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.13.2. Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.13.3. Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.13.4. Burdensome Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.13.5. Future Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.14. Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.14.1. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.14.2. Environmental Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.14.3. Environmental Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 59
7.15. Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.16. Acquisition Agreement, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.17. Foreign Trade Regulations; Government Regulation; Margin Stock . . . . . . . . . . . . . . . . . . . 60
7.17.1. Foreign Trade Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.17.2. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.17.3. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.18. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1.1. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1.2. Specified Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1.3. Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1.4. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1.5. Cross Default, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.1.6. Ownership; Liquidation; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.1.7. Enforceability, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.1.8. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.1.9. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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8.1.10. Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.2. Certain Actions Following an Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.2.1. Terminate Obligation to Extend Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.2.2. Specific Performance; Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.2.3. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.2.4. Enforcement of Payment; Credit Security; Setoff . . . . . . . . . . . . . . . . . . . . . . 65
8.2.5. Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.3. Annulment of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.4. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
9. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.1. Guarantees of Credit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.2. Continuing Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
9.3. Waivers with Respect to Credit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
9.4. Lenders' Power to Waive, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
9.5. Information Regarding the Borrowers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
9.6. Certain Guarantor Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.7. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.8. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.9. Future Subsidiaries; Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.1. Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.1.1. Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.1.2. Rights to Payment of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.1.3. Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.1.4. Pledged Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.1.5. Pledged Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.1.6. Pledged Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.1.7. Chattel Paper, Instruments and Documents . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.1.8. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.1.9. Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.1.10. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.1.11. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.1.12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.1.13. All Other Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.1.14. Proceeds and Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.1.15. Excluded Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.2. Additional Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.2.1. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.2.2. Motor Vehicles and Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.3. Representations, Warranties and Covenants with Respect to Credit Security . . . . . . . . . . . . . 74
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10.3.1. Pledged Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.3.2. Accounts and Pledged Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.3.3. No Liens or Restrictions on Transfer or Change of Control . . . . . . . . . . . . . . . . 75
10.3.4. Location of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
10.3.5. Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.3.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.3.7. Modifications to Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.3.8. Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.3.9. Perfection of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.4. Administration of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.4.1. Use of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.4.2. Deposits; Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.4.3. Pledged Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.5. Right to Realize upon Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.5.1. Assembly of Credit Security; Receiver . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.5.2. General Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.5.3. Marshaling, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.5.4. Sales of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
10.5.5. Sale without Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.5.6. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
10.6. Custody of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.2. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
11.3. Indemnity With Respect to Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
12. Operations; Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
12.1. Interests in Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
12.2. Agent's Authority to Act, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
12.3. Borrowers to Pay Agent, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
12.4. Lender Operations for Advances, Letters of Credit, etc . . . . . . . . . . . . . . . . . . . . . . . 84
12.4.1. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
12.4.2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.4.3. Agent to Allocate Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
12.4.4. Delinquent Lenders; Nonperforming Lenders . . . . . . . . . . . . . . . . . . . . . . . . 85
12.5. Sharing of Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
12.6. Amendments, Consents, Waivers, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
12.7. Agent's Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
12.8. Concerning the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
12.8.1. Action in Good Faith, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
12.8.2. No Implied Duties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
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12.8.3. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
12.8.4. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
12.8.5. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
12.8.6. Reliance on Documents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
12.8.7. Agent's Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
12.9. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
12.10. Independent Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
12.11. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
13. Successors and Assigns; Lender Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . 91
13.1. Assignments by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
13.1.1. Assignees and Assignment Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
13.1.2. Terms of Assignment and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
13.1.3. Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
13.1.4. Acceptance of Assignment and Assumption . . . . . . . . . . . . . . . . . . . . . . . . . 94
13.1.5. Federal Reserve Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
13.1.6. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
13.2. Credit Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
13.3. Replacement of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
14. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
15. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
16. Course of Dealing; Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
17. Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
18. Venue; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
19. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
20. No Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
21. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
</TABLE>
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<PAGE> 9
EXHIBITS
<TABLE>
<S> <C> <C>
2.1.4 - Revolving Note
5.1.5 - Subordination Agreement
5.2.2 - Joinder Agreement
5.3.1 - Officer's Certificate
6.6 - Existing Indebtedness
6.8 - Existing Liens
6.11 - Asset Dispositions and Mergers
6.18 - Transactions with Affiliates
7.1.1 - Company and its Subsidiaries
7.1.2 - Stockholders of the Company
7.2.2 - Material Agreements
7.3 - Financing Debt, Certain Investments, etc.
7.4 - Changes in Condition
7.7 - Litigation
7.14 - Environmental
7.15 - Multi-employer and Defined Benefit Plans
8.1.6 - Certain Stockholders of the Company
10.4.2 - Depository Institutions
13.1.1 - Assignment and Acceptance
</TABLE>
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<PAGE> 10
AMERIPATH, INC.
CREDIT AGREEMENT
This Agreement, dated as of May 29, 1996, is among Ameripath, Inc., a
Delaware corporation, the Subsidiaries of Ameripath, Inc. from time to time
party hereto, the Lenders from time to time party hereto and The First National
Bank of Boston, both in its capacity as a Lender and in its capacity as agent
for itself and the other Lenders. The parties agree as follows:
1. Definitions; Certain Rules of Construction. Certain capitalized
terms are used in this Agreement and in the other Credit Documents with the
specific meanings defined below in this Section 1. Except as otherwise
explicitly specified to the contrary or unless the context clearly requires
otherwise, (a) the capitalized term "Section" refers to sections of this
Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation", (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP, (f) terms defined in the UCC and not otherwise defined
herein have the meaning provided under the UCC, (g) references to a particular
statute or regulation include all rules and regulations thereunder and any
successor statute, regulation or rules, in each case as from time to time in
effect and (h) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement and the
other Credit Documents. References to "the date hereof" mean the date first
set forth above.
1.1. "Accounts" is defined in Section 10.1.2.
1.2. "Accumulated Benefit Obligations" means the actuarial
present value of the accumulated benefit obligations under any Plan, calculated
in accordance with Statement No. 87 of the Financial Accounting Standards
Board.
1.3. "Acquired Party" shall mean any Person, 100% of the
outstanding capital stock or beneficial interests or substantially all of the
assets of which are acquired by any Borrower in connection with a Permitted
Acquisition.
1.4. "Acquired Party EBITDA Adjustment" means (a) for any
calculation made with respect to Sections 6.5 or 6.9.5 of this Agreement for
which less than six months of the Net Income of an Acquired Party has been
included in, and only to the extent not already included in, Consolidated Net
Income, an amount equal to the product of (i) the number of months in the
applicable period in which none of the Net Income of such Acquired Party was
included in Consolidated Net Income, multiplied by (ii) one-twelfth of Pro
Forma EBITDA of such Acquired Party as of the date of the Acquisition of such
Acquired Party or (b) for any calculation made with respect to Section 6.5 or
6.9.5 of this Agreement for which at least six
<PAGE> 11
but less than twelve months of the Net Income of an Acquired Party has been
included in, and only to the extent not already included in, Consolidated Net
Income, an amount equal to the product of (X) the number of months in the
applicable period in which none of the Net Income of such Acquired Party was
included in Consolidated Net Income, multiplied by (i) the amount of actual
EBITDA of such Acquired Party for each full month following its Acquisition by a
Borrower, divided by (ii) the number of full months for which EBITDA of the
Acquired Party was included in Consolidated Net Income.
1.5. "Acquisition Agreement" means the documentation pursuant to
which any Borrower commits itself to make a Permitted Acquisition.
1.6. "Affected Lender" is defined in Section 13.3.
1.7. "Affiliate" means, with respect to any Borrower (or any
other specified Person), any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with such Borrower,
and shall include (a) any officer or director or general partner of such
Borrower and (b) any Person of which such Borrower or any Affiliate (as defined
in clause (a) above) of such Borrower shall, directly or indirectly,
beneficially own either (i) at least 5% of the outstanding equity securities
having the general power to vote or (ii) at least 5% of all equity interests.
1.8. "Agent" means Bank of Boston in its capacity as agent for
the Lenders hereunder, as well as its successors and assigns in such capacity
pursuant to Section 12.7.
1.9. "Agreement" means this Agreement as from time to time
amended, modified and in effect.
1.10. "American Labs" is defined in Section 7.2.1.
1.11. "Applicable Rate" means, at any date, the sum of:
(a) (i) with respect to each portion of the Revolving
Loan subject to a Eurodollar Pricing Option, the sum of the
2.50% plus the Eurodollar Rate with respect to such
Eurodollar Pricing Option;
(ii) with respect to each other portion of the
Revolving Loan, the Base Rate;
plus (b) an additional 3.00% effective on the day the Agent
notifies the Company that the interest rates hereunder are
increasing as a result of the occurrence and continuance of
an Event of Default until the earlier of such time as (i)
such Event of Default is no longer continuing or (ii) such
Event of Default is deemed no longer to exist, in each case
pursuant to Section 8.3.
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<PAGE> 12
1.12. "Assignee" is defined in Section 13.1.1.
1.13. "Assignment and Acceptance" is defined in Section 13.1.1.
1.14. "Bank of Boston" means The First National Bank of Boston.
1.15. "Banking Day" means any day other than Saturday, Sunday or a
day on which banks in Boston, Massachusetts are authorized or required by law
or other governmental action to close and, if such term is used with reference
to a Eurodollar Pricing Option, any day on which dealings are effected in the
Eurodollars in question by first-class banks in the inter-bank Eurodollar
markets in New York, New York.
1.16. "Bankruptcy Code" means Title 11 of the United States Code.
1.17. "Bankruptcy Default" means an Event of Default referred to
in Section 8.1.10.
1.18. "Base Rate" means, on any date, the greater of (a) the rate
of interest announced by Bank of Boston at the Boston Office as its Base Rate
or (b) the sum of 1/2% plus the Federal Funds Rate.
1.19. "Borrowers" means, collectively, the Company, American
Laboratory Associates, Inc., a Delaware corporation, Ameripath Florida, Inc., a
Florida corporation, and such other Acquired Parties as shall become Borrowers
hereunder in accordance with Section 5.2.2.
1.20. "Borrowing Base" means, on any date, 80% of the aggregate
amount carried as accounts receivable (reduced appropriately for doubtful
accounts) on the most recent Consolidated balance sheet of the Company and its
Subsidiaries delivered in accordance with Section 6.4.3, minus the aggregate
amount of any such accounts receivable that are more than 120 days past due;
provided, however, that the Borrowing Base shall be reduced to $1.00 at any
time where the Borrowers have failed to furnish the computation of the
Borrowing Base required by Section 6.4.3(b) within five days after such
computation was originally due.
1.21. "Boston Office" means the principal banking office of Bank
of Boston in Boston, Massachusetts.
1.22. "By-laws" means all written by-laws, rules, regulations and
all other documents relating to the management, governance or internal
regulation of any Person other than an individual, or interpretive of the
Charter of such Person, all as from time to time in effect.
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<PAGE> 13
1.23. "Capital Expenditures" means, for any period, amounts added
or required to be added to the property, plant and equipment or other fixed
assets account on the Consolidated balance sheet of the Company and its
Subsidiaries, prepared in accordance with GAAP, in respect of (a) the
acquisition, construction, improvement or replacement of land, buildings,
machinery, equipment, leaseholds and any other real or personal property, (b)
to the extent not included in clause (a) above, materials, contract labor and
direct labor relating thereto (excluding amounts properly expensed as repairs
and maintenance in accordance with GAAP) and (c) software development costs to
the extent not expensed.
1.24. "Capitalized Lease" means any lease which is required to be
capitalized on the balance sheet of the lessee in accordance with GAAP,
including Statement Nos. 13 and 98 of the Financial Accounting Standards Board.
1.25. "Capitalized Lease Obligations" means the amount of the
liability reflecting the aggregate discounted amount of future payments under
all Capitalized Leases calculated in accordance with GAAP, including Statement
Nos. 13 and 98 of the Financial Accounting Standards Board.
1.26. "Cash Equivalents" means:
(a) negotiable certificates of deposit, time deposits
(including sweep accounts), demand deposits and bankers' acceptances
having a maturity of nine months or less and issued by any United
States financial institution having capital and surplus and undivided
profits aggregating at least $100,000,000 and rated at least Prime-1
by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Ratings
Group or issued by any Lender;
(b) corporate obligations having a maturity of nine
months or less and rated at least Prime-1 by Moody's Investors
Service, Inc. or A-1 by Standard & Poor's Ratings Group or issued by
any Lender;
(c) any direct obligation of the United States of America
or any agency or instrumentality thereof, or of any state or
municipality thereof, (i) which has a remaining maturity at the time
of purchase of not more than one year or which is subject to a
repurchase agreement with any Lender (or any other financial
institution referred to in clause (a) above) exercisable within one
year from the time of purchase and (ii) which, in the case of
obligations of any state or municipality, is rated at least Aa by
Moody's Investors Service, Inc. or AA by Standard & Poor's Ratings
Group; and
(d) any mutual fund or other pooled investment vehicle
rated at least Aa by Moody's Investors Service, Inc. or AA by Standard
& Poor's Ratings Group which invests principally in obligations
described above.
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<PAGE> 14
1.27. "CERCLA" means the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980.
1.28. "CERCLIS" means the federal Comprehensive Environmental
Response Compensation Liability Information System List (or any successor
document) promulgated under CERCLA.
1.29. "Charter" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other
charter document of any Person other than an individual, each as from time to
time in effect.
1.30. "Closing Date" means the Initial Closing Date and each other
date on which any extension of credit is made pursuant to Sections 2.1, 2.2 or
2.3.
1.31. "Code" means the federal Internal Revenue Code of 1986, as
amended from time to time.
1.32. "Commitment" means, with respect to any Lender, such
Lender's obligations to extend the credits contemplated by Section 2. The
original Commitments are set forth in Section 12.1 and the current Commitments
are recorded from time to time in the Register.
1.33. "Company" means Ameripath, Inc., a Delaware corporation.
1.34. "Computation Covenants" means Sections 6.5, 6.6.7, 6.6.11,
6.9.5, 6.10, 6.11, 6.12, 6.17 and 6.20.
1.35. "Consolidated" and "Consolidating", when used with reference
to any term, mean that term as applied to the accounts of the Company (or other
specified Person) and all of its Subsidiaries (or other specified group of
Persons), or such of its Subsidiaries as may be specified, consolidated (or
combined) or consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests in
Subsidiaries.
1.36. "Consolidated Adjusted EBITDA" means, for any period, an
amount equal to the sum of (a) Consolidated Net Income of the Company and its
Subsidiaries for such period plus (b) all amounts deducted in computing such
Consolidated Net Income in respect of (i) taxes based upon or measured by
income, (ii) Consolidated Interest Expense and (iii) depreciation and
amortization plus (c) any Acquired Party EBITDA Adjustment.
1.37. "Consolidated EBIT" means, for any period, an amount equal
to Consolidated Adjusted EBITDA minus any and all amounts added in computing
such Consolidated Adjusted EBITDA in respect of depreciation and amortization.
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<PAGE> 15
1.38. "Consolidated Interest Expense" means, for any period, the
Interest Expense paid or accrued by the Company and its Subsidiaries on a
Consolidated basis.
1.39. "Consolidated Net Income" means, for any period, the net
income (or loss) of the Company and its Subsidiaries, determined in accordance
with GAAP on a Consolidated basis; provided, however, that Consolidated Net
Income shall not include the net amount after taxes of:
(a) the income (or loss) of any other Person accrued
prior to the date such other Person becomes a Subsidiary or is merged
into or consolidated with such Person;
(b) the income (or loss) of any other Person (other than
a Subsidiary) in which such Person has an ownership interest;
provided, however, that (i) Net Income shall include amounts in
respect of the income of such other Person when actually received in
cash by such Person in the form of dividends or similar Distributions
and (ii) Net Income shall be reduced by the aggregate amount of all
Investments, regardless of the form thereof, made by such Person in
such other Person for the purpose of funding any deficit or loss of
such other Person;
(c) all amounts included in computing such net income (or
loss) in respect of the write-up of any asset or the retirement of any
Indebtedness or equity at less than face value after any acquisition;
(d) extraordinary and nonrecurring gains;
(e) the income of any Subsidiary to the extent the
payment of such income in the form of a Distribution or repayment of
Indebtedness to such Person is not permitted, whether on account of
any Charter or By-law restriction, any agreement, instrument, deed or
lease or any law, statute, judgment, decree or governmental order,
rule or regulation applicable to such Subsidiary; and
(f) any after-tax gains or losses attributable to
returned surplus assets of any Plan.
1.40. "Consolidated Senior Debt" means all Financing Debt of the
Company and the Subsidiaries on a Consolidated basis other than in respect of
Subordinated Indebtedness.
1.41. "Consolidated Senior Interest Expense" means, for any
period, the aggregate amount of interest, including commitment fees and
payments in the nature of interest under Capitalized Leases and Interest Rate
Protection Agreements, accrued by the Company and its Subsidiaries on a
Consolidated basis (whether such interest is reflected as an item of expense or
capitalized) on Consolidated Senior Debt.
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<PAGE> 16
1.42. "Consolidated Total Debt" means, at any date, all Financing
Debt of the Company and its Subsidiaries on a Consolidated basis.
1.43. "Consolidated Total Liabilities" means, at any date, all
Indebtedness of the Company and its Subsidiaries on a Consolidated basis.
1.44. "Contingent Notes" means (a) the 7% subordinated contingent
promissory notes issued by the Company pursuant to the Acquisition Agreement
relating to the Derrick Acquisition dated as of the closing of the Derrick
Acquisition, (b) the 8% Non-Negotiable Subordinated Contingent Notes issued
pursuant to the Asset Purchase Agreement of the Company's predecessor dated as
of January 1, 1994 and (c) contingent promissory notes issued to the Sellers in
connection with a Permitted Acquisition constituting Subordinated Indebtedness.
1.45. "Credit Documents" means:
(a) this Agreement, the Revolving Notes, each Letter of
Credit, each draft presented or accepted under a Letter of Credit and
the Subordination Agreement, each as from time to time in effect;
(b) all financial statements, reports, notices,
mortgages, assignments, UCC financing statements or certificates
delivered to the Agent or any of the Lenders by the Company, any of
its Subsidiaries or any other Obligor in connection herewith or
therewith; and
(c) any other present or future agreement or instrument
from time to time entered into among the Company, any of its
Subsidiaries or any other Obligor, on one hand, and the Agent, any
Letter of Credit Issuer or all the Lenders, on the other hand,
relating to, amending or modifying this Agreement or any other Credit
Document referred to above or which is stated to be a Credit Document,
each as from time to time in effect.
1.46. "Credit Obligations" means all present and future
liabilities, obligations and Indebtedness of the Company, any of its
Subsidiaries or any other Obligor owing to the Agent or any Lender under or in
connection with this Agreement or any other Credit Document, including
obligations in respect of principal, interest, reimbursement obligations under
Letters of Credit, commitment fees, Letter of Credit fees, amounts provided for
in Sections 3.2.4, 3.5, 3.6, 3.7, 3.8 and 11 and other fees, charges,
indemnities and expenses from time to time owing hereunder or under any other
Credit Document (whether accruing before or after a Bankruptcy Default).
1.47. "Credit Participant" is defined in Section 13.2.
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<PAGE> 17
1.48. "Credit Security" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge (or intended or
required so to be subjected pursuant to this Agreement or any other Credit
Document) to secure the payment or performance of any of the Credit
Obligations, including the assets described in Section 10.1.
1.49. "Default" means any Event of Default and any event or
condition which with the passage of time or giving of notice, or both, would
become an Event of Default and the filing against the Company, any of its
Subsidiaries or any other Obligor of a petition commencing an involuntary case
under the Bankruptcy Code.
1.50. "Delinquency Period" is defined in Section 12.4.4.
1.51. "Delinquent Lender" is defined in Section 12.4.4.
1.52. "Delinquent Payment" is defined in Section 12.4.4.
1.53. "Derrick" means Derrick & Associates Pathology, P.A., a
Florida professional services corporation.
1.54. "Derrick Acquisition" means a Permitted Acquisition of
Derrick by the Company or one of its subsidiaries.
1.55. "Derrick Management Investors" means each of Homer A.
Bodiford, Kenneth A. Clark, Larry S. Cribbett, Timothy M. Kilpatrick, Alan
Levin, E. Donald McDade, Jr., Richard C. Morris, Joseph W. Pilington, Wayne H.
Schrader, Michael R. Sherman, Stephen P. Sherman, Cheryl L. Staton-Choate,
Kenneth J. Wozniak, Sherry R. Larson, Margaret L. Cohen, Randy L. Judd,
Richard L. Munoz, M. Barry Randall and Stephen Y. Wilkerson.
1.56. "Distribution" means, with respect to the Company (or other
specified Person):
(a) the declaration or payment of any dividend or
distribution, including dividends payable in shares of capital stock
of or other equity interests in the Company (or such specified
Person), on or in respect of any shares of any class of capital stock
of or other equity interests in the Company (or such specified
Person);
(b) the purchase or redemption of any shares of any class
of capital stock of or other equity interest in the Company (or such
specified Person) or of options, warrants or other rights for the
purchase of such shares, directly, indirectly through a Subsidiary or
otherwise;
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<PAGE> 18
(c) any other distribution on or in respect of any shares
of any class of capital stock of or equity or other beneficial
interest in the Company (or such specified Person);
(d) any payment of principal or interest with respect to,
or any purchase, redemption or defeasance of, any Indebtedness of the
Company (or such specified Person) which by its terms or the terms of
any agreement is subordinated to the payment of the Credit
Obligations; and
(e) any payment, loan or advance by the Company (or such
specified Person) to, or any other Investment by the Company (or such
specified Person) in, the holder of any shares of any class of capital
stock of or equity interest in the Company (or such specified Person),
or any Affiliate of such holder;
provided, however, that the term "Distribution" shall not include (i) dividends
payable in perpetual common stock of or other similar equity interests in the
Company (or such specified Person) or (ii) payments in the ordinary course of
business in respect of (A) reasonable compensation paid to employees, officers
and directors, (B) advances to employees for travel expenses, drawing accounts
and similar expenditures, or (C) rent paid to, or accounts payable for services
rendered or goods sold by, non-Affiliates that own capital stock of or other
equity interests in the Company (or such specified Person).
1.57. "EBIT" means, for any period, an amount equal to the sum of
(a) the Net Income (or loss) of any Person for such period plus (b) all amounts
deducted in computing such Net Income in respect of (i) taxes based upon or
measured by income and (ii) Interest Expense.
1.58. "EBITDA" means, for any period, an amount equal to the sum
of (a) the Net Income (or loss) of any Person for such period plus (b) all
amounts deducted in computing such Net Income in respect of (i) taxes based
upon or measured by income, (ii) Interest Expense and (iii) depreciation and
amortization.
1.59. "Environmental Laws" means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and administrative orders) relating to public health
and safety and protection of the environment, including OSHA.
1.60. "ERISA" means the federal Employee Retirement Income
Security Act of 1974.
1.61. "ERISA Group Person" means the Company, any Subsidiary of
the Company and any Person which is a member of the controlled group or under
common control with the
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<PAGE> 19
Company or any Subsidiary within the meaning of section 414 of the Code or
section 4001(a)(14) of ERISA.
1.62. "Eurodollars" means, with respect to any Lender, deposits of
United States Funds in a non-United States office or an international banking
facility of such Lender.
1.63. "Eurodollar Basic Rate" means, for any Eurodollar Interest
Period, the rate of interest at which Eurodollar deposits in an amount
comparable to the portion of the Revolving Loan as to which a Eurodollar
Pricing Option has been elected and which have a term corresponding to such
Eurodollar Interest Period are offered to the Agent by first class banks in the
inter-bank Eurodollar market for delivery in immediately available funds at a
Eurodollar Office on the first day of such Eurodollar Interest Period as
determined by the Agent at approximately 10:00 a.m. (Boston time) two Banking
Days prior to the date upon which such Eurodollar Interest Period is to
commence (which determination by the Agent shall, in the absence of manifest
error, be conclusive).
1.64. "Eurodollar Interest Period" means any period, selected as
provided in Section 3.2.1, of one, two, three or six months, commencing on any
Banking Day and ending on the corresponding date in the subsequent calendar
month so indicated (or, if such subsequent calendar month has no corresponding
date, on the last day of such subsequent calendar month); provided, however,
that subject to Section 3.2.3, if any Eurodollar Interest Period so selected
would otherwise begin or end on a date which is not a Banking Day, such
Eurodollar Interest Period shall instead begin or end, as the case may be, on
the immediately preceding or succeeding Banking Day as determined by the Agent
in accordance with the then current banking practice in the inter-bank
Eurodollar market with respect to Eurodollar deposits at the applicable
Eurodollar Office, which determination by the Agent shall, in the absence of
manifest error, be conclusive.
1.65. "Eurodollar Office" means such non-United States office or
international banking facility of the Agent as the Agent may from time to time
select.
1.66. "Eurodollar Pricing Options" means the options granted
pursuant to Section 3.2.1 to have the interest on any portion of the Revolving
Loan computed on the basis of a Eurodollar Rate.
1.67. "Eurodollar Rate" for any Eurodollar Interest Period means
the rate, rounded upward to the nearest 1/100%, obtained by dividing (a) the
Eurodollar Basic Rate for such Eurodollar Interest Period by (b) an amount
equal to 1 minus the Eurodollar Reserve Rate; provided, however, that if at any
time during such Eurodollar Interest Period the Eurodollar Reserve Rate
applicable to any outstanding Eurodollar Pricing Option changes, the Eurodollar
Rate for such Eurodollar Interest Period shall automatically be adjusted to
reflect such change, effective as of the date of such change.
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1.68. "Eurodollar Reserve Rate" means the stated maximum rate
(expressed as a decimal) of all reserves (including any basic, supplemental,
marginal or emergency reserve or any reserve asset), if any, as from time to
time in effect, required by any Legal Requirement to be maintained by any
Lender against (a) "Eurocurrency liabilities" as specified in Regulation D of
the Board of Governors of the Federal Reserve System applicable to Eurodollar
Pricing Options, (b) any other category of liabilities that includes Eurodollar
deposits by reference to which the interest rate on portions of the Revolving
Loan subject to Eurodollar Pricing Options is determined, (c) the principal
amount of or interest on any portion of the Revolving Loan subject to a
Eurodollar Pricing Option or (d) any other category of extensions of credit, or
other assets, that includes loans subject to a Eurodollar Pricing Option by a
non-United States office of any of the Lenders to United States residents, in
each case without the benefits of credits for prorations, exceptions or offsets
that may be available to a Lender.
1.69. "Event of Default" is defined in Section 8.1.
1.70. "Exchange Act" means the federal Securities Exchange Act of
1934.
1.71. "FACA" means the Federal Assignment of Claims Act as set
forth in 31 U.S.C. Section 3727 and 41 U.S.C. Section 15.
1.72. "Federal Funds Rate" means, for any day, the rate equal to
the weighted average (rounded upward to the nearest 1/8%) of the rates on
overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, (a) as such weighted average is published
for such day (or, if such day is not a Banking Day, for the immediately
preceding Banking Day) by the Federal Reserve Bank of New York or (b) if such
rate is not so published for such Banking Day, as determined by the Agent using
any reasonable means of determination. Each determination by the Agent of the
Federal Funds Rate shall, in the absence of manifest error, be conclusive.
1.73. "Final Maturity Date" means December 31, 1998.
1.74. "Financial Officer" of the Company (or other specified
Person) means its chief executive officer, chief financial officer, chief
operating officer, chairman, president, treasurer or any of its vice presidents
whose primary responsibility is for its financial affairs, all of whose
incumbency and signatures have been certified to the Agent by the secretary or
other appropriate attesting officer of the Company (or such specified Person).
1.75. "Financing Debt" means each of the items described in
clauses (a) through (e) of the definition of the term "Indebtedness".
1.76. "Foreign Trade Regulations" means (a) any act that prohibits
or restricts, or empowers the President or any executive agency of the United
States of America to prohibit or
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restrict, exports to or financial transactions with any foreign country or
foreign national, (b) the regulations with respect to certain prohibited foreign
trade transactions set forth at 22 C.F.R. Parts 120-130 and 31 C.F.R. Part 500
and (c) any order, regulation, ruling, interpretation, direction, instruction or
notice relating to any of the foregoing.
1.77. "Funding Liability" means (a) any Eurodollar deposit which
was used (or deemed by Section 3.2.6 to have been used) to fund any portion of
the Revolving Loan subject to a Eurodollar Pricing Option, and (b) any portion
of the Revolving Loan subject to a Eurodollar Pricing Option funded (or deemed
by Section 3.2.6 to have been funded) with the proceeds of any such Eurodollar
deposit.
1.78. "GAAP" means generally accepted accounting principles as
from time to time in effect, including the statements and interpretations of
the United States Financial Accounting Standards Board.
1.79. "Government Receivables" means any Accounts as to which the
United States of America or any agency or department thereof is the obligor.
1.80. "Guarantee" means, with respect to the Company (or other
specified Person):
(a) any guarantee by the Company (or such specified
Person) of the payment or performance of, or any contingent obligation
by the Company (or such specified Person) in respect of, any
Indebtedness or other obligation of any primary obligor;
(b) any other arrangement whereby credit is extended to a
primary obligor on the basis of any promise or undertaking of the
Company (or such specified Person), including any binding "comfort
letter" or "keep well agreement" written by the Company (or such
specified Person), to a creditor or prospective creditor of such
primary obligor, to (i) pay the Indebtedness of such primary obligor,
(ii) purchase an obligation owed by such primary obligor, (iii) pay
for the purchase or lease of assets or services regardless of the
actual delivery thereof or (iv) maintain the capital, working capital,
solvency or general financial condition of such primary obligor;
(c) any liability of the Company (or such specified
Person), as a general partner of a partnership in respect of
Indebtedness or other obligations of such partnership;
(d) any liability of the Company (or such specified
Person) as a joint venturer of a joint venture in respect of
Indebtedness or other obligations of such joint venture;
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(e) any liability of the Company (or such specified
Person) with respect to the tax liability of others as a member of a
group that is consolidated for tax purposes; and
(f) reimbursement obligations, whether contingent or
matured, of the Company (or such specified Person) with respect to
letters of credit, bankers acceptances, surety bonds, other financial
guarantees and Interest Rate Protection Agreements,
whether or not any of the foregoing are reflected on the balance sheet of the
Company (or such specified Person) or in a footnote thereto; provided, however,
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Guarantee and
the amount of Indebtedness resulting from such Guarantee shall be the maximum
amount that the guarantor may become obligated to pay in respect of the
obligations (whether or not such obligations are outstanding at the time of
computation).
1.81. "Guarantor" means each Borrower, each Subsidiary of the
respective Borrowers and each Subsidiary which subsequently becomes party to
this Agreement as a Guarantor.
1.82. "Hazardous Material" means any pollutant, toxic or hazardous
material or waste, including any "hazardous substance" or "pollutant" or
"contaminant" as defined in section 101(14) of CERCLA or any other
Environmental Law or regulated as toxic or hazardous under RCRA or any other
Environmental Law.
1.83. "Impermissible Reference" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of any Obligor, any qualification or exception to such opinion or
certification
(a) which expresses concern about whether or not such
Obligor will be able to meet its obligations as such become due, or
otherwise will be able to operate or conduct its business in the
future;
(b) which relates to the limited scope of examination of
matters relevant to such financial statement;
(c) which relates to the treatment or classification of
any item in such financial statement and which, as a condition to its
removal, would require an adjustment to such item the effect of which
would be to cause there to be a Default under Sections 6.5 through
6.20; or
(d) which, in the reasonable judgment of the Required
Lenders, is not acceptable.
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1.84. "Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be classified upon the
balance sheet of the Company (or other specified Person) as liabilities, but in
any event including (without duplication):
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or
similar instruments;
(c) Capitalized Lease Obligations;
(d) reimbursement obligations, whether contingent or
matured, with respect to letters of credit, bankers acceptances,
surety bonds, other financial guarantees and Interest Rate Protection
Agreements (without duplication of other Indebtedness supported or
guaranteed thereby);
(e) unfunded pension liabilities;
(f) mandatory redemption or dividend rights on capital
stock (or other equity);
(g) obligations that are immediately and directly due and
payable out of the proceeds of or production from property;
(h) liabilities secured by any Lien existing on property
owned or acquired by the Company (or such specified Person), whether
or not the liability secured thereby shall have been assumed; and
(i) all Guarantees in respect of Indebtedness of others.
1.85. "Indemnified Party" is defined in Section 11.2.
1.86. "Initial Closing Date" means the first date on or prior to
September 30, 1996 on which all the conditions set forth in Section 5.1 and 5.3
have been satisfied.
1.87. "Interest Expense" means, for any period, the aggregate
amount of interest, including commitment fees and payments in the nature of
interest under Capitalized Leases and Interest Rate Protection Agreements
(whether such interest is reflected as an item of expense or capitalized), paid
or accrued by any Person in accordance with GAAP.
1.88. "Interest Rate Protection Agreement" means any interest rate
swap, interest rate cap, interest rate hedge or other contractual arrangement
that converts variable interest
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rates into fixed interest rates, fixed interest rates into variable interest
rates or other similar arrangements.
1.89. "Investment" means, with respect to any Borrower (or other
specified Person):
(a) any share of capital stock, partnership or other
equity interest, evidence of Indebtedness or other security issued by
any other Person;
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person;
(c) any Guarantee of the Indebtedness of any other
Person;
(d) any acquisition of all or any part of the business of
any other Person or the assets comprising such business or part
thereof; and
(e) any other similar investment.
The investments described in the foregoing clauses (a) through (e)
shall be included in the term "Investment" whether they are made or acquired by
purchase, exchange, issuance of stock or other securities, merger,
reorganization or any other method; provided, however, that the term
"Investment" shall not include (i) trade and customer accounts receivable for
property leased, goods furnished or services rendered in the ordinary course of
business and payable in accordance with customary trade terms, (ii) advances
and prepayments to suppliers for property leased, goods furnished and services
rendered in the ordinary course of business, (iii) advances to employees for
travel expenses, drawing accounts and similar expenditures, (iv) stock or other
securities acquired in connection with the satisfaction or enforcement of
Indebtedness or claims due to the Company (or such specified Person) or as
security for any such Indebtedness or claim or (v) demand deposits in banks or
similar financial institutions.
In determining the amount of outstanding Investments:
(A) the amount of any Investment shall be the cost thereof
minus any returns of capital in cash on such Investment (determined in
accordance with GAAP without regard to amounts realized as income on
such Investment);
(B) the amount of any Investment in respect of a purchase
described in clause (d) above shall include the amount of any
Financing Debt assumed in connection with such purchase or secured by
any asset acquired in such purchase (whether or not any Financing Debt
is assumed) or for which any Person that becomes a Subsidiary is
liable on the date on which the securities of such Person are
acquired; and
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(C) no Investment shall be increased as the result of an
increase in the undistributed retained earnings of the Person in which
the Investment was made or decreased as a result of an equity interest
in the losses of such Person.
1.90. "Legal Requirement" means any present or future requirement
imposed upon any of the Lenders or the Company and its Subsidiaries by any law,
statute, rule, regulation, directive, order, decree, guideline (or any
interpretation thereof by courts or of administrative bodies) of the United
States of America, or any jurisdiction in which any Eurodollar Office is
located or any state or political subdivision of any of the foregoing, or by
any board, governmental or administrative agency, central bank or monetary
authority of the United States of America, any jurisdiction in which any
Eurodollar Office is located, or any political subdivision of any of the
foregoing. Any such requirement imposed on any of the Lenders which such
Lender reasonably believes has the force of law shall be deemed to be a Legal
Requirement.
1.91. "Lender" means each of the Persons listed as lenders on the
signature page hereto, including Bank of Boston in its capacity as a Lender and
such other Persons who may from time to time own a Percentage Interest in the
Credit Obligations, but the term "Lender" shall not include any Credit
Participant.
1.92. "Lending Officer" means such individuals whom the Agent may
designate by notice to the Company from time to time as an officer who may
receive telephone requests for borrowings under Section 2.1.3.
1.93. "Letter of Credit" is defined in Section 2.3.1.
1.94. "Letter of Credit Exposure" means, at any date, the sum of
(a) the aggregate face amount of all drafts that may then or thereafter be
presented by beneficiaries under all Letters of Credit then outstanding, plus
(b) the aggregate face amount of all drafts that the Letter of Credit Issuer
has previously accepted under Letters of Credit but has not paid.
1.95. "Letter of Credit Issuer" means, for any Letter of Credit,
Bank of Boston or, in the event Bank of Boston does not for any reason issue a
requested Letter of Credit, another Lender willing to issue such Letter of
Credit in accordance with Section 2.3 reasonably acceptable to the Agent.
1.96. "Lien" means, with respect to the Company (or any other
specified Person):
(a) any lien, encumbrance, mortgage, pledge, charge or
security interest of any kind upon any property or assets of the
Company (or such specified Person), whether now owned or hereafter
acquired, or upon the income or profits therefrom;
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(b) the acquisition of, or the agreement to acquire, any
property or asset upon conditional sale or subject to any other title
retention agreement, device or arrangement (including a Capitalized
Lease);
(c) the sale, assignment, pledge or transfer for security
of any accounts, general intangibles or chattel paper of the Company
(or such specified Person), with or without recourse;
(d) the transfer of any tangible property or assets for
the purpose of subjecting such items to the payment of previously
outstanding Indebtedness in priority to payment of the general
creditors of the Company (or such specified Person); and
(e) the existence for a period of more than 120
consecutive days of any Indebtedness against the Company (or such
specified Person) which if unpaid would by law or upon a Bankruptcy
Default be given any priority over general creditors.
1.97. "Loan Accounts" is defined in Section 2.1.4.
1.98. "Margin Stock" means "margin stock" within the meaning of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.
1.99. "Material Adverse Change" means, since any specified date or
from the circumstances existing immediately prior to the happening of any
specified event, a material adverse change in (a) the business, assets,
financial condition, income or prospects of the Company (on an individual
basis) or the Company and its Subsidiaries (on a Consolidated basis), whether
as a result of (i) general economic conditions affecting the industry in which
the Company and its Subsidiaries are engaged, (ii) difficulties in obtaining
supplies and raw materials, (iii) fire, flood or other natural calamities, (iv)
environmental pollution, (v) regulatory changes, judicial decisions, war or
other governmental action or (vi) any other event or development, whether or
not related to those enumerated above or (b) the ability of the Obligors to
perform their obligations under the Credit Documents or (c) the rights and
remedies of the Agent and the Lenders under the Credit Documents.
1.100. "Material Agreements" is defined in Section 7.2.2.
1.101. "Material Plan" means any Plan or Plans, collectively, as to
which (a) the excess of (i) the aggregate Accumulated Benefit Obligations under
such Plan or Plans over (ii) the aggregate fair market value of the assets of
such Plan or Plans allocable to such benefits, all determined as of the then
most recent valuation date or dates for such Plan or Plans, is greater than (b)
$500,000.
1.102. "Maximum Amount of Revolving Credit" is defined in Section
2.1.2.
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1.103. "Multiemployer Plan" means any Plan that is a "multiemployer
plan" as defined in section 4001(a)(3) of ERISA.
1.104. "Net Income" means, for any period, the net income (or loss)
of any Person, determined in accordance with GAAP; provided, however, that Net
Income shall not include:
(a) all amounts included in computing such net income (or
loss) in respect of the write-up of any asset or the retirement of any
Indebtedness or equity at less than face value after any acquisition;
(b) extraordinary and nonrecurring gains;
(c) any after-tax gains or losses attributable to
returned surplus assets of any Plan.
1.105. "Nonperforming Lender" is defined in Section 12.4.4.
1.106. "Obligor" means the Company, each other Borrower, each
Guarantor and each Person guaranteeing, providing collateral for or
subordinating obligations to, the Credit Obligations.
1.107. "OSHA" means the federal Occupational Health and Safety Act.
1.108. "Overdue Reimbursement Rate" means, at any date, the highest
Applicable Rate then in effect.
1.109. "Payment Date" means the first Banking Day of each month,
commencing with the first such date after the Initial Closing Date.
1.110. "PBGC" means the Pension Benefit Guaranty Corporation or any
successor entity.
1.111. "Percentage Interest" is defined in Section 12.1.
1.112. "Performing Lender" is defined in Section 12.4.4.
1.113. "Permitted Acquisition" means an Investment by any Borrower
permitted under Section 6.9.5.
1.114. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.
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1.115. "Plan" means, at any date, any pension benefit plan subject
to Title IV of ERISA maintained, or to which contributions have been made or
are required to be made, by any ERISA Group Person within six years prior to
such date.
1.116. "Pledged Indebtedness" is defined in Section 10.1.6.
1.117. "Pledged Rights" is defined in Section 10.1.5.
1.118. "Pledged Securities" means the Pledged Stock, the Pledged
Rights and the Pledged Indebtedness, collectively.
1.119. "Pledged Stock" is defined in Section 10.1.4.
1.120. "Pro Forma EBITDA" shall mean, for any period, an amount
calculated on a pro forma basis taking into account the Permitted Acquisition
equal to (a) the historical EBITDA of the Acquired Party and (b) any non-GAAP
adjustment to Net Income to the extent that such adjustment is approved by the
Required Lenders.
1.121. "Purchase Price" means the amount of the consideration,
including, but not limited to, cash or Cash Equivalents, capital stock, assets,
debt, including contingent or other promissory notes, and any other form of
payment, for any Permitted Acquisition; provided, however, that (a) the amount
of any Contingent Note included in this definition of Purchase Price shall be
the lesser of (i) the maximum principal amount of such Contingent Note or (ii)
the principal amount of such Contingent Note that becomes payable by a Borrower
at the time that such Borrower attains the level of Pro Forma EBITDA previously
determined by the Required Lenders and (b) the amount of any contingent capital
stock included in this definition of Purchase Price shall only include that
portion of such capital stock of a Borrower that must be issued by a Borrower
at the time that such Borrower attains the level of Pro Forma EBITDA previously
determined by the Required Lenders.
1.122. "RCRA" means the federal Resource Conservation and Recovery
Act, 42 U.S.C. Section 690, et seq.
1.123. "Register" is defined in Section 13.1.3.
1.124. "Replacement Lender" is defined in Section 13.3.
1.125. "Required Lenders" means, with respect to any approval,
consent, modification, waiver or other action to be taken by the Agent or the
Lenders under the Credit Documents which require action by the Required
Lenders, such Lenders as own at least a two-thirds of the Percentage Interests;
provided, however, that with respect to any matters referred
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to in the proviso to Section 12.6, Required Lenders means such Lenders as own
at least the respective portions of the Percentage Interests required by
Section 12.6.
1.126. "Revolving Loan" is defined in Section 2.1.4.
1.127. "Revolving Notes" is defined in Section 2.1.4.
1.128. "Securities Act" means the federal Securities Act of 1933.
1.129. "Sellers" means the Person or Persons selling or otherwise
transferring the capital stock, partnership or other equity interest or assets
of the Acquired Party to a Borrower pursuant to a Permitted Acquisition.
1.130. "Subordinated Indebtedness" means Indebtedness of the
Borrower which is subordinated to the Credit Obligations pursuant to the
Subordination Agreement or on terms approved by the Required Lenders in
writing.
1.131. "Subordination Agreement" is defined in Section 5.1.4.
1.132. "Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own at least 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally, (b) hold at
least 50% of the partnership, joint venture or similar interests or (c) be a
general partner or joint venturer.
1.133. "Summit Partners" means collectively, Summit Ventures III,
L.P., Summit Investors II, L.P. and Summit Subordinated Debt Fund, L.P.
1.134. "Tax" means any present or future tax, levy, duty, impost,
deduction, withholding or other charges of whatever nature at any time required
by any Legal Requirement (a) to be paid by any Lender or (b) to be withheld or
deducted from any payment otherwise required hereby to be made to any Lender,
in each case on or with respect to its obligations hereunder, the Revolving
Loan, any payment in respect of the Credit Obligations or any Funding Liability
not included in the foregoing; provided, however, that the term "Tax" shall not
include taxes imposed upon or measured by the net income of such Lender (other
than withholding taxes) or franchise taxes.
1.135. "UCC" means the Uniform Commercial Code as in effect in
Massachusetts on the date hereof; provided, however, that with respect to the
perfection of the Agent's Lien in the Credit Security and the effect of
nonperfection thereof, the term "UCC" means the Uniform Commercial Code as in
effect in any jurisdiction the laws of which are made applicable by Section
9-103 of the Uniform Commercial Code as in effect in Massachusetts.
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1.136. "Uniform Customs and Practice" is defined in Section 2.2.7.
1.137. "United States Funds" means such coin or currency of the
United States of America as at the time shall be legal tender therein for the
payment of public and private debts.
1.138. "Wholly Owned Subsidiary" means any Subsidiary of which all
of the outstanding capital stock (or other shares of beneficial interest)
entitled to vote generally (other than directors' qualifying shares) is owned
by the Company (or other specified Person) directly, or indirectly through one
or more Wholly Owned Subsidiaries.
2. The Credits.
2.1. Revolving Credit.
2.1.1. Revolving Loan. Subject to all the terms and
conditions of this Agreement and so long as no Default then exists,
from time to time on and after the Initial Closing Date and prior to
the Final Maturity Date the Lenders will, severally in accordance with
their respective Percentage Interests, make loans to any Borrower in
such amounts as may be requested by such Borrower in accordance with
Section 2.1.3. The sum of the aggregate principal amount of loans made
under this Section 2.1.1 at any one time outstanding plus the Letter of
Credit Exposure shall in no event exceed the Maximum Amount of
Revolving Credit and the sum of the aggregate principal amount of loans
made to and the face amount of Letters of Credit issued on behalf of
the Borrowers for the purposes of working capital shall in no event
exceed the Borrowing Base. In no event will the principal amount of
loans at any one time outstanding made by any Lender pursuant to this
Section 2.1 exceed such Lender's Commitment.
2.1.2. Maximum Amount of Revolving Credit. The term
"Maximum Amount of Revolving Credit" means, on any date, the lesser of
(a) $40,000,000 or (b) the amount (in an integral multiple of
$1,000,000) to which the then applicable amount shall have been
irrevocably reduced from time to time by notice from the Company to
the Agent.
2.1.3. Borrowing Requests. Any Borrower may from time
to time request a loan under Section 2.1.1 by providing to the Agent a
notice (which may be given by a telephone call received by a Lending
Officer if promptly confirmed in writing). Such notice must be not
later than noon (Boston time) on the first Banking Day (third Banking
Day if any portion of such loan will be subject to a Eurodollar
Pricing Option on the requested Closing Date) prior to the requested
Closing Date for such loan. If such notice requested that a loan, or
any portion thereof, be made subject to a Eurodollar Pricing Option,
and the Agent shall have notified the Borrower pursuant to
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Section 3.2.2 that such election did not become effective, the notice
shall be deemed to have been made for a loan at the Base Rate. The
notice must specify (a) the amount of the requested loan (which shall
be not less than $100,000 and an integral multiple of $50,000), (b)
the requested Closing Date therefor (which shall be a Banking Day) and
(c) the portion of the requested loan that is to be used for working
capital. Upon receipt of such notice, the Agent will promptly inform
each other Lender (by telephone or otherwise). Each such loan will be
made at the Boston Office by depositing the amount thereof to the
general account of such Borrower with the Agent. In connection with
each such loan, such Borrower shall furnish to the Agent a certificate
in substantially the form of Exhibit 5.3.1.
2.1.4. Loan Accounts; Revolving Notes. The Agent will
establish on its books separate loan accounts for each Borrower
(collectively the "Loan Accounts") each of which the Agent shall
administer as follows: (a) the Agent shall add to each Loan Account,
and each Loan Account shall evidence, the principal amount of all
loans from time to time made by the Lenders to such Borrower pursuant
to Section 2.1.1 and (b) the Agent shall reduce each Borrower's Loan
Account by the amount of all payments made on account of the
Indebtedness evidenced by the Loan Account of such Borrower. The
aggregate principal amount of the Indebtedness evidenced by the Loan
Accounts is referred to as the "Revolving Loan". The Revolving Loan
shall be deemed owed to each Lender severally in accordance with such
Lender's Percentage Interest, and all payments credited to the Loan
Accounts shall be for the account of each Lender in accordance with
its Percentage Interest. Each Borrower's obligations to pay each
Lender's Percentage Interest in the Revolving Loan shall be evidenced
by a separate note of such Borrower in substantially the form of
Exhibit 2.1.4 (the "Revolving Notes"), payable to each Lender in
maximum principal amount equal to such Lender's Percentage Interest in
the Revolving Loan.
2.2. Letters of Credit.
2.2.1. Issuance of Letters of Credit. Subject to all
the terms and conditions of this Agreement and so long as no Default
then exists, from time to time on and after the Initial Closing Date
and prior to the Final Maturity Date, the Letter of Credit Issuer will
issue for the account of any Borrower one or more irrevocable
documentary or standby letters of credit (the "Letters of Credit").
Letter of Credit Exposure plus the Revolving Loan shall in no event
exceed the Maximum Amount of Revolving Credit. Letter of Credit
Exposure shall in no event exceed $2,000,000.
2.2.2. Requests for Letters of Credit. Any Borrower
may from time to time request a Letter of Credit to be issued by
providing to the Letter of Credit Issuer (and the Agent if the Letter
of Credit Issuer is not the Agent) a notice which is actually received
not less than five Banking Days prior to the requested Closing Date
for such Letter of Credit specifying (a) the amount of the requested
Letter of Credit, (b) the
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beneficiary thereof, (c) the requested Closing Date and (d) the
principal terms of the text for such Letter of Credit. Each Letter of
Credit will be issued by forwarding it to such Borrower or to such
other Person as directed in writing by such Borrower. In connection
with the issuance of any Letter of Credit, such Borrower shall furnish
to the Letter of Credit Issuer (and the Agent if the Letter of Credit
Issuer is not the Agent) a certificate in substantially the form of
Exhibit 5.3.1 and any customary application forms required by the
Letter of Credit Issuer.
2.2.3. Form and Expiration of Letters of Credit. Each
Letter of Credit issued under this Section 2.2 and each draft accepted
or paid under such a Letter of Credit shall be issued, accepted or
paid, as the case may be, by the Letter of Credit Issuer at its
principal office. No Letter of Credit shall provide for the payment
of drafts drawn thereunder, and no draft shall be payable, at a date
which is later than the earlier of (a) the date 12 months after the
date of issuance of such Letter of Credit or (b) the Final Maturity
Date. Each Letter of Credit and each draft accepted under a Letter of
Credit shall be in such form and minimum amount, and shall contain
such terms, as the Letter of Credit Issuer and such Borrower may agree
upon at the time such Letter of Credit is issued, including a
requirement of not less than three Banking Days after presentation of
a draft before payment must be made thereunder.
2.2.4. Lenders' Participation in Letters of Credit.
Upon the issuance of any Letter of Credit, a participation therein, in
an amount equal to each Lender's Percentage Interest, shall
automatically be deemed granted by the Letter of Credit Issuer to each
Lender on the date of such issuance and the Lenders shall
automatically be obligated, as set forth in Section 12.4, to reimburse
the Letter of Credit Issuer to the extent of their respective
Percentage Interests for all obligations incurred by the Letter of
Credit Issuer to third parties in respect of such Letter of Credit not
reimbursed by the Company. The Letter of Credit Issuer will send to
each Lender (and the Agent if the Letter of Credit Issuer is not the
Agent) a confirmation regarding the participations in Letters of
Credit outstanding during such month.
2.2.5. Presentation. The Letter of Credit Issuer may
accept or pay any draft presented to it, regardless of when drawn and
whether or not negotiated, if such draft, the other required documents
and any transmittal advice are presented to the Letter of Credit
Issuer and dated on or before the expiration date of the Letter of
Credit under which such draft is drawn. Except insofar as
instructions actually received may be given by such Borrower in
writing expressly to the contrary with regard to, and prior to, the
Letter of Credit Issuer's issuance of any Letter of Credit for the
account of such Borrower and such contrary instructions are reflected
in such Letter of Credit, the Letter of Credit Issuer may honor as
complying with the terms of the Letter of Credit and with this
Agreement any drafts or other documents otherwise in order signed or
issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for benefit of creditors,
liquidator, receiver or other legal
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representative of the party authorized under such Letter of Credit to
draw or issue such drafts or other documents.
2.2.6. Payment of Drafts. At such time as a Letter of
Credit Issuer makes any payment on a draft presented or accepted under
a Letter of Credit, such Borrower will on demand pay to such Letter of
Credit Issuer in immediately available funds the amount of such
payment. Unless such Borrower shall otherwise pay to the Letter of
Credit Issuer the amount required by the foregoing sentence, such
amount shall be considered a loan under Section 2.1.1 to such Borrower
and part of the Revolving Loan.
2.2.7. Uniform Customs and Practice. The Uniform
Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, and any
subsequent revisions thereof approved by a Congress of the
International Chamber of Commerce and adhered to by the Letter of
Credit Issuer (the "Uniform Customs and Practice"), shall be binding
on the Company and the Letter of Credit Issuer except to the extent
otherwise provided herein, in any Letter of Credit or in any other
Credit Document. Anything in the Uniform Customs and Practice to the
contrary notwithstanding:
(a) None of the Borrowers nor any beneficiary of any
Letter of Credit shall be deemed an agent of any Letter of Credit
Issuer.
(b) With respect to each Letter of Credit, neither the
Letter of Credit Issuer nor its correspondents shall be responsible
for or shall have any duty to ascertain:
(i) the genuineness of any signature;
(ii) the validity, form, sufficiency,
accuracy, genuineness or legal effect of any endorsements;
(iii) delay in giving, or failure to give,
notice of arrival, notice of refusal of documents or of
discrepancies in respect of which any Letter of Credit
Issuer refuses the documents or any other notice, demand or
protest;
(iv) the performance by any beneficiary under
any Letter of Credit of such beneficiary's obligations to
such Borrower;
(v) inaccuracy in any notice received by the
Letter of Credit Issuer;
or
(vi) the validity, form, sufficiency,
accuracy, genuineness or legal effect of any instrument,
draft, certificate or other document required by such
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Letter of Credit to be presented before payment of a draft,
or the office held by or the authority of any Person signing
any of the same.
(c) The occurrence of any of the events referred to in
the Uniform Customs and Practice or in the preceding clauses of this
Section 2.2.7 shall not affect or prevent the vesting of any of the
Letter of Credit Issuer's rights or powers hereunder or such
Borrower's obligation to make reimbursement of amounts paid under any
Letter of Credit or any draft accepted thereunder.
(d) Such Borrower will promptly examine (i) each Letter
of Credit (and any amendments thereof) sent to it by the Letter of
Credit Issuer and (ii) all instruments and documents delivered to it
from time to time by the Letter of Credit Issuer. Such Borrower will
notify the Letter of Credit Issuer of any claim of noncompliance by
notice actually received within three Banking Days after receipt of
any of the foregoing documents, such Borrower being conclusively
deemed to have waived any such claim against such Letter of Credit
Issuer and its correspondents unless such notice is given. The Letter
of Credit Issuer shall have no obligation or responsibility to send
any such Letter of Credit or any such instrument or document to such
Borrower.
(e) In the event of any conflict between the provisions
of this Agreement and the Uniform Customs and Practice, the provisions
of this Agreement shall govern.
2.2.8. Subrogation. Upon any payment by a Letter of
Credit Issuer under any Letter of Credit and until the reimbursement
of such Letter of Credit Issuer by such Borrower with respect to such
payment, the Letter of Credit Issuer shall be entitled to be
subrogated to, and to acquire and retain, the rights which the Person
to whom such payment is made may have against such Borrower, all for
the benefit of the Lenders.
2.2.9. Modification, Consent, etc. If such Borrower
requests or consents in writing to any modification or extension of
any Letter of Credit, or waives any failure of any draft, certificate
or other document to comply with the terms of such Letter of Credit,
and if the Letter of Credit Issuer consents thereto, the Letter of
Credit Issuer shall be entitled to rely on such request, consent or
waiver. This Agreement shall be binding upon such Borrower with
respect to such Letter of Credit as so modified or extended, and with
respect to any action taken or omitted by such Letter of Credit Issuer
pursuant to any such request, consent or waiver.
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2.3. Application of Proceeds.
2.3.1. Revolving Loan. Subject to Section 2.3.3, the
Borrowers will apply the proceeds of the Revolving Loan (a) to fund
Permitted Acquisitions, (b) to refinance $1,700,000 of Indebtedness
previously incurred pursuant to a credit facility with The First
National Bank of Boston and (c) for working capital to the extent of
the Borrowing Base.
2.3.2. Letters of Credit. Letters of Credit shall be
issued only for such lawful corporate purposes as the Borrowers have
requested in writing and to which the Letter of Credit Issuer agrees.
2.3.3. Specifically Prohibited Applications. The Borrowers
will not, directly or indirectly, apply any part of the proceeds of
any extension of credit made pursuant to the Credit Documents to
purchase or to carry Margin Stock or to any transaction prohibited by
the Foreign Trade Regulations, by other Legal Requirements applicable
to the Lenders or by the Credit Documents.
2.4. Nature of Obligations of Lenders to Make Extensions of Credit.
The Lenders' obligations to extend credit under this Agreement are several and
are not joint or joint and several. If on any Closing Date any Lender shall
fail to perform its obligations under this Agreement, the aggregate amount of
Commitments to make the extensions of credit under this Agreement shall be
reduced by the amount of unborrowed Commitment of the Lender so failing to
perform and the Percentage Interests shall be appropriately adjusted. Lenders
that have not failed to perform their obligations to make the extensions of
credit contemplated by Section 2 may, if any such Lender so desires, assume,
in such proportions as such Lenders may agree, the obligations of any Lender
who has so failed and the Percentage Interests shall be appropriately adjusted.
The provisions of this Section 2.4 shall not affect the rights of the Borrowers
against any Lender failing to perform its obligations hereunder.
3. Interest; Eurodollar Pricing Options; Fees.
3.1. Interest. The Revolving Loan shall accrue and bear interest
at a rate per annum which shall at all times equal the Applicable Rate. Prior
to any stated or accelerated maturity of the Revolving Loan, each Borrower
will, on each Payment Date, pay the accrued and unpaid interest on the portion
of the Revolving Loan evidenced by its Loan Account which was not subject to a
Eurodollar Pricing Option. On the last day of each Eurodollar Interest Period
or on any earlier termination of any Eurodollar Pricing Option, each Borrower
will pay the accrued and unpaid interest on the portion of the Revolving Loan
evidenced by its Loan Account which was subject to the Eurodollar Pricing
Option which expired or terminated on such date. In the case of any
Eurodollar Interest Period longer than three months, each Borrower will also
pay the accrued and unpaid interest on the portion of the Revolving Loan
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evidenced by its Loan Account subject to the Eurodollar Pricing Option having
such Eurodollar Interest Period at three-month intervals, the first such
payment to be made on the last Banking Day of the three-month period which
begins on the first day of such Eurodollar Interest Period. On the stated or
any accelerated maturity of the Revolving Loan, each Borrower will pay all
accrued and unpaid interest on the portion of the Revolving Loan evidenced by
its Loan Account, including any accrued and unpaid interest on any portion of
such Revolving Loan which is subject to a Eurodollar Pricing Option. Upon the
occurrence and during the continuance of an Event of Default, the Lenders may
require accrued interest to be payable on demand or at regular intervals more
frequent than each Payment Date. All payments of interest hereunder shall be
made to the Agent for the account of each Lender in accordance with such
Lender's Percentage Interest.
3.2. Eurodollar Pricing Options.
3.2.1. Election of Eurodollar Pricing Options. Subject to
all of the terms and conditions hereof and so long as no Default
exists, any Borrower may from time to time, by irrevocable notice to
the Agent actually received not less than three Banking Days prior to
the commencement of the Eurodollar Interest Period selected in such
notice, elect to have such portion of the Revolving Loan as such
Borrower may specify in such notice accrue and bear interest during
the Eurodollar Interest Period so selected at the Applicable Rate
computed on the basis of the Eurodollar Rate. No such election shall
become effective:
(a) if, prior to the commencement of any such
Eurodollar Interest Period, the Agent determines that (i) the electing
or granting of the Eurodollar Pricing Option in question would violate
a Legal Requirement, (ii) Eurodollar deposits in an amount comparable
to the principal amount of the Revolving Loan as to which such
Eurodollar Pricing Option has been elected and which have a term
corresponding to the proposed Eurodollar Interest Period are not
readily available in the inter-bank Eurodollar market, or (iii) by
reason of circumstances affecting the inter-bank Eurodollar market,
adequate and reasonable methods do not exist for ascertaining the
interest rate applicable to such deposits for the proposed Eurodollar
Interest Period; or
(b) if any Lender shall have advised the Agent by
telephone or otherwise at or prior to noon (Boston time) on the second
Banking Day prior to the commencement of such proposed Eurodollar
Interest Period (and shall have subsequently confirmed in writing)
that, after reasonable efforts to determine the availability of such
Eurodollar deposits, such Lender reasonably anticipates that
Eurodollar deposits in an amount equal to the Percentage Interest of
such Lender in the portion of the Revolving Loan as to which such
Eurodollar Pricing Option has been elected and which have a term
corresponding to the Eurodollar Interest Period in question will not
be offered in the Eurodollar market to such Lender at a rate of
interest that does not exceed the anticipated Eurodollar Basic Rate.
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3.2.2. Notice to Lenders and the Borrowers. The Agent
will promptly inform each Lender (by telephone or otherwise) of each
notice received by it from a Borrower pursuant to Section 3.2.1 and of
the Eurodollar Interest Period specified in such notice. Upon
determination by the Agent of the Eurodollar Rate for such Eurodollar
Interest Period or in the event such election shall not become
effective, the Agent will promptly notify such Borrower and each
Lender (by telephone or otherwise) of the Eurodollar Rate so
determined or why such election did not become effective, as the case
may be.
3.2.3. Selection of Eurodollar Interest Periods.
Eurodollar Interest Periods shall be selected so that:
(a) the minimum portion of the Revolving Loan subject to
any Eurodollar Pricing Option shall be $500,000 and an integral
multiple of $100,000;
(b) no more than 6 Eurodollar Pricing Options shall be
outstanding at any one time; and
(c) no Eurodollar Interest Period with respect to any part
of the Revolving Loan subject to a Eurodollar Pricing Option shall
expire later than the Final Maturity Date.
3.2.4. Additional Interest. If any portion of the
Revolving Loan subject to a Eurodollar Pricing Option is repaid, or
any Eurodollar Pricing Option is terminated for any reason (including
acceleration of maturity), on a date which is prior to the last
Banking Day of the Eurodollar Interest Period applicable to such
Eurodollar Pricing Option, the Borrowers will pay to the Agent for the
account of each Lender in accordance with such Lender's Percentage
Interest, in addition to any amounts of interest otherwise payable
hereunder, an amount equal to the present value (calculated in
accordance with this Section 3.2.4) of interest for the unexpired
portion of such Eurodollar Interest Period on the portion of the
Revolving Loan so repaid, or as to which a Eurodollar Pricing Option
was so terminated, at a per annum rate equal to the excess, if any, of
(a) the rate applicable to such Eurodollar Pricing Option minus (b)
the lowest rate of interest obtainable by the Agent upon the purchase
of debt securities customarily issued by the Treasury of the United
States of America which have a maturity date approximating the last
Banking Day of such Eurodollar Interest Period. The present value of
such additional interest shall be calculated by discounting the amount
of such interest for each day in the unexpired portion of such
Eurodollar Interest Period from such day to the date of such repayment
or termination at a per annum interest rate equal to the interest rate
determined pursuant to clause (b) of the preceding sentence, and by
adding all such amounts for all such days during such period. The
determination by the Agent of such amount of interest shall, in the
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absence of manifest error, be conclusive. For purposes of this
Section 3.2.4, if any portion of the Revolving Loan which was to have
been subject to a Eurodollar Pricing Option is not outstanding on the
first day of the Eurodollar Interest Period applicable to such
Eurodollar Pricing Option other than for reasons described in Section
3.2.1, the Borrowers shall be deemed to have terminated such
Eurodollar Pricing Option.
3.2.5. Violation of Legal Requirements. If any Legal
Requirement shall prevent any Lender from funding or maintaining
through the purchase of deposits in the interbank Eurodollar market
any portion of the Revolving Loan subject to a Eurodollar Pricing
Option or otherwise from giving effect to such Lender's obligations as
contemplated by Section 3.2, (a) the Agent may by notice to the
Borrowers terminate all of the affected Eurodollar Pricing Options,
(b) the portion of the Revolving Loan subject to such terminated
Eurodollar Pricing Options shall immediately bear interest thereafter
at the Applicable Rate computed on the basis of the Base Rate and (c)
the Borrowers shall make any payment required by Section 3.2.4.
3.2.6. Funding Procedure. The Lenders may fund any
portion of the Revolving Loan subject to a Eurodollar Pricing Option
out of any funds available to the Lenders. Regardless of the source
of the funds actually used by any of the Lenders to fund any portion
of the Revolving Loan subject to a Eurodollar Pricing Option, however,
all amounts payable hereunder, including the interest rate applicable
to any such portion of the Revolving Loan and the amounts payable
under Sections 3.2.4, 3.5, 3.6, 3.7 and 3.8, shall be computed as if
each Lender had actually funded such Lender's Percentage Interest in
such portion of the Revolving Loan through the purchase of deposits in
such amount of the type by which the Eurodollar Basic Rate was
determined with a maturity the same as the applicable Eurodollar
Interest Period relating thereto and through the transfer of such
deposits from an office of the Lender having the same location as the
applicable Eurodollar Office to one of such Lender's offices in the
United States of America.
3.3. Commitment Fees. In consideration of the Lenders' commitments
to make the extensions of credit provided for in Section 2.1, while such
commitments are outstanding, the Borrowers will pay to the Agent for the
account of the Lenders in accordance with the Lenders' respective Percentage
Interests, on the first Banking Day of each fiscal quarter, an amount equal to
interest computed at the rate of 0.375% per annum on the amount by which (a)
the average daily Maximum Amount of Revolving Credit during the three-month
period or portion thereof ending on such Payment Date exceeded (b) the sum of
(i) the average daily Revolving Loan during such period or portion thereof
plus (ii) the average daily Letter of Credit Exposure during such period or
portion thereof; provided, however, that the first such payment shall be for
the period beginning on the Initial Closing Date and ending on the first
Payment Date.
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3.4. Letter of Credit Fees. The Borrowers will pay to the
Agent for the account of each of the Lenders, in accordance with the Lenders'
respective Percentage Interests, on the date any Letter of Credit is issued by
the Letter of Credit Issuer, a Letter of Credit fee equal to interest at the
rate of 1.50% per annum on the face amount of such Letter of Credit for the
term of such Letter of Credit. The Company will pay to the Letter of Credit
Issuer customary service charges and expenses for its services in connection
with the Letters of Credit at the times and in the amounts from time to time in
effect in accordance with its general rate structure, including fees and
expenses relating to issuance, amendment, negotiation, cancellation and similar
operations.
3.5. Reserve Requirements, etc. If any Legal Requirement
shall (a) impose, modify, increase or deem applicable any insurance assessment,
reserve, special deposit or similar requirement against any Funding Liability
or the Letters of Credit, (b) impose, modify, increase or deem applicable any
other requirement or condition with respect to any Funding Liability or the
Letters of Credit, or (c) change the basis of taxation of Funding Liabilities
or payments in respect of any Letter of Credit (other than changes in the rate
of taxes measured by the overall net income of such Lender) and the effect of
any of the foregoing shall be to increase the cost to any Lender of issuing,
making, funding or maintaining its respective Percentage Interest in any
portion of the Revolving Loan subject to a Eurodollar Pricing Option or any
Letter of Credit, to reduce the amounts received or receivable by such Lender
under this Agreement or to require such Lender to make any payment or forego
any amounts otherwise payable to such Lender under this Agreement, then, the
Lender shall, promptly after it has made such determination, give notice
thereof to the Company. Promptly after the receipt by the Company of any such
notice, the Company and the Lender shall attempt to negotiate in good faith an
adjustment to the amount payable by the Borrowers to the Lender under this
Section 3.5, which amount shall be sufficient to compensate the Lender for such
increased cost or reduced return. If the Company and the Lender are unable to
agree to such adjustment within thirty days of the date upon which the Company
receives such notice, then the Borrowers will, on demand by the Lender, pay to
the Lender such additional amount as shall be sufficient, in the Lender's
reasonable determination, to compensate the Lender for such increased cost or
such reduced return, together with interest at the Overdue Reimbursement Rate
from the 30th day after receipt of such certificate until payment in full
thereof; provided, however, that the foregoing provisions shall not apply to
any Tax or to any reserves which are included in computing the Eurodollar
Reserve Rate. The determination by such Lender of the amount of such costs
shall, in the absence of manifest error, be conclusive. The Borrowers shall be
entitled to replace any such Lender in accordance with Section 13.3.
3.6. Taxes. All payments of the Credit Obligations shall be made
without set-off or counterclaim and free and clear of any deductions, including
deductions for Taxes, unless the Borrowers are required by law to make such
deductions. If (a) any Lender shall be subject to any Tax with respect to any
payment of the Credit Obligations or its obligations hereunder or (b) any
Borrower shall be required to withhold or deduct any Tax on any payment on the
Credit Obligations, then, the Lender shall, promptly give notice of its claim
for compensation
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under this Section 3.6 to the Company. Promptly after the receipt by the
Company of any such notice, the Company and the Lender shall attempt to
negotiate in good faith an adjustment to the amount payable by the Borrowers to
the Lender under this Section 3.6, which amount shall be sufficient to
compensate the Lender for the amount of the Tax so imposed or the full amount
of all payments which would have been received on the Credit Obligations in the
absence of such Tax. If the Company and the Lender are unable to agree to such
adjustment within thirty days of the date upon which the Company receives such
notice, then the Borrowers will, on demand by the Lender, pay to the Lender
such additional amount as shall be sufficient, in the Lender's reasonable
determination, to enable such Lender to receive the amount of Tax so imposed on
the Lender's obligations hereunder or the full amount of all payments which it
would have received on the Credit Obligations (including amounts required to be
paid under Sections 3.5, 3.7, 3.8 and this Section 3.6) in the absence of such
Tax, as the case may be, together with interest at the Overdue Reimbursement
Rate on such amount from the 30th day after receipt of such certificate until
payment in full thereof. Whenever Taxes must be withheld by any Borrower with
respect to any payments of the Credit Obligations, the Borrowers shall promptly
furnish to the Agent for the account of the applicable Lender official receipts
(to the extent that the relevant governmental authority delivers such receipts)
evidencing payment of any such Taxes so withheld. If the Borrowers fail to pay
any such Taxes when due or fails to remit to the Agent for the account of the
applicable Lender the required receipts evidencing payment of any such Taxes so
withheld or deducted, the Borrowers shall indemnify the affected Lender for any
incremental Taxes and interest or penalties that may become payable by such
Lender as a result of any such failure. The determination by such Lender of
the amount of such Tax and the basis therefor shall, in the absence of manifest
error, be conclusive. The Borrowers shall be entitled to replace any such
Lender in accordance with Section 13.3.
3.7. Capital Adequacy. If any Lender shall determine that
compliance by such Lender with any Legal Requirement regarding capital
adequacy of banks or bank holding companies has or would have the effect of
reducing the rate of return on the capital of such Lender and its Affiliates as
a consequence of such Lender's commitment to make the extensions of credit
contemplated hereby, or such Lender's maintenance of the extensions of credit
contemplated hereby, to a level below that which such Lender could have
achieved but for such compliance (taking into consideration the policies of
such Lender and its Affiliates with respect to capital adequacy immediately
before such compliance and assuming that the capital of such Lender and its
Affiliates was fully utilized prior to such compliance) by an amount deemed by
such Lender to be material, then, the Lender shall, promptly after it has made
such determination, give notice thereof to the Company. Promptly after the
receipt by the Company of any such notice, the Company and the Lender shall
attempt to negotiate in good faith an adjustment to the amount payable by the
Borrowers to the Lender under this Section 3.7, which amount shall be
sufficient to compensate the Lender for such reduced return. If the Company
and the Lender are unable to agree to such adjustment within thirty days of the
date upon which the Company receives such notice, then the Borrowers will, on
demand by the Lender, pay to the Lender such additional amount as shall be
sufficient, in the
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Lender's reasonable determination, to compensate the Lender for such reduced
return, together with interest at the Overdue Reimbursement Rate from the 30th
day until payment in full thereof. The determination by such Lender of the
amount to be paid to it and the basis for computation thereof shall, in the
absence of manifest error, be conclusive. In determining such amount, such
Lender may use any reasonable averaging, allocation and attribution methods.
The Borrowers shall be entitled to replace any such Lender in accordance with
Section 13.3.
3.8. Regulatory Changes. If any Lender shall determine that (a) any
change in any Legal Requirement (including any new Legal Requirement) after the
date hereof shall directly or indirectly (i) reduce the amount of any sum
received or receivable by such Lender with respect to the Revolving Loan or
the Letters of Credit or the return to be earned by such Lender on the
Revolving Loan or the Letters of Credit, (ii) impose a cost on such Lender or
any Affiliate of such Lender that is attributable to the making or maintaining
of, or such Lender's commitment to make, its portion of the Revolving Loan or
the Letters of Credit, or (iii) require such Lender or any Affiliate of such
Lender to make any payment on, or calculated by reference to, the gross amount
of any amount received by such Lender under any Credit Document, and (b) such
reduction, increased cost or payment shall not be fully compensated for by an
adjustment in the Applicable Rate or the Letter of Credit fees, then, the
Lender shall, promptly after it has made such determination, give notice
thereof to the Company. Promptly after the receipt by the Company of any such
notice, the Company and the Lender shall attempt to negotiate in good faith an
adjustment to the amount payable by the Borrowers to the Lender under this
Section 3.8, which amount, together with any adjustment in the Applicable Rate,
shall be sufficient to fully compensate the Lender for such reduction,
increased cost or payment taking into account any compensation for such
reduction, increased cost or payment received by the Lender pursuant to the
provisions of Section 3.5, 3.6 or 3.7 hereof. If the Company and the Lender
are unable to agree to such adjustment within thirty days of the date upon
which the Company receives such notice, then the Borrowers will, on demand by
the Lender, pay to the Lender such additional amount, together with any
adjustment in the Applicable Rate, as shall be sufficient to fully compensate
the Lender for such reduction, increased cost or payment, together with
interest on such amount from the 30th day after receipt of such certificate
until payment in full thereof at the Overdue Reimbursement Rate. The
determination by such Lender of the amount to be paid to it and the basis for
computation thereof hereunder shall, in the absence of manifest error, be
conclusive. In determining such amount, such Lender may use any reasonable
averaging and attribution methods. The Borrowers shall be entitled to replace
any such Lender in accordance with Section 13.3.
3.9. Computations of Interest and Fees. For purposes of this
Agreement, interest, commitment fees and Letter of Credit fees (and any other
amount expressed as interest or such fees) shall be computed on the basis of a
360-day year for actual days elapsed. If any payment required by this
Agreement becomes due on any day that is not a Banking Day, such payment shall,
except as otherwise provided in the Eurodollar Interest Period, be made on the
next
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succeeding Banking Day. If the due date for any payment of principal is
extended as a result of the immediately preceding sentence, interest shall be
payable for the time during which payment is extended at the Applicable Rate.
4. Payment.
4.1. Payment at Maturity. On the Final Maturity
Date or any accelerated maturity of the Revolving Loan, each Borrower will pay
to the Agent for the account of the Lenders an amount equal to its portion of
the Revolving Loan then due, as evidenced by its Loan Account, together with
all accrued and unpaid interest thereon and all other Credit Obligations then
outstanding.
4.2. Contingent Required Prepayments.
4.2.1. Excess Credit Exposure. If at any time the
Revolving Loan exceeds the limits set forth in Section 2.1, the
Borrowers shall within three Banking Days pay the amount of such
excess to the Agent for the account of the Lenders.
4.2.2. Letter of Credit Exposure. If at any time the
Letter of Credit Exposure exceeds the limits set forth in Section 2.2,
the Borrowers shall within three Banking Days pay the amount of such
excess to the Agent for the account of the Lenders to be applied as
provided in Section 4.5.
4.3. Voluntary Prepayments. In addition to the prepayments required
by Sections 4.2, any Borrower may from time to time prepay all or any
portion of the Revolving Loan (in a minimum amount of $100,000 and an integral
multiple of $100,000), without premium or penalty of any type (except as
provided in Section 3.2.4 with respect to the early termination of Eurodollar
Pricing Options). Such Borrower shall give the Agent at least one Banking Day
prior notice of its intention to prepay, specifying the date of payment, the
total amount of the Revolving Loan to be paid on such date and the amount of
interest to be paid with such prepayment.
4.4. Letters of Credit. If on the stated or any accelerated
maturity of the Credit Obligations the Lenders shall be obligated in respect
of a Letter of Credit or a draft accepted under a Letter of Credit, the
Borrowers will either:
(a) prepay such obligation by depositing with the Agent an
amount of cash, or
(b) deliver to the Agent a standby letter of credit
(designating the Agent as beneficiary and issued by a bank and on terms
reasonably acceptable to the Agent),
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in each case in an amount equal to the portion of the then Letter of Credit
Exposure issued for the account of the Borrowers. Any such cash so deposited
and the cash proceeds of any draw under any standby letter of credit so
furnished, including any interest thereon, shall be returned by the Agent to
the Borrowers only when, and to the extent that, the amount of such cash held
by the Agent exceeds the Letter of Credit Exposure at a time when no Default
exists; provided, however, that if an Event of Default occurs and the Credit
Obligations become or are declared immediately due and payable, the Agent may
apply such cash, including any interest thereon, to the payment of any of the
Credit Obligations as provided in Section 10.5.6.
4.5. Reborrowing; Application of Payments, etc.
4.5.1. Reborrowing. The amounts of the Revolving Loan
prepaid pursuant to Section 4.3 may be reborrowed from time to time
prior to the Final Maturity Date in accordance with Section 2.1,
subject to the limits set forth therein.
4.5.2. Order of Application. Any prepayment of the
Revolving Loan shall be applied first to the portion of the Revolving
Loan not then subject to Eurodollar Pricing Options, then the balance
of any such prepayment shall be applied to the portion of the
Revolving Loan then subject to Eurodollar Pricing Options, in the
chronological order of the respective maturities thereof, together
with any payments required by Section 3.2.4.
4.5.3. Payments for Lenders. All payments of principal
hereunder shall be made to the Agent for the account of the Lenders in
accordance with the Lenders' respective Percentage Interests.
5. Conditions to Extending Credit.
5.1. Conditions on Initial Closing Date. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Initial Closing Date, of the conditions
set forth in this Section 5.1 as well as the further conditions in Section 5.3.
If the conditions set forth in this Section 5.1 and 5.3 are not met on or prior
to the Initial Closing Date, the Lenders shall have no obligation to make any
extensions of credit hereunder.
5.1.1. Revolving Notes. Each Borrower shall have duly
executed and delivered to the Agent a Revolving Note for each Lender.
5.1.2. Perfection of Security. Each Obligor shall have
duly authorized, executed, acknowledged, delivered, filed, registered
and recorded such security agreements, notices, financing statements
and other instruments as the Agent may have requested in order to
perfect the Liens contemplated pursuant to the Credit Documents to be
created in the Credit Security. Each Obligor shall have duly
authorized,
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executed, acknowledged and delivered to the Agent a mortgage on each
real property owned by such Obligor and a leasehold mortgage on each
real property leased by such Obligor, in each case in form and
substance satisfactory to the Agent, together with, for each such real
property: (a) mortgage title insurance with such insurer, in such
amount, in such form and with such exceptions as are reasonably
satisfactory to the Agent and (b) an environmental site assessment
report in such form, with such conclusions and from such environmental
engineering firm as are reasonably satisfactory to the Agent.
5.1.3. Legal Opinions. On the Initial Closing Date, the
Lenders shall have received from the following counsel their
respective opinions with respect to the transactions contemplated by
the Credit Documents, which opinions shall be in form and substance
satisfactory to the Required Lenders:
(a) Greenberg Traurig Hoffman Lipoff Rosen & Quentel,
P.A., special counsel for the Obligors.
(b) Hutchins, Wheeler & Dittmar, a Professional
Corporation, special counsel for Summit Partners.
(c) Ropes & Gray, special counsel for the Agent.
The Obligors authorize and direct its counsel to furnish the
foregoing opinions.
5.1.4. Subordination Agreement. Each of Evangelos Poulos,
Michael Demaray, Alexander Kowalczyk, Summit Partners, Schroders
Incorporated, Schroders Ventures Limited Partnership, Schroders
Ventures U.S. Trust, the Derrick Management Investors and the
Borrowers shall have duly authorized, executed and delivered to the
Agent a Subordination Agreement in substantially the form of Exhibit
5.1.5 (the "Subordination Agreement").
5.1.5. Payment of Fee. The Borrower shall have paid to
the Agent for the accounts of the Lenders in accordance with their
respective Percentage Interests a closing fee of $200,000.
5.1.6. Derrick Acquisition. Other than as consented to by
the Required Lenders in writing:
(a) The provisions of the Acquisition Agreement relating
to the Derrick Acquisition shall not have been materially amended,
modified, waived or terminated.
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(b) All of the representations and warranties of the
Sellers set forth in such Acquisition Agreement shall be complete and
correct in all material respects on and as of the Closing Date with
the same force and effect as though made on and as of such date.
(c) All of the other conditions to the obligations of the
Borrowers set forth in such Acquisition Agreement shall have been
satisfied or waived by each of the other parties to such Acquisition
Agreement.
(d) Any material consent, authorization, order or approval
of any Person required in connection with the transactions
contemplated by such Acquisition Agreement shall have been obtained
and shall be in full force and effect.
(e) All of the items required to be delivered under such
Acquisition Agreement shall have been so delivered.
(f) Contemporaneously with or immediately after the
Derrick Acquisition, Derrick shall be merged with and into Ameripath
Florida, Inc.
(g) The Borrowers shall furnish to the Required Lenders
computations demonstrating compliance with Section 6.9.5, certified by
a Financial Officer of the Borrowers.
(h) Contemporaneously with or immediately after the making
by the Lenders of the initial extension of credit hereunder, the
Lenders shall have received a certificate of a Financial Officer of
the Company to the effect that (A) the initial closing has occurred
under such Acquisition Agreement, (B) the merger of Derrick with and
into Ameripath Florida, Inc. has been consummated and (C) each of the
conditions set forth in this Section 5.1.6 has been satisfied.
5.1.7. Legal Opinions. On the date of the Derrick
Acquisition, the Lenders shall have received from counsel reasonably
satisfactory to the Agent an opinion with respect to the transactions
contemplated by the Acquisition Agreement, which opinions shall be in
a form and substance reasonably satisfactory to the Agent.
5.2. Conditions to Making Each Permitted Acquisition Advance. The
Lenders' several obligations to make any loan contemplated by Section 2.1 or
2.2, the proceeds of which will be applied to a Permitted Acquisition, shall
be subject to the satisfaction, on or before the date of consummation of the
proposed Permitted Acquisition, of the following conditions, as well as the
further conditions set forth in Section 5.3:
5.2.1. Permitted Acquisition. Other than as consented to
by the Required Lenders in writing:
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(a) The Acquisition Agreement relating to such Permitted
Acquisition shall have been delivered to the Required Lenders.
(b) The provisions of the Acquisition Agreement relating
to such Permitted Acquisition shall not have been amended, modified,
waived or terminated in any material respect from the form of such
Agreement delivered to the Required Lenders pursuant to clause (a) and
any amendment, modification or waiver shall have been delivered to the
Required Lenders.
(c) All of the representations and warranties of the
Sellers set forth in such Acquisition Agreement shall be complete and
correct in all material respects on and as of the Closing Date with
the same force and effect as though made on and as of such date.
(d) All of the other conditions to the obligations of the
Borrowers set forth in such Acquisition Agreement shall have been
satisfied or waived by each of the other parties to such Acquisition
Agreement.
(e) Any material consent, authorization, order or approval
of any Person required in connection with the transactions
contemplated by such Acquisition Agreement shall have been obtained
and shall be in full force and effect.
(f) All of the items required to be delivered under such
Acquisition Agreement shall have been so delivered.
(g) The Borrowers shall furnish to the Required Lenders
computations demonstrating compliance with Section 6.9.5, certified by
a Financial Officer of the Borrowers.
(h) Contemporaneously with or immediately after the making
by the Lenders of the extension of credit hereunder, the Lenders shall
have received a certificate of a Financial Officer of the Borrower to
the effect that (A) the initial closing has occurred under such
Acquisition Agreement and (B) each of the conditions set forth in this
Section 5.2.1 has been satisfied.
5.2.2. Notes and Credit Documents; Merger.
Contemporaneously with or immediately after such Permitted
Acquisition, such Acquired Party shall either (a) execute and deliver
to the Agent a Revolving Note for each Lender and a Joinder Agreement
to the Credit Agreement and each other Lender Agreement in the form of
Exhibit 5.2.2 or (b) be merged with and into an existing Borrower, in
which case the Company shall have received a certificate of a
Financial Officer of the Company to the
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effect that the merger of such Acquired Party with and into an
existing Borrower has been consummated.
5.2.3. Legal Opinions. On the date of such Permitted
Acquisition, the Lenders shall have received from counsel reasonably
satisfactory to the Agent (a) an opinion with respect to the addition
of the Acquired Party as a Borrower and a Guarantor under this
Agreement and the other Credit Documents and (b) an opinion with
respect to the transactions contemplated by the Acquisition Agreement,
which opinions shall be in a form and substance reasonably
satisfactory to the Agent.
5.3. Conditions to Each Extension of Credit. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Closing Date for such extension of
credit, of the following conditions:
5.3.1. Officer's Certificate. The representations and
warranties contained in Sections 7 and 10.3 shall be true and correct
on and as of such Closing Date with the same force and effect as
though made on and as of such date (except as to any representation or
warranty which refers to a specific earlier date); no Default shall
exist on such Closing Date prior to or immediately after giving effect
to the requested extension of credit; no Material Adverse Change shall
have occurred since December 31, 1995; and the Borrower that is
requesting an extension of credit shall have furnished to the Agent in
connection with the requested extension of credit a certificate to
these effects, in substantially the form of Exhibit 5.3.1, signed by a
Financial Officer.
5.3.2. Legality, etc. The making of the requested
extension of credit shall not (a) subject any Lender to any penalty or
special tax (other than a Tax for which the Borrowers are required to
reimburse the Lenders under Section 3.6), (b) be prohibited by any
Legal Requirement or (c) violate any credit restraint program of the
executive branch of the government of the United States of America,
the Board of Governors of the Federal Reserve System or any other
governmental or administrative agency so long as any Lender reasonably
believes that compliance is required by law.
5.3.3. Proper Proceedings. This Agreement, each other
Credit Document and the transactions contemplated hereby and thereby
shall have been authorized by all necessary corporate or other
proceedings of the Obligors. All necessary consents, approvals and
authorizations of any governmental or administrative agency or any
other Person of any of the transactions contemplated hereby or by any
other Credit Document shall have been obtained and shall be in full
force and effect.
5.3.4. General. All legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall
be satisfactory in form and substance to the Agent and the Agent shall
have received copies of all documents, including
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certified copies of the Charter and By-Laws of the Borrowers and the
other Obligors, records of corporate proceedings, certificates as to
signatures and incumbency of officers and opinions of counsel, which
the Agent may have reasonably requested in connection therewith, such
documents where appropriate to be certified by proper corporate or
governmental authorities.
6. General Covenants. Each of the Obligors covenants that, until all of
the Credit Obligations shall have been paid in full and until the Lenders'
commitments to extend credit under this Agreement and any other Credit Document
shall have been irrevocably terminated, it will comply, and will cause its
Subsidiaries to comply with the following provisions:
6.1. Taxes and Other Charges; Accounts Payable.
6.1.1. Taxes and Other Charges. Each of the Obligors
shall duly pay and discharge, or cause to be paid and discharged,
before the same become in arrears, all taxes, assessments and other
governmental charges imposed upon such Person and its properties,
sales or activities, or upon the income or profits therefrom, as well
as all claims for labor, materials or supplies which if unpaid might
by law become a Lien upon any of its property; provided, however, that
any such tax, assessment, charge or claim need not be paid if the
validity or amount thereof shall at the time be contested in good
faith by appropriate proceedings and if such Person shall, in
accordance with GAAP, have set aside on its books adequate reserves
with respect thereto; and provided, further, that each of the Obligors
shall pay or bond, or cause to be paid or bonded, all such taxes,
assessments, charges or other governmental claims immediately upon the
commencement of proceedings to foreclose any Lien which may have
attached as security therefor (except to the extent such proceedings
have been dismissed or stayed).
6.1.2. Accounts Payable. Each of the Obligors shall
promptly pay when due, or in conformity with customary trade terms,
all other Indebtedness, including accounts payable, incident to the
operations of such Person not referred to in Section 6.1.1; provided,
however, that any such Indebtedness need not be paid if the validity
or amount thereof shall at the time be contested in good faith and if
such Person shall, in accordance with GAAP, have set aside on its
books adequate reserves with respect thereto.
6.2. Conduct of Business, etc.
6.2.1. Types of Business. The Obligors shall engage only
in the business of (a) providing pathology services, laboratory
services (including full service clinical and anatomical pathology
laboratory services) and (b) other activities and services related
thereto.
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6.2.2. Maintenance of Properties. Each of the Obligors:
(a) shall keep its properties in such repair, working
order and condition, and shall from time to time make such repairs,
replacements, additions and improvements thereto as are necessary for
the efficient operation of its businesses and shall comply at all
times in all material respects with all franchises, licenses, leases
and other material agreements to which it is party so as to prevent
any loss or forfeiture thereof or thereunder, except where (i)
compliance is at the time being contested in good faith by appropriate
proceedings or (ii) failure to comply with the provisions being
contested has not resulted, or does not create a material risk of
resulting, in the aggregate in any Material Adverse Change; provided,
however, that this Section 6.2.2(a) shall not apply to assets or
entities disposed of in transactions permitted by Section 6.11; and
(b) shall do all things necessary to preserve, renew and
keep in full force and effect and in good standing its legal existence
and authority necessary to continue its business; provided, however,
that this Section 6.2.2(b) shall not prevent the merger, consolidation
or liquidation of Subsidiaries permitted by Section 6.11.
6.2.3. Statutory Compliance. Each of the Obligors shall
comply in all material respects with all valid and applicable
statutes, laws, ordinances, zoning and building codes and other rules
and regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and other
subdivisions and of any foreign country or other jurisdictions
applicable to such Person, except where (a) compliance therewith shall
at the time be contested in good faith by appropriate proceedings or
(b) failure so to comply with the provisions being contested has not
resulted, or does not create a material risk of resulting, in the
aggregate in any Material Adverse Change.
6.2.4. No Subsidiaries. No Borrower shall form or suffer
to exist any Subsidiary, except for such Subsidiaries as shall have
executed and delivered to the Agent either (a) this Agreement and each
other Credit Document as of the Initial Closing Date or (b) a Joinder
Agreement in the form of Exhibit 5.2.2 pursuant to which such
Subsidiary shall have become a Borrower and a Guarantor hereunder.
6.2.5. Compliance with Material Agreements. Each of the
Obligors shall comply in all material respects with the Material
Agreements (to the extent not in violation of the other provisions of
this Agreement or any other Credit Document). Without the prior
written consent of the Required Lenders, which consent shall not be
unreasonably withheld, no Material Agreement shall be amended,
modified, waived or terminated in any manner that would have in any
material respect an adverse effect on the interests of the Lenders.
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6.3. Insurance.
6.3.1. Business Interruption Insurance. Each of the
Obligors shall maintain with financially sound and reputable insurers
insurance related to interruption of business, either for loss of
revenues or for extra expense, in the manner customary for businesses
of similar size engaged in similar activities in similar localities.
6.3.2. Property Insurance. Each of the Obligors shall
keep its assets which are of an insurable character insured by
financially sound and reputable insurers against theft and fraud and
against loss or damage by fire, explosion and hazards and such other
extended coverage risks insured against by extended coverage to the
extent, in amounts and with deductibles at least as favorable as those
generally maintained by businesses of similar size engaged in similar
activities in similar localities.
6.3.3. Liability Insurance. Each of the Obligors shall
maintain with financially sound and reputable insurers insurance
against liability for hazards, risks and liability to persons (for
both death and bodily injury) and property, including product
liability insurance and medical malpractice insurance, to the extent,
in amounts and with deductibles at least as favorable as those
generally maintained by businesses of similar size engaged in similar
activities in similar localities; provided, however, that it may
effect workers' compensation insurance or similar coverage with
respect to operations in any particular state or other jurisdiction
through an insurance fund operated by such state or jurisdiction or by
meeting the self-insurance requirements of such state or jurisdiction.
6.3.4. Key Executive Life Insurance. The Borrowers
shall maintain with financially sound and reputable insurers life
insurance policies on each of E.G. Poulos, M.J. Demaray and A.P.
Kowalczyk in an amount of at least $2,000,000 each in form
satisfactory to the Agent and on any doctors employed by Derrick in an
amount not less than and in the form of any life insurance policies
maintained by Derrick as of or immediately prior to the Initial
Closing Date.
6.3.5. Flood Insurance. Each of the Obligors shall at all
times keep each parcel of real property owned or leased by it which is
(a) included in the Credit Security, (b) in an area determined by the
Director of the Federal Emergency Management Agency to be subject to
special flood hazard and (c) in a community participating in the
National Flood Insurance Program, insured against such special flood
hazards in an amount equal to the maximum limit of coverage available
for the particular type of property under the federal National Flood
Insurance Act of 1968.
6.4. Financial Statements and Reports. Each of the Obligors shall
maintain a system of accounting in which correct entries shall be made of all
transactions in relation to their business and affairs in accordance with
generally accepted accounting practice. The
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fiscal year of the Obligors shall end on December 31 in each year and the
fiscal quarters of the Obligors shall end on March 31, June 30, September 30
and December 31 in each year.
6.4.1. Annual Reports. The Borrowers shall furnish to the
Lenders as soon as available, and in any event within 120 days after
the end of each fiscal year, the Consolidated and Consolidating
balance sheets of the Borrowers and their respective Subsidiaries as
at the end of such fiscal year, the Consolidated and Consolidating
statements of income and Consolidated statements of changes in
shareholders' equity and of cash flows of the Borrowers and their
respective Subsidiaries for such fiscal year (all in reasonable
detail) and together, in the case of Consolidated financial
statements, with comparative figures for the immediately preceding
fiscal year, all accompanied by:
(a) Unqualified reports of independent certified public
accountants of recognized national standing reasonably satisfactory to
the Required Lenders, containing no material uncertainty and without
any Impermissible Reference, to the effect that they have audited the
foregoing Consolidated financial statements in accordance with
generally accepted auditing standards and that such Consolidated
financial statements present fairly, in all material respects, the
financial position of the Borrowers and their respective Subsidiaries
covered thereby at the dates thereof and the results of their
operations for the periods covered thereby in conformity with GAAP.
(b) The statement of such accountants that they have
caused this Agreement to be reviewed and that in the course of their
audit of the Borrowers and their respective Subsidiaries no facts have
come to their attention that cause them to believe that any Default
exists and in particular that they have no knowledge of any Default
under Sections 6.5 through 6.20 or, if such is not the case,
specifying such Default and the nature thereof. This statement is
furnished by such accountants with the understanding that the
examination of such accountants cannot be relied upon to give such
accountants knowledge of any such Default except as it relates to
accounting or auditing matters within the scope of their audit.
(c) A certificate of each of the Borrowers signed by a
Financial Officer to the effect that such officer has caused this
Agreement to be reviewed and has no knowledge of any Default, or if
such officer has such knowledge, specifying such Default and the
nature thereof, and what action such Borrower has taken, is taking or
proposes to take with respect thereto.
(d) Computations by each of the Borrowers comparing the
financial statements referred to above with the most recent budget for
such fiscal year furnished to the Lenders in accordance with Section
6.4.4.
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(e) Computations by each of the Borrowers demonstrating,
as of the end of such fiscal year, compliance with the Computation
Covenants, certified by a Financial Officer.
(f) Calculations, as at the end of such fiscal year, of
(i) the Accumulated Benefit Obligations for each Plan covered by Title
IV of ERISA (other than Multiemployer Plans) and (ii) the fair market
value of the assets of such Plan allocable to such benefits.
(g) Supplements to Exhibits 7.1, 7.3 and 10.4.2 showing
any changes in the information set forth in such Exhibits not
previously furnished to the Lenders in writing, as well as any changes
in the Charter, Bylaws or incumbency of officers of any of the
Borrowers or their respective Subsidiaries from those previously
certified to the Agent.
(h) In the event of a change in GAAP after the Initial
Closing Date, computations by each of the Borrowers, certified by a
Financial Officer, reconciling the financial statements referred to
above with financial statements prepared in accordance with GAAP as
applied to the other covenants in Section 6 and related definitions.
6.4.2. Quarterly Reports. The Borrowers shall furnish to
the Lenders as soon as available and, in any event, within 45 days
after the end of each of the first three fiscal quarters of the
Borrowers, the internally prepared Consolidated and Consolidating
balance sheets of the Borrowers and their respective Subsidiaries as
of the end of such fiscal quarter, the Consolidated and Consolidating
statements of income and Consolidated statements of changes in
shareholders' equity and of cash flows of the Borrowers and their
respective Subsidiaries for such fiscal quarter and for the portion of
the fiscal year then ended (all in reasonable detail) and together, in
the case of Consolidated statements, with comparative figures for the
same period in the preceding fiscal year, all accompanied by:
(a) A certificate of each of the Borrowers signed by a
Financial Officer to the effect that such financial statements have
been prepared in accordance with GAAP and present fairly, in all
material respects, the financial position of the Borrowers and their
respective Subsidiaries covered thereby at the dates thereof and the
results of their operations for the periods covered thereby, subject
only to normal year-end audit adjustments and the addition of
footnotes.
(b) A certificate of each of the Borrowers signed by a
Financial Officer to the effect that such officer has caused this
Agreement to be reviewed and has no knowledge of any Default, or if
such officer has such knowledge, specifying such
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Default and the nature thereof and what action such Borrower has
taken, is taking or proposes to take with respect thereto.
(c) Computations by the Borrowers comparing the financial
statements referred to above with the most recent budget for the
period covered thereby furnished to the Lenders in accordance with
Section 6.4.4.
(d) Computations by the each of Borrowers demonstrating,
as of the end of such quarter, compliance with the Computation
Covenants, certified by a Financial Officer.
(e) Supplements to Exhibits 7.1, 7.3 and 10.4.2 showing
any changes in the information set forth in such Exhibits not
previously furnished to the Lenders in writing, as well as any changes
in the Charter, Bylaws or incumbency of officers of any of the
Borrowers or their respective Subsidiaries from those previously
certified to the Agent.
(f) In the event of a change in GAAP after the Initial
Closing Date, computations by each of the Borrowers, certified by a
Financial Officer, reconciling the financial statements referred to
above with financial statements prepared in accordance with GAAP as
applied to the other covenants in Section 6 and related definitions.
6.4.3. Monthly Reports. Each of the Borrowers shall
furnish to the Lenders as soon as available and, in any event, within
30 days after the end of each month, a certificate of a Financial
Officer of the Borrowers supplying computations of the Borrowing Base
at the beginning of such month and certifying that such computations
were based on the monthly reports prepared in accordance with GAAP.
6.4.4. Other Reports. Each of the Borrowers shall
promptly furnish to the Lenders:
(a) As soon as prepared and in any event prior to the
beginning of each fiscal year, an annual budget and operating
projections for such fiscal year of such Borrower and its respective
Subsidiaries, prepared in a manner consistent with the manner in which
the financial projections described in Section 7.2.1 were prepared.
(b) Before May 31, 1996, the audited Consolidating
balance sheets, statements of income, changes in shareholders' equity
and of cash flows of Derrick for the fiscal years ended on December 31
of 1993, 1994 and 1995, accompanied by the report of Deloitte &
Touche.
(c) Any material updates of such budget and projections.
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(d) Any management letters furnished to such Borrower or
any of its Subsidiaries by the Company's auditors.
(e) All budgets, projections, statements of operations and
other reports furnished generally to the shareholders of such
Borrower.
(f) As soon as practicable but, in any event, within 20
Banking Days after the filing thereof, such registration statements,
proxy statements and reports, including, to the extent applicable,
Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and 8-K, as may be filed by such
Borrower or any of its Subsidiaries with the Securities and Exchange
Commission.
(g) Any 90-day letter or 30-day letter from the federal
Internal Revenue Service (or the equivalent notice received from state
or other taxing authorities) asserting tax deficiencies against such
Borrower or any of its Subsidiaries.
(h) Any material information relating to a material audit
or investigation of any Borrower in its capacity as a Medicare or
Medicaid provider by a governmental or administrative agency.
(i) The financial and operational projections for each of
Derrick and the Company and the other Borrowers on a Consolidated and
consolidating basis prior to June 30, 1996.
6.4.5. Notice of Litigation, Defaults, etc. Each of the
Borrowers shall promptly furnish to the Lenders notice of any
litigation or any administrative or arbitration proceeding (a) which
creates a material risk of resulting, after giving effect to any
applicable insurance, in the payment by any Borrower or any of its
Subsidiaries of more than $100,000 or (b) which results, or creates a
material risk of resulting, in a Material Adverse Change. Within five
Banking Days after acquiring knowledge thereof, such Borrower shall
notify the Lenders of the existence of any Default or Material Adverse
Change, specifying the nature thereof and what action such Borrower or
such Subsidiary has taken, is taking or proposes to take with respect
thereto.
6.4.6. ERISA Reports. Each of the Borrowers shall furnish
to the Lenders promptly after the same shall become available the
following items with respect to any Plan:
(a) any request for a waiver of the funding standards or
an extension of the amortization period,
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(b) any reportable event (as defined in section 4043 of
ERISA), unless the notice requirement with respect thereto has been
waived by regulation,
(c) any notice received by any ERISA Group Person that the
PBGC has instituted or intends to institute proceedings to terminate
any Plan, or that any Multiemployer Plan is insolvent or in
reorganization,
(d) notice of the possibility of the termination of any
Plan by its administrator pursuant to section 4041 of ERISA, and
(e) notice of the intention of any ERISA Group Person to
withdraw, in whole or in part, from any Multiemployer Plan.
6.4.7. Other Information; Audit. From time to time at
reasonable intervals upon request of any authorized officer of any
Lender, each of the Obligors shall furnish to the Lenders such other
information regarding the business, assets, financial condition,
income or prospects of the Obligors as such officer may reasonably
request, including copies of all tax returns, licenses, agreements,
leases and instruments to which any of the Obligors is party. The
Lenders' authorized officers and representatives shall have the right
during normal business hours upon reasonable notice and at reasonable
intervals to examine the books and records of the Obligors, to make
copies and notes therefrom for the purpose of ascertaining compliance
with or obtaining enforcement of this Agreement or any other Credit
Document. The Agent, upon reasonable advance notice, may undertake to
have any Obligor reviewed by the Agent's commercial financial
examiners and fixed asset appraisers, The Borrowers shall bear the
reasonable expenses related to one such review annually unless an
Event of Default has occurred and is continuing in which event the
Borrowers shall bear all reasonable expenses of any reasonable number
of reviews.
6.5. Certain Financial Tests.
6.5.1. Minimum Net Income. On the last day of each fiscal
quarter of the Borrowers, Consolidated Net Income shall be at least
$1.00.
6.5.2. Consolidated Senior Debt Coverage. At all times,
Consolidated Senior Debt shall not exceed 300% of Consolidated
Adjusted EBITDA for the most recently completed period of four
consecutive fiscal quarters.
6.5.3. Consolidated Total Debt. At all times, the amount
of (a) Consolidated Total Debt minus (b) that portion of the
outstanding principal amount of any Contingent Notes to the extent
that such portion is not required to be reflected on the financial
statements of any Borrower in accordance with GAAP, shall not exceed
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400% of Consolidated Adjusted EBITDA for the most recently completed
period of four consecutive fiscal quarters.
6.5.4. Consolidated Interest Expense. On the last day of
each fiscal quarter of the Borrowers, Consolidated EBIT shall be at
least 300% of Consolidated Interest Expense for the period of four
consecutive fiscal quarters then ended.
6.6. Indebtedness. None of the Obligors shall create, incur,
assume or otherwise become or remain liable with respect to any Indebtedness
except the following:
6.6.1. Indebtedness in respect of the Credit Obligations.
6.6.2. Guarantees permitted by Section 6.7.
6.6.3. Current liabilities, other than Financing Debt,
incurred in the ordinary course of business.
6.6.4. To the extent that payment thereof shall not at the
time be required by Section 6.1, Indebtedness in respect of taxes,
assessments, governmental charges and claims for labor, materials and
supplies.
6.6.5. Indebtedness secured by Liens of carriers,
warehouses, mechanics and landlords permitted by Sections 6.8.5 and
6.8.6.
6.6.6. Indebtedness in respect of judgments or awards (a)
which have been in force for less than the applicable appeal period or
(b) in respect of which the Obligor shall at the time in good faith be
prosecuting an appeal or proceedings for review and, in the case of
each of clauses (a) and (b), such Obligor shall have taken appropriate
reserves therefor in accordance with GAAP and execution of such
judgment or award shall not be levied.
6.6.7. To the extent permitted by Section 6.8.9,
Indebtedness in respect of Capitalized Lease Obligations or secured by
purchase money security interests; provided, however, that the
aggregate principal amount of all Indebtedness permitted by this
Section 6.6.7 at any one time outstanding shall not exceed $500,000.
6.6.8. Indebtedness with respect to deferred
compensation in the ordinary course of business and Indebtedness with
respect to employee benefit programs (including liabilities in respect
of deferred compensation, pension or severance benefits, early
termination benefits, disability benefits, vacation benefits and
tuition benefits) incurred in the ordinary course of business so long
as the Obligor is in compliance with Section 6.17.
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6.6.9. Indebtedness in respect of customer advances and
deposits, deferred income, deferred taxes and other deferred credits
arising in the ordinary course of business.
6.6.10. Indebtedness relating to deferred gains and
deferred taxes arising in connection with sale of assets permitted
under Section 6.11.
6.6.11. Indebtedness in respect of inter-company loans and
advances among the Borrowers which are not prohibited by Section 6.9.
6.6.12. Indebtedness that is not payable before the Final
Maturity Date with respect to mandatory redemption or dividend rights
relating to the Company's Series A Preferred Stock.
6.6.13. Contingent Notes.
6.6.14. Indebtedness to the extent set forth on Exhibit
6.6.
6.7. Guarantees; Letters of Credit. None of the Obligors shall
become or remain liable with respect to any Guarantee, including reimbursement
obligations, whether contingent or matured, under letters of credit or other
financial guarantees by third parties, except the following:
6.7.1. Letters of Credit and Guarantees of the Credit
Obligations.
6.7.2. Guarantees by an Obligor of Indebtedness incurred
by a Borrower and permitted by Section 6.6.
6.7.3. Guarantees by any Obligor of the obligations of its
Subsidiaries under employment agreements between such Subsidiary and
its employees.
6.8. Liens. None of the Obligors shall create, incur or enter into,
or suffer to be created or incurred or to exist, any Lien, except the
following:
6.8.1. Liens on the Credit Security that secure the Credit
Obligations.
6.8.2. Liens to secure taxes, assessments and other
governmental charges, to the extent that payment thereof shall not at
the time be required by Section 6.1.
6.8.3. Deposits or pledges made (a) in connection with, or
to secure payment of, workers' compensation, unemployment insurance,
old age pensions or other social security, (b) in connection with
casualty insurance maintained in accordance with Section 6.3, (c) to
secure the performance of bids, tenders, contracts
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(other than contracts relating to Financing Debt) or leases, (d) to
secure statutory obligations or surety or appeal bonds, (e) to secure
indemnity, performance or other similar bonds in the ordinary course
of business or (f) in connection with contested amounts to the extent
that payment thereof shall not at that time be required by Section
6.1.
6.8.4. Liens in respect of judgments or awards, to the
extent that such judgments or awards are permitted by Section 6.6.6.
6.8.5. Liens of carriers, warehouses, mechanics and
similar Liens, in each case (a) in existence less than 120 days from
the date of creation thereof or (b) being contested in good faith by
the Obligor in appropriate proceedings (so long as such Obligor shall,
in accordance with GAAP, have set aside on its books adequate reserves
with respect thereto).
6.8.6. Encumbrances in the nature of (a) zoning
restrictions, (b) easements, (c) restrictions of record on the use of
real property, (d) landlords' and lessors' Liens on rented premises
and (e) restrictions on transfers or assignment of leases, which in
each case do not materially detract from the value of the encumbered
property or impair the use thereof in the business of any Obligor.
6.8.7. Restrictions under federal and state securities
laws on the transfer of securities.
6.8.8. Restrictions under Foreign Trade Regulations on the
transfer or licensing of certain assets of the Obligors.
6.8.9. Liens constituting (a) purchase money security
interests (including mortgages, conditional sales, Capitalized Leases
and any other title retention or deferred purchase devices) in real
property, interests in leases or tangible personal property (other
than inventory) existing or created on the date on which such property
is acquired, and (b) the renewal, extension or refunding of any
security interest referred to in the foregoing clause (a) in an amount
not to exceed the amount thereof remaining unpaid immediately prior to
such renewal, extension or refunding; provided, however, that (i) each
such security interest shall attach solely to the particular item of
property so acquired, and the principal amount of Indebtedness
(including Indebtedness in respect of Capitalized Lease Obligations)
secured thereby shall not exceed the cost (including all such
Indebtedness secured thereby, whether or not assumed) of such item of
property; and (ii) the aggregate principal amount of all Indebtedness
secured by Liens permitted by this Section 6.8.9 shall not exceed the
amount permitted by Section 6.6.7.
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6.8.10. Other Liens and Capitalized Lease Obligations on
the property secured by such Liens or the subject of such Capitalized
Lease as set forth on Exhibit 6.8 and any renewals thereof, but not
any increase in the amount thereof.
6.9. Investments and Permitted Acquisitions. None of the Obligors
shall have outstanding, acquire, commit itself to acquire or hold any
Investment (including any Investment consisting of the Permitted Acquisition of
any business) except for the following:
6.9.1. Cash Investments of the Borrowers in other
Borrowers.
6.9.2. Intercompany loans and advances from any Borrower
to any other Borrower but in each case only to the extent reasonably
necessary for Consolidated tax planning and working capital
management.
6.9.3. Investments in Cash Equivalents.
6.9.4. Guarantees permitted by Section 6.7.
6.9.5. Investments constituting the acquisition of all of
the capital stock, equity, partnership or other beneficial interests
in, or substantially all the assets of, any Person that derives
substantially all of its revenues from a business that the Borrowers
would be permitted to engage in under Section 6.2.1; provided,
however, that:
(a) not less than 10 days prior to the consummation of
such acquisition, the Required Lenders shall have received any report,
analysis and other documentation with respect to such acquisition,
produced by such independent due diligence firm as approved by the
Agent.
(b) immediately before and after giving effect to such
acquisition, no Default shall exist;
(c) the Purchase Price for such acquisition does not
exceed $10,000,000, unless the terms and the documentation relating to
such acquisition is satisfactory to the Required Lenders; and
(d) before such acquisition, the Lenders shall have
received computations, certified by a Financial Officer of the
Borrowers, showing
(i) pro forma compliance as of the date of such
acquisition with the financial tests set forth in Section 6.5,
after giving effect to any increases in Financing Debt incurred
in connection with such acquisition and adding to the financial
statements most recently delivered to the Lenders the Pro Forma
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EBITDA of the Acquired Party for the most recently completed
period of four consecutive fiscal quarters, and
(ii) that the Financing Debt component of the
consideration for such acquisition does not exceed the sum of
450% of the Pro Forma EBITDA of the Acquired Party for the most
recently completed period of four consecutive fiscal quarters
plus the cash and Cash Equivalents of the Acquired Party.
6.9.6. A loan to James C. New to be used to purchase
common stock of the Company; provided, however, that the principal
amount of such loan does not exceed $300,000.
6.9.7. Investments representing Indebtedness of any Person
owing as a result of the sale by any Borrower in the ordinary course
of business to such Person of products, services or tangible property
no longer required in such Borrower's business.
6.10. Distributions. None of the Obligors shall make any
Distribution except for the following:
6.10.1. Any Borrower may make Distributions to any other
Borrower.
6.10.2. Distributions consisting of Investments permitted
by Sections 6.9.1 and 6.9.2 .
6.10.3. Distributions in respect of the redemption of
capital stock of the Company from employees of any Borrower; provided,
however, that the amount of all such Distributions shall not exceed
$50,000 in the aggregate in any fiscal year.
6.10.4. Distributions on Subordinated Indebtedness to the
extent permitted by the Subordination Agreement or such other
documentation relating to Subordinated Indebtedness that has been
approved by the Agent.
6.10.5. Distributions of accrued and unpaid dividends on up
to 120,004 shares of the Company's capital stock upon the conversion
of such shares from preferred to common stock in connection with the
consummation of the transaction permitted by Section 6.9.6.
6.11. Asset Dispositions and Mergers. Except as otherwise set forth
in Exhibit 6.11, none of the Obligors shall merge or enter into a consolidation
or sell, lease, sell and lease back, sublease or otherwise dispose of any of
its assets, except the following:
6.11.1. So long as immediately prior to and after giving
effect thereto there shall exist no Default, the Obligors may sell or
otherwise dispose of (a) inventory in
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the ordinary course of business, (b) tangible assets to be replaced in
the ordinary course of business within 12 months by other assets of
equal or greater value, (c) tangible assets no longer used or useful
in the business of such Obligor; provided, however, that the
aggregate fair market value (or book value, if greater) of the assets
sold or disposed of pursuant to this clause (c) shall not exceed
$100,000 in any fiscal year.
6.11.2. Any Borrower may merge or be liquidated into any
other Borrower.
6.12. Lease Obligations. None of the Obligors shall be or
become obligated as lessee under any lease except:
6.12.1. Capitalized Leases permitted by Sections 6.6.7 and
6.8.9.
6.12.2. Leases other than Capitalized Leases; provided,
however, that the aggregate fixed rental obligations for any year
(excluding payments required to be made by the lessee in respect of
taxes and insurance whether or not denominated as rent) shall not
exceed $1,000,000.
6.13. Issuance of Stock by Subsidiaries; Subsidiary Distributions.
6.13.1. Issuance of Stock by Subsidiaries of the Company.
No Borrower, other than the Company, shall issue or sell any shares of
its capital stock or other evidence of beneficial ownership to any
Person other than the other Borrowers, which shares shall have been
pledged to the Agent as part of the Credit Security.
6.13.2. No Restrictions on Subsidiary Distributions.
Except for this Agreement and the Credit Documents, none of the
Borrowers shall enter into or be bound by any agreement (including
covenants requiring the maintenance of specified amounts of net worth
or working capital) restricting the right of any Borrower to make
Distributions or extensions of credit to any other Borrower (directly
or indirectly through another Borrower).
6.14. Voluntary Prepayments of Other Indebtedness. None of the
Obligors shall make any voluntary prepayment of principal of or interest on any
Financing Debt (other than the Credit Obligations) or make any voluntary
redemptions or repurchases of Financing Debt (other tObligations) without the
prior written consent of the Required Lenders.
6.15. Derivative Contracts. None of the Obligors shall enter
into any Interest Rate Protection Agreement, foreign currency exchange contract
or other financial or commodity derivative contracts except to provide hedge
protection for an underlying economic transaction in the ordinary course of
business.
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6.16. Negative Pledge Clauses. None of the Obligors shall enter into
any agreement, instrument, deed or lease which prohibits or limits the ability
of such Obligor to create, incur, assume or suffer to exist any Lien upon any
of their respective properties, assets or revenues, whether now owned or
hereafter acquired, or which requires the grant of any collateral for such
obligation if collateral is granted for another obligation, except the
following:
6.16.1. This Agreement and the other Credit Documents.
6.16.2. Covenants in documents creating Liens permitted by
Section 6.8 prohibiting further Liens on the assets encumbered
thereby.
6.17. ERISA, etc. Each of the Obligors shall comply, and shall
cause all ERISA Group Persons to comply, in all material respects, with the
provisions of ERISA and the Code applicable to each Plan. Each of the
Obligors shall meet, and shall cause all ERISA Group Persons to meet, all
minimum funding requirements applicable to them with respect to any Plan
pursuant to section 302 of ERISA or section 412 of the Code, without giving
effect to any waivers of such requirements or extensions of the related
amortization periods which may be granted. At no time shall the Accumulated
Benefit Obligations under any Plan that is not a Multiemployer Plan exceed the
fair market value of the assets of such Plan allocable to such benefits by more
than $250,000. The Obligors shall not withdraw, and shall cause all other
ERISA Group Persons not to withdraw, in whole or in part, from any
Multiemployer Plan so as to give rise to withdrawal liability exceeding
$250,000 in the aggregate. At no time shall the actuarial present value of
unfunded liabilities for post-employment health care benefits, whether or not
provided under a Plan, calculated in a manner consistent with Statement No. 106
of the Financial Accounting Standards Board, exceed $250,000.
6.18. Transactions with Affiliates. Except with respect to
transactions set forth on Exhibit 6.18, none of the Obligors shall effect any
transaction with any of their respective Affiliates (except for other Obligors)
on a basis less favorable to such Obligor than would be the case if such
transaction had been effected with a non-Affiliate.
6.19. Environmental Laws.
6.19.1. Compliance with Law and Permits. Each of the
Obligors shall use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material
compliance therewith, and handle all Hazardous Materials in material
compliance with all applicable Environmental Laws.
6.19.2. Notice of Claims, etc. Each of the Obligors shall
immediately notify the Agent, and provide copies upon receipt, of all
written claims, complaints, notices
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or inquiries from governmental authorities relating to the condition
of its facilities and properties or compliance with Environmental
Laws, and shall promptly cure and have dismissed with prejudice to the
satisfaction of the Agent any actions and proceedings relating to
compliance with Environmental Laws.
6.20. Capital Expenditures. The Obligors will not make Capital
Expenditures in any fiscal year in an amount that in the aggregate exceeds 4%
of the net revenues of such Obligor, as determined in accordance with GAAP,
for such fiscal year, other than with respect to the purchase of the assets in
connection with a Permitted Acquisition.
7. Representations and Warranties. In order to induce the Lenders to
extend credit to the Company hereunder, each of the Obligors as are party
hereto from time to time jointly and severally represents and warrants as
follows:
7.1. Organization and Business.
7.1.1. The Borrowers. Each of the Borrowers is a duly
organized and validly existing corporation, in good standing under the
laws of the jurisdiction in which it is organized with all power and
authority, corporate or otherwise, necessary to (a) enter into and
perform this Agreement and each other Credit Document to which it is
party, (b) guarantee the Credit Obligations, (c) grant the Agent for
the benefit of the Lenders the security interests in the Credit
Security owned by it to secure the Credit Obligations and (d) own its
properties and carry on the business now conducted or proposed to be
conducted by it. Certified copies of the Charter and By-laws of each
Borrower have been previously delivered to the Agent and are correct
and complete. Exhibit 7.1, as from time to time hereafter
supplemented in accordance with Sections 6.4.1 and 6.4.2, sets forth,
as of the later of the date hereof or as of the end of the most recent
fiscal quarter for which financial statements are required to be
furnished in accordance with such Sections, (i) the jurisdiction of
incorporation of each Borrower, (ii) the address of each Borrower's
principal executive office and chief place of business, (iii) each
name, including any trade name, under which each Borrower conducts its
business and (iv) the jurisdictions in which each Borrower keeps
tangible personal property.
7.1.2. Capitalization. No options, warrants, conversion
rights, preemptive rights or other statutory or contractual rights to
purchase shares of capital stock or other securities of any Borrower,
other than the Company, now exist, nor has any Borrower, other than
the Company, authorized any such right, nor is any Borrower, other
than the Company, obligated in any other manner to issue shares of its
capital stock or other securities. Attached as Exhibit 7.1.2. is a
list of the holders of all the outstanding capital stock of the
Company together with the number of shares so held.
7.2. Financial Statements and Other Information; Material Agreements.
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7.2.1. Financial Statements and Other Information. The
Borrowers have previously furnished to the Lenders copies of the
following:
(a) The audited and unaudited balance sheets of American
Laboratory Associates, Inc. a Delaware corporation, ("American Labs")
as at December 31, 1995 and the audited and unaudited statements of
income and the audited statements of changes in shareholders' equity
and of cash flows of American Labs for its fiscal year then ended.
(b) The unaudited balance sheets of the Company and its
Subsidiaries on a Consolidated basis and of Derrick as at March 31,
1996 and the unaudited statements of income, of changes in
shareholders' equity and of cash flows of the Company and its
Subsidiaries on a Consolidated basis and of Derrick for the portion of
the fiscal year then ended.
(c) Calculations demonstrating pro forma compliance with
the Computation Covenants as of the end of the most recent quarter, as
applicable, preceding the date hereof.
The audited financial statements (including the notes thereto)
referred to in clause (a) above were prepared in accordance with GAAP
and fairly present the financial position of American Labs at the date
thereof and the results of its operations for the periods covered
thereby. The unaudited financial statements referred to in clause (a)
above and the unaudited financial statements referred to in clause (b)
above were prepared in accordance with GAAP and fairly present the
financial position of American Labs at the respective dates thereof
and the results of its operations for the periods covered thereby,
subject to normal year-end audit adjustment and the addition of
footnotes in the case of interim financial statements. American Labs
has no known contingent liability material to it which is not
reflected in the balance sheets referred to in clauses (a) or (b)
above (or delivered pursuant to Sections 6.4.1 or 6.4.2) or in the
notes thereto.
In the Company's judgment, the financial and operational
projections referred to in clause (c) above constitute a reasonable
basis as of the Initial Closing Date for the assessment of the future
performance of the Company and its Subsidiaries during the periods
indicated therein, it being understood that any projected financial
information represents an estimate, based on various assumptions, of
future results of operations which may or may not in fact occur.
7.2.2. Material Agreements. The Borrowers have
previously furnished to the Lenders correct and complete copies,
including all exhibits, schedules and
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amendments thereto, of the agreements, each as in effect on the date
hereof, listed in Exhibit 7.2.2 (the "Material Agreements").
7.3. Agreements Relating to Financing Debt, Investments, etc.
Exhibit 7.3, as from time to time hereafter supplemented in accordance with
Sections 6.4.1 and 6.4.2, sets forth (a) the amounts (as of the dates indicated
in Exhibit 7.3, as so supplemented) of all Financing Debt of the Obligors and
all agreements which relate to such Financing Debt, (b) all Liens and
Guarantees with respect to such Financing Debt and (c) all agreements which
directly or indirectly require the Obligors to make any Investment. The
Obligors have furnished the Lenders with correct and complete copies of any
agreements described in clauses (a), (b) and (c) above requested by the
Required Lenders.
7.4. Changes in Condition. Since December 31, 1995 no Material
Adverse Change has occurred and between December 31, 1995 and the date hereof,
except as set forth in Exhibit 7.4, none of the Obligors has entered into any
material transaction outside the ordinary course of business except for the
transactions contemplated by or otherwise permitted or authorized pursuant to
this Agreement and the Material Agreements.
7.5. Title to Assets. Each of the Obligors have good and marketable
title to or rights to use under leases all assets necessary for or used in the
operations of their business as now conducted by them and reflected in the most
recent balance sheet referred to in Section 7.2.1 (or the balance sheet most
recently furnished to the Lenders pursuant to Sections 6.4.1 or 6.4.2), and to
all assets acquired subsequent to the date of such balance sheet, subject to
no Liens except for Liens permitted by Section 6.8 and except for assets
disposed of as permitted by Section 6.11.
7.6. Operations in Conformity With Law, etc. The operations of the
Obligors as now conducted or proposed to be conducted are not in violation of,
nor is any Obligor in default under, any Legal Requirement presently in effect,
except for such violations and defaults as do not and will not, in the
aggregate, result, or create a material risk of resulting, in any Material
Adverse Change. No Obligor has received notice of any such violation or
default or has knowledge of any basis on which the operations of the Obligors,
as now conducted and as currently proposed to be conducted after the date
hereof, would be held so as to violate or to give rise to any such violation
or default.
7.7. Litigation. Except as otherwise set forth in Exhibit 7.7, no
litigation, at law or in equity, or any proceeding before any court, board or
other governmental or administrative agency or any arbitrator is pending or,
to the knowledge of any Obligor, threatened which may involve any material risk
of any final judgment, order or liability which, after giving effect to any
applicable insurance, has resulted, or creates a material risk of resulting,
in any Material Adverse Change or which seeks to enjoin the consummation, or
which questions the validity, of any of the transactions contemplated by this
Agreement or any other Credit Document. No judgment, decree or order of any
court, board or other
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governmental or administrative agency or any arbitrator has been issued against
or binds any Obligor which has resulted, or creates a material risk of
resulting, in any Material Adverse Change.
7.8. Authorization and Enforceability. Each of the Obligors has
taken all corporate action required to execute, deliver and perform this
Agreement and each other Credit Document to which it is party. No consent of
stockholders of any Obligor is necessary in order to authorize the execution,
delivery or performance of this Agreement or any other Credit Document to which
such Obligor is party. Each of this Agreement and each other Credit Document
constitutes the legal, valid and binding obligation of each Obligor party
thereto and is enforceable against such Obligor in accordance with its terms.
7.9. No Legal Obstacle to Agreements. Neither the execution and
delivery of this Agreement or any other Credit Document, nor the making of any
borrowings hereunder, nor the guaranteeing of the Credit Obligations, nor the
securing of the Credit Obligations with the Credit Security, nor the
consummation of any transaction referred to in or contemplated by this
Agreement or any other Credit Document, nor the fulfillment of the terms
hereof or thereof or of any other agreement, instrument, deed or lease
contemplated by this Agreement or any other Credit Document, has constituted
or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which any Obligor is a party
or by which it is bound, or of the Charter or By-laws of any Obligor;
(b) the violation of any law, statute, judgment, decree
or governmental order, rule or regulation applicable to any Obligor;
(c) the creation under any agreement, instrument, deed or
lease of any Lien (other than Liens on the Credit Security which
secure the Credit Obligations) upon any of the assets of any Obligor;
or
(d) any redemption, retirement or other repurchase
obligation of any Obligor under any Charter, By-law, agreement,
instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing
with, any governmental or administrative authority or any other Person is
required to be obtained or made by any Obligor in connection with the
execution, delivery and performance of this Agreement, the Revolving Notes or
any other Credit Document, the transactions contemplated hereby or thereby, the
making of any borrowing hereunder, the guaranteeing of the Credit Obligations
or the securing of the Credit Obligations with the Credit Security.
7.10. Defaults. None of the Obligors is in default under any
provision of its Charter or By-laws or of this Agreement or any other Credit
Document. None of the Obligors
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is in default under any provision of any agreement, instrument, deed or lease
to which it is party or by which it or its property is bound. None of the
Obligors has violated any law, judgment, decree or governmental order, rule or
regulation, in each case so as to result, or create a material risk of
resulting, in any Material Adverse Change.
7.11. Licenses, etc. The Obligors have all patents, patent
applications, patent licenses, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, licenses, franchises, permits,
authorizations and other rights as are necessary for the conduct of the
business of the Obligors as now conducted by them. All of the foregoing are
in full force and effect in all material respects, and each of the Obligors is
in substantial compliance with the foregoing without any known conflict with
the valid rights of others which has resulted, or creates a material risk of
resulting, in any Material Adverse Change. No event has occurred which
permits, or after notice or lapse of time or both would permit, the revocation
or termination of any such license, franchise or other right or which affects
the rights of any of the Obligors thereunder so as to result, or to create a
material risk of resulting, in any Material Adverse Change. No litigation or
other proceeding or dispute exists with respect to the validity or, where
applicable, the extension or renewal, of any of the foregoing which has
resulted, or creates a material risk of resulting, in any Material Adverse
Change.
7.12. Tax Returns. Each of the Obligors has filed all material tax
and information returns which are required to be filed by it and has paid, or
made adequate provision for the payment of, all taxes which have or may become
due pursuant to such returns or to any assessment received by it. None of the
Obligors knows of any material additional assessments or any basis therefor.
Each of the Obligors reasonably believes that the charges, accruals and
reserves on the books of the Obligors in respect of taxes or other governmental
charges are adequate.
7.13. Certain Business Representations.
7.13.1. Labor Relations. No dispute or controversy
between any Obligor and any of their respective employees has
resulted, or is reasonably likely to result, in any Material Adverse
Change, and none of the Obligors anticipates that its relationships
with its unions or employees will result, or are reasonably likely to
result, in any Material Adverse Change. Each of the Obligors is in
compliance in all material respects with all federal and state laws
with respect to (a) non-discrimination in employment with which the
failure to comply, in the aggregate, has resulted, or creates a
material risk of resulting, in a Material Adverse Change and (b) the
payment of wages.
7.13.2. Antitrust. Each of the Obligors is in compliance
in all material respects with all federal and state antitrust laws
relating to its business and the geographic concentration of its
business.
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7.13.3. Consumer Protection. None of the Obligors is in
violation of any rule, regulation, order, or interpretation of any
rule, regulation or order of the Federal Trade Commission (including
truth-in-lending), with which the failure to comply, in the aggregate,
has resulted, or creates a material risk of resulting, in a Material
Adverse Change.
7.13.4. Burdensome Obligations. None of the Obligors is
party to or bound by any agreement, instrument, deed or lease or is
subject to any Charter, By-law or other restriction, commitment or
requirement which, in the opinion of the management of such Person, is
so unusual or burdensome as in the foreseeable future to result, or
create a material risk of resulting, in a Material Adverse Change.
7.13.5. Future Expenditures. None of the Obligors
anticipate that the future expenditures, if any, by the Obligors
needed to meet the provisions of any federal, state or foreign
governmental statutes, orders, rules or regulations will be so
burdensome as to result, or create a material risk of resulting, in
any Material Adverse Change.
7.14. Environmental Regulations.
7.14.1. Environmental Compliance. Each of the Obligors is
in compliance in all material respects with the Clean Air Act, the
Federal Water Pollution Control Act, the Marine Protection Research
and Sanctuaries Act, RCRA, CERCLA and any other Environmental Law in
effect in any jurisdiction in which any properties of the Obligors are
located or where any of them conducts its business, and with all
applicable published rules and regulations (and applicable standards
and requirements) of the federal Environmental Protection Agency and
of any similar agencies in states or foreign countries in which the
Obligors conduct their businesses other than those which in the
aggregate have not resulted, and do not create a material risk of
resulting, in a Material Adverse Change.
7.14.2. Environmental Litigation. No suit, claim, action
or proceeding of which any Obligor has been given notice or otherwise
has knowledge is now pending before any court, governmental agency or
board or other forum, or to any Obligor's knowledge, threatened by any
Person (nor to any Obligor's knowledge, does any factual basis exist
therefor) for, and none of the Obligors have received written
correspondence from any federal, state or local governmental authority
with respect to:
(a) noncompliance by any Obligor with any Environmental
Law;
(b) personal injury, wrongful death or other tortious
conduct relating to materials, commodities or products used,
generated, sold, transferred or manufactured
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by any Obligor (including products made of, containing or
incorporating asbestos, lead or other hazardous materials, commodities
or toxic substances); or
(c) the release into the environment by any Obligor of any
Hazardous Material generated by any Obligor whether or not occurring
at or on a site owned, leased or operated by any Obligor.
7.14.3. Environmental Condition of Properties. None of
the properties owned or leased by any Obligor has been used as a
treatment, storage or disposal site, other than as disclosed in
Exhibit 7.14. No Hazardous Material is present in any real property
currently or formerly owned or operated by any Obligor except that
which has not resulted, and does not create a material risk of
resulting, in a Material Adverse Change.
7.15. Pension Plans. Each Plan (other than a Multiemployer Plan)
and, to the knowledge of each of the Obligors, each Multiemployer Plan is in
material compliance with the applicable provisions of ERISA and the Code.
Each Multiemployer Plan and each Plan that constitutes a "defined benefit plan"
(as defined in ERISA) are set forth in Exhibit 7.15. Each ERISA Group Person
has met all of the funding standards applicable to all Plans that are not
Multiemployer Plans, and no condition exists which would permit the institution
of proceedings to terminate any Plan that is not a Multiemployer Plan under
section 4042 of ERISA. To the best knowledge of each of the Obligors, no Plan
that is a Multiemployer Plan is currently insolvent or in reorganization or
has been terminated within the meaning of ERISA.
7.16. Acquisition Agreement, etc. Each Acquisition Agreement is a
valid and binding contract as to the Borrower party thereto and, to the best of
such Borrower's knowledge, as to the Sellers party thereto. Such Borrower is
not in default in any material respect of its obligations under any Acquisition
Agreement and, to the best of such Borrower's knowledge, the Sellers party
thereto are not in default in any material respect of any of their obligations
thereunder. The representations and warranties of such Borrower set forth in
each Acquisition Agreement are true and correct in all material respect as of
the date hereof with the same force and effect as though made on and as of the
date hereof. To the best of such Borrower's knowledge all of the
representations and warranties of the Sellers set forth in each Acquisition
Agreement are true and correct in all material respects as of the date hereof
with the same force and effect as though made on and as of the date hereof.
7.17. Foreign Trade Regulations; Government Regulation; Margin Stock.
7.17.1. Foreign Trade Regulations. Neither the execution
and delivery of this Agreement or any other Credit Document, nor the
making by any Borrower of any borrowings hereunder, nor the
guaranteeing of the Credit Obligations by any Guarantor, nor the
securing of the Credit Obligations with the Credit Security, has
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constituted or resulted in or will constitute or result in the
violation of any Foreign Trade Regulation.
7.17.2. Government Regulation. None of the Obligors, nor
any Person controlling any Obligor or under common control with any
Obligor, is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company
Act, the Interstate Commerce Act or any statute or regulation which
regulates the incurring by any Obligor of Financing Debt as
contemplated by this Agreement and the other Credit Documents.
7.17.3. Margin Stock. None of the Obligors owns any Margin Stock.
7.18. Disclosure. Neither this Agreement nor any other Credit
Document to be furnished to the Lenders by or on behalf of any Obligor in
connection with the transactions contemplated hereby or by such Credit Document
contains any untrue statement of material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made. No fact
is actually known to any Obligor which has resulted, or in the future (so far
as any Obligor can reasonably foresee) will result, or creates a material risk
of resulting, in any Material Adverse Change, except to the extent that present
or future general economic conditions may result in a Material Adverse Change.
8. Defaults.
8.1. Events of Default. The following events are referred to as
"Events of Default":
8.1.1. Payment. Any Borrower shall fail to make any
payment in respect of: (a) interest or any fee on or in respect of
any of the Credit Obligations owed by it as the same shall become due
and payable, and such failure shall continue for a period of three
Banking Days, or (b) any Credit Obligation with respect to payments
made by any Letter of Credit Issuer under any Letter of Credit or any
draft drawn thereunder within three Banking Days after demand therefor
by such Letter of Credit Issuer or (c) principal of any of the Credit
Obligations owed by it as the same shall become due, whether at
maturity or by acceleration or otherwise.
8.1.2. Specified Covenants. Any Obligor shall fail to
perform or observe any of the provisions of Section 6.4.5 or Sections
6.5 through 6.20.
8.1.3. Other Covenants. Any Obligor shall fail to perform
or observe any other covenant, agreement or provision to be performed
or observed by it under this Agreement or any other Credit Document,
and such failure shall not be rectified or cured to the written
satisfaction of the Required Lenders within 30 days after the earlier
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of (a) notice thereof by the Agent to the Borrowers or (b) a Financial
Officer shall have actual knowledge thereof.
8.1.4. Representations and Warranties. Any representation
or warranty of or with respect to any Obligor made to the Lenders or
the Agent in, pursuant to or in connection with this Agreement or any
other Credit Document shall be materially false on the date as of
which it was made.
8.1.5. Cross Default, etc.
(a) Any Obligor shall fail to make any payment when due
(after giving effect to any applicable grace periods) in respect of
any Capitalized Lease or in respect of any Financing Debt (other than
the Credit Obligations) outstanding in an aggregate amount of
principal (whether or not due) and accrued interest exceeding
$250,000;
(b) any Obligor shall fail to perform or observe the terms
of any agreement or instrument relating to any Capitalized Lease or
any Financing Debt (other than the Credit Obligations) outstanding in
an aggregate amount of principal (whether or not due) and accrued
interest exceeding $250,000, and such failure shall continue, without
having been duly cured, waived or consented to, beyond the period of
grace, if any, specified in such agreement or instrument, and such
failure shall permit the acceleration of such Financing Debt or
Capitalized Lease;
(c) all or any part of any Financing Debt (other than the
Credit Obligations) outstanding in an aggregate amount of principal
(whether or not due) and accrued interest exceeding $250,000 of any
Obligor shall be accelerated or shall become due or payable prior to
its stated maturity (except with respect to voluntary prepayments
thereof) for any reason whatsoever;
(d) any Lien on any property of any Obligor securing any
Financing Debt (other than the Credit Obligations) outstanding in an
aggregate amount of principal (whether or not due) and accrued
interest exceeding $250,000 shall be enforced by foreclosure or
similar action; or
(e) any holder of any Financing Debt (other than the
Credit Obligations) outstanding in an aggregate amount of principal
(whether or not due) and accrued interest exceeding $250,000 shall
exercise any right of rescission or put right with respect thereto.
8.1.6. Ownership; Liquidation; etc. Except as permitted
by Section 6.11:
(a) the Company shall cease to own, directly or
indirectly, all the capital stock of each of the Borrowers;
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(b) any transaction or series of transactions shall occur
as a result of which the Persons listed on Exhibit 8.1.6 as of the
date of this Agreement as the stockholders of the Company shall
collectively cease to own, in the aggregate, (i) preferred stock
and/or (ii) common stock representing or convertible into at least 51%
of the fully diluted equity of the Company.
(c) any Obligor shall initiate any action to dissolve,
liquidate or otherwise terminate its existence.
8.1.7. Enforceability, etc. Any Credit Document shall
cease for any reason (other than the scheduled termination thereof in
accordance with its terms) to be enforceable in accordance with its
terms or in full force and effect; or any Obligor in respect of any
Credit Document shall so assert in a judicial or similar proceeding;
or the security interests created by this Agreement or any other
Credit Documents shall cease to be enforceable and of the same effect
and priority purported to be created hereby.
8.1.8. Judgments. A final judgment (a) which, with other
outstanding final judgments against the Obligors, exceeds an aggregate
of $100,000 in excess of applicable insurance coverage shall be
rendered against any Obligor, or (b) which grants injunctive relief
that results, or creates a material risk of resulting, in a Material
Adverse Change and in either case if, (i) within 60 days after entry
thereof, such judgment shall not have been discharged or execution
thereof stayed pending appeal or (ii) within 60 days after the
expiration of any such stay, such judgment shall not have been
discharged.
8.1.9. ERISA. Any "reportable event" (as defined in
section 4043 of ERISA) shall have occurred that reasonably could be
expected to result in termination of a Material Plan or the
appointment by the appropriate United States District Court of a
trustee to administer any Material Plan or the imposition of a Lien in
favor of a Material Plan; or any ERISA Group Person shall fail to pay
when due amounts aggregating in excess of $100,000 which it shall have
become liable to pay to the PBGC or to a Material Plan under Title IV
of ERISA; or notice of intent to terminate a Material Plan shall be
filed under Title IV of ERISA by any ERISA Group Person or
administrator; or the PBGC shall institute proceedings under Title IV
of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against any ERISA Group Person to
enforce section 515 or 4219(c)(5) of ERISA and such proceeding shall
not have been dismissed within 30 days thereafter; or a condition
shall exist by reason of which the PBGC would be entitled to obtain a
decree adjudicating that any Material Plan must be terminated.
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8.1.10. Bankruptcy, etc. Any Obligor shall:
(a) commence a voluntary case under the Bankruptcy Code or
authorize, by appropriate proceedings of its board of directors or
other governing body, the commencement of such a voluntary case;
(b) (i) have filed against it a petition commencing an
involuntary case under the Bankruptcy Code that shall not have been
dismissed within 60 days after the date on which such petition is
filed, or (ii) file an answer or other pleading within such 60-day
period admitting or failing to deny the material allegations of such a
petition or seeking, consenting to or acquiescing in the relief
therein provided, or (iii) have entered against it an order for relief
in any involuntary case commenced under the Bankruptcy Code;
(c) seek relief as a debtor under any applicable law,
other than the Bankruptcy Code, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or
alteration of the rights of creditors, or consent to or acquiesce in
such relief;
(d) have entered against it an order by a court of
competent jurisdiction (i) finding it to be bankrupt or insolvent,
(ii) ordering or approving its liquidation or reorganization as a
debtor or any modification or alteration of the rights of its
creditors or (iii) assuming custody of, or appointing a receiver or
other custodian for, all or a substantial portion of its property; or
(e) make an assignment for the benefit of, or enter into
a composition with, its creditors, or appoint, or consent to the
appointment of, or suffer to exist a receiver or other custodian for,
all or a substantial portion of its property.
8.2. Certain Actions Following an Event of Default. If any one or
more Events of Default shall occur and be continuing, then in each and every
such case:
8.2.1. Terminate Obligation to Extend Credit. The Agent
on behalf of the Lenders may (and upon written request of the Lenders
holding at least one-third of the Percentage Interests the Agent
shall) terminate the obligations of the Lenders to make any further
extensions of credit under the Credit Documents by furnishing notice
of such termination to the Borrowers.
8.2.2. Specific Performance; Exercise of Rights. The
Agent on behalf of the Lenders may (and upon written request of the
Lenders holding at least one-third of the Percentage Interests the
Agent shall) proceed to protect and enforce the Lenders' rights by
suit in equity, action at law and/or other appropriate proceeding,
either for specific performance of any covenant or condition contained
in this Agreement or any other
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Credit Document or in any instrument or assignment delivered to the
Lenders pursuant to this Agreement or any other Credit Document, or in
aid of the exercise of any power granted in this Agreement or any
other Credit Document or any such instrument or assignment.
8.2.3. Acceleration. The Agent on behalf of the Lenders
may (and upon written request of the Lenders holding at least
one-third of the Percentage Interests the Agent shall) by notice in
writing to the Borrowers (a) declare all or any part of the unpaid
balance of the Credit Obligations then outstanding to be immediately
due and payable, and (b) require the Borrowers immediately to deposit
with the Agent in cash an amount equal to the then Letter of Credit
Exposure (which cash shall be held and applied as provided in Section
4.5), and thereupon such unpaid balance or part thereof and such
amount equal to the Letter of Credit Exposure shall become so due and
payable without presentation, protest or further demand or notice of
any kind, all of which are hereby expressly waived; provided, however,
that if a Bankruptcy Default shall have occurred, the unpaid balance
of the Credit Obligations shall automatically become immediately due
and payable.
8.2.4. Enforcement of Payment; Credit Security; Setoff.
The Agent on behalf of the Lenders may (and upon written request of
the Lenders holding at least one-third of the Percentage Interests the
Agent shall) proceed to enforce payment of the Credit Obligations in
such manner as it may elect, to cancel, or instruct other Letter of
Credit Issuers to cancel, any outstanding Letters of Credit which
permit the cancellation thereof and to realize upon any and all rights
in the Credit Security. The Lenders may offset and apply toward the
payment of the Credit Obligations (and/or toward the curing of any
Event of Default) any Indebtedness from the Lenders to the respective
Obligors, including any Indebtedness represented by deposits in any
account maintained with the Lenders, regardless of the adequacy of any
security for the Credit Obligations. The Lenders shall have no duty
to determine the adequacy of any such security in connection with any
such offset.
8.2.5. Cumulative Remedies. To the extent not prohibited
by applicable law which cannot be waived, all of the Lenders' rights
hereunder and under each other Credit Document shall be cumulative.
8.3. Annulment of Defaults. Any Default or Event of Default shall
be deemed not to exist or to have occurred for any purpose of the Credit
Documents if the Required Lenders or the Agent (with the consent of the
Required Lenders) shall have waived such Default or Event of Default in
writing, stated in writing that the same has been cured to such Lenders'
reasonable satisfaction or entered into an amendment to this Agreement which by
its express terms cures such Event of Default, at which time such Event of
Default shall no longer be deemed to exist or to have continued. No such
action by the Lenders or the Agent shall extend to or affect any subsequent
Event of Default or impair any rights of the Lenders upon
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the occurrence thereof. The making of any extension of credit during the
existence of any Default or Event of Default shall not constitute a waiver
thereof.
8.4. Waivers. To the extent that such waiver is not prohibited by
the provisions of applicable law that cannot be waived, each of the Obligors
waives:
(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by this Agreement or any
other Credit Document), protests, notices of protest and notices of
dishonor;
(b) any requirement of diligence or promptness on the part
of any Lender in the enforcement of its rights under this Agreement,
the Revolving Notes or any other Credit Document;
(c) any and all notices of every kind and description
which may be required to be given by any statute or rule of law; and
(d) any defense (other than indefeasible payment in full)
which it may now or hereafter have with respect to its liability under
this Agreement, the Revolving Notes or any other Credit Document or
with respect to the Credit Obligations.
9. Guarantees.
9.1. Guarantees of Credit Obligations. Each Guarantor
unconditionally jointly and severally guarantees that the Credit Obligations
will be performed and will be paid in full in immediately available funds when
due and payable, whether at the stated or accelerated maturity thereof or
otherwise, this guarantee being a guarantee of payment and not of
collectability and being absolute and in no way conditional or contingent. In
the event any part of the Credit Obligations shall not have been so paid in
full when due and payable, each Guarantor will, immediately upon notice by the
Agent or, without notice, immediately upon the occurrence of a Bankruptcy
Default, pay or cause to be paid to the Agent for the account of each Lender in
accordance with the Lenders' respective Percentage Interests the amount of such
Credit Obligations which are then due and payable and unpaid. The obligations
of each Guarantor hereunder shall not be affected by the invalidity,
unenforceability or irrecoverability of any of the Credit Obligations as
against any other Obligor, any other guarantor thereof or any other Person.
For purposes hereof, the Credit Obligations shall be due and payable when and
as the same shall be due and payable under the terms of this Agreement or any
other Credit Document notwithstanding the fact that the collection or
enforcement thereof may be stayed or enjoined under the Bankruptcy Code or
other applicable law.
9.2. Continuing Obligation. Each Guarantor acknowledges that the
Lenders and the Agent have entered into this Agreement (and, to the extent that
the Lenders or the Agent may enter into any future Credit Document, will have
entered into such agreement) in reliance
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on this Section 9 being a continuing irrevocable agreement, and such Guarantor
agrees that its guarantee may not be revoked in whole or in part. The
obligations of the Guarantors hereunder shall terminate when the commitment
of the Lenders to extend credit under this Agreement shall have terminated and
all of the Credit Obligations have been indefeasibly paid in full in
immediately available funds and discharged; provided, however , that:
(a) if a claim is made upon the Lenders at any time for
repayment or recovery of any amounts or any property received by the
Lenders from any source on account of any of the Credit Obligations
and the Lenders repay or return any amounts or property so received
(including interest thereon to the extent required to be paid by the
Lenders) or
(b) if the Lenders become liable for any part of such
claim by reason of (i) any judgment or order of any court or
administrative authority having competent jurisdiction, or (ii) any
settlement or compromise of any such claim,
then the Guarantors shall remain liable under this Agreement for the amounts so
repaid or property so returned or the amounts for which the Lenders become
liable (such amounts being deemed part of the Credit Obligations) to the same
extent as if such amounts or property had never been received by the Lenders,
notwithstanding any termination hereof or the cancellation of any instrument or
agreement evidencing any of the Credit Obligations. Not later than five days
after receipt of notice from the Agent, the Guarantors shall jointly and
severally pay to the Agent an amount equal to the amount of such repayment or
return for which the Lenders have so become liable. Payments hereunder by a
Guarantor may be required by the Agent on any number of occasions.
9.3. Waivers with Respect to Credit Obligations. Except to the
extent expressly required by this Agreement or any other Credit Document, each
Guarantor waives, to the fullest extent permitted by the provisions of
applicable law, all of the following (including all defenses, counterclaims and
other rights of any nature based upon any of the following):
(a) presentment, demand for payment and protest of
nonpayment of any of the Credit Obligations, and notice of protest,
dishonor or nonperformance;
(b) notice of acceptance of this guarantee and notice that
credit has been extended in reliance on the Guarantor's guarantee of
the Credit Obligations;
(c) notice of any Default or of any inability to enforce
performance of the obligations of the Company or any other Person with
respect to any Credit Document, or notice of any acceleration of
maturity of any Credit Obligations;
(d) demand for performance or observance of, and any
enforcement of any provision of, the Credit Obligations, this
Agreement or any other Credit Document or
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any pursuit or exhaustion of rights or remedies with respect to any
Credit Security or against the Company or any other Person in respect
of the Credit Obligations or any requirement of diligence or
promptness on the part of the Agent or the Lenders in connection with
any of the foregoing;
(e) any act or omission on the part of the Agent or the
Lenders which may impair or prejudice the rights of the Guarantor,
including rights to obtain subrogation, exoneration, contribution,
indemnification or any other reimbursement from the Company or any
other Person, or otherwise operate as a deemed release or discharge;
(f) failure or delay to perfect or continue the
perfection of any security interest in any Credit Security or any
other action which harms or impairs the value of, or any failure to
preserve or protect the value of, any Credit Security;
(g) any statute of limitations or any statute or rule of
law which provides that the obligation of a surety must be neither
larger in amount nor in other respects more burdensome than the
obligation of the principal;
(h) any "single action" or "anti-deficiency" law which
would otherwise prevent the Lenders from bringing any action,
including any claim for a deficiency, against the Guarantor before or
after the Agent's or the Lenders' commencement or completion of any
foreclosure action, whether judicially, by exercise of power of sale
or otherwise, or any other law which would otherwise require any
election of remedies by the Agent or the Lenders;
(i) all demands and notices of every kind with respect to
the foregoing; and
(j) to the extent not referred to above, all defenses
(other than payment) which the Company may now or hereafter have to
the payment of the Credit Obligations, together with all suretyship
defenses, which could otherwise be asserted by such Guarantor.
Each Guarantor represents that it has obtained the advice of counsel as to the
extent to which suretyship and other defenses may be available to it with
respect to its obligations hereunder in the absence of the waivers contained in
this Section 9.3.
No delay or omission on the part of the Agent or the Lenders in
exercising any right under this Agreement or any other Credit Document or under
any guarantee of the Credit Obligations or with respect to the Credit Security
shall operate as a waiver or relinquishment of such right. No action which the
Agent or the Lenders or the Company may take or refrain from taking with
respect to the Credit Obligations, including any amendments thereto or
modifications thereof or waivers with respect thereto, shall affect the
provisions of this Agreement or the obligations of the Guarantor hereunder.
None of the Lenders' or the
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Agent's rights shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of any Obligor, or by any noncompliance by
the Company with the terms, provisions and covenants of this Agreement,
regardless of any knowledge thereof which the Agent or the Lenders may have or
otherwise be charged with.
9.4. Lenders' Power to Waive, etc. Each Guarantor grants to the
Lenders full power in their discretion, without notice to or consent of such
Guarantor, such notice and consent being expressly waived to the fullest
extent permitted by applicable law, and without in any way affecting the
liability of the Guarantor under its guarantee hereunder:
(a) To waive compliance with, and any Default under, and
to consent to any amendment to or modification or termination of any
terms or provisions of, or to give any waiver in respect of, this
Agreement, any other Credit Document, the Credit Security, the Credit
Obligations or any guarantee thereof (each as from time to time in
effect);
(b) To grant any extensions of the Credit Obligations (for
any duration), and any other indulgence with respect thereto, and to
effect any total or partial release (by operation of law or
otherwise), discharge, compromise or settlement with respect to the
obligations of the Obligors or any other Person in respect of the
Credit Obligations, whether or not rights against the Guarantor under
this Agreement are reserved in connection therewith;
(c) To take security in any form for the Credit
Obligations, and to consent to the addition to or the substitution,
exchange, release or other disposition of, or to deal in any other
manner with, any part of any property contained in the Credit Security
whether or not the property, if any, received upon the exercise of
such power shall be of a character or value the same as or different
from the character or value of any property disposed of, and to
obtain, modify or release any present or future guarantees of the
Credit Obligations and to proceed against any of the Credit Security
or such guarantees in any order;
(d) To collect or liquidate or realize upon any of the
Credit Obligations or the Credit Security in any manner or to refrain
from collecting or liquidating or realizing upon any of the Credit
Obligations or the Credit Security; and
(e) To extend credit under this Agreement, any other
Credit Document or otherwise in such amount as the Lenders may
determine, including increasing the amount of credit and the interest
rate and fees with respect thereto, even though the condition of the
Obligors (financial or otherwise on an individual or Consolidated
basis) may have deteriorated since the date hereof.
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9.5. Information Regarding the Borrowers, etc. Each Guarantor has
made such investigation as it deems desirable of the risks undertaken by it in
entering into this Agreement and is fully satisfied that it understands all
such risks. Each Guarantor waives any obligation which may now or hereafter
exist on the part of the Agent or the Lenders to inform it of the risks being
undertaken by entering into this Agreement or of any changes in such risks and,
from and after the date hereof, each Guarantor undertakes to keep itself
informed of such risks and any changes therein. Each Guarantor expressly
waives any duty which may now or hereafter exist on the part of the Agent or
the Lenders to disclose to the Guarantor any matter related to the business,
operations, character, collateral, credit, condition (financial or otherwise),
income or prospects of the Borrowers or their respective Affiliates or their
properties or management, whether now or hereafter known by the Agent or the
Lenders. Each Guarantor represents, warrants and agrees that it assumes sole
responsibility for obtaining from the Borrowers all information concerning
this Agreement and all other Credit Documents and all other information as to
the Borrowers and their respective Affiliates or their properties or management
as such Guarantor deems necessary or desirable.
9.6. Certain Guarantor Representations. Each Guarantor represents
that:
(a) it is in its best interest and in pursuit of the
purposes for which it was organized as an integral part of the
business conducted and proposed to be conducted by the Borrowers and
their respective Subsidiaries, and reasonably necessary and convenient
in connection with the conduct of the business conducted and proposed
to be conducted by them, to induce the Lenders to enter into this
Agreement and to extend credit to the Borrowers by making the
Guarantees contemplated by this Section 9,
(b) the credit available hereunder will directly or
indirectly inure to its benefit,
(c) by virtue of the foregoing it is receiving at least
reasonably equivalent value from the Lenders for its Guarantee,
(d) it will not be rendered insolvent as a result of
entering into this Agreement,
(e) after giving effect to the transactions contemplated
by this Agreement, it will have assets having a fair saleable value in
excess of the amount required to pay its probable liability on its
existing debts as they become absolute and matured,
(f) it has, and will have, access to adequate capital for
the conduct of its business,
(g) it has the ability to pay its debts from time to time
incurred in connection with its business as such debts mature, and
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(h) it has been advised by the Agent that the Lenders are
unwilling to enter into this Agreement unless the Guarantees
contemplated by this Section 9 are given by it.
9.7. Subrogation. Each Guarantor agrees that, until the Credit
Obligations are paid in full, it will not exercise any right of reimbursement,
subrogation, contribution, offset or other claims against the other Obligors
arising by contract or operation of law in connection with any payment made or
required to be made by such Guarantor under this Agreement. After the payment
in full of the Credit Obligations, each Guarantor shall be entitled to
exercise against the Borrowers and the other Obligors all such rights of
reimbursement, subrogation, contribution and offset, and all such other claims,
to the fullest extent permitted by law.
9.8. Subordination. Each Guarantor covenants and agrees that, after
the occurrence of an Event of Default, all Indebtedness, claims and liabilities
then or thereafter owing by the Borrowers or any other Obligor to such
Guarantor whether arising hereunder or otherwise are subordinated to the prior
payment in full of the Credit Obligations and are so subordinated as a claim
against such Obligor or any of its assets, whether such claim be in the
ordinary course of business or in the event of voluntary or involuntary
liquidation, dissolution, insolvency or bankruptcy, so that no payment with
respect to any such Indebtedness, claim or liability will be made or received
while any Event of Default exists.
9.9. Future Subsidiaries; Further Assurances. On Each Borrower will
from time to time cause (a) any present Wholly Owned Subsidiary that is not a
Guarantor within 30 days after notice from the Agent or (b) any future Wholly
Owned Subsidiary within 30 days after any such Person becomes a Wholly Owned
Subsidiary, to join this Agreement as a Borrower and a Guarantor pursuant to a
joinder agreement in the form attached hereto as Exhibit 5.2.2. Each Guarantor
will, promptly upon the request of the Agent from time to time, execute,
acknowledge and deliver, and file and record, all such instruments, and take
all such action, as the Agent deems necessary or advisable to carry out the
intent and purposes of this Section 9.
10. Security.
10.1. Credit Security. As security for the payment and performance
of the Credit Obligations, each Obligor mortgages, pledges and collaterally
grants and assigns to the Agent for the benefit of the Lenders and the holders
from time to time of any Credit Obligation, and creates a security interest in
favor of the Agent for the benefit of the Lenders and such holders in, all of
such Obligor's right, title and interest in and to (but none of its obligations
or liabilities with respect to) the items and types of present and future
property described in Sections 10.1.1 through 10.1.14 (subject, however, to
Section 10.1.15), whether now owned or hereafter acquired, all of which shall
be included in the term "Credit Security":
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10.1.1. Tangible Personal Property. All goods, machinery,
equipment, inventory and all other tangible personal property of any
nature whatsoever, wherever located, including raw materials, work in
process, finished parts and products, supplies, spare parts,
replacement parts, merchandise for resale, computers, tapes, disks and
computer equipment.
10.1.2. Rights to Payment of Money. All rights to receive
the payment of money, including accounts (as defined in the UCC) and
receivables, rights to receive the payment of money under contracts,
franchises, licenses, permits, subscriptions or other agreements
(whether or not earned by performance), and rights to receive payments
from any other source (all such rights, other than Financing Debt,
being referred to herein as "Accounts").
10.1.3. Intangibles. All of the following (to the extent
not included in Section 10.1.2): (a) contracts, franchises, licenses,
permits, subscriptions and other agreements and all rights thereunder;
(b) rights granted by others which permit the Obligor to sell or
market items of personal property; (c) United States and foreign
common law and statutory copyrights and rights in literary property
and rights and licenses thereunder; (d) trade names, United States and
foreign trademarks, service marks, any registrations thereof and any
related good will; (e) United States and foreign patents and patent
applications; (f) computer software, designs, models, know-how, trade
secrets, rights in proprietary information, formulae, customer lists,
backlog, orders, subscriptions, royalties, catalogues, sales material,
documents, good will, inventions and processes; (g) judgments, causes
in action and claims, whether or not inchoate, and (h) all other
general intangibles (as defined in the UCC) and intangible property
and all rights thereunder.
10.1.4. Pledged Stock. (a) All shares of capital stock or
other evidence of beneficial interest in any corporation, business
trust or limited liability company, (b) all limited partnership
interests in any limited partnership, (c) all general partnership
interests in any general partnership, (d) all joint venture interests
in any joint venture and (e) all options, warrants and similar rights
to acquire such capital stock or such interests. All such capital
stock, interests, options, warrants and other rights are collectively
referred to as the "Pledged Stock".
10.1.5. Pledged Rights. All rights to receive profits or
surplus of, or other Distributions (including income, return of
capital and liquidating distributions) from, any partnership or joint
venture, including any distributions by any such Person to partners or
joint venturers. All such rights are collectively referred to as the
"Pledged Rights".
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10.1.6. Pledged Indebtedness. All Financing Debt from
time to time owing to such Obligor from any Person (all such Financing
Debt being referred to as the "Pledged Indebtedness").
10.1.7. Chattel Paper, Instruments and Documents. All
chattel paper (as defined in the UCC), non-negotiable instruments,
negotiable instruments (as defined in the UCC) and documents (as
defined in the UCC).
10.1.8. Leases. All leases of personal property, whether
the Obligor is the lessor or the lessee thereunder.
10.1.9. Deposit Accounts. All general or special deposit
accounts, including any demand, time, savings, passbook or similar
account maintained by the Obligor with any bank, trust company,
savings and loan association, credit union or similar organization,
and all money, cash and cash equivalents of the Obligor, whether or
not deposited in any such deposit account.
10.1.10. Collateral. All collateral granted by third
party obligors to, or held by, the Obligor with respect to the
Accounts, Pledged Securities, chattel paper, instruments, leases and
other items of Credit Security.
10.1.11. Books and Records. All books and records,
including books of account and ledgers of every kind and nature, all
electronically recorded data (including all computer programs, disks,
tapes, electronic data processing media and software used in
connection with maintaining the Obligor's books and records), all
files and correspondence and all receptacles and containers for the
foregoing.
10.1.12. Insurance. All insurance policies which insure
against any loss or damage to any other Credit Security and each of
the key executive life insurance policies set forth in Section 6.3.4.
10.1.13. All Other Property. All other property, assets
and items of value of every kind and nature, tangible, or intangible,
absolute or contingent, legal or equitable, including the rights of
any Obligors under the Material Agreements set forth in Exhibit 7.2.2.
10.1.14. Proceeds and Products. All proceeds,
including insurance proceeds, and products of the items of Credit
Security described or referred to in Sections 10.1.1 through 10.1.13
and, to the extent not included in the foregoing, all Distributions
with respect to the Pledged Securities.
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10.1.15. Excluded Property. Notwithstanding Sections
10.1.1 through 10.1.14, the payment and performance of the Credit
Obligations shall not be secured by:
(a) any rights arising under, and any property, tangible
or intangible, acquired under, any agreement which validly prohibits
the creation by such Obligor of a security interest in such rights or
property;
(b) any rights or property to the extent that any valid
and enforceable law or regulation applicable to such rights or
property prohibits the creation of a security interest therein;
(c) more than 66% of the outstanding stock or other equity
in any foreign Subsidiary; or
(d) the items described in Section 10.2 (but only in the
event and to the extent the Agent has not specified that such items be
included in the Credit Security pursuant thereto).
In addition, in the event an Obligor disposes of assets to third
parties in a transaction permitted by Section 6.11, such assets, but not the
proceeds or products thereof, shall automatically be released from the Lien of
the Credit Security.
10.2. Additional Credit Security. As additional Credit Security,
each Obligor covenants that it will mortgage, pledge and collaterally grant and
assign to the Agent for the benefit of the Lenders and the holders from time
to time of any Credit Obligation, and will create a security interest in favor
of the Agent for the benefit of the Lenders and such holders in, all of its
right, title and interest in and to (but none of its obligations with respect
to) such of the following present or future items as the Agent may from time
to time specify by notice to the Borrowers, whether now owned or hereafter
acquired, and the proceeds and products thereof, except to the extent
consisting of rights or property of the types referred to in Section 10.1.15(a)
through (d), subject only to Liens permitted by Section 10.3.4, all of which
shall thereupon be included in the term "Credit Security":
10.2.1. Real Property. All real property and immovable
property and fixtures, leasehold interests and easements wherever
located, together with any and all estates and interests of the
Obligor therein, including lands, buildings, stores, manufacturing
facilities and other structures erected on such property, fixed plant,
fixed equipment and all permits, rights, licenses, benefits and other
interests of any kind or nature whatsoever in respect of such real and
immovable property.
10.2.2. Motor Vehicles and Aircraft. All motor vehicles
and aircraft.
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10.3. Representations, Warranties and Covenants with Respect to
Credit Security. Each Obligor represents, warrants and covenants that:
10.3.1. Pledged Stock. All shares of capital stock,
limited partnership interests and similar securities included in the
Pledged Stock are and shall be at all times duly authorized, validly
issued, fully paid and (in the case of capital stock and limited
partnership interests) nonassessable. Each Obligor will deliver to
the Agent certificates representing the Pledged Stock, registered, if
the Agent so requests, in the name of the Agent or its nominee, as
pledgee, or accompanied by a stock transfer power executed in blank
and, if the Agent so requests, with the signature guaranteed, all in
form and manner satisfactory to the Agent. Pledged Stock that is not
evidenced by a certificate will be registered in the Agent's name as
pledgee on the issuer's records, all in form and substance
satisfactory to the Agent. The Agent may at any time following and
during the continuation of the occurrence of an Event of Default
transfer into its name or the name of its nominee, as pledgee, any
Pledged Securities. In the event the Pledged Stock includes any
Margin Stock, the Obligors will furnish to the Lenders Federal Reserve
Form U-1 and take such other action as the Agent may request to ensure
compliance with applicable laws.
10.3.2. Accounts and Pledged Indebtedness. All Accounts
and Pledged Indebtedness owed by any Affiliate of the Obligors shall
be on open account and shall not be evidenced by any note or other
instrument; provided, however, that all Pledged Indebtedness owed by
any Affiliate of any Obligor shall, if the Agent requests, be
evidenced by a promissory note, which note shall be delivered to the
Agent after having been endorsed in blank. Each Obligor will,
immediately upon the receipt thereof, deliver to the Agent any
promissory note or similar instrument representing any Pledged
Indebtedness, after having endorsed such promissory note or instrument
in blank.
10.3.3. No Liens or Restrictions on Transfer or Change of
Control. All Credit Security shall be free and clear of any Liens and
restrictions on the transfer thereof, including contractual provisions
which prohibit the assignment of rights under contracts, except for
Liens permitted by Section 6.8 and except for restrictions on transfer
under the Securities Act and under applicable state securities laws.
Without limiting the generality of the foregoing, each Obligor will
exclude from contracts to which it becomes a party after the date
hereof provisions that would prevent such Obligor from creating a
security interest in such contract or any property acquired thereunder
as contemplated hereby. None of the Pledged Stock is subject to any
option to purchase or similar rights of any Person. Except with the
written consent of the Agent, no Obligor is, and none of them will be,
party to or bound by any agreement, instrument, deed or lease that
restricts the change of control or ownership, or the creation of a
security interest in the ownership, of the Company or any of its
Subsidiaries.
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10.3.4. Location of Credit Security. Each Obligor shall at
all times keep its records concerning the Accounts at its chief
executive office and principal place of business, which office and
place of business shall be set forth in Exhibit 7.1, or, so long as
such Obligor shall have taken all steps reasonably necessary to
perfect the Lenders' security interest in the Credit Security with
respect to such new address, at such other address as such Obligor may
specify by notice actually received by the Agent not less than 10
Banking Days prior to such change of address. No Obligor shall at any
time keep tangible personal property of the type referred to in
Section 10.1.1 in any jurisdiction other than the jurisdictions
specified in Exhibit 7.1, or, so long as such Obligor shall have taken
all steps reasonably necessary to perfect the Lenders' security
interest in the Credit Security with respect to such other
jurisdiction, other jurisdictions as such Obligor may specify by
notice actually received by the Agent not less than 10 days prior to
moving such tangible personal property into such other jurisdiction.
10.3.5. Trade Names. No Obligor will adopt or do
business under any name other than its name or names designated in
Exhibit 7.1 or any other name specified by notice actually received by
the Agent not less than 10 days prior to the conduct of business under
such additional name. Since its incorporation, no Obligor has changed
its corporate name or adopted or conducted business under any trade
name other than a name specified on Exhibit 7.1.
10.3.6. Insurance. Each insurance policy included in, or
insuring against loss or damage to, the Credit Security shall name the
Agent as additional insured party or as loss payee. No such insurance
policy shall be cancelable or subject to termination or reduction in
amount or scope of coverage until after at least 30 days' prior
written notice from the insurer to the Agent. At least 10 days prior
to the expiration of any such insurance policy for any reason, each
Obligor shall furnish the Agent with a renewal or replacement policy
and evidence of payment of the premiums therefor when due. Each
Obligor grants to the Agent full power and authority as its
attorney-in-fact, effective upon notice to such Obligor after the
occurrence of an Event of Default to obtain, cancel, transfer, adjust
and settle any such insurance policy and to endorse any drafts
thereon. Any amounts that the Agent receives under any such policy
(including return of unearned premiums) insuring against loss or
damage to the Credit Security prior to the occurrence of an Event of
Default shall be delivered to the Obligors for the replacement,
restoration and maintenance of the Credit Security. Any such amounts
that the Agent receives after the occurrence of an Event of Default
shall, at the Agent's option, be applied to payment of the Credit
Obligations or to the replacement, restoration and maintenance of the
Credit Security. If any Obligor fails to provide insurance as
required by this Agreement, the Agent may, at its option, purchase
such insurance, and such Obligor will on demand pay to the Agent the
amount of any payments made by the Agent or the Lenders for such
purpose, together with interest on
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the amounts so disbursed from five Banking Days after the date
demanded until payment in full thereof at the Overdue Reimbursement
Rate.
10.3.7. Modifications to Credit Security. Except with the
prior written consent of the Required Lenders, no Obligor shall amend
or modify, or waive any of its rights under or with respect to, any
material Accounts, general intangibles, Pledged Securities or leases
if the effect of such amendment, modification or waiver would be to
reduce the amount of any such items or to extend the time of payment
thereof, to waive any default by any other party thereto, or to waive
or impair any remedies of the Obligors or the Lenders under or with
respect to any such Accounts, general intangibles, Pledged Securities
or leases, in each case other than consistent with past practice in
the ordinary course of business and on an arm's-length basis. Each
Obligor will promptly give the Agent written notice of any request by
any Person for any material credit or adjustment with respect to any
Account, general intangible, Pledged Securities or leases.
10.3.8. Delivery of Documents. At the Agent's request,
each Obligor shall deliver to the Agent, promptly upon such Obligor's
receipt thereof, copies of any agreements, instruments, documents or
invoices comprising or relating to the Credit Security. Pending such
request, such Obligor shall keep such items at its chief executive
office and principal place of business (as specified pursuant to
Section 10.3.5).
10.3.9. Perfection of Credit Security. Upon the Agent's
request from time to time, the Obligors will execute and deliver, and
file and record in the proper filing and recording places, all such
instruments, including financing statements, collateral assignments of
copyrights, trademarks and patents, mortgages or deeds of trust, and
notations on certificates of title and will take all such other
action, as the Agent deems advisable for confirming to it the Credit
Security or to carry out any other purposes of this Agreement or any
other Credit Document.
10.4. Administration of Credit Security. The Credit Security shall
be administered as follows, and if an Event of Default shall have occurred,
Section 10.5 shall also apply.
10.4.1. Use of Credit Security. Until the Agent provides
written notice to the contrary, each Obligor may use, commingle and
dispose of any part of the Credit Security in the ordinary course of
its business, all subject to Section 6.11.
10.4.2. Deposits; Accounts. Unless the Agent shall
otherwise consent in writing, which consent shall not be unreasonably
withheld, each Obligor shall keep all its bank and deposit accounts
only with the Agent, other Lenders or the financial institutions
approved by the Required Lenders. To the extent specified by prior
written notice from the Agent, whether prior to or after the
occurrence of an Event of Default,
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all sums collected or received and all property recovered or
possessed by any Obligor in connection with any Credit Security shall
be received and held by such Obligor in trust for and on the Lenders'
behalf, shall be segregated from the assets and funds of such
Obligor, and shall be delivered to the Agent for the benefit of the
Lenders. In addition, the Borrowers shall direct that all Accounts
payable by Medicare or Medicaid and all Accounts payable in an amount
greater than $50 be paid directly into a locked-box account with
NationsBank, N.A. (South) or such other locked-box account as
approved by the Required Lenders.
10.4.3. Pledged Securities.
(a) Distributions. (i) Until an Event of Default
shall occur, and thereafter once such Event of Default has
ceased to exist, the respective Obligors shall be entitled, to
the extent permitted by the Credit Documents, to receive all
Distributions on or with respect to the Pledged Securities
(other than Distributions constituting additional Pledged
Securities). All Distributions constituting additional Pledged
Securities will be retained by the Agent (or if received by any
Obligor shall be held by such Person in trust and shall be
immediately delivered by such Person to the Agent in the
original form received, endorsed in blank) and held by the
Agent as part of the Credit Security.
(ii) If an Event of Default shall have occurred and be
continuing, all Distributions on or with respect to the Pledged
Securities shall be retained by the Agent (or if received by
any Obligor shall be held by such Person in trust and shall be
immediately delivered by it to the Agent in the original form
received, endorsed in blank) and held by the Agent as part of
the Credit Security or applied by the Agent to the payment of
the Credit Obligations in accordance with Section 10.5.6.
(b) Voting. (i) Until an Event of Default shall
occur, the respective Obligors shall be entitled to vote or
consent with respect to the Pledged Securities in any manner
not inconsistent with the terms of any Credit Document, and the
Agent will, if so requested, execute appropriate revocable
proxies therefor.
(ii) If an Event of Default shall have occurred, if
and to the extent that the Agent shall so notify in writing the
Obligor pledging the Pledged Securities in question, only the
Agent shall be entitled to vote or consent or take any other
action with respect to the Pledged Securities (and any Obligor
will, if so requested, execute or cause to be executed
appropriate proxies therefor).
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10.5. Right to Realize upon Credit Security. Except to the extent
prohibited by applicable law that cannot be waived, this Section 10.5 shall
govern the Lenders' right to realize upon the Credit Security if any Event of
Default shall have occurred and be continuing. The provisions of this Section
10.5 are in addition to any rights and remedies available at law or in equity
and in addition to the provisions of any other Credit Document. In the case of
a conflict between this Section 10.5 and any other Credit Document, this
Section 10.5 shall govern. If any Event of Default shall have occurred and be
continuing:
10.5.1. Assembly of Credit Security; Receiver. Each of
the Obligors shall, upon the Agent's request, assemble the Credit
Security and otherwise make it available to the Agent. The Agent may
have a receiver appointed for all or any portion of the Obligor's
assets or business which constitutes the Credit Security in order to
manage, protect, preserve, sell and otherwise dispose of all or any
portion of the Credit Security in accordance with the terms of the
Credit Documents, to continue the operations of the Obligors and to
collect all revenues and profits therefrom to be applied to the
payment of the Credit Obligations, including the compensation and
expenses of such receiver.
10.5.2. General Authority. To the extent specified in
written notice from the Agent to the Obligor in question, each Obligor
grants the Agent full and exclusive power and authority, subject to
the other terms hereof and applicable law, to take any of the
following actions (for the sole benefit of the Agent on behalf of the
Lenders and the holders from time to time of any Credit Obligations,
but at the Obligor's expense):
(a) To ask for, demand, take, collect, sue for and receive
all payments in respect of any Accounts, general intangibles, Pledged
Securities or leases which the Obligor could otherwise ask for,
demand, take, collect, sue for and receive for its own use.
(b) To extend the time of payment of any Accounts, general
intangibles, Pledged Securities or leases and to make any allowance or
other adjustment with respect thereto.
(c) To settle, compromise, prosecute or defend any action
or proceeding with respect to any Accounts, general intangibles,
Pledged Securities or leases and to enforce all rights and remedies
thereunder which the Obligor could otherwise enforce.
(d) To enforce the payment of any Accounts, general
intangibles, Pledged Securities or leases, either in the name of the
Obligor or in its own name, and to endorse the name of the Obligor on
all checks, drafts, money orders and other instruments tendered to or
received in payment of any Credit Security.
(e) To notify the third party payor with respect to any
Accounts, general intangibles, Pledged Securities or leases of the
existence of the security interest created
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hereby and to cause all payments in respect thereof thereafter to be
made directly to the Agent; provided, however, that whether or not
the Agent shall have so notified such payor, the Obligors will
at their expense render all reasonable assistance to the Agent in
collecting such items and in enforcing claims thereon.
(f) To sell, transfer, assign or otherwise deal in or with
any Credit Security or the proceeds thereof, as fully as any Obligor
otherwise could do.
10.5.3. Marshaling, etc. Neither the Agent nor the
Lenders shall be required to make any demand upon, or pursue or
exhaust any of their rights or remedies against, any Obligor or any
other guarantor, pledgor or any other Person with respect to the
payment of the Credit Obligations or to pursue or exhaust any of their
rights or remedies with respect to any collateral therefor or any
direct or indirect guarantee thereof. Neither the Agent nor the
Lenders shall be required to marshal the Credit Security or any
guarantee of the Credit Obligations or to resort to the Credit
Security or any such guarantee in any particular order, and all of its
and their rights hereunder or under any other Credit Document shall be
cumulative. To the extent it may lawfully do so, each of the Obligors
absolutely and irrevocably waives and relinquishes the benefit and
advantage of, and covenants not to assert against the Agent or the
Lenders, any valuation, stay, appraisement, extension, redemption or
similar laws now or hereafter existing which, but for this provision,
might be applicable to the sale of any Credit Security made under the
judgment, order or decree of any court, or privately under the power
of sale conferred by this Agreement, or otherwise. Without limiting
the generality of the foregoing, each of the Obligors (a) agrees that
it will not invoke or utilize any law which might prevent, cause a
delay in or otherwise impede the enforcement of the rights of the
Agent or any Lender in the Credit Security, (b) waives all such laws,
and (c) agrees that it will not invoke or raise as a defense to any
enforcement by the Agent or any Lender of any rights and remedies
relating to the Credit Security or the Credit Obligations any legal or
contractual requirement with which the Agent or any Lender may have in
good faith failed to comply. In addition, each of the Obligors waives
any right to prior notice (except to the extent expressly required by
this Agreement) or judicial hearing in connection with foreclosure on
or disposition of any Credit Security, including any such right which
such Obligor would otherwise have under the Constitution of the United
States of America, any state or territory thereof or any other
jurisdiction.
10.5.4. Sales of Credit Security. All or any part of the
Credit Security may be sold for cash or other value in any number of
lots at public or private sale, without demand, advertisement or
notice; provided, however, that unless the Credit Security to be sold
threatens to decline speedily in value or is of a type customarily
sold on a recognized market, the Agent shall give the Obligor granting
the security interest in such Credit Security 10 days' prior written
notice of the time and place of any public sale, or the time after
which a private sale may be made, which notice each of the
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Obligors and the Lenders hereby agrees to be reasonable. At
any sale or sales of Credit Security, any Lender or any of its
respective officers acting on its behalf, or such Lender's assigns, may
bid for and purchase all or any part of the property and rights so
sold, may use all or any portion of the Credit Obligations owed to such
Lender as payment for the property or rights so purchased, and upon
compliance with the terms of such sale may hold and dispose of such
property and rights without further accountability to the respective
Obligor, except for the proceeds of such sale or sales pursuant to
Section 10.5.6. The Obligors acknowledge that any such sale will be
made by the Agent on an "as is" basis with disclaimers of all
warranties, whether express or implied. The respective Obligors will
execute and deliver or cause to be executed and delivered such
instruments, documents, assignments, waivers, certificates and
affidavits, will supply or cause to be supplied such further
information and will take such further action as the Agent shall
request in connection with any such sale.
10.5.5. Sale without Registration. If, at any time when the
Agent shall determine to exercise its rights hereunder to sell all or
part of the securities included in the Credit Security, the securities
in question shall not be effectively registered under the Securities
Act (or other applicable law), the Agent may, in its sole discretion,
sell such securities by private or other sale not requiring such
registration in such manner and in such circumstances as the Agent may
deem necessary or advisable in order that such sale may be effected in
accordance with applicable securities laws without such registration
and the related delays, uncertainty and expense. Without limiting the
generality of the foregoing, in any event the Agent may, in its sole
discretion, (a) approach and negotiate with a single purchaser or one
or more possible purchasers to effect such sale, (b) restrict such sale
to one or more purchasers each of whom will represent and agree that
such purchaser is purchasing for its own account, for investment and
not with a view to the distribution or sale of such securities and (c)
cause to be placed on certificates representing the securities in
question a legend to the effect that such securities have not been
registered under the Securities Act (or other applicable law) and may
not be disposed of in violation of the provisions thereof. Each of the
Obligors agrees that such manner of disposition is commercially
reasonable, that it will upon the Agent's request give any such
purchaser access to such information regarding the issuer of the
securities in question as the Agent may reasonably request and that the
Agent and the Lenders shall not incur any responsibility for selling
all or part of the securities included in the Credit Security at any
private or other sale not requiring such registration, notwithstanding
the possibility that a substantially higher price might be realized if
the sale were deferred until after registration under the Securities
Act (or other applicable law) or until made in compliance with certain
other rules or exemptions from the registration provisions under the
Securities Act (or other applicable law). Each of the Obligors
acknowledges that no adequate remedy at law exists for breach by it of
this Section 10.5.5 and that such breach would not be adequately
compensable in damages and therefore agrees that this Section 10.5.5
may be specifically enforced.
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10.5.6. Application of Proceeds. The proceeds of all sales
and collections in respect of any Credit Security or other assets of
any Obligor, all funds collected from the Obligors and any cash
contained in the Credit Security, the application of which is not
otherwise specifically provided for herein, shall be applied as
follows:
First, to the payment of the costs and expenses of such
sales and collections, the reasonable expenses of the Agent and the
reasonable fees and expenses of its special counsel;
Second, any surplus then remaining to the payment of the
Credit Obligations in such order and manner as the Agent may in its
sole discretion determine; provided, however, that any such payment of
Credit Obligations owed to all Lenders shall be pro rata in accordance
with the respective Percentage Interests of the Lenders;
Third, any surplus then remaining shall be paid to the
Obligors, subject, however, to the rights of the holder of any then
existing Lien of which the Agent has actual notice.
10.6. Custody of Credit Security . Except as provided by applicable law
that cannot be waived, the Agent will have no duty as to the custody and
protection of the Credit Security, the collection of any part thereof or of any
income thereon or the preservation or exercise of any rights pertaining thereto,
including rights against prior parties, except for the use of reasonable care in
the custody and physical preservation of any Credit Security in its possession.
The Lenders will not be liable or responsible for any loss or damage to any
Credit Security, or for any diminution in the value thereof, by reason of the
act or omission of any agent selected by the Agent acting in good faith.
11. Expenses; Indemnity.
11.1. Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Company will pay:
(a) all reasonable expenses of the Agent (including the
out-of-pocket expenses related to forming the group of Lenders and
reasonable fees and disbursements of the counsel to the Agent) in
connection with the preparation and duplication of this Agreement, each
other Credit Document, examinations by, and reports of, the Agent's
commercial financial examiners, the transactions contemplated hereby
and thereby and amendments, waivers, consents and other operations
hereunder and thereunder;
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(b) all recording and filing fees and transfer and documentary
stamp and similar taxes at any time payable in respect of this
Agreement, any other Credit Document, any Credit Security or the
incurrence of the Credit Obligations; and
(c) to the extent not prohibited by applicable law that cannot
be waived, after the occurrence and during the continuance of any
Default or Event of Default, all other reasonable expenses incurred by
the Lenders or the holder of any Credit Obligation in connection with
the enforcement of any rights hereunder or under any other Credit
Document, including costs of collection and reasonable attorneys' fees
(including a reasonable allowance for the hourly cost of attorneys
employed by the Lenders on a salaried basis) and expenses.
11.2. General Indemnity. The Borrowers shall indemnify the Lenders and
the Agent and hold them harmless from any liability, loss or damage resulting
from the violation by the Company of Section 2.3. In addition, the Borrowers
shall indemnify each Lender, the Agent, each of the Lenders' or the Agent's
directors, officers and employees, and each Person, if any, who controls any
Lender or the Agent (each Lender, the Agent and each of such directors,
officers, employees and control Persons is referred to as an "Indemnified
Party") and hold each of them harmless from and against any and all claims,
damages, liabilities and reasonable expenses (including reasonable fees and
disbursements of counsel with whom any Indemnified Party may consult in
connection therewith and all reasonable expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party in connection with (a) the Indemnified Party's compliance
with or contest of any subpoena or other process issued against it in any
proceeding involving any of the Obligors or their Affiliates, (b) any litigation
or investigation involving the Obligors or their Affiliates, or any officer,
director or employee thereof, (c) the existence or exercise of any security
rights with respect to the Credit Security in accordance with the Credit
Documents, or (d) this Agreement, any other Credit Document or any transaction
contemplated hereby or thereby; provided, however, that the foregoing indemnity
shall not apply to litigation commenced by any Borrower or Obligor against the
Lenders or the Agent which seeks enforcement of any of the rights of such
Borrower or Obligor hereunder or under any other Credit Document and is
determined adversely to the Lenders or the Agent in a final nonappealable
judgment or to the extent such claims, damages, liabilities and expenses result
from a Lender's or the Agent's gross negligence or willful misconduct.
11.3. Indemnity With Respect to Letters of Credit. The Borrowers shall
indemnify each Letter of Credit Issuer and its correspondents and hold each of
them harmless from and against any and all claims, losses, liabilities, damages
and reasonable expenses (including reasonable attorneys' fees) arising from or
in connection with any Letter of Credit, including any such claim, loss,
liability, damage or expense arising out of any transfer, sale, delivery,
surrender or endorsement of any invoice, bill of lading, warehouse receipt or
other document at any time held by the Agent, any other Letter of Credit Issuer
or held for their respective accounts by any of their correspondents, in
connection with any Letter of Credit, except to the
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extent such claims, losses, liabilities, damages and expenses result from gross
negligence or willful misconduct on the part of the Agent or any other Letter of
Credit Issuer.
12. Operations; Agent.
12.1. Interests in Credits. The percentage interest of each Lender in
the Revolving Loan and Letters of Credit, and the related Commitments, shall be
computed based on the maximum principal amount for each Lender as follows:
<TABLE>
<CAPTION>
Lender Maximum Principal Amount Percentage Interest
<S> <C> <C>
The First National Bank of Boston $25,000,000 62.5%
NationsBank, N.A. (South) $15,000,000 37.5%
=========== ====
Total $40,000,000 100%
</TABLE>
The foregoing percentage interests, as from time to time in effect and reflected
in the Register, are referred to as the "Percentage Interests" with respect to
all or any portion of the Revolving Loan and Letters of Credit, and the related
Commitments.
12.2. Agent's Authority to Act, etc. Each of the Lenders appoints and
authorizes Bank of Boston to act for the Lenders as the Lenders' Agent in
connection with the transactions contemplated by this Agreement and the other
Credit Documents on the terms set forth herein. In acting hereunder, the Agent
is acting for the account of Bank of Boston to the extent of its Percentage
Interest and for the account of each other Lender to the extent of the Lenders'
respective Percentage Interests, and all action in connection with the
enforcement of, or the exercise of any remedies (other than the Lenders' rights
of set-off as provided in Section 8.2.4 or in any Credit Document) in respect of
the Credit Obligations and Credit Documents shall be taken by the Agent.
12.3. Borrowers to Pay Agent, etc. Each Obligor shall be fully
protected in making all payments in respect of the Credit Obligations to the
Agent, in relying upon consents, modifications and amendments executed by the
Agent purportedly on the Lenders' behalf, and in dealing with the Agent as
herein provided. The Agent may charge the accounts of the Borrowers, on the
dates when the amounts thereof become due and payable, with the amounts of the
principal of and interest on the Revolving Loan, any amounts paid by the Letter
of Credit Issuers to third parties under Letters of Credit or drafts presented
thereunder, commitment fees, Letter of Credit fees and all other fees and
amounts owing under any Credit Document.
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12.4. Lender Operations for Advances, Letters of Credit, etc .
12.4.1. Advances. On each Closing Date, each Lender shall
advance to the Agent in immediately available funds such Lender's
Percentage Interest in the portion of the Revolving Loan advanced on
such Closing Date prior to 12:00 noon (Boston time). If such funds are
not received at such time, but all applicable conditions set forth in
Section 5 have been satisfied, each Lender authorizes and requests the
Agent to advance for the Lender's account, pursuant to the terms
hereof, the Lender's respective Percentage Interest in such portion of
the Revolving Loan and agrees to reimburse the Agent in immediately
available funds for the amount thereof prior to 3:00 p.m. (Boston time)
on the day any portion of the Revolving Loan is advanced hereunder;
provided, however, that the Agent is not authorized to make any such
advance for the account of any Lender who has previously notified the
Agent in writing that such Lender will not be performing its
obligations to make further advances hereunder; and provided, further,
that the Agent shall be under no obligation to make any such advance.
12.4.2. Letters of Credit. Each of the Lenders authorizes
and requests each Letter of Credit Issuer to issue the Letters of
Credit provided for in Section 2.2 and to grant each Lender a
participation in each of such Letters of Credit in an amount equal to
its Percentage Interest in the amount of each such Letter of Credit.
Promptly upon the request of the Letter of Credit Issuer, each Lender
shall reimburse the Letter of Credit Issuer in immediately available
funds for such Lender's Percentage Interest in the amount of all
obligations to third parties incurred by the Letter of Credit Issuer in
respect of each Letter of Credit and each draft accepted under a Letter
of Credit to the extent not reimbursed by the Borrowers. The Letter of
Credit Issuer will notify each Lender of the issuance of any Letter of
Credit, the amount and date of payment of any draft drawn or accepted
under a Letter of Credit and whether in connection with the payment of
any such draft the amount thereof was added to the Revolving Loan or
was reimbursed by the Borrowers.
12.4.3. Agent to Allocate Payments, etc. All payments of
principal and interest in respect of the extensions of credit made
pursuant to this Agreement, reimbursement of amounts paid by any Letter
of Credit Issuer to third parties under Letters of Credit or drafts
presented thereunder, commitment fees, Letter of Credit fees and other
fees under this Agreement shall, as a matter of convenience, be made by
the Borrowers and the Guarantors to the Agent in immediately available
funds. The share of each Lender shall be credited to such Lender by the
Agent in immediately available funds in such manner that the principal
amount of the Credit Obligations to be paid shall be paid
proportionately in accordance with the Lenders' respective Percentage
Interests in such Credit Obligations, except as otherwise provided in
this Agreement. Under no circumstances shall any Lender be required to
produce or present its Revolving Notes as evidence of its interests in
the Credit Obligations in any action or proceeding relating to the
Credit Obligations.
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12.4.4. Delinquent Lenders; Nonperforming Lenders. In the
event that any Lender fails to reimburse the Agent pursuant to Section
12.4.1 for the Percentage Interest of such lender (a "Delinquent
Lender") in any credit advanced by the Agent pursuant hereto, overdue
amounts (the "Delinquent Payment") due from the Delinquent Lender to
the Agent shall bear interest, payable by the Delinquent Lender on
demand, at a per annum rate equal to (a) the Federal Funds Rate for the
first three days overdue and (b) the sum of 2% plus the Federal Funds
Rate for any longer period. Such interest shall be payable to the Agent
for its own account for the period commencing on the date of the
Delinquent Payment and ending on the date the Delinquent Lender
reimburses the Agent on account of the Delinquent Payment (to the
extent not paid by the Company as provided below) and the accrued
interest thereon (the "Delinquency Period"), whether pursuant to the
assignments referred to below or otherwise. Upon notice by the Agent,
the Borrowers will pay to the Agent the principal (but not the
interest) portion of the Delinquent Payment. During the Delinquency
Period, in order to make reimbursements for the Delinquent Payment and
accrued interest thereon, the Delinquent Lender shall be deemed to have
assigned to the Agent all interest, commitment fees and other payments
made by the Borrowers under Section 3 that would have thereafter
otherwise been payable under the Credit Documents to the Delinquent
Lender. During any other period in which any Lender is not performing
its obligations to extend credit under Section 2 (a "Nonperforming
Lender"), the Nonperforming Lender shall be deemed to have assigned to
each Lender that is not a Nonperforming Lender (a "Performing Lender")
all principal and other payments made by the Borrowers under Section 4
that would have thereafter otherwise been payable under the Credit
Documents to the Nonperforming Lender. The Agent shall credit a portion
of such payments to each Performing Lender in an amount equal to the
Percentage Interest of such Performing Lender in an amount equal to the
Percentage Interest of such Performing Lender divided by one minus the
Percentage Interest of the Nonperforming Lender until the respective
portions of the Revolving Loan owed to all the Lenders are the same as
the Percentage Interests of the Lenders immediately prior to the
failure of the Nonperforming Lender to perform its obligations under
Section 2. The foregoing provisions shall be in addition to any other
remedies the Agent, the Performing Lenders or the Borrowers may have
under law or equity against the Delinquent Lender as a result of the
Delinquent Payment or against the Nonperforming Lender as a result of
its failure to perform its obligations under Section 2.
12.5. Sharing of Payments, etc. Each Lender agrees that (a) if by
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of (i) a proportion of the aggregate amount due with respect to its
Percentage Interest in the Revolving Loan and Letter of Credit Exposure which is
greater than (ii) the proportion received by any other Lender in respect of the
aggregate amount due with respect to such other Lender's Percentage Interest in
the Revolving Loan and Letter of Credit Exposure and (b) if such inequality
shall continue for more than 10 days, the Lender receiving such proportionately
greater payment shall purchase
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participations in the Percentage Interests in the Revolving Loan and Letter of
Credit Exposure held by the other Lenders, and such other adjustments shall be
made from time to time (including rescission of such purchases of participations
in the event the unequal payment originally received is recovered from such
Lender through bankruptcy proceedings or otherwise), as may be required so that
all such payments of principal and interest with respect to the Revolving Loan
and Letter of Credit Exposure held by the Lenders shall be shared by the Lenders
pro rata in accordance with their respective Percentage Interests; provided,
however, that this Section 12.5 shall not impair the right of any Lender to
exercise any right of set-off or counterclaim it may have and to apply the
amount subject to such exercise to the payment of Indebtedness of any Obligor
other than such Obligor's Indebtedness with respect to the Revolving Loan and
Letter of Credit Exposure. Each Lender that grants a participation in the Credit
Obligations to a Credit Participant shall require as a condition to the granting
of such participation that such Credit Participant agree to share payments
received in respect of the Credit Obligations as provided in this Section 12.5.
The provisions of this Section 12.5 are for the sole and exclusive benefit of
the Lenders and no failure of any Lender to comply with the terms hereof shall
be available to any Obligor as a defense to the payment of the Credit
Obligations.
12.6. Amendments, Consents, Waivers, etc. Except as otherwise set
forth herein, the Agent may (and upon the written request of the Required
Lenders the Agent shall) take or refrain from taking any action under this
Agreement or any other Credit Document, including giving its written consent to
any modification of or amendment to and waiving in writing compliance with any
covenant or condition in this Agreement or any other Credit Document or any
Default or Event of Default, all of which actions shall be binding upon all of
the Lenders; provided, however, that:
(a) Without the written consent of Lenders owning at
least two thirds of the Percentage Interests (other than Delinquent
Lenders during the existence of a Delinquency Period so long as such
Delinquent Lender is treated the same as the other Lenders with respect
to any actions enumerated below), no written modification of, amendment
to, consent with respect to, waiver of compliance with or waiver of a
Default under any of the Credit Documents, or under Sections 6.5
through 6.20, the related defined terms or this Section 12.6(b) shall
be made.
(b) Without the written consent of such Lenders as own
100% of the Percentage Interests (other than Delinquent Lenders during
the existence of a Delinquency Period so long as such Delinquent Lender
is treated the same as the other Lenders with respect to any actions
enumerated below):
(i) No reduction shall be made in (A) the
amount of principal of the Revolving Loan or reimbursement
obligations for payments made under Letters of Credit, (B)
the interest rate on the Revolving Loan or (C) the Letter of
Credit fees or commitment fees.
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(ii) No change shall be made in the stated time of
payment of all or any portion of the Revolving Loan or
interest thereon or reimbursement of payments made under
Letters of Credit or fees relating to any of the foregoing
payable to all of the Lenders and no waiver shall be made of
any Default under Section 8.1.1.
(iii) No increase shall be made in the amount, or
extension of the term, of the Commitments beyond that provided
for under Section 2.
(iv) No alteration shall be made of the Lenders'
rights of set-off contained in Section 8.2.4.
(v) No release of any Credit Security or of any
Guarantor shall be made (except that the Agent may release
particular items of Credit Security or particular Guarantors
in dispositions permitted by Section 6.11 and may release all
Credit Security pursuant to Section 18 upon payment in full of
the Credit Obligations and termination of the Commitments
without the written consent of the Lenders).
(vi) No amendment to or modification of this Section
12.6(b) or of the definition of Required Lenders shall be
made.
12.7. Agent's Resignation. The Agent may resign at any time by giving
at least 60 days' prior written notice of its intention to do so to each other
of the Lenders and the Borrowers and upon the appointment by the Required
Lenders of a successor Agent satisfactory to the Borrowers. If no successor
Agent shall have been so appointed and shall have accepted such appointment
within 45 days after the retiring Agent's giving of such notice of resignation,
then the retiring Agent may with the consent of the Borrowers, which shall not
be unreasonably withheld, appoint a successor Agent which shall be a bank or a
trust company organized under the laws of the United States of America or any
state thereof and having a combined capital, surplus and undivided profit of at
least $100,000,000; provided, however, that any successor Agent appointed under
this sentence may be removed upon the written request of the Required Lenders,
which request shall also appoint a successor Agent satisfactory to the
Borrowers. Upon the appointment of a new Agent hereunder, the term "Agent" shall
for all purposes of this Agreement thereafter mean such successor. After any
retiring Agent's resignation hereunder as Agent, or the removal hereunder of any
successor Agent, the provisions of this Agreement shall continue to inure to the
benefit of such Agent as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
12.8. Concerning the Agent.
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12.8.1. Action in Good Faith, etc. The Agent and its
officers, directors, employees and agents shall be under no liability
to any of the Lenders or to any future holder of any interest in the
Credit Obligations for any action or failure to act taken or suffered
in good faith, and any action or failure to act in accordance with an
opinion of its counsel shall conclusively be deemed to be in good
faith. The Agent shall in all cases be entitled to rely, and shall be
fully protected in relying, on instructions given to the Agent by the
required holders of Credit Obligations as provided in this Agreement.
12.8.2. No Implied Duties, etc. The Agent shall have and may
exercise such powers as are specifically delegated to the Agent under
this Agreement or any other Credit Document together with all other
powers incidental thereto. The Agent shall have no implied duties to
any person or any obligation to take any action under this agreement or
any other credit document except for action specifically provided for
in this Agreement or any other Credit Document to be taken by the
agent. Before taking any action under this Agreement or any other
Credit Document, the agent may request an appropriate specific
indemnity satisfactory to it from each Lender in addition to the
general indemnity provided for in Section 12.11. Until the Agent has
received such specific indemnity, the Agent shall not be obligated to
take (although it may in its sole discretion take) any such action
under this Agreement or any other Credit Document. Each Lender confirms
that the agent does not have a fiduciary relationship to it under the
Credit Documents. Each of the Obligors party hereto confirms that
neither the Agent nor any other Lender has a fiduciary relationship to
it under the Credit Documents.
12.8.3. Validity, etc. The Agent shall not be responsible to
any Lender or any future holder of any interest in the Credit
Obligations (a) for the legality, validity, enforceability or
effectiveness of this Agreement or any other Credit Document, (b) for
any recitals, reports, representations, warranties or statements
contained in or made in connection with this Agreement or any other
Credit Document, (c) for the existence or value of any assets included
in any security for the Credit Obligations, (d) for the effectiveness
of any Lien purported to be included in the Credit Security, (e) for
the specification or failure to specify any particular assets to be
included in the Credit Security, or (f) unless the Agent shall have
failed to comply with Section 12.8.1, for the perfection of the
security interests in the Credit SecuritY.
12.8.4. Compliance. The Agent shall not be obligated to
ascertain or inquire as to the performance or observance of any of the
terms of this Agreement or any other Credit Document; and in connection
with any extension of credit under this Agreement or any other Credit
Document, the Agent shall be fully protected in relying on a
certificate of the Borrowers as to the fulfillment by the Borrowers of
any conditions to such extension of credit.
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12.8.5. Employment of Agents and Counsel. The Agent may
execute any of its duties as Agent under this Agreement or any other
Credit Document by or through employees, agents and attorneys-in-fact
and shall not be responsible to any of the Lenders, any Borrower or any
other Obligor for the default or misconduct of any such agents or
attorneys-in-fact selected by the Agent acting in good faith. The Agent
shall be entitled to advice of counsel concerning all matters
pertaining to the agency hereby created and its duties hereunder or
under any other Credit Document.
12.8.6. Reliance on Documents and Counsel. The Agent shall
be entitled to rely, and shall be fully protected in relying, upon any
affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype
message or writing reasonably believed in good faith by the Agent to be
genuine and correct and to have been signed, sent or made by the Person
in question, including any telephonic or oral statement made by such
Person, and, with respect to legal matters, upon an opinion or the
advice of counsel selected by the Agent.
12.8.7. Agent's Reimbursement. Each of the Lenders
severally agrees to reimburse the Agent, in the amount of such Lender's
Percentage Interest, for any reasonable expenses not reimbursed by the
Borrowers or the Guarantors (without limiting the obligation of the
Borrowers or the Guarantors to make such reimbursement): (a) for which
the Agent is entitled to reimbursement by the Borrowers or the
Guarantors under this Agreement or any other Credit Document, and (b)
after the occurrence of a Default, for any other reasonable expenses
incurred by the Agent on the Lenders' behalf in connection with the
enforcement of the Lenders' rights under this Agreement or any other
Credit Document.
12.9. Rights as a Lender. With respect to any credit extended by it
hereunder, Bank of Boston shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
it were not the Agent, and unless the context otherwise specifies, Bank of
Boston shall be treated in its individual capacity as though it were not the
Agent hereunder. Without limiting the generality of the foregoing, the
Percentage Interest of Bank of Boston shall be included in any computations of
Percentage Interests. Bank of Boston and its Affiliates may accept deposits
from, lend money to, act as trustee for and generally engage in any kind of
banking or trust business with any Borrower, any of their respective
Subsidiaries or any Affiliate of any of them and any Person who may do business
with or own an equity interest in any Borrower, any of their respective
Subsidiaries or any Affiliate of any of them, all as if Bank of Boston were not
the Agent and without any duty to account therefor to the other Lenders.
12.10. Independent Credit Decision. Each of the Lenders acknowledges
that it has independently and without reliance upon the Agent, based on the
financial statements and other documents referred to in Section 7.2, on the
other representations and warranties contained
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herein and on such other information with respect to the Obligors as such Lender
deemed appropriate, made such Lender's own credit analysis and decision to enter
into this Agreement and to make the extensions of credit provided for hereunder.
Each Lender represents to the Agent that such Lender will continue to make its
own independent credit and other decisions in taking or not taking action under
this Agreement or any other Credit Document. Each Lender expressly acknowledges
that neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Lender, and no act by the Agent taken under this Agreement or any other
Credit Document, including any review of the affairs of the Obligors, shall be
deemed to constitute any representation or warranty by the Agent. Except for
notices, reports and other documents expressly required to be furnished to each
Lender by the Agent under this Agreement or any other Credit Document, the Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition,
financial or otherwise, or creditworthiness of any Obligor which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
12.11. Indemnification. The holders of the Credit Obligations shall
indemnify the Agent and its officers, directors, employees and agents (to the
extent not reimbursed by the Obligors and without limiting the obligation of any
of the Obligors to do so), pro rata in accordance with their respective
Percentage Interests, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time be imposed on,
incurred by or asserted against the Agent or such Persons relating to or arising
out of this Agreement, any other Credit Document, the transactions contemplated
hereby or thereby, or any action taken or omitted by the Agent in connection
with any of the foregoing; provided, however, that the foregoing shall not
extend to actions or omissions which are taken by the Agent with gross
negligence or willful misconduct.
13. Successors and Assigns; Lender Assignments and Participations. Any reference
in this Agreement to any of the parties hereto shall be deemed to include the
successors and assigns of such party, and all covenants and agreements by or on
behalf of the Obligors, the Guarantors, the Agent or the Lenders that are
contained in this Agreement or any other Credit Documents shall bind and inure
to the benefit of their respective successors and assigns; provided, however,
that (a) the Obligors may not assign their rights or obligations under this
Agreement except for mergers or liquidations permitted by Section 6.11, and (b)
the Lenders shall be not entitled to assign their respective Percentage
Interests in the Revolving Loan hereunder except as set forth below in this
Section 13.
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13.1. Assignments by Lenders.
13.1.1. Assignees and Assignment Procedures . Each Lender
may (a) without the consent of the Agent or the Borrowers if the
proposed assignee is already a Lender hereunder or a Wholly Owned
Subsidiary of the same corporate parent of which the assigning Lender
is a Subsidiary, or (b) otherwise with the consents of the Agent and
(so long as no Event of Default has occurred and is continuing) the
Borrowers (which consents will not be unreasonably withheld), in
compliance with applicable laws in connection with such assignment,
assign to one or more commercial banks or other financial institutions
(each, an "Assignee") all or a portion of its interests, rights and
obligations under this Agreement and the other Credit Documents,
including all or a portion, which need not be pro rata between the
Revolving Loan and the Letter of Credit Exposure, of its Commitment,
the portion of the Revolving Loan and Letter of Credit Exposure at the
time owing to it and the Revolving Notes held by it, but excluding its
rights and obligations as a Letter of Credit Issuer; provided, however,
that:
(i) the aggregate amount of the Commitment of the
assigning Lender subject to each such assignment to any
Assignee other than another Lender (determined as of the date
the Assignment and Acceptance with respect to such assignment
is delivered to the Agent) shall be not less than $5,000,000
and in increments of $1,000,000;
(ii) the parties to each such assignment shall
execute and deliver to the Agent an Assignment and Acceptance
(the "Assignment and Acceptance") substantially in the form of
Exhibit 13.1.1, together with the Note subject to such
assignment and a processing and recordation fee of $3,000
payable to the Agent by the assigning Lender or the Assignee;
and
(iii) no Lender shall assign all or any portion of
its Commitment to an Assignee that is not incorporated or
organized under the laws of the United States of America or a
state thereof.
Upon acceptance and recording pursuant to Section 13.1.4, from and
after the effective date specified in each Assignment and Acceptance
(which effective date shall be at least five Banking Days after the
execution thereof unless waived by the Agent):
(A) the Assignee shall be a party hereto and, to the
extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender under
this Agreement and
(B) the assigning Lender shall, to the extent provided
in such assignment, be released from its
obligations under this Agreement (and, in the
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case of an Assignment and Acceptance
covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of
Sections 3.2.4, 3.5, 3.6, 3.7, 3.8 and 11, as well as
to any fees accrued for its account hereunder and not
yet paid).
13.1.2 Terms of Assignment and Acceptance. By executing
and delivering an Assignment and Acceptance, the assigning Lender and
Assignee shall be deemed to confirm to and agree with each other and
the other parties hereto as follows:
(a) other than the representation and warranty that it
is the legal and beneficial owner of the interest being assigned
thereby free and clear of any adverse claim, such assigning Lender
makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement,
any other Credit Document or any other instrument or document furnished
pursuant hereto;
(b) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Obligors or the performance or observance by any
Obligor of any of its obligations under this Agreement, any other
Credit Document or any other instrument or document furnished pursuant
hereto;
(c) such Assignee confirms that it has received a copy
of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 7.2 or Section 6.4 and such
other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Assignment and
Acceptance;
(d) such Assignee will independently and without
reliance upon the Agent, such assigning Lender or any other Lender, and
based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not
taking action under this Agreement;
(e) such Assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and
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(f) such Assignee agrees that it will perform in accordance
with the terms of this Agreement all the obligations which are required
to be performed by it as a Lender.
13.1.3. Register. The Agent shall maintain at the Boston
Office a register (the "Register") for the recordation of (a) the names
and addresses of the Lenders and the Assignees which assume rights and
obligations pursuant to an assignment under Section 13.1.1, (b) the
Percentage Interest of each such Lender as set forth in Section 12.1
and (c) the amount of the Revolving Loan and Letter of Credit Exposure
owing to each Lender from time to time. The entries in the Register
shall be conclusive, in the absence of manifest error, and the
Borrowers, the Agent and the Lenders may treat each Person whose name
is registered therein for all purposes as a party to this Agreement.
The Register shall be available for inspection by any Borrower or any
Lender at any reasonable time and from time to time upon reasonable
prior notice.
13.1.4. Acceptance of Assignment and Assumption. Upon its
receipt of a completed Assignment and Acceptance executed by an
assigning Lender and an Assignee together with the Revolving Notes
subject to such assignment, and the processing and recordation fee
referred to in Section 13.1.1, the Agent shall (a) accept such
Assignment and Acceptance, (b) record the information contained therein
in the Register and (c) give prompt notice thereof to the Borrower.
Within five Banking Days after receipt of notice, the Borrowers, at
their own expense, shall execute and deliver to the Agent, in exchange
for the surrendered Revolving Notes, new Revolving Notes to the order
of such Assignee in a principal amount equal to the applicable
Commitment and Revolving Loan assumed by it pursuant to such Assignment
and Acceptance and, if the assigning Lender has retained a Commitment
and Revolving Loan, new Revolving Notes to the order of such assigning
Lender in a principal amount equal to the applicable Commitment and
Revolving Loan retained by it. Such new Revolving Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of
such surrendered Revolving Notes, respectively, and shall be dated the
date of the surrendered Revolving Notes which they replaces.
13.1.5. Federal Reserve Bank. Notwithstanding the foregoing
provisions of this Section 13, any Lender may at any time pledge or
assign all or any portion of such Lender's rights under this Agreement
and the other Credit Documents to a Federal Reserve Bank; provided,
however, that no such pledge or assignment shall release such Lender
from such Lender's obligations hereunder or under any other Credit
Document.
13.1.6. Further Assurances. The Obligors shall sign such
documents and take such other actions from time to time reasonably
requested by an Assignee to enable it to share in the benefits of the
rights created by the Credit Documents.
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13.2. Credit Participants. Each Lender may, without the consent of the
Borrowers or the Agent, in compliance with applicable laws in connection with
such participation, sell to one or more commercial banks or other financial
institutions (each a "Credit Participant") participations in all or a portion of
its interests, rights and obligations under this Agreement and the other Credit
Documents (including all or a portion of its Commitment, the Revolving Loan and
Letter of Credit Exposure owing to it and the Revolving Note held by it);
provided, however, that:
(a) such Lender's obligations under this Agreement shall
remain unchanged;
(b) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit of
the cost protection provisions contained in Sections 3.2.4, 3.5, 3.6,
3.7, 3.8 and 11, but shall not be entitled to receive any greater
payment thereunder than the selling Lender would have been entitled to
receive with respect to the interest so sold if such interest had not
been sold; and
(d) the Borrowers, the Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under this Agreement, and
such Lender shall retain the sole right as one of the Lenders to vote
with respect to the enforcement of the obligations of the Borrowers
relating to the Revolving Loan and Letter of Credit Exposure and the
approval of any amendment, modification or waiver of any provision of
this Agreement (other than amendments, modifications, consents or
waivers described in clause (c) of the proviso to Section 12.6).
Each Obligor agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to Section 12.5 may exercise all rights of payment (including the right
of set-off), with respect to its participation as fully as if such Credit
Participant or such Lender were the direct creditor of the Obligors and a Lender
hereunder in the amount of such participation.
13.3. Replacement of Lender. In the event that any Lender or, to the
extent applicable, any Credit Participant (the "Affected Lender"):
(a) fails to perform its obligations to fund any
portion of the Revolving Loan or to issue any Letter of Credit on any
Closing Date when required to do so by the terms of the Credit
Documents, or fails to provide its portion of any Eurodollar Pricing
Option pursuant to Section 3.2.1 or on account of a Legal Requirement
as contemplated by Section 3.2.5;
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(b) demands payment under the Reserve provisions of
Section 3.5, the Tax provisions of Section 3.6, the capital adequacy
provisions of Section 3.7 or the regulatory change provisions in
Section 3.8 in an amount the Company deems materially in excess of the
amounts with respect thereto demanded by the other Lenders; or
(c) refuses to consent to a proposed amendment, modification,
waiver or other action requiring consent of the holders of 100% of the
Percentage Interests under Section 12.6(c) that is consented to by the
other Lenders;
then, so long as no Event of Default exists and is continuing, the Borrowers
shall have the right to seek a replacement lender which is reasonably
satisfactory to the Agent (the "Replacement Lender"). The Replacement Lender
shall purchase the interests of the Affected Lender in the Revolving Loan,
Letters of Credit and its Commitment and shall assume the obligations of the
Affected Lender hereunder and under the other Credit Documents upon execution by
the Replacement Lender of an Assignment and Acceptance and the tender by it to
the Affected Lender of a purchase price agreed between it and the Affected
Lender (or, if they are unable to agree, a purchase price in the amount of the
Affected Lender's Percentage Interest in the Revolving Loan and Letter of Credit
Exposure, or appropriate credit support for contingent amounts included therein,
and all other outstanding Credit Obligations then owed to the Affected Lender).
Such assignment by the Affected Lender shall be deemed an early termination of
any Eurodollar Pricing Option to the extent of the Affected Lender's portion
thereof, and the Borrowers will pay to the Affected Lender any resulting amounts
due under Section 3.2.4. Upon consummation of such assignment, the Replacement
Lender shall become party to this Agreement as a signatory hereto and shall have
all the rights and obligations of the Affected Lender under this Agreement and
the other Credit Documents with a Percentage Interest equal to the Percentage
Interest of the Affected Lender, the Affected Lender shall be released from its
obligations hereunder and under the other Credit Documents, and no further
consent or action by any party shall be required. Upon the consummation of such
assignment, the Borrowers, the Agent and the Affected Lender shall make
appropriate arrangements so that a new Revolving Note is issued to the
Replacement Lender if it has acquired a portion of the Revolving Loan. The
Borrowers and the Guarantors shall sign such documents and take such other
actions reasonably requested by the Replacement Lender to enable it to share in
the benefits of the rights created by the Credit Documents. Until the
consummation of an assignment in accordance with the foregoing provisions of
this Section 13.3, the Borrowers shall continue to pay to the Affected Lender
any Credit Obligations as they become due and payable.
14. Confidentiality. Each Lender will make no disclosure of confidential
information furnished to it by any Obligor unless such information shall have
become public, except:
(a) in connection with operations under or the enforcement of
this Agreement or any other Credit Document;
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(b) pursuant to any statutory or regulatory requirement or any
mandatory court order, subpoena or other legal process;
(c) to any parent or corporate Affiliate of such Lender or to
any Credit Participant, proposed Credit Participant or proposed
Assignee; provided, however, that any such Person shall agree to comply
with the restrictions set forth in this Section 14 with respect to such
information;
(d) to its independent counsel, auditors and other
professional advisors with an instruction to such Person to keep such
information confidential; and
(e) with the prior written consent of the Borrowers, to any
other Person.
15. Notices. Except as otherwise specified in this Agreement, any notice
required to be given pursuant to this Agreement shall be given in writing. Any
notice, consent, approval, demand or other communication in connection with this
Agreement shall be deemed to be given if given in writing (including telex,
telecopy or similar teletransmission) addressed as provided below (or to the
addressee at such other address as the addressee shall have specified by notice
actually received by the addressor), and if either (a) actually delivered in
fully legible form to such address (evidenced in the case of a telex by receipt
of the correct answerback) or (b) in the case of a letter, unless actual receipt
of the notice is required by any Credit Document five days shall have elapsed
after the same shall have been deposited in the United States mails, with
first-class postage prepaid and registered or certified.
If to any of the Borrowers or any of their respective Subsidiaries, to
them at their address set forth in Exhibit 7.1 (as supplemented pursuant to
Sections 6.4.1 and 6.4.2), to the attention of the chief financial officer, with
a copy to:
Summit Partners, L.P.
600 Atlantic Avenue, Suite 2800
Boston, MA 02110
Attn: Thomas S. Roberts
If to any Lender or the Agent, to it at its address set forth on the
signature pages of this Agreement or in the Register, with a copy to the Agent.
16. Course of Dealing; Amendments and Waivers. No course of dealing between any
Lender or the Agent, on one hand, and the Borrowers or any other Obligor, on the
other hand, shall operate as a waiver of any of the Lenders' or the Agent's
rights under this Agreement or any other Credit Document or with respect to the
Credit Obligations. Each of the Borrowers and the Guarantors acknowledges that
if the Lenders or the Agent, without being required to do so by this Agreement
or any other Credit Document, give any notice or information to, or
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obtain any consent from, any Borrower or any other Obligor, the Lenders and the
Agent shall not by implication have amended, waived or modified any provision of
this Agreement or any other Credit Document, or created any duty to give any
such notice or information or to obtain any such consent on any future occasion.
No delay or omission on the part of any Lender of the Agent in exercising any
right under this Agreement or any other Credit Document or with respect to the
Credit Obligations shall operate as a waiver of such right or any other right
hereunder or thereunder. A waiver on any one occasion shall not be construed as
a bar to or waiver of any right or remedy on any future occasion. No waiver,
consent or amendment with respect to this Agreement or any other Credit Document
shall be binding unless it is in writing and signed by the Agent or the Required
Lenders.
17. Defeasance. When all Credit Obligations have been paid, performed and
reasonably determined by the Lenders to have been indefeasibly discharged in
full, and if at the time no Lender continues to be committed to extend any
credit to the Borrowers hereunder or under any other Credit Document, this
Agreement shall terminate and, at the Borrowers' written request, accompanied by
such certificates and other items as the Agent shall reasonably deem necessary,
the Credit Security shall revert to the Obligors and the right, title and
interest of the Lenders therein shall terminate. Thereupon, on the Obligor's
demand and at their cost and expense, the Agent shall execute proper
instruments, acknowledging satisfaction of and discharging this Agreement, and
shall redeliver to the Obligors any Credit Security then in its possession;
provided, however, that Sections 3.2.4, 3.5, 3.6, 3.7, 3.8, 11, 12.8.7, 12.11,
14, 18 and 19 shall survive the termination of this Agreement.
18. Venue; Service of Process.Each of the Borrowers and the other Obligors:
(a) Irrevocably submits to the nonexclusive
jurisdiction of the state courts of The Commonwealth of Massachusetts
and to the nonexclusive jurisdiction of the United States District
Court for the District of Massachusetts for the purpose of any suit,
action or other proceeding arising out of or based upon this Agreement
or any other Credit Document or the subject matter hereof or thereof.
(b) Waives to the extent not prohibited by applicable
law that cannot be waived, and agrees not to assert, by way of motion,
as a defense or otherwise, in any such proceeding brought in any of the
above-named courts, any claim that it is not subject personally to the
jurisdiction of such court, that its property is exempt or immune from
attachment or execution, that such proceeding is brought in an
inconvenient forum, that the venue of such proceeding is improper, or
that this Agreement or any other Credit Document, or the subject matter
hereof or thereof, may not be enforced in or by such court.
Each of the Borrowers and the other Obligors consents to service of process in
any such proceeding in any manner at the time permitted by Chapter 223A of the
General Laws of The Commonwealth of Massachusetts and agrees that service of
process by registered or certified
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mail, return receipt requested, at its address specified in or pursuant to
Section 16 is reasonably calculated to give actual notice.
19. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE BORROWERS, THE OTHER OBLIGORS, THE AGENT AND THE
LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY CREDIT OBLIGATION OR IN
ANY WAY CONNECTED WITH THE DEALINGS OF THE LENDERS, THE AGENT, THE BORROWERS OR
ANY OTHER OBLIGOR IN CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER IN CONTRACT, TORT OR OTHERWISE. Each
of the Borrowers and the other Obligors acknowledges that it has been informed
by the Agent that the provisions of this Section 19 constitute a material
inducement upon which each of the Lenders has relied and will rely in entering
into this Agreement and any other Credit Document, and that it has reviewed the
provisions of this Section 19 with its counsel. Any Lender, the Agent, any
Borrower or any other Obligor may file an original counterpart or a copy of this
Section 19 with any court as written evidence of the consent of the Borrowers,
the other Obligors, the Agent and the Lenders to the waiver of their rights to
trial by jury.
20. No Strict Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement and the other Credit Documents with
counsel sophisticated in financing transactions. In the event an ambiguity or
question of intent or interpretation arises, this Agreement and the other Credit
Documents shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement and the other
Credit Documents.
21. General. All covenants, agreements, representations and warranties made in
this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof. The
invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof. The headings in this
Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement and the other Credit Documents
(including any related fee agreements with the Agent or the Lenders) constitute
the entire understanding of the parties with respect to the subject matter
hereof and thereof and supersede all prior and contemporaneous understandings
and agreements, whether written or oral. This Agreement may be executed in any
number of counterparts which together shall constitute one instrument. This
Agreement shall be governed by and construed in accordance with the laws (other
than
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the conflict of laws rules) of The Commonwealth of Massachusetts, except as may
be required by the UCC with respect to matters involving the perfection of the
Agent's Lien on the Credit Security.
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<PAGE> 110
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
AMERIPATH, INC.
By /s/
-------------------------------------
Title: Chief Operating Officer
AMERICAN LABORATORY ASSOCIATES, INC.
By /s/
-------------------------------------
Title: Chief Operating Officer
AMERIPATH FLORIDA, INC.
By /s/
-------------------------------------
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Gregory G. O'Brien
-------------------------------------
Gregory G. O'Brien
Managing Director
The First National Bank of Boston
New England Corporate Banking
100 Federal Street
Boston, Massachusetts 02110
Telecopy: (617) 434-1279
Telex: 940581
NATIONSBANK, N.A. (South)
By /s/ Alexander L. Rody
-------------------------------------
Alexander L. Rody
Vice President
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<PAGE> 111
NationsBank, N.A. (South)
Financial Strategies Group
One Financial Plaza, 12th Floor
Fort Lauderdale, FL 33394
Telecopy: (954) 765-2026
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<PAGE> 1
EXHIBIT 10.9
AMERIPATH, INC.
AMENDMENT NO. 1
This Agreement, dated as of August 30, 1996 , is among Ameripath,
Inc., a Delaware corporation (the "Company"), its Subsidiaries set forth on the
signature pages hereto and The First National Bank of Boston, both in its
capacity as a Lender and in its capacity as agent for itself and the other
Lenders. The parties agree as follows:
1. Reference to Credit Agreement; Definitions. This Agreement amends
the Credit Agreement dated as of May 29, 1996, among the parties hereto (as in
effect prior to giving effect to this Agreement, the "Credit Agreement"). The
terms defined in the Credit Agreement as amended hereby (the "Amended Credit
Agreement") are used with the meanings so defined.
2. Amendment of Credit Agreement. Effective upon the date hereof, the
Credit Agreement is amended as follows:
2.1. Addition of New Defined Terms. The following new
defined terms and Sections are added to the Credit Agreement by
inserting them in Section 1 in the order indicated:
"1.10A. "Annualized Interest Expense" means, for any
period, the product of the Revolving Loan outstanding as of
the last day of such period multiplied by then current
Applicable Rate plus the product of outstanding amounts under
any instrument of Subordinated Indebtedness as of the last day
of such period multiplied by the then current annual interest
rate on such instrument of Subordinated Indebtedness.
"1.37A. "Consolidated EBITDA" means, for any period,
an amount equal to the sum of (a) Consolidated Net Income of
the Company and its Subsidiaries for such period plus (b) all
amounts deducted in computing such Consolidated Net Income in
respect of (i) taxes based upon or measured by income, (ii)
Consolidated Interest Expense and (iii) depreciation and
amortization.
1.39A. "consolidated Operating Cash Flow" means, for
any period, the total of (i) Consolidated EBITDA minus (ii)
taxes, based upon or measured by net taxable income, paid in
cash by the Company and its Subsidiaries minus (iii) Capital
Expenditures.
<PAGE> 2
1.43A. "Consolidated Total Debt Service"
means, for any period, the sum of (i) Consolidated
Interest Expense plus (ii) the aggregate amount of
all mandatory scheduled payments, prepayments and
sinking fund payments paid or accrued by the Company
and its Subsidiaries during such period with respect
to contingent obligations under agreements relating
to Permitted Acquisitions or with respect to
principal paid or accrued by the Company in respect
of Subordinated Indebtedness and Contingent Notes."
2.2. Amendment to Section 1.4. The definition of "Acquired
Party EBITDA Adjustment" in Section 1.4 of the Credit Agreement is
amended to read in its entirety as follows:
"1.4. Acquired Party EBITDA Adjustment" means (a) for
any calculation made with respect to Sections 6.5 or 6.9.5 of
this Agreement for which two or less full fiscal quarters of
the Net Income of an Acquired Party has been included in, and
only to the extent not already included in, Consolidated Net
Income, an amount equal to the product of (i) the number of
fiscal quarters in the applicable period in which none of the
Net Income of such Acquired Party was included in Consolidated
Net Income, multiplied by (ii) one-fourth of Pro Forma EBITDA
of such Acquired Party as of the date of the Acquisition of
such Acquired Party or (b) for any calculation made with
respect to Section 6.5 or 6.9.5 of this Agreement for which
more than two fiscal quarters but less than one full year of
the Net Income of an Acquired Party has been included in, and
only to the extent not already included in, Consolidated Net
Income, an amount equal to the product of (X) the number of
fiscal quarters in the applicable period in which none of the
Net Income of such Acquired Party was included in Consolidated
Net Income, multiplied by (i) the amount of actual EBITDA of
such Acquired Party for each full fiscal quarter following its
Acquisition by a Borrower, divided by (ii) the number of full
fiscal quarters for which EBITDA of the Acquired Party was
included in Consolidated Net Income.
2.3. Amendment to Section 1.11. The definition of
"Applicable Rate" in Section 1.11 of the Credit Agreement is amended
to read in its entirety as follows:
"1.11. "Applicable Rate" means, at any date, the sum
of:
(a) the rate for such portion of the Revolving Loan shown in
Exhibit 1 that corresponds to the current ratio of
Consolidated Total Debt to Consolidated Adjusted EBITDA for
the most recently completed period of four consecutive fiscal
quarters (it being understood that the such ratio could change
on any Closing Date due to the occurrence of a Permitted
Acquisition and the resulting
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<PAGE> 3
inclusion of an Acquired Party's Pro Forma EBITDA in
Consolidated Adjusted EBITDA and additional Financing Debt in
Consolidated Total Debt);
plus (b) an additional 3.00% effective on the day the Agent
notifies the Company that the interest rates hereunder are
increasing as a result of the occurrence and continuance of an
Event of Default until the earlier of such time as (i) such
Event of Default is no longer continuing or (ii) such Event of
Default is deemed no longer to exist, in each case pursuant to
Section 8.3."
2.4. Amendment to Section 1.125. The definition of
"Required Lenders" in Section 1.125 of the Credit Agreement is amended
to read in its entirety as follows:
"1.125. "Required Lenders" means, with respect to
any approval, consent, modification, waiver or other action to
be taken by the Agent or the Lenders under the Credit
Documents which require action by the Required Lenders, such
Lenders as own at least a majority of the Percentage
Interests; provided, however, that with respect to any matters
referred to in the proviso to Section 12.6, Required Lenders
means such Lenders as own at least the respective portions of
the Percentage Interests required by Section 12.6."
2.5 Amendment to Section 2.1.2: Section 2.1.2 of the
Credit Agreement is amended to read in its entirety as follows:
"2.1.2. Maximum Amount of Revolving Credit. The term
"Maximum Amount of Revolving Credit" means, on any date, the
lesser of (a) $75,000,000 or (b) the amount (in an integral
multiple of $1,000,000) to which the then applicable amount
shall have been irrevocably reduced from time to time by
notice from the Company to the Agent."
2.6. Amendment to Section 6.5. Section 6.5 of the Credit
Agreement is amended to replace existing Sections 6.5.2 through 6.5.4
with the following text and to add new a Section 6.5.5 immediately
after Section 6.5.4 to read in its entirety as follows:
"6.5.2 Consolidated Senior Debt Coverage. At all
times, Consolidated Senior Debt shall not exceed 350% of
Consolidated Adjusted EBITDA for the most recently completed
period of four consecutive fiscal quarters; provided, that, at
all times following the earlier to occur of (a) the completion
of a firm commitment underwritten initial public offering of
the Company's stock or (b) December 31, 1997, Consolidated
Senior Debt shall not exceed 325% of Consolidated Adjusted
EBITDA for the most recently completed period of four
consecutive fiscal quarters.
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<PAGE> 4
6.5.3. Consolidated Total Debt Coverage. At all
times, the amount of (a) Consolidated Total Debt minus (b)
that portion of the outstanding principal amount of any
Contingent Notes to the extent that such portion is not
required to be reflected on the financial statements of any
Borrower in accordance with GAAP, shall not exceed 425% of
Consolidated Adjusted EBITDA for the most recently completed
period of four consecutive fiscal quarters.
6.5.4. Consolidated Interest Expense. On the last
day of each fiscal quarter of the Borrowers, Consolidated EBIT
shall be at least 250% of the Annualized Interest Expense for
the period of four consecutive fiscal quarters then ended.
6.5.5. Consolidated Operating Cash Flow. On the last
day of each fiscal quarter of the Company, Consolidated
Operating Cash Flow shall be at least 150% of Consolidated
Total Debt Service for the period of four consecutive fiscal
quarters then ending."
2.7. Amendment of Clause (d) of Section 6.9.5. Clause (d) of
Section 6.9.5 of the Credit Agreement is amended to exclude Section
6.5.5 from the reference in clause (d)(i) to those financial tests set
forth in Section 6.5 that the Borrower must show pro forma compliance
with as of the date of any Permitted Acquisition.
2.8. Amendment of Section 8.2. Section 8.2 of the Credit
Agreement is amended to add new Section 8.2.6 by inserting the
following text immediately after Section 8.2.5:
"8.2.6. Exercise of Call Right. The Company shall,
upon the reasonable request of the Agent, exercise its rights
to purchase the share of stock of Ameripath Kentucky, Inc.
owned by James E. Dunnington, M.D. pursuant to Section 3 of
the Shareholders' Agreement among Ameripath Kentucky, Inc.,
James E. Dunnington, M.D. and the Company."
2.9. Amendment of Section 12.1. Section 12.1 of the Credit
Agreement is amended to read in its entirety as follows:
"12.1. Interests in Credits. The percentage
interest of each Lender in the Revolving Loan and Letters of
Credit, and the related Commitments, shall be computed based
on the maximum principal amount for each Lender as follows:
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<PAGE> 5
<TABLE>
<CAPTION>
Lender Maximum Principal Amount Percentage Interest
------ ------------------------ -------------------
<S> <C> <C>
The First National Bank of Boston $60,000,000 80%
NationsBank, N.A. (South) $15,000,000 20%
=========== ===
Total $75,000,000 100%
</TABLE>
The foregoing percentage interests, as from time to time in
effect and reflected in the Register, are referred to as the
"Percentage Interests" with respect to all or any portion of
the Revolving Loan and Letters of Credit, and the related
Commitments.
2.10. Amendment of Section 12.6(a). Clause (a) of Section
12.6 of the Credit Agreement is amended to read in its entirety as
follows:
(a) Without the written consent of Lenders owning
at least a majority of the Percentage Interests (other than
Delinquent Lenders during the existence of a Delinquency
Period so long as such Delinquent Lender is treated the same
as the other Lenders with respect to any actions enumerated
below), no written modification of, amendment to, consent with
respect to, waiver of compliance with or waiver of a Default
under any of the Credit Documents, or under Sections 6.5
through 6.20, the related defined terms or this Section
12.6(b) shall be made.
3. Consent and Waiver. Notwithstanding provisions of Section
6.13.1 (Issuance of Stock by Subsidiaries) and 10.1 (Credit Security) of the
Credit Agreement to the contrary, the undersigned Lenders consent to James E.
Dunnington, M.D. holding one share of Ameripath Kentucky, Inc., so long as the
Shareholders' Agreement among Dr. Dunnington, the Company and Ameripath
Kentucky, Inc. remain in full force and effect.
4. Representation and Warranty. In order to induce the Lenders
to enter into this Agreement, the Company and its Subsidiaries represent and
warrant to each of the Lenders that:
4.1. Legal Existence, Organization. Each of the Company and
its Subsidiaries is duly organized and validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with
all power and authority, corporate or otherwise, necessary to (a)
enter into and perform this Agreement and the Amended Credit Agreement
and (b) own its properties and carry on the business now conducted or
proposed to be conducted by it. Each of the Company and its
Subsidiaries has taken, or shall have taken, all corporate or other
action required to make the provisions of this
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<PAGE> 6
Agreement and the Credit Agreement the valid and enforceable
obligations they purport to be.
4.2. Enforceability. Each of the Company and its
Subsidiaries has duly executed and delivered this Agreement. Each of
this Agreement and the Credit Agreement is the legal, valid and
binding obligation of the Company and its Subsidiaries and is
enforceable in accordance with its terms.
4.3. No Legal Obstacle to Agreements. Neither the execution,
delivery or performance of this Agreement, nor the performance of the
Amended Credit Agreement, nor the consummation of any other
transaction referred to in or contemplated by this Agreement, nor the
fulfillment of the terms hereof or thereof, has constituted or
resulted in or will constitute or result in:
(a) any breach or termination of the provisions of
any agreement, instrument, deed or lease to which the Company
or any of its Subsidiaries is a party or by which it is bound,
or of the Charter or By-laws of the Company or any such
Subsidiaries;
(b) the violation of any law, judgment, decree or
governmental order, rule or regulation applicable to the
Company or any of its Subsidiaries;
(c) the creation under any agreement, instrument,
deed or lease of any Lien (other than Liens on the Credit
Security which secure the Lender Obligations) upon any of the
assets of the Company or any of its Subsidiaries; or
(d) any redemption, retirement or other repurchase
obligation of the Company or any of its Subsidiaries under any
Charter, By-law, agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or
filing with, any governmental or administrative authority or any other
Person is required to be obtained or made by the Company or any of
its Subsidiaries in connection with the execution, delivery or
performance of this Agreement or the performance of the Credit
Agreement, or the consummation of the transactions contemplated hereby
or thereby.
4.4. Defaults. Immediately before and after giving effect to
the amendments set forth herein, no Default or Event of Default will
exist.
4.5. Incorporation of Representations and Warranties. The
representations and warranties set forth in Sections 7.3 and 9 of the
Credit Agreement are true and correct on the date hereof as if
originally made on and as of the date hereof.
-6-
<PAGE> 7
5. General. The Amended Credit Agreement and all of the Credit
Documents are each confirmed as being in full force and effect. This
Agreement, the Amended Credit Agreement and the other Credit Documents referred
to herein or therein constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior and
current understandings and agreements, whether written or oral. The invalidity
or enforceability of any provision hereof shall not affect the validity or
enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter, limit or
otherwise affect the meaning hereof. Each of this Agreement and the Amended
Credit Agreement is a Credit Document and may be executed in any number of
counterparts, which together shall constitute one instrument, and shall bind
and inure to the benefit of the parties and their respective successors and
assigns, including as such successors and assigns all holders of any Note.
This Agreement shall be governed by and construed in accordance with the laws
(other than the conflict of law rules) of The Commonwealth of Massachusetts.
-7-
<PAGE> 8
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
AMERIPATH, INC.
By /s/
----------------------------------
Title:
AMERICAN LABORATORY ASSOCIATES,
AMERIPATH FLORIDA, INC.
DERRICK & ASSOCIATES PATHOLOGY, INC.
FLORIDA PATHOLOGY ASSOCIATES,
INC. AMERIPATH ALABAMA, INC.
By /s/
----------------------------------
As Vice President of each of the
foregoing corporations
THE FIRST NATIONAL BANK OF BOSTON
By /s/
----------------------------------
Title:
The undersigned hereby consents to the foregoing:
NATIONSBANK, N.A. (South)
By /s/
----------------------------------
Title: Vice President
-8-
<PAGE> 1
EXHIBIT 10.10
AMERIPATH, INC.
AMENDMENT NO. 2
This Agreement, dated as of November 4, 1996, is among Ameripath,
Inc., a Delaware corporation (the "Company"), its Subsidiaries set forth on the
signature pages hereto and The First National Bank of Boston, both in its
capacity as a Lender and in its capacity as agent for itself and the other
Lenders. The parties agree as follows:
1. Reference to Credit Agreement; Definitions. This Agreement amends
the Credit Agreement dated as of May 29, 1996, among the parties hereto (as
previously amended and in effect prior to giving effect to this Agreement, the
"Credit Agreement"). The terms defined in the Credit Agreement as amended
hereby (the "Amended Credit Agreement") are used with the meanings so defined.
2. Amendment of Credit Agreement. Effective upon the date hereof, the
Credit Agreement is amended as follows:
2.1. Amendment to Section 2.1.2: Section 2.1.2 of the Credit
Agreement is amended to read in its entirety as follows:
"2.1.2. Maximum Amount of Revolving Credit. The term
"Maximum Amount of Revolving Credit" means, on any date, the lesser of
(a) $85,000,000 or (b) the amount (in an integral multiple of
$1,000,000) to which the then applicable amount shall have been
irrevocably reduced from time to time by notice from the Company to
the Agent."
2.2. Amendment of Section 12.1. Section 12.1 of the Credit
Agreement is amended to read in its entirety as follows:
"12.1. Interests in Credits. The percentage interest of each
Lender in the Revolving Loan and Letters of Credit, and the related
Commitments, shall be computed based on the maximum principal amount
for each Lender as follows:
<TABLE>
<CAPTION>
Lender Maximum Principal Amount Percentage Interest
------ ------------------------ -------------------
<S> <C> <C>
The First National Bank of Boston $60,000,000 70.59%
NationsBank, N.A. (South) $25,000,000 29.41%
=========== ======
Total $85,000,000 100%
</TABLE>
<PAGE> 2
The foregoing percentage interests, as from time to time in effect and
reflected in the Register, are referred to as the "Percentage
Interests" with respect to all or any portion of the Revolving Loan
and Letters of Credit, and the related Commitments."
3. Representations and Warranties. In order to induce the Lenders to
enter into this Agreement, the Company and its Subsidiaries represent and
warrant to each of the Lenders that:
3.1. Legal Existence, Organization. Each of the Company and its
Subsidiaries is duly organized and validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this Agreement
and the Amended Credit Agreement and (b) own its properties and carry on the
business now conducted or proposed to be conducted by it. Each of the Company
and its Subsidiaries has taken, or shall have taken, all corporate or other
action required to make the provisions of this Agreement and the Credit
Agreement the valid and enforceable obligations they purport to be.
3.2. Enforceability. Each of the Company and its Subsidiaries has
duly executed and delivered this Agreement. Each of this Agreement and the
Credit Agreement is the legal, valid and binding obligation of the Company and
its Subsidiaries and is enforceable in accordance with its terms.
3.3. No Legal Obstacle to Agreements. Neither the execution,
delivery or performance of this Agreement, nor the performance of the Amended
Credit Agreement, nor the consummation of any other transaction referred to in
or contemplated by this Agreement, nor the fulfillment of the terms hereof or
thereof, has constituted or resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which the Company or any of
its Subsidiaries is a party or by which it is bound, or of the
Charter or By-laws of the Company or any such Subsidiaries;
(b) the violation of any law, judgment, decree or
governmental order, rule or regulation applicable to the Company or
any of its Subsidiaries;
(c) the creation under any agreement, instrument, deed or
lease of any Lien (other than Liens on the Credit Security which
secure the Lender Obligations) upon any of the assets of the Company
or any of its Subsidiaries; or
-2-
<PAGE> 3
(d) any redemption, retirement or other repurchase
obligation of the Company or any of its Subsidiaries under
any Charter, By-law, agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or
filing with, any governmental or administrative authority or any other
Person is required to be obtained or made by the Company or any of
its Subsidiaries in connection with the execution, delivery or
performance of this Agreement or the performance of the Credit
Agreement, or the consummation of the transactions contemplated hereby
or thereby.
3.4. Defaults. Immediately before and after giving effect to the
amendments set forth herein, no Default or Event of Default will exist.
3.5. Incorporation of Representations and Warranties. The
representations and warranties set forth in Sections 7.3 and 9 of the Credit
Agreement are true and correct on the date hereof as if originally made on
and as of the date hereof.
3.6. General. The Amended Credit Agreement and all of the Credit
Documents are each confirmed as being in full force and effect. This Agreement,
the Amended Credit Agreement and the other Credit Documents referred to herein
or therein constitute the entire understanding of the parties with respect to
the subject matter hereof and thereof and supersede all prior and current
understandings and agreements, whether written or oral. The invalidity or
enforceability of any provision hereof shall not affect the validity or
enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter, limit or
otherwise affect the meaning hereof. Each of this Agreement and the Amended
Credit Agreement is a Credit Document and may be executed in any number of
counterparts, which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties and their respective successors and assigns,
including as such successors and assigns all holders of any Note. This Agreement
shall be governed by and construed in accordance with the laws (other than the
conflict of law rules) of The Commonwealth of Massachusetts.
-3-
<PAGE> 4
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
AMERIPATH, INC.
By /s/
-------------------------------------
Title: Exeutive Vice President and
Chief Financial Officer
AMERICAN LABORATORY ASSOCIATES,
AMERIPATH FLORIDA, INC.
DERRICK & ASSOCIATES PATHOLOGY, INC.
FLORIDA PATHOLOGY ASSOCIATES,
INC. AMERIPATH ALABAMA, INC.
AMERIPATH KENTUCKY, INC.
AMERIPATH TEXAS, INC.
AMERIPATH OHIO, INC. BENO
MICHEL, M.D., INC.
By /s/
------------------------------------
As Vice President of each of the
foregoing corporations
THE FIRST NATIONAL BANK OF BOSTON
By /s/
-------------------------------------
Title: Vice President
The undersigned hereby consents to the foregoing:
NATIONSBANK, N.A. (South)
By /s/
------------------------------------
Title: Vice President
-4-
<PAGE> 1
EXHIBIT 10.12
EXECUTED DOCUMENT
________________________________________________________________________________
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERIPATH, INC.,
DERRICK AND ASSOCIATES PATHOLOGY, P.A.
AND
THE SHAREHOLDERS OF DERRICK AND ASSOCIATES PATHOLOGY, P.A.
DATED AS OF MAY 23, 1996
________________________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
ARTICLE I
PURCHASE OF CAPITAL STOCK
-------------------------
<S> <C> <C>
1.1 Purchase and Sale of Class A Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase and Sale of Class B Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 The Contingent Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND DAP
-----------------------------------------------------
2.1 Corporate Organization, Qualification, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.4 Corporate Record Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 Title to Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Options and Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.8 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.10 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.11 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.13 True and Complete Copies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.14 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.16 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.17 Compliance with Material Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.18 ERISA and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.19 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.21 Dealings with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.22 Banking Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.24 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.25 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.26 Accounts Receivable; Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.27 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
2.28 Improper and Other Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.29 Fraud and Abuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.30 Third-Party Payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.31 Compliance with Medicare and Medicaid Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.32 Rate Limitations and Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.33 Participation in Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.34 Reimbursement Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.35 Patient Referrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.36 Financial Condition at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.37 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
3.1 Corporate Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3 Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.5 Governmental Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.6 Issuance of AmeriPath Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.8 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.9 Compliance with Material Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.10 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV
COVENANTS OF DAP AND THE CLASS A SHAREHOLDERS
---------------------------------------------
4.1 Regular Course of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3 Capital Changes; Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.5 Capital and Other Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.7 Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.8 Other Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.9 Amendments to Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.10 Interim Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.11 Full Access and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.12 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
4.13 Breach of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.14 Fulfillment of Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.15 Purchase Price as Consideration for 100% Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V
COVENANTS OF THE PURCHASER
--------------------------
5.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Full Access and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VI
OTHER AGREEMENTS
----------------
6.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4 No Solicitation or Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.5 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.6 No Termination of Sellers' Obligations by Subsequent Incapacity, Etc. . . . . . . . . . . . . . . . . . . . 35
6.7 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.8 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.9 Hart-Scott-Rodino Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.10 DAP Stockholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.11 AmeriPath's Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.12 Deliveries After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.13 Non-Competition Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.14 Non-disclosure; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.15 Rule 144 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.16 Post-Closing Merger of Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
----------------------------------------------
7.1 Representations and Warranties; Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.3 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.4 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.5 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
7.6 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.7 Stock Options and Grant Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.8 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.9 Opinion of Seller's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.10 Delivery of DAP Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.11 Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.12 Creditor Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.13 DAP Charter Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.14 Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
--------------------------------------------
8.1 Representations and Warranties; Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.3 Purchase Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.4 Stock Options and Grant Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.5 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.6 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.7 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.8 Employment Agreements; Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
8.9 Opinion of Purchaser's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.10 Approval of AmeriPath Preferred Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IX
CLOSING
-------
9.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.2 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE X
TERMINATION AND ABANDONMENT
---------------------------
10.1 Methods of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.2 Procedure Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE XI
SURVIVAL; INDEMNIFICATION
-------------------------
11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.2 Indemnification by the Class A Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.3 Indemnification by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.4 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.5 Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.6 Maximum Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
12.1 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.3 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.5 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.8 Consent to Jurisdiction; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.9 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.12 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.13 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
12.15 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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<PAGE> 7
SCHEDULES
1.1 Class A Shareholders; Ownership of Class A Stock; Pro
Rata Consideration
1.2 Class B Shareholders; Ownership of Class B Stock; Pro
Rata Consideration
2.1 Jurisdictions of Qualification
2.2 Investments and Other Interests
2.3 Capital Stock
2.8 Violations
2.9 Liabilities Covered by Insurance
2.12 Contracts
2.14 Real and Personal Property
2.15 Litigation and Claims
2.17(a) Permits and Licenses
2.17(b) Jurisdictions Licensed to Provide Health Care
2.18 ERISA, Benefit Plans and Other Matters
2.19 Intellectual Property and Software
2.20 Environmental Matters
2.21 Affiliated Transactions
2.22 Banking Arrangements
2.23 Insurance
2.24 Consents
2.28 Other Payments
2.30 Third-Party Payors
2.32 Rate Limitations and Rates
3.2 AmeriPath Subsidiaries
6.5 AmeriPath Stock Option Grants
7.4 Material Contracts and Leases
7.5 Regulatory Approvals Required
- v -
<PAGE> 8
EXHIBITS
1.1 Form of 7% Non-Negotiable Contingent Subordinated Promissory
Note to be issued to Class A Shareholders
1.2 Form of 7% Non-Negotiable Contingent Subordinated Promissory
Note to be issued to Class B Shareholders
1.3 Subordination Agreement and Signature Pages
2.1 DAP's Articles of Incorporation, as amended, and By-laws
2.9 DAP Financial Statements
2.27 Broker's Fee Agreement
3.7 AmeriPath Financial Statements
6.5 Form of AmeriPath Non-Qualified Stock Option Agreement
6.7(a) Form of Employment Agreement for Most Class A Shareholders
6.7(b) Form of Employment Agreement for Drs. Bodiford and Schrader
6.7(c) Form of Employment Agreement for Physician Class B
Shareholders
6.7(d) Form of Employment Agreement for Dr. Craig Carson and
other Physician Non-Sellers
6.7(e) Form of Employment Agreement for Sherry R. Larson
7.9 Sellers' Opinion of Counsel
7.11 AmeriPath Shareholders' Agreement and Signature Pages
8.8 AmeriPath Guaranty of Employment Agreements
8.9 AmeriPath's Opinion of Counsel
8.10 AmeriPath Preferred Shareholder Approval Certificate
- vi -
<PAGE> 9
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the " Agreement"), dated as of May 23, 1996,
by and among AMERIPATH, INC., a Delaware corporation ("AmeriPath" or the
"Purchaser"), DERRICK AND ASSOCIATES PATHOLOGY, P.A., a Florida professional
service corporation ("DAP"), the persons listed on Schedule 1.1 attached hereto,
collectively constituting the holders of all of the issued and outstanding
shares of Class A Voting Common Stock, par value $1.00 per share (the "Class A
Stock"), of DAP (each, a "Class A Shareholder" and, collectively, the "Class A
Shareholders"), and the persons listed on Schedule 1.2 attached hereto (the
"Class B Persons"), collectively constituting the persons who are expected to,
immediately prior to the closing of the transactions contemplated by this
Agreement, hold all of the issued and outstanding shares of Class B Non-Voting
Common Stock, par value $1.00 per share (the "Class B Stock"), of DAP. Each of
the Class B Persons who, at Closing, both (i) sell and deliver shares of Class B
Stock to the Purchaser, and (ii) execute and deliver to the Purchaser an
Employment Agreement in the form of Exhibit 6.7(a) attached hereto, is referred
to herein as a "Class B Shareholder" (collectively, the "Class B Shareholders").
The Class A Shareholders and the Class B Shareholders are collectively referred
to herein as the "Sellers" (each, a "Seller").
The Sellers together own all of the issued and outstanding shares of
capital stock of DAP. DAP, although presently organized as a professional
service corporation under Chapter 621 of the Florida Statutes, will, immediately
prior to the closing of the transactions contemplated by this Agreement, upon
the terms and subject to the conditions set forth herein, convert itself to a
regular business corporation organized under Chapter 607 of the Florida
Statutes. AmeriPath desires to purchase and acquire from the Sellers, and the
Sellers desire to sell, transfer and deliver to AmeriPath, all of the issued and
outstanding shares of capital stock of DAP, upon the terms and subject to the
conditions set forth herein. Upon the closing of the transactions contemplated
by this Agreement, (i) DAP shall be and become a wholly-owned subsidiary of
AmeriPath, and (ii) such wholly-owned subsidiary shall be merged with and into
another wholly-owned subsidiary of AmeriPath ("AmeriPath Florida"), with
AmeriPath Florida surviving such merger.
NOW, THEREFORE, for and in consideration of the mutual benefits to be
derived hereby and the premises, representations, warranties, covenants and
agreements herein contained, AmeriPath, the Sellers and DAP hereby agree,
intending to be legally bound, as follows:
ARTICLE I
PURCHASE OF CAPITAL STOCK
1.1 Purchase and Sale of Class A Stock. (a) Subject to the terms
and conditions of this Agreement, each Class A Shareholder agrees to sell,
transfer and deliver to the Purchaser,
<PAGE> 10
and the Purchaser agrees to purchase, acquire and accept delivery from
each Class A Shareholder, all of the issued and outstanding shares of Class A
Stock owned or held by such Class A Shareholder, which number of shares of
Class A Stock to be sold and purchased hereunder is set forth opposite such
Class A Shareholder's name on Schedule 1.1 attached hereto (collectively, the
"DAP Class A Shares").
(b) Upon the sale, transfer and delivery to the
Purchaser by the Class A Shareholders of the DAP Class A
Shares at the Closing (as such term is defined in Section 9.1
hereof), and in consideration therefor, AmeriPath shall
deliver to the Class A Shareholders the following
consideration in the aggregate (which aggregate consideration
shall be divided among the Class A Shareholders, pro rata in
proportion to their ownership of the DAP Class A Shares, in
the amounts and as indicated on Schedule 1.1 attached hereto):
(i) FOURTEEN MILLION SEVEN HUNDRED TWENTY FIVE
THOUSAND DOLLARS ($14,725,000.00) by certified or cashier's
check or by wire transfer;
(ii) Certificates evidencing 570,011 shares of
Common Stock, par value $.01 per share, of AmeriPath (the
"AmeriPath Stock"); and
(iii) Thirteen (13) 7% Non-Negotiable Contingent
Subordinated Promissory Notes, due on December 31, 2000, each
in the form attached hereto as Exhibit 1.1 (the "Class A
Contingent Notes"), which 13 Class A Contingent Notes shall
together be in the aggregate maximum principal amount of
$7,600,000.00, the issuance and certain terms and conditions
of which Class A Contingent Notes are described in Section 1.3
below.
1.2 Purchase and Sale of Class B Stock. (a) Subject to the
terms and conditions of this Agreement, each Class B Person agrees to sell,
transfer and deliver to the Purchaser, and the Purchaser agrees to purchase,
acquire and accept delivery from each Class B Person, all of the issued and
outstanding shares of Class B Stock owned or held by such Class B Person at
and as of the Closing, which number of shares of Class B Stock expected to be
sold and purchased hereunder is set forth opposite such Class B Person's name on
Schedule 1.2 attached hereto (the shares of Class B Stock which are issued and
outstanding at or immediately prior to the Closing are referred to herein as
the "DAP Class B Shares", and such DAP Class B Shares and the DAP Class A
Shares are collectively referred to as the "DAP Shares").
(b) Upon the sale, transfer and delivery to the Purchaser by
the Class B Persons of the DAP Class B Shares at the Closing, and in
consideration therefor, AmeriPath shall deliver to each of the Class B
Persons delivering DAP Class B Shares to AmeriPath at the Closing the
following consideration in the aggregate (which aggregate consideration
shall be divided among the Class B Shareholders, pro rata
- 2 -
<PAGE> 11
in proportion to their ownership of the DAP Class B Shares, in the
amounts and as indicated on Schedule 1.2 attached hereto):
(i) SEVEN HUNDRED SEVENTY FIVE THOUSAND DOLLARS
($775,000.00) by certified or cashier's check or by wire
transfer;
(ii) Certificates evidencing 29,994 shares of
AmeriPath Stock; and (iii) Six (6) 7% Non-Negotiable
Contingent Subordinated Promissory Notes, due on December 31,
2000, each in the form attached hereto as Exhibit 1.2 (the
"Class B Contingent Notes" and, together with the Class A
Contingent Notes, in general description, the "Contingent
Notes"), which six Class B Contingent Notes shall together be
in the aggregate maximum principal amount of $400,000.00, the
issuance and certain terms and conditions of which Contingent
Notes are described in Section 1.3 below.
1.3 The Contingent Notes.
(a) Principal Amounts, Issuance of Class A Contingent
Notes. The aggregate maximum principal amount of the Class A
Contingent Notes to be issued and delivered by the Purchaser to the
Class A Shareholders at the Closing pursuant to Section 1.1(b)(iii)
hereof shall be $7,600,000. The aggregate mid-point, target principal
amount of the Class A Contingent Notes to be issued and delivered by
the Purchaser to the Class A Shareholders at the Closing pursuant to
Section 1.1(b)(iii) hereof shall be $3,800,000. At the Closing, the
Purchaser shall deliver to each Class A Shareholder a Contingent Note,
due on December 31, 2000, in the maximum stated principal amount of
$584,615.38 (i.e., $7,600,000 divided by 13) and in the mid-point,
target principal amount of $292,307.69 (i.e., $3,800,000 divided by
13), which Contingent Notes shall be in the form of Exhibit 1.1
hereto.
(b) Principal Amounts, Issuance of Class B Contingent
Notes. The aggregate maximum principal amount of the Class B
Contingent Notes to be issued and delivered by the Purchaser to the
Class B Shareholders at the Closing pursuant to Section 1.2(b)(iii)
hereof shall be $400,000. The aggregate mid-point, target principal
amount of the Class B Contingent Notes to be issued and delivered by
the Purchaser to the Class B Shareholders at the Closing pursuant to
Section 1.2(b)(iii) hereof shall be $200,000. At the Closing, the
Purchaser shall deliver to each Class B Shareholder a Contingent Note,
due on December 31, 2000, in the maximum stated principal amount of
$66,666.66 (i.e., $400,000 divided by 6) and in the mid-point, target
principal amount of $33,333.33 (i.e., $200,000 divided by 6), which
Contingent Notes shall be in the form of Exhibit 1.2 hereto; provided,
however, that, in the event that the number of Class B Shareholders
who deliver DAP Class B Shares to AmeriPath at Closing is less than
six (6), then the actual maximum stated principal amount and mid-
point, target principal
- 3 -
<PAGE> 12
amount of each Class B Contingent Note issuable to each Class B
Shareholder at the Closing shall equal 400,000 and 200,000,
respectively, divided by the actual number of Class B Shareholders
at Closing.
(c) Payments Under Contingent Notes; Minimum Targets.
Each Contingent Note shall be due and payable in the applicable
principal amount specified in or calculated pursuant to such Note and
the Annexes to such Note (the "Appropriate Payment Amount")
corresponding to a target range of Operating Earnings (as defined
below) or Cumulative Operating Earnings (as defined below), as the
case may be, specified in such Note and the Annexes to such Note, with
respect to each of the five (5) years ending December 31, 1996 through
December 31, 2000, if, and only if, (i) with respect to the year
ending December 31, 1996, DAP's Operating Earnings for such year equal
or exceed $3,300,000 (the "Year 1 Minimum Target", or (ii) with
respect to each of the four (4) years ending December 31, 1997, 1998,
1999 and 2000, DAP's Cumulative Operating Earnings for such year equal
or exceed 6,600,000, 9,900,000, 13,200,000 and 16,500,000,
respectively (the " Year 2-5 Minimum Targets" and, together with the
Year 1 Minimum Target (each, as applicable to the relevant year), the
"Minimum Targets"). For each of the years ending December 31, 1996
through December 31, 2000 for which Operating Earnings or Cumulative
Operating Earnings, as the case may be, are less than the applicable
Minimum Target, no principal payment(s) shall be required, due or made
under the Contingent Notes, or under any Contingent Note, with respect
to that year, and any and all interest with respect thereto or accrued
thereon, which otherwise would have become payable had the applicable
Minimum Target been achieved for such year shall be canceled and
voided. Notwithstanding any other provision in this Section 1.3 or in
the Contingent Notes, the aggregate maximum principal amount due or
payable under all the Contingent Notes shall not exceed $8,000,000.
(d) Calculation of Operating Earnings and Cumulative Operating
Earnings.
(i) "Operating Earnings". For purposes hereof (and
the Contingent Notes), the term "Operating Earnings", with respect to
any year, shall mean the income of or attributable to the DAP Business
(as defined below) for such full (i.e., January 1 through December 31)
year, before deduction for (in each case, with respect to the DAP
Business) (i) interest paid in such year, (ii) income tax payable for
such year, (iii) charges for amortization of goodwill, including
without limitation any amortization of goodwill recorded in connection
with this transaction or amortization of any payments made under the
Contingent Notes, (iv) any extraordinary items, as such term is used
in accordance with generally accepted accounting principles, with
respect to DAP or the DAP Business, and (v) any fees or expenses
incurred by DAP in connection with the transactions contemplated by
this Agreement. All such calculations shall be determined in
accordance with generally accepted accounting principles, as
consistently applied by AmeriPath. For purposes hereof (and the
Contingent Notes), the term " DAP Business" shall mean and include the
business, operations, contracts, assets and liabilities of DAP
- 4 -
<PAGE> 13
(as such is constituted immediately prior to the
Closing), which DAP Business following the Closing shall consist of
the business, operations, contracts, assets and liabilities of, and
the results of operations, revenues and expenses associated with, (i)
the contracts with hospitals and out-patient facilities in effect from
time to time, to which DAP, prior to the Closing, and the Orlando
Division (as such term is defined below), following the Closing, is a
party, and which are serviced by the physicians who from time to time
are employed by AmeriPath Florida and who report to the medical
director (the " Medical Director") for AmeriPath Florida's Orlando
Division (collectively, such physicians being referred to herein as
the "Orlando- Based Pathologists"), and (ii) AmeriPath Florida's
employment of, and employment agreements with, any and all
Orlando-Based Pathologists. For purposes hereof (and the Contingent
Notes), the term " Orlando Division" shall mean and include the
business and operations of AmeriPath Florida (i.e., the wholly-owned
subsidiary of AmeriPath which is the successor in interest, by merger,
to DAP) which, prior to consummation of the transactions contemplated
by this Agreement, constituted the business and operations of Derrick
and Associates Pathology, P.A.
(ii) Cumulative Operating Earnings. For purposes
hereof (and the Contingent Notes), the term "Cumulative Operating
Earnings" shall mean and include, with respect to each of the four (4)
years ending December 31, 1997, 1998, 1999 and 2000, the Operating
Earnings of the DAP Business, on a cumulative basis, from January 1,
1996 through the end of such year (e.g., the Cumulative Operating
Earnings for the year ending December 31, 1998 shall equal the
Operating Earnings, on a cumulative basis, from January 1, 1996
through December 31, 1998 ( i.e., three full cumulative years of
Operating Earnings would be included)).
(iii) Other Adjustments; Limitations. For purposes
of calculating Operating Earnings (and, as relevant, Cumulative
Operating Earnings) hereunder, (1) any and all loans from AmeriPath to
DAP (or any AmeriPath subsidiary that owns the DAP Business) shall be
deemed to be at the prime rate of interest as announced from time to
time by Nationsbank, N.A.; (2) with respect to the year ending
December 31, 1996 only, "Operating Earnings" shall be calculated
without any deduction or offset for: (x) profit sharing distributions
in 1996, and (y) distributions and bonuses paid to the Class A
Shareholders in 1996; and (3) the expenses associated with the DAP
Business may include costs, expenses and charges relating to
management, billing or other services provided by AmeriPath or its
Affiliates (as such term is defined in Section 12.3 hereof) to the
extent both (i) such services are provided to or for the benefit of
the Orlando Division and (ii) the price or amount charged or allocated
with respect to such services is based upon the fair market value
thereof and is competitive with the price or amount that would be
charged for such services by a Person not affiliated with the
Purchaser on an arms'-length, negotiated basis.
(iv) Calculation Methodology. A statement of the
Operating Earnings, prepared by AmeriPath senior management, will be
delivered to the Sellers as soon as
- 5 -
<PAGE> 14
practicable following the end of each year, but in all events
within 80 days after the end of each such year. If five (5) or more
Sellers who then hold Contingent Notes (the "Objecting Sellers") wish
to challenge the calculation of Operating Earnings prepared by
AmeriPath senior management, they may do so by giving written notice
of such objection (the "Objection Notice") to AmeriPath, signed by
such Objecting Sellers, within 20 days after such statement of
Operating Earnings is delivered to the Sellers. The Objection Notice
shall set forth in reasonable detail the Objecting Sellers'
calculation of Operating Earnings (or Cumulative Operating Earnings,
as the case may be). To the extent the parties do not dispute or
disagree on the achievement of some amount of Operating Earnings (or
Cumulative Operating Earnings, as the case may be) in the year in
question, then the Appropriate Payment Amount corresponding to such
amount of Operating Earnings (or Cumulative Operating Earnings, as the
case may be) which is not in dispute, together with interest accrued
and unpaid thereon, shall be paid to the Sellers within five (5) days
of receipt of the Objection Notice, and the parties shall proceed to
resolve their dispute(s), or any amount(s) in dispute, in accordance
with this subsection (iv). If an Objection Notice is timely delivered
to AmeriPath, AmeriPath and the Objecting Sellers shall use their best
efforts to resolve as soon as practicable any difference of opinion.
If they are unable to resolve such difference within 20 days after
receipt by AmeriPath of the Objection Notice from the Objecting
Sellers, the matter shall be referred to the independent certified
public accountant who then audits the annual financial statements of
AmeriPath, whose decision shall be final and binding on all parties.
If an Objection Notice is not timely delivered to AmeriPath, and if
the statement of Operating Earnings prepared by AmeriPath senior
management indicates that an Applicable Target Amount has been met for
a given year, then the corresponding Appropriate Payment Amount of the
Contingent Notes with respect to such year shall be paid within five
(5) days after the earlier of (x) the end of the 20 day period within
which the Sellers are entitled to deliver an Objection Notice, or (y)
receipt by AmeriPath of notice from all Objecting Sellers that they
accept the calculation of Operating Earnings. If Objecting Sellers
timely deliver an Objection Notice to AmeriPath objecting to the
calculation of Operating Earnings pursuant to this Section 1.3, then
the Appropriate Payment Amount of the Contingent Notes for such year
(to the extent not theretofore paid) shall be paid within five (5)
days after resolution of the dispute with respect to such calculation
to the extent that the corresponding Applicable Target Amount has been
met for such year.
(e) Effect of Sale on Contingent Notes. Should any
Person (as such term is defined in Section 12.3 hereof) acquire
AmeriPath, whether by means of a merger with or into AmeriPath in
which AmeriPath does not survive or the acquisition of all or
substantially all of the stock or assets of AmeriPath (an " AmeriPath
Acquisition "), then, with respect to the Contingent Notes, as a
condition to consummation of the AmeriPath Acquisition, (i) the
acquiring Person shall be required either to acknowledge AmeriPath's
on-going obligations under the Contingent Notes or to assume the
obligations under the Contingent Notes, and (ii) at the option and
election of the holders of a majority, in terms of maximum principal
amount, of the Contingent Notes then outstanding (a " Majority of
Noteholders"), either (A) the Contingent Notes remaining outstanding
shall
- 6 -
<PAGE> 15
become fixed obligations of such Person or AmeriPath, as the
case may be, payable in accordance with their terms without the
requirement of satisfaction of any condition or contingency relating
to Operating Earnings, and with the principal amount payable under
each outstanding Contingent Note, for each year (including the year in
which the AmeriPath Acquisition occurs) remaining under such Note,
being fixed at the Fixed Payment Amount (as such term is defined
below), or (B) the terms of the Contingent Notes shall remain in
effect and unchanged and such acquiring Person shall be required to
provide an irrevocable standby letter of credit in favor of the
holders of the Contingent Notes, which letter of credit (x) shall be
issued by a U.S.-based financial institution with $100 million or more
in assets, (y) shall be in form and substance reasonably acceptable to
a Majority of Noteholders, and (z) shall be in an amount sufficient to
secure the due payment and performance of the Contingent Notes due
each year at least at the Fixed Payment Amount (in each case, as
appropriate to the Contingent Note, whether a Class A Contingent Note
or a Class B Contingent Note). For purposes hereof, the term "Fixed
Payment Amount" shall mean and include: (1) with respect to the Class
A Contingent Notes to be issued pursuant to Section 1.1(b)(iii)
hereof, $58,461.54 (i.e., 3,800,000 divided by five, divided by 13);
and (2) with respect to the Class B Contingent Notes to be issued
pursuant to Section 1.2(b)(iii) hereof, the amount of $40,000 (i.e.,
200,000 divided by five), divided by the actual number of Class B
Shareholders at Closing.
(f) Effect of Acquisitions on Contingent Notes. In the
event that AmeriPath acquires one or more Persons or businesses after
the Closing Date, Operating Earnings will be calculated without the
deduction of any selling, general or administrative expenses which do
not relate to the DAP Business, and without taking into account the
income generated by, or expenses incurred in connection with, the
acquisition or the acquired Person or business. If in the judgment of
a majority of the full Board of Directors of AmeriPath it is
impracticable to calculate Operating Earnings after such acquisition
on the basis set forth herein, then, with respect to each remaining
year ending December 31 following such determination by the Board of
Directors, an amount equal to two (2) times the Fixed Payment Amount
(in each case, as appropriate to the Contingent Note, whether a Class
A Contingent Note or a Class B Contingent Note), together with accrued
and unpaid interest thereon to and including the date of such payment,
shall accelerate and become immediately due and payable on the later
of the date of consummation of such transaction and the determination
by the Board of Directors.
(g) Interest. Each Contingent Note shall bear interest
from the date of issuance until maturity (if any), computed on the
basis of a 360-day year and the actual number of days elapsed, on the
unpaid Appropriate Payment Amount thereof, at the rate of seven
percent (7.0%) per annum. Interest shall accrue and compound
annually, and shall be payable only upon payment of principal, if any.
In the event Operating Earnings or Cumulative Operating Earnings, as
the case may be, are less than the Minimum Target for a given year,
interest on the principal amount of all Contingent Notes shall be
forgiven and canceled and voided for such year.
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(h) Maturity, Redemption and Prepayments. For each year
in which an Applicable Target Amount is achieved, the corresponding
Appropriate Payment Amount of the Contingent Notes, together with
interest accrued on such Appropriate Payment Amount, shall become due
and payable and shall be paid as provided in subparagraph (b) above.
AmeriPath, in its sole judgment and discretion, shall be entitled to
prepay the Contingent Notes, either in whole or in part, without
premium or penalty, at any time prior to the maturity date thereof, at
a price equal to two (2) times the Fixed Payment Amount (in each case,
as appropriate to the Contingent Note, whether a Class A Contingent
Note or a Class B Contingent Note), together with accrued and unpaid
interest thereon to and including the date of such payment, with
respect to each remaining year ending December 31 (including the year
in which such prepayment occurs) following such date of prepayment;
provided, however, that if, in the judgment of a majority of the full
Board of Directors of AmeriPath, it is determined that the Contingent
Notes, or the holding of the Contingent Notes by any Seller, may
violate any Regulation or Order of any Authority (as such terms are
defined in Section 12.3), then, at AmeriPath's sole option and
election (as recommended by counsel to Ameripath), the Contingent
Notes, (i) shall become fixed obligations, payable in accordance with
their terms without the requirement of satisfaction of any condition
or contingency relating to Operating Earnings (or Cumulative Operating
Earnings), and with the principal amount payable under each
outstanding Contingent Note with respect to each remaining year being
fixed at the Fixed Payment Amount (in each case, as appropriate to the
Contingent Note, whether a Class A Contingent Note or a Class B
Contingent Note), or (ii) shall be prepaid in full at the Fixed
Payment Amount (in each case, as appropriate to the Contingent Note,
whether a Class A Contingent Note or a Class B Contingent Note) with
respect to each remaining year thereunder (together with any accrued
and unpaid interest thereon). AmeriPath shall give the holders of the
Contingent Notes irrevocable written notice of any prepayment
permitted hereunder not less than three (3) business days prior to the
prepayment date, specifying such prepayment and the amount of the
Contingent Notes proposed to be prepaid on such date, whereupon such
principal amount of the Contingent Notes specified in such notice,
together with accrued interest thereon, shall become due and payable
on the prepayment date. Each and every partial prepayment of the
Contingent Notes shall be made with respect to all of the Contingent
Notes then outstanding, rather than with respect to any portion
thereof, and the aggregate amount of each partial prepayment shall be
allocated among all of the holders of the Contingent Notes at the time
outstanding pro rata in proportion to the unpaid principal amounts of
the Contingent Notes held by each of such holders.
(i) Other Terms. Other terms of the Contingent Notes are
as follows:
(1) Payments. All payments of principal
(including any prepayments or redemptions), and interest under
the Contingent Notes shall be made by AmeriPath in lawful
money of the United States of America in immediately available
funds (or at the written request of the holders thereof, by
certified or bank check) not later than twelve o'clock noon,
Miami, Florida time, on the date
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each such payment is due. To the extent calculation of any
payment amounts (whether principal, interest or otherwise)
results in fractions of a cent, the amount shall be rounded
down to the nearest whole cent.
(2) Subordination Agreement. The Contingent
Notes shall be subordinate and junior in right of payment to
certain senior indebtedness pursuant to the subordination
agreement in substantially the form attached hereto as Exhibit
1.3 (the "Subordination Agreement"). As a condition to
AmeriPath's obligations under the Contingent Notes, each
Seller agrees to execute and deliver appropriate documents and
agreements, including the Subordination Agreement, evidencing
the subordination of the Contingent Notes to senior
indebtedness of AmeriPath and its Subsidiaries.
(3) Notes Non-negotiable. Except as specifically
provided in the Contingent Notes, the Contingent Notes shall
be non-transferable and non-negotiable.
(4) Right of Set-Off on Class A Contingent Notes.
With respect to all Contingent Notes issued under Section
1.1(b)(iii) hereof to Class A Shareholders, AmeriPath shall
have the right, following prior written notice to the holder,
to set-off against principal and/or interest payable to such
Class A Shareholder under a Contingent Note held by such
shareholder the amount of any indemnification payment owed by
such Class A Shareholder under Article XI hereof. Such notice
shall state with reasonable specificity the good faith basis
for AmeriPath's assertion that such Class A Shareholder is
obligated to make such indemnification payment, and a copy of
such notice shall also be sent to each director of AmeriPath.
The Class A Shareholder shall have the right to respond to
such notice, and if the Class A Shareholder requests that the
exercise of such right of set-off be considered and approved
by the Board of Directors, then such right shall not be
exercised unless considered and approved by a majority of the
full Board of Directors. If within 10 days after receipt of
such notice of set-off, the Class A Shareholder against whom
AmeriPath intends to assert such right of set-off contests in
writing (sent to AmeriPath) AmeriPath's claim that the Class A
Shareholder is obligated to pay such amount as indemnification
under Article XI hereof, then the amount which AmeriPath would
otherwise have paid to the Class A Shareholder but for the
exercise of such right of set-off shall be paid into an
interest bearing escrow account maintained by a bank selected
by AmeriPath, to be held in such account until AmeriPath and
the Class A Shareholder have reached agreement as to the
amount, if any, of such indemnification payment and set-off,
or until there has been a judicial resolution of such matter,
at which time the amount held in such segregated account,
together with any interest accrued thereon, shall be released
to the prevailing party, as appropriate and/or instructed.
AmeriPath and the Class A Shareholder agree that they will use
their best efforts to resolve any such dispute within 30 days.
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(5) Defaults. The holders of the Contingent
Notes shall be entitled to the benefit of the Events of
Default set forth in the applicable form of Contingent Note
attached as Exhibit 1.1 and Exhibit 1.2 hereto.
(6) Documentary Stamp Taxes. The parties hereto
hereby acknowledge that it is their belief that Florida law
does not require the payment of documentary stamp taxes in
connection with the execution and delivery of the Contingent
Notes due to the contingent nature of the obligation.
Notwithstanding the foregoing, the Purchaser agrees to pay any
and all such documentary stamp taxes, or other similar taxes,
if any, that may become due or payable in connection with the
execution and delivery of the Contingent Notes or this
Agreement, and the Purchaser agrees to indemnify and hold
harmless the Sellers and DAP from and against any and all such
taxes.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND DAP
The Class A Shareholders and DAP, jointly and severally, make the
following representations and warranties to the Purchaser, each of which shall
be deemed material (and the Purchaser, in executing, delivering and
consummating this Agreement, has relied and will rely upon the correctness and
completeness of each of such representations and warranties notwithstanding any
independent investigation); in addition, the Class B Shareholders, severally
and not jointly, make the representations set forth in Sections 2.5, 2.7 and
2.25 below to the Purchaser, each of which representations shall be deemed
material (and the Purchaser, in executing, delivering and consummating this
Agreement, has relied and will rely upon the correctness and completeness of
each of such representations and warranties notwithstanding any independent
investigation):
2.1 Corporate Organization, Qualification, etc. DAP is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Florida with full corporate power and authority to carry
on its business as it is now being conducted and proposed to be conducted, and
to own, operate and lease its properties and assets. DAP is duly qualified or
licensed to do business in good standing in the jurisdictions set forth on
Schedule 2.1 attached hereto, those being every jurisdiction in which the
conduct of DAP's business, the ownership or lease of its properties, the
proposed conduct of its business or ownership or lease of its properties, or
the transactions contemplated by this Agreement, require it to be so qualified
or licensed and the failure to be so qualified or licensed would have a
Material Adverse Effect (as defined in Section 12.3). DAP's articles of
incorporation have not been amended or supplemented since September 5, 1990,
and are in full force and effect as of the date hereof. True, complete and
correct copies of DAP's articles of incorporation and by-laws, as presently in
effect, are attached hereto as Exhibit 2.1.
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<PAGE> 19
2.2 Subsidiaries. DAP has no Subsidiaries nor, except as set
forth on Schedule 2.2 hereto, any investment or other interest in, or any
outstanding loan or advance to or from, any Person, including any officer,
director or shareholder.
2.3 Capital Stock. As of the date of this Agreement, the
authorized capital stock of DAP consists of (i) 2,000 shares of Class A Stock
and (ii) 1,000 shares of Class B Stock. Prior to Closing, pursuant to Section
4.9 hereof, the DAP articles of incorporation will be amended to, among other
things, provide that DAP is subject to Section 607 of the Florida Statutes (the
Florida Business Corporation Act) and not Section 621 of the Florida Statutes
(the Professional Service Corporation Act). The stock record book of DAP has
been delivered to the Purchaser for inspection prior to the date hereof and is
complete and correct, and all requisite Federal and State documentary stamps
have been affixed thereon and canceled. Except as set forth in Schedule 2.3
hereto, the DAP Class A Shares and the DAP Class B Shares constitute all of the
issued and outstanding shares of capital stock of DAP. No shares of preferred
stock of DAP are authorized, issued or outstanding as of the date hereof, and
no shares of preferred stock of DAP will be authorized, issued or outstanding
as of the Closing Date.
2.4 Corporate Record Books. The corporate minute books of DAP
have been made available to the Purchaser, are complete and correct in all
material respects and contain all of the material and formal proceedings of the
shareholders and directors of DAP.
2.5 Title to Stock. Except as set forth in Schedule 2.3 hereto,
all of the outstanding shares of the capital stock of DAP are and immediately
prior to the Closing will be owned by the Sellers (in the amounts and as set
forth in Schedules 1.1 and 1.2 hereto), are duly authorized, validly issued and
fully paid and nonassessable, and are free of all Liens (as defined in Section
12.3). Upon delivery of the Purchase Price to the Sellers at the Closing, (i)
each Seller will convey, and the Purchaser will own and hold, good and
marketable title to the DAP Shares immediately prior to the Closing owned by
such Seller, free and clear of all Liens or contractual restrictions or
limitations whatsoever, and (ii) except as set forth in Schedule 2.3 hereto,
the Purchaser will own and hold good and marketable title to all of the issued
and outstanding shares of capital stock of DAP. In addition, once the
litigation in the case styled Derrick & Associates Pathology, P.A. v. Thomas J.
Allred, M.D. pending in the Circuit Court of the Ninth Judicial Circuit in and
for Orange County Florida (Case No. CI96-1884) (the "Allred Litigation") is
resolved (whether by settlement or by final, non-appealable judgment), the
Purchaser will own and hold good and marketable title to all of the issued and
outstanding shares of capital stock of DAP.
2.6 Options and Rights. Except as specifically provided in this
Agreement, there are no outstanding subscriptions, options, warrants, rights,
securities, contracts, commitments, understandings or arrangements under which
DAP is bound or obligated to issue any additional shares of its capital stock
or rights to purchase shares of its capital stock. Except for the
Stockholders' Agreement dated as of July 27, 1994, as amended, by and among DAP
and the holders of Class A Stock (the "DAP Stockholders' Agreement") or as
otherwise specifically
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<PAGE> 20
provided in this Agreement, there are no agreements, arrangements or
understandings between any Seller and/or DAP and any other Person (as defined
in Section 12.3) regarding the capital stock of DAP (or the transfer,
disposition, holding or voting thereof).
2.7 Authorization, Etc. DAP has full power and authority and each
of the Sellers has full capacity to enter into this Agreement and the
agreements and documents contemplated hereby and perform their respective
obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and all other agreements and transactions contemplated hereby
have been duly authorized by the Board of Directors of DAP and no other
corporate proceedings on its part are necessary to authorize this Agreement and
the transactions contemplated hereby. Each of the Sellers is entering into
this Agreement on such Seller's own volition, free from any undue influence or
coercion. Upon execution and delivery of this Agreement by the parties hereto
this Agreement and all other agreements contemplated hereby shall constitute
the legal, valid and binding obligation of each of DAP and each Seller party
hereto, enforceable against each such party in accordance with their respective
terms.
2.8 No Violation. The execution and delivery by DAP and the
Sellers of this Agreement, and any and all other agreements contemplated
hereby, and the fulfillment of and compliance with the respective terms hereof
and thereof by DAP and the Sellers do not and will not, except as set forth on
Schedule 2.8 attached hereto, (a) conflict with or result in a breach of the
terms, conditions or provisions of, (b) constitute a default or event of
default under (with due notice, lapse of time or both), (c) result in the
creation of any Lien upon the capital stock or assets of DAP pursuant to, (d)
give any third party the right to accelerate any obligation under, (e) result
in a violation of, or (f) require any authorization, consent, approval,
exemption or other action by or notice to any court or Authority (as defined in
Section 12.3) pursuant to, the articles of incorporation or by-laws of DAP or,
to the knowledge of DAP and the Class A Shareholders, any Regulation (as
defined in Section 12.3), Order (as defined in Section 12.3) or Contract (as
defined in Section 12.3) to which DAP or any Seller is subject. DAP and the
Sellers will comply with all applicable and material Regulations and Orders in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
2.9 Financial Statements. Attached as Exhibit 2.9 hereto are the
following financial statements of DAP: (i) balance sheet (unaudited), statement
of revenues and expenses (unaudited) and related notes and schedules thereto
(unaudited) for the fiscal years ended December 31, 1995 and 1994 (the "1995
Financial Statements"), (ii) audited balance sheet, statement of revenues and
expenses and related notes and schedules thereto for the six month period ended
June 30, 1995, and (iii) balance sheet (unaudited), statement of revenues and
expenses (unaudited) and related notes and schedules thereto (unaudited) for
the month ended March 31, 1996 (collectively, together with the 1995 Financial
Statements, the "Financial Statements"). The balance sheets (and the notes and
schedules thereto) included in the Financial Statements fairly present the
financial position of DAP in accordance with GAAP (as defined in Section 12.3)
as at the respective dates thereof, and the statements of revenues and expenses
(and the notes and schedules thereto) included in the Financial Statements (x)
fairly present the
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<PAGE> 21
results of operations for the periods therein referred to, all in
accordance with GAAP (except as stated therein or in the notes or schedules
thereto) applied on a consistent basis, and (y) fairly present the financial
condition of DAP at the respective date of, and for the period covered by, such
statements. DAP has no liability, whether accrued, absolute or contingent, of
a type required to be reflected on a balance sheet or described in the notes
thereto in accordance with GAAP, other than (i) liabilities which have been
reflected or reserved against in the 1995 Financial Statements, (ii)
liabilities incurred since December 31, 1995, (iii) liabilities covered by
insurance or reinsurance (a complete and detailed description of which is
provided in Schedule 2.9), and (iv) liabilities arising out of the matters
(regarding certain negative pap smears) disclosed in item 2 of Schedule 2.15
hereof (to the extent any such liabilities are not covered by insurance).
2.10 Employees. As of December 31, 1995 and as of the date hereof
DAP had an aggregate of 122 and approximately 128 employees, respectively. To
the knowledge of DAP and the Class A Shareholders, DAP has been for the past
four years, and currently is, in compliance with all Federal, State and local
Regulations and Orders affecting employment and employment practices of DAP
(including those Regulations promulgated by the Equal Employment Opportunity
Commission), including terms and conditions of employment and wages and hours.
2.11 Absence of Certain Changes. Since December 31, 1995, there
has not been (a) any Material Adverse Change (as defined in Section 12.3) in
the business, prospects, financial condition, revenues, expenses or operations
of DAP; (b) any decrease in the cash and cash equivalents of DAP from the
amounts shown on the balance sheet included in the 1995 Financial Statements
(except for any such decrease attributable to any Permitted Cash Payments (as
defined in Section 12.3) hereof) made by DAP prior to Closing), (c) any damage,
destruction or loss, whether covered by insurance or not, having a Material
Adverse Effect, with regard to DAP's properties and business; (d) any payment
by DAP to, or any notice to or acknowledgment by DAP of any amount due or owing
to, DAP's self-insured carrier in connection with any self-insured amounts or
liabilities under health insurance covering employees of DAP, in each case, in
excess of a reserve therefor on the balance sheet included in the 1995
Financial Statements; (e) any declaration, setting aside or payment of any
dividend or distribution (whether in cash, stock or property) in respect of
DAP's capital stock, or any redemption or other acquisition of such capital
stock by DAP (except for any Permitted Cash Payments (as defined in Section
12.3) hereof); (f) any increase (other than in the ordinary course of business)
in the rate of compensation or in the benefits payable or to become payable by
DAP to its directors, officers, employees or consultants; (g) any amendment,
modification or termination of any existing, or entering into any new,
contract, agreement, arrangement or plan relating to any salary, bonus,
insurance, pension, health or other employee welfare or benefit plan for or
with any directors, officers, employees or consultants of DAP; (h) any entry
into any material Contract not in the ordinary course of business, including
without limitation relating to any borrowing or capital expenditure; (i) any
disposition by DAP of (x) any capital asset having a value in excess of $2,500
or (y) capital assets, in the aggregate, having a value in excess of $15,000;
or (j) any change by DAP in accounting methods or principles.
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2.12 Contracts.
(a) Except as set forth in Schedule 2.12 hereto, DAP is
neither a party to nor subject to any written or oral:
(i) pension, profit sharing, bonus, retirement,
stock option, stock purchase or other plan providing for
deferred or other compensation to employees or any other
employee benefit plan (other than as set forth in Schedule
2.18 hereto), or any Contract with any labor union;
(ii) employment or consultation agreement, or
other compensation Contract, commitment or arrangement, which
is not terminable on notice of 30 days' or less by DAP without
penalty or other financial obligation (and, except as set
forth on Schedule 2.12, no officer or employee of DAP receives
total salary, bonus and other compensation from DAP of $70,000
or more per annum).
(iii) Contract containing covenants or agreements
limiting the freedom of DAP or any of its employees to compete
in any line of business presently conducted by DAP with any
Person or to compete in any such line of business in any area;
(iv) Contract with any Seller or with any
affiliate or relative of any Seller (except for any Contract
disclosed in Schedule 2.12 pursuant to clauses (ii) or (iii)
of this Section 2.12(a);
(v) Contract relating to or providing for loans
to officers, directors, employees or Affiliates (as such term
is defined in Section 12.3 hereof);
(vi) Contract under which DAP has advanced or
loaned, or is obligated to advance or loan, funds to any
Person;
(vii) Contract relating to the incurrence,
assumption or guarantee of any indebtedness, obligation or
liability (in respect of money or funds borrowed), or
otherwise pledging, granting a security interest in or placing
a Lien on any asset of DAP;
(viii) guarantee or endorsement of any obligation;
(ix) Contract under which DAP is lessee of or
holds or operates any property, real or personal, owned by any
other party, except for any lease of real or personal property
under which the aggregate annual rental payments do not exceed
$10,000 or which are terminable within 30 days without
penalty;
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(x) Contract pursuant to which DAP is lessor of
or permits any third party to hold or operate any property,
real or personal, owned or controlled by DAP;
(xi) assignment, license, indemnification or
Contract with respect to any intangible property (including,
without limitation, any Proprietary Rights);
(xii) warranty Contract with respect to its
services rendered (or to be rendered) or its products sold or
leased;
(xiii) Contract which prohibits, restricts or limits
in any way the payment of dividends or distributions by DAP;
(xiv) Contract under which it has granted any
Person any registration rights (including piggyback rights)
with respect to any securities;
(xv) Contract for the purchase, acquisition or
supply of inventory (other than in the ordinary course of
business) and other property and assets, whether for resale or
otherwise in excess of $10,000;
(xvi) Contracts with independent agents, brokers,
dealers or distributors;
(xvii) sales, commissions, advertising or marketing
Contracts;
(xviii) Contracts providing for "take or pay" or
similar unconditional purchase or payment obligations;
(xix) Contracts with Persons with which, directly
or indirectly, any Seller also has a Contract;
(xx) Contract with a hospital, physician or other
health care provider or Person pursuant to which the cost of
providing health care services to the patients covered by such
Contract is assumed in whole or in part by such provider; or
(xxi) any other Contract which is material to DAP's
operations or business prospects, except those which (x) were
made in the ordinary course of business, (y) are terminable
on 30 days' or less notice by DAP without penalty or other
financial obligation, and (z) in each case, involve aggregate
payments by or to DAP of $10,000 or less.
(b) Except as set forth on Schedule 2.8 or consents
required to be obtained by the Purchaser, no consent of any party to
any Contract is required in connection with the
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execution, delivery or performance of this Agreement, or the
consummation of the transactions contemplated hereby.
(c) DAP has performed in all material respects all
obligations required to be performed by it and is not in default in
any material respect under or in material breach of nor in receipt of
any claim of default or breach under any material Contract to which
DAP is subject (including without limitation all performance bonds,
warranty obligations or otherwise); no event has occurred which with
the passage of time or the giving of notice or both would result in a
material default, breach or event of non-compliance under any material
Contract to which DAP is subject (including without limitation all
performance bonds, warranty obligations or otherwise); DAP does not
have any present expectation or intention of not fully performing all
such obligations; DAP does not have any knowledge of any breach or
anticipated breach by the other parties to any such Contract to which
it is a party.
2.13 True and Complete Copies. Copies of all Contracts and
documents delivered and to be delivered hereunder by the Sellers or DAP are and
will be true and complete copies of such agreements, contracts and documents.
2.14 Title and Related Matters.
(a) DAP has good and marketable title to all of the
properties and assets reflected in the Financial Statements or
acquired after the date thereof and for properties sold or otherwise
disposed of since the date thereof in the ordinary course of business,
free and clear of all Liens, except (i) statutory Liens not yet
delinquent, (ii) such imperfections or irregularities of title, Liens,
easements, charges or encumbrances as do not detract from or interfere
with the present use of the properties or assets subject thereto or
affected thereby, otherwise impair present business operations at such
properties; or do not detract from the value of such properties and
assets, taken as a whole, or (iii) as reflected in the Financial
Statements or the notes thereto (including the Lien as a result of the
indebtedness under the Loan Agreement set forth on Schedule 2.12
hereto).
(b) DAP owns, and will on the Closing Date own, good and
marketable title to all the personal property and assets, tangible or
intangible, used in its business except as to those assets leased all
of which leases are in good standing and no party is in default
thereunder. None of the assets belonging to or held by DAP is or will
be on the Closing Date subject to any (i) Contracts of sale or lease,
or (ii) Liens. Except for normal breakdowns and servicing
requirements, all machinery and equipment regularly used by DAP in the
conduct of its business is in good operating condition and repair,
ordinary wear and tear excepted.
(c) There has not been since December 31, 1995, and will
not be prior to the Closing Date, any sale, lease, or any other
disposition or distribution by DAP of any
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of its assets or properties and any other assets now or
hereafter owned by it, except transactions in the ordinary and regular
course of business or as otherwise consented to by the Purchaser.
After the Closing, DAP, as the wholly-owned subsidiary of the
Purchaser, will own, or have the unrestricted right to use, all
properties and assets that are currently used in connection with the
business of the Sellers.
(d) Schedule 2.14 attached hereto sets forth a
description of all real property, fixed assets and personal property
(with an individual value in excess of $1,000) owned or leased by DAP.
2.15 Litigation. Schedule 2.15 attached hereto sets forth a
description of the existing Claims (as defined in Section 12.3) and threatened
litigation against DAP. There is no Claim pending or, to the best knowledge of
each Seller and DAP, threatened against any of the Sellers or DAP which, if
adversely determined, would have a Material Adverse Effect on DAP. Nor, to the
knowledge of DAP or the Class A Shareholders, is there any Order outstanding
against any of the Sellers or DAP having, or which, insofar as can reasonably
be foreseen, in the future may have, a Material Adverse Effect on DAP.
2.16 Tax Matters.
(a) DAP has filed all federal, state, and local
tax reports, returns, information returns and other documents
(collectively the " Tax Returns") required to be filed with any
federal, state, local or other taxing authorities (each a "Taxing
Authority" collectively the "Taxing Authorities") in respect of all
relevant taxes, including without limitation income, premium, gross
receipts, net proceeds, alternative or add-on minimum, ad valorem,
value added, turnover, sales, use, property, personal property
(tangible and intangible), stamp, leasing, lease, user, excise, duty,
franchise, transfer, license, withholding, payroll, employment, fuel,
excess profits, occupational and interest equalization, windfall
profits, severance, and other charges (including interest and
penalties) (collectively, the "Taxes") and in accordance with all tax
sharing agreements to which the Sellers or DAP may be a party. All
Taxes required or anticipated to be paid for all periods prior to and
including the Closing Date have been paid or fully reserved against by
DAP in accordance with GAAP including any of DAP's Taxes that may be
due or claimed to be due as a result of the consummation of the
transactions contemplated by this Agreement. All Taxes which are
required to be withheld or collected by DAP have been duly withheld or
collected and, to the extent required, have been paid to the proper
Taxing Authority or properly segregated or deposited as required by
applicable laws. There are no Liens for Taxes upon any property or
assets of DAP except for liens for Taxes not yet due and payable.
Neither the Sellers nor DAP has executed a waiver of the statute of
limitations on the right of the Internal Revenue Service or any other
Taxing Authority to assess additional Taxes or to contest the income
or loss with respect to any Tax Return. The basis of any depreciable
assets, and the methods used in determining allowable depreciation
(including cost recovery), is correct
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and in compliance with the Internal Revenue Code of 1986, as amended
and the regulations thereunder (the "Code").
(b) No audit of DAP or DAP's Tax Returns by any Taxing
Authority is currently pending or threatened, and no issues have been
raised by any Taxing Authority in connection with any Tax Returns. No
material issues have been raised in any examination by any Taxing
Authority with respect to DAP which reasonably could be expected to
result in a proposed deficiency for any other period not so examined,
and there are no unresolved issues or unpaid deficiencies relating to
such examinations. The items relating to the business, properties or
operations of DAP on the Tax Returns filed by or on behalf of DAP for
all taxable years (including the supporting schedules filed
therewith), available copies of which have been supplied to the
Purchaser, state accurately the information requested with respect to
DAP and such information was derived from the books and records of
DAP.
(c) DAP has not made nor has become obligated to make,
nor will as a result of any event connected with the Closing become
obligated to make, any "excess parachute payment" as defined in
Section 280G of the Code (without regard to subsection (b)(4)
thereof).
(d) The Sellers shall cause DAP to file all Tax Returns
and reports with respect to Taxes which are required to be filed for
Tax periods ending on or before the Closing Date (a "Pre-Closing Tax
Return"), and DAP shall pay all Taxes due in respect of such
Pre-closing Tax Returns to the appropriate Taxing Authority.
2.17 Compliance with Material Laws and Regulations. DAP is
presently complying in respect of its operations, equipment, practices, real
property, plants, laboratories, structures, and other property, and all other
aspects of its business and operations, with all applicable Regulations and
Orders, including, but not limited to, Health Care Laws (as defined in Section
12.3), all Regulations relating to the safe conduct of business, environmental
protection, quality and labeling, antitrust, Taxes, consumer protection, equal
opportunity, discrimination, health, sanitation, fire, zoning, building and
occupational safety where such failure or failures would individually or in the
aggregate have a Material Adverse Effect. There are no Claims pending, nor to
the best knowledge of DAP are there any Claims threatened, nor have the Sellers
received any written notice, regarding any violations of any Regulations and
Orders enforced by any Authority claiming jurisdiction over DAP, including any
requirement of OSHA or any pollution and environmental control agency
(including air and water).
(a) Schedule 2.17(a) attached hereto sets forth all
permits, licenses, provider numbers, orders, franchises and approvals
(collectively, " Permits") from all Federal, state, local and foreign
governmental regulatory bodies held by DAP. The Permits listed on
Schedule 2.17(a) are the only Permits that are required for DAP to
conduct its business as presently conducted, except for those the
absence of which would not have any Material Adverse Effect on the
assets, financial condition, results of operations or
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future prospects of DAP. Each such Permit is in full force and
effect and, to the best of the knowledge of DAP, no suspension or
cancellation of any such Permit is threatened and there is no basis
for believing that such Permit will not be renewable upon expiration.
(b) DAP has licenses to provide health care services in
the jurisdictions set forth in Schedule 2.17(b) hereto, which such
licenses are all those necessary to conduct the business of DAP in the
jurisdictions in which DAP presently operates. Schedule 2.17(b) also
sets forth a true and complete description of the status of each such
license. Except as set forth on Schedule 2.17(b), neither the Sellers
nor DAP is aware of any event, transaction, correspondence or
circumstance which would have, or could foreseeably have, a Material
Adverse Effect on one or more of such licenses.
2.18 ERISA and Related Matters.
(a) Benefit Plans; Obligations to Employees. Except as
set forth in Schedule 2.18 hereto, neither DAP, nor any ERISA
Affiliate of DAP, is a party to or participates in or has any
liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or
"employee pension benefit plan" or "multi- employer plan" (as
those terms are respectively defined in Sections 3(1), 3(2)
and 3(37) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"));
(ii) any retirement or deferred compensation plan,
incentive compensation plan, stock plan, unemployment
compensation plan, vacation pay, severance pay, bonus or
benefit arrangement, insurance or hospitalization program or
any other fringe benefit arrangements for any employee,
director, consultant or agent, whether pursuant to contract,
arrangement, custom or informal understanding, which does not
constitute an "employee benefit plan" (as defined in Section
3(3) of ERISA); or
(iii) any employment agreement not terminable on 30
days' or less written notice, without further liability.
Any plan, arrangement or agreement required to be listed on
Schedule 2.18 for which DAP or any ERISA Affiliate of DAP may have any
liability or contingent liability is sometimes hereinafter referred to
as a "Benefit Plan". For purposes of this Section, the term "ERISA
Affiliate" shall mean any trade or business, whether or not
incorporated, that together with DAP would be deemed a "single
employer" within the meaning of Section 4001(b)(i) of ERISA.
(b) Plan Documents and Reports. A true and correct copy
of each of the Benefit Plans listed on Schedule 2.18, and all
contracts relating thereto, or to the funding
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thereof, including, without limitation, all trust agreements,
insurance contracts, investment management agreements, subscription
and participation agreements and recordkeeping agreements, each as in
effect on the date hereof, has been supplied to the Purchaser. In the
case of any Benefit Plan that is not in written form, the Purchaser
has been supplied with an accurate description of such Benefit Plan as
in effect on the date hereof. A true and correct copy of the three
most recent annual reports and accompanying schedules, the three most
recent actuarial reports, and the most recent summary plan description
and Internal Revenue Service determination letter with respect to each
such Benefit Plan, to the extent applicable, and a current schedule of
assets (and the fair market value thereof assuming liquidation of any
asset which is not readily tradeable) held with respect to any funded
Benefit Plan has been supplied to the Purchaser by DAP, and there have
been no material changes in the financial condition in the respective
Plans from that stated in the annual reports and actuarial reports
supplied.
(c) Compliance with Laws; Liabilities. As to all Benefit
Plans, except as otherwise specified on Schedule 2.18, DAP is in
compliance in all material respects with the terms of all Benefit
plans and every Benefit Plan is in material compliance with all of the
requirements and provisions of ERISA and all other laws and
regulations applicable thereto, including without limitation the
timely filing of all annual reports or other filings required with
respect to such Benefit Plans. None of the assets of any Benefit Plan
are invested in employer securities or employer real property, as
those terms are defined in Section 407(d) of ERISA. There have been
no "prohibited transactions" (as described in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Benefit Plan and neither
DAP nor any ERISA Affiliate of DAP has otherwise engaged in any
prohibited transaction. There has been no "accumulated funding
deficiency" as defined in Section 302 of ERISA, nor has any reportable
event as defined in Section 4043(b) of ERISA occurred with respect to
any Benefit Plan. Actuarially adequate accruals for all obligations
or contingent obligations under the Benefit Plans are reflected in
DAP's Financial Statements provided to the Purchaser and such
obligations include a pro rata amount of the contributions which would
otherwise have been made in accordance with past practices for the
plan years which include the closing date.
2.19 Intellectual Property.
(a) DAP has no trade name, service mark, patent,
copyright or trademark related to its business. There are no Claims
pending, or to the best knowledge of the Sellers, threatened, against
DAP or the Sellers that its use of any of its Proprietary Rights (as
defined in Section 12.3 herein) infringes the rights of any Person.
The Sellers have no knowledge of any conflicting use of any of such
Proprietary Rights.
(b) Except as set forth on Schedule 2.19 hereto, DAP is
not a party in any capacity to any franchise, license or royalty
agreement respecting any Proprietary Right and there is no conflict
with the rights of others in respect to any Proprietary Right
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now used in the conduct of its business.
(c) Internal Software Applications. The current software
applications used by DAP in the operation of its business are as set
forth and described on Schedule 2.19 hereto (the "Software"). To the
knowledge of DAP and the Class A Shareholders, no part of any such
Software is an imitation or copy of, or infringes upon, the software
of any other Person or violates or infringes upon any common law or
statutory rights of any other Person, including, without limitation,
rights relating to defamation, contractual rights, copyrights, trade
secrets, and rights of privacy or publicity. DAP has not sold,
assigned, licensed, distributed or in any other way disposed of or
encumbered the Software. The Software, to the extent it is licensed
from any third party licensor or constitutes "off-the-shelf" software,
is, to the knowledge of DAP and the Class A Shareholders, held by DAP
legitimately and is fully transferable to the Purchaser without any
third party consent. To the knowledge of DAP and the Class A
Shareholders, all of DAP's computer hardware has legitimately-licensed
software installed therein. To the knowledge of DAP and the Class A
Shareholders, the Software is free from any significant software
defect or programming or documentation error, operates and runs in a
reasonable and efficient business manner, conforms to the
specifications thereof, and, with respect to owned Software, the
applications can be recreated from their associated source code.
2.20 Environmental Matters. Except as disclosed in Schedule 2.20:
(a) neither DAP's business nor the operation thereof violates any applicable
Environmental Law (as defined in Section 12.3) in effect as of the date hereof
and, to the knowledge of DAP and the Class A Shareholders, no condition or
occurrence (any accident, happening or event which occurs or has occurred at
any time prior to the Closing Date, which results in or could result in a claim
against DAP or the Purchaser or creates or could create a liability or loss for
DAP or the Purchaser) which, with notice or the passage of time or both, would
constitute a violation of any Environmental Law; (b) to the knowledge of DAP
and the Class A Shareholders, (i) DAP is in possession of all Environmental
Permits (as defined in Section 12.3) required under any applicable
Environmental Law for the conduct or operation of DAP's business (or any part
thereof), and (ii) DAP is in full compliance with all of the requirements and
limitations included in such Environmental Permits; (c) DAP has not stored or
used any pollutants, contaminants or hazardous or toxic wastes, substances or
materials on or at any of its property or facilities except for inventories of
chemicals which are used or to be used in the ordinary course of DAP's business
(which inventories have been sorted or used in accordance with all applicable
Environmental Permits and all Environmental Laws, including all so-called
"Right to Know" laws); (d) DAP has not received any notice from any Authority
or any private Person that DAP's business or the operation of any of its
facilities is in violation of any Environmental Law or any Environmental Permit
or that it is responsible (or potentially responsible) for the cleanup of any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
at, on or beneath any of DAP's property, or at, on or beneath any land adjacent
thereto or in connection with any waste or contamination site; (e) to the
knowledge of DAP and the Class A
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<PAGE> 30
Shareholders, DAP is not the subject of any Federal, state, local, or private
Claim involving a demand for damages or other potential liability with respect
to a violation of Environmental Laws or under any common law theories relating
to operations or the condition of any facilities or property (including
underlying groundwater) owned, leased, or operated by DAP; (f) DAP has not
buried, dumped, disposed, spilled or released any pollutants, contaminants or
hazardous or wastes, substances or materials on, beneath or adjacent to any of
its property or any property adjacent thereto; (g) no by- products of any
manufacturing or mining process employed in the operation of DAP's business
which may constitute pollutants, contaminants or hazardous or toxic wastes,
substances or materials under any Environmental Law are currently stored or
otherwise located on any of DAP's property; (h) to the knowledge of DAP and the
Class A Shareholders, no property now or previously owned, leased or operated
by DAP, is listed or proposed for listing on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any other federal or state list of
sites requiring investigation or clean-up; (i) to the knowledge of DAP and the
Class A Shareholders, there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property now or
previously owned, leased or operated by DAP; (j) DAP has not directly
transported or directly arranged for the transportation of any Hazardous
Material to any location which is listed or proposed for listing on the
National Priorities List pursuant to CERCLA, on the CERCLIS or on any federal
or state list or which is the subject of federal, state or local enforcement
actions or other investigations which may lead to material Claims against DAP
for any remedial work, damage to natural resources or personal injury,
including claims under CERCLA; and (k) to the knowledge of DAP and the Class A
Shareholders, there are no polychlorinated biphenyls, radioactive materials or
friable asbestos present at any property now or previously owned or leased by
DAP. DAP has timely filed all reports required to be filed with respect to all
of its property and facilities and has generated and maintained all required
data, documentation and records under all applicable Environmental Laws.
2.21 Dealings with Affiliates. Schedule 2.21 hereto sets forth a
complete list, including the parties, of all oral or written agreements and
arrangements to which DAP is, will be or has been a party, at any time from
January 1, 1990 to the Closing Date, and to which any one or more Affiliates is
also a party.
2.22 Banking Arrangements. Schedule 2.22 attached hereto sets
forth the name of each bank in or with which DAP has an account, credit line or
safety deposit box, and a brief description of each such account, credit line
or safety deposit box, including the names of all Persons currently authorized
to draw thereon or having access thereto. DAP has no liability or obligation
relating to funds or money borrowed by or loaned to DAP (whether under any
credit facility, line of credit, loan, indenture, advance, pledge or
otherwise).
2.23 Insurance. (a) Schedule 2.23 attached hereto sets forth a
list and brief description, including dollar amounts of coverage, of all
policies of fire, liability, professional liability and other forms of
insurance held by DAP as of the date hereof. Such policies are valid,
outstanding and enforceable policies, as to which premiums have been paid
currently. Neither DAP nor the Class A Shareholders know of any state of
facts, or of the occurrence of
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any event which might reasonably (a) form the basis for any claim against DAP
not fully covered by insurance for liability on account of any express or
implied warranty or tortious omission or commission, or (b) result in material
increase in insurance premiums of DAP.
(b) Self Insurance. DAP self-insures certain amounts in
connection with the health insurance DAP makes available to the employees of
DAP. At and as of the Closing, DAP shall have no obligation or liability with
respect to any amounts due or owing to DAP's self-insured carrier in connection
with health insurance covering employees of DAP, other than such amounts as are
expressly reserved on the balance sheet of DAP included in the 1995 Financial
Statements.
2.24 Consents. Schedule 2.24 annexed hereto sets forth a complete
list of consents of governmental and other regulatory agencies or authorities,
foreign or domestic, required to be received by or on the part of DAP and the
Sellers to enable DAP or the Sellers to enter into and carry out this Agreement
in all material respects. All such requisite consents have been, or prior to
the Closing will have been, obtained.
2.25 Investment Representations.
(a) Each Seller has been offered, and up to the Closing
Date shall be offered, the opportunity to ask questions of, and
receive answers from, AmeriPath and its Subsidiaries, and the Sellers
have been given full and complete access to all available information
and data relating to the business and assets of AmeriPath and its
Subsidiaries, have obtained such additional information about
AmeriPath and its Subsidiaries which the Sellers have deemed necessary
in order to evaluate the opportunities, both financial and otherwise,
with respect to AmeriPath and, except as set forth herein, have not
relied on any representation, warranty or other statement concerning
the Purchaser and its Subsidiaries in their evaluation of the decision
to consummate the transactions contemplated herein. On the basis of
the foregoing, each Seller is familiar with the operations, business
plans and financial condition of AmeriPath.
(b) Each Seller understands that she or he must bear the
economic risk of the purchase of the AmeriPath Stock for an indefinite
period of time because, except as provided in this Agreement, (i) each
Seller understands that AmeriPath proposes to issue and deliver the
shares of AmeriPath Stock issuable in exchange for the DAP Shares
without compliance with the registration requirements of the
Securities Act of 1933, as amended (the " Securities Act"), that for
such purpose AmeriPath will rely upon the representations, warranties,
covenants and agreements contained herein; and that such noncompliance
with registration is not permissible unless such representations and
warranties are correct and such covenants and agreements are
performed; (ii) each Seller understands that, under existing rules of
the Securities and Exchange Commission (the "SEC"), there are
substantial restrictions in the transferability of his shares of
AmeriPath Stock; his shares of AmeriPath Stock may be transferred only
if registered under the Securities Act or if an exemption from such
registration is available; Sellers may not be
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able to avail themselves of the provisions of Rule 144
promulgated by the SEC under the Securities Act with respect to the
transfer of such shares; (iii) the AmeriPath Stock may not be sold,
transferred, pledged, or otherwise disposed of without the consent of
AmeriPath and an opinion of counsel for or satisfactory to AmeriPath
that registration under the Securities Act or any applicable state
securities laws is not required; and (iv) AmeriPath neither has an
obligation to register a sale of the AmeriPath Stock held by any
Seller nor has it agreed to do so in the future.
(c) Each Seller is a sophisticated investor familiar with
the type of risks inherent in the acquisition of securities such as
the shares of AmeriPath Stock and such Seller's financial position is
such that such Seller can afford to retain his shares of AmeriPath
Stock for an indefinite period of time without realizing any direct or
indirect cash return on such Seller's investment.
(d) Each Seller received this Agreement and first learned
of the transactions contemplated hereby in Florida. Each Seller
executed and will execute all documents contemplated hereby in
Florida, and intends that the laws of Florida govern this transaction.
Each Seller is a resident of Florida.
(e) Each Seller understands, agrees and acknowledges that
the AmeriPath Stock has not been registered under the Florida
Securities Act in reliance upon exemption provisions contained therein
which AmeriPath believes are available. Any sale made pursuant to
such exemption provisions is voidable by the purchaser within three
business days after the first tender of consideration is made by the
purchaser to the issuer, an agent of the issuer or an escrow agent. A
withdrawal within such three-day period will be without any further
liability to any Person (except that the Purchase Price attributable
to such withdrawal must be returned to the Purchaser). To accomplish
this withdrawal, a purchaser need only send a letter or telegram to
AmeriPath at the address set forth herein, indicating his or her
intention to withdraw. Such letter or telegram should be sent and
postmarked prior to the end of the aforementioned third business day.
It is advisable to send such letter by certified mail, return receipt
requested, to ensure that it is received and also to evidence the date
it was mailed. If the request is made orally, in person or by
telephone, to a representative of AmeriPath, a written confirmation
that the request has been received should be requested.
(f) Each Seller is acquiring his shares of AmeriPath
Stock for such Seller's own account and not with a view to, or for
sale in connection with, the distribution thereof within the meaning
of the Securities Act.
(g) Each Seller understands that the certificates
evidencing his shares of AmeriPath Stock will bear appropriate
restrictive legends.
2.26 Accounts Receivable; Inventories. The accounts receivable of
DAP reflected in the Financial Statements and such additional accounts
receivable as are reflected on the books
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of DAP on the date hereof are good and collectible except to the extent
reserved against thereon (which reserves have been determined based upon actual
prior experience and are consistent with prior practices). All such accounts
receivable (except to the extent so reserved against) are valid, genuine and
subsisting, arise out of bona fide sales and deliveries of goods, performance
of services or other business transactions and are not subject to defenses,
set-offs or counterclaims. The inventories reflected on the balance sheets
included in the Financial Statements, and the inventories held by DAP on the
date hereof, (i) do not include any items which are not usable or saleable in
the ordinary course of business of DAP, and (ii) have been reflected on such
balance sheets at the lower of cost or market value (taking into account the
usability or salability thereof), in accordance with GAAP. All such
inventories are owned free and clear and are not subject to any Lien (other
than the Lien as a result of the indebtedness under the Loan Agreement set
forth on Schedule 2.12 hereto), except to the extent reserved against or
reflected in the Financial Statements. Since the date of the Financial
Statements, inventories of raw materials and supplies have been purchased by
DAP in the ordinary course of business, consistent with anticipated seasonal
requirements, and the volumes of purchases thereof and orders therefor have not
been reduced or otherwise changed in anticipation of the transactions
contemplated by this Agreement. DAP is not aware of any material adverse
conditions affecting the supply of materials available to DAP, and, to the best
knowledge of DAP, the consummation of the transactions contemplated hereby will
not adversely affect any such supply.
2.27 Brokerage. Neither DAP nor any Seller has employed any
broker, finder, advisor, consultant or other intermediary in connection with
this Agreement or the transactions contemplated by this Agreement who is or
might be entitled to any fee, commission or other compensation from DAP or any
Seller, or from the Purchaser or its Affiliates, upon or as a result of the
execution of this Agreement or the consummation of the transactions
contemplated hereby; provided, however, that the Sellers collectively have
engaged Raymond James & Associates, Inc. ("RJ&A"), to act as broker and
financial consultant in connection with the transactions contemplated by this
Agreement and, in the event the transactions contemplated by this Agreement are
consummated, RJ&A shall be entitled to a specified fee (the "Broker's Fee") to
be paid by the Sellers. The complete text of the agreement between the Sellers
and RJ&A providing for the Broker's Fee is attached hereto as Exhibit 2.27.
2.28 Improper and Other Payments. Except as set forth on Schedule
2.28 hereto, (a) neither DAP, any director, officer, employee thereof, nor, to
DAP's knowledge, any agent or representative of DAP nor any Person acting on
behalf of any of them, has made, paid or received any unlawful bribes,
kickbacks or other similar payments to or from any Person or Authority, (b) no
contributions have been made, directly or indirectly, to a domestic or foreign
political party or candidate, (c) no improper foreign payment (as defined in
the Foreign Corrupt Practices Act) has been made, and (d) the internal
accounting controls of DAP are believed by DAP's management to be adequate to
detect any of the foregoing under current circumstances.
2.29 Fraud and Abuse. To the knowledge of the Class A Shareholders
and DAP, DAP and its officers, directors, employees, shareholders and
providers, have not engaged in any activities which are prohibited under
federal Medicaid statues, 42 U.S.C. Section 1320a-7a and
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<PAGE> 34
7b, or the regulations promulgated pursuant to such statutes or related state
or local statutes or regulations or which are prohibited by rules of
professional conduct or which otherwise could constitute fraud, including but
not limited to the following: (i) making or causing to be made a false
statement or representation of a material fact in any application for any
benefit or payment; (ii) making or causing to be made any false statement or
representation of a material fact for use in determining rights to any benefit
or payment; (iii) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or payment
on its behalf or on behalf of another, with intent to secure such benefit or
payment fraudulently; and (iv) soliciting, paying or receiving any remuneration
(including any kickback, bribe, or rebate), directly or indirectly, overtly or
covertly, in cash or in kind or offering to pay such remuneration (a) in return
for referring an individual to a Person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (b) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service, or item for which payment may be made in whole or in
part by Medicaid; subject, in the case of (iv) to the lack of clarity in the
law relating to the marketing of Medicare risk products by brokers.
2.30 Third-Party Payors. All Contracts with third-party payors
were entered into by DAP in the ordinary course of business. DAP will have
made available to the Purchaser, as of the Closing Date, an accurate and
complete list of all third-party payors which have agreements with DAP (as set
forth on Schedule 2.30), together with accurate and complete copies of all such
Contracts. Except as set forth on Schedule 2.30, DAP is in compliance in all
material respects with each third-party payor's Contract, and has properly
charged and billed in accordance with the terms of those Contracts, including,
where applicable, billing and collection of all deductibles and co-payments.
2.31 Compliance with Medicare and Medicaid Programs. DAP has
timely and accurately filed all requisite claims and other reports required to
be filed in connection with all state and federal Medicare and Medicaid
programs in which DAP participates due on or before the Closing Date except to
the extent that the failure to file such claims and reports would not result in
a Material Adverse Effect on DAP. There are no Claims pending or, to DAP's
knowledge, threatened or scheduled before any Authority, including without
limitation, any intermediary, carrier, the Administrator of the Health Care
Financing Administration, the Florida Department of Health and Rehabilitative
Services, the Agency for Health Care Administration or any other state or
federal agency with respect to any Medicare and Medicaid claim filed by DAP on
or before the Closing Date, or program compliance matters, which would have a
Material Adverse Effect on DAP, or its assets, the operations or utility
thereof, or the consummation of the transactions contemplated hereby. Except
for routinely scheduled reviews pursuant to DAP's Medicare and Medicaid
Contracts, no valid review or program integrity review related to DAP has been
conducted by any Authority in connection with the Medicare or Medicaid programs
and no such review is scheduled, or to DAP's knowledge, pending or threatened
against or affecting DAP, its business, assets, or the consummation of the
transactions contemplated hereby.
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2.32 Rate Limitations and Rates. Each facility currently
operated by DAP charges rates and accordingly bills for services which are
legal and proper, and DAP's standard and Medicare rates are set forth on
Schedule 2.32. Certain reimbursement rates established by third-party payors
are subject to retrospective adjustment in the ordinary course of business.
2.33 Participation in Audits. DAP has not been informed of any
Recoupment Claims (as hereinafter defined) arising in connection with audits or
reviews conducted by Medicaid, Medicare or private insurance companies. To the
best of the knowledge of DAP and the Sellers there is no basis for any
Recoupment Claims based upon cost reports, claims or bills submitted or to be
submitted in connection with services rendered by DAP. For purposes of this
Section 2.33 the term "Recoupment Claim" shall mean any recoupment or
overpayment, set-off, penalty or fine, pending or to the knowledge of DAP and
the Sellers threatened by any third-party payor or governmental authority
having jurisdiction over DAP for amounts arising from or related to payments to
DAP for services rendered prior to the Closing.
2.34 Reimbursement Documentation. To the knowledge of the Class A
Shareholders and DAP, DAP has filed when due any and all cost reports and other
documentation and reports, if any, required to be filed by third-party payors
and governmental agencies in compliance with applicable contractual provisions
and/or laws, regulations and rules.
2.35 Patient Referrals. No Person having a "financial
relationship" with DAP, as that term is defined in 42 U.S.C. Section 1395nn, is
in a position, directly or indirectly, to refer patients or services to DAP, or
any such referral complies with the requirements of 42 U.S.C. Section 1395nn
and the regulations promulgated pursuant thereto.
2.36 Financial Condition at Closing. As of March 31, 1996, DAP had
(i) cash and cash equivalents of $1,400,015, (ii) current liabilities of
$2,540,127, (iii) net working capital of $3,334,843, and (iv) book value of
$5,288,476 (all calculated and fairly presented in accordance with GAAP, except
for adjustments relating to income taxes and unbilled revenues, applied on a
consistent basis). At and as of Closing, DAP shall have (a) cash and cash
equivalents of not less than $1,310,000 (except to the extent such amount is
reduced by any Permitted Cash Payments (as defined in Section 12.3) made by DAP
prior to Closing), (b) net working capital of not less than $2,700,000, and (c)
book value of not less than $3,600,000 (all calculated and fairly presented in
accordance with GAAP, applied on a consistent basis).
2.37 Disclosure. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items
prepared for or supplied to the Purchaser by or on behalf of the Sellers or DAP
with respect to the transactions contemplated hereby contains any untrue
statement of a material fact or omits a material fact necessary to make each
statement contained herein or therein not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Sellers as follows:
3.1 Corporate Organization, etc. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to carry
on its business as it is now being conducted and to own, operate and lease its
properties and assets. The Purchaser is duly qualified or licensed to do
business in good standing in every jurisdiction in which the conduct of its
business, the ownership or lease of its properties, the proposed conduct of its
business or ownership or lease of its properties, or the transactions
contemplated by this Agreement, require it to be so qualified or licensed and
the failure to be so qualified or licensed would have a material adverse effect
on its business.
3.2 Subsidiaries. Other than the wholly-owned subsidiaries of the
Purchaser listed in Schedule 3.2 hereto, the Purchaser has no Subsidiaries.
3.3 Authorization, Etc. The Purchaser has full corporate power
and authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of the Purchaser has duly
authorized the execution, delivery and performance of this Agreement, the
Contingent Notes and the other agreements and transactions contemplated hereby,
and no other corporate proceedings on its part are necessary to authorize this
Agreement and the transactions contemplated hereby. Upon execution and
delivery of this Agreement by the parties hereto, this Agreement shall, and
upon issuance of the Contingent Notes in accordance with the provisions hereof
the Contingent Notes shall, constitute legal, valid and binding obligations of
the Purchaser, enforceable against the Purchaser in accordance with their
respective terms.
3.4 No Violation. The execution, delivery and performance by the
Purchaser of this Agreement, and all other agreements contemplated hereby, and
the fulfillment of and compliance with the respective terms hereof and thereof
by the Purchaser, do not and will not (a) conflict with or result in a breach
of the terms, conditions or provisions of, (b) result in a violation of, or (c)
require any authorization, consent, approval, exemption or other action by or
notice to any Authority pursuant to, the certificate of incorporation or
by-laws of the Purchaser, or any Regulation to which the Purchaser is subject,
or any Contract or Order to which the Purchaser or its properties are subject.
The Purchaser will comply with all applicable Regulations and Orders in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
3.5 Governmental Authorities. The Purchaser has complied in all
material respects with all applicable Regulations in connection with its
execution, delivery and performance of this Agreement and the agreements and
transactions contemplated hereby. Except for the filings
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required pursuant to Section 6.9 hereof, the Purchaser is not required to
submit any notice, report, or other filing with any governmental authority in
connection with its execution or delivery of this Agreement or the consummation
of the transactions contemplated hereby. No authorization, consent, approval,
exemption or notice is required to be obtained by the Purchaser in connection
with the execution, delivery, and performance of this Agreement and the
agreements and transactions contemplated hereby.
3.6 Issuance of AmeriPath Stock. The shares of AmeriPath Stock to
be issued to the Sellers, as contemplated by this Agreement, have been duly and
validly authorized and, when so issued and delivered, will be duly and validly
issued, fully paid and non-assessable.
3.7 Financial Statements. Attached as Exhibit 3.7 hereto are the
following financial statements of AmeriPath: audited balance sheet and income
statement, and related notes and schedules thereto, for the fiscal years ended
December 31, 1995 and 1994 (the "Audited Financial Statements"), and (ii)
consolidated balance sheet (unaudited) and consolidated income statement
(unaudited), for the three month period ended March 31, 1996 (collectively,
together with the Audited Financial Statements, the "AmeriPath Financial
Statements"). The balance sheets included in the AmeriPath Financial
Statements fairly present the financial position of AmeriPath in accordance
with GAAP, as at the respective dates thereof, and the income statements
included in the Financial Statements (x) fairly present the results of
operations for the periods therein referred to, all in accordance with GAAP
applied on a consistent basis, and (y) fairly present the financial condition
of AmeriPath as of the respective dates and for the periods covered by, such
statements. As used in this Section 3.7 and the following Section 3.8,
"AmeriPath" means and refers to the predecessor business and operations of
AmeriPath, before AmeriPath and its subsidiaries were reorganized into a
holding company structure (which took place effective February 29, 1996).
3.8 Absence of Certain Changes. Since December 31, 1995, there
has not been (a) any Material Adverse Change (as defined in Section 12.3) in
the business, prospects, financial condition, revenues, expenses or operations
of AmeriPath, or its Subsidiaries; (b) any declaration, setting aside or
payment of any dividend or distribution (whether in cash, stock or property) in
respect of AmeriPath's capital stock, or any redemption or other acquisition
of such capital stock by AmeriPath; or (c) any change by AmeriPath in
accounting methods or principles.
3.9 Compliance with Material Laws and Regulations. AmeriPath is
presently complying in respect of its operations, equipment, practices, real
property, plants, laboratories, structures, and other property, and all other
aspects of its business and operations, with all applicable Regulations and
Orders, including, but not limited to, Health Care Laws (as defined in Section
12.3), all Regulations relating to the safe conduct of business, environmental
protection, quality and labeling, antitrust, Taxes, consumer protection, equal
opportunity, discrimination, health, sanitation, fire, zoning, building and
occupational safety where such failure or failures would individually or in the
aggregate have a Material Adverse Effect. There are no Claims pending, nor to
the best knowledge of AmeriPath are there any Claims threatened,
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nor has the Company received any written notice, regarding any violations of
any Regulations and Orders enforced by any Authority claiming jurisdiction over
AmeriPath, including any requirement of OSHA or any pollution and environmental
control agency (including air and water). AmeriPath has licenses to provide
health care services in each jurisdiction in which it currently operates.
3.10 Brokerage. AmeriPath has not employed any broker, finder,
advisor, consultant or other intermediary in connection with this Agreement or
the transactions contemplated by this Agreement who is or might be entitled to
any fee, commission or other compensation from AmeriPath, or from DAP or any
Seller, upon or as a result of the execution of this Agreement or the
consummation of the transactions contemplated hereby.
ARTICLE IV
COVENANTS OF DAP AND THE CLASS A SHAREHOLDERS
From the date hereof until the Closing, except as otherwise consented
to or approved by the Purchaser in writing, DAP covenants and agrees that it
shall act, and each Class A Shareholder shall cause DAP so to act or refrain
from acting where required hereinafter, to comply with the following:
4.1 Regular Course of Business. DAP shall operate its business
diligently and in good faith and in the ordinary and usual course, consistent
with past management practices; shall maintain all of its respective properties
in good order and condition (normal wear and tear excepted), shall maintain
(except for expiration due to lapse of time) all leases and Contracts in effect
without change except as expressly provided herein; shall comply with the
provisions of all Regulations and Orders known to DAP or the Class A
Shareholders and applicable to DAP and the conduct of its respective business;
shall not cancel, release, waive or compromise any debt, Claim or right in its
favor; shall not alter the rate or basis of compensation of any of its
officers, directors, employees or consultants; shall maintain insurance and
reinsurance coverage as in effect on the date hereof up to the Closing Date;
shall preserve the business of DAP intact, and use its best efforts to keep
available for DAP and the Purchaser the services of the officers and employees
of DAP, and to preserve the good will of clients, patients, suppliers and
others having business relations with DAP; and shall pay all valid Claims and
accrue reserves on its financial statements in DAP's customary fashion and in
accordance with industry practice. DAP shall not transfer, assign, sell or
dispose of any assets other than in the ordinary course of business, in an
arms-length transaction at fair market value.
4.2 Amendments. Except as provided in Section 4.9 hereof, no
change or amendment shall be made in the articles of incorporation or by-laws
of DAP. DAP shall not merge with or into or consolidate with any other
corporation or Person, acquire substantially all of the assets of any Person or
change the character of its business.
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4.3 Capital Changes; Pledges. Except as contemplated under this
Agreement, DAP shall not issue or sell any shares of its capital stock of any
class or issue or sell any securities convertible into, or options, warrants to
purchase or rights to subscribe to, any shares of its capital stock and DAP
shall not pledge or otherwise encumber any shares of its capital stock.
4.4 Dividends; Redemptions. So long as DAP is in full compliance
with the representations and warranties set forth in Section 2.36 hereof, DAP
shall be permitted, prior to the Closing, to declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock.
Except for the Permitted Cash Payments (as defined in Section 12.3 hereof), DAP
shall not, directly or indirectly, redeem, purchase or otherwise acquire any
shares of its capital stock.
4.5 Capital and Other Expenditures. DAP shall not make any
capital expenditures in excess of $10,000 in the aggregate, or commitments with
respect thereto.
4.6 Cash and Cash Equivalents. So long as DAP is in full
compliance with the representations and warranties set forth in Section 2.36
hereof, DAP shall be permitted, prior to the Closing, to expend cash and cash
equivalents as it deems necessary or prudent, in its sole and absolute
discretion.
4.7 Borrowing. DAP shall not incur, assume or guarantee any
indebtedness, obligations or liabilities not reflected on the Financial
Statements except in the ordinary course of business or for purposes of
consummation of the transactions contemplated by this Agreement and in any case
only after consultation with the Purchaser.
4.8 Other Commitments. Except as set forth in this Agreement,
incurred or transacted in the ordinary course of business, or permitted in
writing by the Purchaser, DAP shall not enter into any transaction or make any
commitment or incur any obligation (including entering into any real property
leases).
4.9 Amendments to Charter. Prior to the Closing, the Class A
Shareholders shall cause DAP's articles of incorporation to be amended, among
other things, to (i) change the company's name (by dropping the "P.A."
designation and adding "Inc."); (ii) provide that the company is subject to
Section 607 of the Florida Statutes (the Florida Business Corporation Act), and
not Section 621 of the Florida Statutes (the Professional Service Corporation
Act), and delete any inconsistent references, and (iii) provide that the
company may operate for any lawful purpose, and to allow Persons other than
those licensed to practice pathology in the State of Florida to own shares of
DAP's capital stock. All of such amendments (together, the "DAP Charter
Amendments") shall be in form and substance satisfactory to AmeriPath.
4.10 Interim Financial Information. DAP shall supply the Purchaser
with internally prepared, unaudited financial statements (including, without
limitation, balance sheets and statements of revenues and expenses) and
information for each calendar month, promptly following the conclusion of such
month, and as DAP may otherwise reasonably request.
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4.11 Full Access and Disclosure.
(a) DAP shall afford to the Purchaser and its counsel,
accountants and other authorized representatives reasonable access
during business hours to DAP's facilities, properties, books and
records in order that the Purchaser may have full opportunity to make
such reasonable investigations as it shall desire to make of the
affairs of DAP; and the Sellers shall cause DAP's officers, employees
and auditors to furnish such additional financial and operating data
and other information as the Purchaser shall from time to time
reasonably request including, without limitation, any internal control
recommendations applicable to DAP made by DAP's independent auditors
in connection with any examination of DAP's Financial Statements and
books and records.
(b) From time to time prior to the Closing Date, DAP
shall promptly supplement or amend information previously delivered to
the Purchaser with respect to any matter hereafter arising which, if
existing or occurring at the date of this Agreement, would have been
required to be set forth herein or disclosed.
(c) In connection with any "due diligence" examination
performed by the Purchaser with respect to the business of DAP, the
Sellers shall fully cooperate and the results of such "due diligence"
examination shall be satisfactory to the Purchaser.
4.12 Confidentiality. Each Seller and DAP shall, and shall cause
its principals, officers and other personnel and authorized representatives to,
hold in confidence, and not disclose to any other party without the Purchaser's
prior consent, all written and oral information furnished or disclosed by or
received from the Purchaser or its officers, directors, employees, agents,
counsel and auditors in connection with the transactions contemplated hereby
except as may be required by applicable law or as otherwise contemplated
herein.
4.13 Breach of Agreement. Neither any Seller nor DAP shall take
any action which, if taken on or prior to the Closing Date, would constitute a
breach of this Agreement.
4.14 Fulfillment of Conditions Precedent. DAP and the Sellers
shall use their best efforts to obtain at their expense, on or prior to the
Closing Date, all such waivers, Permits, consents, approvals or other
authorizations from third parties and Authorities, and to do all things as may
be necessary or desirable in connection with the transactions contemplated by
this Agreement in order to fully and expeditiously consummate the transactions
contemplated by this Agreement.
4.15 Purchase Price as Consideration for 100% Ownership. Each of
the Class A Shareholders expressly understands and agrees that the purchase
price consideration which the Purchaser has agreed to pay, and will pay at
Closing, pursuant to Section 1.1(b) and Section 1.2(b) hereof is in
consideration of, among other things, the purchase of 100% of the issued and
outstanding shares of capital stock of DAP and that, in the event for any
reason the Purchaser (or AmeriPath Florida), following the Closing, incurs any
damage, loss, deficiency, liability,
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obligation, commitment, cost or expense (including the fees and expenses of
counsel) resulting from, or in respect of, any effort to ensure or perfect its
ownership of 100% of the issued and outstanding shares of capital stock of DAP
(hereinafter, a "100% Ownership Expense"), then any and all such 100% Ownership
Expenses shall be the sole obligation and responsibility of the Class A
Shareholders (and not of the Purchaser or its Affiliates). The 100% Ownership
Expenses shall include, without limitation, (i) any amount required to be paid
to Thomas J. Allred, M.D. to repurchase shares of Class A Stock or otherwise to
settle the Allred Litigation, to the extent (and solely to the extent) such
amount exceeds $214,163 (i.e., the amount reserved for such payment on DAP's
balance sheet), and (ii) any fees, costs and expenses (including the fees and
expenses of counsel) incurred in connection with such repurchase, such
settlement or otherwise in connection with the Allred Litigation.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with DAP and the Sellers
that, prior to the Closing or termination of this Agreement:
5.1 Confidentiality. The Purchaser shall, and shall cause its
principals, officers and other personnel and authorized representatives to,
hold in confidence, and not disclose to any other party without the Sellers's
prior consent, all information received by it from the Sellers or DAP's
officers, directors, employees, agents, counsel and auditors in connection with
the transactions contemplated hereby except as may be required by applicable
law or as otherwise contemplated herein.
5.2 Full Access and Disclosure.
(a) The Purchaser shall afford to DAP and each Seller,
and their counsel, accountants and other authorized representatives
reasonable access during business hours to the Purchaser's facilities,
properties, books and records in order that the Sellers may have full
opportunity to make such reasonable investigations as they shall
desire to make of the affairs of the Purchaser; and the Purchaser
shall cause its officers, employees and auditors to furnish such
additional financial and operating data and other information as the
Sellers shall from time to time reasonably request including, without
limitation, any internal control recommendations applicable to the
Purchaser made by the Purchaser's independent auditors in connection
with any examination of the Purchaser's financial statements and books
and records.
(b) From time to time prior to the Closing Date, the
Purchaser shall promptly supplement or amend information previously
delivered to DAP and/or the Sellers with respect to any matter
hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth herein or
disclosed.
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(c) In connection with any "due diligence" examination
performed by DAP or the Sellers with respect to the business of the
Purchaser, the Purchaser shall fully cooperate and the results of such
"due diligence" examination shall be satisfactory to the DAP and the
Sellers. For purposes of this Section 5.2, "Purchaser" shall mean and
include AmeriPath and its Subsidiaries.
ARTICLE VI
OTHER AGREEMENTS
The parties hereto further agree, on or before the Closing Date, as
follows:
6.1 Further Assurances. Subject to the terms and conditions of
this Agreement, each of the parties hereto shall use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Regulations to consummate and
make effective the transactions contemplated by this Agreement. In furtherance
and not in limitation of the preceding sentence, the parties hereto shall use
their best efforts to cause the Closing to take place on or before June 28,
1996. If at any time after the Closing Date the Purchaser shall reasonably
consider or be advised that any further deeds, assignments or assurances in law
or in any other things are necessary, desirable or proper to vest, perfect or
confirm, of record or otherwise, in the Purchaser (or DAP, as appropriate), the
title to any property or rights of Sellers acquired or to be acquired by reason
of, or as a result of, the acquisition, the Sellers agree that the Sellers
shall execute and deliver all such proper deeds, assignments and assurances in
law and do all things necessary, desirable or proper to vest, perfect or
confirm title to such property or rights in DAP and otherwise to carry out the
purpose of this Agreement.
6.2 Agreement to Defend. In the event any action, suit,
proceeding or investigation of the nature specified in Sections 7.6 or 8.4 is
commenced, whether before or after the Closing Date, all the parties hereto
agree to cooperate and use their best efforts to defend against and respond
thereto.
6.3 Consents. Without limiting the generality of Section 6.1,
each of the parties hereto shall use their best efforts to obtain all permits,
authorizations, consents and approvals of all Persons and governmental
authorities necessary, proper or advisable in connection with the consummation
of the transactions contemplated by this Agreement prior to the Closing Date.
6.4 No Solicitation or Negotiation. Unless and until this
Agreement is terminated, neither the Sellers nor DAP through its directors,
officers, employees, representatives, agents, advisors, accountants and
attorneys shall initiate, solicit or encourage, directly or indirectly, any
inquiries or the making of any proposal with respect to, or engage in
negotiations concerning, or provide any confidential information or data to any
Person with respect to, or have any discussions with any Persons relating to,
any acquisition, business combination or purchase of
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all or any significant asset of, or any equity interest in, DAP, or otherwise
facilitate any effort or attempt to do or seek any of the foregoing, and shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Should DAP or any Seller be contacted with respect to
any offer, inquiry or proposal, DAP and the Sellers shall immediately advise
the Purchaser in writing of the name, address and phone number of the contact
and the nature of the inquiry.
6.5 Stock Options. Upon the Closing, AmeriPath shall grant
non-statutory options (the "Options") to purchase an aggregate of 60,000 shares
of AmeriPath Stock to the persons set forth on Schedule 6.5 attached hereto
(the "Optionees") (with the number of shares of AmeriPath Stock which each
Optionee is entitled to purchase upon exercise of such Optionee's Option as set
forth on such Schedule 6.5). As a condition to such grant and issuance, each
Optionee shall be required to enter into a Non-Qualified Stock Option Agreement
in the form of Exhibit 6.5 hereto (the "Grant Agreement"). The Options shall
vest as equally as possible over a five-year period from the date of grant and
shall have an exercise price of $15.00 per share. The Options shall be granted
pursuant to and in accordance with the AmeriPath Stock Option Plan and each
Grant Agreement and shall be subject to the terms and conditions of such plan
and agreement.
6.6 No Termination of Sellers' Obligations by Subsequent
Incapacity, Etc. Each Seller specifically agrees that the obligations of such
Seller hereunder, including, without limitation, obligations pursuant to
Article XI and Section 6.4 shall not be terminated by the death or incapacity
of any Seller.
6.7 Employment Agreements. DAP and the Sellers shall, immediately
prior to the Closing, terminate, or cause the termination of, the existing
employment agreements between DAP and (1) each Seller, and (2) each physician
employee who is not a Seller. DAP and the Sellers shall use there best efforts
to ensure that all Class B Persons participate in the transactions contemplated
by this Agreement (including entering into an appropriate form of employment
agreement with AmeriPath Florida at the Closing). At the Closing, (i) Gert G.
Larbig, M.D. and each of the Class A Shareholders (other than Homer A.
Bodiford, M.D. and Wayne H. Schrader, M.D.) shall enter into an employment
agreement with AmeriPath Florida in the form of Exhibit 6.7(a) attached hereto
(and, as appropriate and applicable, in accordance with the instructions
contained therein), (ii) each of Homer A. Bodiford, M.D. and Wayne H. Schrader,
M.D. shall enter into an employment agreement with AmeriPath Florida in the
form of Exhibit 6.7(b) attached hereto, (iii) each of the Class B Shareholders
(other than Sherry R. Larson) shall enter into an employment agreement with
AmeriPath Florida in the form of Exhibit 6.7(c) attached hereto, (iv) Craig
Carson, M.D., and each other Person (other than Gert G. Larbig, M.D.) who is
presently a physician employee (but not a shareholder) of DAP, shall enter into
an employment agreement with AmeriPath Florida in the form of Exhibit 6.7(d)
attached hereto, and (v) Sherry R. Larson shall enter into an employment
agreement with AmeriPath Florida in the form of Exhibit 6.7(e) attached hereto.
The employment agreements
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which the Sellers and the other physician employees are required to enter into
pursuant to this Section 6.7 are referred to herein as the "Employment
Agreements".
6.8 Public Announcements. Neither any Seller, DAP nor the
Purchaser nor any Affiliate, representative or shareholder of either of such
Persons, shall disclose any of the terms of this Agreement to any third party
(other than the Purchaser's advisors and senior lending group and the Seller's
advisors) without the other party's prior written consent unless required by
any applicable law. The form, content and timing of all press releases, public
announcements or publicity statements (except for any disclosures under or
pursuant to Federal or State securities laws in connection with the
registration of AmeriPath's securities or otherwise) with respect to this
Agreement or the transactions contemplated hereby shall be subject to the prior
approval of both (i) a majority of the Sellers and (ii) the Purchaser.
6.9 Hart-Scott-Rodino Act. Promptly upon execution of this
Agreement, each of DAP and the Purchaser shall promptly file such Notification
and Report Forms and related material as may be required to be filed with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), shall use its best efforts to obtain an early termination
of the applicable waiting period, and shall make any further filings or
information submissions pursuant thereto that may be necessary, proper or
advisable. The Purchaser shall pay all fees, costs and expenses incurred in
connection with compliance under the HSR Act.
6.10 DAP Stockholders' Agreement. Effective upon the Closing,
without any further action on the part of any Person, the DAP Stockholders'
Agreement shall immediately and automatically be canceled, terminated and be of
no further force and effect.
The parties' hereto further agree, from and after the Closing Date, as
follows:
6.11 AmeriPath's Board of Directors. As of the Closing, AmeriPath
agrees to allow for two additional members of its Board of Directors to be
elected and appointed to the Board. The Sellers hereby designate Alan Levin,
M.D. and Timothy M. Kilpatrick, M.D. to serve as directors of AmeriPath, and
AmeriPath agrees to cause its existing Board of Directors to appoint and elect
Alan Levin, M.D. and Timothy M. Kilpatrick, M.D. (the "Initial DAP Nominees")
as members of the Board of Directors of AmeriPath, effective as of the Closing.
In the event either such Initial DAP Nominee is unwilling or unable to serve as
a director of AmeriPath, the holders of a majority of the AmeriPath Stock then
held by the Sellers shall be entitled to designate a replacement to such
nominee, who must be a Class A Shareholder reasonably acceptable to AmeriPath
(the "Replacement DAP Nominee(s)"). Such Initial Dap Nominees (or, as
applicable, Replacement DAP Nominee(s)) shall be entitled to serve as members
of the AmeriPath Board of Directors, in accordance with the By- Laws of
AmeriPath, until the earlier of (i) such time as the Sellers collectively hold
less than 51% of the shares of AmeriPath Stock held by them on the Closing
Date, and (ii) such time as the AmeriPath Shareholders' Agreement terminates or
is no longer in effect.
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6.12 Deliveries After Closing. From time to time after the
Closing, at the Purchaser's request and without expense to DAP and without
further consideration from the Purchaser or DAP, the Sellers shall execute and
deliver such other instruments of conveyance and transfer and take such other
action as the Purchaser reasonably may require to convey, transfer to and vest
in the Purchaser, and to put the Purchaser in possession of, any rights or
property to be sold, conveyed, transferred or delivered hereunder.
6.13 Non-Competition Covenant. (a) As a material and valuable
inducement for the Purchaser to enter into this Agreement, pay and deliver the
Purchase Price consideration and consummate the transactions provided for
herein, during the "Restricted Period" (as hereinafter defined), each Class A
Shareholder (for purposes of this Section 6.13, a "Restricted Party") agrees
that he or she shall not, directly or indirectly, alone or as a partner,
officer, director, employee, consultant, agent, independent contractor, member
or stockholder of any Person:
(i) engage in the practice of pathology within
the Counties of Orange, Seminole, Osceola, Lake, Volusia, Palm Beach,
Broward, Dade, Pinellas, Marion, St. Lucie or Polk in the State of
Florida, or in any other County in any State in which AmeriPath or any
Affiliate of AmeriPath is then doing business or providing services
(the "Restricted Territory"); or
(ii) from any facility or location, whether
within or without the Restricted Territory, (x) perform pathology
services for any patient, laboratory or health care provider located
in the Restricted Territory or (y) perform pathology services for any
patient, laboratory or health care provider who is or was (within six
(6) months of the date in question) a customer, client or patient of
AmeriPath or any Affiliate of AmeriPath; except that it shall not be a
violation of this Section 6.13 for the Restricted Party to perform
pathology services in the Restricted Territory during the Restricted
Period (a) as an employee of a local, federal or state government or
agency; (b) in performing the Restricted Party's duties as a member of
the United States military services or the National Guard; or (c) on a
locum tenens basis.
provided, however, that, for purposes of this Section 6.13(a), the term
"Affiliate" shall not mean or include any Acquiring Person Affiliate (as such
term is defined in Section 12.3 hereof).
(b) As used in this Agreement, the term "Restricted
Period" shall mean and include the longer of (x) a period of five (5) years
from the Closing to the fifth (5th) anniversary of the Closing (the "5-Year
Restriction"), and (y) during such time as the Restricted Party is employed by
AmeriPath Florida or by AmeriPath or any Affiliate of AmeriPath (each, an
"AmeriPath Entity") and for a period of two (2) years following the effective
date of any termination of such Restricted Party's employment with any such
AmeriPath Entity (regardless of the cause, reason or justification of any such
termination); provided, however, that
(i) in the event of a termination of a Restricted
Party's employment under such party's Employment Agreement (as such
term is defined in Section 6.7 hereof)
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by the employer without "cause" (as such term is defined under
such party's Employment Agreement), then:
(A) the 5-Year Restriction shall be
voided and shall not apply to such Restricted Party; and
(B) the Physician Employment Committee
(as such term is defined in Section 6.13(d) below), in its
sole and absolute discretion, may, in connection with its
termination deliberation, reduce the Restricted Period to not
less than a period of one (1) year from the effective date of
the Restricted Party's termination of employment with the
AmeriPath Entity; or
(ii) in the event of a termination of a Restricted
Party's employment under such party's Employment Agreement by the
employer without "cause" (as such term is defined under such party's
Employment Agreement), if the AmeriPath Entity employer fails to make
payment of the amount(s), if any, required to be paid to such
Restricted Party upon a termination without "cause", and such failure
shall continue uncured for a period of more than thirty (30) days
following notice from the Restricted Party, then the Restricted Period
shall be a period of zero (0) days; or
(iii) in the event AmeriPath fails to pay the amount
of principal or interest which becomes and is due and payable under a
Contingent Note held by a Restricted Party, and such failure shall
continue uncured for a period of more than thirty (30) days, in the
case of a principal payment, or more than forty (40) days, in the case
of an interest payment, then the Restricted Period shall be a period
of zero (0) days.
(c) The Restricted Party further agrees that during the
Restricted Period which follows any termination of the Restricted Party's
employment with any AmeriPath Entity, the Restricted Party will not knowingly,
directly or indirectly, (a) solicit the employment of any employee, agent or
consultant of any AmeriPath Entity who was such at any time during the twelve
(12) months preceding the Restricted Party's termination of employment with the
AmeriPath Entity, or (b) induce any employee of an AmeriPath Entity to leave
the employ of any such AmeriPath Entity, unless in each case the Employee
obtains the prior written consent of AmeriPath.
(d) For purposes of this Agreement, "Physician Employment
Committee" shall mean and include a committee consisting of (i) two
Orlando-Based Pathologists (as such term is defined in Section 1.3(c) hereof)
and (ii) one physician, who is an employee of an AmeriPath Entity, appointed
and designated by the Board of Directors of AmeriPath. The two Orlando-Based
Pathologists initially (and so long as each is employed by an AmeriPath Entity)
shall be Alan Levin, M.D. and Timothy M. Kilpatrick, M.D., provided, however,
the Restricted Party shall not be a member of the Physician Employment
Committee. Should either Alan Levin, M.D. or Timothy M. Kilpatrick, M.D., or
both of them, no longer be able to serve on the Physician Employment Committee,
a majority of the Orlando-Based Pathologists may designate
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one or both (as the case may be) replacement Orlando-Based Pathologists to
serve on the Physician Employment Committee, one of which must (to the extent
possible) be the Medical Director.
(e) Each Seller covenants and agrees that the
restrictions set forth in this Section 6.13 are fair, reasonable and necessary
to protect the interests of AmeriPath and its Affiliates, such restrictions
were negotiated and bargained for and the consideration delivered in connection
with this Agreement reflects and assumes the each Restricted Party's strict
compliance with, and the enforceability by the Purchaser of, these
restrictions.
(f) Each Seller acknowledges and agrees that the
provisions of Section 6.13 and Section 6.14 are extremely material and of the
essence to this Agreement. In addition, if the scope of any restriction or
covenant contained in either such Section should be or become too broad or
extensive to permit enforcement thereof to its fullest extent, then such
restriction or covenant shall be enforced to the maximum extent permitted by
law, and the Seller hereby consents and agrees that (a) it is the parties
intention and agreement that the covenants and restrictions contained herein be
enforced as written, and (b) in the event a court of competent jurisdiction
should determine that any restriction or covenant contained herein is too broad
or extensive to permit enforcement thereof to its fullest extent, the scope of
any such restriction or covenant may be modified accordingly in any judicial
proceeding brought to enforce such restriction or covenant, but should be
modified to permit enforcement of the restrictions and covenants contained
herein to the maximum extent the court, in its judgment, will permit.
6.14 Non-disclosure; Confidentiality.
(a) Confidential Information. By virtue of each Seller's
employment, association or involvement with an AmeriPath Entity, each Seller
may obtain confidential or proprietary information developed, or to be
developed, by an AmeriPath Entity. "Confidential Information" means all
information, whether in oral, written, graphic, machine- readable or tangible
form, and whether or not registered, and including all notes, plans, records,
documents and other evidence thereof, including but not limited to all:
patents, patent applications, copyrights, trademarks, trade names, service
marks, service names, "know-how," patient lists, details of client or
consulting contracts, pricing policies, operational methods, marketing plans or
strategies, product development techniques or plans, procurement and sales
activities, promotion and pricing techniques, credit and financial data
concerning customers, business acquisition plans or any portion or phase of any
scientific or technical information, discoveries, computer software or programs
used or developed in whole or in part by any AmeriPath Entity (including source
or object codes), processes, procedures, formulas or improvements of any
AmeriPath Entity; algorithms; computer processing systems and techniques; price
lists; customer lists; procedures; improvements, concepts and ideas; business
plans and proposals; technical plans and proposals; research and development;
budgets and projections; technical memoranda, research reports, designs and
specifications; new product and service developments; comparative analyses of
competitive products, services and operating procedures; and other information,
data and documents now existing or later acquired by an AmeriPath Entity,
regardless of whether any
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<PAGE> 48
of such information, data or documents qualify as a "trade secret" under
applicable Federal or State law. All such information is collectively referred
to as the "Confidential Information".
(b) Non-Disclosure. Each Seller agrees that, except as
directed by such Seller's employer, he or she will not at any time (during the
term of such Seller's employment by an AmeriPath Entity or at any time
thereafter), except as may be expressly authorized by the AmeriPath Entity in
writing, disclose to any Person or use any Confidential Information whatsoever
for any purpose whatsoever, or permit any Person whatsoever to examine and/or
make copies of any reports or any documents or software (whether in written
form or stored on magnetic, optical or other mass storage media) prepared by
him or that come into his possession or under his control by reason of his
employment by an AmeriPath Entity or by reason of any consulting or software
development services he has performed or may in the future perform for an
AmeriPath Entity which contain or are derived from Confidential Information.
Each Seller further agrees that while employed at an AmeriPath Entity, no
Confidential Information shall be removed from the AmeriPath Entity's business
premises, without the prior written consent of such AmeriPath Entity.
(c) AmeriPath Group Property. As used in this Agreement,
the term "AmeriPath Group Property" means all documents, papers, computer
printouts and disks, records, customer or patient lists, files, manuals,
supplies, computer hardware and software, equipment, inventory and other
materials that have been created, used or obtained by any AmeriPath Entity, or
otherwise belonging to any AmeriPath Entity, as well as any other materials
containing Confidential Information as defined above. Each Seller recognizes
and agrees that:
(i) All the AmeriPath Group Property shall be and
remain the property of the AmeriPath Entity to which such belongs;
(ii) Each Seller will preserve, use and hold the
AmeriPath Group Property only for the benefit of AmeriPath and its
Affiliates and to carry out the business of the AmeriPath Entity,
AmeriPath and its Affiliates; and
(iii) When any Seller's employment is terminated,
such Seller will immediately deliver and surrender to the AmeriPath
Entity all the AmeriPath Group Property, including all copies,
extracts or any other types of reproductions, which such Seller has in
his possession or control.
6.15 Rule 144 Best Efforts. Following such time, if any, that
AmeriPath is or may become, and while AmeriPath is, a public company with its
securities registered under the Securities Act, and listed or quoted for
trading by a national securities exchange or inter-dealer quotation system,
AmeriPath will use its best efforts to see that AmeriPath is in compliance with
the requirements of Rule 144 under the Securities Act applicable to the issuer
of securities, so as to facilitate non-registered sales of AmeriPath Stock by
the Sellers who then own AmeriPath Stock consistent with the requirements and
limitations of Rule 144. Such efforts to comply with
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Rule 144 shall include, without limitation, AmeriPath's best efforts to (x) see
that all periodic public reports (e.g., Forms 10-K, 10-Q and 8- K) that may be
required to be filed under the Securities Exchange Act of 1934 are timely filed
with the Securities and Exchange Commission, (y) provide opinion(s) of counsel
to AmeriPath, at AmeriPath's expense, based upon representations of the selling
shareholder, confirming that the requirements of Rule 144 have been met
(assuming that they have been met), and (y) cooperate with reasonable requests
of brokers in mechanically facilitating any such sales. Nothing in this
Section 6.15 shall be deemed as either (i) any representation or warranty
that Ameripath will become a public company with securities registered under
the Securities Act, or (ii) any covenant or agreement by AmeriPath to register,
under federal or state securities laws or otherwise, any AmeriPath securities
issued to, or held by, the Sellers.
6.16 Post-Closing Merger of Entities. Immediately following the
Closing, (i) DAP shall be and become a wholly-owned subsidiary of AmeriPath,
and (ii) such wholly-owned subsidiary shall be merged with and into AmeriPath
Florida, a wholly-owned subsidiary of AmeriPath, with AmeriPath Florida
surviving such merger. The parties hereto agree to take such actions, execute
and deliver such instruments and agreements and file such documents as may be
necessary or appropriate to cause such merger to be effected as promptly as
practicable following the Closing.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
Each and every obligation of the Purchaser under this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived in writing by the Purchaser:
7.1 Representations and Warranties; Covenants and Agreements. The
representations and warranties of the Sellers contained in Article II and
elsewhere in this Agreement and all information contained in any exhibit,
certificate, annex, schedule or attachment hereto or in any writing delivered
by, or on behalf of, the Sellers or DAP to the Purchaser, shall be true and
correct when made and shall be true and correct in all material respects on the
Closing Date as though then made, except as expressly provided herein. The
Sellers and DAP shall have performed and complied with all agreements,
covenants and conditions and shall have made all deliveries required by this
Agreement to be performed, delivered and complied with by them prior to the
Closing Date. Each of the Class A Shareholders and the president of DAP shall
have executed and delivered to the Purchaser a certificate, dated the Closing
Date, certifying to the foregoing.
7.2 No Injunction. No preliminary or permanent injunction or
other Order, decree or ruling issued by any Authority, or any Regulation
promulgated or enacted by any Authority
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shall be in effect, which would prevent the consummation of the transactions
contemplated hereby.
7.3 HSR Act. The waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have been terminated or
shall have expired.
7.4 Third Party Consents. The Purchaser, the Sellers and DAP
shall have obtained all consents, approvals, waivers or other authorizations
with respect to the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, such that the
contracts and leases listed in Schedule 7.4 hereto shall remain in effect
(without default, acceleration, termination, assignment, right of termination
or assignment, payment, increase in rates or compensation payable, penalty,
interest or other adverse effect) from and after the Closing Date as such
contracts and leases operated and were in effect before the Closing Date.
7.5 Regulatory Approvals. The Federal and State regulatory
agencies or authorities listed in Schedule 7.5 hereto shall have approved the
applications listed in such Schedule with respect to the change of control
represented by the transactions contemplated by this Agreement, and such
approval shall not impose financial obligations on the Purchaser that are
objectionable to it.
7.6 No Material Adverse Change. There shall have been no Material
Adverse Change since the date of this Agreement. The Purchaser shall have
received a certificate (which shall be addressed to the Purchaser), dated the
Closing Date, of the president and chief financial officer of DAP, certifying
to the foregoing.
7.7 Stock Options and Grant Agreements. Each Optionee who is a
Class B Shareholder shall have executed and delivered to the Purchaser a Grant
Agreement in the form of Exhibit 6.5 hereto, among other things, entitling such
Optionee, pursuant to the terms of such Grant Agreement (and the AmeriPath
Stock Option Plan), to purchase upon exercise of such Optionee's option in
accordance with its terms the number of shares of AmeriPath Stock specified in
such Schedule 6.5 with respect to such Optionee.
7.8 Employment Agreements. DAP and the Sellers shall have
terminated the employment agreements between DAP and (1) each Seller and (2)
each physician employee who is not a Seller. Each of the following persons (or
group of persons, as the case may be) shall have executed and delivered to the
Purchaser an employment agreement with AmeriPath Florida in the form indicated
below: (i) Gert G. Larbig, M.D. and each of the Class A Shareholders (other
than Homer A. Bodiford, M.D. and Wayne H. Schrader, M.D.) -- form of
employment agreement attached as Exhibit 6.7(a) (as appropriate and applicable,
in accordance with the instructions contained therein), (ii) each of Homer A.
Bodiford, M.D. and Wayne H. Schrader, M.D. -- form of employment agreement
attached as Exhibit 6.7(b), (iii) each of the Class B Shareholders (other than
Sherry R. Larson) -- form of employment agreement attached as Exhibit 6.7(c),
(iv) Craig Carson, M.D., and each other physician employee who is not a Seller
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(other than Gert G. Larbig, M.D.) -- form of employment agreement attached as
Exhibit 6.7(d), and (v) Sherry R. Larson -- form of employment agreement
attached as Exhibit 6.7(e).
7.9 Opinion of Seller's Counsel. The Purchaser shall have
received an opinion of counsel to the Sellers and DAP (which will be addressed
to the Purchaser), dated the Closing Date, in substantially the form of Exhibit
7.9 hereto.
7.10 Delivery of DAP Share Certificates. Each of the Sellers shall
have executed this Agreement, or a counterpart hereof, and the Sellers together
shall have delivered at the Closing stock certificates representing all of the
DAP Shares, duly endorsed for transfer to the Purchaser for transfer, together
with stock powers duly executed in blank.
7.11 Shareholders' Agreement. At the Closing, each Seller shall
have executed and delivered a counterpart signature page to that certain
Shareholders' Agreement, dated as of February 29, 1996, by and among AmeriPath
and each of the stockholders of AmeriPath (the "Shareholders' Agreement"), a
copy of which Shareholders' Agreement is attached hereto as Exhibit 7.11. Each
Seller agrees to be bound by all of the provisions of the Shareholders'
Agreement, in accordance with their terms, to the same extent as if he or she
had been an original signatory thereto (and a holder of Common Stock other than
an Original Common Shareholder).
7.12 Creditor Consents. Barnett Bank of Central Florida, N.A.
("Barnett Bank") shall have agreed in writing with DAP as to the amounts owed
in order for such creditors to have been paid in full and to release all Liens
in favor of such creditors. DAP shall have obtained from Barnett Bank, and
shall provide at Closing to the Purchaser, such UCC termination statements,
releases of mortgages and other releases of Liens as shall be required by the
Purchaser and its lenders.
7.13 DAP Charter Amendments. DAP, which as of the date hereof is
organized as a professional service corporation under Chapter 621 of the
Florida Statutes, shall have taken all appropriate and required board of
director and shareholder action to approve, and shall have filed with the
Florida Department of State in form acceptable for filing, an amendment to
DAP's articles of incorporation, which amendment (i) shall be in form and
substance satisfactory to AmeriPath, and (ii) shall include the DAP Charter
Amendments (as such term is defined in Section 4.9 hereof).
7.14 Subordination Agreement. At the Closing, each of the Class A
Shareholders and Class B Shareholders shall have executed and delivered a
counterpart signature page to the Subordination Agreement, pursuant to which
each agrees to be bound by all of the provisions of the Subordination Agreement
in accordance with their terms.
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ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
Each and every obligation of the Sellers under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by the Sellers:
8.1 Representations and Warranties; Performance. The
representations and warranties of the Purchaser contained in Article III and
elsewhere in this Agreement and all information contained in any exhibit,
schedule, annex or attachment hereto, the Purchaser, to the Sellers, shall be
true and correct when made and shall be true and correct in all material
respects on the Closing Date as though then made, except as expressly provided
herein. The Purchaser shall have performed and complied with all agreements,
covenants and conditions required by this Agreement to be performed and
complied with by them prior to the Closing Date. The president of the
Purchaser shall have delivered to the Sellers a certificate, dated the Closing
Date, certifying to the foregoing.
8.2 No Injunction. No preliminary or permanent injunction or
other Order, decree or ruling issued by any Authority, or any Regulation
promulgated or enacted by any Authority shall be in effect, which would prevent
the consummation of the transactions contemplated hereby.
8.3 Purchase Consideration. Each Seller shall have received the
consideration (in the form of cash, AmeriPath Stock and/or Contingent Notes) to
which such Seller is entitled pursuant to Section 1.1 or Section 1.2 (and as
indicated in Schedule 1.1 or Schedule 1.2) hereof.
8.4 Stock Options and Grant Agreements. The Purchaser shall have
executed and delivered to each Optionee who is a Class B Shareholder a Grant
Agreement in the form of Exhibit 6.5 hereto, among other things, entitling such
Optionee, pursuant to the terms of such Grant Agreement (and the AmeriPath
Stock Option Plan), to purchase upon exercise of such Optionee's option in
accordance with its terms the number of shares of AmeriPath Stock specified in
such Schedule 6.5 with respect to such Optionee.
8.5 HSR Act. The waiting period applicable to the transactions
contemplated by this Agreement under the HSR Act shall have been terminated or
shall have expired.
8.6 Third Party Consents. The Purchaser, the Sellers and DAP
shall have obtained all consents, approvals, waivers or other authorizations
with respect to the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, such that the
contracts and leases listed in Schedule 7.4 hereto shall remain in effect
(without default, acceleration, termination, assignment, right of termination
or assignment, payment, increase in rates or compensation payable, penalty,
interest or other adverse effect)
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from and after the Closing Date as such contracts and leases operated and were
in effect before the Closing Date.
8.7 Regulatory Approvals. The Federal and State regulatory
agencies or authorities listed in Schedule 7.5 hereto shall have approved the
applications listed in such Schedule with respect to the change of control
represented by the transactions contemplated by this Agreement.
8.8 Employment Agreements; Guaranty. AmeriPath Florida shall have
executed and delivered to each of the following persons (or group of persons,
as the case may be) an employment agreement with AmeriPath Florida in the
appropriate form indicated below: (i) Gert G. Larbig, M.D. and each of the
Class A Shareholders (other than Homer A. Bodiford, M.D. and Wayne H.
Schrader, M.D.) -- form of employment agreement attached as Exhibit 6.7(a) (as
appropriate and applicable, in accordance with the instructions contained
therein), (ii) each of Homer A. Bodiford, M.D. and Wayne H. Schrader, M.D. --
form of employment agreement attached as Exhibit 6.7(b), (iii) each of the
Class B Shareholders (other than Sherry R. Larson) -- form of employment
agreement attached as Exhibit 6.7(c), (iv) Craig Carson, M.D., and each other
physician employee who is not a Seller (other than Gert G. Larbig, M.D.) --
form of employment agreement attached as Exhibit 6.7(d), and (v) Sherry R.
Larson -- form of employment agreement attached as Exhibit 6.7(e). AmeriPath
shall have executed and delivered to the Sellers the Guaranty in the form of
Exhibit 8.8 attached hereto (the "AmeriPath Guaranty").
8.9 Opinion of Purchaser's Counsel. The Purchaser shall have
received an opinion of counsel to the Purchaser (which will be addressed to the
Seller), dated the Closing Date, in substantially the form of Exhibit 8.9
hereto.
8.10 Approval of AmeriPath Preferred Shareholders. The Preferred
Shareholders (as such term is defined and used in the AmeriPath Shareholders
Agreement) shall have executed and delivered to the Sellers the Approval
Certificate in the form of Exhibit 8.10 attached hereto, evidencing such
Preferred Shareholders approval, and agreement to honor, the provision
contained in Section 6.13 hereof regarding the right of Initial Dap Nominees
(or, as applicable, Replacement DAP Nominee(s)) to serve as members of the
AmeriPath Board of Directors.
ARTICLE IX
CLOSING
9.1 Closing. Unless this Agreement shall have been terminated or
abandoned pursuant to the provisions of Article X hereof, a closing of the
transactions contemplated by this Agreement (the "Closing") shall be held on or
before June 28, 1996 (if the conditions to closing set forth in Article VII and
Article VIII hereof have been satisfied or waived by such date), or on such
other date which is mutually agreed upon in writing following the satisfaction
or waiver of the conditions to closing set forth in Article VII and Article
VIII hereof (the "Closing Date").
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9.2 Closing Deliveries. At the Closing,
(a) the Sellers and DAP shall deliver or cause to be delivered
to the Purchaser:
(i) a certificate or certificates evidencing all
of the DAP Shares, duly endorsed for transfer with all
necessary transfer stamps affixed;
(ii) copies of all consents and approvals required by
Sections 7.4 and 7.5;
(iii) the Opinion of Counsel required by Section 7.9;
(iv) the Officers' Certificates required by Section
7.1 and 7.6;
(v) the UCC termination statements, releases of
mortgages or other releases of Liens required by Section 7.12;
(vi) a certificate, signed by the secretary of
DAP, as to the articles of incorporation and by-laws of DAP,
the resolutions adopted by the board of directors and
shareholders of DAP in connection with this Agreement, the
incumbency of certain officers of DAP and the jurisdictions in
which DAP is qualified to conduct business, in form acceptable
to the Purchaser.
(vii) certificates issued by the appropriate
governmental authorities evidencing the good standing, with
respect to both the conduct of business and the payment of all
franchise taxes, of DAP as of a date not more than 10 days
prior to the Closing Date, as a corporation organized under
the laws of the State of Florida and as a foreign corporation
authorized to do business under the laws of the various
jurisdictions where it is so qualified.
(viii) the Employment Agreements required by Section
7.8;
(ix) the Grant Agreements required by Section 7.7;
(x) the counterpart signature pages to the
Shareholders' Agreement required by Section 7.11;
(xi) executed counterpart signature pages to the
Subordination Agreement required by Section 7.14; and
(xii) such other certified resolutions, documents and
certificates as are reasonably required to be delivered by any
Seller or DAP pursuant to the provisions of this Agreement.
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(b) The Purchaser shall deliver to the Sellers:
(i) the consideration (in the form of cash,
AmeriPath Stock and Contingent Notes, as appropriate) required
to be paid or delivered to each such Seller in accordance with
Section 1.1 or Section 1.2 hereof.
(ii) the Officers' Certificate required by Section
8.1; and
(iii) copies of all consents and approvals required
by Sections 8.6 and 8.7;
(iv) the Opinion of Counsel required by Section 8.9;
(v) the Employment Agreements required by Section
8.8;
(vi) the Grant Agreements, executed and delivered by
the Purchaser, referred to in Section 8.4;
(vii) the AmeriPath Guaranty, executed and
delivered by the Purchaser, referred to in Section 8.8;
(viii) copies of the Articles of Incorporation,
Bylaws and organizational consent of AmeriPath Florida; and
(ix) such other certified resolutions, documents
and certificates as are reasonably required to be delivered by
the Purchaser pursuant to the provisions of this Agreement.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination. This Agreement may be terminated and
the transactions herein contemplated may be abandoned at any time:
(a) by mutual consent of the Purchaser, the Sellers and DAP;
(b) by the Purchaser or a majority of the Class A
Shareholders and DAP if this Agreement is not consummated on or before
August 15, 1996; provided, however, that if any party has breached or
defaulted with respect to its respective obligations under this
Agreement on or before such date, such party may not terminate this
Agreement pursuant to this Section 10.1(b), and each other party to
this Agreement shall at its option
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enforce its rights against such breaching or defaulting party
and seek any remedies against such party, in either case as provided
hereunder and by applicable law;
(c) by the Purchaser if as of the Closing Date (including
any extensions) any of the conditions specified in Article VII hereof
shall not have been satisfied by the Sellers or by DAP or if DAP or
any of the Sellers is otherwise in default under this Agreement; or
(d) by a majority of the Class A Shareholders and DAP if
as of the Closing Date (including any extensions) any of the
conditions specified in Article VIII hereof shall not have been
satisfied by the Purchaser or if the Purchaser is otherwise in default
under this Agreement.
10.2 Procedure Upon Termination. In the event of termination and
abandonment pursuant to Section 10.1 hereof, and subject to the proviso
contained in Section 10.1(b), this Agreement shall terminate and shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) each party shall redeliver all documents and other
material of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the
party furnishing the same;
(b) all information received by any party hereto with
respect to the business of any other party or DAP (other than
information which is a matter of public knowledge or which has
heretofore been or is hereafter published in any publication for
public distribution or filed as public information with
any governmental authority) shall not at any time be used for the
advantage of, or disclosed to third parties by, such party to the
detriment of the party furnishing such information; and
(c) no party hereto shall have any further liability or
obligation to any other party under or in connection with this
Agreement.
ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.1 Survival. All of the terms and conditions of this Agreement,
together with the representations, warranties and covenants contained herein or
in any instrument or document delivered or to be delivered pursuant to this
Agreement, shall survive the execution of this Agreement and the Closing
notwithstanding any investigation heretofore or hereafter made by or on behalf
of any party hereto; provided, however, that (a) the agreements and covenants
set forth in this Agreement shall survive and continue until all obligations
set forth therein shall have
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been performed and satisfied; and (b) all representations and warranties shall
survive and continue until:
(1) with respect to the representations and warranties in
Sections 2.16 (tax matters), 2.18 (ERISA matters) and
2.20 (environmental matters), until sixty (60) days
following the expiration of the applicable statute of limitations;
(2) with respect to the representations and warranties in
Sections 2.3 (capitalization), 2.4 (title to the DAP Shares) and 2.6
(options and rights on capital stock), these representations shall
survive and continue forever and without limitation; and
(3) with respect to all other representations and
warranties, the date upon which AmeriPath receives from its outside
auditors the audited financial statements for AmeriPath's fiscal year
ending December 31, 1998 (the "1998 Audit Date"), except for
representations, warranties and indemnities for which an
indemnification Claim shall be pending as of the 1998 Audit Date, in
which event such indemnities shall survive with respect to such Claim
until the final disposition thereof.
11.2 Indemnification by the Class A Shareholders. Subject to this
Article XI, the Purchaser and its officers, directors, employees, shareholders,
representatives and agents shall be indemnified and held harmless by the Class
A Shareholders, jointly and severally, at all times after the date of this
Agreement, against and in respect of any and all actual damage, loss,
deficiency, liability, obligation, commitment, cost or expense (including the
fees and expenses of counsel) resulting from, or in respect of, any of the
following:
(a) Any misrepresentation, breach of warranty, or
non-fulfillment of any obligation on the part of any Seller or DAP
under this Agreement, any document relating thereto or contained in
any schedule or exhibit to this Agreement or from any
misrepresentation in or omission from any certificate, schedule, other
agreement or instrument by any Seller or DAP hereunder;
(b) Any and all liabilities of DAP of any nature whether
accrued, absolute, contingent or otherwise, and whether known or
unknown, existing at the Closing Date, with respect to the following:
(i) All Tax liabilities of DAP, together with any
interest or penalties thereon or related thereto, through the
Closing Date and any Tax liability of DAP arising in
connection with the transactions contemplated hereby. Any
Taxes, penalties or interest attributable to the operations
of DAP payable as a result of an audit of any tax return
shall be deemed to have accrued in the period to which such
Taxes, penalties or interest are attributable;
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(ii) All environmental liabilities relating to any
of DAP's properties, including federal, state and local
environmental liability, together with any interest or
penalties thereon or related thereto, through the Closing
Date, but excluding any amount for which there is an adequate
accrual and reserve on the Financial Statements;
(iii) All claims by Medicare, Medicaid, or any
other third party payor relating to reimbursement for
services provided by DAP prior to the Closing Date
("Reimbursement Claims"). Indemnification by Seller for
Reimbursement Claims shall include all costs incurred by
Purchaser for such claims, including, but not limited to,
applicable investigative and audit expenses, attorneys fees,
reimbursement costs, and any fines and penalties levied
against DAP; and
(iii) Any and all 100% Ownership Expenses (as such
term is defined in Section 4.15 hereof).
(c) All demands, assessments, judgments, costs and
reasonable legal and other expenses arising from, or in connection
with any Claim incident to any of the foregoing.
(d) The indemnification provided hereunder shall be solely and
exclusively available to the Purchaser, and its successors and assigns,
and shall not be available to any third party (including, without
limitation, any past, present or future shareholder of the Purchaser).
The procedure pursuant to which the Purchaser may seek indemnification
for third-party Claims is set forth in Section 11.4 hereof.
(e) In the event the Class A Shareholders are required to
make one or more payments to the Purchaser (an "Indemnification
Payment") with respect to any indemnification obligation provided
hereunder, and such payment results in the Purchaser's realization of
a net reduction in the Purchaser's federal, state, local or foreign
income or franchise tax liability (a "Net Tax Benefit"), then the
amount of the Indemnification Payment shall be adjusted, on a fair and
equitable basis, to reflect the amount of the Net Tax Benefit.
11.3 Indemnification by the Purchaser. Subject to this Article
XI, the Sellers and their heirs, assigns, representatives and agents shall be
indemnified and held harmless by the Purchaser, at all times after the date of
this Agreement, against and in respect of any and all damage, loss, deficiency,
liability, obligation, commitment, cost or expense (including the fees and
expenses of counsel) resulting from, or in respect of, any misrepresentation,
breach of warranty, or non-fulfillment of any obligation on the part of the
Purchaser under this Agreement, any document relating thereto or contained in
any schedule or exhibit to this Agreement or from any misrepresentation in or
omission from any certificate, schedule, other agreement or instrument by the
Purchaser hereunder.
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<PAGE> 59
11.4 Third-Party Claims. Except as otherwise provided in this
Agreement, the following procedures shall be applicable with respect to
indemnification for third-party Claims. Promptly after receipt by the party
seeking indemnification hereunder (hereinafter referred to as the "indemnitee")
of notice of the commencement of any (a) Tax audit or proceeding for the
assessment of Tax by any taxing authority or any other proceeding likely to
result in the imposition of a Tax liability or obligation or (b) any action or
the assertion of any Claim, liability or obligation by a third party (whether
by legal process or otherwise), against which Claim, liability or obligation
the other party to this Agreement (hereinafter the "indemnitor") is, or may be,
required under this Agreement to indemnify such indemnitee, the indemnitee
will, if a Claim thereon is to be, or may be, made against the indemnitor,
notify the indemnitor in writing of the commencement or assertion thereof and
give the indemnitor a copy of such Claim, process and all legal pleadings. The
indemnitor shall have the right to participate in the defense of such action
with counsel of reputable standing. The indemnitor shall have the right to
assume the defense of such action unless such action (i) may result in
injunctions or other equitable remedies in respect of the indemnitee or its
business; (ii) may result in liabilities which, taken with other then existing
Claims under this Article XI, would not be fully indemnified hereunder; or
(iii) may have a material adverse impact on the business or financial condition
of the indemnitee after the Closing Date (including an effect on the Tax
liabilities, earnings or ongoing business relationships of the indemnitee).
The indemnitor and the indemnitee shall cooperate in the defense of such
Claims. In the case that the indemnitor shall assume or participate in the
defense of such audit, assessment or other proceeding as provided herein, the
indemnitee shall make available to the indemnitor all relevant records and take
such other action and sign such documents as are necessary to defend such
audit, assessment or other proceeding in a timely manner. If the indemnitee
shall be required by judgment or a settlement agreement to pay any amount in
respect of any obligation or liability against which the indemnitor has agreed
to indemnify the indemnitee under this Agreement, the indemnitor shall promptly
reimburse the indemnitee in an amount equal to the amount of such payment plus
all reasonable expenses (including legal fees and expenses) incurred by such
indemnitee in connection with such obligation or liability subject to this
Article XI. By posting any required bond, or paying any other amounts required
under law or by any court, the indemnitor may appeal a non-final determination
or ruling of any court; provided, however, the indemnitee shall not be required
to pay any fees, costs or expenses or any other amount or otherwise suffer any
damage in connection with any such appeal.
Prior to paying or settling any Claim against which an indemnitor is,
or may be, obligated under this Agreement to indemnify an indemnitee, the
indemnitee must first supply the indemnitor with a copy of a final court
judgment or decree holding the indemnitee liable on such claim or failing such
judgment or decree, and must first receive the written approval of the terms
and conditions of such settlement from the indemnitor. An indemnitor shall
have the right to settle any Claim against it, subject to the prior written
approval of the indemnitee, which approval shall not be unreasonably withheld;
provided, however, should the indemnitee withhold approval to settle the Claim,
the indemnitor's obligation hereunder shall not exceed the amount at which the
Claim could have been settled, plus interest through the date the Claim is
ultimately
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<PAGE> 60
paid. Interest for purposes hereof shall be at the prime rate of interest of
NationsBank, N.A., as published from time to time on the date such approval was
requested.
An indemnitee shall have the right to employ its own counsel in any
case, but the fees and expenses of such counsel shall be at the expense of the
indemnitee unless (a) the employment of such counsel shall have been authorized
in writing by the indemnitor in connection with the defense of such action or
Claim, (b) the indemnitor shall not have employed, or is prohibited under this
Section 11.4 from employing, counsel in the defense of such action
or Claim, or (c) such indemnitee shall have reasonably concluded that there may
be defenses available to it which are contrary to, or inconsistent with, those
available to the indemnitor, in any of which events such fees and expenses of
not more than one additional counsel for the indemnified parties shall be borne
by the indemnitor.
11.5 Deductible. Notwithstanding the foregoing provisions of this
Article XI, except for the next succeeding sentence of this Section 11.5, no
indemnification pursuant to this Article XI shall be required of an
indemnifying party hereunder unless and until the aggregate amount due the
indemnified party for all Claims under this Article XI shall exceed $75,000.00
(the "Deductible"), and then only to the extent that the aggregate amount of
such Claims exceeds the Deductible. Notwithstanding the foregoing, no Claim
(regardless of amount) that arises out of a breach of any of the
representations or warranties contained in Sections 2.3 (capitalization), 2.5
(title to DAP Shares), 2.6 (options and rights on capital stock), 2.23(b)
(self-insurance), 2.36 (selected financial amounts as of Closing) or 4.15
(purchase price as consideration for 100% ownership) shall at any time be
subject to the Deductible or be counted in determining the Maximum Liability
(as defined in Section 11.6).
11.6 Maximum Liability. (a) Notwithstanding the foregoing
provisions of this Article XI, except as provided in the last sentence of
Section 11.5 above, the maximum liability in connection with any and all Claims
for indemnification or breach or violation of representations or warranties
under this Agreement shall be:
(i) in the aggregate, with respect to all Class A
Shareholders, Twelve Million Five Hundred Thousand Dollars
($12,500,000.00); and
(ii) individually, with respect to any single Class A
Shareholder, One Million Two Hundred Fifty Thousand Dollars
($1,250,000.00) (the "Individual Cap"). In furtherance, and not in
limitation of the foregoing, with respect to any single Claim for
indemnification arising under this Agreement which Claim is matured,
perfected and ready for enforcement and collection (a " Final Claim"),
the maximum liability of any individual Class A Shareholder shall be
the lesser of (x) the Individual Cap, and (y) 1/10 of the aggregate
amount of the Final Claim.
(b) The Purchaser agrees that, to the extent it has a
Claim which it has determined to seek indemnification from the Class A
Shareholders pursuant to this Article XI, in any action, claim or cause of
action the Purchaser files in a court of competent jurisdiction,
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<PAGE> 61
the Purchaser shall name all Class A Shareholders, and, in connection with any
such litigation, shall pursue a judgment against and collection from all Class
A Shareholders.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by a written agreement
signed by DAP, the Purchaser and 51% of the Sellers; provided, however, no
amendment shall materially impair the rights of any Seller hereunder without
the express written consent of such Seller.
12.2 Entire Agreement. This Agreement, including the schedules
and exhibits hereto and the annexes, attachments, documents, certificates and
instruments referred to herein and therein, embodies the entire agreement and
understanding of the parties hereto in respect of the transactions contemplated
by this Agreement and supersedes all prior agreements, representations,
warranties, promises, covenants, arrangements, communications and
understandings, oral or written, express or implied, between the parties with
respect to such transactions. There are no agreements, representations,
warranties, promises, covenants, arrangements or understandings between the
parties with respect to such transactions, other than those expressly set forth
or referred to herein.
12.3 Certain Definitions.
"Acquiring Person Affiliate" shall mean and include (i) any
Person who becomes an Affiliate of AmeriPath after the date hereof
through the acquisition of all of the assets or stock of AmeriPath,
and/or (ii) any Person who becomes an Affiliate of AmeriPath after the
date hereof through a merger with or into AmeriPath in which such
Person (and not AmeriPath) survives; provided, however, that the term
"Acquiring Person Affiliate" shall not mean or include any Person who
was an Affiliate of AmeriPath immediately prior to the consummation of
either of the transactions described under clauses (i) or (ii) of this
definition.
"Affiliate" means, with regard to any Person, (a) any Person,
directly or indirectly, controlled by, under common control of, or
controlling such Person, (b) any Person, directly or indirectly, in
which such Person holds, of record or beneficially, five percent or
more of the equity or voting securities, (c) any Person that holds, of
record or beneficially, five percent or more of the equity or voting
securities of such Person, (d) any Person that, through Contract,
relationship or otherwise, exerts a substantial influence on
the management of such Person's affairs, (e) any Person that, through
Contract, relationship or otherwise, is influenced substantially in
the management of their affairs by such Person, or (f) any director,
officer, partner or individual holding a similar position in respect
of such Person.
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<PAGE> 62
"Authority" means any governmental, regulatory or
administrative body, agency, arbitrator or authority, any court or
judicial authority, any public, private or industry regulatory agency,
arbitrator authority, whether international, national, federal, state
or local.
"Claim" means any action, claim, obligation, liability,
expense, lawsuit, demand, suit, inquiry, hearing, investigation,
notice of a violation, litigation, proceeding, arbitration, or other
dispute, whether civil, criminal, administrative or otherwise, whether
pursuant to contractual obligations or otherwise.
"Contract" means any agreement, contract, commitment,
instrument or other binding arrangement or understanding, whether
written or oral.
"Environmental Law" means any law, statute, Regulation, rule,
Order, decree, judgment, consent decree, settlement agreement or
governmental requirement, which relates to or otherwise imposes
liability or standards of conduct concerning mining or reclamation of
mined land, discharges, emissions, releases or threatened releases of
noises, odors or any pollutants, contaminants or hazardous or toxic
wastes, substances or materials, whether as matter or energy, into
ambient air, water, or land, or otherwise relating to the manufacture,
processing, generation, distribution, use, treatment, storage,
disposal, cleanup, transport or handling of pollutants, contaminants,
or hazardous wastes, substances or materials, including (but not
limited to) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Resource Conservation and Recovery Act of
1976, as amended, the Toxic Substances Control Act of 1976, as
amended, the Federal Water Pollution Control Act Amendments of 1972,
the Clean Water Act of 1977, as amended, any so-called "Superlien"
law, and any other similar Federal, state or local statutes.
"Environmental Permit" shall mean Permits, certificates,
approvals, licenses and other authorizations relating to or required
by Environmental Law and necessary or desirable for a Person's
business.
"GAAP" means generally accepted accounting principles,
applied on a consistent basis with the Financial Statements, as in
existence at the date hereof.
"Health Care Laws" means any Federal, state, or local
Regulation or Order, of any Authority, which relates to or otherwise
imposes liability or standards of conduct concerning the licensure,
certification, qualification, or operation of a laboratory, pathology
physician service or other aspect of a Person's business subject to
such Health Care Laws, including but not limited to Chapter 400,
Florida Statutes, governing home health agencies; Chapter 641, Florida
Statues, The Health Maintenance Organization Act; Chapter 465, Florida
Statutes, the Florida Pharmacy Act; Sections 499.001 to .081, Florida
Statutes, the Florida Drug and Cosmetic Act; Chapter 893, Florida
Statutes, the
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<PAGE> 63
Florida Comprehensive Drug Abuse Prevention and Control Act;
Sections 455.236 to .239, Florida Statutes, the Patient Self-Referral
Act; Section 627.6699, Florida Statutes, the Employee Health Care
Access Act; Sections 409.026 and 409.912, Florida Statutes, 21 U.S.C.
Section 301-392, the Federal Food Drug and Cosmetic Act; 21 U.S.C.
Section 821 et seq., the Federal Drug Abuse Act; Section 1128B of the
Social Security Act; The Clinical Laboratory Improvement Amendments of
1988; 42 U.S.C. Section 1320a-7b, 42 C.F.R. Part 1001, 42 CFR Chapter
IV, Subchapter C; Sections 1876 or 1903 of the Social Security Act; 45
CFR, Part 74; 45 CFR, Part 92; 42 CFR 455.109 Section 306 of the Clean
Air Act; 42 U.S.C. Section 1857(h) et seq., Section 508 of the Clean
Water Act; 33 U.S.C. Section 1368 et seq., Executive Order 11738 and
Environmental Protection Agency regulations; 40 CFR Part 15, Title VI
of the Civil Rights Act of 1964; 42 U.S.C. Section 2000 d et seq.,
Section 504 of the Rehabilitation Act of 1933; 29 U.S.C. Section 7940;
Title IX of the Education Amendments of 1972, 20 U.S.C. Section 1681
et seq., the Age Discrimination Act of 1975; 42 U.S.C. Section 6101 et
seq., Section 654 of OBRA '81; 42 U.S.C. Section 9849 and the
Americans with Disabilities Act of 1990; P.L. 101-336, OBRAs 1986
through 1993, as amended, and any other similar Federal, state or
local Regulations.
"Knowledge" or "known" means (when referred to, for example,
as "to the knowledge of", or "known to", a Class A Shareholder or of
DAP) the best knowledge, information and belief of each such Class A
Shareholder and of the officers of DAP, respectively, after due
inquiry into the subject matter thereof, with appropriate members of
DAP's management.
"Lien" means any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, Claim, easement, restriction or interest
of another Person of any kind or nature.
"Material Adverse Change" means any development or change
which has had or would have a Material Adverse Effect.
"Material Adverse Effect" means any circumstances, state of
facts or matters which has, or might reasonably be expected to have, a
material adverse effect in respect of DAP's or the Purchaser's (as the
case may be) business, operations, properties, assets, condition
(financial or otherwise), results, plans, strategies or prospects.
"Order" means any decree, judgment, award, order, injunction,
rule, consent of or by an Authority.
"Permitted Cash Payments" means cash payment amounts which
may be paid by DAP prior to Closing in connection with (i) planned
profit-sharing contributions not to exceed $250,000; (ii) payments to
Thomas J. Allred, M.D. in an aggregate amount not to exceed $214,163
in connection with the exercise by DAP of certain stock repurchase
rights under the DAP Stockholders' Agreement (in view of the
termination of Dr. Allred's employment with DAP), or (iii) payments to
Gert G. Larbig, M.D. in an
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<PAGE> 64
aggregate amount not to exceed $96,974 in connection with the
exercise by DAP of certain stock repurchase rights under the DAP
Stockholders' Agreement (in view of the retirement of Dr. Larbig).
"Person" means any corporation, partnership, joint venture,
company, syndicate, organization, association, trust, entity,
Authority or natural person.
"Proprietary Rights" means any patent, patent application,
copyright, trademark, trade name, service mark, service name, trade
secret, know-how, confidential information or other intellectual
property or proprietary rights.
"Regulation" means any law, statute, rule, regulation,
ordinance, requirement, announcement or other binding action of or by
an Authority.
"Subsidiary" means any Person which the Purchaser or DAP, as
the case may be, owns, directly or indirectly, 50% or more of the
outstanding stock or other equity interests.
12.4 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed, first class
certified mail with postage paid or by overnight receipted courier service:
(a) If to the Sellers or DAP, to:
Derrick and Associates Pathology
8100 Chancellor Dr., Suite 130
Orlando, Florida 32809
Attn: Alan Levin, M.D.
with a copy to:
Foley & Lardner
111 North Orange Avenue
Suite 1800
Orlando, Florida 32801-2386
Attn: Christopher D. Rolle
or to such other person or address as the Sellers or DAP shall
furnish by notice to the Purchaser in writing.
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<PAGE> 65
(b) If to the Purchaser to:
AmeriPath, Inc.
6061 N.E. 14th Avenue
Fort Lauderdale, Florida 33334
Attn: James C. New, President
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
515 E. Las Olas Boulevard, Suite 1500
Fort Lauderdale, Florida 33301
Attn: Daniel H. Aronson, Esq.
or to such other person or address as the Purchaser shall furnish by
notice to Seller in writing.
12.5 Waiver of Compliance; Consents. Any failure of any party
hereto to comply with any obligation, covenant, agreement or condition herein
may be waived in writing by the other parties hereto, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires
or permits consent by or on behalf of any party hereto, such consent shall be
given in writing.
12.6 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties.
12.7 Governing Law. The Agreement shall be governed by the
internal laws of the State of Florida as to all matters, including but not
limited to matters of validity, construction, effect and performance.
12.8 Consent to Jurisdiction; Service of Process. DAP and each of
the Sellers hereby irrevocably submit to the jurisdiction of the state or
federal courts located in Broward County, Florida in connection with any suit,
action or other proceeding arising out of or relating to this Agreement and the
transactions contemplated hereby, and hereby agree not to assert, by way of
motion, as a defense, or otherwise in any such suit, action or proceeding that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced by such courts.
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<PAGE> 66
12.9 Injunctive Relief. The parties hereto agree that in the
event of a breach of any provision of this Agreement, the aggrieved party or
parties may be without an adequate remedy at law. The parties therefore agree
that in the event of a breach of any provision of this Agreement, the aggrieved
party or parties may elect to institute and prosecute proceedings in any court
of competent jurisdiction to enforce specific performance or to enjoin the
continuing breach of such provision, as well as to obtain damages for breach of
this Agreement. By seeking or obtaining any such relief, the aggrieved party
shall not be precluded from seeking or obtaining any other relief to which it
may be entitled.
12.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.11 Headings. The article, section and subsection headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement (or any
provision hereof).
12.12 Binding Effect. This Agreement shall not be construed so as
to confer any right or benefit upon any Person other than the signatories to
this Agreement and each of their respective successors and permitted assigns.
12.13 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party hereto, upon any breach or default
of any other party under this Agreement, shall impair any such right, power or
remedy of such party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party hereto of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any party, shall
be cumulative and not alternative.
12.14 Severability. Unless otherwise provided herein, if any
provision of this Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
12.15 Expenses. All fees, costs and expenses (including, without
limitation, legal, auditing and accounting fees, costs and expenses) incurred
in connection with considering, pursuing, negotiating, documenting or
consummating this Agreement and the transactions contemplated hereby shall be
borne and paid solely by the party incurring such fees, costs and expenses;
provided, however, that, if and only if the transactions contemplated hereby
are consummated, the Purchaser shall pay up to a maximum of $500,000.00 of the
Sellers' expenses incurred in connection with this Agreement and the
consummation of the transactions
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<PAGE> 67
contemplated hereby, against invoices therefor, including, without limitation,
the Broker's Fee and the fees of Sellers' counsel. The Sellers shall bear any
and all fees, costs and expenses in excess of $500,000.00.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
AMERIPATH, INC.
By: /s/ Robert P. Wynn
----------------------------------------------
Robert P. Wynn, Chief Operating Officer
DERRICK AND ASSOCIATES PATHOLOGY, P.A.
By: /s/ Alan Levin
----------------------------------------------
Alan Levin, M.D.
President
SELLERS:
CLASS A SHAREHOLDERS:
---------------------
/s/ Homer A. Bodiford
-------------------------------------------------
HOMER A. BODIFORD, M.D.
/s/ Kenneth A. Clark
-------------------------------------------------
KENNETH A. CLARK, M.D.
/s/ Larry S. Cribbett
-------------------------------------------------
LARRY S. CRIBBETT, M.D.
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<PAGE> 68
/s/ Timothy M. Kilpatrick
-------------------------------------------------
TIMOTHY M. KILPATRICK, M.D.
/s/ Alan Levin
-------------------------------------------------
ALAN LEVIN, M.D.
/s/ E. Donald McDade, Jr.
-------------------------------------------------
E. DONALD MCDADE, JR., M.D.
/s/ Richard C. Morris
--------------------------------------------------
RICHARD C. MORRIS, M.D.
/s/ Joseph W. Pilkington
--------------------------------------------------
JOSEPH W. PILKINGTON, M.D.
/s/ Wayne H. Schrader
--------------------------------------------------
WAYNE H. SCHRADER, M.D.
/s/ Michael R. Sherman
-------------------------------------------------
MICHAEL R. SHERMAN, M.D.
/s/ Stephen P. Sherman
-------------------------------------------------
STEPHEN P. SHERMAN, M.D.
/s/ Cheryl L. Stanton-Choate
-------------------------------------------------
CHERYL L. STANTON-CHOATE, M.D.
/s/ Kenneth J. Wozniak
-------------------------------------------------
KENNETH J. WOZNIAK, M.D.
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<PAGE> 69
CLASS B SHAREHOLDERS:
---------------------
/s/ Sherry R. Larson
-------------------------------------------------
SHERRY R. LARSON
/s/ Margaret L. Cohen
-------------------------------------------------
MARGARET L. COHEN, M.D.
/s/ Randy L. Judd
-------------------------------------------------
RANDY L. JUDD, M.D.
/s/ Richard L. Munoz
-------------------------------------------------
RICHARD L. MUNOZ, M.D.
/s/ M. Barry Randall
-------------------------------------------------
M. BARRY RANDALL, M.D.
/s/ Stephen Y. Wilkerson
-------------------------------------------------
STEPHEN Y. WILKERSON, M.D.
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<PAGE> 1
Exhibit 10.13
__________________________________________________________________
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERIPATH, INC.,
DAVID R. BARRON, M.D., INC.,
RUTH S. KLEIER, M.D.
AND
DAVID R. BARRON, M.D.
EFFECTIVE AS OF SEPTEMBER 30, 1996
__________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ARTICLE I
PURCHASE OF CAPITAL STOCK
-------------------------
1.1 Purchase and Sale of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 The Contingent Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Contingent Issuance of AmeriPath Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND RICHFIELD
-----------------------------------------------------------
2.1 Corporate Organization, Qualification, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Corporate Record Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Title to Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 Options and Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.7 Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.10 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.11 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.13 True and Complete Copies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.14 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.16 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.17 Compliance with Law and Applicable Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.18 ERISA and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.19 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.21 Dealings with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.22 Banking Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.24 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.25 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.26 Accounts Receivable; Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.27 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.28 Improper and Other Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.29 Participation in Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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2.30 Health Care Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.31 Financial Condition at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.32 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
3.1 Corporate Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3 Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.5 Governmental Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.6 Issuance of AmeriPath Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.7 Health Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.8 Cincinnati Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV
COVENANTS OF THE SELLERS
------------------------
4.1 Regular Course of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3 Capital Changes; Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.5 Capital and Other Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.6 Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.7 Other Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.8 Amendments to Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.9 Interim Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.10 Full Access and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.11 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.12 Breach of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.13 Fulfillment of Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V
COVENANTS OF THE PURCHASER
--------------------------
5.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.2 Full Access and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
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ARTICLE VI
OTHER AGREEMENTS
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6.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.2 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4 No Solicitation or Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.5 No Termination of Sellers' Obligations by Subsequent Incapacity, Etc. . . . . . . . . . . . . . . . . . . . 34
6.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.7 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.8 Deliveries After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.9 Non-Competition Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.10 Non-disclosure; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.11 Rule 144 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.12 Physician Incentive Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.13 Richfield Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.14 338(h)(10) Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.15 Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.16 Miscellaneous Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.17 Structural Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
----------------------------------------------
7.1 Representations and Warranties; Covenants and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.3 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.4 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.6 Opinion of Sellers' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.7 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.8 Delivery of Richfield Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.9 Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.10 Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.11 Richfield Charter Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.12 Creditor Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.13 Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
--------------------------------------------
8.1 Representations and Warranties; Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
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8.3 Purchase Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.4 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE IX
CLOSING
-------
9.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.2 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE X
TERMINATION AND ABANDONMENT
---------------------------
10.1 Methods of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.2 Procedure Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
----------------------------------
11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.2 Indemnification by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3 Indemnification by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.4 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
12.1 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.3 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.7 Consent to Jurisdiction; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.8 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.11 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.12 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.14 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.15 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.16 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
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SCHEDULES
1.1 Sellers; Consideration
1.3 Contingent Stock
2.9(a) Additional Liabilities
2.9(b) Liabilities covered by Insurance
2.9(c) Accounts Payable
2.11 Certain Changes
2.12 Contracts
2.14 Real and Personal Property
2.17(a) Permits and Licenses
2.17(b) Jurisdictions Licensed to Provide Health Care
2.18 ERISA, Benefit Plans and Other Matters
2.19 Intellectual Property
2.19(d) Software
2.20 Environmental Matters
2.21 Affiliated Transactions
2.22 Banking Arrangements
2.23 Insurance
2.24 Consents
2.26 Accounts Receivable
2.28 Improper Payments
2.29 Participation in Audits
2.30(a) Fraud and Abuse
2.30(b) Third-Party Payors
2.30(c) Medicare and Medicaid Compliance
2.30(d) Rate Limitations and Rates
3.2 Subsidiaries of AmeriPath
6.15 Optionees
7.3 Third Party Consents
7.4 Regulatory Approvals
7.12 Creditor Consents
EXHIBITS
1.2(A) Form of 7% Non-Negotiable Subordinated Contingent Promissory Note
(Barron)
1.2(B) Form of 7% Non-Negotiable Subordinated Contingent Promissory Note
(Kleier)
2.1 Richfield's Articles of Incorporation, as amended, and By-laws
2.9 Financial Statements
6.6 Form of Employment Agreement for the Sellers
6.15 Grant Agreements
7.6 Opinion of Sellers' Counsel
7.10 Subordination Agreement
- v -
<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the " Agreement") effective as of 11:59pm
on September 30, 1996, by and among AMERIPATH, INC., a Delaware corporation, or
its permitted assigns ("AmeriPath" or the "Purchaser"), DAVID R. BARRON, M.D.,
INC. (d/b/a Richfield Laboratory of Dermatopathology), an Ohio corporation
("Richfield"), RUTH S. KLEIER, M.D., and DAVID R. BARRON, M.D., who, together
hold FIFTY (50) shares, without par value, of Richfield (Dr. Barron and Dr.
Kleier shall be referred to herein as the "Sellers" and individually as a
"Seller").
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock of Richfield; Richfield, although presently organized as a
professional service corporation under Section 1785.01 of the Revised Code of
Ohio, will, immediately prior to the closing of the transactions contemplated
by this Agreement, upon the terms and subject to the conditions set forth
herein, convert itself to a regular business corporation organized under
Section 1701 of the Revised Code of Ohio;
WHEREAS, AmeriPath desires to purchase and acquire from each Seller,
and each Seller desires to sell, transfer and deliver to AmeriPath, all of the
issued and outstanding shares of capital stock of Richfield, pursuant to an
election in accordance with Sections 338(g) and 338(h)(10) of the Internal
Revenue Code of 1986, as amended and the regulations thereunder (the "Code"),
upon the terms and subject to the conditions set forth herein;
WHEREAS, although the parties hereto have agreed as to the minimum
value of Richfield, they are not able to agree as to the total value of
Richfield, and thus the parties hereto have agreed to certain additional
contingent purchase price consideration based upon the results of operations of
Richfield as more fully set forth herein; and
WHEREAS, either (i) prior to the closing of the transactions
contemplated by this Agreement, Richfield's articles of incorporation shall be
amended to change the name of the corporation to AmeriPath Ohio, Inc.
("AmeriPath Ohio"), and AmeriPath Ohio, upon the closing of the transactions
contemplated by this Agreement, shall be and become a wholly-owned subsidiary
of AmeriPath; or (ii) following the closing of the transactions contemplated by
this Agreement, Richfield will be merged with and into AmeriPath Ohio, Inc.
which, prior to the closing of the transactions contemplated by this Agreement,
shall be and have become a wholly-owned subsidiary of AmeriPath;
NOW, THEREFORE, for and in consideration of the mutual benefits to be
derived hereby and the premises, representations, warranties, covenants and
agreements herein contained, AmeriPath, the Sellers and Richfield hereby agree,
intending to be legally bound, as follows:
<PAGE> 8
ARTICLE I
PURCHASE OF CAPITAL STOCK
1.1 Purchase and Sale of Capital Stock.
(a) Subject to the terms and conditions of this
Agreement, the Sellers agree to sell, transfer and deliver to the
Purchaser, and the Purchaser agrees to purchase, acquire and accept
delivery from the Sellers all of the issued and outstanding capital
stock of Richfield (the " Richfield Shares").
(b) Upon the sale, transfer and delivery to the Purchaser
by the Sellers of the Richfield Shares at the Closing (as such term is
defined in Section 9.1 hereof), and in consideration therefor,
AmeriPath shall deliver to the Sellers (as set forth on Schedule 1.1
hereto) the following consideration in the aggregate (the "Purchase
Price"):
(i) FOURTEEN MILLION DOLLARS ($14,000,000.00), by
cashier's check or by wire transfer;
(ii) Certificates evidencing 153,333 shares of
Common Stock, par value $.01 per share, of AmeriPath (the
"AmeriPath Stock");
(iii) 7% Non-Negotiable Subordinated Contingent
Promissory Notes, in the form attached hereto as Exhibit
1.2(A) (with respect to Dr. Barron) and Exhibit 1.2(B) (with
respect to Dr. Kleier) (the "Contingent Notes"), in the
aggregate maximum principal amount of THREE MILLION SIX
HUNDRED FIFTY THOUSAND DOLLARS ($3,650,000.00), the issuance
and certain terms and conditions of which Contingent Notes are
set forth in Section 1.2 below; and
(iv) Up to 200,000 shares of AmeriPath Stock,
issuable over five years subject to the satisfaction of
certain contingencies, subject to and in accordance with
Section 1.3 hereof.
1.2 The Contingent Notes.
(a) Principal Amounts; Issuance. The aggregate maximum
principal amount of the Contingent Notes to be issued and delivered by
the Purchaser to the Sellers pursuant to Section 1.1(b)(iii) hereof at
the Closing shall be THREE MILLION SIX HUNDRED FIFTY THOUSAND DOLLARS
($3,650,000.00). At the Closing, the Purchaser shall deliver to each
of the Sellers a Contingent Note, due on March 31, 2002, which
Contingent Note shall be in the form of Exhibit 1.2(A) (with respect
to Dr. Barron) and Exhibit 1.2(B) (with respect to Dr. Kleier) hereto.
The Contingent Notes shall be due and payable in the applicable
principal amount specified in or calculated pursuant to the Contingent
Notes and the Annexes to such Contingent Notes (the "Appropriate
Principal
- 2 -
<PAGE> 9
Amount") corresponding to a target range of Operating Earnings (as
defined below) or Cumulative Operating Earnings (as defined below),
as the case may be, specified in the Contingent Notes and the Annexes
thereto, with respect to the fourth quarter of 1996 and each of the
five years ending December 31, 1997 through December 31, 2001, if, and
only if, (i) with respect to the fourth quarter of 1996, Operating
Earnings for such period exceeding $600,000 (the "Quarter Target"), or
(ii) with respect to the year ending December 31, 1997, Operating
Earnings for such year equal or exceed the specified minimum target
amount of $2,400,000.00 (the "Year-1 Minimum Target") or, (ii) with
respect to the periods ending December 31, 1998, 1999, 2000 and 2001,
Cumulative Operating Earnings for such periods equal or exceed
$4,800,000.00, $7,200,000.00, $9,600,000.00 and $12,000,000.00,
respectively (together with the Quarter Target and the Year-1 Minimum
Target, as relevant to the applicable period, the " Minimum Targets").
For the fourth quarter of 1996 and each of the years ending December
31, 1997 through December 31, 2001 for which Operating Earnings or
Cumulative Operating Earnings, as the case may be, are less than the
applicable Minimum Target, no principal payment(s) shall be required,
due or made under the Contingent Notes, with respect to that period,
and any and all interest with respect thereto or accrued thereon,
which otherwise would have become due or payable had the applicable
Minimum Target been achieved for such period, shall be canceled and
voided. Notwithstanding anything to the contrary herein or in the
Contingent Notes, the aggregate maximum principal amount due or
payable under the Contingent Notes shall not exceed $3,650,000.00.
(b) "Operating Earnings"; "Cumulative Operating
Earnings".
(i) Definition of "Operating Earnings". For
purposes hereof (and Section 1.3 and the Contingent Notes),
the term "Operating Earnings", with respect to any period,
shall mean the income of or attributable to Richfield, which
following the Closing shall be a wholly-owned subsidiary of
AmeriPath, for the fourth quarter of 1996 or such full twelve
month period (i.e., January 1 through December 31), before
deduction for (in each case, with respect to Richfield) (i)
interest paid in such year, (ii) income tax payable for such
year, (iii) charges for amortization of goodwill, including
without limitation any amortization of goodwill recorded in
connection with this transaction or amortization of any
payments made under the Contingent Notes, (iv) deferred
compensation payments to Daniel F. Richfield, M.D. and (v) any
fees or expenses incurred by Richfield in connection with the
transactions contemplated by this Agreement. All such
calculations shall be determined in accordance with GAAP (as
defined in Section 12.3 hereof). For purposes hereof (the
Contingent Notes and the Stock Rights), the Operating Earnings
of Richfield shall mean and include the business, operations,
contracts, assets and liabilities of Richfield (as such is
constituted immediately prior to the Closing), which following
the Closing shall consist of the business, operations,
contracts, assets and liabilities of, and the results of
operations, revenues and expenses associated with, (i) the
contracts with hospitals and out-patient facilities in effect
from time to time, to which Richfield, prior to
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the Closing, and the Cincinnati Division (as such term is
defined below), following the Closing, is a party, and/or
which are serviced by the physicians who from time to time are
employed by AmeriPath Ohio and who report to the medical
director (the "Medical Director") for AmeriPath Ohio's
Cincinnati Division (collectively, such physicians being
referred to herein as the "Richfield Pathologists"), and (ii)
AmeriPath Ohio's employment of, and employment agreements
with, any and all Richfield Pathologists. For purposes hereof
(the Contingent Notes and the Stock Rights), the term
"Cincinnati Division" shall mean and include the business and
operations of AmeriPath Ohio (i.e., the wholly-owned
subsidiary of AmeriPath which is the successor in interest, by
merger, to Richfield) which, prior to consummation of the
transactions contemplated by this Agreement, constituted the
business and operations of David R. Barron, M.D., Inc.
(ii) Calculation of Operating Earnings. A
statement of the Operating Earnings, prepared by AmeriPath
senior management, will be delivered to the Sellers as soon as
practicable following the end of each period, but in all
events within 90 days after the end of each such period. If
the Sellers wishes to challenge the calculation of Operating
Earnings, he may do so by giving written notice of such
objection (the "Objection Notice") to AmeriPath, signed by
each Seller, within 20 days after receipt of such statement of
Operating Earnings. The Objection Notice shall set forth in
reasonable detail the Sellers' calculation of Operating
Earnings (or Cumulative Operating Earnings, as the case may
be). If an Objection Notice is so timely delivered to
AmeriPath, AmeriPath and the Sellers shall use their best
efforts to resolve as soon as practicable any difference of
opinion. If they are unable to resolve such difference within
20 days after receipt by AmeriPath of the Objection Notice
from the Sellers, the matter shall be referred to the
independent public accounting firm who then audits the annual
financial statements of AmeriPath, whose decision shall be
final and binding on all parties; provided, however, the
Sellers, at their own expense, may refer the matter to another
independent public accounting firm knowledgeable in the
auditing of medical practices, and the average of the
decisions of the two firms shall be the final and binding
resolution of the matter. If an Objection Notice is not
timely delivered to AmeriPath, and if the statement of
Operating Earnings prepared by AmeriPath senior management
indicates that the Minimum Target has been met for a given
period, then the Appropriate Principal Amount (together with
accrued and unpaid interest thereon) of the Contingent Notes
with respect to such period shall be paid within five (5) days
after the earlier of the end of the 20-day period within which
the Sellers are entitled to deliver an Objection Notice, or
receipt by AmeriPath of notice from each Seller that she or he
accepts the calculation of Operating Earnings. If the Sellers
object to the calculation of Operating Earnings for the
purpose of determining compliance with this Section, the
Appropriate Principal Amount of the Contingent Notes for such
period shall be paid within five (5) days after resolution of
the dispute with respect to such
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calculation to the extent, and solely to the extent, that such
resolution indicates that the Minimum Target has been exceeded
for such period.
(iii) Cumulative Operating Earnings. For purposes
hereof, the term "Cumulative Operating Earnings" shall mean
and include, with respect to the periods ending December 31,
1998, 1999, 2000 and 2001, the Operating Earnings of
Richfield, on a cumulative basis, from January 1, 1997 through
the end of such period (e.g., the Cumulative Operating
Earnings for the period ending December 31, 1998 shall equal
the Operating Earnings, on a cumulative basis, from January 1,
1997 through December 31, 1998 (i.e., two full years of
Operating Earnings would be included)).
(iv) Adjustments; Limitations. For purposes of
calculating Operating Earnings (and, as relevant, Cumulative
Operating Earnings) hereunder, the expenses associated with
Richfield may include costs, expenses and charges relating to
management, billing or other services provided by AmeriPath or
its Affiliates (as such term is defined in Section 12.3
hereof) to the extent both (i) such services are provided to
or for the benefit of the Cincinnati Division and (ii) the
price or amount charged or allocated with respect to such
services is based upon the fair market value thereof and is
competitive with the price or amount that would be charged for
such services by a Person not affiliated with the Purchaser on
an arms'-length, negotiated basis.
(v) Reports. Within thirty (30) days following
the end of each calendar month during each of the five (5)
annual periods to which the Contingent Notes relate,
AmeriPath, at its sole cost and expense, shall send or cause
to be sent to each of the Sellers unaudited profit and loss
statements for each such calendar month and the annual period
to date then ended evidencing the calculation of the Operating
Earnings (and, with respect to each annual period beginning
after December 31, 1997, the Cumulative Operating Earnings, as
the case may be, with respect to such month and such annual
period to date and the period commencing on October 1, 1996,
and ending on the last day of such calendar month.
(c) Effect of Sale on Contingent Notes. Should any
Person (as such term is defined in Section 12.3 hereof) acquire
AmeriPath, whether by means of a merger with or into AmeriPath in
which AmeriPath does not survive or the acquisition of all or
substantially all of the stock or assets of AmeriPath (an " AmeriPath
Acquisition "), then, with respect to the Contingent Notes, as a
condition to consummation of the AmeriPath Acquisition, the acquiring
Person shall be required, at the Sellers' option, to either (i)
acknowledge and guarantee AmeriPath's on-going obligations under the
Contingent Notes or (ii) assume the obligations under the Contingent
Notes.
(d) Effect of Acquisitions on Contingent Notes. In the
event that AmeriPath acquires one or more Persons or businesses after
the Closing Date, Operating Earnings
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will be calculated without including (i) the income generated by, or
expenses incurred in connection with, the acquisition or the acquired
Person or business, and (ii) any selling, general or administrative
expenses which do not relate to Richfield or its business.
(e) Interest. The Contingent Notes shall bear interest
from the date of issuance until maturity, computed on the basis of a
360-day year and the actual number of days elapsed, on the unpaid
Appropriate Principal Amount thereof at the rate of seven percent
(7.0%) per annum. Interest shall accrue and compound annually, and
shall be payable only upon payment of principal, if any. In the event
Operating Earnings or Cumulative Operating Earnings are less than the
applicable Minimum Target for any given year, interest on the
principal amount of the Contingent Notes for such year shall be
canceled and voided.
(f) Maturity, Redemption and Prepayments. For each
period for which Operating Earnings or Cumulative Operating Earnings
equal or exceed the applicable Minimum Target, the Appropriate
Principal Amount of the Contingent Notes, together with interest
accrued on such Appropriate Principal Amount, shall become due and
payable and shall be paid as provided in subparagraph (a) above. If,
in the reasonable judgment of a majority of the full Board of
Directors of AmeriPath (which judgment is made based upon the advice
of counsel), it is determined that the Contingent Notes, or the
holding of the Contingent Notes by the Sellers, may violate any
Regulation or Order of any Authority (as such terms are defined in
Section 12.3), then, at AmeriPath's sole discretion (as recommended by
counsel to Ameripath), the Contingent Notes may be canceled and voided
and the Board of Directors of AmeriPath, in their sole and absolute
discretion acting in good faith, shall provide the Sellers a
reasonably equivalent economic and financial substitute consideration
therefor. In its sole and absolute discretion, AmeriPath may prepay
the Contingent Notes by paying, in the aggregate, $350,000.00 for each
year remaining under the Contingent Notes. AmeriPath shall give the
Sellers irrevocable written notice of any prepayment permitted
hereunder not less than three (3) business days prior to the
prepayment date, specifying such prepayment and the amount of the
Contingent Notes proposed to be prepaid on such date, whereupon such
principal amount of the Contingent Notes specified in such notice,
together with accrued interest thereon, shall become due and payable
on the prepayment date.
(g) Payments. All payments of principal (including any
prepayments or redemptions), and interest under the Contingent Notes
shall be made by AmeriPath in lawful money of the United States of
America in immediately available funds (or at the written request of
the holders thereof, by cashier's or bank check) not later than twelve
o'clock noon, Miami, Florida time, on the date each such payment is
due. To the extent calculation of any payment amounts (whether
principal, interest or otherwise) results in fractions of a cent, the
amount shall be rounded down to the nearest whole cent.
(h) Subordination; Subordination Agreement. The
Contingent Notes shall be subordinate and junior in right of payment
to certain senior indebtedness pursuant to a
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<PAGE> 13
subordination agreement (the "Subordination Agreement"), by and among
AmeriPath's senior lenders and each of the Sellers. As a condition to
AmeriPath's obligations under the Contingent Notes, each Seller agrees
to execute and deliver appropriate documents and agreements evidencing
the subordination of the Contingent Notes to such senior indebtedness
of AmeriPath.
(i) Notes Non-negotiable. The Contingent Notes shall be
non-transferable and non-negotiable other than by will or the laws of
intestate succession.
(j) Right of Set-Off on Sellers' Contingent Notes. With
respect to the Contingent Notes, AmeriPath shall have the right,
following prior written notice to the Sellers, to set-off against
principal or interest payable under the Contingent Notes the amount of
any indemnification payment owed under Article XI hereof. Such notice
shall state with reasonable specificity the good faith basis for
AmeriPath's right to such indemnification payment, and a copy of such
notice shall also be sent to each director of AmeriPath. Each Seller
shall have the right to respond to such notice, and if a Seller
requests that the exercise of such right of set-off be considered and
approved by the Board of Directors, then such right shall not be
exercised unless considered and approved by a majority of the full
Board of Directors. If within 10 days after receipt of such notice of
set-off, a Seller contests in writing (sent to AmeriPath) AmeriPath's
claim that of indemnification under Article XI hereof, then the amount
which AmeriPath would otherwise have paid to the Seller but for the
exercise of such right of set-off shall be paid into an interest
bearing escrow account maintained by a bank selected by AmeriPath, to
be held in such account until AmeriPath and the Seller have reached
agreement as to the amount, if any, of such indemnification payment
and set-off, or until there has been a judicial resolution of such
matter, at which time the amount held in such segregated account,
together with any interest accrued thereon, shall be released to the
prevailing party, as appropriate and/or instructed. AmeriPath and the
Sellers agree that they will use their best efforts to resolve any
such dispute within 30 days of receipt of notice by AmeriPath of the
Seller's objection to the set-off.
(k) Defaults. The Sellers shall be entitled to the
benefit of the Events of Default set forth in the form of Contingent
Notes.
(l) Conflict. To the extent there is any conflict or
inconsistency between the terms of this Agreement and the terms
specified in the Contingent Notes, the terms specified in the
Contingent Notes shall govern and prevail.
(m) Conversion. If the Purchaser fails to make a payment
under the Contingent Notes due to the restrictions, terms or
conditions of the Subordination Agreement and such failure to pay
continues for thirty (30) days after notice from the Sellers, then the
Sellers shall have the right and option to elect to receive AmeriPath
Stock in an amount equal to the amount due and payable under the
Contingent Notes divided by the fair market value of the AmeriPath
Stock at the date of the election.
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<PAGE> 14
1.3 Contingent Issuance of AmeriPath Stock. As additional
purchase price consideration, the Purchaser shall issue to the Sellers, subject
to the conditions and restrictions set forth in this Section 1.3 (the "Stock
Rights"), up to an aggregate maximum of 200,000 shares of AmeriPath Stock.
Upon achieving the range (the "Applicable Range") of Operating Earnings or
Cumulative Operating Earnings, as the case may be, set forth on Schedule 1.3
hereto, with respect to each period commencing the year ending December 31,
1997 through the 5 year period ending December 31, 2001, AmeriPath shall
deliver, in the aggregate, certificates evidencing the corresponding number of
shares of AmeriPath Stock indicated on Schedule 1.3 hereto (the "Applicable
Stock Amount") to each Seller as so indicated, which shares shall be subject to
the terms, conditions and restrictions set forth in this Section 1.3.
(a) Delivery; Right to Contingent Issuance Subject to
Cancellation. Certificates for shares representing the Applicable
Stock Amount shall be delivered on or before each March 15 following
each period that the Applicable Range of Operating Earnings or
Cumulative Operating Earnings, as the case may be, has been achieved,
if, and only if, (i) with respect to the year ending December 30,
1997, Operating Earnings equal or exceed a minimum target amount of
$2,400,000.00 (the "First Year Minimum Stock Target") or, (ii) with
respect to the years ending December 30, 1998, 1999, 2000 and 2001,
Cumulative Operating Earnings for such periods equal or exceed
$4,800,000.00, $7,200,000.00, $9,600,000.00 and $12,000,000.00,
respectively (together with the First Year Minimum Stock Target, as
relevant to the applicable period, the "Minimum Stock Targets").
(b) Effect of Sale on Stock Rights. In the event of an
AmeriPath Acquisition (as such term is defined in Section 1.2(c)),
then, with respect to such Stock Rights that have not theretofore been
canceled or voided because the Minimum Stock Target was not or has not
been met for the period in question, as a condition to consummation of
the AmeriPath Acquisition, the acquiring Person shall be required
either to (i) acknowledge and guarantee AmeriPath's on-going
obligations under the Stock Rights, (ii) assume the obligations under
the Stock Rights or (iii) convert the rights to receive AmeriPath
Stock into rights to receive stock in the acquiring Person (of
substantially equivalent value, based upon the acquisition value, as
determined in good faith by the Board of Directors of AmeriPath).
(c) Effect of Acquisitions on Stock Rights. In the event
that AmeriPath acquires one or more Persons or businesses after the
Closing Date, Operating Earnings will be calculated without including
(i) the income generated by, or expenses incurred in connection with,
the acquisition or the acquired Person or business, and (ii) any
selling, general or administrative expenses which do not relate to
Richfield or its business.
(d) Termination of Stock Rights; Call on AmeriPath Stock.
For each period for which Richfield's Operating Earnings, or
Cumulative Earnings, as the case may be, exceed the Minimum Stock
Target, the corresponding Applicable Stock Amount shall become earned
and shall be delivered as provided in subparagraph (a) above. If, in
the
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<PAGE> 15
reasonable judgment of a majority of the full Board of Directors of
AmeriPath, it is determined that the Stock Rights, or the holding of
the AmeriPath Stock by the Sellers, may violate any Regulation or
Order of any Authority, then, at AmeriPath's sole discretion and
option (as recommended by counsel to Ameripath), (i) the Stock Rights
may be canceled and voided (and the parties will endeavor in good
faith to arrive at a reasonably equivalent substitute consideration
therefor), and (ii) all outstanding shares of AmeriPath Stock issued
to or held by the Sellers may be redeemed or purchased by AmeriPath
(the "Call"), and the Sellers hereby irrevocably and unconditionally
agree to sell such stock to AmeriPath upon any such Call, at its then
fair market value (as determined in good faith by AmeriPath's Board of
Directors). AmeriPath shall give the holders of the AmeriPath Stock
irrevocable written notice of any cancellation of the Stock Rights and
any Call of the AmeriPath Stock permitted hereunder not less than
three (3) business days prior to the date of such event, specifying
such termination and/or Call and the amount to be paid for the
AmeriPath Stock on the closing date specified therein, whereupon such
amount specified in such notice, upon receipt by AmeriPath of the
certificates therefor at the closing thereof, shall be paid to the
Sellers.
(e) Payments; Certificates. All payments for AmeriPath
Stock which is "called" by AmeriPath pursuant to Section 1.3(d) shall
be made by AmeriPath in lawful money of the United States of America
in immediately available funds (or at the written request of the
Sellers, by certified or bank check) after proper tender by each
Seller of certificates representing all of the AmeriPath Stock owned
by such Seller, duly endorsed for transfer to the Purchaser, together
with stock powers duly executed in blank. Any and all liens, claims,
encumbrances or other restrictions with respect to the AmeriPath Stock
so called shall be satisfied and released, to the satisfaction of
AmeriPath, prior to closing on the purchase thereof. To the extent
calculation of any payment amounts results in fractions of a cent, the
amount shall be rounded down to the nearest whole cent.
(f) Transferability; Shareholders' Agreement. The
AmeriPath Stock and the Stock Rights are not transferable other than
by will or the laws of intestate succession. All shares of AmeriPath
Stock issued at Closing or pursuant to the Stock Right shall be
subject to the Purchaser's Shareholders' Agreement (as defined in
Section 7.9) relating to the AmeriPath Stock and related and other
matters, including, but not limited to, any restrictions on
transferability, any rights of first refusal and any option of the
Purchaser to purchase such shares. As a condition to the issuance of
shares of AmeriPath Stock in connection with any Stock Right (and at
AmeriPath's option, at each issuance), each Seller shall execute and
deliver to the Purchaser a counterpart to the Shareholders' Agreement,
and each Seller shall make such representations and execute such
certificates as AmeriPath may reasonably require, including
representations similar to those made in Section 2.25 hereof.
(g) Legend. Each and every stock certificate
representing shares of AmeriPath Stock issued to the Sellers at
Closing or pursuant to the Stock Right shall bear the
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<PAGE> 16
following (or similar) restrictive legend, together with such other
legend(s) as the Purchaser shall in its discretion deem appropriate:
"The shares represented by this certificate (the "Shares") are
subject to each and every one of the terms, conditions and
restrictions set forth in the Shareholders' Agreement dated
February 29, 1996 (the "Shareholders' Agreement"), as amended,
including, but not limited to, any restrictions on
transferability, any rights of first refusal and any option of
the Purchaser to "call" or purchase such Shares, and may not,
in whole or in part, be sold, transferred, pledged, gifted,
hypothecated or otherwise disposed of in any manner other than
in accordance with the terms of the Shareholders' Agreement, a
copy of which is on file and available for inspection at the
principal offices of the Issuer presently located at 800
Cypress Creek Road, Suite 200, Fort Lauderdale, Florida
33334."
(h) Antidilution; Adjustments Upon Changes in
Capitalization or Merger. Subject to any required action by the
stockholders of the Purchaser, the number of shares of AmeriPath Stock
covered by the Stock Right, the price per share and the aggregate
number of shares which have been authorized for issuance hereunder,
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of AmeriPath Stock resulting from a stock
dividend or through any recapitalization, reclassification, stock
split-up, combination or exchange of shares (other than any such
combination or exchange of AmeriPath Stock through which shares are
issued to effect an acquisition of another Person). Such adjustment
shall be made by the Board of Directors of AmeriPath, whose
determination in that respect shall be final, binding and conclusive
unless clearly erroneous. Except as expressly provided herein, no
issuance by the Purchaser of shares of stock of any class, or
securities convertible into shares of stock of any class (whether in
connection with an acquisition, employee benefit, stock or stock
option plan, private or public offering of securities, or otherwise),
shall affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of AmeriPath Stock subject to this
Stock Right. Price per share calculations used in this Agreement
shall also be adjusted to reflect changes in the capitalization of the
Purchaser such that (on an aggregate basis) the value of such shares
before the adjustment event shall equal the value of such shares
immediately after such adjustment event.
(i) Reservation of Shares. The Purchaser will at all
times reserve for issuance and delivery all shares of AmeriPath Stock
from time to time receivable hereunder. All such shares shall be duly
authorized and, when issued, shall be validly issued, fully paid and
non-assessable and free of all preemptive rights.
(j) Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued hereunder, but the
Purchaser shall round down to the nearest whole
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<PAGE> 17
number the number of shares of AmeriPath Stock required to be issued
and delivered in accordance with Schedule 1.3.
(k) Rights of the Sellers. The Sellers shall not, solely
by virtue of the Stock Rights, be entitled to any rights of a
stockholder in the Company, either at law or in equity, until
AmeriPath Stock is issued and delivered to the Seller and the rights
of the Sellers are limited to those expressed in this Agreement.
(l) Failure to Deliver. If a Seller becomes obligated to
sell any AmeriPath Stock to the Purchaser as a result of the exercise
of a Call under this Agreement or otherwise, and fails to deliver such
stock (or the certificates evidencing such stock) in accordance with
the terms of this Agreement, the Purchaser may, at the sole and
absolute discretion of the Board of Directors of AmeriPath, in
addition to all other remedies available to the Purchaser, tender to
the Seller the purchase price for such shares as is herein specified.
Upon tender of such purchase price to the Seller, the Purchaser, upon
written notice to such Seller, may cancel on its books the certificate
or certificates evidencing the shares of AmeriPath Stock so called,
and thereupon all of the Seller's rights in and to such AmeriPath
Stock shall terminate.
(m) Put Option of Seller. Notwithstanding anything to
the contrary set forth in this Agreement, the Sellers shall have an
exclusive and irrevocable option, exercisable by notice to the
Purchaser given after the fifth anniversary of the Closing Date, to
sell to the Purchaser for $15.00 per share (and thus to require the
Purchaser to purchase) all the AmeriPath Stock owned or held by the
Sellers, if, and only if, the Purchaser has not, prior to such date,
consummated the registration and public sale of AmeriPath Common Stock
(of the same class as the Sellers) with the Securities and Exchange
Commission (the " SEC") pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"). The
Purchaser hereby irrevocably agrees to purchase and acquire such
AmeriPath Stock on the terms and subject to the conditions set forth
herein.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND RICHFIELD
Each Seller hereby makes the following representations and warranties
to the Purchaser, each of which shall be deemed material (and the Purchaser, in
executing, delivering and consummating this Agreement, has relied and will rely
upon the correctness and completeness of each of such representations and
warranties notwithstanding any independent investigation):
2.1 Corporate Organization, Qualification, etc. Richfield is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio with full corporate power and authority to carry on
its business as it is now being conducted and proposed to be conducted, and to
own, operate and lease its properties and assets. Richfield is duly qualified
or licensed to do business in good standing in the State of Ohio that being the
only
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<PAGE> 18
jurisdiction in which the conduct of Richfield's business, the ownership or
lease of its properties, the proposed conduct of its business or ownership or
lease of its properties, or the transactions contemplated by this Agreement,
require it to be so qualified or licensed and the failure to be so qualified or
licensed would have a Material Adverse Effect (as defined in Section 12.3).
Except as provided herein, Richfield's articles of incorporation have not been
amended or supplemented since April 15, 1993, and are in full force and effect
as of the date hereof. True, complete and correct copies of Richfield's
articles of incorporation and by-laws, as presently in effect, are attached
hereto as Exhibit 2.1.
2.2 Subsidiaries. Richfield has no Subsidiaries (as defined in
Section 12.3) nor any investment or other interest in, or any outstanding loan
or advance to or from, any Person, including any officer, director or
shareholder.
2.3 Capital Stock. As of the date hereof, the authorized capital
stock of Richfield consists of Five Hundred (500) shares, without par value.
The stock record book of Richfield has been delivered to the Purchaser for
inspection prior to the date hereof and is complete and correct, and all
requisite Federal and State documentary stamps have been affixed thereon and
canceled. The Richfield Shares constitute all of the issued and outstanding
shares of capital stock of Richfield, and all of the Richfield Shares are owned
beneficially and of record by the Sellers.
2.4 Corporate Record Books. The corporate minute books of
Richfield have been made available to the Purchaser, are complete and correct
and contain all of the proceedings of the shareholders and directors of
Richfield.
2.5 Title to Stock. All of the issued and outstanding shares of
the capital stock of Richfield that are, and at the Closing will be, owned by
the Sellers are duly authorized, validly issued, fully paid and nonassessable,
and are free of all Liens (as defined in Section 12.3). Upon delivery of the
Purchase Price to the Sellers at the Closing, each Seller will convey, and the
Purchaser will own and hold, good and marketable title to the Richfield Shares,
free and clear of all Liens or contractual restrictions or limitations
whatsoever.
2.6 Options and Rights. There are no outstanding subscriptions,
options, warrants, rights, securities, contracts, commitments, understandings
or arrangements under which Richfield is bound or obligated to issue any
additional shares of its capital stock or rights to purchase shares of its
capital stock. There are no agreements, arrangements or understandings between
any Seller and/or Richfield and any other Person regarding the Richfield Shares
(or the transfer, disposition, holding or voting thereof).
2.7 Authorization, Etc. Richfield has full power and authority
and each Seller has full capacity to enter into this Agreement and the
agreements and documents contemplated hereby and perform their respective
obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and all other agreements and transactions contemplated hereby
have been duly authorized by the Board of Directors of Richfield and no other
corporate proceedings on its part are necessary to authorize this Agreement and
the transactions contemplated hereby. Each Seller is entering into this
Agreement on such Seller's own volition, free from any undue influence or
coercion. Upon execution and delivery of this Agreement by the parties hereto
this Agreement and all other agreements contem-
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<PAGE> 19
plated hereby shall constitute the legal, valid and binding obligation of each
of Richfield and each Seller party thereto, enforceable against each such party
in accordance with their respective terms.
2.8 No Violation. The execution and delivery by Richfield and the
Sellers of this Agreement, and any and all other agreements contemplated
hereby, and the fulfillment of and compliance with the respective terms hereof
and thereof by Richfield and the Sellers do not and will not, (a) conflict with
or result in a breach of the terms, conditions or provisions of, (b) constitute
a default or event of default under (with due notice, lapse of time or both),
(c) result in the creation of any Lien upon the capital stock or assets of
Richfield pursuant to, (d) give any third party the right to accelerate any
obligation under, (e) result in a violation of, or (f) require any
authorization, consent, approval, exemption or other action by or notice to any
court or Authority pursuant to, the articles of incorporation or by-laws of
Richfield or any Regulation, Order or Contract (as defined in Section 12.3) to
which Richfield or the Sellers are subject. Richfield and the Sellers will
comply with all applicable Regulations and Orders in connection with the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
2.9 Financial Statements. Attached as Exhibit 2.9 hereto are the
following financial statements of Richfield: (i) Statements of Assets and
Liabilities (prepared on a modified cash basis) for the fiscal years ended
December 31, 1995 and December 31, 1994 (the "Statements of Assets and
Liabilities"), (ii) statements of revenues collected and expenses paid and
related schedules thereto (prepared on a modified cash basis) for the fiscal
years ended December 31, 1995 and December 31, 1994 (the "Statements of
Revenues Collected and Expenses Paid"), (iii) statements of cash flows for
fiscal years ended December 31, 1995 and December 31, 1994 (the "Statements of
Cash Flows") and (iv) the statement of assets and liabilities, the statement of
revenues collected and expenses paid and the statement of cash flows (prepared
on a cash basis) for the six months ended June 30, 1996 (collectively, together
with the Statements of Assets and Liabilities, the Statements of Revenues
Collected and Expenses Paid, and the Statements of Cash Flows, the "Financial
Statements"). The statements of assets and liabilities included in the
Financial Statements fairly present the financial position of Richfield on a
modified cash basis as at the respective dates thereof, and the statements of
revenues collected and expenses paid included in the Financial Statements (x)
fairly present the results of operations for the periods therein referred to,
on a modified cash basis (except as stated therein or in the notes or schedules
thereto) applied on a consistent basis, and (y) fairly present the financial
condition of Richfield at the respective date of on a modified cash basis, and
for the period covered by, such statements. Richfield has no liability in
excess of $500, whether accrued, absolute or contingent, of a type required to
be reflected on a balance sheet or described in the notes thereto in accordance
with GAAP, other than (i) liabilities incurred since June 30, 1996, disclosed
on Schedule 2.9(a) attached hereto, and (ii) liabilities covered by insurance
or reinsurance (a complete and detailed description of which is provided in
Schedule 2.9(b)). Schedule 2.9(c) contains a complete list of the accounts
payable of Richfield.
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2.10 Employees. Richfield has been for the past four years, and
currently is, in compliance with all Federal, State and local Regulations and
Orders affecting employment and employment practices of Richfield (including
those Regulations promulgated by the Equal Employment Opportunity Commission),
including terms and conditions of employment and wages and hours. Richfield
maintains a "pension" or "welfare" benefit plan within the respective meanings
of sections 3(2) and 3(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
2.11 Absence of Certain Changes. Except as set forth on Schedule
2.11, since December 31, 1995, there has not been (a) any Material Adverse
Change (as defined in Section 12.3) in the business, prospects, financial
condition, revenues, expenses, accounts receivable, accounts payable or
operations of Richfield; (b) any damage, destruction or loss, whether covered
by insurance or not, having a Material Adverse Effect, with regard to
Richfield's properties and business; (c) other than S Corporation distributions
prior to Closing, any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) in respect of Richfield's
capital stock, or any redemption or other acquisition of such capital stock by
Richfield; (d) any increase in the rate of compensation or in the benefits
payable or to become payable by Richfield to its directors, officers, employees
or consultants which remains an obligation after the Closing; (e) any
amendment, modification or termination of any existing, or entering into any
new, contract, agreement, arrangement or plan relating to any salary, bonus,
insurance, pension, health or other employee welfare or benefit plan for or
with any directors, officers, employees or consultants of Richfield other than
the agreements for Doctors Ronald Brubaker and Bruce Semans; (f) any entry into
any material Contract not in the ordinary course of business, including without
limitation relating to any borrowing or capital expenditure; (g) any
disposition by Richfield of any asset; or (h) any change by Richfield in
accounting methods or principles.
2.12 Contracts.
(a) Except as set forth in Schedule 2.12 hereto,
Richfield is neither a party to nor subject to any written or oral:
(i) pension, profit sharing, bonus, retirement,
stock option, stock purchase or other plan providing for
deferred or other compensation to employees or any other
employee benefit plan (other than as set forth in Schedule
2.18 hereto), or any Contract with any labor union;
(ii) employment or consultation agreement, or
other compensation Contract, commitment or arrangement, which
is not terminable on notice of 30 days' or less by Richfield
without penalty or other financial obligation (and, except as
set forth on Schedule 2.12, no officer or employee of
Richfield receives total salary, bonus and other compensation
from Richfield of $30,000.00 or more per annum).
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<PAGE> 21
(iii) Contract containing covenants or agreements
limiting the freedom of Richfield or any of its employees to
compete in any line of business presently conducted by
Richfield with any Person or to compete in any such line of
business in any area;
(iv) Contract with a Seller or with any affiliate
or relative of a Seller (except for any Contract disclosed in
Schedule 2.12 pursuant to clauses (ii) or (iii) of this
Section 2.12(a);
(v) Contract relating to or providing for loans
to officers, directors, employees or Affiliates;
(vi) Contract under which Richfield has advanced
or loaned, or is obligated to advance or loan, funds to any
Person;
(vii) Contract relating to the incurrence,
assumption or guarantee of any indebtedness, obligation or
liability (in respect of money or funds borrowed), or
otherwise pledging, granting a security interest in or placing
a Lien on any asset of Richfield;
(viii) guarantee or endorsement of any obligation;
(ix) Contract under which Richfield is lessee of
or holds or operates any property, real or personal, owned by
any other party, except for any lease of real or personal
property under which the aggregate annual rental payments do
not exceed $7,500.00;
(x) Contract pursuant to which Richfield is
lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by Richfield;
(xi) assignment, license, indemnification or
Contract with respect to any intangible property (including,
without limitation, any Proprietary Rights (as defined in
Section 12.3));
(xii) warranty Contract with respect to its
services rendered (or to be rendered) or its products sold or
leased;
(xiii) Contract which prohibits, restricts or limits
in any way the payment of dividends or distributions by
Richfield;
(xiv) Contract under which it has granted any
Person any registration rights (including piggyback rights)
with respect to any securities;
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<PAGE> 22
(xv) Contract for the purchase, acquisition or
supply of inventory and other property and assets, whether for
resale or otherwise in excess of $7,500.00;
(xvi) Contracts with independent agents, brokers,
dealers or distributors;
(xvii) sales, commissions, advertising or marketing
Contracts;
(xviii) Contracts providing for "take or pay" or
similar unconditional purchase or payment obligations;
(xix) Contracts with Persons with which, directly
or indirectly, a Seller also has a Contract;
(xx) Contract with a hospital, physician or other
health care provider or Person pursuant to which the cost of
providing health care services to the patients covered by such
Contract is assumed in whole or in part by such provider; or
(xxi) any other Contract which is material to
Richfield's operations or business prospects, except those
which (x) were made in the ordinary course of business, (y)
are terminable on 30 days' or less notice by Richfield without
penalty or other financial obligation, and (z) in each case,
involve aggregate payments by or to Richfield of $7,500.00 or
less.
(b) No consent of any party to any Contract is required
in connection with the execution, delivery or performance of this
Agreement, or the consummation of the transactions contemplated
hereby.
(c) Richfield has performed in all material respects all
obligations required to be performed by it and is not in default in
any respect under or in breach of nor in receipt of any claim of
default or breach under any material Contract to which Richfield is
subject (including without limitation all performance bonds, warranty
obligations or otherwise); no event has occurred which with the
passage of time or the giving of notice or both would result in a
default, breach or event of non-compliance under any material Contract
to which Richfield is subject (including without limitation all
performance bonds, warranty obligations or otherwise); Richfield does
not have any present expectation or intention of not fully performing
all such obligations; Richfield does not have any knowledge of any
breach or anticipated breach by the other parties to any such Contract
to which it is a party.
2.13 True and Complete Copies. Copies of all Contracts and
documents delivered and to be delivered hereunder by the Sellers or Richfield
are and will be true and complete copies of such agreements, contracts and
documents.
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2.14 Title and Related Matters.
(a) Richfield has good and marketable title to all of the
properties and assets reflected in the statement of assets and
liabilities for the fiscal year ended December 31, 1995 included in
the Financial Statements or acquired after the date thereof and for
properties sold or otherwise disposed of since the date thereof in the
ordinary course of business, free and clear of all Liens, except (i)
statutory Liens not yet delinquent, (ii) such imperfections or
irregularities of title, Liens, easements, charges or encumbrances as
do not detract from or interfere with the present use of the
properties or assets subject thereto or affected thereby, otherwise
impair present business operations at such properties; or do not
detract from the value of such properties and assets, taken as a
whole, or (iii) as reflected in the statement of assets and
liabilities for the fiscal year ended December 31, 1995 included in
Financial Statements or the notes thereto.
(b) Richfield owns, and will on the Closing Date own,
good and marketable title to all the personal property and assets,
tangible or intangible, used in its business except as to those assets
leased all of which leases are in good standing and no party is in
default thereunder. None of the assets belonging to or held by
Richfield is or will be on the Closing Date subject to any (i)
Contracts of sale or lease, or (ii) Liens. Except for normal
breakdowns and servicing requirements, all machinery and equipment
regularly used by Richfield in the conduct of its business is in good
operating condition and repair, ordinary wear and tear excepted.
(c) There has not been since December 31, 1995, and will
not be prior to the Closing Date, any sale, lease, or any other
disposition or distribution by Richfield of any of its assets or
properties and any other assets now or hereafter owned by it, except
transactions in the ordinary and regular course of business or as
otherwise consented to by the Purchaser. After the Closing,
Richfield, as the wholly-owned subsidiary of the Purchaser, will own,
or have the unrestricted right to use, all properties and assets that
are currently used in connection with the business of the Sellers.
(d) Schedule 2.14 attached hereto sets forth a
description of all real and personal property owned or leased by
Richfield.
2.15 Litigation. There is no Claim (as defined in Section 12.3)
pending or, to the best knowledge of the Sellers and Richfield, threatened
against either of the Sellers or Richfield which, if adversely determined,
would have a Material Adverse Effect on Richfield. Nor is there any Order
outstanding against either the Sellers or Richfield having, or which, insofar
as can reasonably be foreseen, in the future may have, a Material Adverse
Effect on Richfield.
2.16 Tax Matters.
(a) Richfield has filed all federal, state, and local tax
reports, returns, information returns and other documents
(collectively, the " Tax Returns") required to be
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<PAGE> 24
filed with any federal, state, local or other taxing authorities
(each a "Taxing Authority", collectively, the "Taxing Authorities") in
respect of all relevant taxes, including without limitation income,
premium, gross receipts, net proceeds, alternative or add-on minimum,
ad valorem, value added, turnover, sales, use, property, personal
property (tangible and intangible), stamp, leasing, lease, user,
excise, duty, franchise, transfer, license, withholding, payroll,
employment, fuel, excess profits, occupational and interest
equalization, windfall profits, severance, and other charges
(including interest and penalties) (collectively, the "Taxes") and in
accordance with all tax sharing agreements to which a Seller or
Richfield may be a party. All Taxes required or anticipated to be
paid for all periods prior to and including the Closing Date have
been paid, including any of Richfield's Taxes that may be due or
claimed to be due as a result of the consummation of the transactions
contemplated by this Agreement. All Taxes which are required to be
withheld or collected by Richfield have been duly withheld or
collected and, to the extent required, have been paid to the proper
Taxing Authority or properly segregated or deposited as required by
applicable laws. There are no Liens for Taxes upon any property or
assets of Richfield except for liens for Taxes not yet due and
payable. Neither any Seller nor Richfield has executed a waiver of
the statute of limitations on the right of the Internal Revenue
Service or any other Taxing Authority to assess additional Taxes or to
contest the income or loss with respect to any Tax Return. The basis
of any depreciable assets, and the methods used in determining
allowable depreciation (including cost recovery), is correct and in
compliance with the Code.
(b) No audit of Richfield or Richfield's Tax Returns by
any Taxing Authority is currently pending or threatened, and no issues
have been raised by any Taxing Authority in connection with any Tax
Returns. No material issues have been raised in any examination by
any Taxing Authority with respect to Richfield which reasonably could
be expected to result in a proposed deficiency for any other period
not so examined, and there are no unresolved issues or unpaid
deficiencies relating to such examinations. The items relating to the
business, properties or operations of Richfield on the Tax Returns
filed by or on behalf of Richfield for all taxable years (including
the supporting schedules filed therewith), available copies of which
have been supplied to the Purchaser, state accurately the information
requested with respect to Richfield and such information was derived
from the books and records of Richfield.
(c) Richfield has not made nor has become obligated to
make, nor will as a result of any event connected with the Closing
become obligated to make, any "excess parachute payment" as defined in
Section 280G of the Code (without regard to subsection (b)(4)
thereof).
(d) The Sellers shall cause Richfield to file all Tax
Returns and reports with respect to Taxes which are required to be
filed for Tax periods ending on or before the Closing Date (a
"Pre-Closing Tax Return"), and Richfield shall pay all Taxes due in
respect of such Pre-closing Tax Returns to the appropriate Taxing
Authority; and Richfield shall pay all costs associated with the
preparation thereof.
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<PAGE> 25
2.17 Compliance with Law and Applicable Government Regulations.
Richfield is presently complying in respect of its operations, equipment,
practices, real property, plants, laboratories, structures, and other property,
and all other aspects of its business and operations, with all applicable
Regulations and Orders, including, but not limited to, Health Care Laws (as
defined in Section 12.3), all Regulations relating to the safe conduct of
business, environmental protection, quality and labeling, antitrust, Taxes,
consumer protection, equal opportunity, discrimination, health, sanitation,
fire, zoning, building and occupational safety where such failure or failures
would individually or in the aggregate have a Material Adverse Effect. There
are no Claims pending, nor to the best knowledge of Richfield are there any
Claims threatened, nor has any Seller received any written notice, regarding
any violations of any Regulations and Orders enforced by any Authority claiming
jurisdiction over Richfield, including any requirement of OSHA or any pollution
and environmental control agency (including air and water).
(a) Schedule 2.17(a) attached hereto sets forth all
permits, licenses, provider numbers, orders, franchises and approvals
(collectively, " Permits") from all Federal, state, local and foreign
governmental regulatory bodies held by Richfield. The Permits listed
on Schedule 2.17(a) are the only Permits that are required for
Richfield to conduct its business as presently conducted, except for
those the absence of which would not have any Material Adverse Effect
on the assets, financial condition, results of operations or future
prospects of Richfield. Each such Permit is in full force and effect
and, to the best of the knowledge of Richfield, no suspension or
cancellation of any such Permit is threatened and there is no basis
for believing that such Permit will not be renewable upon expiration.
(b) Richfield has licenses to provide health care
services in the jurisdictions set forth in Schedule 2.17(b) hereto,
which such licenses are all those necessary to conduct the business of
Richfield in the jurisdictions in which Richfield presently operates.
Schedule 2.17(b) also sets forth a true and complete description of
the status of each such license. Except as set forth on Schedule
2.17(b), neither any Seller nor Richfield is aware of any event,
transaction, correspondence or circumstance which would have, or could
foreseeably have, a Material Adverse Effect on one or more of such
licenses.
2.18 ERISA and Related Matters.
(a) Benefit Plans; Obligations to Employees. Except as
set forth in Schedule 2.18 hereto, neither Richfield, nor any ERISA
Affiliate of Richfield, is a party to or participates in or has any
liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or
"employee pension benefit plan" or "multi- employer plan" (as
those terms are respectively defined in Sections 3(1), 3(2)
and 3(37) of ERISA);
(ii) any retirement or deferred compensation plan,
incentive compensation plan, stock plan, unemployment
compensation plan, vacation pay,
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severance pay, bonus or benefit arrangement, insurance
or hospitalization program or any other fringe benefit
arrangements for any employee, director, consultant or agent,
whether pursuant to contract, arrangement, custom or informal
understanding, which does not constitute an "employee benefit
plan" (as defined in Section 3(3) of ERISA); or
(iii) any employment agreement not terminable on 30
days' or less written notice, without further liability.
For purposes of this Section, the term " ERISA
Affiliate" shall mean any trade or business, whether or not
incorporated, that together with Richfield would be deemed a
"single employer" within the meaning of Section 4001(b)(i) of
ERISA.
(b) Plan Documents and Reports. A true and correct copy
of each of the Benefit Plans listed on Schedule 2.18, and all
contracts relating thereto, or to the funding thereof, including,
without limitation, all trust agreements, insurance contracts,
investment management agreements, subscription and participation
agreements and record keeping agreements, each as in effect on the
date hereof, has been supplied to the Purchaser. In the case of any
Benefit Plan that is not in written form, the Purchaser has been
supplied with an accurate description of such Benefit Plan as in
effect on the date hereof. A true and correct copy of the three most
recent annual reports and accompanying schedules, the three most
recent actuarial reports, and the most recent summary plan description
and Internal Revenue Service determination letter with respect to each
such Benefit Plan, to the extent applicable, and a current schedule of
assets (and the fair market value thereof assuming liquidation of any
asset which is not readily tradeable) held with respect to any funded
Benefit Plan has been supplied to the Purchaser by Richfield, and
there have been no material changes in the financial condition in the
respective Plans from that stated in the annual reports and actuarial
reports supplied.
(c) Compliance with Laws; Liabilities. As to all Benefit
Plans, except as otherwise specified on Schedule 2.18, Richfield is in
compliance in all material respects with the terms of all Benefit
plans and every Benefit Plan is in compliance with all of the
requirements and provisions of ERISA and all other laws and
regulations applicable thereto, including without limitation the
timely filing of all annual reports or other filings required with
respect to such Benefit Plans. None of the assets of any Benefit Plan
are invested in employer securities or employer real property, as
those terms are defined in Section 407(d) of ERISA. There have been
no "prohibited transactions" (as described in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Benefit Plan and neither
Richfield nor any ERISA Affiliate of Richfield has otherwise engaged
in any prohibited transaction. There has been no "accumulated funding
deficiency" as defined in Section 302 of ERISA, nor has any reportable
event as defined in Section 4043(b) of ERISA occurred with respect to
any Benefit Plan. Actuarially adequate accruals for all obligations
or contingent obligations under the Benefit Plans are reflected in
Richfield's statement of assets and liabilities for the fiscal year
ended December 31, 1995 included
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<PAGE> 27
in Financial Statements provided to the Purchaser and such obligations
include a pro rata amount of the contributions which would otherwise
have been made in accordance with past practices for the plan years
which include the closing date.
2.19 Intellectual Property.
(a) Except as set forth on Schedule 2.19, Richfield has
no trade name, service mark, patent, copyright or trademark related to
its business.
(b) Richfield has the right to use each Proprietary Right
listed in Schedule 2.19, and except as otherwise set forth therein,
each of such Proprietary Rights is, and will be on the Closing Date,
free and clear of all royalty obligations and Liens. There are no
Claims pending, or to the best knowledge of each Seller, threatened,
against any Seller that its use of any of the Proprietary Rights
listed on Schedule 2.19 infringes the rights of any Person. Each
Seller has no knowledge of any conflicting use of any of such
Proprietary Rights.
(c) Richfield is not a party in any capacity to any
franchise, license or royalty agreement respecting any Proprietary
Right and there is no conflict with the rights of others in respect to
any Proprietary Right now used in the conduct of its business.
(d) Internal Software Applications.
(i) Owned Software. The current software
applications used by Richfield in the operation of its
business, as set forth and described on Schedule 2.19(d)
hereto (the "Software"), to the extent it has been designed or
developed by Richfield's management information or development
staff or by consultants on Richfield's behalf, is original and
capable of copyright protection in the United States, and
Richfield has complete rights to and ownership of such
Software. No part of any such Software is an imitation or
copy of, or infringes upon, the software of any other Person
or violates or infringes upon any common law or statutory
rights of any other Person, including, without limitation,
rights relating to defamation, contractual rights, copyrights,
trade secrets, and rights of privacy or publicity. Richfield
has not sold, assigned, licensed, distributed or in any other
way disposed of or encumbered the Software.
(ii) Licensed Software. The Software, to the
extent it is licensed from any third party licensor or
constitutes "off-the-shelf" software, is held by Richfield
legitimately and is fully transferable to the Purchaser
without any third party consent. All of Richfield's computer
hardware has legitimately-licensed software installed therein.
(iii) No Errors; Nonconformity. Richfield warrants
that the Software is free from any significant software defect
or programming or documentation
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<PAGE> 28
error, operates and runs in a reasonable and efficient
business manner, conforms to the specifications thereof, and,
with respect to owned Software, the applications can be
recreated from their associated source code.
2.20 Environmental Matters. Except as disclosed in Schedule 2.20:
(a) neither Richfield's business nor the operation thereof violates any
applicable Environmental Law (as defined in Section 12.3) in effect as of the
date hereof and no condition or occurrence (any accident, happening or event
which occurs or has occurred at any time prior to the Closing Date, which
results in or could result in a Claim against Richfield or the Purchaser or
creates or could create a liability or loss for Richfield or the Purchaser)
which, with notice or the passage of time or both, would constitute a violation
of any Environmental Law; (b) Richfield is in possession of all Environmental
Permits (as defined in Section 12.3) required under any applicable
Environmental Law for the conduct or operation of Richfield's business (or any
part thereof), and Richfield is in full compliance with all of the requirements
and limitations included in such Environmental Permits; (c) Richfield has not
stored or used any pollutants, contaminants or hazardous or toxic wastes,
substances or materials on or at any of its property or facilities except for
inventories of chemicals which are used or to be used in the ordinary course of
Richfield's business (which inventories have been sorted or used in accordance
with all applicable Environmental Permits and all Environmental Laws, including
all so-called "Right to Know" laws); (d) Richfield has not received any notice
from any Authority or any private Person that Richfield's business or the
operation of any of its facilities is in violation of any Environmental Law or
any Environmental Permit or that it is responsible (or potentially responsible)
for the cleanup of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on or beneath any of Richfield's property, or at,
on or beneath any land adjacent thereto or in connection with any waste or
contamination site; (e) Richfield is not the subject of any Federal, state,
local, or private Claim involving a demand for damages or other potential
liability with respect to a violation of Environmental Laws or under any common
law theories relating to operations or the condition of any facilities or
property (including underlying groundwater) owned, leased, or operated by
Richfield; (f) Richfield has not buried, dumped, disposed, spilled or released
any pollutants, contaminants or hazardous or wastes, substances or materials
on, beneath or adjacent to any of its property or any property adjacent
thereto; (g) no by-products of any manufacturing or mining process employed in
the operation of Richfield's business which may constitute pollutants,
contaminants or hazardous or toxic wastes, substances or materials under any
Environmental Law are currently stored or otherwise located on any of
Richfield's property; (h) no property now or previously owned, leased or
operated by Richfield, is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any other federal or
state list of sites requiring investigation or clean-up; (i) there are no
underground storage tanks, active or abandoned, including petroleum storage
tanks, on or under any property now or previously owned, leased or operated by
Richfield; (j) Richfield has not directly transported or directly arranged for
the transportation of any Hazardous Material to any location which is listed or
proposed for listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any federal or state list or which is the subject of federal,
state or local enforcement actions or other investigations which may lead to
material Claims against Richfield for any remedial work, damage to natural
resources or personal injury, including Claims
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<PAGE> 29
under CERCLA; and (k) there are no polychlorinated biphenyls, radioactive
materials or friable asbestos present at any property now or previously owned
or leased by Richfield. Richfield has timely filed all reports required to be
filed with respect to all of its property and facilities and has generated and
maintained all required data, documentation and records under all applicable
Environmental Laws.
2.21 Dealings with Affiliates. Schedule 2.21 hereto sets forth a
complete list, including the parties, of all oral or written agreements and
arrangements to which Richfield is, will be or has been a party, at any time
from January 1, 1994 to the Closing Date, and to which any one or more
Affiliates is also a party.
2.22 Banking Arrangements. Schedule 2.22 attached hereto sets
forth the name of each bank in or with which Richfield has an account, credit
line or safety deposit box, and a brief description of each such account,
credit line or safety deposit box, including the names of all Persons currently
authorized to draw thereon or having access thereto. Richfield has no
liability or obligation relating to funds or money borrowed by or loaned to
Richfield (whether under any credit facility, line of credit, loan, indenture,
advance, pledge or otherwise).
2.23 Insurance. Schedule 2.23 attached hereto sets forth a list
and brief description, including dollar amounts of coverage, of all policies of
fire, liability, professional liability and other forms of insurance held by
Richfield as of the date hereof. Such policies are valid, outstanding and
enforceable policies, as to which premiums have been paid currently. Neither
Richfield nor any Seller knows of any state of facts, or of the occurrence of
any event which might reasonably (a) form the basis for any Claim against
Richfield not fully covered by insurance for liability on account of any
express or implied warranty or tortious omission or commission, or (b) result
in material increase in insurance premiums of Richfield.
2.24 Consents. Schedule 2.24, annexed hereto, sets forth a
complete list of consents of governmental and other regulatory agencies or
authorities, foreign or domestic, required to be received by or on the part of
Richfield and each Seller to enable Richfield or the Sellers to enter into and
carry out this Agreement in all material respects. All such requisite consents
have been, or prior to the Closing will have been, obtained.
2.25 Investment Representations. In the event, in connection with
this Agreement or any agreement or transaction contemplated hereby, AmeriPath
offers or sells, or is deemed to offer or sell, any securities of AmeriPath to
the Sellers (including AmeriPath Stock pursuant to Section 1.3), then each
Seller hereby represents and warrants to AmeriPath as follows:
(a) Each Seller has been offered, and up to the Closing
Date and the time(s) of issuance of the AmeriPath Stock shall be
offered, the opportunity to ask questions of, and receive answers
from, AmeriPath and its Subsidiaries, and each Seller has been given
full and complete access to all available information and data
relating to the business and assets of AmeriPath and its Subsidiaries,
has obtained such additional information about AmeriPath and its
Subsidiaries which each Seller has deemed necessary in order to
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<PAGE> 30
evaluate the opportunities, both financial and otherwise, with respect
to AmeriPath and, except as set forth herein, has not relied on any
representation, warranty or other statement concerning the Purchaser
and its Subsidiaries in his evaluation of the decision to consummate
the transactions contemplated herein. On the basis of the foregoing,
each Seller is familiar with the operations, business plans and
financial condition of AmeriPath.
(b) Each Seller understands, agrees and acknowledges that
the AmeriPath Stock has not been registered under the Securities Act
or the Securities Act of Ohio in reliance upon exemption provisions
contained therein which AmeriPath believes are available based upon
representations made by each Seller.
(c) Each Seller understands that he must bear the
economic risk of the AmeriPath Stock, if and when issued to each
Seller, for an indefinite period of time because, except as provided
in this Agreement, (i) each Seller understands that AmeriPath proposes
to issue and deliver the shares of AmeriPath Stock issuable in
accordance with this Agreement, without compliance with the
registration requirements of the Securities Act, that for such purpose
AmeriPath will rely upon the representations, warranties, covenants
and agreements contained herein, as well as any additional
representations, warranties, covenants, agreements and certifications
requested by AmeriPath to be delivered by each Seller at such time(s)
of issuance of the AmeriPath Stock; and that such noncompliance with
registration is not permissible unless such representations and
warranties are correct and such covenants and agreements are performed
at and as of the time of issuance; (ii) each Seller understands that,
under existing rules of the SEC, there are substantial restrictions in
the transferability of his shares of AmeriPath Stock; his shares of
AmeriPath Stock may be transferred only if registered under the
Securities Act or if an exemption from such registration is available;
each Seller may not be able to avail himself of the provisions of Rule
144 promulgated by the SEC under the Securities Act with respect to
the transfer of such shares; (iii) the AmeriPath Stock may not be
sold, transferred, pledged, or otherwise disposed of without the
consent of AmeriPath and an opinion of counsel for or satisfactory to
AmeriPath that registration under the Securities Act or any applicable
state securities laws is not required; and (iv) AmeriPath neither has
an obligation to register a sale of the AmeriPath Stock held by each
Seller nor has it agreed to do so in the future.
(d) Each Seller is an "accredited investor", as such term
is defined in Rule 501 of Regulation D promulgated under the
Securities Act in that, as of the date of this Agreement, he either
(a) (either individually or jointly with his spouse) has a net worth
in excess of $1,000,000; or (b) had an individual income in excess of
$200,000 in each of the two most recent years or joint income with his
spouse in excess of $300,000 in each of those years, and reasonably
expects reaching the same income level in the current year.
(e) Each Seller is a sophisticated investor familiar with
the type of risks inherent in the acquisition of securities such as
the shares of AmeriPath Stock and each
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Seller's financial position is such that each Seller can afford to
retain his shares of AmeriPath Stock for an indefinite period of time
without realizing any direct or indirect cash return on each Seller's
investment.
(f) Each Seller is acquiring her or his shares of
AmeriPath Stock for each Seller's own account and not with a view to,
or for sale in connection with, the distribution thereof within the
meaning of the Securities Act.
(g) Each Seller understands that the certificates
evidencing her or his shares of AmeriPath Stock, when and if issued,
will bear appropriate restrictive legends.
2.26 Accounts Receivable; Inventories. The accounts receivable of
Richfield reflected on Schedule 2.26 attached hereto on the date hereof are
good and collectible consistent with prior practices. All such accounts
receivable (except to the extent so reserved against) are valid, genuine and
subsisting, arise out of bona fide sales and deliveries of goods, performance
of services or other business transactions and are not subject to defenses,
set-offs or counterclaims. The inventories reflected on the statement of
assets and liabilities included in the Financial Statements, and the
inventories held by Richfield on the date hereof, (i) do not include any items
which are not usable or saleable in the ordinary course of business of
Richfield, and (ii) have been reflected on such statement of assets and
liabilities at the lower of cost or market value (taking into account the
usability or salability thereof), in accordance with GAAP. All such
inventories are owned free and clear and are not subject to any Lien except to
the extent reserved against or reflected in the Financial Statements. Since
December 31, 1995, inventories of raw materials and supplies have been
purchased by Richfield in the ordinary course of business, consistent with
anticipated seasonal requirements, and the volumes of purchases thereof and
orders therefor have not been reduced or otherwise changed in anticipation of
the transactions contemplated by this Agreement. Richfield is not aware of any
material adverse conditions affecting the supply of materials available to
Richfield, and, to the best knowledge of Richfield, the consummation of the
transactions contemplated hereby will not adversely affect any such supply.
2.27 Brokerage. Neither Richfield nor the Sellers have employed
any broker, finder, advisor, consultant or other intermediary in connection
with this Agreement or the transactions contemplated by this Agreement who is
or might be entitled to any fee, commission or other compensation from
Richfield or the Sellers, or from the Purchaser or its Affiliates, upon or as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby.
2.28 Improper and Other Payments. Except as set forth on Schedule
2.28 hereto, (a) neither Richfield, any director, officer, employee thereof,
nor, to Richfield's knowledge, any agent or representative of Richfield nor any
Person acting on behalf of any of them, has made, paid or received any unlawful
bribes, kickbacks or other similar payments to or from any Person or Authority,
(b) no contributions have been made, directly or indirectly, to a domestic or
foreign political party or candidate, (c) no improper foreign payment (as
defined in the Foreign Corrupt
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Practices Act) has been made, and (d) the internal accounting controls of
Richfield are believed by Richfield's management to be adequate to detect any
of the foregoing under current circumstances.
2.29 Participation in Audits. Except as set forth in Schedule
2.29, Richfield has not been informed of any Recoupment Claims (as hereinafter
defined) arising in connection with audits or reviews conducted by Medicaid,
Medicare or private insurance companies. To the best of the knowledge of
Richfield and each Seller there is no basis for any Recoupment Claims based
upon cost reports, claims or bills submitted or to be submitted in connection
with services rendered by Richfield. For purposes of this Section 2.29 the
term "Recoupment Claim" shall mean any recoupment or overpayment, set-off,
penalty or fine, pending or, to the knowledge of Richfield and each Seller,
threatened by any third-party payor or governmental authority having
jurisdiction over Richfield for amounts arising from or related to payments to
Richfield for services rendered prior to the Closing.
2.30 Health Care Laws & Regulations.
(a) Fraud and Abuse. Except as set forth on Schedule
2.30(a), to the best of each Seller's and Richfield's knowledge,
Richfield and its officers, directors, employees, shareholders and
providers, have not engaged in any activities which are prohibited
under federal Medicaid statues, 42 U.S.C. Section 1320a-7a and 7b, or
the regulations promulgated pursuant to such statutes or related state
or local statutes or regulations or which are prohibited by rules of
professional conduct or which otherwise could constitute fraud,
including but not limited to the following: (i) making or causing to
be made a false statement or representation of a material fact in any
application for any benefit or payment; (ii) making or causing to be
made any false statement or representation of a material fact for use
in determining rights to any benefit or payment; (iii) failing to
disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment on
its behalf or on behalf of another, with intent to secure such benefit
or payment fraudulently; and (iv) soliciting, paying or receiving any
remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind or offering to pay
such enumeration (a) in return for referring an individual to a Person
for the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part by Medicare
or Medicaid, or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any
good, facility, service, or item for which payment may be made in
whole or in part by Medicaid; subject, in the case of (iv) to the lack
of clarity in the law relating to the marketing of Medicare risk
products by brokers.
(b) Third-Party Payors. All Contracts with third-party
payors were entered into by Richfield in the ordinary course of
business. Richfield will have made available to the Purchaser, as of
the Closing Date, an accurate and complete list of all third-party
payors which have agreements with Richfield (as set forth on Schedule
2.30(b)), together with
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accurate and complete copies of all such Contracts. Except as
set forth on Schedule 2.30(b), Richfield is in compliance with each
third-party payor's Contract, and Richfield has properly charged and
billed in accordance with the terms of those Contracts, including,
where applicable, billing and collection of all deductibles and
co-payments.
(c) Compliance with Medicare and Medicaid Programs.
Richfield has timely and accurately filed all requisite claims and
other reports required to be filed in connection with all state and
federal Medicare and Medicaid programs in which Richfield participates
due on or before the Closing Date except to the extent that the
failure to file such claims and reports would not result in a Material
Adverse Effect on Richfield. Except as set forth on Schedule 2.30(c)
hereto, there are no Claims pending or, to Richfield's knowledge,
threatened or scheduled before any Authority, including without
limitation, any intermediary, carrier, the Administrator of the Health
Care Financing Administration, the Florida Department of Health and
Rehabilitative Services, the Agency for Health Care Administration or
any other state or federal agency with respect to any Medicare and
Medicaid claim filed by Richfield on or before the Closing Date, or
program compliance matters, which would have a Material Adverse Effect
on Richfield, or its assets, the operations or utility thereof, or the
consummation of the transactions contemplated hereby. Richfield has
delivered to the Purchaser accurate and complete copies of any Claims,
actions or appeals listed on Schedule 2.30(c). Except for routinely
scheduled reviews pursuant to Richfield's Medicare and Medicaid
Contracts, no valid review or program integrity review related to
Richfield has been conducted by any Authority in connection with the
Medicare or Medicaid programs and no such review is scheduled, or to
Richfield's knowledge, pending or threatened against or affecting
Richfield, its business, assets, or the consummation of the
transactions contemplated hereby.
(d) Rate Limitations and Rates. Each facility currently
operated by Richfield charges rates and accordingly bills for services
which are legal and proper, and Richfield's standard and Medicare
rates are set forth on Schedule 2.30(d). Certain reimbursement rates
established by third-party payors are subject to retrospective
adjustment, which adjustments are set forth on said Schedule 2.30(d).
(e) Reimbursement Documentation. Richfield has filed
when due any and all cost reports and other documentation and reports,
if any, required to be filed by third-party payors and governmental
agencies in compliance with applicable contractual provisions and/or
laws, regulations and rules.
(f) Patient Referrals. No Person having a "financial
relationship" with Richfield, as that term is defined in 42 U.S.C.
Section 1395nn, is in a position, directly or indirectly, to refer
patients or services to Richfield, other than referrals which comply
with the requirements of 42 U.S.C. Section 1395nn and the regulations
promulgated pursuant thereto.
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2.31 Financial Condition at Closing. At and as of Closing,
Richfield shall have (a) cash and cash equivalents of not less than
$150,000.00, and (b) positive working capital (current assets (including
accounts receivable less allowances) less liabilities) (all calculated and
fairly presented in accordance with GAAP).
2.32 Disclosure. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items
prepared for or supplied to the Purchaser by or on behalf of the Sellers or
Richfield with respect to the transactions contemplated hereby contains any
untrue statement of a material fact or omits a material fact necessary to make
each statement contained herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Sellers as follows:
3.1 Corporate Organization, etc. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to carry
on its business as it is now being conducted and to own, operate and lease its
properties and assets. The Purchaser is duly qualified or licensed to do
business in good standing in every jurisdiction in which the conduct of its
business, the ownership or lease of its properties, require it to be so
qualified or licensed and the failure to be so qualified or licensed would have
a material adverse effect on its business.
3.2 Subsidiaries. Other than the Subsidiaries of the Purchaser
listed in Schedule 3.2 hereto, the Purchaser has no Subsidiaries.
3.3 Authorization, Etc. The Purchaser has full corporate power
and authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of the Purchaser has duly
authorized the execution, delivery and performance of this Agreement, the
Contingent Notes and the other agreements and transactions contemplated hereby,
and no other corporate proceedings on its part are necessary to authorize this
Agreement and the transactions contemplated hereby. Upon execution and
delivery of this Agreement by the parties hereto this Agreement shall, and upon
issuance of the Contingent Notes in accordance with the provisions hereof the
Contingent Notes shall, constitute legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their
respective terms.
3.4 No Violation. The execution, delivery and performance by the
Purchaser of this Agreement, and all other agreements contemplated hereby, and
the fulfillment of and compliance with the respective terms hereof and thereof
by the Purchaser, do not and will not (a) conflict with or result in a breach
of the terms, conditions or provisions of, (b) result in a violation of, or (c)
require any authorization, consent, approval, exemption or other action by or
notice to any Authority pursuant to, the certificate of incorporation or
by-laws of the Purchaser, or any
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<PAGE> 35
Regulation to which the Purchaser is subject, or any Contract or Order to which
the Purchaser or its properties are subject. The Purchaser will comply with
all applicable Regulations and Orders in connection with its execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.
3.5 Governmental Authorities. The Purchaser has complied in all
material respects with all applicable Regulations in connection with its
execution, delivery and performance of this Agreement and the agreements and
transactions contemplated hereby. The Purchaser is not required to submit any
notice, report, or other filing with any governmental authority in connection
with its execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby. No authorization, consent, approval,
exemption or notice is required to be obtained by the Purchaser in connection
with the execution, delivery, and performance of this Agreement and the
agreements and transactions contemplated hereby.
3.6 Issuance of AmeriPath Stock. All shares of AmeriPath Stock
required to be issued by AmeriPath to the Sellers, in accordance with the terms
and subject to the conditions set forth in this Agreement, shall, upon issuance
and delivery, be duly authorized, validly issued, fully paid and
non-assessable.
3.7 Health Coverage. AmeriPath agrees that it shall not change
health plans which would cause a gap in coverage to the employees of Richfield.
3.8 Cincinnati Operations. AmeriPath agrees that it shall keep
the Richfield operations in or around Cincinnati, Ohio at least through
December 31, 2001.
ARTICLE IV
COVENANTS OF THE SELLERS
From the date hereof until the Closing, except as otherwise consented
to or approved by the Purchaser in writing, Richfield covenants and agrees that
it shall act, and the Sellers shall cause Richfield to so act or refrain from
acting where required hereinafter, to comply with the following:
4.1 Regular Course of Business. Richfield shall operate its
business diligently and in good faith and in the ordinary and usual course,
consistent with past management practices; shall maintain all of its respective
properties in good order and condition, shall maintain (except for expiration
due to lapse of time) all leases and Contracts in effect without change except
as expressly provided herein; shall comply with the provisions of all
Regulations and Orders applicable to Richfield and the conduct of its
respective business; shall not cancel, release, waive or compromise any debt,
Claim or right in its favor; shall not alter the rate or basis of compensation
of any of its officers, directors, employees or consultants which shall be an
obligation after the Closing; shall maintain insurance and reinsurance coverage
as in effect on the date hereof up to
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the Closing Date; and shall preserve the business of Richfield intact, and use
its best efforts to keep available for Richfield and the Purchaser the services
of the officers and employees of Richfield, and to preserve the good will of
clients, patients, suppliers and others having business relations with
Richfield.
4.2 Amendments. Except as provided in Section 4.8 of this
Agreement, no change or amendment shall be made in the articles of
incorporation or by-laws of Richfield. Richfield shall not merge with or into
or consolidate with any other corporation or Person, acquire substantially all
of the assets of any Person or change the character of its business.
4.3 Capital Changes; Pledges. Except as contemplated under this
Agreement, Richfield shall not issue or sell any shares of its capital stock of
any class or issue or sell any securities convertible into, or options,
warrants to purchase or rights to subscribe to, any shares of its capital stock
and Richfield shall not pledge or otherwise encumber any shares of its capital
stock.
4.4 Dividends. Richfield shall not declare or set aside for
payment any dividend or other distribution in respect of its capital stock
which becomes payable after Closing, nor shall Richfield, directly or
indirectly, redeem, purchase or otherwise acquire any shares of its capital
stock.
4.5 Capital and Other Expenditures. Richfield shall not make any
capital expenditures, or commitments with respect thereto.
4.6 Borrowing. Richfield shall not incur, assume or guarantee any
indebtedness, obligations or liabilities not reflected on the Financial
Statements (or the balance sheets included therein) except in the ordinary
course of business or for purposes of consummation of the transactions
contemplated by this Agreement and in any case only after consultation with the
Purchaser.
4.7 Other Commitments. Except as set forth in this Agreement,
incurred or transacted in the ordinary course of business, or permitted in
writing by the Purchaser, Richfield shall not enter into any transaction or
make any commitment or incur any obligation (including entering into any real
property leases).
4.8 Amendments to Charter. Prior to the Closing, the Sellers
shall cause Richfield's articles of incorporation to be amended, among other
things, to (i) change the company's name to AmeriPath Ohio, Inc; (ii) provide
that the company shall be a business corporation, and not a professional
service corporation, and delete any inconsistent references, and (iii) provide
that the company may operate for any lawful purpose which will allow Persons
other than those licensed to practice pathology in the State of Ohio to own
shares of Richfield's capital stock. All of such amendments (together, the
"Richfield Charter Amendments") shall be in form and substance satisfactory to
AmeriPath.
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4.9 Interim Financial Information. To the extent available,
Richfield shall supply the Purchaser with unaudited financial statements
(including, without limitation, statement of assets and liabilities and
statements of revenues collected and expenses paid) and information for each
calendar month, promptly following the conclusion of such month, and as
Richfield may otherwise reasonably request.
4.10 Full Access and Disclosure.
(a) Richfield shall afford to the Purchaser and its
counsel, accountants and other authorized representatives reasonable
access during business hours to Richfield's facilities, properties,
books and records in order that the Purchaser may have full
opportunity to make such reasonable investigations as it shall desire
to make of the affairs of Richfield; and the Sellers shall cause
Richfield's officers, employees and auditors to furnish such
additional financial and operating data and other information as the
Purchaser shall from time to time reasonably request including,
without limitation, any internal control recommendations applicable to
Richfield made by Richfield's independent auditors in connection with
any examination of Richfield's Financial Statements and books and
records.
(b) From time to time prior to the Closing Date,
Richfield shall promptly supplement or amend information previously
delivered to the Purchaser with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth herein or disclosed.
(c) In connection with any "due diligence" examination
performed by the Purchaser with respect to the business of Richfield,
each Seller shall fully cooperate and the results of such "due
diligence" examination shall be satisfactory to the Purchaser.
4.11 Confidentiality. Each Seller and Richfield shall, and shall
cause its principals, officers and other personnel and authorized
representatives to, hold in confidence, and not disclose to any other party
without the Purchaser's prior consent, all written and oral information
furnished or disclosed by or received from the Purchaser or its officers,
directors, employees, agents, counsel and auditors in connection with the
transactions contemplated hereby except as may be required by applicable law or
as otherwise contemplated herein.
4.12 Breach of Agreement. Neither the Sellers nor Richfield shall
take any action which, if taken on or prior to the Closing Date, would
constitute a breach of this Agreement.
4.13 Fulfillment of Conditions Precedent. Richfield and each
Seller shall use their best efforts to obtain at their expense, on or prior to
the Closing Date, all such waivers, Permits, consents, approvals or other
authorizations from third parties and Authorities, and to do all things as may
be necessary or desirable in connection with the transactions contemplated by
this Agreement in order to fully and expeditiously consummate the transactions
contemplated by this Agreement.
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ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with Richfield and each
Seller that prior to the Closing or the termination of this Agreement:
5.1 Confidentiality. The Purchaser shall, and shall cause its
principals, officers and other personnel and authorized representatives to,
hold in confidence, and not disclose to any other party without the Sellers'
prior consent, all information received by it from the Sellers or Richfield's
officers, directors, employees, agents, counsel and auditors in connection with
the transactions contemplated hereby except as may be required by applicable
law or as otherwise contemplated herein.
5.2 Full Access and Disclosure.
(a) The Purchaser shall afford to Richfield and each
Seller, and their counsel, accountants and other authorized
representatives reasonable access during business hours to the
Purchaser's facilities, properties, books and records in order that
each Seller may have full opportunity to make such reasonable
investigations as they shall desire to make of the affairs of the
Purchaser; and the Purchaser shall cause its officers, employees and
auditors to furnish such additional financial and operating data and
other information as each Seller shall from time to time reasonably
request including, without limitation, any internal control
recommendations applicable to the Purchaser made by the Purchaser's
independent auditors in connection with any examination of the
Purchaser's financial statements and books and records.
(b) From time to time prior to the Closing Date, the
Purchaser shall promptly supplement or amend information previously
delivered to Richfield and/or each Seller with respect to any matter
hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth herein or
disclosed.
(c) The Purchaser shall fully cooperate in connection
with any "due diligence" examination performed by Richfield or each
Seller with respect to the business of the Purchaser. For purposes of
this Section 5.2, "Purchaser" shall mean and include AmeriPath and its
Subsidiaries.
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ARTICLE VI
OTHER AGREEMENTS
The parties hereto further agree, on or before the Closing Date, as
follows:
6.1 Further Assurances. Subject to the terms and conditions of
this Agreement, each of the parties hereto shall use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Regulations to consummate and
make effective the transactions contemplated by this Agreement. In furtherance
and not in limitation of the preceding sentence, the parties hereto shall use
their best efforts to cause the Closing to take place on or before October 4,
1996. If at any time after the Closing Date the Purchaser shall consider or be
advised that any further deeds, assignments or assurances in law or in any
other things are necessary, desirable or proper to vest, perfect or confirm, of
record or otherwise, in the Purchaser (or Richfield, as appropriate), the title
to any property or rights of the Sellers acquired or to be acquired by reason
of, or as a result of, the acquisition, the Sellers agree that each Seller
shall execute and deliver all such proper deeds, assignments and assurances in
law and do all things reasonably necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in Richfield and otherwise
to carry out the purpose of this Agreement. If after the Closing, the Sellers
determine that further actions, deeds or documents are necessary on the part of
the Purchaser to carry out the intent of this Agreement, the Purchaser agrees
to execute and deliver such further documents or instruments to effectuate the
intent of this Agreement.
6.2 Agreement to Defend. In the event any action, suit,
proceeding or investigation of the nature specified in Sections 7.2 or 8.2 is
commenced, whether before or after the Closing Date, all the parties hereto
agree to cooperate and use their best efforts to defend against and respond
thereto.
6.3 Consents. Without limiting the generality of Section 6.1,
each of the parties hereto shall use their best efforts to obtain all permits,
authorizations, consents and approvals of all Persons and governmental
authorities necessary, proper or advisable in connection with the consummation
of the transactions contemplated by this Agreement prior to the Closing Date.
6.4 No Solicitation or Negotiation. Unless and until this
Agreement is terminated, neither any Seller nor Richfield through its
directors, officers, employees, representatives, agents, advisors, accountants
and attorneys shall initiate, solicit or encourage, directly or indirectly, any
inquiries or the making of any proposal with respect to, or engage in
negotiations concerning, or provide any confidential information or data to any
Person with respect to, or have any discussions with any Persons relating to,
any acquisition, business combination or purchase of all or any significant
asset of, or any equity interest in, Richfield, or otherwise facilitate any
effort or attempt to do or seek any of the foregoing, and shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Should Richfield or any Seller be contacted with
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respect to any offer, inquiry or proposal, Richfield and the Seller shall
immediately advise the Purchaser in writing of the name, address and phone
number of the contact and the nature of the inquiry.
6.5 No Termination of Sellers' Obligations by Subsequent
Incapacity, Etc. Each Seller specifically agrees that the obligations of the
Sellers hereunder, including, without limitation, obligations pursuant to
Article XI and Section 6.4 shall not be terminated by his death or incapacity.
6.6 Employment Agreements. Richfield and each Seller shall, at or
prior to the Closing, terminate the existing employment agreements between
Richfield and each of the Sellers, and the Sellers shall enter into Employment
Agreements with AmeriPath Ohio in the form of Exhibit 6.6 attached hereto (the
"Employment Agreements").
6.7 Public Announcements. Neither any Seller nor Richfield nor
any Affiliate, representative or shareholder of either of such Persons, shall
disclose any of the terms of this Agreement to any third party (other than the
Purchaser's advisors and senior lending group and each Seller's advisors)
without the other party's prior written consent unless required by any
applicable law. The form, content and timing of any and all press releases,
public announcements or publicity statements (except for any disclosures under
or pursuant to Federal or State securities laws in connection with the
registration of AmeriPath's securities or otherwise) with respect to this
Agreement or the transactions contemplated hereby shall be subject to the prior
approval of the Purchaser. No press releases, public announcements or
publicity statements shall be released by either party without prior mutual
agreement.
The parties hereto further agree, from and after the Closing Date, as
follows:
6.8 Deliveries After Closing. From time to time after the
Closing, at the Purchaser's request and without expense to Richfield and
without further consideration from the Purchaser or Richfield, each Seller
shall execute and deliver such other instruments of conveyance and transfer and
take such other action as the Purchaser reasonably may require to convey,
transfer to and vest in the Purchaser, and to put the Purchaser in possession
of, any rights or property to be sold, conveyed, transferred or delivered
hereunder.
6.9 Non-Competition Covenant.
(a) As a material and valuable inducement for the
Purchaser to enter into this Agreement, pay and deliver the Purchase
Price consideration and consummate the transactions provided for
herein, during the "Restricted Period" (as hereinafter defined), each
Seller agrees that he shall not, directly or indirectly, alone or as a
partner, officer, director, employee, consultant, agent, independent
contractor, member or stockholder of any Person:
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(i) engage in the practice of pathology within a
100 mile radius of any facility in which (x) Richfield is
doing business or providing services as of the date of this
Agreement or (y) AmeriPath Ohio or an AmeriPath Affiliate in
the State of Ohio is then doing business under the management
or direction of any Seller (the "Restricted Territory"); or
(ii) from any facility or location, whether within
or without the Restricted Territory, (x) perform pathology
services for any patient, laboratory or health care provider
located in the Restricted Territory or (y) perform pathology
services for any patient, laboratory or health care provider
who was or is a customer, client or patient of an AmeriPath
Affiliate or who is a prospective customer, client or patient
of an AmeriPath Affiliate; except that it shall not be a
violation of this Section 6.9 for either Seller to perform
pathology services in the Restricted Territory during the
Restricted Period (a) as an employee of a local, federal or
state government or agency; (b) in performing each Seller's
duties as a member of the United States military services or
the National Guard; or (c) on a locum tenens basis.
(b) As used in this Agreement, the term "Restricted
Period" shall mean and include the longer of (x) a period of five (5)
years, from the Closing to the fifth (5th) anniversary of the Closing,
and (y) during such time as each Seller is employed by an AmeriPath
Affiliate and a period of two (2) years thereafter; provided, however,
if the Purchaser fails to make a payment hereunder or under the
Contingent Notes and such failure to pay continues for a period of
thirty (30) days following notice by the Sellers then the Restricted
Period shall be reduced to a period of 3.5 years from the date of the
Closing.
(c) Each Seller further agrees that during the Restricted
Period, each Seller will not knowingly, directly or indirectly, (a)
solicit the employment of any employee, agent or consultant of any
AmeriPath Affiliate who was such at any time during the twelve (12)
months preceding such Seller's termination of employment with the
AmeriPath Affiliate, or (b) induce any employee of an AmeriPath
Affiliate to leave the employ of any such AmeriPath Affiliate, unless
in each case each Seller obtains the prior written consent of
AmeriPath.
(d) Each Seller covenants and agrees that the
restrictions set forth in this Section 6.9 are fair, reasonable and
necessary to protect the interests of AmeriPath and its Affiliates,
such restrictions were negotiated and bargained for and the
consideration delivered in connection with this Agreement reflects and
assumes each Seller's strict compliance with, and the enforceability
by the Purchaser of, these restrictions.
(e) Each Seller acknowledges and agrees that the
provisions of Section 6.9 and Section 6.10 are material and of the
essence to this Agreement. In addition, if the scope of any
restriction or covenant contained in either such Section should be or
become too
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broad or extensive to permit enforcement thereof to its fullest
extent, then such restriction or covenant shall be enforced to the
maximum extent permitted by law, and each Seller hereby consents and
agrees that (a) it is the parties intention and agreement that the
covenants and restrictions contained herein be enforced as written,
and (b) in the event a court of competent jurisdiction should
determine that any restriction or covenant contained herein is too
broad or extensive to permit enforcement thereof to its fullest
extent, the scope of any such restriction or covenant may be modified
accordingly in any judicial proceeding brought to enforce such
restriction or covenant, but should be modified to permit enforcement
of the restrictions and covenants contained herein to the maximum
extent the court, in its judgment, will permit.
6.10 Non-disclosure; Confidentiality.
(a) Confidential Information. By virtue of each Seller's
employment, association or involvement with an AmeriPath Affiliate,
each Seller may obtain confidential or proprietary information
developed, or to be developed, by an AmeriPath Affiliate.
"Confidential Information" means all proprietary or business-sensitive
information, whether in oral, written, graphic, machine-readable or
tangible form, and whether or not registered, and including all notes,
plans, records, documents and other evidence thereof, including but
not limited to all: patents, patent applications, copyrights,
trademarks, trade names, service marks, service names, "know-how,"
patient lists, details of client or consulting contracts, pricing
policies, operational methods, marketing plans or strategies, product
development techniques or plans, procurement and sales activities,
promotion and pricing techniques, credit and financial data concerning
customers, business acquisition plans or any portion or phase of any
scientific or technical information, discoveries, computer software or
programs used or developed in whole or in part by any AmeriPath
Affiliate (including source or object codes), processes, procedures,
formulas or improvements of any AmeriPath Affiliate; algorithms;
computer processing systems and techniques; price lists; customer
lists; procedures; improvements, concepts and ideas; business plans
and proposals; technical plans and proposals; research and
development; budgets and projections; technical memoranda, research
reports, designs and specifications; new product and service
developments; comparative analyses of competitive products, services
and operating procedures; and other information, data and documents
now existing or later acquired by an AmeriPath Affiliate, regardless
of whether any of such information, data or documents qualify as a
"trade secret" under applicable Federal or State law. "Confidential
Information" shall not include (a) any information which is in the
public domain during the period of service by each Seller or becomes
public thereafter, provided such information is not in the public
domain as a consequence of disclosure by each Seller in violation of
this Agreement, and (b) any information not considered confidential
information by similar enterprises operating in the clinical or
anatomical laboratory industry or otherwise in the ordinary course.
(b) Non-Disclosure. Each Seller agrees that, except as
directed by each Seller's employer (which employer is an AmeriPath
Affiliate), as required or otherwise
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contemplated under this Agreement or the Employment Agreement or as
otherwise required by law, he will not at any time (during the term of
each Seller's employment by an AmeriPath Affiliate or at any time
thereafter), except as may be expressly authorized by the AmeriPath
Affiliate in writing, disclose to any Person or use any Confidential
Information whatsoever for any purpose whatsoever, or permit any
Person whatsoever to examine and/or make copies of any reports or any
documents or software (whether in written form or stored on magnetic,
optical or other mass storage media) prepared by him or that come into
his possession or under his control by reason of his employment by an
AmeriPath Affiliate or by reason of any consulting or software
development services he has performed or may in the future perform for
an AmeriPath Affiliate which contain or are derived from Confidential
Information. Each Seller further agrees that while employed at an
AmeriPath Affiliate, no Confidential Information shall be removed from
the AmeriPath Affiliate's business premises, without the prior written
consent of such AmeriPath Affiliate.
(c) AmeriPath Group Property. As used in this Agreement,
the term "AmeriPath Group Property" means all documents, papers,
computer printouts and disks, records, customer or patient lists,
files, manuals, supplies, computer hardware and software, equipment,
inventory and other materials that have been created, used or obtained
by any AmeriPath Affiliate, or otherwise belonging to any AmeriPath
Affiliate, as well as any other materials containing Confidential
Information as defined above. Each Seller recognizes and agrees that:
(i) All the AmeriPath Group Property shall be and
remain the property of the AmeriPath Affiliate to which such
belongs;
(ii) Each Seller will preserve, use and hold the
AmeriPath Group Property only for the benefit of AmeriPath and
its Affiliates and to carry out the business of the AmeriPath
Affiliate, AmeriPath and its Affiliates; and
(iii) When each Seller's employment is terminated,
each Seller will immediately deliver and surrender to the
AmeriPath Affiliate all the AmeriPath Group Property,
including all copies, extracts or any other types of
reproductions, which each Seller has in his possession or
control.
6.11 Rule 144 Best Efforts. Following such time, if any, that
AmeriPath is or may become, and solely while AmeriPath is, a public company
with its securities registered under the Securities Act, and listed or quoted
for trading by a national securities exchange or inter-dealer quotation system,
AmeriPath will use its best efforts to see that AmeriPath is in compliance with
the requirements of Rule 144 under the Securities Act applicable to the issuer
of securities, so as to facilitate non-registered sales of AmeriPath Stock by
each Seller who then own AmeriPath Stock consistent with the requirements and
limitations of Rule 144. Nothing in this Section 6.11 shall be deemed as
either (i) any representation or warranty that Ameripath will become or remain
a public company with securities registered under the Securities Act, or (ii)
any covenant
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or agreement by AmeriPath to register, under federal or state securities laws
or otherwise, any AmeriPath securities issued to, or held by, the Sellers.
6.12 Physician Incentive Program. Each year following Closing
through December 31, 2001, AmeriPath and the Sellers shall prepare a budget of
the compensation expenses (including salaries and bonuses) for the Richfield
Pathologists (the "Compensation Budget"). If, and only if, Operating Earnings
equal or exceed $3,000,000.00 in any one year for which a Compensation Budget
was or should have been prepared (a "Budget Year"), then AmeriPath shall pay to
the Richfield Pathologists (to be allocated among the Richfield Pathologists as
Dr. Barron shall determine) the amount, if any, by which the Compensation
Budget exceeds the actual compensation expense; provided, however:
(a) the Compensation Budget for the initial Budget Year
shall be $1,250,000;
(b) the Compensation Budget for Budget Years 2-5 shall be
determined based upon the operating budget prepared by AmeriPath with
respect to the Richfield Pathologists; but in no event shall it be
less than the Compensation Budget for the previous year;
(c) the Compensation Budget shall be determined assuming
an expense of $250,000 for the salary and bonuses for each additional
Richfield Pathologist hired after the fifth Richfield Pathologist has
been hired.
6.13 Richfield Facility. At Closing, AmeriPath Ohio and Barron
shall execute a lease (the "Lease") for the Richfield facility pursuant to
which AmeriPath Ohio shall lease the Richfield facility for five (5) years
(with an option to lease the facility for at least two additional five-year
periods, with the rental for each additional term increasing proportionally
with the increase in the Consumer Price Index), on the same terms and
conditions as the existing lease for the Richfield facility, except for the
rent which shall be fixed at $7,500 per month for the first five (5) years.
From and after the time that AmeriPath Ohio hires and employs its sixth
Richfield Pathologist AmeriPath Ohio agrees to authorize Dr. Barron to expand
the Richfield facility by adding an additional 3,000 square feet at the same
rental per square foot as the Lease at that time.
6.14 338(h)(10) Election. The parties hereto agree that (i) the
acquisition of the Richfield Shares will be in accordance with Section 338 of
the Code, (ii) a Statement of Election (the "Election") on Form 8023-A under
Section 338(h)(10) of the Code shall be made and filed with the appropriate
authority and (iii) the Sellers shall be solely responsible for paying any
taxes which may result from the Election and out of or as a consequence of the
transactions contemplated hereby. For purposes of allocation under Section
1060 of the Code for purposes of the Election, property, plant and equipment
shall be assigned a value of their adjusted tax basis; accounts receivable will
be valued net of any bad debts and contractual allowances to be determined by
AmeriPath's independent auditors consistent with GAAP; and the balance shall be
attributed to goodwill or other intangible assets. The Sellers shall indemnify
AmeriPath (and its Affiliates) and hold AmeriPath (and its Affiliates) harmless
from any loss, charge or expense
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resulting from the Election and the payment of the taxes due in connection
therewith and herewith.
6.15 Stock Options. Upon the Closing, AmeriPath shall grant
non-statutory options (the "Options") to purchase an aggregate of 18,000 shares
of AmeriPath Stock to the persons set forth on Schedule 6.15 attached hereto
(the "Optionees") (with the number of shares of AmeriPath Stock which each
Optionee is entitled to purchase upon exercise of such Optionee's Option as set
forth on such Schedule 6.15). As a condition to such grant and issuance, each
Optionee shall be required to enter into a Non-Qualified Stock Option Agreement
in the form of Exhibit 6.15 hereto (the "Grant Agreement"). The Options shall
vest as equally as possible over a five-year period from the date of grant and
shall have an exercise price set at the fair market value of such shares at the
date of grant. The Options shall be granted pursuant to and in accordance with
the AmeriPath Stock Option Plan and each Grant Agreement and shall be subject
to the terms and conditions of such plan and agreement.
6.16 Miscellaneous Employee Matters. AmeriPath agrees
that up to $30,000 in fringe benefits shall be provided for each Richfield
Pathologist; and the Sellers agree that an additional Richfield Pathologist may
only be hired by AmeriPath Ohio once Operating Earnings for any Budget Year
have increased or are projected to increase by at least $500,000.
6.17 Structural Changes. The parties hereto intend that
the form and substance of this Agreement and the transactions contemplated
hereby comply with, and not be inconsistent with, federal and Ohio Health Care
Laws. Accordingly, notwithstanding any other term or provision of this
Agreement in the event that AmeriPath, upon the advice of counsel, determines
at any time following the Closing that the transactions contemplated by this
Agreement do not comply with, or are inconsistent with, federal or Ohio Health
Care Laws, then the Sellers hereby irrevocably agree, upon AmeriPath's request
and at AmeriPath's sole cost and expense, to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper and
advisable in AmeriPath's judgment and at AmeriPath's request to restructure the
agreements and transactions contemplated by this Agreement (the
"Restructuring") so that such agreements and transactions will be in compliance
with, and/or not inconsistent with, federal and Ohio Health Care Laws, while
preserving, to the maximum extent practicable, the economic and business
substance of such agreements and transactions. In furtherance and not in
limitation of the preceding sentence, the Sellers specifically agree that any
such Restructuring at AmeriPath's request may include (i) the organization by
Sellers of a professional corporation, partnership, grantor trust or similar
entity owned by such Sellers (the "Entity"), the organization and form of which
Entity shall be satisfactory in all respects to AmeriPath, (ii) the assignment
to such Entity of (a) AmeriPath Ohio's obligations under all Employment
Agreements (the performance of which obligations shall be guaranteed by
AmeriPath Ohio) and (b) all contracts under which AmeriPath Ohio was required
to provide or deliver professional pathology services, (iii) the execution and
delivery by the Entity of a Management Agreement with AmeriPath Ohio, which
Management Agreement shall be in form and substance satisfactory to AmeriPath,
pursuant to which AmeriPath Ohio will provide certain management and other
services to the Entity in consideration of management fees and the
reimbursement of expenses, and (iv) the execution and
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delivery by each Seller of a buy/sell agreement with AmeriPath, in form and
substance satisfactory to AmeriPath Ohio, pursuant to which AmeriPath Ohio may,
at its option, cause each Seller to transfer his or her ownership interest or
trusteeship in the Entity to a person designated by AmeriPath Ohio and
qualified to own and hold such interest or trusteeship.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
Each and every obligation of the Purchaser under this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived in writing by the Purchaser:
7.1 Representations and Warranties; Covenants and Agreements. The
representations and warranties of the Sellers contained in Article II and
elsewhere in this Agreement and all information contained in any exhibit,
certificate, schedule or attachment hereto or in any writing delivered by, or
on behalf of, the Sellers or Richfield to the Purchaser, shall be true and
correct when made and shall be true and correct in all material respects on the
Closing Date as though then made, except as expressly provided herein. The
Sellers and Richfield shall have performed and complied with all agreements,
covenants and conditions and shall have made all deliveries required by this
Agreement to be performed, delivered and complied with by them prior to the
Closing Date. The Sellers and the president of Richfield shall have executed
and delivered to the Purchaser a certificate, dated the Closing Date,
certifying to the foregoing.
7.2 No Injunction. No preliminary or permanent injunction or
other Order, decree or ruling issued by any Authority, or any Regulation
promulgated or enacted by any Authority shall be in effect, which would prevent
the consummation of the transactions contemplated hereby.
7.3 Third Party Consents. The Purchaser, each Seller and
Richfield shall have obtained all consents, approvals, waivers or other
authorizations with respect to the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, such
that the contracts and leases listed in Schedule 7.3 hereto shall remain in
effect (without default, acceleration, termination, assignment, right of
termination or assignment, payment, increase in rates or compensation payable,
penalty, interest or other adverse effect) from and after the Closing Date as
such contracts and leases operated and were in effect before the Closing Date.
7.4 Regulatory Approvals. The Federal and State regulatory
agencies or authorities listed in Schedule 7.4 hereto shall have approved the
applications listed in such Schedule with respect to the change of control
represented by the transactions contemplated by this Agreement, and such
approval shall not impose financial obligations on the Purchaser that are
objectionable to it.
7.5 No Material Adverse Change. There shall have been no Material
Adverse Change since the date of this Agreement. The Purchaser shall have
received a certificate (which shall be
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addressed to the Purchaser), dated the Closing Date, of the president and chief
financial officer of Richfield, certifying to the foregoing.
7.6 Opinion of Sellers' Counsel. The Purchaser shall have
received an opinion of counsel to the Sellers and Richfield (which will be
addressed to the Purchaser and its senior lenders), dated the Closing Date, in
the form of Exhibit 7.6 hereto.
7.7 Employment Agreements. Each Seller shall have terminated his
existing employment agreement with Richfield and shall have executed and
delivered to the Purchaser an Employment Agreement with AmeriPath Ohio in the
form of Exhibit 6.6.
7.8 Delivery of Richfield Share Certificates. Each Seller shall
have executed and delivered to AmeriPath this Agreement, or a counterpart
hereof, and shall have delivered at the Closing stock certificates representing
all of the Richfield Shares, duly endorsed for transfer to the Purchaser,
together with stock powers duly executed in blank.
7.9 Shareholders' Agreement. At the Closing, each Seller shall
have executed and delivered to AmeriPath a counterpart signature page to that
certain Shareholders' Agreement, dated as of February 29, 1996, by and among
AmeriPath and each of the stockholders of AmeriPath (the "Shareholders'
Agreement"), pursuant to which each Seller agrees to be bound by all of the
provisions of the Shareholders' Agreement, in accordance with their terms, to
the same extent as if he had been an original signatory thereto.
7.10 Subordination Agreement. At the Closing, each Seller shall
have executed and delivered the Subordination Agreement, attached hereto as
Exhibit 7.10, pursuant to which each Seller agrees to be bound by all of the
provisions of the Subordination Agreement in accordance with their terms.
7.11 Richfield Charter Amendments. Richfield, which as of the date
hereof is organized as a professional service corporation under the Revised
Code of Ohio, shall have taken all appropriate and required board of director
and shareholder action to approve, and shall have filed with the Secretary of
State of the State of Ohio in form acceptable for filing, an amendment to
Richfield's articles of incorporation, which amendment (i) shall be in form and
substance satisfactory to AmeriPath, and (ii) shall include the Richfield
Charter Amendments (as such term is defined in Section 4.8 hereof).
7.12 Creditor Consents. The creditors set forth on Schedule 7.12
hereto shall have agreed in writing with Richfield as to the amounts owed in
order for such creditors to have been paid in full and to release all Liens in
favor of such creditors. Richfield shall have obtained from the creditors set
forth on Schedule 7.12 and shall provide to the Purchaser at Closing, such UCC
termination statements, releases of mortgages and other releases of Liens as
shall be required by the Purchaser and its lenders.
7.13 Lease. At the Closing, the Sellers shall deliver the executed
Lease to AmeriPath.
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ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
Each and every obligation of the Sellers under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by the Sellers:
8.1 Representations and Warranties; Performance. The
representations and warranties of the Purchaser contained in Article III and
elsewhere in this Agreement and all information contained in any exhibit,
schedule or attachment hereto, delivered by or on behalf of the Purchaser to
the Sellers, shall be true and correct in all material respects when made and
shall be true and correct in all material respects on the Closing Date as
though then made, except as expressly provided herein. The Purchaser shall
have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and
complied with by them prior to the Closing Date. The Chief Operating Officer
of the Purchaser shall have delivered to the Sellers a certificate, dated the
Closing Date, certifying to the foregoing.
8.2 No Injunction. No preliminary or permanent injunction or
other Order, decree or ruling issued by any Authority, or any Regulation
promulgated or enacted by any Authority shall be in effect, which would prevent
the consummation of the transactions contemplated hereby.
8.3 Purchase Consideration. Each Seller shall have received the
consideration (in the form of cash, AmeriPath Stock and Contingent Notes)
required to be delivered at Closing and to which each Seller is entitled
pursuant to Section 1.1 hereof in accordance with Schedule 1.1 hereto.
8.4 Employment Agreements. AmeriPath Ohio shall have executed and
delivered to each of the Sellers the Employment Agreements.
ARTICLE IX
CLOSING
9.1 Closing. Unless this Agreement shall have been terminated or
abandoned pursuant to the provisions of Article X hereof, a closing of the
transactions contemplated by this Agreement (the "Closing") shall be held on or
before October 4, 1996, or on such other date which is mutually agreed upon in
writing following the satisfaction or waiver of the conditions to closing set
forth in Article VII and Article VIII hereof (the "Closing Date").
9.2 Closing Deliveries. At the Closing,
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(a) the Sellers and Richfield shall deliver or cause to
be delivered to the Purchaser:
(i) a certificate or certificates evidencing all
of the Richfield Shares, duly endorsed for transfer with all
necessary transfer stamps affixed;
(ii) the Officer's Certificates required by
Sections 7.1 and 7.5;
(iii) copies of all consents and approvals required
by Sections 7.3, 7.4 and 7.12;
(iv) the Opinion of Counsel required by Section
7.6;
(v) the Employment Agreements required by Section
7.7;
(vi) the counterpart signature page to the
Shareholders' Agreement required by Section 7.9;
(vii) the Subordination Agreement required by
Section 7.10;
(viii) the Lease (executed by the landlord);
(ix) a certificate, signed by the secretary of
Richfield, as to the articles of incorporation and by-laws of
Richfield, the resolutions adopted by the board of directors
and shareholders of Richfield in connection with this
Agreement, the incumbency of certain officers of Richfield and
the jurisdictions in which Richfield is qualified to conduct
business, in form acceptable to the Purchaser;
(x) certificates issued by the appropriate
governmental authorities evidencing the good standing, with
respect to both the conduct of business and the payment of all
franchise taxes, of Richfield as of a date not more than ten
(10) days prior to the Closing Date, as a corporation
organized under the laws of the State of Ohio and as a foreign
corporation authorized to do business under the laws of the
various jurisdictions where it is so qualified.
(xi) such other certified resolutions, documents
and certificates as are required to be delivered by the
Sellers or Richfield pursuant to the provisions of this
Agreement.
(b) The Purchaser shall deliver to the Sellers:
(i) the consideration (in the form of cash,
AmeriPath Stock and Contingent Notes) required to be paid or
delivered to each Seller at Closing in accordance with Section
1.1 (and Schedule 1.1 hereto).
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(ii) the Officer's Certificate required by Section
8.1; and
(iii) the Employment Agreements required by Section
8.4;
(iv) the Lease (executed by AmeriPath Ohio);
(v) such other certified resolutions, documents
and certificates as are required to be delivered by the
Purchaser pursuant to the provisions of this Agreement.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination. This Agreement may be terminated and
the transactions herein contemplated may be abandoned at any time:
(a) by mutual consent of the Purchaser, the Sellers and
Richfield;
(b) by the Purchaser or both of the Sellers if this
Agreement is not consummated on or before October 4, 1996; provided,
however, that if any party has breached or defaulted with respect to
its respective obligations under this Agreement on or before such
date, such party may not terminate this Agreement pursuant to this
Section 10.1(b), and each other party to this Agreement shall at its
option enforce its rights against such breaching or defaulting party
and seek any remedies against such party, in either case as provided
hereunder and by applicable law; or
(c) by the Purchaser if as of the Closing Date (including
any extensions) any of the conditions specified in Article VII hereof
shall not have been satisfied or if Richfield or the Sellers are
otherwise in default under this Agreement.
10.2 Procedure Upon Termination. In the event of termination and
abandonment pursuant to Section 10.1 hereof, and subject to the proviso
contained in Section 10.1(b), this Agreement shall terminate and shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) each party shall redeliver all documents and other
material of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the
party furnishing the same;
(b) all information received by any party hereto with
respect to the business of any other party or Richfield (other than
information which is a matter of public knowledge or which has
heretofore been or is hereafter published in any publication for
public distribution or filed as public information with any
governmental authority) shall
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not at any time be used for the advantage of, or disclosed to third
parties by, such party to the detriment of the party furnishing such
information; and
(c) no party hereto shall have any further liability or
obligation to any other party under or in connection with this
Agreement; provided, however, the non-breaching or non-defaulting
party shall not be foreclosed from bringing a Claim or cause of action
or otherwise recovering from the breaching or defaulting party.
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
11.1 Survival. All of the terms and conditions of this Agreement,
together with the representations, warranties and covenants contained herein or
in any instrument or document delivered or to be delivered pursuant to this
Agreement, shall survive the execution of this Agreement and the Closing
notwithstanding any investigation heretofore or hereafter made by or on behalf
of any party hereto; provided, however, that (a) the agreements and covenants
set forth in this Agreement shall survive and continue until all obligations
set forth therein shall have been performed and satisfied; and (b) all
representations and warranties shall survive and continue until:
(1) with respect to the representations and
warranties in Sections 2.16 (tax matters), 2.18 (ERISA
matters), 2.20 (environmental matters) and 2.30 (health care
regulatory matters), until sixty (60) days following the
expiration of the applicable statute of limitations;
(2) with respect to the representations and
warranties in Sections 2.3 (capitalization), 2.4 (title to the
Richfield Shares) and 2.6 (options and rights on capital
stock), these representations shall survive and continue
forever and without limitation; and
(3) with respect to all other representations and
warranties, the date upon which AmeriPath receives from its
outside auditors the audited financial statements for
AmeriPath's fiscal year ending December 31, 1998 (the "1998
Audit Date"), except for representations, warranties and
indemnities for which an indemnification Claim shall be
pending as of the 1998 Audit Date, in which event such
indemnities shall survive with respect to such Claim until the
final disposition thereof.
11.2 Indemnification by the Sellers. Subject to this Article XI,
the Purchaser and its officers, directors, employees, shareholders,
representatives and agents shall be indemnified and held harmless by each
Seller, at all times after the date of this Agreement, against and in respect
of any and all damage, loss, deficiency, liability, obligation, commitment,
cost or expense
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(including the fees and expenses of counsel) resulting from, or in respect of,
any of the following:
(a) Any misrepresentation, breach of warranty, or
non-fulfillment of any obligation on the part of the Sellers or
Richfield under this Agreement, any document relating thereto or
contained in any schedule or exhibit to this Agreement or from any
misrepresentation in or omission from any certificate, schedule, other
agreement or instrument by the Sellers or Richfield hereunder;
(b) Any and all known liabilities of Richfield of any
nature whether accrued, absolute, contingent or otherwise, existing at
the Closing Date to the extent not reflected and reserved against in
the statement of assets and liabilities for the year ended December
31, 1995 included in the Financial Statements or not otherwise
adequately disclosed in this Agreement or the schedules or exhibits
thereto, including, without limitation:
(i) All Tax liabilities of Richfield, together
with any interest or penalties thereon or related thereto,
through the Closing Date and any Tax liability of Richfield
arising in connection with the transactions contemplated
hereby. Any Taxes, penalties or interest attributable to the
operations of Richfield payable as a result of an audit of any
tax return shall be deemed to have accrued in the period to
which such Taxes, penalties or interest are attributable;
(ii) All environmental liabilities relating to any
of Richfield's properties, including federal, state and local
environmental liability, together with any interest or
penalties thereon or related thereto, through the Closing
Date, but excluding any amount for which there is an adequate
accrual and reserve on the statement of assets and liabilities
for the year ended December 31, 1995 included in the Financial
Statements;
(iii) All claims by Medicare, Medicaid, or any
other third party payor relating to reimbursement for services
provided by Richfield prior to the Closing Date
("Reimbursement Claims"). Indemnification by each Seller for
Reimbursement Claims shall include all costs incurred by
Purchaser for such claims, including, but not limited to,
applicable investigative and audit expenses, attorneys fees,
reimbursement costs, and any fines and penalties levied
against Richfield; and
(c) All demands, assessments, judgments, costs and
reasonable legal and other expenses arising from, or in connection
with any Claim incident to any of the foregoing.
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(d) All other Claims of the Purchaser shall be resolved
in accordance with Section 11.4.
11.3 Indemnification by the Purchaser. Subject to this Article XI,
each Seller and her or his heirs, assigns, representatives and agents shall be
indemnified and held harmless by the Purchaser, at all times after the date of
this Agreement, against and in respect of any and all damage, loss, deficiency,
liability, obligation, commitment, cost or expense (including the fees and
expenses of counsel) resulting from, or in respect of, any misrepresentation,
breach of warranty, or non-fulfillment of any obligation on the part of the
Purchaser under this Agreement, any document relating thereto or contained in
any schedule or exhibit to this Agreement or from any misrepresentation in or
omission from any certificate, schedule, other agreement or instrument by the
Purchaser hereunder.
11.4 Third-Party Claims. Except as otherwise provided in this
Agreement, the following procedures shall be applicable with respect to
indemnification for third-party Claims. Promptly after receipt by the party
seeking indemnification hereunder (hereinafter referred to as the "indemnitee")
of notice of the commencement of any (a) Tax audit or proceeding for the
assessment of Tax by any taxing authority or any other proceeding likely to
result in the imposition of a Tax liability or obligation or (b) any action or
the assertion of any Claim, liability or obligation by a third party (whether
by legal process or otherwise), against which Claim, liability or obligation
the other party to this Agreement (hereinafter the "indemnitor") is, or may be,
required under this Agreement to indemnify such indemnitee, the indemnitee
will, if a Claim thereon is to be, or may be, made against the indemnitor,
notify the indemnitor in writing of the commencement or assertion thereof and
give the indemnitor a copy of such Claim, process and all legal pleadings. The
indemnitor shall have the right to participate in the defense of such action
with counsel of reputable standing. The indemnitor shall have the right to
assume the defense of such action unless such action (i) may result in
injunctions or other equitable remedies in respect of the indemnitee or its
business; (ii) may result in liabilities which, taken with other then existing
Claims under this Article XI, would not be fully indemnified hereunder; or
(iii) may have an adverse impact on the business or financial condition of the
indemnitee after the Closing Date (including an effect on the Tax liabilities,
earnings or ongoing business relationships of the indemnitee). The indemnitor
and the indemnitee shall cooperate in the defense of such Claims. In the case
that the indemnitor shall assume or participate in the defense of such audit,
assessment or other proceeding as provided herein, the indemnitee shall make
available to the indemnitor all relevant records and take such other action and
sign such documents as are necessary to defend such audit, assessment or other
proceeding in a timely manner. If the indemnitee shall be required by judgment
or a settlement agreement to pay any amount in respect of any obligation or
liability against which the indemnitor has agreed to indemnify the indemnitee
under this Agreement, the indemnitor shall promptly reimburse the indemnitee in
an amount equal to the amount of such payment plus all reasonable expenses
(including legal fees and expenses) incurred by such indemnitee in connection
with such obligation or liability subject to this Article XI.
Prior to paying or settling any Claim against which an
indemnitor is, or may be, obligated under this Agreement to indemnify an
indemnitee, the indemnitee must first supply the
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indemnitor with a copy of a final court judgment or decree holding the
indemnitee liable on such claim or failing such judgment or decree, and must
first receive the written approval of the terms and conditions of such
settlement from the indemnitor. An indemnitor shall have the right to settle
any Claim against it, subject to the prior written approval of the indemnitee,
which approval shall not be unreasonably withheld.
An indemnitee shall have the right to employ its own counsel
in any case, but the fees and expenses of such counsel shall be at the expense
of the indemnitee unless (a) the employment of such counsel shall have been
authorized in writing by the indemnitor in connection with the defense of such
action or Claim, (b) the indemnitor shall not have employed, or is prohibited
under this Section 11.4 from employing, counsel in the defense of such action
or Claim, or (c) such indemnitee shall have reasonably concluded that there may
be defenses available to it which are contrary to, or inconsistent with, those
available to the indemnitor, in any of which events such fees and expenses of
not more than one additional counsel for the indemnified parties shall be borne
by the indemnitor.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by a written agreement
signed by Richfield, the Purchaser and each Seller.
12.2 Entire Agreement. This Agreement, including the schedules and
exhibits hereto and the documents, annexes, attachments, certificates and
instruments referred to herein and therein, embodies the entire agreement and
understanding of the parties hereto in respect of the agreements and
transactions contemplated by this Agreement and supersedes all prior
agreements, representations, warranties, promises, covenants, arrangements,
communications and understandings, oral or written, express or implied, between
the parties with respect to such transactions. There are no agreements,
representations, warranties, promises, covenants, arrangements or
understandings between the parties with respect to such transactions, other
than those expressly set forth or referred to herein.
12.3 Certain Definitions.
"Affiliate" means, with regard to any Person, (a) any Person,
directly or indirectly, controlled by, under common control of, or
controlling such Person, (b) any Person, directly or indirectly, in
which such Person holds, of record or beneficially, five percent or
more of the equity or voting securities, (c) any Person that holds, of
record or beneficially, five percent or more of the equity or voting
securities of such Person, (d) any Person that, through Contract,
relationship or otherwise, exerts a substantial influence on the
management of such Person's affairs, (e) any Person that, through
Contract,
- 48 -
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relationship or otherwise, is influenced substantially in the
management of their affairs by such Person, or (f) any director,
officer, partner or individual holding a similar position in respect
of such Person.
"Authority" means any governmental, regulatory or
administrative body, agency, arbitrator or authority, any court or
judicial authority, any public, private or industry regulatory agency,
arbitrator authority, whether international, national, federal, state
or local.
"Claim" means any action, claim, obligation, liability,
expense, lawsuit, demand, suit, inquiry, hearing, investigation,
notice of a violation, litigation, proceeding, arbitration, or other
dispute, whether civil, criminal, administrative or otherwise, whether
pursuant to contractual obligations or otherwise.
"Contract" means any agreement, contract, commitment,
instrument or other binding arrangement or understanding, whether
written or oral.
"Environmental Law" means any Regulation, Order, settlement
agreement or governmental requirement, which relates to or otherwise
imposes liability or standards of conduct concerning mining or
reclamation of mined land, discharges, emissions, releases or
threatened releases of noises, odors or any pollutants, contaminants
or hazardous or toxic wastes, substances or materials, whether as
matter or energy, into ambient air, water, or land, or otherwise
relating to the manufacture, processing, generation, distribution,
use, treatment, storage, disposal, cleanup, transport or handling of
pollutants, contaminants, or hazardous wastes, substances or
materials, including (but not limited to) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Toxic
Substances Control Act of 1976, as amended, the Federal Water
Pollution Control Act Amendments of 1972, the Clean Water Act of 1977,
as amended, any so-called "Superlien" law, and any other similar
Federal, state or local statutes.
"Environmental Permit" shall mean Permits, certificates,
approvals, licenses and other authorizations relating to or required
by Environmental Law and necessary or desirable for the Corporation's
business.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis.
"Health Care Laws" means any Federal, state, or local
Regulation or Order, of any Authority, which relates to or otherwise
imposes liability or standards of conduct concerning the licensure,
certification, qualification, or operation of a health maintenance
organization, pharmacy, home health agency or other aspect of a
Corporation's business subject to such Health Care Laws, including but
not limited to Chapter 400, Florida
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Statutes, governing home health agencies; The Health Maintenance
Organization Act; the Ohio Pharmacy Act; the Ohio Drug and Cosmetic
Act; the Ohio Comprehensive Drug Abuse Prevention and Control Act; the
Patient Self-Referral Act; the Employee Health Care Access Act; 21
U.S.C. Section 301-392, the Federal Food Drug and Cosmetic Act; 21
U.S.C. Section 821 et seq., the Federal Drug Abuse Act; Section 1128B
of the Social Security Act; The Clinical Laboratory Improvement
Amendments of 1988; 42 U.S.C. Section 1320a-7b, 42 C.F.R. Part 1001,
42 CFR Chapter IV, Subchapter C; Sections 1876 or 1903 of the Social
Security Act; 45 CFR, Part 74; 45 CFR, Part 92; 42 CFR 455.109 Section
306 of the Clean Air Act; 42 U.S.C. Section 1857(h) et seq., Section
508 of the Clean Water Act; 33 U.S.C. Section 1368 et seq., Executive
Order 11738 and Environmental Protection Agency regulations; 40 CFR
Part 15, Title VI of the Civil Rights Act of 1964; 42 U.S.C. Section
2000 d et seq., Section 504 of the Rehabilitation Act of 1933; 29
U.S.C. Section 7940; Title IX of the Education Amendments of 1972, 20
U.S.C. Section 1681 et seq., the Age Discrimination Act of 1975; 42
U.S.C. Section 6101 et seq., Section 654 of OBRA '81; 42 U.S.C.
Section 9849 and the Americans with Disabilities Act of 1990; P.L.
101-336, OBRAs 1986 through 1993, as amended, and any other similar
Federal, state or local Regulations.
"Lien" means any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, Claim, easement, restriction or interest
of another Person of any kind or nature.
"Material Adverse Change" means any development or change
which has, had or would have a Material Adverse Effect.
"Material Adverse Effect" means any circumstances, state of
facts or matters which has, or might reasonably be expected to have, a
material adverse effect in respect of Richfield's business,
operations, properties, assets, condition (financial or otherwise),
results, plans, strategies or prospects.
"Order" means any decree, judgment, award, order, injunction,
rule, consent of or by an Authority.
"Person" means any corporation, partnership, joint venture,
company, syndicate, organization, association, trust, entity,
Authority or natural person.
"Proprietary Rights" means any patent, patent application,
copyright, trademark, trade name, service mark, service name, trade
secret, know-how, confidential information or other intellectual
property or proprietary rights.
"Regulation" means any law, statute, rule, regulation,
ordinance, requirement, announcement or other binding action of or by
an Authority.
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"Subsidiary" means any Person which the Purchaser or
Richfield, as the case may be, owns, directly or indirectly, 50% or
more of the outstanding stock or other equity interests.
12.4 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed, first class
certified mail with postage paid or by overnight receipted courier service:
(a) If to the Sellers or Richfield, to:
David R. Barron, M.D., Inc.
9670 Kenwood Road
Cincinnati, OH 45242
Attn: David R. Barron, M.D., President
with a copy to:
Schwartz, Manes & Ruby
2900 Carew Tower
441 Vine Street
Cincinnati, Ohio 45202-3090
Attn: Dennis L. Manes, Esq.
or to such other person or address as each Seller or
Richfield shall furnish by notice to the Purchaser in writing.
(b) If to the Purchaser to:
AmeriPath, Inc.
800 Cypress Creek Road, Suite 200
Fort Lauderdale, Florida 33334
Attn: James C. New, President
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
515 E. Las Olas Boulevard, Suite 1500
Fort Lauderdale, Florida 33301
Attn: Daniel H. Aronson, Esq.
or to such other person or address as the Purchaser
shall furnish by notice to Seller in writing.
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<PAGE> 58
12.5 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except that the Purchaser may assign its rights, interests and obligations
hereunder to any wholly-owned Subsidiary, and may grant Liens or security
interests in respect of its rights and interests hereunder, without the prior
approval of the Sellers.
12.6 Governing Law. The Agreement shall be governed by the laws of
the State of Florida as to all matters, including but not limited to matters of
validity, construction, effect and performance.
12.7 Consent to Jurisdiction; Service of Process. Richfield and
each Seller hereby irrevocably submit to the jurisdiction of the state or
federal courts located in Broward County, Florida in connection with any suit,
action or other proceeding arising out of or relating to this Agreement and the
transactions contemplated hereby, and hereby agree not to assert, by way of
motion, as a defense, or otherwise in any such suit, action or proceeding that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced by such courts.
12.8 Injunctive Relief. The parties hereto agree that in the event
of a breach of any provision of this Agreement, the aggrieved party or parties
may be without an adequate remedy at law. The parties therefore agree that in
the event of a breach of any provision of this Agreement, the aggrieved party
or parties may elect to institute and prosecute proceedings in any court of
competent jurisdiction to enforce specific performance or to enjoin the
continuing breach of such provision, as well as to obtain damages for breach of
this Agreement. By seeking or obtaining any such relief, the aggrieved party
shall not be precluded from seeking or obtaining any other relief to which it
may be entitled.
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Headings. The article, section and subsection headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement (or any
provision hereof).
12.11 Binding Effect. This Agreement shall not be construed so as
to confer any right or benefit upon any Person other than the signatories to
this Agreement and each of their respective successors and permitted assigns.
12.12 Delays or Omissions; Waiver. No delay or omission to exercise
any right, power or remedy accruing to any party hereto, upon any breach or
default of any other party under this
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Agreement, shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of, or estoppel with respect to, any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party hereto of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions,
obligations, covenants, agreements or conditions of this Agreement must be made
in writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party, shall be cumulative and not alternative. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing.
12.13 Severability. Unless otherwise provided herein, if any
provision of this Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
12.14 Expenses. All fees, costs and expenses (including, without
limitation, legal, auditing and accounting fees, costs and expenses) incurred
in connection with considering, pursuing, negotiating, documenting or
consummating this Agreement and the transactions contemplated hereby shall be
borne and paid solely by the party incurring such fees, costs and expenses.
12.15 Arbitration. Other than a dispute over the Operating Earnings
or Cumulative Operating Earnings (which dispute will be governed and handled in
accordance with the provisions of Section 1.2(b)(ii)), any controversy,
dispute, disagreement or claim arising out of or relating to this Agreement, or
any alleged breach hereof, or the subject matter hereof, shall be resolved
exclusively by binding arbitration, which shall be conducted in Dade or Broward
County, Florida in accordance with the National Health Lawyer's Association,
Alternative Dispute Resolution Service, Rules of Procedure for Arbitration, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction over the matter.
12.16 Attorneys' Fees. If any party to this Agreement seeks to
enforce the terms and provisions of this Agreement, then the prevailing party
in such action shall be entitled to recover from the losing party all costs in
connection with such action, including without limitation reasonable attorneys'
fees, expenses and costs incurred at the trial court and all appellate levels.
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<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
PURCHASER:
AMERIPATH, INC.,
By: /s/ Robert P. Wynn
------------------------------------------
Robert P. Wynn, Chief Financial Officer
SELLERS:
/s/ David R. Barron
---------------------------------------------
DAVID R. BARRON, M.D.
/s/ Ruth S. Kleier
---------------------------------------------
RUTH S. KLEIER, M.D.
DAVID R. BARRON, M.D., INC.
By: /s/ David R. Barron
------------------------------------------
David R. Barron, M.D., President
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<PAGE> 1
Exhibit 10.14
----------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERIPATH, INC.,
GULF COAST PATHOLOGY ASSOCIATES, INC.
F/K/A
FERNANDEZ & KALEMERIS, M.D., P.A.,
RICHARD FERNANDEZ, M.D.,
AND
GEORGE KALEMERIS, M.D.
DATED AS OF OCTOBER 31, 1996
----------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
PURCHASE OF CAPITAL STOCK
1.1 Purchase and Sale of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 The Contingent Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Contingent Issuance of AmeriPath Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND GULF COAST
2.1 Corporate Organization, Qualification, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 Corporate Record Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Title to Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.6 Options and Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.7 Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.8 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.10 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.11 Absence of Certain Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.13 True and Complete Copies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.14 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.16 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.17 Compliance with Law and Applicable Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.18 ERISA and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.19 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.21 Dealings with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.22 Banking Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.23 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.24 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.25 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.26 Accounts Receivable; Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.27 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.28 Improper and Other Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<TABLE>
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2.29 Participation in Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.30 Health Care Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.31 Financial Condition at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.32 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1 Corporate Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3 Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.5 Governmental Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.6 Issuance of AmeriPath Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IV
COVENANTS OF THE SELLERS
4.1 Regular Course of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.3 Capital Changes; Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.4 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.5 Capital and Other Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.6 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.7 Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.8 Other Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.9 Amendments to Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.10 Interim Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.11 Full Access and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.12 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.13 Breach of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.14 Fulfillment of Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE V
COVENANTS OF THE PURCHASER
5.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.2 Full Access and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
</TABLE>
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<TABLE>
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ARTICLE VI
OTHER AGREEMENTS
6.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.2 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4 No Solicitation or Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.5 No Termination of Sellers' Obligations by Subsequent Incapacity, Etc. . . . . . . . . . . . . . . . . . . . 34
6.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.7 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.8 Deliveries After Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.9 Non-Competition Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.10 Non-disclosure; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.11 Rule 144 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.12 Collected Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
7.1 Representations and Warranties; Covenants and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.3 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.6 Opinion of Sellers' Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.7 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.8 Delivery of Gulf Coast Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.9 Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10 Subordination Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Gulf Coast Charter Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12 Satisfaction of Indebtedness; Creditor Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.13 Vehicles and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
8.1 Representations and Warranties; Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.2 No Injunction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.3 Purchase Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.4 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE IX
CLOSING
9.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.2 Procedure Upon Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.2 Indemnification by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.3 Indemnification by the Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.4 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.5 Deductible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.3 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.7 Consent to Jurisdiction; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.8 Injunctive Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.11 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.12 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.14 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.15 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
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<PAGE> 6
SCHEDULES
1.1 Consideration
1.3 Stock Rights
2.1 Jurisdictions of Qualification
2.9(a) Additional Liabilities
2.9(b) Liabilities covered by Insurance
2.9(c) Accounts Payable
2.11 Distributions
2.12 Contracts
2.14 Real Property
2.16 Tax Matters
2.17(a) Permits and Licenses
2.17(b) Jurisdictions Licensed to Provide Health Care
2.18 ERISA, Benefit Plans and Other Matters
2.19 Intellectual Property
2.19(d) Software
2.20 Environmental Matters
2.21 Affiliated Transactions
2.22 Banking Arrangements
2.23 Insurance
2.24 Consents
2.26 Accounts Receivable
2.28 Improper Payments
2.29 Participation in Audits
2.30(a) Fraud and Abuse
2.30(b) Third-Party Payors
2.30(c) Medicare and Medicaid Compliance
2.30(d) Rate Limitations and Rates
3.2 Subsidiaries of AmeriPath
7.3 Third Party Consents
7.4 Regulatory Approvals
7.12 Creditor Consents
7.13 Vehicles and Personal Property
EXHIBITS
1.2 Form of 7% Non-Negotiable Subordinated Contingent Promissory Note
2.1 Gulf Coast's Articles of Incorporation, as amended, and By-laws
2.9 Gulf Coast Financial Statements
3.7 AmeriPath Financial Statements
6.6 Form of Employment Agreement
7.6 Opinion of Seller's Counsel
7.10 Subordination Agreement
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<PAGE> 7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the " Agreement") is dated as of
October__, 1996, by and among AMERIPATH, INC., a Delaware corporation, or its
permitted assigns ("AmeriPath" or the "Purchaser"), GULF COAST PATHOLOGY
ASSOCIATES, INC., a Florida corporation f/k/a FERNANDEZ & KALEMERIS, M.D., P.A.
("Gulf Coast"), and all of the shareholders of Gulf Coast (set forth on Schedule
1.1 hereto) who together hold two thousand (2,000) shares, par value $1.00 per
share, of Gulf Coast (each shareholder shall be referred to herein as the
"Seller" and collectively, the "Sellers").
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock of Gulf Coast; Gulf Coast, although presently organized as a
professional service corporation under Chapter 621 of the Florida Statutes,
will, immediately prior to the closing of the transactions contemplated by this
Agreement, upon the terms and subject to the conditions set forth herein,
convert itself to a regular business corporation organized under Chapter 607 of
the Florida Statutes;
WHEREAS, AmeriPath desires to purchase and acquire from the Sellers,
and the Sellers desire to sell, transfer and deliver to AmeriPath, all of the
issued and outstanding shares of capital stock of Gulf Coast, upon the terms
and subject to the conditions set forth herein;
WHEREAS, although the parties hereto have agreed as to the minimum
value of Gulf Coast, they are not able to agree as to the total value of Gulf
Coast, and thus the parties hereto have agreed to certain additional contingent
purchase price consideration based upon the results of operations of Gulf Coast
as more fully set forth herein; and
WHEREAS, following the closing of the transactions contemplated by
this Agreement, (i) Gulf Coast shall be and become a wholly-owned subsidiary of
AmeriPath, and (ii) such wholly-owned subsidiary shall be merged with and into
another wholly-owned subsidiary of AmeriPath, AmeriPath Florida, Inc.
("AmeriPath Florida"), with AmeriPath Florida surviving such merger.
NOW, THEREFORE, for and in consideration of the mutual benefits to be
derived hereby and the premises, representations, warranties, covenants and
agreements herein contained, AmeriPath, the Sellers and Gulf Coast hereby
agree, intending to be legally bound, as follows:
ARTICLE I
PURCHASE OF CAPITAL STOCK
1.1 Purchase and Sale of Capital Stock.
(a) Subject to the terms and conditions of this
Agreement, the Sellers agree to sell, transfer and deliver to the
Purchaser, and the Purchaser agrees to purchase, acquire
<PAGE> 8
and accept delivery from the Sellers, all of the issued and
outstanding capital stock of Gulf Coast (the "Gulf Coast Shares")
owned or held by such Seller, which number of Gulf Coast Shares to be
sold and purchased hereunder is set forth opposite each such Seller's
name on Schedule 1.1 attached hereto.
(b) Upon the sale, transfer and delivery to the Purchaser
by the Sellers of the Gulf Coast Shares at the Closing (as such term
is defined in Section 9.1 hereof), and in consideration therefor,
AmeriPath shall deliver to the Sellers the following consideration in
the aggregate (which aggregate consideration shall be divided between
the Sellers in the amounts and as indicated on Schedule 1.1 attached
hereto) (the "Purchase Price"):
(i) EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS
($8,500,000.00), by cashier's check or by wire transfer;
(ii) Certificates evidencing 200,000 shares of
Common Stock, par value $.01 per share, of AmeriPath (the
"AmeriPath Stock");
(iii) Two (2) 7% Non-Negotiable Subordinated
Contingent Promissory Notes, in the form attached hereto as
Exhibit 1.2 (the "Contingent Notes"), in the aggregate maximum
principal amount of SIX MILLION SEVEN HUNDRED FIFTY THOUSAND
DOLLARS ($6,750,000.00) ($3,375,000.00 for each Seller), the
issuance and certain terms and conditions of which Contingent
Notes are set forth in Section 1.2 below; and
(iv) Up to 450,000 shares of AmeriPath Stock,
issuable over five years subject to the satisfaction of
certain contingencies, subject to and in accordance with
Section 1.3 hereof.
(c) Additional Purchase Price. The parties hereto agree
to increase the Purchase Price by the amount by which the Closing Date
Receivables (as defined in Section 6.12) which are collected by the
Purchaser (the "Collected Receivables") exceed $960,000. Such amount
shall be additional Purchase Price and shall be paid to the Sellers
pro rata.
(d) Documentary Stamp Taxes. The Purchaser hereby
acknowledges that it is its belief that Florida law does not require
the payment of documentary stamp taxes in connection with the
execution and delivery of the Contingent Notes due to the contingent
nature of the obligation. Notwithstanding the foregoing, the
Purchaser agrees to pay any and all such documentary stamp taxes, or
other similar taxes, if any, that may become due or payable in
connection with the execution and delivery of the Contingent Notes or
this Agreement, and the Purchaser agrees to indemnify and hold
harmless the Sellers and Gulf Coast from and against any and all such
taxes. The Purchaser shall also be responsible for and shall pay all
Florida documentary stamp taxes due and payable and required to be
affixed with respect to the contingent issuance of AmeriPath Stock.
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<PAGE> 9
1.2 The Contingent Notes.
(a) Principal Amounts; Issuance. The aggregate maximum
principal amount of the Contingent Notes to be issued and delivered by
the Purchaser to the Sellers pursuant to Section 1.1(b)(iii) hereof at
the Closing shall be SIX MILLION SEVEN HUNDRED FIFTY THOUSAND DOLLARS
($6,750,000.00) ($3,375,000.00) for each Seller). At the Closing, the
Purchaser shall deliver to each Seller a Contingent Note, due on
December 31, 2001, which Contingent Notes shall be in the form of
Exhibit 1.2 hereto. The Contingent Notes shall be due and payable in
the applicable principal amount specified in or calculated pursuant to
the Contingent Notes and the Annexes to such Contingent Notes (the "
Appropriate Principal Amount") corresponding to a target range of
Operating Earnings (as defined below) or Cumulative Operating Earnings
(as defined below), as the case may be, specified in the Contingent
Notes and the Annexes thereto, with respect to each of the five
periods ending September 30, 1997 through September 30, 2001, if, and
only if, (i) with respect to the twelve months ending September 30,
1997, Operating Earnings for such year equal or exceed the specified
minimum target amount of $2,450,000.00 (the "Year-1 Minimum Target")
or, (ii) with respect to the 24 month period ending September 30,
1998, the 36 month period ending September 30, 1999, the 48 month
period ending September 30, 2000 and the 60 month period ending
September 30, 2001, Cumulative Operating Earnings for such periods
equal or exceed $4,900,000.00, $7,350,000.00, $9,800,000.00 and
$12,250,000.00, respectively (together with the Year-1 Minimum Target,
as relevant to the applicable period, the "Minimum Targets"). In the
event that AmeriPath elects to sell or terminate one or more of the
clinical laboratory operations of Gulf Coast, the parties shall use
their best efforts to agree upon equitable adjustments to the Minimum
Targets with respect to all periods that follow such change. For each
of the periods ending September 30, 1997 through September 30, 2001
for which Operating Earnings or Cumulative Operating Earnings, as the
case may be, are less than the applicable Minimum Target, no principal
payment(s) shall be required, due or made under the Contingent Notes,
with respect to that period, and any and all interest with respect
thereto or accrued thereon, which otherwise would have become due or
payable had the applicable Minimum Target been achieved for such
period, shall be canceled and voided. Notwithstanding anything to the
contrary herein or in the Contingent Notes, the aggregate maximum
principal amount due or payable under the Contingent Notes shall not
exceed $6,750,000.00.
(b) "Operating Earnings"; "Cumulative Operating
Earnings".
(i) Definition of "Operating Earnings". For
purposes hereof (and Section 1.3 and the Contingent Notes),
the term "Operating Earnings", with respect to any period,
shall mean the income of or attributable to Gulf Coast, which
following the Closing shall be a division of AmeriPath, for
such full twelve month period (i.e., October 1 through
September 30), before deduction for (in each case, with
respect to Gulf Coast) (i) interest accrued or paid in such
year, (ii) income tax payable for such year, (iii) charges for
amortization of goodwill, including
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<PAGE> 10
without limitation any amortization of goodwill recorded in connection
with this transaction or amortization of any payments made under the
Contingent Notes, (iv) any extraordinary items, as such term is used
in accordance with GAAP (as defined in Section 12.3 hereof), with
respect to Gulf Coast, and (v) any fees or expenses incurred by Gulf
Coast in connection with the transactions contemplated by this
Agreement. All such calculations shall be determined in accordance
with GAAP. For purposes hereof (and Section 1.3 and the Contingent
Notes), the term "Gulf Coast," with respect to Operating Earnings or
Cumulative Operating Earnings, shall mean and include the business,
operations, contracts, assets and liabilities of Gulf Coast (as such
is constituted immediately prior to the Closing), which following the
Closing shall consist of the business, operations, contracts, assets
and liabilities of, and the results of operations, revenues and
expenses associated with, (i) the contracts with hospitals and medical
facilities in effect from time to time, to which Gulf Coast, prior to
the Closing, and AmeriPath Florida, following the Closing, is a party,
and which are serviced by the physicians who from time to time are
employed by AmeriPath Florida and who report to the managing director
for AmeriPath Florida's Gulf Coast Division (as defined below)
(collectively, such physicians being referred to herein as the "Gulf
Coast-Based Pathologists"), and (ii) AmeriPath Florida's employment
of, and employment agreements with, any and all Gulf Coast-Based
Pathologists. For purposes hereof (and Section 1.3 and the Contingent
Notes), the term "Gulf Coast Division" shall mean and include that
portion of the business and operations of AmeriPath Florida which,
prior to consummation of the transactions contemplated by this
Agreement, constituted the business and operations of Gulf Coast
Pathology Associates, Inc. f/k/a Fernandez & Kalemeris, M.D., P.A.
(ii) Calculation of Operating Earnings. A
statement of the Operating Earnings, prepared by AmeriPath
senior management, will be delivered to the Sellers as soon as
practicable following the end of each period, but in all events within
90 days after the end of each such period. If the Sellers wish to
challenge the calculation of Operating Earnings, he may do so by giving
written notice of such objection (the "Objection Notice") to AmeriPath,
signed by the Sellers, within 20 days after receipt of such statement
of Operating Earnings. The Objection Notice shall set forth in
reasonable detail the Sellers' calculation of Operating Earnings (or
Cumulative Operating Earnings, as the case may be). If an Objection
Notice is so timely delivered to AmeriPath, AmeriPath and the Sellers
shall use their best efforts to resolve as soon as practicable any
difference of opinion. If they are unable to resolve such difference
within 20 days after receipt by AmeriPath of the Objection Notice from
the Sellers, the matter shall be referred to the independent public
accounting firm who then audits the annual financial statements of
AmeriPath, whose decision shall be final and binding on all parties.
If an Objection Notice is not timely delivered to AmeriPath, and if the
statement of Operating Earnings prepared by AmeriPath senior management
indicates that the Minimum Target has been met for a given period, then
the Appropriate
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<PAGE> 11
Principal Amount (together with accrued and unpaid
interest thereon) of the Contingent Notes with respect to
such period shall be paid within five (5) days after the
earlier of the end of the 20-day period within which the
Sellers are entitled to deliver an Objection Notice, or
receipt by AmeriPath of notice from the Sellers that they
accept the calculation of Operating Earnings. If the
Sellers object to the calculation of Operating Earnings for
the purpose of determining compliance with this Section, the
Appropriate Principal Amount of the Contingent Notes for
such period shall be paid within ten (10) days after
resolution of the dispute with respect to such calculation
to the extent, and solely to the extent, that such
resolution indicates that the Minimum Target has been
exceeded for such period. AmeriPath agrees that the
Sellers, upon reasonable notice, during normal business
hours, shall have the right to examine all of the relevant
business, accounting and financial records of AmeriPath or
AmeriPath Florida solely to the extent related to the
Operating Earnings or Cumulative Operating Earnings or the
calculation thereof.
(iii) Cumulative Operating Earnings. For purposes
hereof, the term "Cumulative Operating Earnings" shall mean
and include, with respect to the 24 month period ending
September 30, 1998, the 36 month period ending September 30,
1999, the 48 month period ending September 30, 2000 and the
60 month period ending September 30, 2001, the Operating
Earnings of Gulf Coast, on a cumulative basis, from October
1, 1996 through the end of such period (e.g., the Cumulative
Operating Earnings for the period ending September 30, 1998
shall equal the Operating Earnings, on a cumulative basis,
from October 1, 1996 through September 30, 1998 (i.e.,
twenty four full months of Operating Earnings would be
included)).
(iii) Other Adjustments; Limitations. For purposes
of calculating Operating Earnings (and, as relevant,
Cumulative Operating Earnings) hereunder, the expenses
associated with Gulf Coast may include costs, expenses and
charges relating to management, billing or other services
provided by AmeriPath or its Affiliates (as such term is
defined in Section 12.3 hereof) to the extent both (i) such
services are provided to or for the benefit of the Gulf
Coast Division and (ii) the price or amount charged or
allocated with respect to such services is based upon the
fair market value thereof and is competitive with the price
or amount that would be charged for such services by a
Person not affiliated with the Purchaser on an arms'-length,
negotiated basis.
(c) Effect of Sale on Contingent Notes. Should Person
(as such term is defined in Section 12.3 hereof) acquire AmeriPath,
whether by means of a merger with or into AmeriPath in which
AmeriPath does not survive or the acquisition of all or
substantially all of the stock or assets of AmeriPath (an
"AmeriPath Acquisition"), then, with respect to the Contingent
Notes, as a condition to consummation of the AmeriPath Acquisition,
the acquiring Person shall be required to either (i) acknowledge and
- 5 -
<PAGE> 12
guarantee AmeriPath's on-going obligations under the Contingent Notes
or (ii) assume the obligations under the Contingent Notes.
(d) Effect of Acquisitions on Contingent Notes. In the
event that AmeriPath acquires one or more Persons or businesses after
the Closing Date, Operating Earnings will be calculated without
including (i) the income generated by, or expenses incurred in
connection with, the acquisition or the acquired Person or business,
and (ii) any selling, general or administrative expenses which do not
relate to Gulf Coast or its business.
(e) Interest. The Contingent Notes shall bear interest
from the date of issuance until maturity, computed on the basis of a
360-day year and the actual number of days elapsed, on the unpaid
Appropriate Principal Amount thereof at the rate of seven percent
(7.0%) per annum. Interest shall accrue and compound annually, and
shall be payable only upon payment of principal, if any. In the event
Operating Earnings or Cumulative Operating Earnings are less than the
applicable Minimum Target for any given year, interest on the
principal amount of the Contingent Notes for such year shall be
canceled and voided.
(f) Maturity, Redemption and Prepayments. For each
period for which Operating Earnings or Cumulative Operating Earnings
equal or exceed the applicable Minimum Target, the Appropriate
Principal Amount of the Contingent Notes, together with interest
accrued on such Appropriate Principal Amount, shall become due and
payable and shall be paid as provided in subparagraph (a) above. If,
in the judgment of a majority of the full Board of Directors of
AmeriPath (which judgment is made based upon the written advice of
counsel, a copy of which shall be provided to the Sellers), it is
determined that the Contingent Notes, or the holding of the Contingent
Notes by the Sellers, may violate any Regulation or Order of any
Authority (as such terms are defined in Section 12.3), then, at
AmeriPath's sole discretion (as recommended by counsel to Ameripath),
the Contingent Notes may be canceled and voided and the Board of
Directors of AmeriPath, in their sole and absolute discretion acting
in good faith, shall provide the Sellers a reasonably equivalent
economic and financial substitute consideration therefor. In its sole
and absolute discretion, AmeriPath may prepay the Contingent Notes by
paying, in the aggregate, $900,000.00 for each year remaining under
the Contingent Notes. AmeriPath shall give the Sellers irrevocable
written notice of any prepayment permitted hereunder not less than
three (3) business days prior to the prepayment date, specifying such
prepayment and the amount of the Contingent Notes proposed to be
prepaid on such date, whereupon such principal amount of the
Contingent Note specified in such notice, together with accrued
interest thereon, shall become due and payable on the prepayment date.
The aggregate amount of each partial prepayment shall be allocated
among each of the holders of the Contingent Notes at the time
outstanding pro rata in proportion to the unpaid principal amounts of
the Contingent Notes held by each of such holders.
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(g) Payments. All payments of principal (including any
prepayments or redemptions), and interest under the Contingent Notes
shall be made by AmeriPath in lawful money of the United States of
America in immediately available funds (or at the written request of
the holders thereof, by cashier's or bank check) not later than twelve
o'clock noon, Miami, Florida time, on the date each such payment is
due. To the extent calculation of any payment amounts (whether
principal, interest or otherwise) results in fractions of a cent, the
amount shall be rounded down to the nearest whole cent.
(h) Subordination; Subordination Agreement. The
Contingent Notes shall be subordinate and junior in right of payment
to certain senior indebtedness pursuant to a subordination agreement
(the "Subordination Agreement "), by and among AmeriPath's senior
lenders and each of the holders of promissory notes of AmeriPath. As
a condition to AmeriPath's obligations under the Contingent Notes, the
Sellers agree to execute and deliver appropriate documents and
agreements evidencing the subordination of the Contingent Notes to
such senior indebtedness of AmeriPath.
(i) Notes Non-negotiable. The Contingent Notes shall be
non-transferable and non-negotiable other than by will or the laws of
intestate succession.
(j) Right of Set-Off on Sellers' Contingent Notes. With
respect to the Contingent Notes, AmeriPath shall have the right,
following prior written notice to any Seller, to set-off against
principal or interest payable under the Contingent Notes the amount of
any indemnification payment owed under Article XI hereof. Such notice
shall state with reasonable specificity the good faith basis for
AmeriPath's right to such indemnification payment, and a copy of such
notice shall also be sent to each director of AmeriPath. The Seller
shall have the right to respond to such notice, and if the Seller
requests that the exercise of such right of set-off be considered and
approved by the Board of Directors, then such right shall not be
exercised unless considered and approved by a majority of the full
Board of Directors. If within 10 days after receipt of such notice of
set-off, the Seller contests in writing (sent to AmeriPath)
AmeriPath's claim that of indemnification under Article XI hereof,
then the amount which AmeriPath would otherwise have paid to the
Seller but for the exercise of such right of set-off shall be paid
into an interest bearing escrow account maintained by a bank selected
by AmeriPath, to be held in such account until AmeriPath and the
Seller have reached agreement as to the amount, if any, of such
indemnification payment and set-off, or until there has been a
judicial resolution of such matter, at which time the amount held in
such segregated account, together with any interest accrued thereon,
shall be released to the prevailing party, as appropriate and/or
instructed. AmeriPath and the Seller agree that they will use their
best efforts to resolve any such dispute within 30 days of receipt of
notice by AmeriPath of the Seller's objection to the set-off.
(k) Defaults. The Sellers shall be entitled to the
benefit of the Events of Default set forth in the form of Contingent
Notes.
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<PAGE> 14
(l) Conflict. To the extent there is any conflict or
inconsistency between the terms of this Agreement and the terms
specified in the Contingent Notes, the terms specified in the
Contingent Notes shall govern and prevail.
1.3 Contingent Issuance of AmeriPath Stock. As additional
purchase price consideration, the Purchaser shall issue to the Sellers, subject
to the conditions and restrictions set forth in this Section 1.3 (the "Stock
Rights"), up to an aggregate maximum of 450,000 shares of AmeriPath Stock (to
be divided among the Sellers as set forth on Schedule 1.3 hereof). Upon
achieving the range (the "Applicable Range") of Operating Earnings or
Cumulative Operating Earnings, as the case may be, set forth on Schedule 1.3
hereto, with respect to each period commencing the twelve month period ending
September 30, 1997 through the sixty month period ending September 30, 2001,
AmeriPath shall deliver, in the aggregate, certificates evidencing the
corresponding number of shares of AmeriPath Stock indicated on Schedule 1.3
hereto (the "Aggregate Stock Amount") to the Sellers (and to each Seller (the
"Applicable Stock Amount")) as so indicated, which shares shall be subject to
the terms, conditions and restrictions set forth in this Section 1.3.
(a) Delivery; Right to Contingent Issuance Subject to
Cancellation. Certificates for shares representing the Applicable
Stock Amount shall be delivered on or before each January 15 following
each period that the Applicable Range of Operating Earnings or
Cumulative Operating Earnings, as the case may be, has been achieved,
if, and only if, (i) with respect to the twelve months ending
September 30, 1997, Operating Earnings equal or exceed a minimum
target amount of $2,450,000.00 (the " First Year Minimum Stock
Target") or, (ii) with respect to the 24 month period ending September
30, 1998, the 36 month period ending September 30, 1999, the 48 month
period ending September 30, 2000 and the 60 month period ending
September 30, 2001, Cumulative Operating Earnings for such periods
equal or exceed $4,900,000.00, $7,350,000.00, $9,800,000.00 and
$12,250,000.00, respectively (together with the First Year Minimum
Stock Target, as relevant to the applicable period, the "Minimum Stock
Targets").
(b) Effect of Sale on Stock Rights. In the event of an
AmeriPath Acquisition (as such term is defined in Section 1.3(c)),
then, with respect to such Stock Rights that have not theretofore been
canceled or voided because the Minimum Stock Target was not or has not
been met for the period in question, as a condition to consummation of
the AmeriPath Acquisition, the acquiring Person shall be required
either to (i) acknowledge and guarantee AmeriPath's on-going
obligations under the Stock Rights, (ii) assume the obligations under
the Stock Rights or (iii) convert the rights to receive AmeriPath
Stock into rights to receive stock in the acquiring Person (of
substantially equivalent value, based upon the acquisition value, as
determined in good faith by the Board of Directors of AmeriPath).
(c) Effect of Acquisitions on Stock Rights. In the event
that AmeriPath acquires one or more Persons or businesses after the
Closing Date, Operating Earnings will be calculated without including
(i) the income generated by, or expenses incurred in
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connection with, the acquisition or the acquired Person or business,
and (ii) any selling, general or administrative expenses which do not
relate to Gulf Coast or its business.
(d) Termination of Stock Rights; Call on AmeriPath Stock.
For each period for which Gulf Coast's Operating Earnings, or
Cumulative Earnings, as the case may be, exceed the Minimum Stock
Target, the corresponding Applicable Stock Amount shall become earned
and shall be delivered as provided in subparagraph (a) above. If, in
the judgment of a majority of the full Board of Directors of AmeriPath
(which judgment is made based upon the written advice of counsel, a
copy of which shall be provided to the Sellers), it is determined that
the Stock Rights, or the holding of the AmeriPath Stock by the
Sellers, may violate any Regulation or Order of any Authority, then,
at AmeriPath's sole discretion and option (as recommended by counsel
to Ameripath), (i) the Stock Rights may be canceled and voided (and
the parties will endeavor in good faith to arrive at a reasonably
equivalent substitute consideration therefor), and (ii) all
outstanding shares of AmeriPath Stock issued to or held by the Sellers
may be redeemed or purchased by AmeriPath (the "Call"), and the
Sellers hereby irrevocably and unconditionally agree to sell such
stock to AmeriPath upon any such Call, at its then fair market value
(as determined in good faith by AmeriPath's Board of Directors).
AmeriPath shall give the holders of the AmeriPath Stock irrevocable
written notice of any cancellation of the Stock Rights and any Call of
the AmeriPath Stock permitted hereunder not less than three (3)
business days prior to the date of such event, specifying such
termination and/or Call and the amount to be paid for the AmeriPath
Stock on the closing date specified therein, whereupon such amount
specified in such notice, upon receipt by AmeriPath of the
certificates therefor at the closing thereof, shall be paid to the
Sellers.
(e) Payments; Certificates. All payments for AmeriPath
Stock which is "called" by AmeriPath pursuant to Section 1.3(d) shall
be made by AmeriPath in lawful money of the United States of America
in immediately available funds (or at the written request of the
Sellers, by certified or bank check) after proper tender by each
Seller of certificates representing all of the AmeriPath Stock owned
by such Seller, duly endorsed for transfer to the Purchaser, together
with stock powers duly executed in blank. Any and all liens, claims,
encumbrances or other restrictions with respect to the AmeriPath Stock
so called shall be satisfied and released, to the satisfaction of
AmeriPath, prior to closing on the purchase thereof. To the extent
calculation of any payment amounts results in fractions of a cent, the
amount shall be rounded down to the nearest whole cent.
(f) Transferability; Shareholders' Agreement. The Stock
Rights are not transferable by the Sellers other than by will or the
laws of intestate succession. All shares of AmeriPath Stock issued at
Closing or pursuant to the Stock Rights shall, in addition to
applicable securities laws, be subject to the Purchaser's
Shareholders' Agreement (as defined in Section 7.9) relating to the
AmeriPath Stock and related and other matters, including, but not
limited to, any restrictions on transferability, any rights of first
refusal and any option of the Purchaser to purchase such shares. As a
condition to the issuance of shares of the AmeriPath Stock and any
shares in connection with any Stock Right (and
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at AmeriPath's option, at each issuance), the Sellers shall execute
and deliver to the Purchaser a counterpart to the Shareholders'
Agreement, in form and substance satisfactory to AmeriPath, and the
Sellers shall make such representations and execute such certificates
as AmeriPath may reasonably require, including representations similar
to those made in Section 2.25 hereof. The Shareholders' Agreement, by
its terms, shall terminate upon the closing of an underwritten public
offering by AmeriPath pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended (the "
Securities Act") covering the offer and sale of AmeriPath Common Stock
in which the aggregate net proceeds to AmeriPath equal at least
$15,000,000.
(g) Legend. Each and every stock certificate
representing shares of AmeriPath Stock issued to the Sellers pursuant
to Section 1.1(b)(ii) and the Stock Rights shall bear the following
(or similar) restrictive legend, together with such other legend(s) as
the Purchaser shall in its discretion deem appropriate:
"The shares represented by this certificate (the "Shares") are
subject to each and every one of the terms, conditions and
restrictions set forth in the Shareholders' Agreement dated
February 29, 1996 (the "Shareholders' Agreement"), as amended,
including, but not limited to, any restrictions on
transferability, any rights of first refusal and any option of
AmeriPath to "call" or purchase such Shares, and may not, in
whole or in part, be sold, transferred, pledged, gifted,
hypothecated or otherwise disposed of in any manner other than
in accordance with the terms of the Shareholders' Agreement, a
copy of which is on file and available for inspection at the
principal offices of AmeriPath presently located at 800
Cypress Creek Road, Suite 200, Fort Lauderdale, Florida
33334."
Upon termination of the Shareholders' Agreement,
Sellers may present any certificates representing AmeriPath Stock to
AmeriPath for replacement with certificates that do not contain the
foregoing legend.
(h) Antidilution; Adjustments Upon Changes in
Capitalization or Merger. Subject to any required action by the
stockholders of the Purchaser, the number of shares of AmeriPath Stock
covered by the Stock Right, the price per share and the aggregate
number of shares which have been authorized for issuance hereunder,
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of AmeriPath Stock resulting from a stock
dividend or through any recapitalization, reclassification, stock
split- up, combination or exchange of shares (other than any such
combination or exchange of AmeriPath Stock through which shares are
issued to effect an acquisition of another Person). Such adjustment
shall be made by the Board of Directors of AmeriPath, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Purchaser of
shares of stock of any class, or securities convertible into shares of
stock of any class (whether
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in connection with an acquisition, employee benefit, stock or stock
option plan, private or public offering of securities, or otherwise),
shall affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of AmeriPath Stock subject to this
Stock Right. Price per share calculations used in this Agreement
shall also be adjusted to reflect changes in the capitalization of the
Purchaser such that (on an aggregate basis) the value of such shares
before the adjustment event shall equal the value of such shares
immediately after such adjustment event.
(i) Reservation of Shares. The Purchaser will at all
times reserve for issuance and delivery all shares of AmeriPath Stock
from time to time receivable hereunder. All such shares shall be duly
authorized and, when issued, shall be validly issued, fully paid and
non-assessable and free of all preemptive rights.
(j) Fractional Shares. No fractional shares or scrip
representing fractional shares shall be issued hereunder, but the
Purchaser shall round down to the nearest whole number the number of
shares of AmeriPath Stock required to be issued and delivered in
accordance with Schedule 1.3.
(k) Rights of the Sellers. The Sellers shall not, solely
by virtue of the Stock Rights, be entitled to any rights of a
stockholder in the Company, either at law or in equity, until
AmeriPath Stock is issued and delivered to the Sellers and the rights
of the Sellers are limited to those expressed in this Agreement.
(l) Failure to Deliver. If the Sellers become obligated
to sell any AmeriPath Stock to the Purchaser as a result of the
exercise of a Call under this Agreement or otherwise, and a Seller
fails to deliver such stock (or the certificates evidencing such
stock) in accordance with the terms of this Agreement, the Purchaser
may, at the sole and absolute discretion of the Board of Directors of
AmeriPath, in addition to all other remedies available to the
Purchaser, tender to such Seller the purchase price for such shares as
is herein specified. Upon tender of such purchase price to such
Seller, the Purchaser, upon written notice to such Seller, may cancel
on its books the certificate or certificates evidencing the shares of
AmeriPath Stock so called, and thereupon all of the Seller's rights in
and to such AmeriPath Stock shall terminate.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND GULF COAST
The Sellers hereby make the following representations and warranties
to the Purchaser, each of which shall be deemed material (and the Purchaser, in
executing, delivering and consummating this Agreement, has relied and will rely
upon the correctness and completeness of each of such representations and
warranties notwithstanding any independent investigation):
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2.1 Corporate Organization, Qualification, etc. Gulf Coast is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Florida with full corporate power and authority to carry
on its business as it is now being conducted and proposed to be conducted, and
to own, operate and lease its properties and assets. Gulf Coast is duly
qualified or licensed to do business in good standing in the jurisdictions set
forth on Schedule 2.1 attached hereto, those being every jurisdiction in which
the conduct of Gulf Coast's business, the ownership or lease of its properties,
the proposed conduct of its business or ownership or lease of its properties,
or the transactions contemplated by this Agreement, require it to be so
qualified or licensed and the failure to be so qualified or licensed would have
a Material Adverse Effect (as defined in Section 12.3). Other than as
contemplated by Section 4.9 of this Agreement, Gulf Coast's articles of
incorporation have not been amended or supplemented and are in full force and
effect as of the date hereof. True, complete and correct copies of Gulf
Coast's articles of incorporation and by-laws, as presently in effect, are
attached hereto as Exhibit 2.1.
2.2 Subsidiaries. Gulf Coast has no Subsidiaries (as defined in
Section 12.3) nor any investment or other interest in, or any outstanding loan
or advance to or from, any Person, including any officer, director or
shareholder.
2.3 Capital Stock. As of the date hereof, the authorized capital
stock of Gulf Coast consists of seven thousand five hundred (7,500) shares,
$1.00 per share par value. The stock record book of Gulf Coast has been
delivered to the Purchaser for inspection prior to the date hereof and is
complete and correct, and all requisite Federal and State documentary stamps
have been affixed thereon and canceled. The Gulf Coast Shares constitute all
of the issued and outstanding shares of capital stock of Gulf Coast, and all of
the Gulf Coast Shares are owned beneficially and of record by the Sellers.
2.4 Corporate Record Books. The corporate minute books of Gulf
Coast have been made available to the Purchaser, are complete and correct and
contain all of the proceedings of the shareholders and directors of Gulf Coast.
2.5 Title to Stock. All of the issued and outstanding shares of
the capital stock of Gulf Coast that are, and at the Closing will be, owned by
the Sellers are duly authorized, validly issued, fully paid and nonassessable,
and are free of all Liens (as defined in Section 12.3). Upon delivery of the
Purchase Price to the Sellers at the Closing, the Sellers will convey, and the
Purchaser will own and hold, good and marketable title to the Gulf Coast
Shares, free and clear of all Liens or contractual restrictions or limitations
whatsoever.
2.6 Options and Rights. There are no outstanding subscriptions,
options, warrants, rights, securities, contracts, commitments, understandings
or arrangements under which Gulf Coast is bound or obligated to issue any
additional shares of its capital stock or rights to purchase shares of its
capital stock. There are no agreements, arrangements or understandings between
the Sellers and/or Gulf Coast and any other Person regarding the Gulf Coast
Shares (or the transfer, disposition, holding or voting thereof).
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2.7 Authorization, Etc. Gulf Coast has full power and authority
and the Sellers have full capacity to enter into this Agreement and the
agreements and documents contemplated hereby and perform their respective
obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and all other agreements and transactions contemplated hereby
have been duly authorized by the Board of Directors of Gulf Coast and no other
corporate proceedings on its part are necessary to authorize this Agreement and
the transactions contemplated hereby. The Sellers are entering into this
Agreement on their own volition, free from any undue influence or coercion.
Upon execution and delivery of this Agreement by the parties hereto this
Agreement and all other agreements contemplated hereby shall constitute the
legal, valid and binding obligation of each of Gulf Coast and the Sellers party
thereto, enforceable against each such party in accordance with their
respective terms.
2.8 No Violation. The execution and delivery by Gulf Coast and
the Sellers of this Agreement, and any and all other agreements contemplated
hereby, and the fulfillment of and compliance with the respective terms hereof
and thereof by Gulf Coast and the Sellers do not and will not, (a) conflict
with or result in a breach of the terms, conditions or provisions of, (b)
constitute a default or event of default under (with due notice, lapse of time
or both), (c) result in the creation of any Lien upon the capital stock or
assets of Gulf Coast pursuant to, (d) give any third party the right to
accelerate any obligation under, (e) result in a violation of, or (f) require
any authorization, consent, approval, exemption or other action by or notice to
any court or Authority pursuant to, the articles of incorporation or by-laws of
Gulf Coast or any Regulation, Order or Contract (as defined in Section 12.3) to
which Gulf Coast or the Sellers are subject. Gulf Coast and the Sellers will
comply with all applicable Regulations and Orders in connection with the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
2.9 Financial Statements. Attached as Exhibit 2.9 hereto are the
following financial statements of Gulf Coast: (i) balance sheets (prepared on
a cash basis) for the fiscal years ended June 30, 1995 and June 30, 1996 (the
"Balance Sheets"), (ii) statements of revenues and expenses and related
schedules thereto (prepared on a cash basis) for the fiscal years ended June
30, 1995 and June 30, 1996 (the "Statements of Revenues and Expenses"), and
(iii) statements of cash flows for fiscal years ended June 30, 1995 and June
30, 1996 (the "Statements of Cash Flows" and, collectively with the Balance
Sheets and the Statements of Revenues and Expenses, the "Financial
Statements"). The balance sheets included in the Financial Statements fairly
present the financial position of Gulf Coast on a cash basis as at the
respective dates thereof, and the statements of revenues and expenses included
in the Financial Statements (x) fairly present the results of operations for
the periods therein referred to, on a cash basis (except as stated therein or
in the notes or schedules thereto) applied on a consistent basis, and (y)
fairly present the financial condition of Gulf Coast at the respective date of
on a cash basis, and for the period covered by, such statements. Gulf Coast
has no liability, whether accrued, absolute or contingent, of a type required
to be reflected on a balance sheet or described in the notes thereto in
accordance with GAAP, other than (i) liabilities incurred since June 30, 1996,
other than in the ordinary course of business, disclosed on Schedule 2.9(a)
attached hereto, and (ii) liabilities covered by insurance or reinsurance (a
complete and detailed description of which is provided
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in Schedule 2.9(b)). Schedule 2.9(c) contains a complete list of the accounts
payable of Gulf Coast as of September 30, 1996 and a summary description as of
the date that is two business days prior to the Closing Date.
2.10 Employees. Gulf Coast has been for the past four years, and
currently is, in compliance with all Federal, State and local Regulations and
Orders affecting employment and employment practices of Gulf Coast (including
those Regulations promulgated by the Equal Employment Opportunity Commission),
including terms and conditions of employment and wages and hours. Gulf Coast
maintains a "pension" or "welfare" benefit plans within the respective meanings
of sections 3(2) and 3(1) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
2.11 Absence of Certain Changes. Since June 30, 1996, there has
not been (a) any Material Adverse Change (as defined in Section 12.3) in the
business, financial condition, revenues, expenses, accounts receivable,
accounts payable or operations of Gulf Coast; (b) any damage, destruction or
loss, whether covered by insurance or not, having a Material Adverse Effect,
with regard to Gulf Coast's properties and business; (c) any payment by Gulf
Coast to, or any notice to or acknowledgment by Gulf Coast of any amount due or
owing to, Gulf Coast's self-insured carrier, if any, in connection with any
self-insured amounts or liabilities under health insurance covering employees
of Gulf Coast, in each case, in excess of a reserve therefor on the balance
sheet for the fiscal year ended June 30, 1996 included in the Financial
Statements; (d) other than as set forth on Schedule 2.11, any declaration,
setting aside or payment of any dividend or distribution (whether in cash,
stock or property) in respect of Gulf Coast's capital stock, or any redemption
or other acquisition of such capital stock by Gulf Coast; (e) any increase in
the rate of compensation or in the benefits payable or to become payable by
Gulf Coast to its directors, officers, employees or consultants; (f) any
amendment, modification or termination of any existing, or entering into any
new, contract, agreement, arrangement or plan relating to any salary, bonus,
insurance, pension, health or other employee welfare or benefit plan for or
with any directors, officers, employees or consultants of Gulf Coast; (g) any
entry into any material Contract not in the ordinary course of business,
including without limitation relating to any borrowing or capital expenditure;
(h) any disposition by Gulf Coast of any asset; or (i) any change by Gulf Coast
in accounting methods or principles.
2.12 Contracts.
(a) Except as set forth in Schedule 2.12 hereto, Gulf
Coast is neither a party to nor subject to any written or oral:
(i) pension, profit sharing, bonus, retirement,
stock option, stock purchase or other plan providing for
deferred or other compensation to employees or any other
employee benefit plan (other than as set forth in Schedule
2.18 hereto), or any Contract with any labor union;
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(ii) employment or consultation agreement, or
other compensation Contract, commitment or arrangement, which
is not terminable on notice of 30 days' or less by Gulf Coast
without penalty or other financial obligation (and, except as
set forth on Schedule 2.12, no officer or employee of Gulf
Coast receives total salary, bonus and other compensation from
Gulf Coast of $30,000.00 or more per annum).
(iii) Contract containing covenants or agreements
limiting the freedom of Gulf Coast or any of its employees to
compete in any line of business presently conducted by Gulf
Coast with any Person or to compete in any such line of
business in any area;
(iv) Contract with the Sellers or with any
affiliate or relative of the Sellers (except for any Contract
disclosed in Schedule 2.12 pursuant to clauses (ii) or (iii)
of this Section 2.12(a);
(v) Contract relating to or providing for loans
to officers, directors, employees or Affiliates;
(vi) Contract under which Gulf Coast has advanced
or loaned, or is obligated to advance or loan, funds to any
Person;
(vii) Contract relating to the incurrence,
assumption or guarantee of any indebtedness, obligation or
liability (in respect of money or funds borrowed), or
otherwise pledging, granting a security interest in or placing
a Lien on any asset of Gulf Coast;
(viii) guarantee or endorsement of any obligation;
(ix) Contract under which Gulf Coast is lessee of
or holds or operates any property, real or personal, owned by
any other party, except for any lease of real or personal
property under which the aggregate annual rental payments do
not exceed $7,500.00;
(x) Contract pursuant to which Gulf Coast is
lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by Gulf Coast;
(xi) assignment, license, indemnification or
Contract with respect to any intangible property (including,
without limitation, any Proprietary Rights (as defined in
Section 12.3));
(xii) warranty Contract with respect to its
services rendered (or to be rendered) or its products sold or
leased;
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(xiii) Contract which prohibits, restricts or limits
in any way the payment of dividends or distributions by Gulf
Coast;
(xiv) Contract under which it has granted any
Person any registration rights (including piggyback rights)
with respect to any securities;
(xv) Contract for the purchase, acquisition or
supply of inventory and other property and assets, whether for
resale or otherwise in excess of $7,500.00;
(xvi) Contracts with independent agents, brokers,
dealers or distributors;
(xvii) sales, commissions, advertising or marketing
Contracts;
(xviii) Contracts providing for "take or pay" or
similar unconditional purchase or payment obligations;
(xix) Contracts with Persons with which, directly
or indirectly, a Seller also has a Contract;
(xx) Contract with a hospital, physician or other
health care provider or Person pursuant to which the cost of
providing health care services to the patients covered by such
Contract is assumed in whole or in part by such provider; or
(xxi) any other Contract which is material to Gulf
Coast's operations or business prospects, except those which
(x) were made in the ordinary course of business, (y) are
terminable on 30 days' or less notice by Gulf Coast without
penalty or other financial obligation, and (z) in each case,
involve aggregate payments by or to Gulf Coast of $7,500.00 or
less.
(b) No consent of any party to any Contract is required
in connection with the execution, delivery or performance of this
Agreement, or the consummation of the transactions contemplated
hereby.
(c) Except as set forth on Schedule 2.12(c), Gulf Coast
has performed in all material respects all obligations required to be
performed by it and is not in default in any respect under or in
breach of nor in receipt of any claim of default or breach under any
material Contract to which Gulf Coast is subject (including without
limitation all performance bonds, warranty obligations or otherwise);
no event has occurred which with the passage of time or the giving of
notice or both would result in a default, breach or event of non-
compliance under any material Contract to which Gulf Coast is subject
(including without limitation all performance bonds, warranty
obligations or otherwise); Gulf Coast does not have any present
expectation or intention of not fully performing all such obligations;
Gulf Coast does not have any knowledge of any breach or anticipated
breach by the other parties to any such Contract to which it is a
party.
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2.13 True and Complete Copies. Copies of all Contracts and
documents delivered and to be delivered hereunder by the Sellers or Gulf Coast
are and will be true and complete copies of such agreements, contracts and
documents.
2.14 Title and Related Matters.
(a) Gulf Coast has good and marketable title to all of
the properties and assets reflected in the balance sheet for the
fiscal year ended June 30, 1996 included in the Financial Statements
or acquired after the date thereof and for properties sold or
otherwise disposed of since the date thereof in the ordinary course of
business, free and clear of all Liens, except (i) statutory Liens not
yet delinquent, (ii) such imperfections or irregularities of title,
Liens, easements, charges or encumbrances as do not detract from or
interfere with the present use of the properties or assets subject
thereto or affected thereby, otherwise impair present business
operations at such properties; or do not detract from the value of
such properties and assets, taken as a whole, or (iii) as reflected in
the balance sheet for the fiscal year ended June 30, 1996 included in
Financial Statements or the notes thereto.
(b) Gulf Coast owns, and will on the Closing Date own,
good and marketable title to all the personal property and assets,
tangible or intangible, used in its business except as to those assets
leased, all of which leases are in good standing and no party is in
default thereunder, and except for those assets owned by the hospitals
within which Gulf Coast provides services, all of which assets Gulf
Coast has the right to use and will continue to have the right to use
after the Closing Date. None of the assets belonging to or held by
Gulf Coast is or will be on the Closing Date subject to any (i)
Contracts of sale or lease, or (ii) Liens. Except for normal
breakdowns and servicing requirements, all machinery and equipment
regularly used by Gulf Coast in the conduct of its business is in good
operating condition and repair, ordinary wear and tear excepted.
(c) There has not been since June 30, 1996, and will not
be prior to the Closing Date, any sale, lease, or any other
disposition or distribution by Gulf Coast of any of its assets or
properties and any other assets now or hereafter owned by it, except
transactions in the ordinary and regular course of business or as
otherwise consented to by the Purchaser. After the Closing, Gulf
Coast, as the wholly-owned subsidiary of the Purchaser, will own, or
have the unrestricted right to use, all properties and assets that are
currently used in connection with the business of the Sellers.
(d) Schedule 2.14 attached hereto sets forth a
description of all real property owned or leased by Gulf Coast.
2.15 Litigation. There is no Claim (as defined in Section 12.3)
pending or, to the best knowledge of the Sellers and Gulf Coast, threatened
against either of the Sellers or Gulf Coast which, if adversely determined,
would have a Material Adverse Effect on Gulf Coast. Nor is
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there any Order outstanding against either the Sellers or Gulf Coast having, or
which, insofar as can reasonably be foreseen, in the future may have, a
Material Adverse Effect on Gulf Coast.
2.16 Tax Matters.
(a) Gulf Coast has filed all federal, state, and local
tax reports, returns, information returns and other documents
(collectively, the "Tax Returns") required to be filed with any
federal, state, local or other taxing authorities (each a "Taxing
Authority", collectively, the "Taxing Authorities") in respect of all
relevant taxes, including without limitation income, premium, gross
receipts, net proceeds, alternative or add-on minimum, ad valorem,
value added, turnover, sales, use, property, personal property
(tangible and intangible), stamp, leasing, lease, user, excise, duty,
franchise, transfer, license, withholding, payroll, employment, fuel,
excess profits, occupational and interest equalization, windfall
profits, severance, and other charges (including interest and
penalties) (collectively, the "Taxes") and in accordance with all tax
sharing agreements to which any Seller or Gulf Coast may be a party.
All Taxes required or anticipated to be paid for all periods prior to
and including the Closing Date have been paid, including any of Gulf
Coast's Taxes that may be due or claimed to be due as a result of the
consummation of the transactions contemplated by this Agreement. All
Taxes which are required to be withheld or collected by Gulf Coast
have been duly withheld or collected and, to the extent required, have
been paid to the proper Taxing Authority or properly segregated or
deposited as required by applicable laws. There are no Liens for
Taxes upon any property or assets of Gulf Coast except for liens for
Taxes not yet due and payable. Neither the Sellers nor Gulf Coast has
executed a waiver of the statute of limitations on the right of the
Internal Revenue Service or any other Taxing Authority to assess
additional Taxes or to contest the income or loss with respect to any
Tax Return. The basis of any depreciable assets, and the methods used
in determining allowable depreciation (including cost recovery), is
correct and in compliance with the Internal Revenue Code of 1986, as
amended and the regulations thereunder (the "Code").
(b) Other than as set forth on Schedule 2.16, no audit of
Gulf Coast or Gulf Coast's Tax Returns by any Taxing Authority is
currently pending or threatened, and no issues have been raised by any
Taxing Authority in connection with any Tax Returns. No material
issues have been raised in any examination by any Taxing Authority
with respect to Gulf Coast which reasonably could be expected to
result in a proposed deficiency for any other period not so examined,
and there are no unresolved issues or unpaid deficiencies relating to
such examinations. The items relating to the business, properties or
operations of Gulf Coast on the Tax Returns filed by or on behalf of
Gulf Coast for all taxable years (including the supporting schedules
filed therewith), available copies of which have been supplied to the
Purchaser, state accurately the information requested with respect to
Gulf Coast and such information was derived from the books and records
of Gulf Coast.
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(c) Gulf Coast has not made nor has become obligated to
make, nor will as a result of any event connected with the Closing
become obligated to make, any "excess parachute payment" as defined in
Section 280G of the Code (without regard to subsection (b)(4)
thereof).
(d) The Sellers shall cause Gulf Coast to file all Tax
Returns and reports with respect to Taxes which are required to be
filed for Tax periods ending on or before the Closing Date (a
"Pre-Closing Tax Return"), and Gulf Coast shall pay all Taxes due in
respect of such Pre-closing Tax Returns to the appropriate Taxing
Authority; and Gulf Coast shall pay all costs associated with the
preparation thereof.
2.17 Compliance with Law and Applicable Government Regulations.
Gulf Coast is presently complying in respect of its operations, equipment,
practices, real property, plants, laboratories, structures, and other property,
and all other aspects of its business and operations, with all applicable
Regulations and Orders, including, but not limited to, Health Care Laws (as
defined in Section 12.3), all Regulations relating to the safe conduct of
business, environmental protection, quality and labeling, antitrust, Taxes,
consumer protection, equal opportunity, discrimination, health, sanitation,
fire, zoning, building and occupational safety where such failure or failures
would individually or in the aggregate have a Material Adverse Effect. There
are no Claims pending, nor to the best knowledge of Gulf Coast are there any
Claims threatened, nor have the Sellers received any written notice, regarding
any violations of any Regulations and Orders enforced by any Authority claiming
jurisdiction over Gulf Coast, including any requirement of OSHA or any
pollution and environmental control agency (including air and water).
(a) Schedule 2.17(a) attached hereto sets forth all
permits, licenses, provider numbers, orders, franchises and approvals
(collectively, " Permits") from all Federal, state, local and foreign
governmental regulatory bodies held by Gulf Coast. The Permits listed
on Schedule 2.17(a) are the only Permits that are required for Gulf
Coast to conduct its business as presently conducted, except for those
the absence of which would not have any Material Adverse Effect on the
assets, financial condition, results of operations or future prospects
of Gulf Coast. Each such Permit is in full force and effect and, to
the best of the knowledge of Gulf Coast, no suspension or cancellation
of any such Permit is threatened and there is no basis for believing
that such Permit will not be renewable upon expiration.
(b) Gulf Coast has licenses to provide health care
services in the jurisdictions set forth in Schedule 2.17(b) hereto,
which such licenses are all those necessary to conduct the business of
Gulf Coast in the jurisdictions in which Gulf Coast presently
operates. Schedule 2.17(b) also sets forth a true and complete
description of the status of each such license. Except as set forth
on Schedule 2.17(b), neither any Seller nor Gulf Coast is aware of any
event, transaction, correspondence or circumstance which would have,
or could foreseeably have, a Material Adverse Effect on one or more of
such licenses.
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2.18 ERISA and Related Matters.
(a) Benefit Plans; Obligations to Employees. Except as
set forth in Schedule 2.18 hereto, neither Gulf Coast, nor any ERISA
Affiliate of Gulf Coast, is a party to or participates in or has any
liability or contingent liability with respect to:
(i) any "employee welfare benefit plan" or
"employee pension benefit plan" or "multi- employer plan" (as
those terms are respectively defined in Sections 3(1), 3(2)
and 3(37) of ERISA);
(ii) any retirement or deferred compensation plan,
incentive compensation plan, stock plan, unemployment
compensation plan, vacation pay, severance pay, bonus or
benefit arrangement, insurance or hospitalization program or
any other fringe benefit arrangements for any employee,
director, consultant or agent, whether pursuant to contract,
arrangement, custom or informal understanding, which does not
constitute an "employee benefit plan" (as defined in Section
3(3) of ERISA); or
(iii) any employment agreement not terminable on 30
days' or less written notice, without further liability.
For purposes of this Section, the term " ERISA
Affiliate" shall mean any trade or business, whether or not
incorporated, that together with Gulf Coast would be deemed a "single
employer" within the meaning of Section 4001(b)(i) of ERISA.
(b) Plan Documents and Reports. A true and correct copy
of each of the Benefit Plans listed on Schedule 2.18, and all
contracts relating thereto, or to the funding thereof, including,
without limitation, all trust agreements, insurance contracts,
investment management agreements, subscription and participation
agreements and record keeping agreements, each as in effect on the
date hereof, has been supplied to the Purchaser. In the case of any
Benefit Plan that is not in written form, the Purchaser has been
supplied with an accurate description of such Benefit Plan as in
effect on the date hereof. A true and correct copy of the three most
recent annual reports and accompanying schedules, the three most
recent actuarial reports, and the most recent summary plan description
and Internal Revenue Service determination letter with respect to each
such Benefit Plan, to the extent applicable, and a current schedule of
assets (and the fair market value thereof assuming liquidation of any
asset which is not readily tradeable) held with respect to any funded
Benefit Plan has been supplied to the Purchaser by Gulf Coast, and
there have been no material changes in the financial condition in the
respective Plans from that stated in the annual reports and actuarial
reports supplied.
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<PAGE> 27
(c) Compliance with Laws; Liabilities. As to all Benefit
Plans, except as otherwise specified on Schedule 2.18, Gulf Coast is
in compliance in all material respects with the terms of all Benefit
plans and every Benefit Plan is in compliance with all of the
requirements and provisions of ERISA and all other laws and
regulations applicable thereto, including without limitation the
timely filing of all annual reports or other filings required with
respect to such Benefit Plans. None of the assets of any Benefit Plan
are invested in employer securities or employer real property, as
those terms are defined in Section 407(d) of ERISA. There have been
no "prohibited transactions" (as described in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Benefit Plan and neither
Gulf Coast nor any ERISA Affiliate of Gulf Coast has otherwise engaged
in any prohibited transaction. There has been no "accumulated funding
deficiency" as defined in Section 302 of ERISA, nor has any reportable
event as defined in Section 4043(b) of ERISA occurred with respect to
any Benefit Plan. Actuarially adequate accruals for all obligations
or contingent obligations under the Benefit Plans are reflected in
Gulf Coast's balance sheet for the fiscal year ended December 31, 1995
included in Financial Statements provided to the Purchaser and such
obligations include a pro rata amount of the contributions which would
otherwise have been made in accordance with past practices for the
plan years which include the closing date.
2.19 Intellectual Property.
(a) Except as set forth on Schedule 2.19, Gulf Coast has
no trade name, service mark, patent, copyright or trademark related to
its business.
(b) Gulf Coast has the right to use each Proprietary
Right listed in Schedule 2.19, and except as otherwise set forth
therein, each of such Proprietary Rights is, and will be on the
Closing Date, free and clear of all royalty obligations and Liens.
There are no Claims pending, or to the best knowledge of the Sellers,
threatened, against the Sellers that their use of any of the
Proprietary Rights listed on Schedule 2.19 infringes the rights of
any Person. The Sellers have no knowledge of any conflicting use of
any of such Proprietary Rights.
(c) Gulf Coast is not a party in any capacity to any
franchise, license or royalty agreement respecting any Proprietary
Right and there is no conflict with the rights of others in respect to
any Proprietary Right now used in the conduct of its business.
(d) Internal Software Applications.
(i) Owned Software. The current software
applications used by Gulf Coast in the operation of its
business, as set forth and described on Schedule 2.19(d)
hereto (the "Software"), to the extent it has been designed or
developed by Gulf Coast's management information or
development staff or by consultants on Gulf Coast's behalf, is
original and capable of copyright protection in the United
States, and Gulf Coast has complete rights to and ownership of
such
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Software. No part of any such Software is an imitation or
copy of, or infringes upon, the software of any other Person
or violates or infringes upon any common law or statutory
rights of any other Person, including, without limitation,
rights relating to defamation, contractual rights,
copyrights, trade secrets, and rights of privacy or
publicity. Gulf Coast has not sold, assigned, licensed,
distributed or in any other way disposed of or encumbered the
Software.
(ii) Licensed Software. The Software, to the
extent it is licensed from any third party licensor or
constitutes "off-the-shelf" software, is held by Gulf Coast
legitimately and is fully transferable to the Purchaser
without any third party consent. All of Gulf Coast's computer
hardware has legitimately-licensed software installed therein.
(iii) No Errors; Nonconformity. Gulf Coast
warrants that the Software is free from any significant
software defect or programming or documentation error,
operates and runs in a reasonable and efficient business
manner, conforms to the specifications thereof, and, with
respect to owned Software, the applications can be recreated
from their associated source code.
2.20 Environmental Matters. Except as disclosed in Schedule 2.20:
(a) neither Gulf Coast's business nor the operation thereof violates any
applicable Environmental Law (as defined in Section 12.3) in effect as of the
date hereof and no condition or occurrence (any accident, happening or event
which occurs or has occurred at any time prior to the Closing Date, which
results in or could result in a Claim against Gulf Coast or the Purchaser or
creates or could create a liability or loss for Gulf Coast or the Purchaser)
which, with notice or the passage of time or both, would constitute a violation
of any Environmental Law; (b) Gulf Coast is in possession of all Environmental
Permits (as defined in Section 12.3) required under any applicable
Environmental Law for the conduct or operation of Gulf Coast's business (or any
part thereof), and Gulf Coast is in full compliance with all of the
requirements and limitations included in such Environmental Permits; (c) Gulf
Coast has not stored or used any pollutants, contaminants or hazardous or toxic
wastes, substances or materials on or at any of its property or facilities
except for inventories of chemicals which are used or to be used in the
ordinary course of Gulf Coast's business (which inventories have been sorted or
used in accordance with all applicable Environmental Permits and all
Environmental Laws, including all so-called "Right to Know" laws); (d) Gulf
Coast has not received any notice from any Authority or any private Person that
Gulf Coast's business or the operation of any of its facilities is in violation
of any Environmental Law or any Environmental Permit or that it is responsible
(or potentially responsible) for the cleanup of any pollutants, contaminants,
or hazardous or toxic wastes, substances or materials at, on or beneath any of
Gulf Coast's property, or at, on or beneath any land adjacent thereto or in
connection with any waste or contamination site; (e) Gulf Coast is not the
subject of any Federal, state, local, or private Claim involving a demand for
damages or other potential liability with respect to a violation of
Environmental Laws or under any common law theories relating to operations or
the condition of any facilities or property (including underlying groundwater)
owned, leased, or operated by Gulf Coast; (f) Gulf Coast has not buried,
dumped, disposed,
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spilled or released any pollutants, contaminants or hazardous or wastes,
substances or materials on, beneath or adjacent to any of its property or any
property adjacent thereto; (g) no by-products of any manufacturing or mining
process employed in the operation of Gulf Coast's business which may constitute
pollutants, contaminants or hazardous or toxic wastes, substances or materials
under any Environmental Law are currently stored or otherwise located on any of
Gulf Coast's property; (h) no property now or previously owned, leased or
operated by Gulf Coast, is listed or proposed for listing on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any other federal or
state list of sites requiring investigation or clean-up; (i) there are no
underground storage tanks, active or abandoned, including petroleum storage
tanks, on or under any property now or previously owned, leased or operated by
Gulf Coast; (j) Gulf Coast has not directly transported or directly arranged
for the transportation of any Hazardous Material to any location which is
listed or proposed for listing on the National Priorities List pursuant to
CERCLA, on the CERCLIS or on any federal or state list or which is the subject
of federal, state or local enforcement actions or other investigations which
may lead to material Claims against Gulf Coast for any remedial work, damage to
natural resources or personal injury, including Claims under CERCLA; and (k)
there are no polychlorinated biphenyls, radioactive materials or friable
asbestos present at any property now or previously owned or leased by Gulf
Coast. Gulf Coast has timely filed all reports required to be filed with
respect to all of its property and facilities and has generated and maintained
all required data, documentation and records under all applicable Environmental
Laws.
2.21 Dealings with Affiliates. Schedule 2.21 hereto sets forth a
complete list, including the parties, of all written agreements and material
oral arrangements to which Gulf Coast is, will be or has been a party, at any
time from January 1, 1995 to the Closing Date, and to which any one or more
Affiliates is also a party.
2.22 Banking Arrangements. Schedule 2.22 attached hereto sets
forth the name of each bank in or with which Gulf Coast has an account, credit
line or safety deposit box, and a brief description of each such account,
credit line or safety deposit box, including the names of all Persons currently
authorized to draw thereon or having access thereto. Gulf Coast has no
liability or obligation relating to funds or money borrowed by or loaned to
Gulf Coast (whether under any credit facility, line of credit, loan, indenture,
advance, pledge or otherwise).
2.23 Insurance. Schedule 2.23 attached hereto sets forth a list
and brief description, including dollar amounts of coverage, of all policies of
fire, liability, professional liability and other forms of insurance held by
Gulf Coast as of the date hereof. Such policies are valid, outstanding and
enforceable policies, as to which premiums have been paid currently. Neither
Gulf Coast nor any of the Sellers know of any state of facts, or of the
occurrence of any event which might reasonably (a) form the basis for any Claim
against Gulf Coast not fully covered by insurance for liability on account of
any express or implied warranty or tortious omission or commission, or (b)
result in material increase in insurance premiums of Gulf Coast.
2.24 Consents. Schedule 2.24, annexed hereto, sets forth a
complete list of consents of governmental and other regulatory agencies or
authorities, foreign or domestic, required to be
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received by or on the part of Gulf Coast and the Sellers to enable Gulf Coast
or the Sellers to enter into and carry out this Agreement in all material
respects. All such requisite consents have been, or prior to the Closing will
have been, obtained.
2.25 Investment Representations. In the event, in connection with
this Agreement or any agreement or transaction contemplated hereby, AmeriPath
offers or sells, or is deemed to offer or sell, any securities of AmeriPath to
a Seller (including AmeriPath Stock pursuant to Section 1.3), then each Seller
hereby represents and warrants to AmeriPath as follows:
(a) Each Seller has been offered, and up to the Closing
Date and the time(s) of issuance of the AmeriPath Stock shall be
offered, the opportunity to ask questions of, and receive answers
from, AmeriPath and its Subsidiaries, and the Sellers have been given
full and complete access to all available information and data
relating to the business and assets of AmeriPath and its Subsidiaries,
have obtained such additional information about AmeriPath and its
Subsidiaries which the Sellers have deemed necessary in order to
evaluate the opportunities, both financial and otherwise, with respect
to AmeriPath and, except as set forth herein, have not relied on any
representation, warranty or other statement concerning the Purchaser
and its Subsidiaries in their evaluation of the decision to consummate
the transactions contemplated herein. On the basis of the foregoing,
each Seller is familiar with the operations, business plans and
financial condition of AmeriPath.
(b) Each Seller understands that he must bear the
economic risk of the AmeriPath Stock, if and when issued to such
Seller, for an indefinite period of time because, except as provided
in this Agreement, (i) each Seller understands that AmeriPath proposes
to issue and deliver the shares of AmeriPath Stock issuable in
accordance with this Agreement, without compliance with the
registration requirements of the Securities Act, that for such purpose
AmeriPath will rely upon the representations, warranties, covenants
and agreements contained herein, as well as any additional
representations, warranties, covenants, agreements and certifications
requested by AmeriPath to be delivered by the Sellers at such time(s)
of issuance of the AmeriPath Stock; and that such noncompliance with
registration is not permissible unless such representations and
warranties are correct and such covenants and agreements are performed
at and as of the time of issuance; (ii) each Seller understands that,
under existing rules of the Securities and Exchange Commission (the
"SEC"), there are substantial restrictions in the transferability of
his shares of AmeriPath Stock; his shares of AmeriPath Stock may be
transferred only if registered under the Securities Act or if an
exemption from such registration is available; Sellers may not be able
to avail themselves of the provisions of Rule 144 promulgated by the
SEC under the Securities Act with respect to the transfer of such
shares; (iii) the AmeriPath Stock may not be sold, transferred,
pledged, or otherwise disposed of without the consent of AmeriPath and
an opinion of counsel for or satisfactory to AmeriPath that
registration under the Securities Act or any applicable state
securities laws is not required; and (iv) AmeriPath neither has an
obligation to register a sale of the AmeriPath Stock held by any
Seller nor has it agreed to do so in the future.
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<PAGE> 31
(c) Each Seller is an "accredited investor", as such term
is defined in Rule 501 of Regulation D promulgated under the
Securities Act in that each Seller, as of the date of this Agreement,
either (a) (either individually or jointly with such Seller's spouse)
has a net worth in excess of $1,000,000; or (b) had an individual
income in excess of $200,000 in each of the two most recent years or
joint income with such Seller's spouse in excess of $300,000 in each
of those years, and reasonably expects reaching the same income level
in the current year.
(d) Each Seller is a sophisticated investor familiar with
the type of risks inherent in the acquisition of securities such as
the shares of AmeriPath Stock and such Seller's financial position is
such that such Seller can afford to retain his shares of AmeriPath
Stock for an indefinite period of time without realizing any direct or
indirect cash return on such Seller's investment.
(e) Each Seller received this Agreement and first learned
of the transactions contemplated hereby in Florida. Each Seller
executed and will execute all documents contemplated hereby in
Florida, and intends that the laws of Florida govern this transaction.
Each Seller is a resident of Florida.
(f) Each Seller understands, agrees and acknowledges that
the AmeriPath Stock has not been registered under the Florida
Securities Act or the Securities Act in reliance upon exemption
provisions contained therein which AmeriPath believes are available.
Any sale made pursuant to such exemption provisions is voidable by the
purchaser within three business days after the first tender of
consideration is made by the purchaser to the issuer, an agent of the
issuer or an escrow agent. A withdrawal within such three-day period
will be without any further liability to any Person (except that the
Purchase Price attributable to such withdrawal must be returned to the
Purchaser). To accomplish this withdrawal, a purchaser need only send
a letter or telegram to AmeriPath at the address set forth herein,
indicating his or her intention to withdraw. Such letter or telegram
should be sent and postmarked prior to the end of the aforementioned
third business day. It is advisable to send such letter by certified
mail, return receipt requested, to ensure that it is received and also
to evidence the date it was mailed. If the request is made orally, in
person or by telephone, to a representative of AmeriPath, a written
confirmation that the request has been received should be requested.
(g) Each Seller is acquiring his shares of AmeriPath
Stock for such Seller's own account and not with a view to, or for
sale in connection with, the distribution thereof within the meaning
of the Securities Act.
(h) Each Seller understands that the certificates
evidencing his shares of AmeriPath Stock, when and if issued, will
bear appropriate restrictive legends.
2.26 Accounts Receivable; Inventories. The accounts receivable of
Gulf Coast as of September 30, 1996 and a summary of accounts receivable as of
the date two business days prior
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to the Closing Date are reflected on Schedule 2.26 attached hereto and are good
and collectible. All such accounts receivable are valid, genuine and
subsisting, arise out of bona fide sales and deliveries of goods, performance
of services or other business transactions and are not subject to defenses,
set-offs or counterclaims. Notwithstanding the foregoing representation with
respect to accounts receivable, the parties acknowledge and agree that
Purchaser shall only be entitled to retain up to $960,000 collected from the
accounts receivable existing on the Closing Date pursuant to Section 6.12 of
this Agreement. The inventories reflected on the balance sheets included in
the Financial Statements, and the inventories held by Gulf Coast on the date
hereof, (i) do not include any items which are not usable or saleable in the
ordinary course of business of Gulf Coast, and (ii) have been reflected on such
balance sheets at the lower of cost or market value (taking into account the
usability or salability thereof), in accordance with GAAP. All such
inventories are owned free and clear and are not subject to any Lien except to
the extent reserved against or reflected in the Financial Statements. Since
June 30, 1996, inventories of raw materials and supplies have been purchased by
Gulf Coast in the ordinary course of business, consistent with anticipated
seasonal requirements, and the volumes of purchases thereof and orders therefor
have not been reduced or otherwise changed in anticipation of the transactions
contemplated by this Agreement. Gulf Coast is not aware of any material
adverse conditions affecting the supply of materials available to Gulf Coast,
and, to the best knowledge of Gulf Coast, the consummation of the transactions
contemplated hereby will not adversely affect any such supply.
2.27 Brokerage. Neither Gulf Coast nor any Seller has employed any
broker, finder, advisor, consultant or other intermediary in connection with
this Agreement or the transactions contemplated by this Agreement who is or
might be entitled to any fee, commission or other compensation from Gulf Coast
or any Seller, or from the Purchaser or its Affiliates, upon or as a result of
the execution of this Agreement or the consummation of the transactions
contemplated hereby.
2.28 Improper and Other Payments. Except as set forth on Schedule
2.28 hereto, (a) neither Gulf Coast, any director, officer, employee thereof,
nor, to Gulf Coast's knowledge, any agent or representative of Gulf Coast nor
any Person acting on behalf of any of them, has made, paid or received any
unlawful bribes, kickbacks or other similar payments to or from any Person or
Authority, (b) no improper foreign payment (as defined in the Foreign Corrupt
Practices Act) has been made, and (c) the internal accounting controls of Gulf
Coast are believed by Gulf Coast's management to be adequate to detect any of
the foregoing under current circumstances.
2.29 Participation in Audits. Except as set forth in Schedule
2.29, Gulf Coast has not been informed of any Recoupment Claims (as hereinafter
defined) arising in connection with audits or reviews conducted by Medicaid,
Medicare or private insurance companies. To the best knowledge of Gulf Coast
and the Sellers there is no basis for any Recoupment Claims based upon cost
reports, claims or bills submitted or to be submitted in connection with
services rendered by Gulf Coast. For purposes of this Section 2.29 the term
"Recoupment Claim" shall mean any recoupment or overpayment, set-off, penalty
or fine, pending or to the knowledge of Gulf Coast
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<PAGE> 33
and the Sellers threatened by any third-party payor or governmental authority
having jurisdiction over Gulf Coast for amounts arising from or related to
payments to Gulf Coast for services rendered prior to the Closing.
2.30 Health Care Laws & Regulations.
(a) Fraud and Abuse. Except as set forth on Schedule
2.30(a), to the best of the Sellers' and Gulf Coast's knowledge, Gulf
Coast and its officers, directors, employees, shareholders and
providers, have not engaged in any activities which are prohibited
under federal Medicaid statues, 42 U.S.C. Section 1320a-7a and 7b, or
the regulations promulgated pursuant to such statutes or related state
or local statutes or regulations or which are prohibited by rules of
professional conduct or which otherwise could constitute fraud,
including but not limited to the following: (i) making or causing to
be made a false statement or representation of a material fact in any
application for any benefit or payment; (ii) making or causing to be
made any false statement or representation of a material fact for use
in determining rights to any benefit or payment; (iii) failing to
disclose knowledge by a claimant of the occurrence of any event
affecting the initial or continued right to any benefit or payment on
its behalf or on behalf of another, with intent to secure such benefit
or payment fraudulently; and (iv) soliciting, paying or receiving any
remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind or offering to pay
such enumeration (a) in return for referring an individual to a Person
for the furnishing or arranging for the furnishing of any item or
service for which payment may be made in whole or in part by Medicare
or Medicaid, or (b) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any
good, facility, service, or item for which payment may be made in
whole or in part by Medicaid; subject, in the case of (iv) to the lack
of clarity in the law relating to the marketing of Medicare risk
products by brokers.
(b) Third-Party Payors. All Contracts with third-party
payors were entered into by Gulf Coast in the ordinary course of
business. Gulf Coast will have made available to the Purchaser, as of
the Closing Date, an accurate and complete list of all third-party
payors which have material agreements with Gulf Coast (as set forth on
Schedule 2.30(b)), together with accurate and complete copies of all
such Contracts. Except as set forth on Schedule 2.30(b), Gulf Coast
is in compliance with each third-party payor's Contract, and Gulf
Coast has properly charged and billed in accordance with the terms of
those Contracts, including, where applicable, billing and collection
of all deductibles and co-payments.
(c) Compliance with Medicare and Medicaid Programs. Gulf
Coast has timely and accurately filed all requisite claims and other
reports required to be filed in connection with all state and federal
Medicare and Medicaid programs in which Gulf Coast participates due on
or before the Closing Date except to the extent that the failure to
file such claims and reports would not result in a Material Adverse
Effect on Gulf
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Coast. Except as set forth on Schedule 2.30(c) hereto, there are no
Claims pending or, to Gulf Coast's knowledge, threatened or scheduled
before any Authority, including without limitation, any intermediary,
carrier, the Administrator of the Health Care Financing Administration,
the Florida Department of Health and Rehabilitative Services, the
Agency for Health Care Administration or any other state or federal
agency with respect to any Medicare and Medicaid claim filed by Gulf
Coast on or before the Closing Date, or program compliance matters,
which would have a Material Adverse Effect on Gulf Coast, or its
assets, the operations or utility thereof, or the consummation of the
transactions contemplated hereby. Gulf Coast has delivered to the
Purchaser accurate and complete copies of any Claims, actions or
appeals listed on Schedule 2.30(c). Except for routinely scheduled
reviews pursuant to Gulf Coast's Medicare and Medicaid Contracts, no
valid review or program integrity review related to Gulf Coast has been
conducted by any Authority in connection with the Medicare or Medicaid
programs and no such review is scheduled, or to Gulf Coast's knowledge,
pending or threatened against or affecting Gulf Coast, its business,
assets, or the consummation of the transactions contemplated hereby.
(d) Rate Limitations and Rates. Each facility currently
operated by Gulf Coast charges rates and accordingly bills for
services which are legal and proper, and Gulf Coast's standard and
Medicare rates are set forth on
Schedule 2.30(d). Certain reimbursement rates established by
third-party payors are subject to retrospective adjustment, which
adjustments are set forth on said Schedule 2.30(d).
(e) Reimbursement Documentation. Gulf Coast has filed
when due any and all cost reports and other documentation and reports,
if any, required to be filed by third-party payors and governmental
agencies in compliance with applicable contractual provisions and/or
laws, regulations and rules.
(f) Patient Referrals. No Person having a "financial
relationship" with Gulf Coast, as that term is defined in 42 U.S.C.
Section 1395nn, is in a position, directly or indirectly, to refer
patients or services to Gulf Coast, other than referrals which comply
with the requirements of 42 U.S.C. Section 1395nn and the regulations
promulgated pursuant thereto.
2.31 Financial Condition at Closing. At and as of Closing, Gulf
Coast shall have accounts receivable in the amount of $960,000 and cash on hand
equal to $100,000.
2.32 Disclosure. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items
prepared for or supplied to the Purchaser by or on behalf of the Sellers or
Gulf Coast with respect to the transactions contemplated hereby contains any
untrue statement of a material fact or omits a material fact necessary to make
each statement contained herein or therein not misleading.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Sellers as follows:
3.1 Corporate Organization, etc. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation with full corporate power and authority to carry
on its business as it is now being conducted and to own, operate and lease its
properties and assets. The Purchaser is duly qualified or licensed to do
business in good standing in every jurisdiction in which the conduct of its
business, the ownership or lease of its properties, require it to be so
qualified or licensed and the failure to be so qualified or licensed would have
a material adverse effect on its business.
3.2 Subsidiaries. Other than the Subsidiaries of the Purchaser
listed in Schedule 3.2 hereto, the Purchaser has no Subsidiaries.
3.3 Authorization, Etc. The Purchaser has full corporate power
and authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The Board of Directors of the Purchaser has duly
authorized the execution, delivery and performance of this Agreement, the
Contingent Notes and the other agreements and transactions contemplated hereby,
and no other corporate proceedings on its part are necessary to authorize this
Agreement and the transactions contemplated hereby. Upon execution and
delivery of this Agreement by the parties hereto this Agreement shall, and upon
issuance of the Contingent Notes in accordance with the provisions hereof the
Contingent Notes shall, constitute legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their
respective terms.
3.4 No Violation. The execution, delivery and performance by the
Purchaser of this Agreement, and all other agreements contemplated hereby, and
the fulfillment of and compliance with the respective terms hereof and thereof
by the Purchaser, do not and will not (a) conflict with or result in a breach
of the terms, conditions or provisions of, (b) result in a violation of, or (c)
require any authorization, consent, approval, exemption or other action by or
notice to any Authority pursuant to, the certificate of incorporation or
by-laws of the Purchaser, or any Regulation to which the Purchaser is subject,
or any Contract or Order to which the Purchaser or its properties are subject.
The Purchaser will comply with all applicable Regulations and Orders in
connection with its execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
3.5 Governmental Authorities. The Purchaser has complied in all
material respects with all applicable Regulations in connection with its
execution, delivery and performance of this Agreement and the agreements and
transactions contemplated hereby. The Purchaser is not required to submit any
notice, report, or other filing with any governmental authority in connection
with its execution or delivery of this Agreement or the consummation of the
transactions contemplated hereby. No authorization, consent, approval,
exemption or notice is
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required to be obtained by the Purchaser in connection with the execution,
delivery, and performance of this Agreement and the agreements and transactions
contemplated hereby.
3.6 Issuance of AmeriPath Stock. All shares of AmeriPath Stock
required to be issued by AmeriPath to the Sellers, in accordance with the terms
and subject to the conditions set forth in this Agreement, shall, upon issuance
and delivery, be duly authorized, validly issued, fully paid and
non-assessable.
3.7 Financial Statements. To the best of Purchaser's knowledge,
the Purchaser Financial Statements (as defined below) fairly present its
financial position, business and operations, and are maintained in accordance
with reasonable business standards and do not fail to reflect any material
activity, charge, expense, income or other action or attribute of the
Purchaser. True and complete copies of the Purchaser's financial statements
for the year ended December 31, 1995, and the six (6) months ended June 30,
1996 (collectively, the "Purchaser Financial Statements") are attached as
Exhibit 3.7 of this Agreement. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
(except for purchase accounting adjustments that may be required by GAAP) and
accurately reflect the Purchaser's business, operations, financial results,
financial position, expenses, incomes, assets and liabilities and are complete
in all material respects as of their respective dates. There has been no
material adverse change to Purchaser's financial position since the financial
statements dated June 30, 1996.
ARTICLE IV
COVENANTS OF THE SELLERS
From the date hereof until the Closing, except as otherwise consented
to or approved by the Purchaser in writing, Gulf Coast covenants and agrees
that it shall act, and the Sellers shall cause Gulf Coast to so act or refrain
from acting where required hereinafter, to comply with the following:
4.1 Regular Course of Business. Gulf Coast shall operate its
business diligently and in good faith and in the ordinary and usual course,
consistent with past management practices; shall maintain all of its respective
properties in good order and condition, shall maintain (except for expiration
due to lapse of time) all leases and Contracts in effect without change except
as expressly provided herein; shall comply with the provisions of all
Regulations and Orders applicable to Gulf Coast and the conduct of its
respective business; shall not cancel, release, waive or compromise any debt
(other than as provided in this Agreement), Claim or right in its favor; shall
not alter the rate or basis of compensation of any of its officers, directors,
employees or consultants; shall maintain insurance and reinsurance coverage as
in effect on the date hereof up to the Closing Date; and shall preserve the
business of Gulf Coast intact, and use its best efforts to keep available for
Gulf Coast and the Purchaser the services of the officers and employees of
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Gulf Coast, and to preserve the good will of clients, patients, suppliers and
others having business relations with Gulf Coast.
4.2 Amendments. Except as provided in Section 4.9 of this
Agreement, no change or amendment shall be made in the articles of
incorporation or by-laws of Gulf Coast. Gulf Coast shall not merge with or
into or consolidate with any other corporation or Person, acquire substantially
all of the assets of any Person or change the character of its business.
4.3 Capital Changes; Pledges. Except as contemplated under this
Agreement, Gulf Coast shall not issue or sell any shares of its capital stock
of any class or issue or sell any securities convertible into, or options,
warrants to purchase or rights to subscribe to, any shares of its capital stock
and Gulf Coast shall not pledge or otherwise encumber any shares of its capital
stock.
4.4 Dividends. Except as provided in Section 4.6, Section 7.13,
or as set forth on Schedule 2.11, Gulf Coast shall not declare, pay or set
aside for payment any dividend or other distribution in respect of its capital
stock, nor shall Gulf Coast, directly or indirectly, redeem, purchase or
otherwise acquire any shares of its capital stock.
4.5 Capital and Other Expenditures. Gulf Coast shall not make any
capital expenditures, or commitments with respect thereto.
4.6 Cash and Cash Equivalents. Cash and cash equivalents shall be
preserved, and expended, solely in the ordinary and usual course of business;
provided, however, that prior to the Closing, cash on hand in excess of
$100,000 may be distributed by Gulf Coast to the Sellers.
4.7 Borrowing. Gulf Coast shall not incur, assume or guarantee
any indebtedness, obligations or liabilities not reflected on the Financial
Statements (or the balance sheets included therein) except in the ordinary
course of business or for purposes of consummation of the transactions
contemplated by this Agreement and in any case only after consultation with the
Purchaser.
4.8 Other Commitments. Except as set forth in this Agreement,
incurred or transacted in the ordinary course of business, or permitted in
writing by the Purchaser, Gulf Coast shall not enter into any transaction or
make any commitment or incur any obligation (including entering into any real
property leases).
4.9 Amendments to Charter. Prior to the Closing, the Sellers
shall deliver to the Purchaser the certified amendment to Gulf Coast's articles
of incorporation, which among other things, (i) changed the company's name to
Gulf Coast Pathology Associates, Inc. and (ii) provided that the company may
operate for any lawful purpose. All of such amendments (together, the "Gulf
Coast Charter Amendments") shall be in form and substance satisfactory to
AmeriPath.
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4.10 Interim Financial Information. To the extent available, Gulf
Coast shall supply the Purchaser with unaudited financial statements
(including, without limitation, balance sheets and statements of revenues and
expenses) and information for each calendar month, promptly following the
conclusion of such month, and as Gulf Coast may otherwise reasonably request.
4.11 Full Access and Disclosure.
(a) Gulf Coast shall afford to the Purchaser and its
counsel, accountants and other authorized representatives reasonable
access during business hours to Gulf Coast's facilities, properties,
books and records in order that the Purchaser may have full
opportunity to make such reasonable investigations as it shall desire
to make of the affairs of Gulf Coast; and the Sellers shall cause Gulf
Coast's officers, employees and auditors to furnish such additional
financial and operating data and other information as the Purchaser
shall from time to time reasonably request including, without
limitation, any internal control recommendations applicable to Gulf
Coast made by Gulf Coast's independent auditors in connection with any
examination of Gulf Coast's Financial Statements and books and
records.
(b) From time to time prior to the Closing Date, Gulf
Coast shall promptly supplement or amend information previously
delivered to the Purchaser with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth herein or disclosed.
(c) In connection with any "due diligence" examination
performed by the Purchaser with respect to the business of Gulf Coast,
the Sellers shall fully cooperate and the results of such "due
diligence" examination shall be satisfactory to the Purchaser.
4.12 Confidentiality. The Sellers and Gulf Coast shall, and shall
cause its principals, officers and other personnel and authorized
representatives to, hold in confidence, and not disclose to any other party
without the Purchaser's prior consent, all written and oral information
furnished or disclosed by or received from the Purchaser or its officers,
directors, employees, agents, counsel and auditors in connection with the
transactions contemplated hereby except as may be required by applicable law or
as otherwise contemplated herein.
4.13 Breach of Agreement. Neither the Sellers nor Gulf Coast shall
take any action which, if taken on or prior to the Closing Date, would
constitute a breach of this Agreement.
4.14 Fulfillment of Conditions Precedent. Gulf Coast and the
Sellers shall use their best efforts to obtain at their expense, on or prior to
the Closing Date, all such waivers, Permits, consents, approvals or other
authorizations from third parties and Authorities, and to do all things as may
be necessary or desirable in connection with the transactions contemplated by
this Agreement in order to fully and expeditiously consummate the transactions
contemplated by this Agreement.
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ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with Gulf Coast and the
Sellers that prior to the Closing or the termination of this Agreement:
5.1 Confidentiality. The Purchaser shall, and shall cause its
principals, officers and other personnel and authorized representatives to,
hold in confidence, and not disclose to any other party without the Sellers'
prior consent, all information received by it from the Sellers or Gulf Coast's
officers, directors, employees, agents, counsel and auditors in connection with
the transactions contemplated hereby except as may be required by applicable
law or as otherwise contemplated herein.
5.2 Full Access and Disclosure.
(a) The Purchaser shall afford to Gulf Coast and the
Sellers, and their counsel, accountants and other authorized
representatives reasonable access during business hours to the
Purchaser's facilities, properties, books and records in order that
the Sellers may have full opportunity to make such reasonable
investigations as they shall desire to make of the affairs of the
Purchaser; and the Purchaser shall cause its officers, employees and
auditors to furnish such additional financial and operating data and
other information as the Sellers shall from time to time reasonably
request including, without limitation, any internal control
recommendations applicable to the Purchaser made by the Purchaser's
independent auditors in connection with any examination of the
Purchaser's financial statements and books and records.
(b) From time to time prior to the Closing Date, the
Purchaser shall promptly supplement or amend information previously
delivered to Gulf Coast and/or the Sellers with respect to any matter
hereafter arising which, if existing or occurring at the date of this
Agreement, would have been required to be set forth herein or
disclosed.
(c) The Purchaser shall fully cooperate in connection
with any "due diligence" examination performed by Gulf Coast or the
Sellers with respect to the business of the Purchaser. For purposes
of this Section 5.2, "Purchaser" shall mean and include AmeriPath and
its Subsidiaries.
ARTICLE VI
OTHER AGREEMENTS
The parties hereto further agree, on or before the Closing Date, as
follows:
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6.1 Further Assurances. Subject to the terms and conditions of
this Agreement, each of the parties hereto shall use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Regulations to consummate and
make effective the transactions contemplated by this Agreement. In furtherance
and not in limitation of the preceding sentence, the parties hereto shall use
their best efforts to cause the Closing to take place on or before October 31,
1996. If at any time after the Closing Date the Purchaser shall consider or be
advised that any further deeds, assignments or assurances in law or in any
other things are necessary, desirable or proper to vest, perfect or confirm, of
record or otherwise, in the Purchaser (or Gulf Coast, as appropriate), the
title to any property or rights of the Sellers acquired or to be acquired by
reason of, or as a result of, the acquisition, the Sellers agree that the
Sellers shall execute and deliver all such proper deeds, assignments and
assurances in law and do all things necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in Gulf Coast and otherwise
to carry out the purpose of this Agreement.
6.2 Agreement to Defend. In the event any action, suit,
proceeding or investigation of the nature specified in Sections 7.2 or 8.2 is
commenced, whether before or after the Closing Date, all the parties hereto
agree to cooperate and use their best efforts to defend against and respond
thereto.
6.3 Consents. Without limiting the generality of Section 6.1,
each of the parties hereto shall use their best efforts to obtain all permits,
authorizations, consents and approvals of all Persons and governmental
authorities necessary, proper or advisable in connection with the consummation
of the transactions contemplated by this Agreement prior to the Closing Date.
6.4 No Solicitation or Negotiation. Unless and until this
Agreement is terminated, neither any Seller nor Gulf Coast through its
directors, officers, employees, representatives, agents, advisors, accountants
and attorneys shall initiate, solicit or encourage, directly or indirectly, any
inquiries or the making of any proposal with respect to, or engage in
negotiations concerning, or provide any confidential information or data to any
Person with respect to, or have any discussions with any Persons relating to,
any acquisition, business combination or purchase of all or any significant
asset of, or any equity interest in, Gulf Coast, or otherwise facilitate any
effort or attempt to do or seek any of the foregoing, and shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Should Gulf Coast or any Seller be contacted with respect to any
offer, inquiry or proposal, Gulf Coast and the Sellers shall immediately advise
the Purchaser in writing of the name, address and phone number of the contact
and the nature of the inquiry.
6.5 No Termination of Sellers' Obligations by Subsequent
Incapacity, Etc. The Sellers specifically agree that the obligations of the
Sellers hereunder, including, without limitation, obligations pursuant to
Article XI and Section 6.4 shall not be terminated by their death or
incapacity.
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6.6 Employment Agreements. Gulf Coast and the Sellers shall, at
or prior to the Closing, terminate the existing employment agreements between
Gulf Coast and each of the Sellers, and each Seller shall enter into an
Employment Agreement with AmeriPath Florida in the form of Exhibit 6.6 attached
hereto (the "Employment Agreements").
6.7 Public Announcements. Neither the Sellers nor Gulf Coast nor
any Affiliate, representative or shareholder of either of such Persons, shall
disclose any of the terms of this Agreement to any third party (other than the
Purchaser's advisors and senior lending group and the Sellers' advisors)
without the other party's prior written consent unless required by any
applicable law. The form, content and timing of any and all press releases,
public announcements or publicity statements (except for any disclosures under
or pursuant to Federal or State securities laws in connection with the
registration of AmeriPath's securities or otherwise) with respect to this
Agreement or the transactions contemplated hereby shall be subject to the prior
approval of the Purchaser. No press releases, public announcements or
publicity statements shall be released by either party without prior mutual
agreement.
The parties hereto further agree, from and after the Closing
Date, as follows:
6.8 Deliveries After Closing. From time to time after the
Closing, at the Purchaser's request and without expense to Gulf Coast and
without further consideration from the Purchaser or Gulf Coast, the Sellers
shall execute and deliver such other instruments of conveyance and transfer and
take such other action as the Purchaser reasonably may require to convey,
transfer to and vest in the Purchaser, and to put the Purchaser in possession
of, any rights or property to be sold, conveyed, transferred or delivered
hereunder.
6.9 Non-Competition Covenant.
(a) As a material and valuable inducement for the
Purchaser to enter into this Agreement, pay and deliver the Purchase
Price consideration and consummate the transactions provided for
herein, during the "Restricted Period" (as hereinafter defined), each
Seller agrees that he shall not, directly or indirectly, alone or as a
partner, officer, director, employee, consultant, agent, independent
contractor, member or stockholder of any Person:
(i) engage in the practice of pathology within
the counties of Sarasota, Collier, Charlotte or Lee in the
State of Florida (the "Restricted Territory"); or
(ii) from any facility or location, whether within
or without the Restricted Territory, (x) perform pathology
services for any patient, laboratory or health care provider
located in the Restricted Territory or (y) perform pathology
services for any patient, laboratory or health care provider
who was or is a customer, client or patient in the State of
Florida of an AmeriPath Affiliate or who is a prospective
customer, client or patient in the State of Florida of an
AmeriPath Affiliate; except that it shall not be a violation
of this Section 6.9 for the Sellers
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to perform pathology services in the Restricted Territory
during the Restricted Period (a) as an employee of a local,
federal or state government or agency; (b) in performing the
Sellers's duties as a member of the United States military
services or the National Guard; or (c) on a locum tenens
basis; or
(iii) engage in the business of consolidating
pathology practices in the United States.
(b) As used in this Agreement, the term "Restricted
Period" shall mean and include a period of five (5) years, from the
Closing to the fifth (5th) anniversary of the Closing; provided,
however, that if a Seller's employment by an AmeriPath Affiliate is
terminated sooner, the Restricted Period shall mean and include a
period of two (2) years after such termination; provided, further,
that the Restricted Period shall mean and include five (5) years from
the termination of such Seller's employment if the employment is
terminated due to the fraud or willful misconduct of Seller.
(c) Each Seller further agrees that during the Restricted
Period, the Seller will not knowingly, directly or indirectly, (a)
solicit the employment of any employee, agent or consultant of any
AmeriPath Affiliate who was such at any time during the twelve (12)
months preceding the Sellers's termination of employment with the
AmeriPath Affiliate, or (b) induce any employee of an AmeriPath
Affiliate to leave the employ of any such AmeriPath Affiliate, unless
in each case the Seller obtains the prior written consent of
AmeriPath.
(d) Each Seller covenants and agrees that the
restrictions set forth in this Section 6.9 are fair, reasonable and
necessary to protect the interests of AmeriPath and its Affiliates,
such restrictions were negotiated and bargained for and the
consideration delivered in connection with this Agreement reflects and
assumes the Seller's strict compliance with, and the enforceability by
the Purchaser of, these restrictions.
(e) Each Seller acknowledges and agrees that the
provisions of Section 6.9 and Section 6.10 are material and of the
essence to this Agreement. In addition, if the scope of any
restriction or covenant contained in either such Section should be or
become too broad or extensive to permit enforcement thereof to its
fullest extent, then such restriction or covenant shall be enforced to
the maximum extent permitted by law, and the Sellers hereby consent
and agree that (a) it is the parties intention and agreement that the
covenants and restrictions contained herein be enforced as written,
and (b) in the event a court of competent jurisdiction should
determine that any restriction or covenant contained herein is too
broad or extensive to permit enforcement thereof to its fullest
extent, the scope of any such restriction or covenant may be modified
accordingly in any judicial proceeding brought to enforce such
restriction or covenant, but should be modified to permit enforcement
of the restrictions and covenants contained herein to the maximum
extent the court, in its judgment, will permit.
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6.10 Non-disclosure; Confidentiality.
(a) Confidential Information. By virtue of each Seller's
employment, association or involvement with an AmeriPath Affiliate,
the Sellers may obtain confidential or proprietary information
developed, or to be developed, by an AmeriPath Affiliate.
"Confidential Information" means all proprietary or business-sensitive
information, whether in oral, written, graphic, machine-readable
tangible form, and whether or not registered, and including all notes,
plans, records, documents and other evidence thereof, including but
not limited to all: patents, patent applications, copyrights,
trademarks, trade names, service marks, service names, "know- how,"
patient lists, details of client or consulting contracts, pricing
policies, operational methods, marketing plans or strategies, product
development techniques or plans, procurement and sales activities,
promotion and pricing techniques, credit and financial data concerning
customers, business acquisition plans or any portion or phase of any
scientific or technical information, discoveries, computer software or
programs used or developed in whole or in part by any AmeriPath
Affiliate (including source or object codes), processes, procedures,
formulas or improvements of any AmeriPath Affiliate; algorithms;
computer processing systems and techniques; price lists; customer
lists; procedures; improvements, concepts and ideas; business plans
and proposals; technical plans and proposals; research and
development; budgets and projections; technical memoranda, research
reports, designs and specifications; new product and service
developments; comparative analyses of competitive products, services
and operating procedures; and other information, data and documents
now existing or later acquired by an AmeriPath Affiliate, regardless
of whether any of such information, data or documents qualify as a
"trade secret" under applicable Federal or State law. "Confidential
Information" shall not include (a) any information which is in the
public domain during the period of service by the Sellers or becomes
public thereafter, provided such information is not in the public
domain as a consequence of disclosure by a Seller in violation of this
Agreement, and (b) any information not considered confidential
information by similar enterprises operating in the clinical or
anatomical laboratory industry or otherwise in the ordinary course.
(b) Non-Disclosure. Each Seller agrees that, except as
directed by the Seller's employer (which employer is an AmeriPath
Affiliate), as required or otherwise contemplated under this Agreement
or the Employment Agreement or as otherwise required by law, he will
not at any time (during the term of the Seller's employment by an
AmeriPath Affiliate or at any time thereafter), except as may be
expressly authorized by the AmeriPath Affiliate in writing, disclose
to any Person or use any Confidential Information whatsoever for any
purpose whatsoever, or permit any Person whatsoever to examine and/or
make copies of any reports or any documents or software (whether in
written form or stored on magnetic, optical or other mass storage
media) prepared by him or that come into his possession or under his
control by reason of his employment by an AmeriPath Affiliate or by
reason of any consulting or software development services he has
performed or may in the future perform for an AmeriPath Affiliate
which contain or are derived from Confidential Information. Each
Seller further agrees that while
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employed at an AmeriPath Affiliate, no Confidential Information shall
be removed from the AmeriPath Affiliate's business premises, without
the prior written consent of such AmeriPath Affiliate.
(c) AmeriPath Group Property. As used in this Agreement,
the term "AmeriPath Group Property" means all documents, papers,
computer printouts and disks, records, customer or patient lists,
files, manuals, supplies, computer hardware and software, equipment,
inventory and other materials that have been created, used or obtained
by any AmeriPath Affiliate, or otherwise belonging to any AmeriPath
Affiliate, as well as any other materials containing Confidential
Information as defined above. Each Seller recognizes and agrees that:
(i) All the AmeriPath Group Property shall be and
remain the property of the AmeriPath Affiliate to which such
belongs;
(ii) The Sellers will preserve, use and hold the
AmeriPath Group Property only for the benefit of AmeriPath and
its Affiliates and to carry out the business of the AmeriPath
Affiliate, AmeriPath and its Affiliates; and
(iii) When the Seller's employment is terminated,
the Seller will immediately deliver and surrender to the
AmeriPath Affiliate all the AmeriPath Group Property,
including all copies, extracts or any other types of
reproductions, which the Seller has in his possession or
control.
6.11 Rule 144 Best Efforts. Following such time, if any, that
AmeriPath is or may become, and solely while AmeriPath is, a public company
with its securities registered under the Securities Act, and listed or quoted
for trading by a national securities exchange or inter-dealer quotation system,
AmeriPath will use its best efforts to see that AmeriPath is in compliance with
the requirements of Rule 144 under the Securities Act applicable to the issuer
of securities, so as to facilitate non-registered sales of AmeriPath Stock by
the Sellers who then own AmeriPath Stock consistent with the requirements and
limitations of Rule 144. Nothing in this Section 6.11 shall be deemed as
either (i) any representation or warranty that Ameripath will become or remain
a public company with securities registered under the Securities Act, or (ii)
any covenant or agreement by AmeriPath to register, under federal or state
securities laws or otherwise, any AmeriPath securities issued to, or held by,
the Sellers.
6.12 Collected Accounts Receivable. The Sellers shall prepare a
schedule of the accounts receivable of Gulf Coast existing on the Closing Date
(the "Closing Date Receivables"). Purchaser shall use its reasonable best
efforts to collect the Closing Date Receivables. Amounts collected in excess
of $960,000 that are attributable to Closing Date Receivables shall be paid
over to Sellers as additional Purchase Price as follows: within ten (10) days
after the sixth monthly anniversary of the Closing, a lump sum equal to the
collected amount of the Closing Date Receivables that is in excess of $960,000,
if any, and, thereafter, any Closing Date Receivables collected in excess of
$960,000 shall be paid to Sellers on a monthly basis on the
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tenth day of each month following such collections, until such time as the
Closing Date Receivables have been collected in full or, in the good faith
judgment of AmeriPath's senior management, become uncollectible.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
Each and every obligation of the Purchaser under this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each of the
following conditions, unless waived in writing by the Purchaser:
7.1 Representations and Warranties; Covenants and Agreements. The
representations and warranties of the Sellers contained in Article II and
elsewhere in this Agreement and all information contained in any exhibit,
certificate, schedule or attachment hereto or in any writing delivered by, or
on behalf of, the Sellers or Gulf Coast to the Purchaser, shall be true and
correct when made and shall be true and correct in all material respects on the
Closing Date as though then made, except as expressly provided herein. The
Sellers and Gulf Coast shall have performed and complied with all agreements,
covenants and conditions and shall have made all deliveries required by this
Agreement to be performed, delivered and complied with by them prior to the
Closing Date. The Sellers and the president of Gulf Coast shall have executed
and delivered to the Purchaser a certificate, dated the Closing Date,
certifying to the foregoing.
7.2 No Injunction. No preliminary or permanent injunction or
other Order, decree or ruling issued by any Authority, or any Regulation
promulgated or enacted by any Authority shall be in effect, which would prevent
the consummation of the transactions contemplated hereby.
7.3 Third Party Consents. The Purchaser, the Sellers and Gulf
Coast shall have obtained all consents, approvals, waivers or other
authorizations with respect to the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby, such
that the contracts and leases listed in Schedule 7.3 hereto shall remain in
effect (without default, acceleration, termination, assignment, right of
termination or assignment, payment, increase in rates or compensation payable,
penalty, interest or other adverse effect) from and after the Closing Date as
such contracts and leases operated and were in effect before the Closing Date.
7.4 Regulatory Approvals. The Federal and State regulatory
agencies or authorities listed in Schedule 7.4 hereto shall have approved the
applications listed in such Schedule with respect to the change of control
represented by the transactions contemplated by this Agreement, and such
approval shall not impose financial obligations on the Purchaser that are
objectionable to it.
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7.5 No Material Adverse Change. There shall have been no Material
Adverse Change since the date of this Agreement. The Purchaser shall have
received a certificate (which shall be addressed to the Purchaser), dated the
Closing Date, of the president and chief financial officer of Gulf Coast,
certifying to the foregoing.
7.6 Opinion of Sellers' Counsel. The Purchaser shall have
received an opinion of counsel to the Sellers and Gulf Coast (which will be
addressed to the Purchaser and its senior lenders), dated the Closing Date, in
the form of Exhibit 7.6 hereto.
7.7 Employment Agreements. The Sellers shall have terminated
their existing employment agreements with Gulf Coast and each of the Sellers
shall have executed and delivered to the Purchaser an Employment Agreement with
AmeriPath Florida in the form of Exhibit 6.6 attached hereto.
7.8 Delivery of Gulf Coast Share Certificates. The Sellers shall
have executed and delivered to AmeriPath this Agreement, or a counterpart
hereof, and shall have delivered at the Closing stock certificates representing
all of the Gulf Coast Shares, duly endorsed for transfer to the Purchaser,
together with stock powers duly executed in blank.
7.9 Shareholders' Agreement. At the Closing, the Sellers shall
have executed and delivered to AmeriPath a counterpart signature page to that
certain Shareholders' Agreement, dated as of February 29, 1996, by and among
AmeriPath and each of the stockholders of AmeriPath (the "Shareholders'
Agreement"), pursuant to which each Seller agrees to be bound by all of the
provisions of the Shareholders' Agreement, in accordance with their terms, to
the same extent as if he had been an original signatory thereto.
7.10 Subordination Agreement. At the Closing, the Sellers shall
have executed and delivered the Subordination Agreement, attached hereto as
Exhibit 7.10, pursuant to which each Seller agrees to be bound by all of the
provisions of the Subordination Agreement in accordance with their terms.
7.11 Gulf Coast Charter Amendments. Gulf Coast shall have taken
all appropriate and required board of director and shareholder action to
approve, shall have filed with the Florida Department of State in form
acceptable for filing, and shall have delivered to the Purchaser, an amendment
to Gulf Coast's articles of incorporation, which amendment (i) shall be in form
and substance satisfactory to AmeriPath, and (ii) shall include the Gulf Coast
Charter Amendments (as such term is defined in Section 4.9 hereof).
7.12 Satisfaction of Indebtedness; Creditor Consents. Gulf Coast
shall have satisfied all outstanding obligations under its loans from
shareholders set forth on Schedule 7.12 hereto. Such shareholders shall have
agreed in writing with Gulf Coast as to the amounts owed in order to have been
paid in full. Gulf Coast shall have obtained from the shareholders set forth
on Schedule 7.12 and shall provide to the Purchaser at Closing such releases as
shall be required by the Purchaser and its lenders.
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7.13 Vehicles and Personal Property. Prior to the Closing, Gulf
Coast shall have transferred to Sellers the vehicles and personal property set
forth on Schedule 7.13. Purchaser shall not acquire any rights nor assume any
obligations with respect to the items listed on Schedule 7.13.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
Each and every obligation of the Sellers under this Agreement shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions unless waived in writing by the Sellers:
8.1 Representations and Warranties; Performance. The
representations and warranties of the Purchaser contained in Article III and
elsewhere in this Agreement and all information contained in any exhibit,
schedule or attachment hereto, delivered by or on behalf of the Purchaser to
the Sellers, shall be true and correct in all material respects when made and
shall be true and correct in all material respects on the Closing Date as
though then made, except as expressly provided herein. The Purchaser shall
have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and
complied with by them prior to the Closing Date. The Chief Operating Officer
of the Purchaser shall have delivered to the Sellers a certificate, dated the
Closing Date, certifying to the foregoing.
8.2 No Injunction. No preliminary or permanent injunction or
other Order, decree or ruling issued by any Authority, or any Regulation
promulgated or enacted by any Authority shall be in effect, which would prevent
the consummation of the transactions contemplated hereby.
8.3 Purchase Consideration. The Sellers shall have received the
consideration (in the form of cash and Contingent Notes) required to be
delivered at Closing and to which the Sellers are entitled pursuant to Section
1.1 (and as set forth on Schedule 1.1.) hereof.
8.4 Employment Agreements. AmeriPath Florida shall have executed
and delivered to each of the Sellers the Employment Agreements.
ARTICLE IX
CLOSING
9.1 Closing. Unless this Agreement shall have been terminated or
abandoned pursuant to the provisions of Article X hereof, a closing of the
transactions contemplated by this Agreement (the "Closing") shall be held on
October 24, 1996, or on such other date which is mutually
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agreed upon in writing following the satisfaction or waiver of the conditions
to closing set forth in Article VII and Article VIII hereof (the "Closing
Date").
9.2 Closing Deliveries. At the Closing,
(a) the Sellers and Gulf Coast shall deliver or cause to
be delivered to the Purchaser:
(i) a certificate or certificates evidencing all
of the Gulf Coast Shares, duly endorsed for transfer with all
necessary transfer stamps affixed;
(ii) the Officer's Certificates required by
Sections 7.1 and 7.5;
(iii) copies of all consents and approvals required
by Sections 7.3, 7.4 and 7.12;
(iv) the Opinion of Counsel required by Section
7.6;
(v) the Employment Agreements required by
Section 7.7;
(vi) the counterpart signature page to the
Shareholders' Agreement required by Section 7.9;
(vii) the Subordination Agreement required by
Section 7.10;
(viii) a certificate, signed by the secretary of
Gulf Coast, as to the articles of incorporation and by-laws of
Gulf Coast, the resolutions adopted by the board of directors
and shareholders of Gulf Coast in connection with this
Agreement, the incumbency of certain officers of Gulf Coast
and the jurisdictions in which Gulf Coast is qualified to
conduct business, in form acceptable to the Purchaser;
(ix) certificates issued by the appropriate
governmental authorities evidencing the good standing, with
respect to both the conduct of business and the payment of all
franchise taxes, of Gulf Coast as of a date not more than ten
(10) days prior to the Closing Date, as a corporation
organized under the laws of the State of Florida and as a
foreign corporation authorized to do business under the laws
of the various jurisdictions where it is so qualified.
(x) such other certified resolutions, documents
and certificates as are required to be delivered by the
Sellers or Gulf Coast pursuant to the provisions of this
Agreement.
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(b) The Purchaser shall deliver to the Sellers:
(i) the consideration (in the form of cash, stock
and Contingent Notes) required to be paid or delivered to the
Sellers at Closing in accordance with Section 1.1 (to be
distributed to the Sellers in accordance with Schedule 1.1).
(ii) the Officer's Certificate required by
Section 8.1; and
(iii) the Employment Agreements required by
Section 8.4;
(iv) such other certified resolutions, documents
and certificates as are required to be delivered by the
Purchaser pursuant to the provisions of this Agreement.
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination. This Agreement may be terminated and
the transactions herein contemplated may be abandoned at any time:
(a) by mutual consent of the Purchaser, the Sellers and
Gulf Coast;
(b) by the Purchaser or all of the Sellers and Gulf Coast
if this Agreement is not consummated on or before October 31, 1996;
provided, however, that if any party has breached or defaulted with
respect to its respective obligations under this Agreement on or
before such date, such party may not terminate this Agreement pursuant
to this Section 10.1(b), and each other party to this Agreement shall
at its option enforce its rights against such breaching or defaulting
party and seek any remedies against such party, in either case as
provided hereunder and by applicable law; or
(c) by the Purchaser if as of the Closing Date (including
any extensions) any of the conditions specified in Article VII hereof
shall not have been satisfied or if Gulf Coast or any of the Sellers
is otherwise in default under this Agreement.
10.2 Procedure Upon Termination. In the event of termination and
abandonment pursuant to Section 10.1 hereof, and subject to the proviso
contained in Section 10.1(b), this Agreement shall terminate and shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) each party shall redeliver all documents and other
material of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the
party furnishing the same;
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(b) all information received by any party hereto with
respect to the business of any other party or Gulf Coast (other than
information which is a matter of public knowledge or which has
heretofore been or is hereafter published in any publication for
public distribution or filed as public information with any
governmental authority) shall not at any time be used for the
advantage of, or disclosed to third parties by, such party to the
detriment of the party furnishing such information; and
(c) no party hereto shall have any further liability or
obligation to any other party under or in connection with this
Agreement; provided, however, the non-breaching or non-defaulting
party shall not be foreclosed from bringing a Claim or cause of
action or otherwise recovering from the breaching or defaulting party.
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
11.1 Survival. All of the terms and conditions of this Agreement,
together with the representations, warranties and covenants contained herein or
in any instrument or document delivered or to be delivered pursuant to this
Agreement, shall survive the execution of this Agreement and the Closing
notwithstanding any investigation heretofore or hereafter made by or on behalf
of any party hereto; provided, however, that (a) the agreements and covenants
set forth in this Agreement shall survive and continue until all obligations
set forth therein shall have been performed and satisfied; and (b) all
representations and warranties shall survive and continue until:
(1) with respect to the representations and
warranties in Sections 2.16 (tax matters), 2.18 (ERISA
matters), 2.20 (environmental matters) and 2.30 (health care
regulatory matters), until sixty (60) days following the
expiration of the applicable statute of limitations;
(2) with respect to the representations and
warranties in Sections 2.3 (capitalization), 2.4 (title to the
Gulf Coast Shares) and 2.6 (options and rights on capital
stock), these representations shall survive and continue
forever and without limitation; and
(3) with respect to all other representations and
warranties, the date upon which AmeriPath receives from its
outside auditors the audited financial statements for
AmeriPath's fiscal year ending December 31, 1998 (the "1998
Audit Date"), except for representations, warranties and
indemnities for which an indemnification Claim shall be
pending as of the 1998 Audit Date, in which event such
indemnities shall survive with respect to such Claim until the
final disposition thereof.
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11.2 Indemnification by the Sellers. Subject to this Article XI,
the Purchaser and its officers, directors, employees, shareholders,
representatives and agents shall be indemnified and held harmless by the
Sellers, at all times after the date of this Agreement, against and in respect
of any and all damage, loss, deficiency, liability, obligation, commitment,
cost or expense (including the fees and expenses of counsel) resulting from, or
in respect of, any of the following:
(a) Any misrepresentation, breach of warranty, or
non-fulfillment of any obligation on the part of the Sellers or Gulf
Coast under this Agreement, any document relating thereto or contained
in any schedule or exhibit to this Agreement or from any
misrepresentation in or omission from any certificate, schedule, other
agreement or instrument by the Sellers or Gulf Coast hereunder;
(b) Any and all liabilities of Gulf Coast of any nature
whether accrued, absolute, contingent or otherwise, and whether known
or unknown, existing at the Closing Date to the extent not reflected
and reserved against in the statement of assets and liabilities for
the six months ended June 30, 1996 included in the Financial
Statements or not otherwise adequately disclosed in this Agreement or
the schedules or exhibits thereto, including, without limitation:
(i) All Tax liabilities of Gulf Coast, together
with any interest or penalties thereon or related thereto,
through the Closing Date and any Tax liability of Gulf Coast
arising in connection with the transactions contemplated
hereby. Any Taxes, penalties or interest attributable to the
operations of Gulf Coast payable as a result of an audit of
any tax return shall be deemed to have accrued in the period
to which such Taxes, penalties or interest are attributable;
(ii) All environmental liabilities relating to any
of Gulf Coast's properties, including federal, state and local
environmental liability, together with any interest or
penalties thereon or related thereto, through the Closing
Date, but excluding any amount for which there is an adequate
accrual and reserve on the statement of assets and liabilities
for the six months ended June 30, 1996 included in the
Financial Statements;
(iii) All claims by Medicare, Medicaid, or any
other third party payor relating to reimbursement for services
provided by Gulf Coast prior to the Closing Date
("Reimbursement Claims"). Indemnification by Sellers for
Reimbursement Claims shall include all costs incurred by
Purchaser for such claims, including, but not limited to,
applicable investigative and audit expenses, attorneys fees,
reimbursement costs, and any fines and penalties levied
against Gulf Coast; and
(c) All demands, assessments, judgments, costs and
reasonable legal and other expenses arising from, or in connection
with any Claim incident to any of the foregoing.
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(d) All other Claims of the Purchaser shall be resolved
in accordance with Section 11.4.
11.3 Indemnification by the Purchaser. Subject to this Article XI,
the Sellers and their heirs, assigns, representatives and agents shall be
indemnified and held harmless by the Purchaser, at all times after the date of
this Agreement, against and in respect of any and all damage, loss, deficiency,
liability, obligation, commitment, cost or expense (including the fees and
expenses of counsel) resulting from, or in respect of, any misrepresentation,
breach of warranty, or non-fulfillment of any obligation on the part of the
Purchaser under this Agreement, any document relating thereto or contained in
any schedule or exhibit to this Agreement or from any misrepresentation in or
omission from any certificate, schedule, other agreement or instrument by the
Purchaser hereunder.
11.4 Third-Party Claims. Except as otherwise provided in this
Agreement, the following procedures shall be applicable with respect to
indemnification for third-party Claims. Promptly after receipt by the party
seeking indemnification hereunder (hereinafter referred to as the "indemnitee")
of notice of the commencement of any (a) Tax audit or proceeding for the
assessment of Tax by any taxing authority or any other proceeding likely to
result in the imposition of a Tax liability or obligation or (b) any action or
the assertion of any Claim, liability or obligation by a third party (whether
by legal process or otherwise), against which Claim, liability or obligation
the other party to this Agreement (hereinafter the "indemnitor") is, or may be,
required under this Agreement to indemnify such indemnitee, the indemnitee
will, if a Claim thereon is to be, or may be, made against the indemnitor,
notify the indemnitor in writing of the commencement or assertion thereof and
give the indemnitor a copy of such Claim, process and all legal pleadings. The
indemnitor shall have the right to participate in the defense of such action
with counsel of reputable standing. The indemnitor shall have the right to
assume the defense of such action unless such action (i) may result in
injunctions or other equitable remedies in respect of the indemnitee or its
business; (ii) may result in liabilities which, taken with other then existing
Claims under this Article XI, would not be fully indemnified hereunder; or
(iii) may have an adverse impact on the business or financial condition of the
indemnitee after the Closing Date (including an effect on the Tax liabilities,
earnings or ongoing business relationships of the indemnitee). The indemnitor
and the indemnitee shall cooperate in the defense of such Claims. In the case
that the indemnitor shall assume or participate in the defense of such audit,
assessment or other proceeding as provided herein, the indemnitee shall make
available to the indemnitor all relevant records and take such other action and
sign such documents as are necessary to defend such audit, assessment or other
proceeding in a timely manner. If the indemnitee shall be required by judgment
or a settlement agreement to pay any amount in respect of any obligation or
liability against which the indemnitor has agreed to indemnify the indemnitee
under this Agreement, the indemnitor shall promptly reimburse the indemnitee in
an amount equal to the amount of such payment plus all reasonable expenses
(including legal fees and expenses) incurred by such indemnitee in connection
with such obligation or liability subject to this Article XI.
Prior to paying or settling any Claim against which an
indemnitor is, or may be, obligated under this Agreement to indemnify an
indemnitee, the indemnitee must first supply the
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indemnitor with a copy of a final court judgment or decree holding the
indemnitee liable on such claim or failing such judgment or decree, and must
first receive the written approval of the terms and conditions of such
settlement from the indemnitor. An indemnitor shall have the right to settle
any Claim against it, subject to the prior written approval of the indemnitee,
which approval shall not be unreasonably withheld.
An indemnitee shall have the right to employ its own counsel
in any case, but the fees and expenses of such counsel shall be at the expense
of the indemnitee unless (a) the employment of such counsel shall have been
authorized in writing by the indemnitor in connection with the defense of such
action or Claim, (b) the indemnitor shall not have employed, or is prohibited
under this Section 11.4 from employing, counsel in the defense of such action
or Claim, or (c) such indemnitee shall have reasonably concluded that there may
be defenses available to it which are contrary to, or inconsistent with, those
available to the indemnitor, in any of which events such fees and expenses of
not more than one additional counsel for the indemnified parties shall be borne
by the indemnitor.
11.5 Deductible. Notwithstanding the foregoing provisions of this
Article XI, except for the next succeeding sentence of this Section 11.5, no
indemnification pursuant to this Article XI shall be required of an
indemnifying party hereunder unless and until the aggregate amount due the
indemnified party for all Claims under this Article XI shall exceed $50,000.00
(the "Deductible"). Notwithstanding the foregoing, no Claim (regardless of
amount) that arises out of (i) a breach of any of the representations or
warranties contained in Sections 2.3 (capitalization), 2.5 (title to the
Shares), 2.6 (options and rights on capital stock), 2.16 (tax matters) or 2.31
(selected financial amounts as of Closing) or (ii) an event specified in
Section 11.2(c), shall at any time be subject to the Deductible.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by a written agreement
signed by Gulf Coast, the Purchaser and the Sellers.
12.2 Entire Agreement. This Agreement, including the schedules and
exhibits hereto and the documents, annexes, attachments, certificates and
instruments referred to herein and therein, embodies the entire agreement and
understanding of the parties hereto in respect of the agreements and
transactions contemplated by this Agreement and supersedes all prior
agreements, representations, warranties, promises, covenants, arrangements,
communications and understandings, oral or written, express or implied, between
the parties with respect to such transactions. There are no agreements,
representations, warranties, promises, covenants, arrangements or
understandings between the parties with respect to such transactions, other
than those expressly set forth or referred to herein.
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12.3 Certain Definitions.
"Affiliate" means, with regard to any Person, (a) any Person,
directly or indirectly, controlled by, under common control of, or
controlling such Person, (b) any Person, directly or indirectly, in
which such Person holds, of record or beneficially, five percent or
more of the equity or voting securities, (c) any Person that holds, of
record or beneficially, five percent or more of the equity or voting
securities of such Person, (d) any Person that, through Contract,
relationship or otherwise, exerts a substantial influence on the
management of such Person's affairs, (e) any Person that, through
Contract, relationship or otherwise, is influenced substantially in
the management of their affairs by such Person, or (f) any director,
officer, partner or individual holding a similar position in respect
of such Person.
"Authority" means any governmental, regulatory or
administrative body, agency, arbitrator or authority, any court or
judicial authority, any public, private or industry regulatory agency,
arbitrator authority, whether international, national, federal, state
or local.
"Claim" means any action, claim, obligation, liability,
expense, lawsuit, demand, suit, inquiry, hearing, investigation,
notice of a violation, litigation, proceeding, arbitration, or other
dispute, whether civil, criminal, administrative or otherwise, whether
pursuant to contractual obligations or otherwise.
"Contract" means any agreement, contract, commitment,
instrument or other binding arrangement or understanding, whether
written or oral.
"Environmental Law" means any Regulation, Order, settlement
agreement or governmental requirement, which relates to or otherwise
imposes liability or standards of conduct concerning mining or
reclamation of mined land, discharges, emissions, releases or
threatened releases of noises, odors or any pollutants, contaminants
or hazardous or toxic wastes, substances or materials, whether as
matter or energy, into ambient air, water, or land, or otherwise
relating to the manufacture, processing, generation, distribution,
use, treatment, storage, disposal, cleanup, transport or handling of
pollutants, contaminants, or hazardous wastes, substances or
materials, including (but not limited to) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the
Resource Conservation and Recovery Act of 1976, as amended, the Toxic
Substances Control Act of 1976, as amended, the Federal Water
Pollution Control Act Amendments of 1972, the Clean Water Act of 1977,
as amended, any so-called "Superlien" law, and any other similar
Federal, state or local statutes.
"Environmental Permit" shall mean Permits, certificates,
approvals, licenses and other authorizations relating to or required
by Environmental Law and necessary or desirable for the Corporation's
business.
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"GAAP" means generally accepted accounting principles, applied
on a consistent basis.
"Health Care Laws" means any Federal, state, or local
Regulation or Order, of any Authority, which relates to or otherwise
imposes liability or standards of conduct concerning the licensure,
certification, qualification, or operation of a health maintenance
organization, pharmacy, home health agency or other aspect of a
Corporation's business subject to such Health Care Laws, including but
not limited to Chapter 400, Florida Statutes, governing home health
agencies; Chapter 641, Florida Statues, The Health Maintenance
Organization Act; Chapter 465, Florida Statutes, the Florida Pharmacy
Act; Sections 499.001 to .081, Florida Statutes, the Florida Drug and
Cosmetic Act; Chapter 893, Florida Statutes, the Florida Comprehensive
Drug Abuse Prevention and Control Act; Sections 455.236 to .239,
Florida Statutes, the Patient Self-Referral Act; Section 627.6699,
Florida Statutes, the Employee Health Care Access Act; Sections
409.026 and 409.912, Florida Statutes, 21 U.S.C. Section 301-392, the
Federal Food Drug and Cosmetic Act; 21 U.S.C. Section 821 et seq., the
Federal Drug Abuse Act; Section 1128B of the Social Security Act; The
Clinical Laboratory Improvement Amendments of 1988; 42 U.S.C. Section
1320a-7b, 42 C.F.R. Part 1001, 42 CFR Chapter IV, Subchapter C;
Sections 1876 or 1903 of the Social Security Act; 45 CFR, Part 74; 45
CFR, Part 92; 42 CFR 455.109 Section 306 of the Clean Air Act; 42
U.S.C. Section 1857(h) et seq., Section 508 of the Clean Water Act; 33
U.S.C. Section 1368 et seq., Executive Order 11738 and Environmental
Protection Agency regulations; 40 CFR Part 15, Title VI of the Civil
Rights Act of 1964; 42 U.S.C. Section 2000 d et seq., Section 504 of
the Rehabilitation Act of 1933; 29 U.S.C. Section 7940; Title IX of
the Education Amendments of 1972, 20 U.S.C. Section 1681 et seq., the
Age Discrimination Act of 1975; 42 U.S.C. Section 6101 et seq.,
Section 654 of OBRA '81; 42 U.S.C. Section 9849 and the Americans with
Disabilities Act of 1990; P.L. 101-336, OBRAs 1986 through 1993, as
amended, and any other similar Federal, state or local Regulations.
"Lien" means any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, Claim, easement, restriction or interest
of another Person of any kind or nature.
"Material Adverse Change" means any development or change
which has, had or would have a Material Adverse Effect.
"Material Adverse Effect" means any circumstances, state of
facts or matters which has, or might reasonably be expected to have, a
material adverse effect in respect of Gulf Coast's business,
operations, properties, assets, condition (financial or otherwise),
results, plans, strategies or prospects.
"Order" means any decree, judgment, award, order, injunction,
rule, consent of or by an Authority.
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"Person" means any corporation, partnership, joint venture,
company, syndicate, organization, association, trust, entity,
Authority or natural person.
"Proprietary Rights" means any patent, patent application,
copyright, trademark, trade name, service mark, service name, trade
secret, know-how, confidential information or other intellectual
property or proprietary rights.
"Regulation" means any law, statute, rule, regulation,
ordinance, requirement, announcement or other binding action of or by
an Authority.
"Subsidiary" means any Person which the Purchaser or Gulf
Coast, as the case may be, owns, directly or indirectly, 50% or more
of the outstanding stock or other equity interests.
12.4 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed, first class
certified mail with postage paid or by overnight receipted courier service:
(a) If to the Sellers or Gulf Coast, to:
Gulf Coast Pathology Associates, Inc.
20 Catalpa Court
Fort Myers, Florida 33919
Attn: Richard Fernandez, M.D., President
with a copy to:
Shackleford, Farrior, Stallings & Evans
501 E. Kennedy Boulevard
14th Floor
Tampa, Florida 33602
Attn: John I. Van Voris, Esq.
George C. Kalemeris, M.D., M.B.A.
23 Winewood Court
Fort Myers, Florida 33919
or to such other person or address as the Sellers or
Gulf Coast shall furnish by notice to the Purchaser in writing.
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(b) If to the Purchaser to:
AmeriPath, Inc.
800 Cypress Creek Road, Suite 200
Fort Lauderdale, Florida 33334
Attn: James C. New, President
with a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
515 E. Las Olas Boulevard, Suite 1500
Fort Lauderdale, Florida 33301
Attn: Daniel H. Aronson, Esq.
or to such other person or address as the Purchaser
shall furnish by notice to Sellers in writing.
12.5 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties,
except that the Purchaser may assign its rights, interests and obligations
hereunder to any Affiliate, and may grant Liens or security interests in
respect of its rights and interests hereunder, without the prior approval of
the Sellers.
12.6 Governing Law. The Agreement shall be governed by the laws of
the State of Florida as to all matters, including but not limited to matters of
validity, construction, effect and performance.
12.7 Consent to Jurisdiction; Service of Process. Gulf Coast and
the Sellers hereby irrevocably submit to the jurisdiction of the state or
federal courts located in Broward County, Florida in connection with any suit,
action or other proceeding arising out of or relating to this Agreement and the
transactions contemplated hereby, and hereby agree not to assert, by way of
motion, as a defense, or otherwise in any such suit, action or proceeding that
the suit, action or proceeding is brought in an inconvenient forum, that the
venue of the suit, action or proceeding is improper or that this Agreement or
the subject matter hereof may not be enforced by such courts.
12.8 Injunctive Relief. The parties hereto agree that in the event
of a breach of any provision of this Agreement, the aggrieved party or parties
may be without an adequate remedy at law. The parties therefore agree that in
the event of a breach of any provision of this Agreement, the aggrieved party
or parties may elect to institute and prosecute proceedings in any court of
competent jurisdiction to enforce specific performance or to enjoin the
continuing breach
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<PAGE> 58
of such provision, as well as to obtain damages for breach of this Agreement.
By seeking or obtaining any such relief, the aggrieved party shall not be
precluded from seeking or obtaining any other relief to which it may be
entitled.
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.10 Headings. The article, section and subsection headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement (or any
provision hereof).
12.11 Binding Effect. This Agreement shall not be construed so as
to confer any right or benefit upon any Person other than the signatories to
this Agreement and each of their respective successors and permitted assigns.
12.12 Delays or Omissions; Waiver. No delay or omission to exercise
any right, power or remedy accruing to any party hereto, upon any breach or
default of any other party under this Agreement, shall impair any such right,
power or remedy of such party nor shall it be construed to be a waiver of, or
estoppel with respect to, any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any party
hereto of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions, obligations, covenants, agreements or
conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any party, shall
be cumulative and not alternative. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent shall be given in
writing.
12.13 Severability. Unless otherwise provided herein, if any
provision of this Agreement shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
12.14 Expenses. All fees, costs and expenses (including, without
limitation, legal, auditing and accounting fees, costs and expenses) incurred
in connection with considering, pursuing, negotiating, documenting or
consummating this Agreement and the transactions contemplated hereby shall be
borne and paid solely by the party incurring such fees, costs and expenses.
12.15 Attorneys' Fees. If any party to this Agreement seeks to
enforce the terms and provisions of this Agreement, then the prevailing party
in such action shall be entitled to recover from the losing party all costs in
connection with such action, including without limitation reasonable attorneys'
fees, expenses and costs incurred at the trial court and all appellate levels.
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<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
PURCHASER:
AMERIPATH, INC.,
By: /s/ Robert P. Wynn
----------------------------------------------
Robert P. Wynn, Executive Vice President and
Chief Financial Officer
SELLERS:
/s/ Richard Fernandez
-------------------------------------------------
RICHARD FERNANDEZ, M.D.
/s/ George Kalemeris
-------------------------------------------------
GEORGE KALEMERIS, M.D.
GULF COAST PATHOLOGY ASSOCIATES,
INC. F/K/A FERNANDEZ & KALEMERIS,
M.D., P.A.
By: /s/ Richard Fernandez
----------------------------------------------
Richard Fernandez, M.D., President
- 53 -
<PAGE> 1
Exhibit 10.15
STOCK RIGHTS SURRENDER
& RESTRICTED STOCK GRANT AGREEMENT
------------------------------------
This STOCK RIGHTS SURRENDER & RESTRICTED STOCK GRANT AGREEMENT (the
"Agreement") dated and effective as of the 18th day of November, 1996, by and
among AmeriPath, Inc., a Delaware corporation ("AmeriPath" or the "Company"),
and each of _______________, M.D., ________________, M.D. and_____________,
M.D. (each, a "Doctor", and collectively, the "Doctors").
WHEREAS, the Doctors and AmeriPath are party to that certain stock
purchase agreement, dated as of ____________, 1996 (the "Purchase Agreement"),
by and among the Company, the Doctors and _____________ (the "Practice"),
pursuant to which AmeriPath purchased all of the capital stock of the Practice
from the Doctors (the "Acquisition");
WHEREAS, in connection with the Acquisition, which has been consummated,
each Doctor received certain purchase price consideration in exchange for the
capital stock and/or assets of the Practice sold, including certain contingent
stock rights pursuant to Section 1.3 of, and Schedule 1.3 to, the Purchase
Agreement (the "Stock Rights"), and certain non-negotiable subordinated
contingent notes due December 31, 2001 (each, a "Note" and, collectively, the
"Notes"), pursuant to Section 1.2 of the Purchase Agreement;
WHEREAS, the Stock Rights require AmeriPath to issue up to an aggregate
maximum amount of _______ shares (the "Maximum Shares") of AmeriPath Common
Stock, par value $.01 per share ("AmeriPath Stock"), upon the achievement of
certain specified operating earnings targets, on a cumulative basis over a
period of ____ years, as set forth in the Purchase Agreement and the schedules
thereto;
WHEREAS, after due consideration of all relevant factors, each of
AmeriPath and each Doctor believes that the Stock Rights conflict with the
overall goals of the Company and each Doctor, and each Doctor therefore desires
to amend and restructure certain of the consideration provided under the
Purchase Agreement and effect a surrender of such Doctor's Stock Rights in
exchange for a fixed number of shares of AmeriPath Stock, subject to certain
restrictions on transfer, all upon the terms and subject to the conditions set
forth in this Agreement;
WHEREAS, in consideration for the surrender of the Stock Rights,
AmeriPath desires to restructure and accelerate the payment of certain
consideration paid under the Purchase Agreement and grant and convey to each
Doctor, and each Doctor desires to acquire and receive from AmeriPath, ______
shares of AmeriPath Stock (as defined in Section 2.1.3, the "Shares"), as
substitute purchase price consideration under the Purchase Agreement, which
<PAGE> 2
Shares are subject to certain restrictions on transfer, upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, AmeriPath and each of the Doctors negotiated in good faith, in
a bargained for exchange in determining the appropriate substitute purchase
price consideration being exchanged pursuant hereto, and each of the Doctors and
AmeriPath believe that the fair value of the Shares received by the Doctors is
approximately equal to the fair value of the Stock Rights surrendered;
NOW, THEREFORE, in consideration of the premises and the respective
mutual agreements, covenants, representations and warranties herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE 1
SURRENDER OF STOCK RIGHTS;
GRANT OF SHARES; SURRENDER
1.1 Surrender of Stock Rights. In consideration for the issuance, grant,
conveyance and delivery of the Shares by AmeriPath to each Doctor pursuant to
Section 1.2 hereof, each Doctor hereby irrevocably agrees to surrender, cancel
and terminate such Doctor's Stock Rights, including all of such Doctor's right,
title and interest in and to the Stock Rights, for the benefit of AmeriPath. In
furtherance and not in limitation of the foregoing, each Doctor hereby
irrevocably agrees to the surrender, cancellation and termination of all rights
of such Doctor to, and all obligations of AmeriPath (or any subsidiary or
affiliate of AmeriPath) under or in connection with, the Stock Rights, and
AmeriPath hereby accepts and agrees to such surrender, cancellation and
termination. Upon the grant and conveyance of Shares pursuant to Section 1.2
hereof, (i) each Doctor shall have no further right, title or interest in, to or
under the Stock Rights, and shall have no right or claim in connection
therewith, and (ii) the Stock Rights, and any and all obligations of AmeriPath
in connection therewith, shall be cancelled and terminated.
1.2 Grant of Shares. Subject to the terms and conditions of this
Agreement, and in consideration for the surrender, cancellation and termination
of the Stock Rights by each Doctor pursuant to Section 1.1 hereof, AmeriPath
hereby agrees to issue, grant, convey and deliver to each Doctor, and each
Doctor hereby agrees to receive and accept delivery of, the Shares, consisting
of ______ shares of AmeriPath Stock, which Shares shall be subject to the
restrictions on transfer set forth in Article 2 hereof. Promptly following
execution and delivery of this Agreement, AmeriPath shall deliver to each Doctor
a certificate evidencing the Shares, free and clear of all liens, encumbrances
and restrictions (other than those created under or pursuant to this Agreement,
the Company's shareholders' agreement or federal or state securities laws), duly
endorsed or together with appropriate stock powers
-2-
<PAGE> 3
or other instruments of transfer and with all requisite transfer stamps
attached. The Shares, when issued to each Doctor in accordance with this
Section 1.2, shall be duly authorized, validly issued, fully paid and
non-assessable shares of AmeriPath Stock.
ARTICLE 2
RESTRICTIONS ON TRANSFER
2.1 Restrictions on Transfer.
2.1.1 Except as is specifically permitted by the provisions
of this ARTICLE 2, the sale, assignment, transfer, conveyance, pledge, margin,
hypothecation, gift, bequest, devise, levy, execution or other disposition
(hereinafter, each, a "transfer") of a Doctor's Shares, either directly or
indirectly, by operation of law or otherwise, to any person (including any
individual, trust, corporation, partnership, company, association, syndicate,
venture, special purpose vehicle or other entity) is strictly prohibited.
2.1.2 In furtherance and not in limitation of the foregoing,
no Doctor shall transfer any Shares at any time if such transfer would
constitute a breach of any shareholders agreement with AmeriPath, or a
violation of any federal or state securities or "blue sky" laws, rules or
regulations (collectively, "Securities Laws"), or a breach of the conditions to
any exemption from registration of the Shares under any such Securities Laws,
or a breach of any undertaking or agreement of such Doctor entered into with
AmeriPath pursuant to such Securities Laws or in connection with obtaining an
exemption thereunder, and the Company shall not transfer upon its books any
Shares unless prior thereto the Company shall have received an opinion, in form
and substance satisfactory to the Company, of counsel, reasonably satisfactory
to the Company, that such transfer is in compliance with this ARTICLE 2.
2.1.3 For purposes of this Agreement (and the restrictions
set forth in this Article 2), the term "Shares" shall mean and include (i) the
shares of AmeriPath Stock issued, granted, conveyed and delivered to each Doctor
pursuant to Section 1.1 hereof (the "Primary Shares"), and (ii) any and all
other or additional shares of capital stock of AmeriPath issued or delivered by
AmeriPath with respect to the shares of AmeriPath Stock described in clause (i)
hereof, including without limitation any shares of capital stock of AmeriPath
issued or delivered with respect to such shares as a result of any stock split,
stock dividend, stock distribution, recapitalization or similar transaction (the
"Additional Shares").
2.2 Lapse of Transfer Restrictions Over Time. Notwithstanding
the provisions of Section 2.1.1 hereof, commencing on ____________, 1997, and on
each of the [four] one-year anniversaries of such date, [20%] of the Shares
(including both the Primary Shares and any Additional Shares issued with respect
to such Primary Shares) owned by each Doctor shall be free of the restrictions
set forth in Section 2.1.1, such restrictions at such time having
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<PAGE> 4
lapsed and no longer being applicable to such percentage of the Shares, so that
after [five (5)] years none of the Shares (including Primary Shares and
Additional Shares) shall be subject to the restrictions set forth in Section
2.1.1 hereof; provided, however, that simultaneous with the consummation of a
Change of Control (as defined below), the restrictions on transfer provided in
Section 2.1.1 shall immediately and fully lapse and terminate with respect to
all of the Shares. A "Change of Control" for purposes hereof shall mean and
include a transaction--including a merger, share exchange, tender offer,
recapitalization, or similar transaction involving the purchase of the
outstanding capital stock of AmeriPath--as a result of which, and upon the
consummation of which, 80% or more of the issued and outstanding capital stock
of AmeriPath is acquired by any Person.
2.3 Permitted Conditional Transfer Upon Death. Notwithstanding the
provisions of Section 2.1.1, upon a Doctor's death, the Shares owned by such
Doctor shall be transferable solely pursuant to the Doctor's will or in
accordance with the laws of descent and distribution, if, and only if, the
descendants or devisees, as applicable, of the Shares execute and deliver to
AmeriPath an agreement, in form and substance satisfactory to AmeriPath,
evidencing their agreement to the restrictions contained in this ARTICLE 2.
2.4 Legend(s) on Stock Certificates. Each Doctor understands and agrees
that any and all stock certificates evidencing the Shares shall contain
appropriate restrictive legends indicating, in form satisfactory to AmeriPath,
the restrictions to which such Shares are subject, as provided under this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Each Doctor. Each
Doctor, understanding that AmeriPath is relying upon the following, represents
and warrants to AmeriPath as follows:
3.1.1 Each Doctor has been offered, and up to the date
hereof, shall be offered, the opportunity to ask questions of, and
receive answers from, AmeriPath and its officers, and the Doctors have
been given full and complete access to all available information and
data relating to the business and assets of AmeriPath, have obtained
such additional information about AmeriPath which the Doctors have
deemed necessary in order to evaluate the opportunities, both financial
and otherwise, with respect to AmeriPath and, except as set forth
herein, have not relied on any representation, warranty or other
statement concerning AmeriPath in their evaluation of the decision to
consummate the transactions contemplated herein. On the basis of the
foregoing, each Doctor is familiar with the operations, business plans
and financial condition of AmeriPath.
3.1.2 Each Doctor understands that he must bear the economic
risk of the Shares for an indefinite period of time because, except as
provided in this Agreement, (i) each Doctor understands that AmeriPath
proposes to issue and deliver the shares of AmeriPath Common Stock
issuable in accordance with this Agreement, without compliance with the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), that for such purpose AmeriPath will rely upon the
representations, warranties, covenants and agreements contained
-4-
<PAGE> 5
herein, as well as any additional representations, warranties,
covenants, agreements and certifications requested by AmeriPath to be
delivered by the Doctors at such time of issuance of the AmeriPath
Stock; and that such noncompliance with registration is not permissible
unless such representations and warranties are correct and such
covenants and agreements are performed at and as of the time of
issuance; (ii) each Doctor understands that, under existing rules of
the Securities and Exchange Commission (the "SEC"), there are
substantial restrictions on the transferability of the Shares; the
Shares may be transferred only if registered under the Securities Act
or if an exemption from such registration is available; the Doctors may
not be able to avail themselves of the provisions of Rule 144
promulgated by the SEC under the Securities Act with respect to the
transfer of the Shares; (iii) the Shares may not be sold, transferred,
pledged, or otherwise disposed of except pursuant to ARTICLE 2 hereof,
and then only with an opinion of counsel for or satisfactory to
AmeriPath that registration under the Securities Act or any applicable
state securities laws is not required; and (iv) AmeriPath neither has
an obligation to register a sale of the Shares held by any Doctor nor
has it agreed to do so in the future.
3.1.3 Each Doctor is an "accredited investor", as such term
is defined in Rule 501 of Regulation D promulgated under the Securities
Act in that, as of the date of this Agreement, he or she either (a)
(either individually or jointly with his or her spouse) has a net worth
in excess of $1,000,000; or (b) had an individual income in excess of
$200,000 in each of the two most recent years or joint income with his
or her spouse in excess of $300,000 in each of those years, and
reasonably expects reaching the same income level in the current year.
3.1.4 Each Doctor is a sophisticated investor familiar with
the type of risks inherent in the acquisition of securities such as the
Shares and such Doctor's financial position is such that such Doctor can
afford to retain his Shares for an indefinite period of time without
realizing any direct or indirect cash return on such Doctor's
investment.
3.1.5 Each Doctor understands, agrees and acknowledges that
the Shares have not been registered under the Florida Securities Act in
reliance upon exemption provisions contained therein which AmeriPath
believes are available. Any sale made pursuant to such exemption
provisions is voidable by the purchaser within three business days after
the first tender of consideration is made by the purchaser to the
issuer, an agent of the issuer or an escrow agent. A withdrawal within
such three-day period will be without any further liability to any
person (except that the purchase price attributable to such withdrawal
must be returned to the purchaser). To accomplish this withdrawal, a
purchaser need only send a letter or telegram to AmeriPath at the
address set forth herein, indicating his or her intention to withdraw.
Such letter or telegram should be sent and postmarked prior to the end
of the aforementioned third business day. It is advisable to send such
letter by certified mail, return receipt requested, to ensure that it is
received and also to evidence the
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<PAGE> 6
date it was mailed. If the request is made orally, in person or
by telephone, to a representative of AmeriPath, a written confirmation
that the request has been received should be requested.
3.1.6 Each Doctor is acquiring the Shares for such Doctor's
own account and not with a view to, or for sale in connection with, the
distribution thereof within the meaning of the Securities Act.
3.1.7 Each Doctor understands that the certificates
evidencing the Shares will bear appropriate restrictive legends.
3.1.8 Each Doctor understands that, in connection with the
surrender, cancellation and termination of the Stock Rights pursuant to
Section 1.1 hereof, such Doctor is irrevocably and forever relinquishing
valuable contingent rights to receive shares of AmeriPath Stock,
including (depending upon the operating earnings performance of the
Practice and other factors) the possible right to receive substantially
more shares of AmeriPath Stock than the number of Shares being issued,
granted, conveyed and delivered pursuant to Section 1.2 hereof. Each
Doctor also understands and agrees that the restrictions on transfer
provided for herein are reasonable, necessary and bargained for in
connection with this Agreement.
3.2 Representations and Warranties of AmeriPath. AmeriPath
represents and warrants to each Doctor as follows:
3.2.1 AmeriPath has full corporate authority and power to
issue the Shares and deliver the Shares to the Doctors as provided herein. Upon
execution and delivery hereof, AmeriPath will transfer and convey, and the
Doctors will acquire, good, valid and marketable title to the Shares, free and
clear of all claims, encumbrances, security interests, charges, or liens of any
kind whatsoever (other than those created under or pursuant to this Agreement,
the Company's shareholders' agreement or federal or state securities laws).
3.2.2 All shares of AmeriPath Stock required to be issued by
AmeriPath to the Doctors, in accordance with the terms and subject to the
conditions set forth in this Agreement, shall, upon issuance and delivery, be
duly authorized, validly issued, fully paid and non-assessable.
ARTICLE 4
MISCELLANEOUS
4.1 Survival of Representations, Warranties, Covenants and
Agreements. All of the representations, warranties, covenants and agreements of
AmeriPath and each Doctor
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<PAGE> 7
contained in this Agreement shall be continuing and shall survive the closing
without limitation as to time.
4.2 Expenses. Each party hereto shall bear its own fees, costs
and expenses with respect to this Agreement and the transactions contemplated
hereby.
4.3 Notices. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, upon delivery to Federal Express or
another reputable overnight courier, or upon their deposit in the United States
mail, by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the addresses specified in the Purchase Agreement
or at such other addresses as any party may from time to time give written
notice to the others.
4.4 Headings. The headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement or
affect the meaning, construction or interpretation of this Agreement.
4.5 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements, understandings, negotiations and
discussions, both written and oral, between the parties hereto with respect to
the transactions contemplated hereby.
4.6 Benefits; Binding Effect. This Agreement and all of the
provisions hereof shall inure to the benefit of, and be binding upon, the
parties hereto and their respective heirs, devisees, successors and assigns and
are not intended to confer upon any other person any rights or remedies
hereunder. The obligations and agreements of each Doctor are, and shall be
deemed and interpreted to be, separate and distinct from, and thus not
dependent upon, the obligations and agreements of each other Doctor, and shall
be binding upon such Doctor and enforceable by AmeriPath.
4.7 No Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall any such waiver constitute a
continuing waiver unless otherwise expressly so provided.
4.8 Agreement To Take Actions. It is the intent of the parties
hereto that this Agreement be valid and enforceable in accordance with the laws
of the State of Florida. Each party hereto shall execute, and/or prepare and
deliver such other records, resolutions, consents, documents, certificates,
agreements, notes, guarantees and other writings and take such further and
other actions as may be necessary or appropriate in order to ensure the proper
effectiveness and enforceability of this Agreement. Further, each party hereto
shall perform its covenants and agreements expeditiously and diligently, and in
good faith, and shall not take any action or omit to take any action which
might adversely affect its ability
-7-
<PAGE> 8
to perform the obligations or consummate the transactions contemplated by this
Agreement and shall execute and/or prepare and deliver such records,
resolutions, consents, documents, certificates, agreements, notes, guarantees
and other writings and take such other actions as may be necessary or
appropriate in order expeditiously to perform any such obligations and/or
consummate any such transactions.
4.9 Severability. The invalidity of any one or more of the
words, phrases, sentences, clauses, sections or subsections contained in this
Agreement shall not affect the enforceability of the remaining portions of this
Agreement or any part hereof, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this
Agreement shall be declared invalid, this Agreement shall be construed as if
such invalid word or words, phrase or phrases, sentence or sentences, clause or
clauses, section or sections, or subsection or subsections had not been
inserted. In addition, although this Agreement reflects the binding obligation
and agreement of more than one Doctor, the obligations and agreements of each
Doctor are, and shall be deemed and interpreted to be, separate and distinct
from, and thus not dependent upon, the obligations and agreements of each other
Doctor.
4.10 Attorneys' Fees. If any party to this Agreement seeks to
enforce the terms and provisions of this Agreement, then the prevailing party
in such action shall be entitled to recover from the losing party all costs in
connection with such action, including without limitation reasonable attorneys'
fees, expenses and costs incurred at the trial court and all appellate levels.
4.11 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement and
each of which shall be deemed an original.
4.12 Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Florida
(without reference to the conflict of laws provisions thereof). To the fullest
extent permitted by law, AmeriPath and each Doctor hereby (a) submits to the
jurisdiction of the Florida and United States courts for the Florida judicial
circuit and the federal district, respectively, wherein lies Broward County,
Florida for purposes of any legal action or proceeding brought under this
Agreement and (b) agrees that exclusive venue of any such action or proceeding
may be laid in Broward County, Florida and waive any claim that the same is an
inconvenient forum.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
DOCTORS:
------------------------------------------
Name:
-------------------------------------
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Name:
-------------------------------------
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Name:
-------------------------------------
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Name:
-------------------------------------
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Name:
-------------------------------------
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Name:
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Name:
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AMERIPATH, INC.
By:
---------------------------------------
Robert P. Wynn, Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.16
AMERIPATH INC.
1996 DIRECTOR STOCK OPTION PLAN
---------------------------------------
1. Purpose. The purpose of this Plan is to attract and retain
qualified and competent persons to serve as directors of Ameripath, Inc., a
Delaware corporation (the "Company"), or its Subsidiaries and to provide such
directors with additional incentive to contribute to the success of the Company
and its Subsidiaries by providing them with an opportunity to share in the
increase in value of the Company.
2. Definitions. As used herein, the following terms shall have the
meaning indicated:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Committee" shall mean the committee appointed pursuant
to Section 13 hereof to administer the Plan, or in the event that the Board does
not appoint such Committee, the Board.
(d) "Common Stock" shall mean the Company's Common Stock, par
value $0.01 per share.
(e) "Company" shall refer to Ameripath, Inc., a Delaware
corporation.
(f) "Director" shall mean a member of the Board or of the
Board of Directors of any Subsidiary.
(g) "Effective Date" shall mean November 21, 1996.
(h) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(i) "Fair Market Value" of a Share on any date of reference
shall be the "Closing Price" (as defined below) of the Common Stock on the
business day immediately preceding such date, unless the Committee in its sole
discretion shall determine otherwise in a fair and uniform manner. For the
purpose of determining Fair Market Value, the "Closing Price" of the Common
Stock on any business day shall be (i) if the Common Stock is listed or admitted
for trading on any United States national securities exchange, or if actual
transactions are otherwise reported on a consolidated transaction reporting
system, the last reported sale price of Common Stock on such exchange or
reporting system, as
<PAGE> 2
reported in any newspaper of general circulation, (ii) if the Common Stock is
quoted on the National Association of Securities Dealers Automated Quotations
System ("Nasdaq"), or any similar system of automated dissemination of
quotations of securities prices in common use, the last reported sale price of
Common Stock for such day on such system, or (iii) if neither clause (i) or (ii)
is applicable, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Incorporated if at
least two securities dealers have inserted both bid and asked quotations for
Common Stock on at least five of the ten preceding days. If neither (i), (ii),
or (iii) above is applicable, then Fair Market Value shall be determined in good
faith by the Committee in a fair and uniform manner.
(j) "Non-Employee Director" shall refer to a Director who is
not an employee of the Company or any Subsidiary.
(k) "Option" (when capitalized) shall mean any option granted
under this Plan.
(l) "Optionee" shall mean a person to whom a stock option is
granted under this Plan or any person who succeeds to the rights of such person
under this Plan by reason of the death of such person or otherwise.
(m) "Plan" shall mean this 1996 Director Stock Option Plan
for the Company.
(n) "Share(s)" shall mean a share or shares of the Common
Stock.
(o) "Subsidiary" shall mean any corporation (other than the
Company) in any unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. Shares and Options. The Committee may grant to Optionees from time
to time, Options to purchase an aggregate of up to 100,000 Shares from
authorized and unissued Shares, provided that upon initial election to the
Board, each Non-Employee Director shall be granted an option to purchase 5,000
Shares, the exercise price of which shall be determined as of the date on which
he or she commences service as a Director.
4. Non-Qualified Options. Options granted under this Plan shall not
qualify as "Incentive Stock Options," as such term is used in Section 422 of the
Code.
5. Conditions for Grant of Options.
(a) Each Option shall be evidenced by an option agreement that may
contain any term deemed necessary or desirable by the Committee, provided such
terms are not inconsistent with this Plan or any applicable law. Optionees shall
be those persons selected by the Committee who are Non-Employee Directors.
- 2 -
<PAGE> 3
(b) In granting Options, the Committee shall take into consideration
the contribution the person has made or has an opportunity to make with respect
to the success of the Company or its Subsidiaries and such other factors as the
Committee shall determine. The Committee shall also have the authority to
consult with and receive recommendations from officers and other personnel of
the Company and its Subsidiaries with regard to these matters. The Committee
may, from time to time in granting Options, prescribe such other terms and
conditions concerning such Options as it deems appropriate, including, without
limitation, (i) prescribing the date or dates on which the Option becomes
exercisable, (ii) providing that the Option rights accrue or become exercisable
in installments over a period of years, and/or upon the attainment of stated
goals, or (iii) relating an Option to the continued employment of the Optionee
for a specified period of time, provided that such terms and conditions are not
more favorable to an Optionee than those expressly permitted herein.
6. Option Price. The option price per Share of any Option shall be
any price determined by the Committee, but shall not be less than the par value
per Share.
7. Exercise of Options. An Option shall be deemed exercised when (i)
the Company or the Committee has received written notice of such exercise in
accordance with the terms of the Option, (ii) full payment of the aggregate
option price of the Shares as to which the Option is exercised has been made,
and (iii) arrangements that are satisfactory to the Committee in its sole
discretion have been made for the Optionee's payment to the Company of the
amount that is necessary for the Company or Subsidiary employing the Optionee to
withhold in accordance with applicable Federal or state tax withholding
requirements. Unless further limited by the Committee in any Option, the option
price of any Shares purchased shall be paid (1) in cash, (2) by certified or
official bank check, (3) by money order, (4) with Shares owned by the Optionee
that have been owned by the Optionee for more than 6 months on the date of
surrender or such other period as may be required to avoid a charge to the
Company's earnings for financial accounting purposes, (5) by authorization for
the Company to withhold Shares issuable upon exercise of the Option, (6) by
arrangement with a broker that is acceptable to the Committee where payment of
the Option price is made pursuant to an irrevocable direction to the broker to
deliver all or part of the proceeds from the sale of the Option Shares to the
Company in payment of the Option price, or (7) any combination of the foregoing.
The Committee in its sole discretion may accept a personal check in full or
partial payment of any Shares. If the exercise price is paid in whole or in part
with Shares, the value of the Shares surrendered shall be their Fair Market
Value on the date the Option is exercised. The Company in its sole discretion
may, on an individual basis or pursuant to a general program established in
connection with this Plan, and subject to applicable law, lend money to an
Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to
obtain the cash necessary to exercise all or a portion of an Option granted
hereunder or to pay any tax liability of the Optionee attributable to such
exercise. If the exercise price is paid in whole or part with Optionee's
promissory note, such note shall (i) provide for full recourse to the maker,
(ii) be collateralized by the pledge of the Shares that the Optionee purchases
upon exercise of such Option, (iii) bear interest at a rate no less than the
prime rate of the Company's principal lender, and (iv) contain such other terms
as the Board in its sole discretion shall reasonably require. No Optionee shall
be deemed to be a holder of any Shares subject to an Option unless and until a
stock certificate or certificates for such Shares are issued to such person(s)
- 3 -
<PAGE> 4
under the terms of this Plan. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 10
hereof.
8. Exercisability of Options. Except as otherwise provided in
this Section 8, any Option shall become exercisable in such amounts, at such
intervals and upon such terms as the Committee shall provide in such Option.
(a) The expiration date of an Option shall be determined by
the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date on which the Option
is granted.
(b) Unless otherwise provided in any Option, each
outstanding Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall
include a series of transactions occurring within 60 days or
occurring pursuant to a plan), that has the result that
stockholders of the Company immediately before such
transaction cease to own at least 51% of the voting stock of
the Company or of any entity that results from the
participation of the Company in a reorganization,
consolidation, merger, liquidation or any other form of
corporate transaction;
(ii) if the stockholders of the Company shall approve
a plan of merger, consolidation, reorganization, liquidation
or dissolution in which the Company does not survive (unless
the approved merger, consolidation, reorganization,
liquidation or dissolution is subsequently abandoned); or
(iii) if the stockholders of the Company shall
approve a plan for the sale, lease, exchange or other
disposition of all or substantially all the property and
assets of the Company (unless such plan is subsequently
abandoned).
(c) The Committee may in its sole discretion accelerate the
date on which any Option may be exercised and may accelerate the vesting of any
Shares subject to any Option.
9. Termination of Option Period.
(a) The unexercised portion of any Option granted to an
Optionee shall automatically and without notice terminate and become null and
void at the time of the earliest to occur of the following:
(i) immediately upon the involuntary removal of the
Optionee from the Board, other than a result of the
Optionee's failure to be elected as a member of the Board;
- 4 -
<PAGE> 5
(ii) twelve months after the date on which the
Optionee's ceases to be a Director, other than by reason of
an involuntary removal;
(iii) the date specified in the agreement evidencing
the grant of the Option.
(b) The Board or the Committee in its sole discretion
may by giving written notice (the "Cancellation Notice") cancel, effective upon
the date of the consummation of any corporate transaction described in
Subsections 8(b)(ii) or (iii) hereof, any Option that remains unexercised on
such date. Such Cancellation Notice shall be given a reasonable period of time
prior to the proposed date of such cancellation and may be given either before
or after approval of such corporate transaction.
10. Adjustment of Shares.
(a) If at any time while the Plan is in effect or
unexercised Options are outstanding, there shall be any increase or decrease
in the number or change in the nature of issued and outstanding Shares through
the declaration of a stock dividend or through any recapitalization resulting
in a stock split-up, combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made by the
Committee in the maximum number of Shares available for grant
under the Plan, and to any one Optionee, so that the same
percentage of the Company's issued and outstanding Shares
shall remain subject to purchase at the same aggregate
exercise price; and
(ii) appropriate adjustment shall be made by the
Committee in the number of Shares and the exercise price per
Share thereof then subject to any outstanding Option, so that
the same percentage of the Company's issued and outstanding
Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Unless otherwise provided in any Option or determined by
the Committee, the Committee may change the terms of Options outstanding under
this Plan, including with respect to the option price or the number of Shares
subject to the Options, or both, when, in the Committee's sole discretion, such
adjustments become appropriate by reason of a corporate transaction described in
Subsections 8(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under the
Plan.
- 5 -
<PAGE> 6
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
11. Transferability of Options and Shares.
(a) Unless the Committee's prior written consent is obtained
(which consent may be obtained at the time an Option is granted) and the
transaction does not violate the requirements of Rule 16b-3 promulgated under
the Exchange Act no Option, shall be subject to alienation, assignment, pledge,
charge or other transfer other than by the Optionee by will or the laws of
descent and distribution, and any attempt to make any such prohibited transfer
shall be void. Each Option shall be exercisable during the Optionee's lifetime
only by the Optionee, or in the case of an Option that has been assigned or
otherwise transferred with the Committee's prior written consent, only by the
assignee consented to by the Committee.
(b) Unless the Committee's prior written consent is obtained
(which consent may be obtained at the time an Option is granted) and the
transaction does not violate the requirements of Rule 16b-3 promulgated under
the Exchange Act, no Shares acquired pursuant to the exercise of an Option may
be sold, assigned, pledged or otherwise transferred prior to the expiration of
the six-month period following the date on which the Option was granted.
12. Issuance of Shares.
(a) Notwithstanding any other provision of this Plan, the
Company shall not be obligated to issue any Shares unless it is advised by
counsel of its selection that it may do so without violation of the applicable
Federal and State laws pertaining to the issuance of securities, and may require
any stock so issued to bear a legend, may give its transfer agent instructions,
and may take such other steps, as in its judgment are reasonably required to
prevent any such violation.
(b) As a condition of any sale or issuance of Shares upon
exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary or advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee to
the Company, at the time any Option is exercised, that he is
acquiring the Shares to be
- 6 -
<PAGE> 7
issued to him for investment and not with a view to, or for
sale in connection with, the distribution of any such Shares;
and
(ii) a representation, warranty and/or agreement to
be bound by any legends that are, in the opinion of the
Committee, necessary or appropriate to comply with the
provisions of any securities law deemed by the Committee to be
applicable to the issuance of the Shares and are endorsed upon
the Share certificates.
13. Administration of the Plan.
(a) The Plan shall be administered by the Committee, which
shall consist of not less than two Directors. The Committee shall have all of
the powers of the Board with respect to the Plan. Any member of the Committee
may be removed at any time, with or without cause, by resolution of the Board,
and any vacancy occurring in the membership of the Committee may be filled by
appointment of the Board.
(b) The Board may reserve to itself the power to grant Options
to Directors of the Company or any Subsidiary. If and to the extent that the
Board reserves such powers, then all references herein to the Committee shall
refer to the Board with respect to the Options granted by the Board.
(c) The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The Committee's
determinations and its interpretation and construction of any provision of the
Plan shall be final and conclusive.
(d) Any and all decisions or determinations of the Committee
shall be made either (i) by a majority vote of the members of the Committee at a
meeting or (ii) without a meeting by the unanimous written approval of the
members of the Committee.
14. Withholding or Deduction for Taxes. If at any time specified
herein for the making of any issuance or delivery of any Option or Common Stock
to any Optionee, any law or regulation of any governmental authority having
jurisdiction in the premises shall require the Company to withhold, or to make
any deduction for, any taxes or take any other action in connection with the
issuance or delivery then to be made, such issuance or delivery shall be
deferred until such withholding or deduction shall have been provided for by the
Optionee or beneficiary, or other appropriate action shall have been taken.
15. Interpretation.
(a) As it is the intent of the Company that the Plan comply in
all respects with Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"),
any ambiguities or inconsistencies in construction of the Plan shall be
interpreted to give effect to such intention, and if any provision of the Plan
is found not to be in compliance with Rule 16b-3, such provision shall be deemed
null and void to the extent required to permit the Plan to comply with Rule 16b-
3. The Board and the Committee each may from time to time adopt
- 7 -
<PAGE> 8
rules and regulations under, and amend, the Plan in furtherance of the intent
of the foregoing.
(b) This Plan shall be governed by the laws of the State of
Delaware.
(c) Headings contained in this Plan are for convenience only
and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter
gender shall be a reference to such other gender as is appropriate.
16. Amendment and Discontinuation of the Plan. The Board and the
Committee each may from time to time amend the Plan or any Option; provided,
however, that, except to the extent provided in Section 10, no such amendment
may, without approval by the stockholders of the Company, (i) increase the
number of securities which may be issued under the Plan pursuant to the
exercise of Incentive Stock Options, (ii) modify the requirements as to
eligibility for participation in the Plan or (iii) increase the aggregate
number of Options that may be granted to any one Optionee; and provided
further, that, except to the extent provided in Section 9, no amendment or
suspension of the Plan or any Option issued hereunder shall substantially
impair any Option previously granted to any Optionee without the consent of such
Optionee. Shareholder approval also shall be required for any amendment to the
Plan if and to the extent such approval is required by any federal or state law
or regulation or the rules of any stock exchange or automated quotation system
on which the Common Stock may then be listed or quoted.
17. Effective Date and Termination Date. The Plan shall be
effective upon the Effective Date and shall terminate on the 10th anniversary
of the Effective Date.
- 8 -
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS'S CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of AmeriPath, Inc.:
We consent to the use in this Registration Statement of AmeriPath, Inc. on
Form S-1 of our report dated November 19, 1996, appearing in the Prospectus,
which is part of this Registration Statement. We also consent to the
references to us under the headings "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of AmeriPath, Inc., listed in Item 16(b). This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We have also previously audited, in accordance with generally accepted auditing
standards, the balance sheets as of December 31, 1992 and 1993, and the related
statements of income, stockholders' equity, and cash flows for the year ended
December 31, 1992 (none of which are presented herein); and we expressed an
unqualified opinion on those financial statements. In our opinion, the
information as of December 31, 1992 and 1993 and for the year ended December
31, 1992, set forth under the heading "Selected Consolidated Financial Data" in
the Prospectus, is fairly stated in all material respects in relation to the
financial statements from which it has been derived.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
November 27, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AmeriPath, Inc. on Form
S-1 of our reports appearing in the Prospectus, which is part of this
Registration Statement, as follows: dated September 27, 1996 on the financial
statements of Demaray and Poulos, P.A.; dated September 27, 1996 on the
financial statements of Amazon and Rosen, M.D., P.A.; dated October 15, 1996 on
the financial statements of SkinPath, P.C.; dated October 19, 1996 on the
financial statements of Drs. Seidenstein, Levine & Associates, P.A.; and dated
November 13, 1996 on the financial statements of Fernandez and Kalemeris, P.A.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
November 26, 1996
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AmeriPath, Inc. on Form
S-1 of our reports appearing in the Prospectus, which is part of this
Registration Statement as follows: dated October 1, 1996 on the financial
statements of Derrick and Associates Pathology, Inc.; and dated
November 1, 1996 on the financial statements of Volusia Pathology Group, M.D.,
P.A. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
DELOITTE & TOUCHE LLP
Orlando, Florida
November 25, 1996
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AmeriPath, Inc. on Form
S-1 of our reports appearing in the Prospectus, which is part of this
Registration Statement, as follows: dated October 2, 1996 on the combined
financial statements of Pathology Associates P.S.C. and Technical Pathology
Services, Inc.; dated November 1, 1996 on the financial statements of Beno
Michel, M.D., Inc.; and dated November 8, 1996 on the financial statements of
David R. Barron, M.D., Inc. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
November 26, 1996
<PAGE> 1
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AmeriPath, Inc. on Form
S-1 of our report dated November 12, 1996 on the combined financial statements
of Clay J. Cockerell, M.D., P.A. and Freeman-Cockerell Laboratories, Inc.
appearing in the Prospectus, which is part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Dallas, Texas
November 26, 1996
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6,085 6,123
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