<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 22, 1997
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>
<C> <C>
DANIEL H. ARONSON, ESQ. J. VAUGHAN CURTIS, ESQ.
GREENBERG TRAURIG HOFFMAN ALSTON & BIRD LLP
LIPOFF ROSEN & QUENTEL, P.A. ONE ATLANTIC CENTER
515 E. LAS OLAS BOULEVARD, SUITE 1500 1201 WEST PEACHTREE STREET
FORT LAUDERDALE, FLORIDA 33301 ATLANTA, GA 30309
(954) 765-0500 (404) 881-7000
</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>
===============================================================================================================
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share............... $86,250,000 $26,137
===============================================================================================================
</TABLE>
(1) Includes 750,000 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 AUGUST 22, 1997
PROSPECTUS
, 1997
5,000,000 SHARES
AMERIPATH (LOGO)
COMMON STOCK
------------------------
All of the 5,000,000 shares of Common Stock, $0.01 par value per share (the
"Common Stock"), offered hereby are being sold by the Company. Up to 539,770
additional shares may be sold by certain stockholders of the Company (the
"Selling Stockholders") if the Underwriters exercise their over-allotment option
in full. See "Principal Stockholders" and "Underwriting." The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholders.
The net proceeds received by the Company will be used to repay indebtedness,
including amounts due to stockholders. See "Use of Proceeds." Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price per share will
be between $13.00 and $15.00. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
---------------------
The Company has applied to have the shares of Common Stock approved for
quotation on the Nasdaq National Market under the symbol "PATH."
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR 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>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
- --------------------------------------------------------------------------------------------
</TABLE>
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(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 $2.1 million.
(3) The Company and the Selling Stockholders have granted the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 750,000 additional shares of Common Stock, at the price to the
public less underwriting discounts and commissions, for the purpose of
covering over-allotments, if any. If the Underwriters exercise such option
in full, the total price to the public, underwriting discounts and
commissions, proceeds to the Company and proceeds to the Selling
Stockholders, will be $ , $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be made in New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
PIPER JAFFRAY INC.
<PAGE> 3
[Map of the United States showing the locations of Ameripath operations, in
Florida, Ohio, Kentucky, Alabama and Texas, and Pending Acquisitions, in
Mississippi, Indiana and Texas, including summary information regarding the
Company as of June 30, 1997; 12 Practices in Five States; three Pending
Acquisitions; 47 Hospital Contracts; 12 Outpatient Laboratories; 75
Pathologists; 688 Employees]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
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. AmeriPath, Inc. is structured and operates as a holding
company ("AmPath"), with AmPath currently as the parent of five wholly-owned
subsidiaries, one of which is located in each state in which the Company
operates. Three wholly-owned subsidiaries (the "Direct Subsidiaries") own and
operate nine practices in Florida, Kentucky and Alabama, which subsidiaries
directly own the laboratory facilities, testing equipment and other assets, and
which subsidiaries directly employ 68 pathologists as well as technical and
other personnel, utilized in such practices. Two wholly-owned subsidiaries (the
"PA Contractor Subsidiaries" and, together with the Direct Subsidiaries, the
"Subsidiaries") are parties to long-term management agreements with three
separately organized professional associations or corporations (collectively,
the "PA Contractors") in Ohio and Texas. The PA Contractors directly employ
seven pathologists and directly contract with payors and providers, while the PA
Contractor Subsidiaries directly employ all technical and non-medical personnel,
and directly own the laboratory facilities, testing equipment and other assets,
utilized in such practices. Unless the context otherwise requires, references
to: (a) the Company or AmeriPath include AmPath, its predecessors and the
Subsidiaries; (b) Affiliated Physicians mean physicians employed by the Direct
Subsidiaries or the PA Contractors; and (c) the Practices mean the 12 physician
practices, nine of which are owned and operated by the Direct Subsidiaries and
three of which are managed by the PA Contractor Subsidiaries, with medical
services provided by the Affiliated Physicians employed by the PA Contractors.
AmeriPath believes it is the leading physician practice management company
focused on anatomic pathology services, based on an analysis of geographic
breadth, number of physicians, number of hospital contracts, number of practices
and net revenue. The Company currently owns or is affiliated with 12 Practices
located in five states which, as of June 30, 1997, employed a total of 75
pathologists. The pathologists provide medical services in 12 outpatient
pathology laboratories owned and operated by the Company and in inpatient
laboratories for 47 hospitals and 15 outpatient surgery centers. Of these
pathologists, 71 are board certified and four are board eligible. Thirty-six 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 Company
has entered into definitive agreements to acquire or affiliate with three
additional practices (the "Pending Acquisitions"). If the Pending Acquisitions
are consummated, the Company will own or be affiliated with 15 Practices located
in seven states which, as of June 30, 1997, employed a total of 115 pathologists
providing medical services in 14 outpatient laboratories and in inpatient
laboratories for 71 hospitals and 20 outpatient surgery centers. See "The
Company."
The Company manages and controls all of the non-medical functions of the
Practices, including: (i) recruiting, training, employing and managing the
technical and support staff of the Practices; (ii) developing, equipping and
staffing laboratory facilities; (iii) establishing and maintaining courier
services to transport specimens; (iv) negotiating and maintaining contracts with
hospitals, national clinical laboratories and managed care organizations and
other payors; (v) providing financial reporting and administration, clerical,
purchasing, payroll, billing and collection, information systems, sales and
marketing, risk management, employee benefits, legal, tax and accounting
services to the Practices; (vi) complying with applicable laws and regulations;
and (vii) with respect to the Company's ownership and operation of anatomic
pathology laboratories, providing slide preparation and other technical
services. The Company is not licensed to practice medicine. The practice of
medicine is conducted solely by Affiliated Physicians employed by either the
Direct Subsidiaries or the PA Contractors.
The practice of pathology involves the diagnosis of diseases through
examination of tissues and cells and 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,
3
<PAGE> 5
the anatomic pathologist serves as the "physician's physician," creating what is
often a long-term relationship. Based on information published by the American
Medical Association, there are approximately 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 or affiliated with 11 anatomic pathology
Practices (the "1996 Acquisitions") in five states: six practices in Florida,
two practices in Ohio and one practice in each of Alabama, Kentucky and Texas.
During 1997, the Company initiated negotiations for the Pending Acquisitions. If
the Pending Acquisitions are consummated, the Company will acquire or affiliate
with three additional anatomic pathology practices: one in a state where the
Company currently operates (Texas) and two in additional states (Indiana and
Mississippi).
The Company provides physician practice management services and the
Affiliated Physicians provide medical services in the Company's outpatient
laboratories and in inpatient laboratories owned by hospitals. Eight Practices,
currently owned by the Direct Subsidiaries, have exclusive contracts with a
total of 47 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 services.
Generally, under a hospital contract the Practice provides the medical director
for the hospital's laboratory who is responsible for certain supervisory
responsibilities with respect to the laboratory's 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. The four other Practices
(three of which are PA Contractors) 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. The three practices included in the
Pending Acquisitions have contracts with a total of 24 hospitals, and two of
these three practices also have established outpatient laboratories.
The Company's objective is to enhance its position as the leading provider
of physician practice management services to anatomic pathology practices
through the following strategies:
- Focus on Anatomic Pathology. The Company believes that its focus on
providing management services to anatomic pathology practices provides it
with a competitive advantage in the acquisition of such practices. As a
result of this focus, Affiliated Physicians are able to form an internal
network for consultations and to offer specialized services to their
clients. The Company believes that this focus allows it to develop
expertise in managing both inpatient and outpatient pathology practices.
- Acquire Leading Practices. The Company expects to increase its presence
in existing markets and enter into new markets through acquisitions of,
affiliations with and strategic minority investments in leading
practices. The Company intends to continue to source acquisitions and
affiliations 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.
- 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 existing local contracts with
national clinical laboratories that subcontract for anatomic pathology
services to include multiple Practices that cover a broader 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.
4
<PAGE> 6
- Increase Contracts with Hospitals. The Company seeks to gain access to
additional exclusive hospital contracts through the acquisition of or
affiliation with anatomic pathology practices that have such contracts,
as well as through expansion of existing relationships between the
Practices and 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
believes that providing inpatient laboratory services to multiple
hospitals within a geographic area facilitates the development of a
successful outpatient services operation by creating market presence,
economies of scale and important physician relationships.
- Achieve Operational Efficiencies. The Company intends to achieve
operational efficiencies by centralizing certain functions, enhancing
Practice efficiency and utilizing its size to negotiate discounts on
equipment, supplies, insurance and services. While the Company has
integrated certain aspects of the billing, sales and marketing,
accounting and other functions of the Practices, the Company intends to
further integrate the operations of the Practices. The Company also plans
to introduce "bench-marking" programs to enhance the efficiency of the
Practices.
Through the implementation of these strategies, the Company intends to
develop integrated networks of anatomic pathology practices on a regional basis.
The Company has developed a regional business model in Florida, where it owns
and manages seven anatomic pathology practices that extend from Miami to Orlando
and from Fort Myers to Tampa. Together, as of June 30, 1997, these Practices
employed 59 Affiliated Physicians and provided medical services in seven
outpatient pathology laboratories and in inpatient laboratories for 29 hospitals
and 15 outpatient surgery centers. The Company intends to leverage its size and
geographic coverage to expand contracts with national clinical laboratories and
managed care organizations from a local to a 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. The Company has centralized its
marketing efforts to managed care organizations, multi-hospital systems and
national clinical laboratories. The Company recently installed a management
information system that is designed to expand and enhance the financial
reporting capabilities of the Practices.
Effective January 1, 1994, American Laboratory Associates, Inc., a
predecessor of the Company ("ALA"), acquired (the "1994 Acquisition") the net
assets of E.G. Poulos, M.D., M.J. Demaray, M.D., and A.P. Kowalczyk, M.D., P.A.
("PDK"), a reference laboratory providing pathology services, principally
dermatopathology, and entered into related financing transactions. The 1994
Acquisition is further described in this Summary in Footnote 2 to Summary
Consolidated Financial Information as well as in "The Company," "Certain
Transactions -- 1994 Acquisition" and Note 1 to the Consolidated Financial
Statements. In February 1996, ALA became a wholly owned subsidiary of AmPath in
a share exchange transaction. This share exchange transaction, as well as the
Company's growth and development thereafter, is further described in "The
Company" and "Certain Transactions -- 1994 Acquisition."
5
<PAGE> 7
THE OFFERING
Common Stock Offered by the
Company............................. 5,000,000 shares(1)
Common Stock Outstanding After the
Offering............................ 16,445,557 shares(1)
Use of Proceeds..................... Estimated net proceeds of $63.0 million
to the Company will be used: (i) to
repay the outstanding principal amount
of the Company's 10% junior
subordinated notes due December 31,
2001 (the "Junior Notes"); (ii) to
repay the outstanding principal amount
of 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 this 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 on January 13, 1997, 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
5,558,607 shares of Common Stock immediately prior to the consummation of
this offering; (iii) excludes 1,910,808 shares of Common Stock to be issued
in connection with the Pending Acquisitions; (iv) excludes 2,200,000 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 952,211 shares of Common Stock have been granted (at a weighted
average exercise price of $4.09 per share) and options to purchase 175,000
shares will be granted in connection with the Pending Acquisitions (at an
exercise price of $10.00 per share) (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 options to purchase 5,000 shares have been granted to a director of
AmPath (at an exercise price of $10.00 per share). See
"Management -- Director Option Plan."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED ACTUAL AS ADJUSTED
1992 1993 1994(2) 1995 1996 1996(3) 1996 1997 1997(4)
------- ------- ------- ------- ------- ----------- ------ ------- -----------
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue.................... $11,443 $13,419 $14,461 $16,024 $42,558 $122,066 $9,690 $44,844 $64,280
Operating costs:
Cost of services............. 8,791 10,803 7,026 8,517 20,106 53,341 4,708 20,313 27,362
Selling, general and
administrative expense..... 1,696 1,634 2,287 2,644 8,483 19,075 1,822 8,564 10,279
Provision for doubtful
accounts................... 787 953 1,003 1,161 3,576 11,089 645 4,116 5,904
Amortization expense......... -- -- 678 678 1,958 7,617 304 2,410 3,761
Loss on cessation of clinical
lab operations(5).......... -- -- -- -- 910 910 910 -- --
------- ------- ------- ------- ------- -------- ------ ------- -------
Total.................... 11,274 13,390 10,994 13,000 35,033 92,032 8,389 35,403 47,306
------- ------- ------- ------- ------- -------- ------ ------- -------
Income from operations......... 169 29 3,467 3,024 7,525 30,034 1,301 9,441 16,974
Interest expense............... (62) (48) (1,584) (1,504) (3,540) (7,766) (767) (4,057) (3,910)
Nonrecurring charge(6)......... -- -- -- -- -- -- -- (1,289) (1,289)
Other income (expense), net.... 10 9 (46) (46) (431) (318) (201) (57) (26)
------- ------- ------- ------- ------- -------- ------ ------- -------
Income (loss) before income
taxes........................ 117 (10) 1,837 1,474 3,554 21,950 333 4,038 11,749
Provision for income
taxes(7)..................... -- -- 692 572 1,528 9,523 127 1,736 5,008
------- ------- ------- ------- ------- -------- ------ ------- -------
Net income (loss).............. $ 117 $ (10) $ 1,145 $ 902 $ 2,026 $ 12,427 $ 206 $ 2,302 $ 6,741
======= ======= ======= ======= ======= ======== ====== ======= =======
Pro forma data(8):
Pro forma net income per
share...................... $ 0.22 $ 0.65 $ 0.19 $ 0.35
======= ======== ======= =======
Pro forma weighted average
shares outstanding......... 9,366 19,081 12,054 19,081
======= ======== ======= =======
OTHER DATA(9):
Net income, as adjusted........ $ 2,581 $ 12,982 $ 3,088 $ 7,527
======= ======== ======= =======
Net income per share, as
adjusted..................... $ 0.28 $ 0.68 $ 0.26 $ 0.39
======= ======== ======= =======
OPERATING DATA(10):
Pathologists................... 5 5 6 6 81 12 75 115
Hospital contracts............. -- -- -- -- 46 3 47 71
Outpatient laboratories........ 1 1 1 1 12 1 12 14
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------
PRO PRO FORMA
ACTUAL FORMA(10) AS ADJUSTED(11)
-------- ------------ ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 1,035 $ 1,429 $ 1,429
Total assets.............................................. 161,331 256,818 255,118
Long term debt, including current portion................. 97,246 156,109 94,309
Convertible Preferred Stock(12)........................... 6,406 6,406 --
Stockholders' equity...................................... 27,837 47,065 113,571
</TABLE>
(footnotes on following page)
7
<PAGE> 9
(1) The summary consolidated financial data for the years ended December 31,
1992 and 1993 are that of PDK prior to the 1994 Acquisition. The summary
consolidated financial data for the years ended December 31, 1994, 1995 and
1996 and the six months ended June 30, 1996 and 1997 are for AmeriPath,
Inc. and its Subsidiaries after the 1994 Acquisition which was effective
January 1, 1994. See "The Company."
(2) In connection with the 1994 Acquisition, ALA was capitalized through the
issuance of 1,425,600 shares of common stock to Drs. Poulos, Demaray and
Kowalczyk (the "PDK shareholders"), in exchange for an aggregate of $1.0
million in cash, and ALA issued to Summit Ventures III, L.P., Summit
Subordinated Debt Fund, L.P. and Summit Investors II, L.P. (collectively,
"Summit") and Schroder Incorporated, Schroder Ventures Limited Partnership
and Schroder Ventures U.S. Trust (collectively, "Schroder") an aggregate of
(i) 3,208,120 shares of the Convertible Preferred Stock for $5.5 million,
and (ii) $7.5 million of Junior Notes. In the 1994 Acquisition, ALA
acquired the net assets of PDK for: (i) approximately $20.5 million in
cash, funded by the Summit and Schroder investment and financed partially
by borrowings of $7.5 million under a line of credit; (ii) the issuance of
$3.5 million of Senior Notes; and (iii) the issuance of 8% non-negotiable
subordinated contingent notes (the "ALA Contingent Notes") in the maximum
principal amount of $2.5 million. The 1994 Acquisition was accounted for
using the purchase method of accounting. Cost of services includes $3.1
million and $4.4 million in 1992 and 1993, respectively, representing
compensation paid to PDK shareholders in excess of the compensation of such
shareholders following the 1994 Acquisition. Net income for the years ended
December 31, 1994, 1995 and 1996 does not reflect dividends payable on the
Convertible Preferred Stock. See "The Company," "Certain
Transactions -- 1994 Acquisition" and Note 1 to the Consolidated Financial
Statements.
(3) Gives effect to the 1996 Acquisitions, the Pending Acquisitions 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 all of such transactions had been
effected on January 1, 1996. The 1996 Acquisitions were financed in part by
borrowings of $78.6 million under the Credit Facility, the issuance of $4.5
million of the Company's 7% and 8% subordinated notes and the issuance of
3,870,741 shares of Common Stock. The Pending Acquisitions will be financed
in part by borrowings of $58.9 million under the Credit Facility and will
result in the issuance of 1,910,808 shares of Common Stock.
(4) Gives effect to the Pending Acquisitions 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 all of such transactions had been effected on January 1,
1997.
(5) In connection with closing ALA's clinical operations in May 1996, the
Company recorded a non-recurring charge to operations aggregating $910,000,
which included severance payments, write-downs of property, equipment and
other assets to estimated realizable values, and the write-off of the
unamortized balances of intangible assets associated with the clinical
operations. See Note 17 to the Consolidated Financial Statements.
(6) In the six months ended June 30, 1997, the Company recorded a nonrecurring
charge of $1.3 million, primarily professional fees and printing costs, as
a result of the postponement of the Company's planned initial public
offering of Common Stock.
(7) Prior to the 1994 Acquisition, PDK 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 do not include a
provision for income taxes.
(8) 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 outstanding, 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; and (iii) shares of
Common Stock issuable pursuant to outstanding options, using the treasury
stock method and an assumed initial public offering price of $14.00 per
share.
(9) Other data represents the net income and net income per share as adjusted
to exclude the loss on cessation of clinical lab operations in the year
ended December 31, 1996 and the nonrecurring charge in the six months ended
June 30, 1997 of $910,000 and $1.3 million, respectively.
(10) Operating data is measured as of the end of the period indicated.
(11) Gives effect to the Pending Acquisitions as if all of such transactions had
been effected on June 30, 1997.
(12) As adjusted to reflect the conversion of the Convertible Preferred Stock
and the sale of the shares offered hereby at an assumed initial public
offering price of $14.00 per share, and the application of the estimated
net proceeds therefrom, as if all of such transactions had been effected on
June 30, 1997. Actual and pro forma amounts include Convertible Preferred
Stock of $5.2 million plus accrued and unpaid dividends of $1.2 million at
June 30, 1997.
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RISK FACTORS
Prospective investors should carefully consider the factors set forth
below, as well as the other information contained in this Prospectus, in
evaluating an investment in the Common Stock offered hereby.
Reliance upon Government Programs. The Company derived 57.0%, 39.0% and
35.5% of collections for the years ended December 31, 1995 and 1996 and for the
six months ended June 30, 1997, respectively, and an estimated 28.6% for the six
months ended June 30, 1997 on a pro forma basis giving effect to the Pending
Acquisitions, from payments made by government sponsored healthcare programs
(principally Medicare and Medicaid). The recently enacted balanced budget
legislation includes revisions to existing payment rates for health care
services, including services performed by the Company. Although the payment
rates for most of the services provided by the Company have not been reduced
under such legislation, there can be no assurance that payment rates for such
services will not be reduced by future legislation or by the Department of
Health and Human Services pursuant to authority granted to it under the balanced
budget legislation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Introduction." The newly adopted
legislation also provides for an increase in state discretion over the funding
of Medicaid. Increased state discretion in 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 net revenue by
increasing the amount charged for services provided. In addition, cost increases
may not be able to be recovered from government payors. Some states have
recently enacted legislation to require that all Medicaid patients be treated by
health maintenance organizations ("HMOs"), and similar legislation may be
enacted in other states, which could result in the redirection of certain
patients away from the Practices or reduce reimbursement for services provided
for 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 and penalties from these
programs may occur. Government sponsored healthcare program changes which result
in the inability 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, affiliations with, and minority investments in
practices that provide anatomic pathology services. The 1996 Acquisitions were
the Company's first actions in implementing this strategy as well as its first
purchases of pathology practices. In implementing its 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. Particularly in an environment of reduced
reimbursement rates, there can be no assurance that new competitors will not
enter the market, that the Company will be able to identify and complete future
acquisitions or that competitors will not make it more difficult for the Company
to complete acquisitions on favorable terms. There can be no assurance that the
Company will consummate the Pending Acquisitions or that the Pending
Acquisitions, if consummated, will be made on the terms currently being proposed
by the Company. In pursuing its strategy, the Company intends to expand in areas
where the Practices currently operate 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, prevent the Company from
making certain acquisitions or affiliations or cause the Company to divest
itself of any particular practice. Acquisitions and affiliations 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 businesses 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
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Pending Acquisitions or any future acquisition or affiliation will be
successfully integrated into the Company's operations or that practices, once
acquired by or affiliated with the Company will grow. Consummation of
acquisitions or affiliations could result in the incurrence or assumption by the
Company of additional liabilities, including contingent liabilities, or the
issuance of additional equity. The issuance of shares of Common Stock to make
acquisitions or affiliations may result in dilution to the Company's
stockholders. To achieve its growth through acquisitions strategy, the Company
will need to obtain additional funding. There can be no assurance that adequate
funding will be available as needed or on terms acceptable to the Company. A
lack of funds may require the Company to delay or eliminate all or some of its
acquisition plans. 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."
Recent Publicity. Significant media and public attention has recently been
focused on the health care industry due to ongoing federal and state
investigations reportedly related to certain referral and billing practices,
laboratory and home healthcare services and physician ownership and joint
ventures involving hospitals. Most notably, Columbia Healthcare Corporation
("Columbia") is under investigation with respect to such practices. The Company
operates laboratories on behalf of and has numerous contractual arrangements
with hospitals, including 19 pathology services contracts with Columbia. The
government's investigation of Columbia could result in a governmental
investigation of one or more of the Company's operations which have arrangements
with Columbia. In addition, the Office of the Inspector General and the
Department of Justice have initiated hospital laboratory billing review projects
in certain states and are expected to extend such projects to additional states,
including states in which the Company operates hospital laboratories. These
projects increase the likelihood of governmental investigations of hospital
laboratories operated by the Company. Although the Company monitors its billing
practices and hospital arrangements to ensure compliance with industry
interpretation of applicable laws, and although the Company believes its
operations and the operations of the Practices are generally in compliance with
such laws, there can be no assurance that governmental investigators will not
take positions that are inconsistent with industry practices, including the
Company's practices. The government's investigation of Columbia may have other
effects which could adversely affect the Company, including the termination or
amendment of one or more of the Company's contracts with Columbia or the sale of
hospitals potentially disrupting the performance of services under such
contracts. The investigation of Columbia or other hospital operators with whom
the Company does business could also result in adverse publicity concerning the
Company, which could limit the Company's ability to acquire or affiliate with
additional practices or to obtain new or expanded hospital contracts, or could
result in termination or non-renewal of the Company's existing hospital
contracts. In addition, in certain instances indemnity insurers and other
non-governmental payors have sought repayment from providers, including
laboratories, for alleged overpayments.
Risks Relating to Growth. In addition to acquisitions of and affiliations
with practices, the Company intends to continue to grow through internal
expansion. The Company derives its net revenue from the net revenue of the
Practices. The Company's growth strategy requires: (i) capital investment; (ii)
compliance with present or future laws and regulations that may differ from
those to which the Company is currently subject; (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
employees of the Subsidiaries. Failure to meet these requirements could limit
the Company's growth potential and may have a material adverse effect on the
Company's financial condition and results of operations. The Company is in the
process of integrating the marketing activities, courier networks, management
information systems and other operational aspects of the Practices and of
implementing consistent billing systems, accounting policies and internal
control procedures in the Practices. Delays in completing, or the inability to
successfully complete, such process 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."
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<PAGE> 12
Dependence on Pathologists. The Company's business is dependent upon the
Practices' recruiting and retaining pathologists, particularly those with
subspecialities, such as dermatopathology. While the Practices have been able to
recruit and retain the Affiliated Physicians, no assurance can be given that the
Company or the Practices 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 number of Affiliated Physicians were to terminate
their relationships with the Direct Subsidiaries or the PA Contractors or become
unable or unwilling to continue their employment, or in the event non-compete
agreements with a number of Affiliated Physicians were terminated or determined
to be invalid or unenforceable, the Company's business could be materially
adversely affected. See "Business -- Physician, PA Contractor and Other
Contractual Relationships" and "Business -- Affiliation Structure."
Assumption of Liabilities of Acquired Practices. The Company has acquired
and affiliated with and will continue to acquire and affiliate with practices
with prior operating histories. As a result, the Company may become liable for
the past operations, including billing and reimbursement practices, of such
acquired or affiliated practices. Although the Company performs certain due
diligence investigations with respect to potential liabilities of acquired and
affiliated practices and obtains indemnification with respect to certain
liabilities from the sellers of such practices, there can be no assurance that
any liabilities for which the Company becomes responsible will not be material
or will not exceed either the limitations of any applicable indemnification
provisions or the financial resources of the indemnifying parties.
Payment and Reimbursement Risks. Virtually all of the Company's net
revenue in 1995, 1996, the six months ended June 30, 1997 and on a pro forma
basis giving effect to the Pending Acquisitions for the six months ended June
30, 1997 was derived from the Practices' charging for services on a
fee-for-service basis. Accordingly, the Company assumes the financial risk
related to collection, including the potential uncollectability 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 payments or potential retroactive
adjustments and penalties resulting from audits by payors may require the
Company to borrow funds to meet its current obligations or may otherwise have a
material adverse effect on the Company's financial condition and results of
operations. See "Business -- Government Regulation."
Cancellation or Non-renewal of Hospital Contracts; Dependence on Hospital
Contracts. Hospital contracts maintained by the Direct Subsidiaries generally
have terms of one to five years and are cancelable by the hospital upon notice
of 30 to 180 days. 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 to the Practice, and
therefore to the Company, 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 June 30, 1997, the Direct Subsidiaries had 47 hospital contracts,
19 of which were with hospitals owned by Columbia. For the year ended December
31, 1996, the six months ended June 30, 1997 and on a pro forma basis giving
effect to the Pending Acquisitions for the six months ended June 30, 1997,
19.0%, 22.0% and an estimated 23.7%, respectively, of net revenue was generated
directly from contracts with hospitals owned by Columbia. Columbia has recently
been the subject of federal and state regulatory investigations. There can be no
assurance that an outcome adverse to Columbia would not have a material adverse
effect on the Company's relationship with Columbia or on the Company's results
of operations. If 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 1996
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 and accrued interest of
Contingent Notes to be paid cannot be determined until the contingency periods
terminate and achievement of the profitability criteria is determined. For the
six months ended June 30, 1997, the
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Company paid an aggregate of $1.4 million pursuant to the Contingent Notes. If
the maximum criteria for the contingency payments with respect to each 1996
Acquisition are achieved, the Company will be obligated to make payments,
including principal and interest, of approximately $36.5 million between June
30, 1997 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
additional 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 a Practice's
operations should exceed the cash required to satisfy the Company's contingent
obligations with respect to that Practice 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 were
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. The Company expects to continue to use
Contingent Notes as partial consideration for acquisitions and affiliations,
including the Pending Acquisitions. While the Company believes that the
Contingent Notes do not violate federal or state "anti-kickback" or
"self-referral" statutes, there can be no assurance that such arrangements will
not be challenged by regulatory authorities seeking to enforce such laws. See
"Business -- Government Regulation," "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 1994 Acquisition and the 1996
Acquisitions resulted in significant increases in net identifiable intangible
assets and goodwill. Net identifiable intangible assets, which include hospital
contracts, physician client lists, a management service agreement and laboratory
contracts acquired in the acquisitions were approximately $74.1 million, $72.5
million and $119.5 million at December 31, 1996, June 30, 1997, and on a pro
forma basis, after giving effect to the Pending Acquisitions, at June 30, 1997,
respectively, representing approximately 46.9%, 45.0%, and 46.5%, 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 28.4 years. Goodwill,
which relates to the excess of cost over the fair value of net assets of
businesses acquired, was approximately $57.4 million, $60.1 million and $101.2
million, at December 31, 1996, June 30, 1997, and on a pro forma basis, after
giving effect to the Pending Acquisitions, at June 30, 1997, respectively,
representing approximately 36.4%, 37.3% and 39.4%, 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 33.8 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, to determine 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 June 30, 1997 the unamortized balance of intangible
assets is not considered to be impaired, any future determination requiring the
write off of a significant portion of 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
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change so as to restrict the existing operations of, impose additional
requirements on or limit the expansion of the Company and the PA Contractors.
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 by hospital and related medical facilities from
individual or small practices to large practices and physician practice
management companies. The Company competes with other physician practice
management companies that are focused on owning or providing management services
to anatomic pathology practices. In addition, the Practices compete in local
markets with other anatomic pathology practices, national clinical laboratories,
hospitals and clinics which provide anatomic pathology medical services. The
Company competes with several other companies for the acquisition of or
affiliation with anatomic pathology practices. In addition, companies in other
healthcare industry segments, such as hospitals, HMOs and large physician
practices, many of which have financial and other resources greater than those
of the Company, may become competitors in acquiring, or providing physician
practice management services to, anatomic pathology practices. There can be no
assurance that the Company will be able to compete effectively or that
additional competitors will not enter the Company's markets or make it more
difficult for the Company to acquire or affiliate with practices on favorable
terms. See "Business -- Competition."
Growth of Managed Care. The number of individuals covered under managed
care contracts or other similar arrangements has grown over the past several
years and may continue to grow in the future. Entities providing managed care
coverage have been successful in reducing payments for medical services in
numerous ways, including entering into arrangements under which payments to a
service provider are capitated, limiting testing to specified procedures,
denying payment for specified services unless prior authorization for such
services has been obtained and refusing to increase fees for specified services.
The continued growth of the managed care industry and its continued success in
reducing payments to medical service providers could have a material adverse
effect on the Company's financial condition and results of operation. See
"Business -- Government Regulation."
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 into certain jurisdictions may require
structural and organizational modifications of the Company's form of
relationship with practices. Wherever permissible, AmPath has established, and
will continue to establish, wholly-owned subsidiaries incorporated in the
respective state that will own, control and operate practices and employ
pathologists in that state. In states with laws that prohibit such structure,
AmPath establishes affiliations and related arrangements that achieve the
substance of such ownership, control and operation, to the maximum extent
practicable in accordance with applicable state law, including the use of
long-term management agreements with professional associations and corporations.
The Company currently provides physician practice management services to 12
Practices in five states, including Florida, Alabama, Kentucky, Texas and Ohio.
If the Pending Acquisitions are consummated, the Company will also provide
physician practice management services in Indiana and Mississippi. In Florida,
Alabama, Kentucky and Mississippi, states that do not prohibit business
corporations from directly employing physicians, Direct Subsidiaries employ or
will employ physicians to provide medical services. In Texas, Ohio and Indiana,
AmeriPath's wholly owned subsidiaries (i.e., the PA Contractor Subsidiaries)
have or will have long-term management agreements with controlled entities
(i.e., the PA Contractors) which, in turn, employ or will employ physicians to
provide medical services. In Texas, AmPath is the sole member of a controlled
non-profit corporate subsidiary that will, effective on or about Septem-
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ber 30, 1997, employ the Affiliated Physicians in Texas. In Ohio and Indiana,
the entities employing physicians are owned or will be owned by a trust of which
AmPath is or will be the sole beneficiary. In Texas, Ohio and Indiana, a
wholly-owned subsidiary performs or will perform only laboratory, technical and
non-medical administrative services and does not and will not exercise influence
or control over the practice of medicine by physicians nor does the subsidiary
practice medicine or represent such to the public or to clients. Although the
Company believes, based upon the advice of counsel, that it is in compliance
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 unlawful corporate
practice of medicine in such states or that the management and administration
fees paid to the Company by the PA Contractors constitute unlawful fee splitting
or the unlawful corporate practice of medicine. If such a claim were
successfully asserted, the Company and the Affiliated Physicians could be
subject to civil and criminal penalties and the Company or the PA Contractor
Subsidiaries could be required to restructure their contractual arrangements.
Such penalties or the inability of the Company or the PA Contractor Subsidiaries
to successfully restructure their relationships to comply with such laws could
have a material adverse effect on the Company's financial condition and results
of operations. See "Business -- Affiliation Structure" and
"Business -- Physician, PA Contractor and Other Contractual Relationships."
Effect of Government Regulation. The business of the Company and the PA
Contractors 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. These laws and regulations are enforced by various
federal and state regulatory agencies, including the Office of the Inspector
General ("OIG") of the Department of Health and Human Services ("HHS"). The
Health Insurance Portability and Accountability Act of 1996 and Operation
Restore Trust, initiated in 1995, have strengthened the powers of the OIG and
increased the funding for Medicare and Medicaid audits and investigations. As a
result, the OIG is currently expanding the scope of its healthcare audits and
investigations. Federal and state audits and inspections, whether on a scheduled
or unannounced basis, are conducted from time to time at the Company's
facilities. An inspection was conducted in April 1997 at ALA's laboratory
facility by representatives of federal and state agencies under Operation
Restore Trust. A report to the Department of Justice with respect to this
inspection is expected prior to September 30, 1997. There can be no assurance
that the findings of such report will not have an adverse effect on the Company.
Further, federal and certain state laws provide individuals (so-called
"whistle-blowers") with a right to bring claims on behalf of federal and state
government agencies, and with a significant economic incentive to the
whistle-blower in the event a claim produces monetary recovery. These actions
are becoming increasingly prevalent in the healthcare industry, and have
resulted in increased scrutiny of, and enforcement actions against, healthcare
providers. 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 Practices
rely upon referrals of patient tissue samples and specimens 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, the PA Contractors and the
Affiliated Physicians 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 Practices. Each of the states in which the Subsidiaries
and the PA Contractors currently do business or in which the practices included
in the Pending Acquisitions do business, except Alabama and Mississippi, has
similar anti-kickback,
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anti-fee splitting and/or self-referral laws, some of which apply to all payors.
These laws 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 and as a result of the
grant of stock options. 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 the current
operations and transactions of the Company and the PA Contractors 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
such current operations or transactions 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. In connection with the 1996 Acquisitions
and the Pending Acquisitions, the Company reviewed the Practices' compliance
with federal and state healthcare laws and regulations and revised certain
policies and procedures with respect to certain of the Practices. While the
Company believes that the operations of the Practices prior to their acquisition
were generally in compliance with such laws and regulations, there can be no
assurance that such operations, if reviewed, would be found to be in full
compliance with such laws and regulations, as such laws may be ultimately
interpreted. A violation of such laws and regulations by a Practice prior to its
acquisition could result in civil and criminal penalties, exclusion from
participation in Medicare and Medicaid programs and/or loss of a physician's
license to practice medicine. To the extent the Practices were found not to be
in compliance with such laws and regulations, the Company's financial condition
and results of operations could be materially adversely affected. The
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 that
the Company and the PA Contractors are in compliance with these laws and
regulations, there can be no assurance that federal or state regulatory
authorities will not challenge the past, current or future activities of the
Company or the PA Contractors under these laws. See "Business -- Government
Regulation."
The Company is subject to various federal, state and local statutes and
ordinances regulating the generation, storage, treatment and disposal of medical
specimens, infectious and hazardous waste and radioactive materials. If any
environmental regulatory agency finds the Company's facilities to be in
violation of such laws, penalties and fines may be imposed for each day of
violation and the affected facility could be forced to cease operations, which,
in turn, could have a material adverse effect on the Company's financial
condition and results of operations.
Professional Liability and Insurance. The business of the Company and the
PA Contractors entails an inherent risk of claims of liability for acts of
Affiliated Physicians and laboratory technicians. The Company, the PA
Contractors and the Affiliated Physicians periodically become involved as
defendants in medical malpractice lawsuits, some of which are currently ongoing,
and are subject to the attendant risk of substantial damage awards. See
"Business -- Legal Proceedings." Certain of the Practices' contracts with
hospitals require the Practices to indemnify certain parties for losses
resulting from the negligence of Affiliated Physicians. The Company maintains
malpractice insurance coverage for the Affiliated Physicians, including coverage
for prior acts, with per physician primary limits of $1.0 million per occurrence
and $5.0 million in the annual aggregate, as well as surplus coverage shared
with the Company for up to $16.0 million per occurrence and $20.0 million in the
aggregate. While the Company believes it has adequate professional liability
insurance coverage for itself, the PA Contractors and each Affiliated Physician,
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. In addition, the Company's insurance does not cover all
potential liabilities, including liabilities arising from governmental fines and
penalties, indemnification agreements and certain other uninsurable losses. See
"Business -- Insurance." A malpractice claim asserted against the Company, a PA
Contractor or an Affiliated
15
<PAGE> 17
Physician could, in the event of an adverse outcome exceeding the limits of
available insurance coverage, have a material adverse effect on the Company's
financial condition and results of operations.
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 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
will beneficially own an aggregate of approximately 32.5% 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 35.7% of the outstanding shares of Common Stock. Accordingly,
Summit, such executive officers and Affiliated Physicians will be able, if
acting together, to elect all of the Company's directors, to 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 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, lower revenues or earnings than those
anticipated by securities analysts, 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 per
share of Common Stock of approximately $18.11. See "Dilution."
Shares Eligible for Future Sale. After consummation of this offering,
11,445,557 shares, representing 69.6% 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"). Of such shares, 6,678,609 shares are subject to registration
rights and all shares are subject to lock-up agreements for a period of 180 days
following the date of this Prospectus. 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 Amended 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. Such provisions cannot be amended without the
affirmative vote of at least 80% of the combined voting power of the outstanding
shares of capital stock. 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
16
<PAGE> 18
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 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
Company's Certificate of Incorporation and Bylaws."
17
<PAGE> 19
THE COMPANY
AmeriPath believes it is the leading physician practice management company
focused on anatomic pathology services, based on an analysis of geographic
breadth, number of physicians, number of hospital contracts, number of practices
and net revenue. The Company currently owns or is affiliated with 12 Practices
located in five states which, as of June 30, 1997, employed a total of 75
pathologists. The pathologists provide medical services in 12 outpatient
laboratories owned and operated by the Company and in inpatient laboratories for
47 hospitals and 15 outpatient surgery centers. Of these pathologists, 71 are
board certified and four are board eligible. Thirty-six 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). If the Pending Acquisitions are
consummated, the Company will own or be affiliated with 15 Practices located in
seven states which, as of June 30, 1997, employed a total of 115 pathologists
providing medical services in 14 outpatient laboratories and in inpatient
laboratories for 71 hospital and 20 outpatient surgery centers.
As a result of the 1994 Acquisition and the investment by Summit and
Schroder, ALA, the Company's predecessor, acquired the net assets of PDK, a
reference laboratory providing pathology services, formed in 1982 in Fort
Lauderdale, Florida. In February 1996, AmPath was formed as a holding company
and ALA became a wholly-owned subsidiary of AmPath in a share exchange
transaction (the "Share Exchange"). Also, in the first quarter of 1996, the
Company 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 -- 1994 Acquisition."
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.
1996 ACQUISITIONS
In January 1996, with the appointment of James C. New as the Company's
President and Chief Executive Officer, the Company accelerated its acquisition
program. Beginning June 1996, the Company acquired or affiliated with ten
anatomic pathology practices in five states: five practices in Florida, one
practice in Alabama, one practice in Kentucky, two practices in Ohio and one
practice in Texas. The Company believes that the 1996 Acquisitions, which
include the ten Practices referred to above as well as D&P, established the
Company -- in terms of geographic breadth, number of physicians, number of
hospital contracts, number of practices and net revenue -- as the leading
physician practice management company focused on anatomic pathology. Since the
1996 Acquisitions, the Company has integrated certain aspects of the billing,
sales and marketing, accounting and certain other functions of the Practices.
Integration of such functions has resulted in certain cost efficiencies and more
effective marketing efforts. The Company is consolidating the financial
reporting systems of and implementing uniform internal control procedures for
the acquired Practices.
In acquiring or affiliating with an anatomic pathology practice, the
Company generally (to the extent permitted by applicable state law): (i)
purchases all of the assets of that practice, including its fixed assets
(including laboratory facilities and testing equipment), customer lists,
contract rights, accounts receivable and goodwill and other identifiable
intangibles; and (ii) through a wholly-owned subsidiary, (a) directly employs
all technical and other personnel utilized in such practice and (b) except in
Ohio and Texas (where the PA Contractor employs the physicians), directly
employs the pathologists who conduct the practice of medicine. The 1996
Acquisitions in Ohio and Texas were effected (in addition to the foregoing)
through (i) long-term management agreements between the PA Contractor
Subsidiaries and each PA Contractor in such states, and (ii) in the case of the
two Practices in Ohio, contribution of the stock of each PA Contractor organized
in Ohio to trusts, of which AmeriPath is the sole beneficiary, and, in the case
of the Practice in Texas, an agreement by the Affiliated Physician who owned all
of the stock in the Texas PA Contractor to transfer such business to a
corporation controlled by AmeriPath (without further consideration to or action
on the part of such Affiliated Physician), which transfer will take place on or
about September 30, 1997. The 1996 Acquisitions were funded with various
combinations of cash, Common Stock, debt and Contingent Notes. The
18
<PAGE> 20
aggregate non-contingent purchase price paid for the 1996 Acquisitions was
approximately $108.0 million. For additional information regarding the
consideration paid in the 1996 Acquisitions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- 1996 Acquisitions"
and Note 3 to the Consolidated Financial Statements. All references below to
numbers of facilities, contracts and employees, including pathologists, are as
of June 30, 1997.
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 204 people,
including 23 pathologists, and provides a broad range of pathology
subspecialties, including dermatopathology and cytopathology. Derrick's
physicians provide anatomic pathology services for 14 hospitals and 7 outpatient
surgery centers throughout Central and Southern Florida and Derrick 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 13
people, including two pathologists, and operates the pathology laboratory in the
Columbia Miami Heart Institute, a Columbia 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 34 people,
including seven pathologists. Volusia's operations are primarily hospital based,
with contracts with three hospitals in the Daytona area. Volusia also operates
an outpatient anatomic pathology laboratory.
Drs. Seidenstein, Levine & Associates, Inc. ("Seidenstein") was also
acquired in October 1996. Based in Ft. Myers and founded in 1983, Seidenstein
employs 46 people, including nine pathologists who provide anatomic pathology
services for five hospitals and three outpatient surgery centers owned by
Columbia. Seidenstein also manages an outpatient anatomic pathology laboratory
and an outpatient clinical laboratory owned by Columbia.
Gulf Coast Pathology Associates, Inc. ("Gulf Coast") was acquired in
November 1996. Based in Cape Coral and founded in 1986, Gulf Coast employs 28
people, including five pathologists, and has contracts with three hospitals and
four outpatient surgery centers. Gulf Coast also operates two outpatient
clinical laboratories, which laboratories the Company intends to sell. Together
with the acquisition of Seidenstein, Gulf Coast established the Company's
presence, and 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 24 people, including two
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 seven pathologists. Pathology Associates operates two outpatient
cytology laboratories and an outpatient histology laboratory and has contracts
with 17 hospitals. The acquisition of Pathology Associates represented the
Company's initial acquisition in the Midwest and established the Company's
presence in Kentucky.
19
<PAGE> 21
OHIO
Beno Michel, M.D., Inc. d/b/a Cutaneous Pathology & Immunofluorescense
Laboratory ("CPI") became affiliated with the Company in October 1996. Based in
Cleveland and founded in 1976, CPI employs 19 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") also became affiliated with the Company in October 1996.
Richfield Labs, founded in 1968, employs 39 people, including three
pathologists, and operates the largest outpatient dermatopathology laboratory in
Cincinnati. Together with CPI, Richfield Labs established the Company's presence
in Ohio.
Under separate long-term management agreements between a PA Contractor
Subsidiary and each Ohio PA Contractor, the Company has control over all
non-medical functions of the PA Contractors, including all administrative,
management, billing and support functions. The PA Contractors and the physicians
they employ have control over all functions relating to the provision of medical
services. The PA Contractor Subsidiary receives a management fee from each Ohio
PA Contractor equal to the net revenue (less practice expenses) of the pathology
practice. The Company does not receive the net revenue from the dermatology
practice of CPI, which net revenue is paid to the Affiliated Physicians in this
Practice as compensation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- 1996 Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Practices."
TEXAS
Freeman-Cockerell Laboratories, Inc. ("Freeman") was acquired, and Clay J.
Cockerell, M.D., P.A. became affiliated with the Company through a long-term
management service agreement, in October 1996. Based in Dallas and founded in
1994, Freeman (i.e., the Company's PA Contractor Subsidiary now known as
AmeriPath Texas, Inc.) employs 46 people and Clay J. Cockerell, M.D., P.A.
(i.e., currently the Company's PA Contractor in Texas), also based in Dallas,
employs one pathologist who operates an outpatient dermatopathology laboratory.
The acquisition of Freeman and the affiliation with Clay J. Cockerell, M.D.,
P.A. established the Company's presence in Texas. Effective on or about
September 30, 1997, the business of Clay J. Cockerell, M.D., P.A., including the
management service agreement, will be transferred to a non-profit corporation of
which AmPath will be the sole member, and such non-profit corporation will
become the Company's PA Contractor with respect to this Practice.
20
<PAGE> 22
PENDING ACQUISITIONS
The Company has entered into definitive agreements to acquire or affiliate
with three anatomic pathology practices (the "Pending Acquisitions") in three
states (one in each of Texas, Indiana and Mississippi). The Company believes
that the Pending Acquisitions, if consummated, will enhance the Company's market
position and further implement the Company's strategies. See "Risk
Factors -- Risks Relating to Acquisition Strategy." There can be no assurance,
however, that the Pending Acquisitions will be consummated. All references below
to numbers of facilities, contracts and employees, including pathologists, are
as of June 30, 1997.
TEXAS
Unipath Ltd. and related companies ("Unipath") is expected to become
affiliated with the Company in September 1997, pursuant to a Purchase Agreement
dated August 21, 1997. Based in Dallas, Unipath was formed in June 1995 in order
to consolidate the administrative and technical support functions of three
independent inpatient pathology practices. Unipath operates an outpatient
pathology laboratory and employs 115 people, including 20 pathologists who
provide pathology services for ten hospitals and three outpatient surgery
centers. The Company believes that Unipath is the largest anatomic pathology
practice in Dallas and, taken together with the Company's existing Texas
Practice, will represent the largest anatomic pathology practice in Texas.
INDIANA
CoLab Incorporated Professional Corporation and related companies ("CoLab")
is expected to become affiliated with the Company in September 1997 pursuant to
a Stock Purchase Agreement dated August 15, 1997. Based in Indianapolis, CoLab
was formed in November 1994 and began operations in January 1996 following the
combination of two outpatient pathology practices. CoLab employs 19 people,
including 15 pathologists who provide pathology services for eight hospitals and
two outpatient surgery centers. CoLab is also a provider of anatomic pathology
services to a joint venture comprised of CoLab, two hospital healthcare systems
and SmithKline. The affiliation with CoLab is the Company's first entry into the
Indiana market. The Company believes that CoLab is the largest anatomic
pathology practice in Indiana.
MISSISSIPPI
Sturgis, Henderson & Proctor Pathology Laboratory, P.A. ("Sturgis") is
expected to be acquired by the Company in September 1997, pursuant to a Stock
Purchase Agreement dated August 15, 1997. Based in Jackson and founded in 1971,
Sturgis operates an outpatient pathology laboratory and employs 21 people,
including 5 pathologists who provide anatomic pathology services for six
hospitals. The acquisition of Sturgis is the Company's first entry into the
Mississippi market.
21
<PAGE> 23
DILUTION
The net tangible book value (deficit) of the Company at June 30, 1997, was
approximately $(86.4) million, or $(14.68) 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 identifiable 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 $3.51 attributable to the
Pending Acquisitions assumes those transactions were completed as of June 30,
1997. The decrease in net tangible book value (deficit) per share of $7.96
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 5,000,000
shares offered to new investors by the Company hereby at an assumed initial
public offering price of $14.00 per share, and the application of estimated net
proceeds therefrom, less $1.7 million in previously deferred offering costs, the
pro forma net tangible book value (deficit) of the Company at June 30, 1997
would have been approximately $(75.4) million, or $(4.11) per share. This
represents an immediate decrease in net tangible book value (deficit) of $6.12
per share to existing stockholders and an immediate dilution of $18.11 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 June 30,
1997...................................................... $(14.68)
Pro forma (increase) decrease in net tangible book value
(deficit)
per share attributable to:
Pending Acquisitions...................................... (3.51)
Conversion of Convertible Preferred Stock................. 7.96
New investors............................................. 6.12
-------
Pro forma net tangible book value (deficit) per share after
the offering.............................................. (4.11)
-------
Dilution per share to new investors......................... $ 18.11
=======
</TABLE>
The pro forma net tangible book deficit of $(4.11) per share after this
offering would be further increased by $1.73, in the event the deferred income
tax liabilities related to the 1996 Acquisitions and Pending Acquisitions were
deducted from total assets, resulting in an immediate dilution of $19.84 per
share to new investors.
The following table sets forth, on a pro forma basis, at June 30, 1997, 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)................. 13,356,365 72.8% $ 51,889,109 42.6% $ 3.88
New investors............................ 5,000,000 27.2 70,000,000 57.4 14.00
---------- ----- ------------ -----
Total........................... 18,356,365 100.0% $121,889,109 100.0%
========== ===== ============ =====
</TABLE>
- ---------------
(1) Includes 5,558,607 shares of Common Stock that will be issued upon
conversion of the Convertible Preferred Stock and 1,910,808 shares of Common
Stock to be granted if the Pending Acquisitions are consummated.
The foregoing tables assume no exercise of outstanding options. At June 30,
1997, there were outstanding options to purchase 925,211 shares of Common Stock
at a weighted average exercise price of $3.91 per share. In addition, subsequent
to June 30, 1997, 27,000 options to purchase Common Stock were granted under the
Option Plan, 5,000 options to purchase Common Stock were granted under the
Director Option Plan and 175,000 options to purchase Common Stock will be
granted if the Pending Acquisitions are consummated. Options to purchase 187,202
shares were exercisable at June 30, 1997. See "Management -- Option Plan" and
Note 11 to the Consolidated Financial Statements.
22
<PAGE> 24
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 5,000,000
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 $63.0 million (approximately $65.7 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 the Junior Notes; (ii) approximately $3.5 million to repay the
outstanding principal amount of the Senior Notes; (iii) approximately $1.3
million to pay the accrued and unpaid dividends on the Convertible Preferred
Stock; and (iv) to repay approximately $50.7 million ($22.0 million of the term
loan and $28.7 million of the revolving loan) of the approximately $82.4 million
balance of indebtedness under the Credit Facility outstanding at July 31, 1997.
The Credit Facility provides that the net proceeds of the offering be applied
pro rata based on the aggregate amounts available under the term loan and
revolving loans. The lenders may elect, however, to have the net proceeds
applied to the revolving loan. If all of the lenders make such an election, the
Company will apply the net proceeds against the revolving loan.
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 a $150.0 million Credit Facility for
acquisition and working capital purposes with a syndicate of banks (the "Banks")
led by BankBoston, N.A., as agent (the "Agent"). The Credit Facility provides
for borrowings of up to $150.0 million in the form of: (i) a term loan of $65.0
million; and (ii) a revolving loan of up to $85.0 million that may be used for
working capital in an amount limited to 80% of the Company's eligible accounts
receivable and 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 either 0.5% or 0.375%, based upon the Company's ratio of
total debt to cash flow, of the unused portion of the commitment. Commencing
July 1, 1998, the term loan requires annual principal payments of $650,000, and
all outstanding advances under the term loan are due and payable on June 30,
2004; all outstanding advances under the revolving loan are due and payable on
June 30, 2002. 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 a premium that is adjusted quarterly based upon the
Company's ratio of total debt to cash flow. At July 31, 1997, $65.0 million and
$17.4 million principal amount were outstanding under the term loan and
revolving loan, respectively, of the Credit Facility at annual effective
interest rates of 8.60% and 8.20%, respectively. The Credit Facility provides
that the Company may reborrow funds under the revolving loan which it has
previously borrowed and repaid; the term loan may not be reborrowed. 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 further reduce the
balance outstanding under the Credit Facility.
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 January 13, 1997, 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. In addition,
the Credit Facility prohibits the payment of dividends by the Company without
the consent of the majority of the Banks. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Prior to the 1994 Acquisition, PDK 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.
23
<PAGE> 25
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997: (i) on an actual basis; (ii) on a pro forma basis
assuming the Pending Acquisitions were consummated on June 30, 1997; and (iii)
on a pro forma basis as adjusted to give effect to the conversion of the
Convertible Preferred Stock and 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>
JUNE 30, 1997
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Credit Facility:
Revolving loan............................................ $ 17,308 $ 76,171 $ 47,384
Term loan................................................. 65,000 65,000 42,987
Senior Notes................................................ 3,500 3,500 --
Junior Notes................................................ 7,500 7,500 --
Subordinated Notes(1)....................................... 3,938 3,938 3,938
Convertible Preferred Stock:
Series A 6% redeemable cumulative convertible preferred
stock, $.01 par value, 5,000,000 shares authorized;
3,088,116, 3,088,116 and 0 issued and outstanding
actual, pro forma and pro forma as adjusted,
respectively(2)........................................ 6,406 6,406 --
Common stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares
authorized; 5,883,950, 7,797,758 and 18,356,365 issued
and outstanding actual, pro forma and pro forma as
adjusted, respectively(3).............................. 59 78 184
Additional paid-in capital................................ 22,913 42,122 108,522
Note receivable from officer(4)........................... (270) (270) (270)
Retained earnings......................................... 5,135 5,135 5,135
-------- -------- --------
Total common stockholders' equity................. 27,837 47,065 113,571
-------- -------- --------
Total capitalization............................ $131,489 $209,580 $207,880
======== ======== ========
</TABLE>
- ---------------
(1) Includes current maturities of $1.6 million for the Company's 7% and 8%
subordinated notes with maturities varying from 1997 to 2001 (the
"Subordinated Notes").
(2) Prior to the consummation of this offering, the holders of the Convertible
Preferred Stock will convert the shares of Convertible Preferred Stock into
5,558,607 shares of Common Stock. See "Principal and Selling Stockholders"
and "Certain Transactions -- 1994 Acquisition."
(3) Excludes: (i) 2,200,000 shares of Common Stock reserved for issuance under
the Option Plan, of which options to purchase 925,211 shares of Common
Stock have been granted at June 30, 1997 (at a weighted average exercise
price of $3.91 per share) and of which options to purchase 27,000 shares of
Common Stock were granted subsequent to June 30, 1997 (at an exercise price
of $10.00 per share); (ii) 180,000 shares of Common Stock reserved for
issuance under the Director Option Plan, of which 5,000 were granted
subsequent to June 30, 1997 (at an exercise price of $10.00 per share). See
"Management -- Option Plan" and "Management -- Director Option Plan"; and
(iii) 175,000 options to purchase Common Stock which will be granted (at an
exercise price of $10.00 per share) if the Pending Acquisitions are
consummated.
(4) Represents a loan to the Company's President and Chief Executive Officer in
connection with his purchase of Common Stock. See "Certain Transactions."
24
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data set forth below as of and for each
of the five years in the period ended December 31, 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 for the six months ended June 30,
1996 and 1997, and as of June 30, 1997, have been derived from the unaudited
consolidated financial statements of the Company which, in the Company's
opinion, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. The results of operations for the six months ended June 30, 1997 are
not necessarily indicative of the results for the 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>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31,(1) JUNE 30,(1)
----------------------------------------------- -----------------
1992 1993 1994(2) 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue.......................................... $11,443 $13,419 $14,461 $16,024 $42,558 $ 9,690 $44,844
Operating costs:
Cost of services................................... 8,791 10,803 7,026 8,517 20,106 4,708 20,313
Selling, general and administrative expense........ 1,696 1,634 2,287 2,644 8,483 1,822 8,564
Provision for doubtful accounts.................... 787 953 1,003 1,161 3,576 645 4,116
Amortization expense............................... -- -- 678 678 1,958 304 2,410
Loss on cessation of clinical lab operations(3).... -- -- -- -- 910 910 --
------- ------- ------- ------- ------- ------- -------
Total.......................................... 11,274 13,390 10,994 13,000 35,033 8,389 35,403
------- ------- ------- ------- ------- ------- -------
Income from operations............................... 169 29 3,467 3,024 7,525 1,301 9,441
Interest expense..................................... (62) (48) (1,584) (1,504) (3,540) (767) (4,057)
Non-recurring charge(4).............................. (1,289)
Other income (expense), net.......................... 10 9 (46) (46) (431) (201) (57)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.................... 117 (10) 1,837 1,474 3,554 333 4,038
Provision for income taxes(5)........................ -- -- 692 572 1,528 127 1,736
------- ------- ------- ------- ------- ------- -------
Net income (loss).................................... $ 117 $ (10) $ 1,145 $ 902 $ 2,026 $ 206 $ 2,302
======= ======= ======= ======= ======= ======= =======
Pro forma data(6):
Pro forma net income per share..................... $ 0.14 $ 0.11 $ 0.22 $ 0.03 $ 0.19
======= ======= ======= ======= =======
Pro forma weighted average shares outstanding...... 8,069 8,069 9,366 8,069 12,054
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,(1) JUNE 30,(1)
----------------------------------------------- -----------
1992 1993 1994(2) 1995 1996 1997
------- ------- ------- ------- ------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 113 $ 322 $ 103 $ 58 $ 2,262 $ 1,035
Total assets............................................. 2,437 2,676 20,836 20,034 157,854 161,331
Long term debt, including current portion................ 752 513 17,005 15,146 97,239 97,246
Convertible Preferred Stock(7)........................... -- -- 5,735 6,085 6,217 6,406
Stockholders' equity (deficit)(2)........................ 1,169 913 (2,776) (2,224) 24,903 27,837
</TABLE>
(footnotes on following page)
25
<PAGE> 27
(1) The selected consolidated financial data as of and for the years ended
December 31, 1992 and 1993 are that of PDK prior to the 1994 Acquisition.
The selected consolidated financial data as of and for the years ended
December 31, 1994, 1995 and 1996 and the six months ended June 30, 1996 and
1997 are for AmeriPath, Inc. and its Subsidiaries after the 1994
Acquisition. See "The Company."
(2) In connection with the 1994 Acquisition, ALA was capitalized through the
issuance of 1,425,600 shares of common stock to the PDK shareholders in
exchange for an aggregate of $1.0 million in cash, and ALA issued to Summit
and Schroder an aggregate of: (i) 3,208,120 shares of Convertible Preferred
Stock for $5.5 million, and (ii) $7.5 million of Junior Notes. In the 1994
Acquisition, ALA acquired the net assets of PDK, for: (i) approximately
$20.5 million in cash, funded by the Summit and Schroder investment and
financed partially by borrowings of $7.5 million under a line of credit;
(ii) the issuance of $3.5 million of Senior Notes; and (iii) the issuance of
ALA Contingent Notes in the maximum principal amount of $2.5 million. The
1994 Acquisition was accounted for using the purchase method of accounting.
The purchase price was allocated to the net assets acquired based on the
fair values at the date of acquisition. The shareholders of PDK held
approximately 20% of the voting interests and served as the management group
of the Company following the acquisition. Accordingly, 20% of the purchase
price in excess of the carryover basis of the PDK shareholders, or
approximately $4.6 million, was deemed to be a distribution to the PDK
shareholders. Such amount was not allocated to the net assets acquired and
was charged to additional paid in capital in accordance with Emerging Issues
Task Force ("EITF") No. 88-16. Cost of services includes $3.1 million and
$4.4 million in 1992 and 1993, respectively, representing compensation paid
to PDK's shareholders in excess of the compensation of such shareholders
following the 1994 Acquisition. Net income for the years ended December 31,
1994, 1995 and 1996 does not reflect dividends payable on the Convertible
Preferred Stock. See "The Company," "Certain Transactions -- 1994
Acquisition" and Note 1 to the Consolidated Financial Statements.
(3) In connection with closing ALA's clinical operations in May 1996, the
Company recorded a nonrecurring charge to operations aggregating $910,000,
which included severance payments, write-downs of property, equipment and
other assets to estimated realizable values, and the write-off of the
unamortized balances of intangible assets associated with the clinical
operations. See Note 17 to the Consolidated Financial Statements.
(4) In the six months ended June 30, 1997, the Company recorded a nonrecurring
charge of $1.3 million, primarily professional fees and printing costs, as a
result of the postponement of the Company's planned initial public offering
of Common Stock.
(5) Prior to the 1994 Acquisition, PDK 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 do not include a
provision for income taxes.
(6) 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; and (iii) shares of Common Stock 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.
(7) Includes Convertible Preferred Stock of $5.2 million plus accrued and unpaid
dividends of $1.2 million at June 30, 1997.
26
<PAGE> 28
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Balance Sheet at June 30,
1997 and the Unaudited Pro Forma Consolidated Statement of Operations for the
six months ended June 30, 1997 and the year ended December 31, 1996 give effect
to the Pending Acquisitions and the consummation of this offering and the
application of the estimated net proceeds therefrom, as if all such transactions
had occurred at January 1, 1996. In addition, the Unaudited Pro Forma
Consolidated Statement of Operations for the year ended December 31, 1996 also
gives effect to the 1996 Acquisitions as if all such transactions had occurred
at January 1, 1996. See "The Company -- 1996 Acquisitions," "The
Company -- Pending Acquisitions," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- 1996 Acquisitions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pending Acquisitions." The Unaudited Pro Forma Consolidated
Financial Data should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto.
The Unaudited Pro Forma Consolidated Financial Data has been prepared by
the Company based, in part, on the financial statements of the practices
included in the 1996 Acquisitions and the Pending Acquisitions, which financial
statements are included elsewhere in the Prospectus, adjusted where necessary to
the Company's accounting policies used in the Consolidated Financial Statements.
The Unaudited Pro Forma Consolidated Financial Data are not necessarily
indicative of the results that would have occurred if such transactions had
occurred on January 1, 1996, or which may be realized in the future.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PENDING ACQUISITION 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....... $ 1,035 $1,281 $ (887) $ 1,429 $ -- $ 1,429
Accounts receivable, net........ 16,213 6,417 -- 22,630 -- 22,630
Inventories..................... 290 -- -- 290 -- 290
Other current assets............ 1,082 39 -- 1,121 -- 1,121
-------- ------ ------- -------- -------- --------
Total current assets...... 18,620 7,737 (887) 25,470 -- 25,470
Property and equipment, net....... 5,337 533 -- 5,870 -- 5,870
Goodwill, net..................... 60,134 -- 41,114 101,248 -- 101,248
Identifiable intangibles, net..... 72,533 -- 46,990 119,523 -- 119,523
Other............................. 4,707 235 (235) 4,707 (1,700) 3,007
-------- ------ ------- -------- -------- --------
Total assets.............. $161,331 $8,505 $86,982 $256,818 $ (1,700) $255,118
======== ====== ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable and accrued
expenses...................... $ 10,667 $2,096 $ 600 $ 13,363 $ -- $ 13,363
Current portion of long-term
debt.......................... 1,604 -- -- 1,604 -- 1,604
Deferred tax liability.......... 1,277 611 339 2,227 -- 2,227
-------- ------ ------- -------- -------- --------
Total current
liabilities............. 13,548 2,707 939 17,194 -- 17,194
-------- ------ ------- -------- -------- --------
Credit Facility:
Revolving loan.................. 17,308 -- 58,863 76,171 (28,787) 47,384
Senior term loan................ 65,000 -- -- 65,000 (22,013) 42,987
Senior Notes...................... 3,500 -- -- 3,500 (3,500) --
Junior Notes...................... 7,500 -- -- 7,500 (7,500) --
Subordinated Notes................ 2,334 -- -- 2,334 -- 2,334
Deferred tax liability............ 17,898 -- 13,750 31,648 -- 31,648
-------- ------ ------- -------- -------- --------
Total long-term
liabilities............. 113,540 -- 72,613 186,153 (61,800) 124,353
-------- ------ ------- -------- -------- --------
Convertible Preferred Stock....... 6,406 -- -- 6,406 (6,406) --
Total common stockholders'
equity.......................... 27,837 5,798 13,430 47,065 66,506 113,571
-------- ------ ------- -------- -------- --------
Total liabilities and
stockholders' equity.... $161,331 $8,505 $86,982 $256,818 $ (1,700) $255,118
======== ====== ======= ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
27
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------
PRO FORMA
1996 PENDING ACQUISITION
HISTORICAL ACQUISITIONS(D) ACQUISITIONS(D) ADJUSTMENTS(E)
---------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net revenue:
Patient services......... $41,516 $44,556 $37,024 $ (4,512)
Management service
agreement.............. 1,042 -- -- -- 2,440
------- ------- ------- --------
Total.............. 42,558 44,556 37,024 (2,072)
------- ------- ------- --------
Operating costs:
Cost of services......... 20,106 30,377 17,098 (14,240)
Selling, general and
administrative
expense................ 8,483 7,872 4,217 (1,497)
Provision for doubtful
accounts............... 3,576 4,379 3,134 --
Amortization expense..... 1,958 -- -- 5,659(f)
Loss on cessation of
clinical lab
operations............. 910 -- -- --
------- ------- ------- --------
Total.............. 35,033 42,628 24,449 (10,078)
------- ------- ------- --------
Income from operations..... 7,525 1,928 12,575 8,006
Interest expense........... (3,540) (71) -- (9,426)(g)
Other income (expense),
net...................... (431) (9) -- 122(h)
------- ------- ------- --------
Income before income
taxes.................... 3,554 1,848 12,575 (1,298)
Provision for income
taxes.................... 1,528 289 519 5,131(i)
------- ------- ------- --------
Net income................. $ 2,026 $ 1,559 $12,056 $ (6,429)
======= ======= ======= ========
Supplemental pro forma
data:
Pro forma net income per
share.................. $ 0.22
=======
Pro forma weighted
average shares
outstanding(k)......... 9,366
=======
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------
PRO FORMA
PRO FORMA OFFERING PRO FORMA
TOTAL ADJUSTMENTS AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
Net revenue:
Patient services......... $118,584 $ -- $118,584
Management service
agreement.............. 3,482 -- 3,482
-------- ------ --------
Total.............. 122,066 -- 122,066
-------- ------ --------
Operating costs:
Cost of services......... 53,341 -- 53,341
Selling, general and
administrative
expense................ 19,075 -- 19,075
Provision for doubtful
accounts............... 11,089 -- 11,089
Amortization expense..... 7,617 -- 7,617
Loss on cessation of
clinical lab
operations............. 910 -- 910
-------- ------ --------
Total.............. 92,032 -- 92,032
-------- ------ --------
Income from operations..... 30,034 -- 30,034
Interest expense........... (13,037) 5,271(j) (7,766)
Other income (expense),
net...................... (318) -- (318)
-------- ------ --------
Income before income
taxes.................... 16,679 5,271 21,950
Provision for income
taxes.................... 7,467 2,056(i) 9,523
-------- ------ --------
Net income................. $ 9,212 $3,215 $ 12,427
======== ====== ========
Supplemental pro forma
data:
Pro forma net income per
share.................. $ 0.65 $ 0.65
======== ========
Pro forma weighted
average shares
outstanding(k)......... 14,081 19,081
======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
------------------------------------------------------------------------------------------
PRO FORMA PRO FORMA
PENDING ACQUISITION PRO FORMA OFFERING PRO FORMA
HISTORICAL ACQUISITIONS(D) ADJUSTMENTS(E) TOTAL ADJUSTMENTS AS ADJUSTED
---------- --------------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
Patient services................... $42,830 $20,079 $ (643) $ 62,266 $ -- $ 62,266
Management service agreement....... 2,014 -- -- 2,014 -- 2,014
------- ------- -------- -------- ------ --------
Total........................ 44,844 20,079 (643) 64,280 -- 64,280
------- ------- -------- -------- ------ --------
Operating costs:
Cost of services................... 20,313 9,133 (2,084) 27,362 -- 27,362
Selling, general and administrative
expense.......................... 8,564 2,119 404 10,279 -- 10,279
Provision for doubtful accounts.... 4,116 1,788 -- 5,904 -- 5,904
Amortization expense............... 2,410 -- 1,351(f) 3,761 -- 3,761
------- ------- -------- -------- ------ --------
Total........................ 35,403 13,040 (1,137) 47,306 -- 47,306
------- ------- -------- -------- ------ --------
Income from operations............... 9,441 7,039 (494) 16,974 -- 16,974
Interest expense..................... (4,057) -- (2,527)(g) (6,584) 2,674(j) (3,910)
Nonrecurring charge(l)............... (1,289) -- -- (1,289) -- (1,289)
Other income (expense), net.......... (57) (4) 35(h) (26) -- (26)
------- ------- -------- -------- ------ --------
Income before income taxes........... 4,038 7,035 (1,998) 9,075 2,674 11,749
Provision for income taxes........... 1,736 92 2,137(i) 3,965 1,043(i) 5,008
------- ------- -------- -------- ------ --------
Net income........................... $ 2,302 $ 6,943 $ (4,135) $ 5,110 $1,631 $ 6,741
======= ======= ======== ======== ====== ========
Supplemental pro forma data:
Pro forma net income per share..... $ 0.19 $ 0.36 $ 0.35
======= ======== ========
Pro forma weighted average shares
outstanding(k)................... 12,054 14,081 19,081
======= ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
28
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<S> <C>
(a) Represents the historical balance sheets as of June 30, 1997
of the practices included in the Pending Acquisitions as if
such transactions had been consummated as of June 30, 1997.
(b) Reflects the total estimated costs of $78.7 million for the
Pending Acquisitions consisting of: (i) $58.9 million in
cash; (ii) $19.2 million of Common Stock (1,910,808 shares)
and (iii) $600,000 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. The allocation of the purchase
price is preliminary, while the Company continues to obtain
the information to determine the fair value of the assets
acquired and liabilities assumed. The estimated identifiable
intangible assets relate primarily to hospital contracts to
be acquired in the Pending Acquisitions. The remaining $41.1
million of the unallocated purchase price has been recorded
as goodwill. The Company will perform a final determination
and allocation of the purchase price. The following
summarizes the pro forma acquisition adjustments related to
the above transactions (in thousands):
Total estimated costs for the Pending Acquisitions.......... $78,691
Net assets of Pending Acquisitions.......................... $5,798
Net assets distributable to former owners................... (1,122)
------
Less net tangible assets acquired........................... 4,676
-------
Net intangible assets acquired.............................. 74,015
Add deferred tax liability recorded in Pending
Acquisitions.............................................. 14,089
-------
Total intangible assets............................ 88,104
Less identifiable intangible assets......................... 46,990
-------
Estimated goodwill.......................................... $41,114
=======
In connection with certain Pending Acquisitions, net assets
of $1.1 million included in the historical financial
statements of those practices are distributable to the
sellers of such practices, in accordance with the
acquisition agreements.
In connection with the Pending Acquisitions, the Company has
agreed to pay additional purchase price consideration in the
form of payments under contingent notes. Payments under such
contingent notes, if any, will be recorded as additional
purchase price upon the achievement of stipulated levels of
cumulative operating earnings for each practice, over a five
year period.
(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 June 30,
1997.
</TABLE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Gross proceeds from this offering........................... $ 70,000
Underwriting discounts and commissions...................... (4,900)
Estimated expenses of this offering......................... (2,100)
--------
Net proceeds....................................... 63,000
Repayment of Junior Notes................................... (7,500)
Repayment of Senior Notes................................... (3,500)
Payment of Convertible Preferred Stock cumulative
dividends................................................. (1,200)
Partial repayment of Credit Facility........................ (50,800)
--------
Net increase in cash and cash equivalents.......... $ --
========
In addition, the offering adjustments include an adjustment
to reduce other assets and additional paid-in capital for
previously paid deferred offering costs of $1.7 million.
The Credit Facility provides that the net proceeds of the
offering, after repayment of Junior and Senior Notes and
cumulative dividends, must be applied pro rata based on the
aggregate amounts available under the term loan and
revolving loan. The lenders may elect, however, to have the
net proceeds applied solely to the revolving loan. For
purposes of the pro forma balance sheet, the partial
repayment was applied, pro rata, to the revolving loan
($28.8 million) and term loan ($22.0 million).
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C>
(d) For the year ended December 31, 1996, the 1996 Acquisitions
column represents the historical results of operations of
the practices included in the 1996 Acquisitions (other than
D&P which was acquired effective January 1, 1996) from
January 1, 1996 to the date of acquisition. For the year
ended December 31, 1996 and the six months ended June 30,
1997, the Pending Acquisitions column represents the
historical results of operations of the practices included
in the Pending Acquisitions from January 1, 1996.
The pending acquisitions of CoLab and Unipath will involve
affiliations with PA Contractors in Indiana and Texas,
respectively. In the case of CoLab, all of the common stock
of the PA Contractor will be held in trust. The Company will
be the sole beneficiary of the trust and will receive all
income from the trust. The Company, at its sole discretion,
will be able to replace the trustee, withdraw any asset from
the trust, modify the terms of the trust agreement, or
terminate the trust, and direct the trustee to distribute
the income and any asset from the trust. No assets of the
trust can be sold or otherwise disposed of without the
Company's consent. Additionally, a wholly-owned PA
Contractor Subsidiary of the Company will enter into a
40-year management agreement with CoLab, under which such
subsidiary will provide all management and other non-medical
services for CoLab for a fee equal to the practice's net
revenue less practice expenses, including physician
salaries, which are fixed by employment agreements, and
related professional expenses. Therefore, the Company is
entitled to all of the net income of this practice. Based on
the provisions of the purchase agreements, trust agreements
and management agreements, consolidation of CoLab will be
required to present the Company's financial position and
results of operations in conformity with generally accepted
accounting principles because the Company will have the
controlling financial interest in CoLab by means other than
direct record ownership of voting stock. Accordingly, this
acquisition will be accounted for as a purchase business
combination and is consolidated in the Unaudited Pro Forma
Consolidated Financial Statements.
In the case of Unipath, the PA Contractor will be a Texas
5.01(a) non-profit corporation of which the Company will be
the sole member. A wholly-owned PA Contractor Subsidiary and
such PA Contractor will enter into a 40-year management
service agreement under which the PA Contractor Subsidiary
will provide, on an exclusive basis, the technical
laboratory services, management and all other non-medical
practice services for such PA Contractor. The PA Contractor
Subsidiary will employ all of the technical employees and
own all of the laboratory facilities, testing equipment and
other assets used in connection with the pathology services
performed by the PA Contractor's physicians. The PA
Contractor's payments to the PA Contractor Subsidiary under
the management service agreement will be comprised of the
reimbursement of the costs and expenses for providing the
technical laboratory services, a base fee and a performance
fee. The performance-based fee will be determined on an
annual basis and will be based on the achievement of
discretionary performance criteria as set forth in the
annual operating plan for the PA Contractor. Assuming the PA
Contractor Subsidiary achieves its goals and objectives,
such fees will result in the PA Contractor Subsidiary
receiving substantially all net revenue less practice
expenses of the PA Contractor. Practice expenses include
physician salaries, which are fixed by employment agreement,
and related professional expenses. Therefore, the Company
will be the direct beneficiary of substantially all of the
net income of the PA Contractor. The Company will have
direct voting control over the PA Contractor and the PA
Contractor is consolidated in the Unaudited Pro Forma
Consolidated Financial Statements.
In connection with the acquisition of Freeman and
affiliation with the Texas PA Contractor, a wholly-owned PA
Contractor Subsidiary and the Texas PA Contractor have
entered into a 40-year management service agreement under
which the PA Contractor Subsidiary provides, on an exclusive
basis, the technical laboratory services, management and all
other non-medical practice services for the Texas PA
Contractor. The Company's PA Contractor Subsidiary in Texas
employs all of the technical employees and owns all of the
laboratory facilities, testing equipment and other assets
used in connection with the pathology services performed by
the Texas PA Contractor's physicians. The Texas PA
Contractor's payments to the PA Contractor Subsidiary under
this management service agreement are comprised of the
reimbursement of the costs and expenses for providing the
technical laboratory services, a base fee and a performance
fee. The performance-based fee is determined on an annual
basis and is based on the achievement of discretionary
performance criteria as set forth in the annual operating
plan for the Texas PA Contractor. The performance fee and
the criteria therefore may vary from year to year based on
the goals and objectives of the Texas PA Contractor and may
include, among other things, identifying, recruiting and
retaining physicians, expanding the business of the Texas PA
Contractor and providing the Texas PA Contractor with
certain operational efficiencies. Assuming the Texas PA
Contractor achieves its goals and objectives, such fees will
result in the PA Contractor Subsidiary receiving
substantially all net revenue less practice expenses of the
Texas PA Contractor. Practice expenses include physician
salaries, which are fixed by employment agreement, and
related professional expenses. Therefore, the Company is the
direct beneficiary of substantially all of the net income of
the Texas PA Contractor. For purposes of the Unaudited Pro
Forma Consolidated Statement of Operations, the annual base
fee is equal to the current base fee of $400,000 and the
performance fee assumes that the PA Contractor Subsidiary
will achieve all of the goals and objectives relating
thereto. The following displays the Texas PA Contractor's
pro forma net revenue and practice expenses, and the fees to
the PA Contractor Subsidiary for management and other
services:
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Texas PA Contractor:
Net revenue............................................... $1,143 $3,913
Practice expenses......................................... 101 431
------ ------
Management service agreement revenue...................... $1,042 $3,482
====== ======
Components of management service agreement revenue:
Reimbursement of expenses and overhead.................... $ 878 $2,837
Base management fee....................................... 100 400
Performance fee........................................... 64 245
------ ------
Total.............................................. $1,042 $3,482
====== ======
Effective on or about September 30, 1997, the business of
the Company's existing Texas PA Contractor will be
transferred to a Texas 5.01(a) non-profit corporation which
the Company organized and of which the Company will be the
sole member. Members of the board of directors of such
non-profit corporation may be appointed by, and may be
removed by, the sole member, which is the Company. The
Company will have direct voting control over such non-profit
corporation and will consolidate its operations in the
Company's consolidated financial statements for periods
following the transfer to the non-profit corporation.
The Company will consolidate any future acquisitions or
affiliations in which it acquires the controlling financial
interest through the acquisition of direct ownership of
voting stock or other appropriate means. For any future
affiliations through management service or other agreements
in which the Company does not obtain the controlling
financial interest, but does have a net profits interest,
the Company will separately display management service
agreement revenue (at least, until such time that the
Company gains a controlling financial interest).
The EITF is addressing accounting and reporting issues
relating to physician practice management company
affiliations with medical practices in EITF No. 97-2. Any
consensus reached in EITF No. 97-2 could affect the
presentation in the Company's consolidated financial
statements of the assets, liabilities, net revenue or costs
related to pathology practices affiliated with the Company
and the ability of a physician practice management company
to account for business combinations as purchases of assets
or poolings-of-interests.
(e) Represents the pro forma acquisition adjustments to net
revenue, cost of services and selling, general and
administrative expense to: (1) increase compensation expense
for the net profits of the dermatology practice of Beno
Michel, M.D., Inc. (the "Derm Practice") which are payable
to the practicing dermatologists; (2) eliminate certain
nonrecurring expenses directly related to the 1996
Acquisitions and Pending Acquisitions and related
transactions, and revenues and direct costs associated with
the loss of a lab contract by one of the practices included
in the Pending Acquisitions ("Other Adjustments"); (3)
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 ("Physician
Compensation"); and (4) reclassify the net revenue and
expenses to display the results of operations of the Texas
PA Contractor as discussed in Note (d) above ("Management
Service Agreement"). The following table summarizes these
adjustments:
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT
PHYSICIAN SERVICE
DERM PRACTICE OTHER ADJUSTMENTS COMPENSATION AGREEMENT TOTAL
------------- ----------------- ------------ ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
Patient services................. $ -- $(1,742) $ -- $ (2,770) $ (4,512)
Management service agreement..... -- -- -- 2,440 2,440
Cost of services................. 111 (520) (13,501) (330) (14,240)
Selling, general and
administrative expense......... -- (1,497) -- -- (1,497)
JUNE 30, 1997
Patient services................. -- (643) -- -- (643)
Cost of services................. -- (375) (1,709) -- (2,084)
Selling, general and
administrative expense......... -- (404) -- -- (404)
</TABLE>
31
<PAGE> 33
<TABLE>
<S> <C>
(f) Represents additional amortization expense for both net
identifiable intangible assets and goodwill based upon the
Company's preliminary allocation of purchase price as if the
1996 Acquisitions and the Pending Acquisitions all occurred
as of January 1, 1996. The net identifiable intangible
assets related to the 1996 Acquisitions total approximately
$63.4 million and are being amortized over periods ranging
from 10 to 40 years. The amortization periods of
identifiable intangible assets related to the 1996
Acquisitions, except the management service agreement, were
estimated by the Company based on reports of independent
consultants. The identifiable intangible asset related to
the management service agreement is being amortized over 35
years. The net identifiable intangible assets of the Pending
Acquisitions relate primarily to hospital contracts and
total approximately $47.0 million and are being amortized
over 35 years. In determining amortization periods, the
Company considered each Practice's operating history,
contract renewals, stability of physician client lists and
industry statistics. The values were determined using a
discounted cash flow valuation model. The net goodwill
related to the 1996 Acquisitions is approximately $57.9
million and is being amortized over periods ranging from 15
to 35 years. The goodwill related to the Pending
Acquisitions is approximately $41.1 million and is being
amortized over a period of 35 years. The amortization
periods for goodwill were determined by the Company with
consideration given to the lives assigned to the
identifiable intangible assets, the reputation of each
Practice, the length of each Practice's operating history,
and the potential of the market in which the acquired
Practice is located.
The following table summarizes the values assigned to each
of the identifiable intangible assets and goodwill and the
related weighted average amortization periods for the 1996
Acquisitions and the Pending Acquisitions:
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AMORTIZATION
VALUE PERIOD
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Hospital contracts.......................................... $ 74,727 35.6
Physician client lists...................................... 27,331 18.8
Laboratory contracts........................................ 1,800 10.0
Management service agreement................................ 6,473 35.0
Goodwill.................................................... 99,034 34.5
--------
Total.............................................. $209,365
========
(g) Represents interest expense related to amounts borrowed to
finance the 1996 Acquisitions and Pending Acquisitions as if
such borrowings had occurred as of January 1, 1996. The
adjustment assumes borrowings of approximately $135.8
million used in the 1996 Acquisitions and Pending
Acquisitions and related transaction fees at an interest
rate of 8.25% and 8.50% for the year ended December 31, 1996
and the six months ended June 30, 1997, respectively. In
addition, the adjustment for the year ended December 31,
1996 includes interest expense in connection with the
Subordinated Notes.
(h) Represents an adjustment to the amortization of deferred
debt issuance costs as if the Credit Facility was in place
as of January 1, 1996.
(i) Represents the incremental tax effect of the pro forma
acquisition and offering adjustments related to the
practices included in the 1996 Acquisitions and Pending
Acquisitions and the provision for income taxes related to
such practices, which did not provide 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.
(j) 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 January 1, 1996.
(k) 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; and (iii) 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.
(l) In the six months ended June 30, 1997, the Company recorded
a nonrecurring charge of $1.3 million, primarily
professional fees and printing costs, as a result of the
postponement of the Company's planned initial public
offering of Common Stock.
</TABLE>
32
<PAGE> 34
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 in 1996, the Company's
operations consisted principally of providing outpatient anatomic pathology
services, primarily dermatopathology, through pathologists employed by the
Company. With the 1996 Acquisitions, the Company affiliated with three Practices
that provide exclusively outpatient anatomic pathology services and acquired
eight Practices that provide both inpatient anatomic pathology services under
exclusive contracts with hospitals as well as outpatient anatomic pathology
services. If the Pending Acquisitions are consummated, the Company will acquire
or affiliate with three additional practices, one of which exclusively provides
inpatient pathology services and two of which provide both inpatient and
outpatient pathology services. The Company intends to pursue other acquisitions
of, and affiliations with, inpatient and outpatient anatomic pathology
practices. The Company derives its net revenue from the net revenue of the
Practices.
The Practices provide 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.
The Company currently derives management service agreement revenue from its
PA Contractor Subsidiary in Texas. Effective on or about September 30, 1997, the
Company's current Texas PA Contractor, Clay J. Cockerell, M.D., P.A., will
transfer its business to a Texas 5.01(a) non-profit corporation, which the
Company organized and of which the Company is the sole member. Members of the
board of directors of such 5.01(a) corporation are appointed by, and can be
removed by, the sole member, which is the Company. The Company has direct voting
control over such 5.01(a) corporation and will consolidate its operations in the
Company's consolidated financial statements for periods following the transfer
to the Texas 5.01(a) non-profit corporation. The Company will consolidate any
future acquisitions or affiliations in which it acquires the controlling
financial interest through the acquisition of direct ownership of voting stock
or other appropriate means. For any future affiliations with practices in other
states that prohibit the corporate practice of medicine and in which the Company
affiliates through management service or other agreements and in which the
Company does not obtain the controlling financial interest, but does have a net
profits interest, the Company will separately display management service
agreement revenue (at least, until such time that the Company gains a
controlling financial interest). See Note 3 to the Consolidated Financial
Statements.
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. Generally, the Company and the PA Contractors
bill 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 Practices are paid an annual fee for an
Affiliated Physician to serve as the medical director of the laboratory.
33
<PAGE> 35
The Company and the PA Contractors typically bill 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 accounts.
In recent years, there has been a shift away from traditional indemnity
insurance plans 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
and the PA Contractors have contracts with managed care organizations and
national clinical laboratories and the Company is attempting to increase the
number of such contracts to increase test volume. Since the majority of the
Company's operating costs, principally physician and non-physician technical
compensation, 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."
The Company estimates that for the six months ended June 30, 1997,
approximately one-third of its 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
decreased by 5.3% to 6.0% in Florida, where a majority of the Company's net
revenue from Medicare is derived. The federal government recently has enacted
balanced budget legislation that substantially cuts Medicare expenditures over
the next five years. The current cuts do not directly affect the services
provided by the Company, but there can be no assurance that future cuts will not
have a material adverse affect on the Company's financial condition or results
of operations. The Company plans to mitigate the adverse effects of
reimbursement reductions on net revenue and earnings through implementation of
its strategy, specifically (i) increasing marketing efforts to expand referral
sources and (ii) reducing practice costs through implementation of operating and
production efficiencies.
During 1996, the Company ceased the unprofitable operation of a clinical
laboratory resulting in a non-recurring charge of $910,000 to operations as the
result of severance payments, write-downs of property, equipment and other
assets to estimated realizable values, and the write-off of the unamortized
balances of intangible assets associated with the clinical operations. The
Company also 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."
1996 ACQUISITIONS
The 1996 Acquisitions were funded with various combinations of cash, Common
Stock, debt and Contingent Notes. The aggregate non-contingent purchase price
paid for the 1996 Acquisitions was approximately $108.0 million, $78.6 million
of which was paid in cash, $4.5 million of which was paid in Subordinated Notes
and $24.8 million of which was paid in shares of Common Stock, at a weighted
average price of $6.41 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 Note 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
34
<PAGE> 36
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, including principal and
interest, of at least $9.0 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, including principal and interest, of approximately $36.5
million between 1997 and 2001. Since the profitability criteria are calculated
on a cumulative basis over the period covered by 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 additional purchase price for
the Practice. During the six months ended June 30, 1997, the Company made
Contingent Note payments aggregating $1.4 million. The Company believes that the
incremental cash generated from operations will be sufficient to satisfy the
payment, if any, of the Contingent Note obligations in any one year period. See
"Risk Factors -- Unpaid Contingent Acquisition Consideration." Such payments, if
any, will result in a corresponding increase in goodwill and the related amount
of amortization thereof in periods following the payment.
The PA Contractor Subsidiaries have long-term management agreements with
three PA Contractors in Texas and Ohio (the "PA Management Agreements").
Effective on or about September 30, 1997, Clay J. Cockerell, M.D., P.A. will
transfer its business to a non-profit corporation of which AmPath is the sole
member. In Ohio, each of the PA Contractors is 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, while the PA
Contractors and the physicians they employ have control over all functions
relating to the provision of medical services. AmeriPath's PA Contractor
Subsidiaries receive a management fee for the services. In Ohio, the fee is
equal to the net revenue less practice expenses 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 fee. The performance-based fee is determined on an annual
basis and is based, pursuant to the PA Management Agreement with the Texas PA
Contractor, on the achievement of discretionary performance criteria as set
forth in the annual operating plan of the Practice. The performance fee and the
criteria therefor may vary from year to year based on the goals and objectives
of the Texas PA Contractor Subsidiary and may include, among other things,
identifying, recruiting and retaining physicians, expanding the business of the
Texas PA Contractor and providing the Texas PA Contractor with certain
operational efficiencies. In addition, the Texas PA Contractor reimburses the PA
Contractor Subsidiary in Texas for all direct operating and production costs.
Pursuant to the PA Management Agreement with the Texas PA Contractor, the PA
Contractor Subsidiary expects to receive a flat base management fee of
approximately $400,000 in 1997, which amount excludes the performance fee. The
base management fee together with the performance fee are expected by the
Company (assuming the Texas PA Contractor Subsidiary meets its targets pursuant
to the PA Management Agreement) to approximate the net revenue less practice
expenses of the Texas PA Contractor in 1997. Each of the PA Management
Agreements has a term of 40 years and is subject to renegotiation at the end of
such term. See "Business -- Government Regulation," "Risk Factors -- Effect of
Government Regulation" and "Risk Factors -- Dependence on Pathologists."
Other than the acquisitions of the assets of PDK and D&P, each of the 1996
Acquisitions involving Practices in Florida, Kentucky and Alabama were
structured as the purchase of all of the outstanding capital stock of the
acquired Practice. Each of the 1996 Acquisitions involving Practices in Ohio
were effected through a long-term management agreement between the Ohio PA
Contractor Subsidiaries and each Ohio PA Contractor, and contribution of the
stock of each Ohio PA Contractor to a trust, of which AmPath is the
35
<PAGE> 37
sole beneficiary. The 1996 Acquisition involving the Practice in Texas was
effected through the purchase of all of the Practice's laboratory facilities and
related equipment and other assets, and through a long-term management agreement
between the Texas PA Contractor Subsidiary and the practice employing the
Affiliated Physician in Texas. See Note (a) to Unaudited Pro Forma Consolidated
Financial Data and "Business -- Affiliation Structure." Each of the 1996
Acquisitions was accounted for as a purchase of the underlying net assets.
The 1996 Acquisitions have resulted in a significant increase in intangible
assets. At December 31, 1996, net intangible assets were $131.5 million,
including $74.1 million of net identifiable intangible assets and $57.4 million
of goodwill principally due to the 1996 Acquisitions. Virtually all of the 1996
Acquisitions' aggregate purchase price of approximately $108.0 million was
recorded as either identifiable intangible assets or goodwill. For a discussion
of the preliminary allocation of the purchase price in the 1996 Acquisitions,
see Note 3 to the Consolidated Financial Statements. Net identifiable intangible
assets include hospital contracts, physician client lists, a management service
agreement, and laboratory contracts acquired in connection with the 1994
Acquisition and the 1996 Acquisitions and are being amortized on a straight line
basis over periods ranging from 10 to 40 years. For the year ended December 31,
1996 and for the six months ended June 30, 1997, amortization of net
identifiable intangible assets was $1.3 million and $1.5 million, respectively.
Goodwill represents the excess of cost over the fair value of the net assets of
the 1994 Acquisition and the 1996 Acquisitions and is being amortized on a
straight line basis over periods ranging from 15 to 35 years. For the year ended
December 31, 1996, and for the six months ended June 30, 1997, amortization of
goodwill was $658,000 and $910,000, 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" and
Unaudited Pro Forma Consolidated Financial Data.
To date, the Company has integrated certain aspects of the billing, sales
and marketing, accounting, purchasing, insurance and courier functions of the
Practices. Integration of such functions has resulted in greater efficiency in
negotiating insurance coverage and effective marketing of the Practices to
national clinical laboratories. In addition, the Company has taken steps to
consolidate the accounting procedures and financial reporting systems of the
Practices and is implementing cash management and other fiscal control programs.
See "Business -- Regional Business Model" and "Business -- Affiliation
Structure."
PENDING ACQUISITIONS
The Pending Acquisitions will be funded with various combinations of cash,
Common Stock and contingent debt. The aggregate non-contingent consideration to
be paid for the Pending Acquisitions is expected to be approximately $58.9
million in cash and 1,910,808 shares of Common Stock. The cash portion of the
purchase prices will be financed with borrowings under the Credit Facility. The
Contingent Notes will be payable based upon the practices' achievement of
specified profitability objectives over periods ranging from 1998 to 2002. The
contingent payments have durations of five years and vary in the minimum and
maximum amounts to be paid upon the achievement of profitability objectives
relating to the Practice. If the practices achieve minimum specified
profitability objectives, the Company would be obligated to make aggregate
contingent payments, including principal and interest, of at least $25.7 million
between 1998 and 2002. 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, including
principal and interest, of approximately $62.1 million between 1998 and 2002.
Similar to the 1996 Acquisitions, 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. See "Risk Factors -- Unpaid Contingent Acquisition
Consideration" and "-- 1996 Acquisitions."
36
<PAGE> 38
The Pending Acquisitions in Texas and Indiana will involve long-term
management agreements, similar in form and substance to the PA Management
Agreements, with the entities employing the physicians in such states. In Texas,
a non-profit corporation of which AmPath is the sole member will employ the
physicians. In Indiana, a trust of which AmPath is the sole beneficiary will be
the sole member of a limited liability company that will employ the physicians.
In Indiana, the management fee will be equal to the net revenue less practice
expenses of the pathology practice. In Texas, the management fee will consist of
a flat base fee, which will be determined on an annual basis according to the
operating plan of the practice, and a performance-based fee. The
performance-based fee will be determined on an annual basis and will be based on
the achievement of discretionary performance criteria as set forth in the annual
operating plan. The base management fee together with the performance fee are
expected by the Company (assuming the performance targets pursuant to the
management service agreement are met) to approximate the net revenue less
practice expenses. Each of the management agreements will have a term of 40
years and is subject to renegotiation at the end of such term. See
"Business -- Government Regulation," "Risk Factors -- Effect of Government
Regulation," "Risk Factors -- Dependence on Pathologists" and "-- 1996
Acquisitions."
The Pending Acquisition in Mississippi will be effected through a purchase
by AmeriPath of all of the outstanding stock of the practice, making such
practice a wholly-owned subsidiary of AmPath. Each of the Pending Acquisitions
will be accounted for as a purchase of the underlying net assets.
The Pending Acquisitions are expected to result in a significant increase
in intangible assets. Although AmeriPath is a party to a definitive agreement
with respect to each of the Pending Acquisitions, these definitive agreements
are subject to various conditions to closing which are beyond the control of the
Company. Accordingly, there can be no assurance that the Company will consummate
the Pending Acquisitions, or that the Pending Acquisitions, if consummated, will
be made on the terms currently agreed to by the Company. For a discussion of the
preliminary allocation of the purchase price in the Pending Acquisitions, see
Note 3 to the Unaudited Pro Forma Consolidated Financial Data. See "Risk
Factors -- Risks Related to Intangible Assets," Unaudited Pro Forma Consolidated
Financial Data and "-- 1996 Acquisitions."
37
<PAGE> 39
PRACTICES
As of June 30, 1997, the 12 Practices and three Pending Acquisitions
consisted of:
<TABLE>
<CAPTION>
1996
PRO FORMA
AFFILIATED TOTAL HOSPITAL OUTPATIENT NET
PRACTICE(1) LOCATION PHYSICIANS(2) PERSONNEL(3) CONTRACTS LABORATORY REVENUE(4)
- ---------------------- ------------------- ------------- ------------ --------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
American Laboratory Fort Lauderdale, FL 5 134 -- X $15,813
Associates
Cutaneous Pathology & Beachwood, OH 3 19 -- X 3,979
Immunofluorescence
Laboratory
D&P Pathology Fort Lauderdale, FL 7 7 3 2,121
Derrick and Associates Orlando, FL 23 204 14 X 21,833
Pathology
Florida Pathology Miami Beach, FL 2 13 1 X 3,559
Associates
Freeman-Cockerell Dallas, TX 1 46 -- X 3,482
Laboratories
Gulf Coast Pathology Cape Coral, FL 5 28 3 X 8,686
Associates
Pathology Associates Lexington, KY 7 58 17 X 5,080
Richfield Laboratory Cincinnati, OH 3 39 -- X 6,201
of Dermatopathology
Seidenstein, Levine & Fort Myers, FL 9 46 5 7,293
Associates
SkinPath Birmingham, AL 2 24 1 X 2,726
Volusia Pathology Ormond Beach, FL 7 34 3 X 6,011
Group
--- --- -- -------
Totals 74 652 47 $86,784
=== === == =======
PENDING ACQUISITIONS
Unipath, Ltd. Dallas, TX 20 115 10 X $20,152
Colab Incorporated Indianapolis, IN 15 19 8 11,789
Professional
Corporation
Sturgis, Henderson & Jackson, MS 5 21 6 X 3,341
Proctor
--- --- -- -------
Pending Acquisition Totals 40 155 24 $35,282
=== === == =======
</TABLE>
- ---------------
(1) The Company is not licensed to practice medicine. The practice of medicine
is conducted solely by the Affiliated Physicians who are employed by either
the Direct Subsidiaries or the PA Contractors.
(2) In the Practices located in Ohio and Texas, the Affiliated Physicians are
employed directly by the Ohio PA Contractors and the Texas PA Contractor,
respectively. In the Pending Acquisitions in Indiana and Texas, the
Affiliated Physicians will also be employed by PA Contractors in such
states.
(3) Does not include one physician and 35 other administrative and executive
personnel of AmPath. Does include the Affiliated Physicians employed by the
Ohio PA Contractors and the Texas PA Contractor, and as to the Pending
Acquisitions in Indiana and Texas, includes physicians to be employed by PA
Contractors in such states.
(4) For the year ended December 31, 1996, giving effect to the 1996 Acquisitions
and the Pending Acquisitions as if all of such acquisitions had been
effected on January 1, 1996.
38
<PAGE> 40
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of net revenue (billings net of
contractual allowances).
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUE
-------------------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- ----------------
1994 1995 1996 1996 1997
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net revenue........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs:
Cost of services................................. 48.6 53.2 47.2 48.6 45.3
Selling, general and administrative expense...... 15.8 16.5 19.9 18.8 19.1
Provision for doubtful accounts.................. 6.9 7.2 8.4 6.7 9.2
Amortization expense............................. 4.7 4.2 4.7 3.1 5.4
Loss on cessation of clinical operations......... -- -- 2.1 9.4 --
----- ----- ----- ----- -----
Total operating costs.................... 76.0 81.1 82.3 86.6 79.0
----- ----- ----- ----- -----
Income from operations............................. 24.0 18.9 17.7 13.4 21.0
Interest expense................................... (11.0) (9.4) (8.3) (7.9) (9.0)
Non recurring charge............................... -- -- -- -- (2.9)
Other income (expense), net........................ (0.3) (0.3) (1.0) (2.1) (0.1)
----- ----- ----- ----- -----
Income before income taxes......................... 12.7 9.2 8.4 3.4 9.0
Provision for income taxes......................... 4.8 3.6 3.6 1.3 3.9
----- ----- ----- ----- -----
Net income......................................... 7.9% 5.6% 4.8% 2.1% 5.1%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 30, 1997 as Compared to Six Months Ended June 30, 1996
The Company completed the acquisition of 11 Practices in 1996, the results
of which are included in the Company's operating results from the date of
acquisition. Changes in operations between the six months ended June 30, 1996
and the six months ended June 30, 1997 were primarily due to eight of the 1996
Acquisitions which were completed subsequent to June 30, 1996.
Net revenue increased by $35.2 million, or 363%, to $44.8 million for the
six months ended June 30, 1997 from $9.7 million for the six months ended June
30, 1996. Of this increase, $35.0 million was attributable to the 1996
Acquisitions, and $169,000 to same practice growth. The increase in same
practice revenue was comprised of a $304,000 increase in outpatient revenue,
which was due to a 3.8% increase in volume (approximately 4,300 surgical
biopsies) which was partially offset by a 5.3% decrease in the Medicare
reimbursement for surgical biopsies which became effective on January 1, 1997.
Hospital revenues decreased $135,000 primarily due to a decrease in revenue from
a managed care contract. 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 $15.6 million, or 331%, to $20.3 million for
the six months ended June 30, 1997 from $4.7 million for the six months ended
June 30, 1996. Of this increase, $16.5 million was attributable to the 1996
Acquisitions and $220,000 to same practice costs, offset by a reduction of $1.1
million attributable to ALA's clinical laboratory operations which ceased
operations on May 31, 1996. In connection with closing ALA's clinical operations
in 1996, the Company recorded a non-recurring charge to operations during the
six months ended June 30, 1996 aggregating $910,000, which included severance
payments, write-downs of property, equipment and other assets to estimated
realizable values, and the write-off of the unamortized balances of intangible
assets associated with the clinical operations.
Selling, general and administrative expense increased by $6.7 million, or
370%, to $8.6 million for the six months ended June 30, 1997 from $1.8 million
for the six months ended June 30, 1996. Of this increase, $3.3 million, or
49.1%, was attributable to the 1996 Acquisitions. The remaining increase was due
to increased staffing levels in marketing, billing, human resources and
accounting and costs incurred to expand the Company's administrative support
infrastructure and complete the conversion to an upgraded billing system.
39
<PAGE> 41
Provision for doubtful accounts increased by $3.5 million, or 538%, to $4.1
million for the six months ended June 30, 1997 from $645,000 for the six months
ended June 30, 1996. This increase was primarily attributable to the Practices
acquired in 1996. The provision for doubtful accounts as a percentage of net
revenue was 9.2% and 6.7% for the six months ended June 30, 1997 and 1996,
respectively. This increase was primarily attributable to the 1996 Acquisitions,
which acquisitions increased the percentage of net revenues from services
provided in inpatient laboratories. 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, more difficulties gathering complete and accurate billing information
and longer billing and collection cycles for inpatient services.
Amortization expense increased by $2.1 million or 693%, to $2.4 million for
the six months ended June 30, 1997 from $304,000 for the six months ended June
30, 1996. This increase is attributable to the amortization of goodwill and net
identifiable intangible assets from the 1996 Acquisitions. Amortization expense
is expected to increase on an annual basis as a result of identifiable
intangible assets and goodwill arising from the 1996 Acquisitions, amortization
in connection with the Company's future acquisitions, and any contingent
payments required to be made pursuant to the Contingent Notes. Additionally, the
Company will evaluate the carrying values attributed to identifiable intangible
assets and goodwill 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 "-- 1996 Acquisitions."
During the six months ended June 30, 1997, the Company wrote-off certain
deferred offering costs aggregating $1.3 million, primarily professional fees
and printing costs, related to the registration statement filed by the Company
with the Securities and Exchange Commission that was withdrawn in May 1997.
Interest expense increased by $3.3 million, or 429%, to $4.1 million for
the six months ended June 30, 1997 from $767,000 for the six months ended June
30, 1996. This increase was attributable to indebtedness incurred to finance the
1996 Acquisitions.
The effective income tax rate was approximately 43% for the six months
ended June 30, 1997 as compared to 38% for the six months ended June 30, 1996.
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 1996 Acquisitions.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company completed the acquisition of 11 Practices in 1996, the results
of which are included in the Company's operating results from the date of
acquisition. Changes in operations between the year ended December 31, 1995 and
the year ended December 31, 1996 were primarily due to these acquisitions.
Net revenue increased by $26.5 million, or 166%, to $42.6 million for the
year ended December 31, 1996 from $16.0 million for the year ended December 31,
1995. Of this increase, $26.7 million was attributable to the 1996 Acquisitions,
and $1.1 million to same practice growth, offset by the decline in net revenue
of $1.3 million from ALA's clinical laboratory which ceased operations on May
31, 1996. Same practice net revenue increased $1.1 million, or 8.3%, to $14.8
million 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 $11.6 million, or 136%, to $20.1 million for
the year ended December 31, 1996 from $8.5 million for the year ended December
31, 1995. Of this increase, $13.0 million was attributable to the 1996
Acquisitions, offset by a decrease of $1.1 million attributable to ALA's
clinical laboratory which ceased operations on May 31, 1996. In addition, same
practice cost of services decreased by $273,000 for the year ended December 31,
1996 compared to the same period in 1995 due to increased efficiency by the
Affiliated Physicians. In connection with closing ALA's clinical operations in
1996, the Company recorded a non-recurring charge to operations aggregating
$910,000, which included severance payments, write-downs of
40
<PAGE> 42
property, equipment and other assets to estimated realizable values, and the
write-off of the unamortized balances of intangible assets associated with the
clinical operations.
Selling, general and administrative expense increased by $5.8 million, or
221%, to $8.5 million for the year ended December 31, 1996 from $2.6 million for
the year ended December 31, 1995. Of this increase, $2.4 million was
attributable to the 1996 Acquisitions. 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.
Provision for doubtful accounts increased by $2.4 million, or 208%, to $3.6
million for the year ended December 31, 1996 from $1.2 million for the year
ended December 31, 1995. The provision for doubtful accounts as a percentage of
net revenue was 8.4% and 7.2% for the years ended December 31, 1996 and 1995,
respectively. This increase was primarily attributable to the 1996 Acquisitions,
which acquisitions increased the percentage of net revenue from services
provided in inpatient laboratories. 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, more difficulties gathering complete and accurate billing information,
and longer billing and collection cycles for inpatient services.
Amortization expense increased by $1.3 million, or 189%, to $2.0 million
for the year ended December 31, 1996 from $700,000 for the year ended December
31, 1995. This increase is attributable to the amortization of goodwill and net
identifiable intangible assets from the 1996 Acquisitions. Amortization expense
is expected to increase as a result of identifiable intangible assets and
goodwill arising from the 1996 Acquisitions and future acquisitions as well as
any contingent payments required to be made pursuant to the Contingent Notes.
Additionally, the Company will evaluate the carrying values attributed to
identifiable intangible assets and goodwill 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
" -- 1996 Acquisitions."
Interest expense increased by $2.0 million, or 135%, to $3.5 million for
the year ended December 31, 1996 from $1.5 million for the year ended December
31, 1995. This increase was attributable to indebtedness incurred to finance the
1996 Acquisitions.
Other expense, net increased by $385,000 to $431,000 for the year ended
December 31, 1996 from $46,000 for the year ended December 31, 1995 due
primarily to the write-off of deferred debt issuance costs related to the
replacement of a line of credit with the Credit Facility.
The effective income tax rate was approximately 43% for the year ended
December 31, 1996 as compared to 39% for the year ended December 31, 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 1996 Acquisitions.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenue increased by $1.6 million, or 11%, 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 ALA's clinical laboratory.
Cost of services increased by $1.5 million, or 21%, to $8.5 million for the
year ended December 31, 1995 from $7.0 million for the year ended December 31,
1994. Of this increase, $981,000 was due to the addition of two Affiliated
Physicians, additional non-physician personnel and increased variable operating
costs for anatomic pathology services and $510,000 was due to increased variable
operating costs, additional non-physician personnel and overtime costs and
allocation of additional overhead for ALA's clinical laboratory. As a percentage
of net revenue, cost of services increased to 53.2% in 1995 from 48.6% in 1994.
41
<PAGE> 43
Selling, general and administrative expense increased by $357,000, or 16%,
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 16%, 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 ALA'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%, 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 8.5% from 9.5% on the line of credit.
The effective income tax rate was approximately 39% for the year ended
December 31, 1995 compared to 38% for the year ended December 31, 1994.
QUARTERLY RESULTS
The following table presents certain unaudited quarterly financial data for
each of the quarters in the years ended December 31, 1995 and 1996 and the
quarters ended March 31 and June 30, 1997. 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.
42
<PAGE> 44
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 CALENDAR
1995 CALENDAR QUARTERS 1996 CALENDAR QUARTERS QUARTERS
------------------------------- --------------------------------- -------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
------ ------ ------ ------ ------ ------ ------- ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue............ $3,929 $4,267 $3,980 $3,848 $4,853 $4,837 $11,150 $21,718 $21,858 $22,986
Operating costs:
Cost of services..... 2,029 2,191 2,112 2,185 2,485 2,223 5,771 9,627 9,966 10,347
Selling, general and
administrative
expense............ 631 663 637 713 924 898 2,020 4,641 4,310 4,254
Provision for
doubtful
accounts........... 290 303 317 251 309 336 1,010 1,921 2,054 2,062
Amortization
expense............ 170 170 169 169 152 152 510 1,144 1,199 1,211
Loss on cessation of
clinical lab
operations......... -- -- -- -- -- 910 -- -- -- --
------ ------ ------ ------ ------ ------ ------- ------- ------- --------
Total......... 3,120 3,327 3,235 3,318 3,870 4,519 9,311 17,333 17,529 17,874
------ ------ ------ ------ ------ ------ ------- ------- ------- --------
Income from
operations........... 809 940 745 530 983 318 1,839 4,385 4,329 5,112
Interest expense....... (401) (384) (366) (353) (374) (393) (870) (1,903) (1,932) (2,125)
Non-recurring charge... -- -- -- -- -- -- -- -- -- (1,289)
Other income (expense),
net.................. (21) 27 (19) (33) (2) (199) 58 (288) 26 (83)
------ ------ ------ ------ ------ ------ ------- ------- ------- --------
Income (loss) before
income taxes......... 387 583 360 144 607 (274) 1,027 2,194 2,423 1,615
Provision (benefit) for
income taxes......... 150 226 140 56 232 (105) 392 1,009 1,042 694
------ ------ ------ ------ ------ ------ ------- ------- ------- --------
Net income (loss)...... $ 237 $ 357 $ 220 $ 88 $ 375 $ (169) $ 635 $ 1,185 $ 1,381 $ 921
====== ====== ====== ====== ====== ====== ======= ======= ======= ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In the 1994 Acquisition, the Company acquired the assets and assumed the
liabilities of PDK for consideration consisting of $20.5 million in cash, $3.5
million principal amount of Senior Notes and $2.5 million principal amount of
ALA Contingent Notes. In connection with the 1994 Acquisition, 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. ALA also
issued an aggregate of 1,425,600 shares of common stock to the owners of PDK for
an aggregate purchase price of $1.0 million. In connection with the 1994
Acquisition, the Company also entered into the line of credit and borrowed $7.5
million thereunder. See "Certain Transactions." In April 1996, the ALA
Contingent Note obligations were satisfied by the issuance of 194,400 shares of
Common Stock.
Following the 1994 Acquisition, the Company's principal cash requirements
have been to fund acquisitions and debt service and provide working capital to
support the 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 Company generated cash from operations of $2.3
million for each of the years ended December 31, 1994 and 1995, $551,000 for the
year ended December 31, 1996 and $6.1 million for the six months ended June 30,
1997. The decrease in 1996 of approximately $1.8 million was primarily
attributable to a decrease in accounts payable and accrued expenses, and the
increase for the six months ended June 30, 1997 was primarily due to the 1996
Acquisitions.
The Credit Facility replaced the line of credit in May 1996 and was amended
and restated in June 1997 increasing the amount available from $85 million to
$150 million. In connection with the 1996 Acquisitions, the Company borrowed
$78.6 million under the Credit Facility and anticipates borrowing an additional
$58.9 million in connection with the Pending Acquisitions in the third quarter
of 1997. At December 31, 1995, 1996, and at June 30, 1997, the Company had
working capital of $1.4 million, $5.3 million and $5.1 million, respectively,
including $58,000 and $2.3 million, and $1.0 million, respectively, in cash and
cash equivalents.
43
<PAGE> 45
In addition, practices acquired by the 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. Net accounts receivable increased by $12.6
million to $14.7 million at December 31, 1996 from $2.1 million at December 31,
1995, primarily as a result of the 1996 Acquisitions. Net accounts receivable
increased $1.5 million, to $16.2 million at June 30, 1997, primarily due to the
increase in revenues during the period. See Note 4 to the Consolidated Financial
Statements.
At June 30, 1997, of the $150.0 million available under the Credit
Facility, $65 million and $17.3 million was outstanding under the term loan
facility and revolving loan facility, respectively. Borrowings under the Credit
Facility bear interest, at the Company's option, at the Agent's base rate (8.5%
at June 30, 1997) or the Eurodollar rate plus a premium that are adjusted
quarterly based upon the Company's ratio of total debt to cash flow. At June 30,
1997, amounts outstanding under the term loan and revolving loan of the Credit
Facility had annual effective interest rates of 9.25% and 8.75%, respectively.
The Credit Facility provides for up to $150.0 million through a 7 year term loan
of $65.0 million and a revolving credit facility of up to $85.0 million that is
available as a working capital line of credit in an amount equal to a maximum of
80% of the Company's eligible accounts receivable, (which at June 30, 1997,
amounted to available funds of $10.6 million, of which $1.6 million was
outstanding) or a revolving line of credit available to fund acquisitions.
Amounts due under the revolving credit facility are due June 2002. Commencing
July 1, 1998, the term loan requires annual principal payments of $650,000.
During the year ended December 31, 1996 and the six months ended June 30, 1997,
the Company received advances under the Credit Facility of $89.3 million and
$8.4 million, respectively, and repaid $11.8 million and $7.8 million,
respectively, primarily from cash provided by operations. 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 June 30, 1997, 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 $492,000, $488,000, $996,000 and $2.0 million in
1994, 1995, 1996 and for the six months ended June 30, 1997, respectively.
Capital expenditures to date have included $1.0 million related to information
systems and $569,000 for equipment and leasehold improvements to expand the
Orlando facility to accommodate the expansion of a SmithKline contract which
commenced in May 1997. The Company has been assessing, and will continue to
assess, the capabilities of the various information systems acquired in
connection with each of its acquisitions, and is in the process of replacing,
upgrading and integrating certain of the systems into a single network. See
"Business -- Management Information Systems." Priority has been given to
enhancements in billing and financial information systems. Planned capital
expenditures are expected to be between $1.0 million and $1.5 million during the
remainder of 1997.
The net proceeds of this offering, estimated to be $63.0 million, will be
used to repay the outstanding principal amount 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 $97.2 million as of June 30, 1997 to $35.5 million.
44
<PAGE> 46
The Company may reborrow under the revolving loan facility to fund future
acquisitions, working capital and for general corporate purposes.
The Company anticipates that its outstanding indebtedness following the
consummation of this offering will be an aggregate of $35.5 million under the
Credit Facility and Subordinated Notes. The Company expects to make further
borrowings under the revolving loan facility in the short term to fund
acquisitions. The Company anticipates that, following consummation of the
offering, funds generated by operations and funds available under the Credit
Facility will be sufficient to meet working capital requirements and Contingent
Note obligations, and to finance capital expenditures and, together with the
issuance of shares of Common Stock and Contingent Notes, acquisitions over the
near term. Further, in the event payments under the Contingent Notes become due,
the Company believes that the incremental cash generated from operations would
exceed the cash required to satisfy the Company's payment, if any, of the
contingent obligations in any one year period. Such payments, if any, will
result in a corresponding increase in goodwill and the related amount of
amortization thereof in periods following the payment. Historically, the
Practices funded their capital expenditures with cash flows from operations. For
the year ended December 31, 1995, capital expenditures of the Practices
approximated 2.2% of net revenue. For the year ended December 31, 1996 and the
six months ended June 30, 1997, capital expenditures of the Company approximated
2.3% and 4.4%, respectively, of net revenue. The Company is integrating its
financial information, billing and collections systems, which may result in an
increase in capital expenditures as a percentage of net revenue. The Company
believes, however, that such information systems enhancements will result in
cost efficiencies that may enable the Company to continue to fund its capital
expenditures with cash flows from operations. See "Business -- Management
Information Systems." Funds generated from operations and funds available under
the Credit Facility, along with the issuance of equity and debt securities, may
not be sufficient to implement the Company's growth strategy in the long term.
The Company may be required to seek additional financing through increases to
the 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 or increase the Credit Facility, secure
additional bank borrowings or complete additional debt or equity financings on
terms favorable to the Company.
45
<PAGE> 47
BUSINESS
GENERAL
AmeriPath believes it is the leading physician practice management company
focused on anatomic pathology services, based on an analysis of geographic
breadth, number of physicians, number of hospital contracts, number of practices
and net revenue. The Company currently owns or is affiliated with 12 Practices
located in five states which, as of June 30, 1997, employed a total of 75
pathologists. The pathologists provide medical services in 12 outpatient
pathology laboratories owned and operated by the Company, and in inpatient
laboratories for 47 hospitals and 15 outpatient surgery centers. Of these
pathologists, 71 are board certified and four are board eligible. Thirty-six 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). If the
Pending Acquisitions are consummated, the Company will own or be affiliated with
15 Practices located in seven states which, as of June 30, 1997, employed a
total of 115 pathologists providing medical services in 14 outpatient
laboratories and in inpatient laboratories for 71 hospitals and 20 outpatient
surgery centers.
The Company provides physician practice management services and the
Affiliated Physicians provide medical services in the Company's outpatient
laboratories and in inpatient laboratories owned by hospitals. Eight Practices
owned by the Direct Subsidiaries have exclusive contracts with a total of 47
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. The Pending
Acquisitions have exclusive contracts with a total of 24 hospitals; two of these
practices also have established outpatient laboratories. 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
operations, as well as the hospital's blood bank and microbiology services.
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. By using an inpatient laboratory
to conduct both outpatient and inpatient services, the Practices capitalize on
the trend towards more procedures being performed in an outpatient setting. The
four other Practices (three of which are PA Contractors) 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. Subspecialties 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
46
<PAGE> 48
(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.
Based on information published by the American Medical Association, there
are approximately 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 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. Further, 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.
The Company estimates that there are over 3,300 pathology practices operating in
outpatient laboratories in the United States. 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
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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
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 physician practice management services to anatomic pathology practices
through the following strategies:
Focus on Anatomic Pathology. The Company believes that its focus on
providing management services to anatomic pathology practices provides it
with a competitive advantage in the acquisition of such practices. A
significant opportunity exists to acquire or affiliate with anatomic
pathology practices that are seeking to be acquired or to affiliate with a
physician practice management company with experienced management and
access to capital. As a result of the Company's focus on providing
management services to anatomic pathology practices, 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
presence in existing markets and enter into new markets through
acquisitions of, affiliations with and strategic minority investments in
leading practices. The Company's acquisition criteria include market
demographics, size, profitability, local prominence, payor relationships,
fit with other acquisitions 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, provide new medical services,
such as dermatopathology, and provide operational efficiencies for the
Practices in that market. In new markets, the Company seeks to acquire and
affiliate with 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. 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 that subcontract for anatomic
pathology services, 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 existing contracts with national clinical
laboratories to include multiple Practices that cover a broader geographic
region. The Company believes that this regional business model can offer
national clinical laboratories and managed care organizations a convenient
single source 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 for the Practices through the
acquisition of or affiliation with 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 believes that providing inpatient
laboratory
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services to multiple hospitals within a geographic area facilitates the
development of a successful outpatient services operation by creating
market presence, economies of scale and important physician relationships.
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, centralized reporting and
other administrative functions. The Company intends to achieve operational
efficiencies by centralizing certain functions, enhancing Practice
efficiency and utilizing its size to negotiate discounts on laboratory
equipment, other medical supplies and services and health, malpractice, and
other insurances. The Company has centralized financial reporting, payroll
and benefits administration and regulatory compliance. Prior to their
acquisition, the Practices either managed their billing and collections
inhouse or outsourced these functions. In September 1996, the Company
entered into a contract with Medaphis Physician Services Corporation
("Medaphis") to provide inpatient billing services for 21 hospital
contracts of the Practices. Rates paid to Medaphis under the contract are
tied to billing volume handled by Medaphis. In addition, the Company's Fort
Lauderdale administrative office has assumed the outpatient billing for
three Practices. The Company will continue to evaluate billing and
collections systems at the Practices and may centralize such functions for
other Practices or newly acquired Practices in the future, including the
Pending Acquisitions. 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 has developed 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
currently owns, controls and manages anatomic pathology practices in Florida
that extend from Miami to Orlando and from Fort Myers to Tampa. Together, as of
June 30, 1997, these Practices employed a total of 504 persons, including 59
Affiliated Physicians, had contracts with 29 hospitals and 15 outpatient surgery
centers and operated eight 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
accounting and payroll, purchasing, billing and collections, and expects such
integration to result in enhanced operational efficiencies. The Company has
consolidated outpatient billing for three 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
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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 currently owns, controls and manages the
12 Practices through five wholly-owned subsidiaries and long-term management
agreements with the three PA Contractors in Texas and Ohio (where the Company
manages and controls all non-medical functions). Each Practice is either a
Subsidiary, a division of 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 the Direct
Subsidiaries, which also own and operate the outpatient laboratories. See
" -- Physician, PA Contractor and Other Contractual Relationships." If the
Pending Acquisitions are consummated, the Company will have additional
wholly-owned subsidiaries in each of Indiana, Mississippi and Texas and will
have long-term management agreements with a practice in each of Indiana and
Texas.
In Texas and Ohio, states that prohibit the corporate practice of medicine,
a PA Contractor Subsidiary of the Company has entered into 40 year management
agreements with the Ohio PA Contractors and the Texas PA Contractor. Pursuant to
the terms of these management contracts, the Company provides all non-medical
administrative support functions to the PA Contractor. Similar agreements are
expected to be entered into in connection with the Pending Acquisitions in Texas
and Indiana. 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. The Company's executive officers who are physicians, principally the
Company's Medical Director, 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 has also developed personnel
policies and uniform benefit plans for all employees of the Company. 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.
As of June 30, 1997, the Company employed, or had long-term agreements with
PA Contractors who employed, 75 pathologists, 71 of whom are board certified and
four of whom are board eligible. Thirty-six of the pathologists have additional
subspecialty board certifications in such areas as dermatopathology,
hematopathology and cytopathology. If the Pending Acquisitions are consummated,
the Company will own or have long-term agreements with practices who, as of June
30, 1997, employed an additional 40 pathologists, 39 of whom are board certified
and one of whom is board eligible. 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."
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The Company manages and controls all of the non-medical functions of the
Practices, including: (i) recruiting, training, employing and managing the
technical and support staff of the Practices; (ii) developing, equipping and
staffing laboratory facilities; (iii) establishing and maintaining courier
services to transport specimens; (iv) negotiating and maintaining contracts with
hospitals, national clinical laboratories and managed care organizations and
other payors; (v) providing financial reporting and administration, clerical,
purchasing, payroll, billing and collection, information systems, sales and
marketing, risk management, employee benefits, legal, tax and accounting
services to the Practices; (vi) complying with applicable laws and regulations;
and (vii) with respect to the Company's ownership and operation of anatomic
pathology laboratories, providing slide preparation and other technical
services. The Company is not licensed to practice medicine. The practice of
medicine is conducted solely by the Affiliated Physicians. All of the Company's
outpatient laboratories are certified 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
Practices staff 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 Practices are 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, rather than by the Practices. Three Practices have a
centralized histology laboratory 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 laboratory
information system that enables laboratory personnel to track, process, report
and archive biopsies and other specimens. The Company acquired an outpatient
billing and collections software program and upgraded its computer hardware in
1995 to increase operating efficiency and storage capacity at its Fort
Lauderdale administrative office, and has upgraded the software and hardware in
1997 to handle the integration of out-patient billing for certain of the 1996
Acquisitions. In addition, the Company recently installed 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, 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 three of
the Practices 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, $526,000 and $1.0 million in
information systems in 1995, 1996 and the six months ended June 30, 1997,
respectively, and plans to invest an additional amount of approximately $500,000
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in the second half of 1997 to further increase the capacity of its centralized
outpatient billing system and financial information system at its Fort
Lauderdale administrative office and development of a plan for a company-wide
laboratory information system. 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 integration of its
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 the Practices' 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 18 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 Practices have contracts with 47 hospitals, 19 of which are owned by
Columbia, 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 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, including the three PA Contractors, have an aggregate of
six contracts with two national clinical laboratories, SmithKline and Laboratory
Corporation of America Holdings, on a local basis. In addition, one of the
practices included in the Pending Acquisitions has contracts on a local basis
with Quest Diagnostics, a national clinical laboratory formerly known as Corning
Clinical Laboratories. 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 negotiate flexible arrangements for the Practices 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 Practices provide 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 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. Hospital contracts grant Practices the
exclusive right and responsibility to manage the pathology services at the
hospital. In this capacity, the Practices provide
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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
39 of the contracts have passed their initial term, they are currently subject
to renewal on an annual basis. One of the eight remaining contracts is subject
to renewal prior to June 30, 1998. The contracts typically provide that the
hospital may terminate the agreement prior to the expiration of the initial or
renewal term. With respect to 45 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. 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 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." While the Company expects to employ, or contract with
practices who employ, physicians on similar terms in connection with the Pending
Acquisitions, there can be no assurance that such employment arrangements will
not vary from these existing arrangements.
AmeriPath has management agreements with three PA Contractors in Texas and
Ohio (the "PA Management Agreements"). In Texas, effective on or about September
30, 1997, the Texas PA Contractor will be a controlled non-profit corporation,
of which AmPath is the sole member. In Ohio, the PA Contractors are owned by two
trusts, 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 has a term of 40 years and is subject to renegotiation at the end of
such term. In connection with the Pending Acquisitions, the Company will operate
its Practice in Texas through a controlled non-profit corporation and a
long-term management service agreement between such non-profit corporation and
the Texas PA Contractor Subsidiary, and will structure its operations in Indiana
in
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a manner similar to the structure used in Ohio. In Mississippi, the physicians
will be employed by a wholly-owned subsidiary of the Company. See "Risk
Factors -- Effect of 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 1996
Acquisitions and Pending 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 business of the Company and the PA Contractors is subject to a variety
of governmental and regulatory requirements relating to healthcare matters as
well as 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 current arrangements and practices
comply with all applicable statutes and regulations. In connection with the 1996
Acquisitions and the Pending Acquisitions, the Company reviewed the Practices'
compliance with federal and state healthcare laws and regulations and revised
certain policies and procedures with respect to certain of the Practices. While
the Company believes that the operations of the Practices prior to their
acquisition were generally in compliance with such laws and regulations, there
can be no assurance that the prior operations of the Practices, if reviewed,
would be found to be in full compliance with such laws, as such laws may be
ultimately interpreted. A violation of such laws by a Practice prior to its
acquisition by or affiliation with the Company could result in civil and
criminal penalties, exclusion of the Physician, the Practice or the Company from
participation in Medicare and Medicaid programs and/or loss of a physician's
license to practice medicine. To the extent the Practices were found not to be
in compliance with such laws, the Company's financial condition and results of
operations could be materially adversely affected. See "Risk
Factors -- Assumption of Liabilities of Acquired Practices."
The Company derived 57.0%, 39.0%, 35.5% and an estimated 28.6% of
collections for the years ended December 31, 1995 and 1996, for the six months
ended June 30, 1997 and on a pro forma basis for the six months ended June 30,
1997, respectively, from payments made by government-sponsored healthcare
programs (principally Medicare and Medicaid). The decrease in the percentage of
net revenue attributable to government sponsored healthcare programs resulted
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 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. Recently adopted Federal legislation will result in a
reduction of Medicare and Medicaid funding and increases in state discretion
over Medicaid funding. 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 such
changes or other 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 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.
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<PAGE> 56
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 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. 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 or in which the
practices included in the Pending Acquisitions do business, except Alabama and
Mississippi, have anti-kickback, anti-fee splitting and/or self-referral laws
that are similar to the federal laws, some of which apply to all payors. These
laws 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 or that such enforcement,
if sought, would not have a material adverse effect on the Company. See "Risk
Factors -- Effect of Government Regulation."
The Medicare and Medicaid fraud and abuse provisions apply to laboratories
participating in such programs. These provisions include prohibitions on
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.
The Company is not licensed to practice medicine. The practice of medicine
is conducted solely by the Affiliated Physicians. The manner in which licensed
physicians can be organized to perform and bill for medical services is governed
by the laws of the state in which medical services are provided and by the
medical boards or other entities authorized by such states to oversee the
practice of medicine. Business corporations are generally not permitted under
state law to 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 directly own a
medical practice, 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.
Corporate practice of medicine restrictions in Ohio prohibit a business
corporation from employing physicians to engage in the practice of medicine, but
permit an entity employing physicians to practice medicine to be owned by a
trust, provided that the trustee of such trust is a licensed physician. In
addition, a business corporation is not prohibited from being the beneficial
owner of such trust or from performing administrative, marketing, billing and
other non-medical or other services on behalf of the entity employing physicians
engaged in the practice of medicine. In Ohio, the Company contracts with two PA
Contractors (which are owned by trusts of which AmPath is the sole beneficiary),
which in turn employ or contract with physicians to provide necessary physician
and medical services. The trustees of each of the trusts that own the stock of
the Ohio PA Contractors are physicians licensed to practice medicine in Ohio.
Indiana law also prohibits the practice of medicine by non-physician owned
entities. In Indiana, the Company will use
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<PAGE> 57
a structure similar to that used in Ohio, with the Company contracting with a
practice entity (to be owned by a trust of which AmPath will be the sole
beneficiary), which in turn will employ the physicians who provide medical
services. The trustee of the Indiana trust will be a physician licensed to
practice medicine in Indiana.
In Texas, corporate practice of medicine restrictions generally provide
that only certain entities are permitted to employ physicians to engage in the
practice of medicine. However, such entities are not prohibited from retaining
business corporations to manage other aspects of the business, including
administrative, marketing, billing and other non-medical services. In Texas,
effective on or about September 30, 1997, the Company will be the sole member of
a Texas non-profit 5.01(a) corporation which will own certain medical-related
assets and employ physicians to provide medical services. A similar structure
will be used by the Company in connection with the Pending Acquisition in Texas.
Florida, Kentucky, Alabama and Mississippi do not have laws prohibiting
business corporations from directly employing physicians to practice medicine.
Such states, however, have medical practice acts which provide that only
licensed physicians may provide medical care. Accordingly, in Florida, Kentucky,
Alabama and Mississippi, business corporations may directly employ physicians to
engage in the provision of medical services, provided that the physicians have
control over the manner in which medical care is provided. The "Managing
Directors" of the Practices located in Florida, Kentucky and Alabama are each
physicians licensed to practice medicine in their respective states. Pursuant to
their employment agreements with the Subsidiaries, such Managing Directors have
exclusive control over the actual provision of medical care at their respective
Practices and are responsible for setting policies relating to and monitoring
the practice of medicine.
Based on the advice of the Company's state health care regulatory counsel,
Jenkens & Gilchrist, a professional corporation, Bricker & Eckler LLP, Wyatt,
Tarrant & Combs and Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., the
Company believes that it currently is in compliance with the laws in Texas,
Ohio, Kentucky, Florida and Alabama, respectively, relating to the corporate
practice of medicine. Based on the advice of the Company's state healthcare
regulatory counsel, Baker & Daniels and Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A., the Company believes that it will be in compliance with such laws
in Indiana and Mississippi, respectively, upon consummation of the Pending
Acquisitions and the assignment of certain contracts in connection therewith.
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, the Company, the PA
Contractors and the Affiliated Physicians 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."
In addition to current regulation, state and federal government sponsored
initiatives 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 Health
Insurance Portability and Accountability Act of 1996 and Operation Restore
Trust, initiated in 1995, have strengthened the powers of the OIG and increased
the funding for healthcare fraud investigations. As a result, the OIG is
currently expanding the scope of its healthcare fraud investigations. Federal
and state audits and inspections, whether on a scheduled or unannounced basis,
are conducted from time to time at the Company's facilities. An inspection was
conducted in April 1997 at ALA's laboratory facility by representatives of
federal and state agencies under Operation Restore Trust. A report to the
Department of Justice with respect to this inspection is expected prior to
September 30, 1997. While the Company does not have reason to anticipate an
adverse report, there can be no assurance that the findings of such report will
not have an adverse effect on the Company. In addition, significant media and
public attention has recently been focused on the health care industry due to
ongoing federal and state investigations reportedly related to certain referral
and billing practices, laboratory and home healthcare services and physician
ownership and joint ventures involving hospitals. Most notably, Columbia is
under investigation with respect to such practices. The Company
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operates laboratories on behalf of and has numerous contractual arrangements
with hospitals, including 19 pathology services contracts with Columbia. The
government's investigation of Columbia could result in a governmental
investigation of one or more of the Company's operations which have arrangements
with Columbia. In addition, the Office of the Inspector General and the
Department of Justice have initiated hospital laboratory billing review projects
in certain states and are expected to extend such projects to additional states,
including states in which the Company operates hospital laboratories. These
projects increase the likelihood of governmental investigations of hospital
laboratories operated by the Company. Although the Company monitors its billing
practices and hospital arrangements to ensure compliance with industry
interpretation of applicable laws, and although the Company believes its
operations and the operations of the Practices are generally in compliance with
such laws, there can be no assurance that governmental investigators will not
take positions that are inconsistent with industry practices, including the
Company's practices. The government's investigation of Columbia may have other
effects which could adversely affect the Company, including the termination or
amendment of one or more of the Company's contracts with Columbia or the sale of
hospitals potentially disrupting the performance of services under such
contracts. The investigation of Columbia or other hospital operators with whom
the Company does business could also result in adverse publicity concerning the
Company, which could limit the Company's ability to acquire or affiliate with
additional practices or to obtain new or expanded hospital contracts, or could
result in termination or non-renewal of the Company's existing hospital
contracts. See "Risk Factors -- Recent Publicity."
In addition, federal and certain state laws provide individuals (so-called
"whistle-blowers") with a right to bring claims on behalf of federal and state
government agencies, and with a significant economic incentive to the
whistle-blower in the event a claim produces monetary recovery. These actions
are becoming increasingly prevalent in the healthcare industry, and have
resulted in increased scrutiny of, and enforcement actions against, healthcare
providers.
There can be no assurance that any proposed or future healthcare
legislation or other changes in the administration, interpretation or
enforcement 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 "Risk Factors -- 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, 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.
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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 generation, storage, treatment and 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 equipment, 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.
INSURANCE
The Company's business entails an inherent risk of claims of physician
professional liability. Prior to the 1996 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 $16.0 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 1996 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 all potential liabilities will be covered by
available insurance, 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 or on favorable terms. See "Risk
Factors -- Assumption of Liabilities of Acquired Practices," "Risk
Factors -- Professional Liability and Insurance" and "-- Legal Proceedings."
COMPETITION
The markets for the services provided by the Company and the Practices
consist of: (1) the provision of physician practice management services to
anatomic pathology practices; and (2) the provision of anatomic pathology
services. The Company competes with other physician practice management
companies that are focused on the ownership or management of anatomic pathology
practices. Through its Direct Subsidiaries and affiliations with the PA
Contractors, the Company competes with anatomic pathology practices, national
clinical laboratories, hospitals and clinics which provide anatomic pathology
medical services. The Company estimates that there are over 3,300 pathology
practices operating in outpatient laboratories in the United States. In
addition, competition may result from companies in other healthcare industry
segments, such as managers of other hospital-based specialties or large
physician group practices, that may enter the Company's markets, some of which
have financial and other resources greater than those of the Company. With
respect to physician practice management services, the Company believes that the
principal competitive factors are sales and marketing, billing, collections and
financial reporting, management of physicians, laboratories and related medical
services and human resources. To date, the Company has not experienced
significant competition in the provision of physician practice management
services to anatomic pathology practices. The Practices do, however, experience
competition in local markets in which the Practices provide anatomic pathology
services. The Company believes that the infrastructure it is building provides a
competitive advantage in its markets.
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The principal competitive factors regarding the provision of anatomic pathology
services are professional reputation and skill of the pathologist, the price
charged for pathology services, the scope of services offered, the ability to
operate laboratories on an efficient basis and geographic coverage. The Company
competes with several other companies for the acquisition of or affiliation with
anatomic pathology practices. In addition, companies in other healthcare
segments, such as hospitals, HMOs and large physician practices, many of which
have greater financial and other resources than the Company, may become
competitors in acquiring, or providing physician practice management services
to, anatomic pathology practices. The Company competes for acquisitions on the
basis of the reputation of the Practices, its management experience and its
focus on anatomic pathology. There can be no assurance that the Company will not
experience more competition in its markets, that new competitors will not enter
such markets, or that such competition will not make it more difficult for the
Company to acquire or affiliate with practices on favorable terms.
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 June 30, 1997, there were a total of 688 persons, including 75
Affiliated Physicians, employed by or affiliated with the Company. Of the
Affiliated Physicians, 68 were employed by Subsidiaries of the Company and seven
were employed by PA Contractors. The Company's employees include 265 laboratory
technicians, 65 couriers and 216 billing, marketing and administrative staff, of
which 35 personnel are located at the Company's executive offices. If the
Pending Acquisitions are consummated, on a pro forma basis at June 30, 1997,
there would have been a total of 843 persons, including 115 Affiliated
Physicians, employed by or affiliated with the Company. None of the Company's
employees or prospective employees are subject to collective bargaining
agreements. The Company believes that its relations with its employees are good.
PROPERTIES
The Company leases its executive offices located in Riviera Beach, Florida
(approximately 7,000 square feet) and its billing and administrative office in
Fort Lauderdale, Florida (approximately 5,000 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. If the Pending Acquisitions are consummated, the Company will lease
one additional facility in each of Texas and Mississippi.
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 employees and Affiliated
Physicians 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)..................... 52 President, Chief Executive Officer and
Director
Alan Levin, M.D........................ 46 Chief Operating Officer and Director
Robert P. Wynn......................... 50 Executive Vice President and Chief
Financial Officer
Leslie B. Rosen, M.D................... 43 Executive Vice President and Medical
Director
Annette L. Bell........................ 39 Vice President of Sales
Stephen V. Fuller...................... 41 Vice President of Human Resources
Thomas S. Roberts(1)(2)(3)............. 34 Chairman of the Board
Timothy Kilpatrick, M.D................ 41 Director and Managing Director of
Derrick
C. Arnold Renschler, M.D............... 55 Director
E. Roe Stamps, IV(3)................... 51 Director
</TABLE>
- ---------------
(1) Member of Acquisition Review Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Within 60 days following consummation of this offering, the Company's Board
of Directors intends to appoint an additional person who is not currently
affiliated with the Company as an additional director. Such director will serve
on the Compensation Committee and the Audit Committee.
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 served as the medical
director of the inpatient pathology laboratory at Columbia Medical Center, Port
St. Lucie, Florida from 1983 until 1997, and presently is 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.
Leslie B. Rosen, M.D. has been an Executive Vice President and the Medical
Director of the Company since June 1997. He became an Affiliated Physician in
June 1996 after the Company acquired FPA. He has also been the Managing Director
of FPA since September 1988. Prior to the sale of FPA to the Company, Dr. Rosen
practiced pathology for over 14 years at various hospitals in South Florida. He
also holds teaching positions at various Florida universities. Dr. Rosen is
certified in Anatomic and Clinical Pathology as well as in Dermatopathology. Dr.
Rosen received his B.A. from Kenyon College and his M.D. from State University
of New York Downstate. He completed his residency and fellowship at Mount Sinai
Medical Center in Miami Beach, Florida.
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 1994 Acquisition 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 and Intelligroup, Inc., 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.
C. Arnold Renschler, M.D. has been a director of the Company since April
1997. Since June 1996, Dr. Renschler has been the President and Chief Executive
Officer of Pharmacy Corporation of America, a division of Beverly Enterprises,
Inc. From January 1990 to June 1996, he held various positions, including
serving as a Director, President and Chief Operating Officer and Chief Clinical
Officer, at NovaCare, Inc. Dr. Renschler is certified in pediatric medicine. He
received his B.A. from Walla Walla College and his M.D. from Loma Linda
University School of Medicine. He completed his internal medicine residency at
Georgetown University Hospital is Washington, D.C., and his pediatric residency
at Stanford University in Palo Alto, California.
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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 1994 Acquisition 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 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 Director
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.
Pursuant to the 1994 Acquisition, Summit, with which Messrs. Roberts and
Stamps are affiliated, purchased 3,084,730 shares of the Convertible Preferred
Stock for approximately $5.3 million. Additionally, the Company issued
approximately $7.2 million principal amount of Junior Notes to Summit. A
financing fee of $190,000 was paid to Summit in connection with these
transactions. In connection with the formation of AmPath in February 1996,
Summit exchanged its holdings of Junior Notes and Convertible Preferred Stock of
ALA for the same number and type of debt and equity securities of the Company.
In February 1996, Summit converted 120,004 shares of the Convertible Preferred
Stock into 216,007 shares of Common Stock and then sold such shares to Mr. New
for consideration of $450,000 pursuant to the terms of Mr. New's employment
agreement. The consideration paid approximated the fair value of such shares.
Summit will convert its shares of Convertible Preferred Stock into 5,344,816
shares of Common Stock prior to consummation of this offering.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the total
compensation paid or accrued by the Company, for services rendered during 1996,
to the Company's Chief Executive Officer and certain other officers whose total
1996 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................................................ 1996 213,942 158,631
President and Chief Executive Officer
Alan Levin, M.D.(2)......................................... 1996 112,732 100,000
Chief Operating Officer
Robert P. Wynn.............................................. 1996 141,605 50,694
Executive Vice President and Chief Financial Officer
Annette L. Bell(3).......................................... 1996 64,153 56,559
Vice President of Sales
Michael J. Demaray, M.D.(4)................................. 1996 349,820 --
</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) Dr. Levin was employed by Derrick during the first six months of 1996. 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.
(3) Bonus amounts paid to Ms. Bell include commissions.
(4) During 1996, Dr. Demaray was employed as an Affiliated Physician and was
also employed by AmPath as its Executive Vice President and Medical
Director. In June 1997, Dr. Demaray resigned from his position with AmPath.
Dr. Demaray continues to be employed as an Affiliated Physician.
OPTIONS
The following table sets forth the options granted to the Named Officers
during the year ended December 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TO EXERCISE OR BASE TERM(3)
OPTIONS EMPLOYEES IN FISCAL PRICE PER EXPIRATION ------------------------
GRANTED(1) YEAR SHARE(1),(2) DATE 5% 10%
---------- ------------------- ---------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
James C. New.............. 360,011 49% $ 1.67 1/1/06 $7,609,857 $12,472,836
Alan Levin, M.D........... 36,000 5% 10.00 9/26/06 460,963 947,246
Robert P. Wynn............ -- -- -- -- -- --
Annette L. Bell........... 18,000 2% 10.00 9/26/06 230,481 473,623
Michael J. Demaray,
M.D..................... -- -- -- -- -- --
</TABLE>
- ---------------
(1) After giving effect to the Company's 1.8 for 1 split of its Common Stock on
January 13, 1997.
(2) All options were granted at exercise prices greater than the fair market
value of the Common Stock on the date of the grant.
(3) Potential realizable value is based on the difference between the option
exercise price and the initial public offering price of the Common Stock
(based upon an assumed initial public offering price of $14.00 per share)
multiplied by the number of shares of Common Stock underlying the option.
These assumed annual rates of appreciation were used in compliance with the
rules of the Commission and are not intended to forecast future price
appreciation of the Common Stock or to take into account the immediate
increase in potential realizable value that will occur. The actual value
realized from the options could be higher or lower than the values reported
above, depending on the future appreciation or depreciation of the Common
Stock during the option period and the timing of exercise of the options.
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<PAGE> 65
Year End Option Table. The following table sets forth information
regarding exercise of options and the number and value of options held at
December 31, 1996 by each of the Named Officers. No options were exercised
during 1996 by such executives.
AGGREGATE UNEXERCISED OPTIONS AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END(#) AT YEAR END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James C. New.................................... -- 360,011 -- $4,438,933
Alan Levin, M.D................................. -- 36,000 -- 144,000
Robert P. Wynn.................................. 86,400 129,600 $1,113,696 1,670,544
Annette L. Bell................................. -- 18,000 -- 72,000
Michael J. Demaray, M.D......................... -- -- -- --
</TABLE>
- ---------------
(1) The value of the options is based on the difference between the option
exercise price of $1.67, $10.00, $1.11 and $10.00 with respect to Mr. New,
Dr. Levin, Mr. Wynn and Ms. Bell, respectively, 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.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. New effective
January 1, 1996. The agreement, as amended, provides that Mr. New will receive a
base salary of $275,000 per year. Mr. New is eligible to receive an annual 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. For the year ended December 31, 1996, the Compensation Committee of
the Board of Directors determined that Mr. New exceeded the performance
objectives of his employment agreement and awarded a bonus to Mr. New in excess
of the percentages specified in such agreement. 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 Share Exchange, the Company assumed ALA's employment
agreement with Mr. Wynn. The agreement, as amended, provides that Mr. Wynn shall
receive a base salary of $148,000 per year and may receive a discretionary bonus
based on his performance. For the year ended December 31, 1996, Mr. Wynn
received 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 agreement 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, and Leslie B. Rosen, M.D. (AmPath's
Executive Vice President and Medical Director), are also Affiliated Physicians
and have entered into separate employment agreements with the Company that
govern their relationship with the Company as Affiliated Physicians. These
agreements have terms of five years and provide for annual base salaries of
$255,000, $350,000, $255,000 and $400,000, respectively. Each employ-
64
<PAGE> 66
ment 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, Kilpatrick and Rosen and 18
months with respect to Dr. Demaray. Dr. Rosen's employment agreement, which
expires June 30, 2001, subject to renewal, provides that the Company may
terminate his employment only for cause.
Pursuant to their respective employment agreements, Drs. Levin, Rosen,
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. Rosen
will devote approximately 30% of his professional time to his responsibilities
as 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
Effective July 1, 1997, the Company consolidated its previous 401(k)
retirement plan and other defined contribution plans of the Practices into a new
qualified 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 up to
$9,500, as defined. Employer contributions of 25% of employee contributions (up
to a maximum of $1,000 per employee) are required. During 1994, 1995 and 1996,
the Company elected not to make a contribution to the previous plans. The
Company expects to make contributions to the 401(k) Plan in 1997.
OPTION PLAN
Under the Option Plan, 2,200,000 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 may be 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 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
have the authority to amend or
65
<PAGE> 67
terminate the Option Plan, provided that no such action may impair the rights of
the holder of 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 June 30, 1997, the Company has outstanding options to purchase an
aggregate of 925,211 shares of Common Stock under the Option Plan at a weighted
average exercise price of $3.91 per share, of which options to purchase 187,202
shares of Common Stock were exercisable at June 30, 1997. If the Pending
Acquisitions are consummated, the Company will grant options to purchase an
aggregate of 175,000 shares of Common Stock.
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, provided that no such action may impair the rights of the
holder of any outstanding option 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 is November 21, 1996.
As of July 31, 1997, Director Options to purchase 5,000 shares of Common
Stock have been granted, none of which are currently exercisable.
CERTAIN TRANSACTIONS
1994 ACQUISITION
Pursuant to the 1994 Acquisition: (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 ALA Contingent Notes; (ii) Summit and Schroder purchased
3,208,120 shares of the Convertible Preferred Stock for $5.5 million; and (iii)
Drs. Demaray, Poulos and Kowalczyk, the owners of PDK, purchased an aggregate of
1,425,600 shares of ALA common stock for an aggregate purchase price of $1.0
million. Prior to the 1994 Acquisition, Drs. Demaray, Poulos and Kowalczyk owned
100% of the then issued and outstanding shares of common stock of ALA. However,
after the 1994 Acquisition, the owners of PDK held 19.8% of the voting interest
(taking into account the voting rights of the holders of the Convertible
Preferred Stock). 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. Summit and Schroder will convert their
shares of Convertible Preferred Stock into an aggregate of 5,558,607 shares of
Common Stock prior to consummation of this offering. The Company has reserved
5,558,607 shares of Common Stock for the conversion of the Convertible Preferred
Stock.
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<PAGE> 68
In the 1994 Acquisition, each of Drs. Demaray, Poulos and Kowalczyk
received in exchange for the net assets of PDK 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) ALA Contingent Notes in the principal amounts
of $833,000. The ALA 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 operating
earnings for the years ended December 31, 1995 and 1994 were not achieved;
therefore, $500,000 of the principal amount of the ALA Contingent Notes for each
such year and related accrued interest were canceled. In April 1996, the
remaining obligations under the ALA 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) with an aggregate fair value of $242,000. In
connection with the acquisition by the Company of substantially all of the
assets of D&P in January 1996 and the termination by the Company of a stock
purchase option granted in connection with the 1994 Acquisition, 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 AmPath in the Share Exchange.
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. The consideration paid
approximated the fair value of such shares. 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.
1996 ACQUISITIONS
Pursuant to the acquisition of Derrick, Drs. Levin and Kilpatrick received
in exchange for their interests in Derrick the following: (i) with respect to
Dr. Levin, cash of $1.1 million, 78,925 shares of Common Stock and a Contingent
Note in the maximum principal amount of $584,615; and (ii) with respect to Dr.
Kilpatrick, cash of $1.1 million, 79,825 shares of Common Stock and $584,615
principal amount of Contingent Notes. The Company paid $74,614 and $74,614 to
Drs. Levin and Kilpatrick, respectively, in 1997 with respect to Contingent Note
payments for operating earnings achieved in 1996.
Pursuant to the acquisition of FPA, Dr. Rosen received cash of $2.8
million, a Subordinated Note in the principal amount of $800,000, 79,999 shares
of Common Stock and a Contingent Note in the maximum principal amount of $1.3
million. During 1997, the Company paid Dr. Rosen $44,008 with respect to the
Contingent Note for operating earnings achieved in 1996 and $160,000 pursuant to
the Subordinated Note.
PENDING ACQUISITIONS
In connection with the Company's Pending Acquisition in Texas, if such
acquisition is consummated, the Company will lease office space and an
outpatient laboratory in Dallas, Texas from an entity owned by certain of the
sellers thereof who will continue to be Affiliated Physicians. The lease expires
on June 1, 2000 and contains an option to renew for an additional five years,
and requires monthly rental payments of $8,656, plus sales taxes, property
taxes, insurance, utilities, and maintenance costs. The Company believes that
the terms of the lease are comparable to those which would be available from an
unaffiliated entity on the basis of an arms-length negotiation.
In connection with the Company's Pending Acquisition in Indiana, if such
acquisition is consummated, the sellers of such practice will also be
shareholders of CoLab Investments, LLC, which holds a 9% interest in Mid-America
Clinical Laboratories ("MACL"), a joint venture between Seton Health Corporation
of Central Indiana, Community Hospitals of Indiana, SmithKline Beecham Clinical
Laboratories, Inc., and
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<PAGE> 69
CoLab Investments, LLC. MACL was established June 1, 1997 to operate a licensed
clinical laboratory for the hospitals. The Indiana Practice provides anatomical
and clinical pathology services to MACL for a monthly fee.
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 each of 1995 and 1996. The Company
believes that the terms of the lease are comparable to those which would be
available from 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 1996 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 from 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 ALA frozen section laboratories. Such fee paid to D&P 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.
AGREEMENTS REGARDING DIRECTORS
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.
In connection with the Company's Pending Acquisition in Texas, if such
acquisition is consummated, AmPath has agreed to nominate one of the sellers of
such Practice, designated by such sellers and acceptable to AmPath, to the next
available vacancy for inside directors on the board of directors of AmPath.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of August 1, 1997 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>
PERCENT BENEFICIALLY OWNED
----------------------------------
SHARES
BENEFICIALLY PRIOR TO THE
NAME(1) OWNED(2) OFFERING(3)
- ------- ------------ -------------------
<S> <C> <C> <C>
Summit(4)........................................... 5,344,816 46.7% 32.5%
Schroder(5)......................................... 213,791 1.9 1.3
James C. New(6)..................................... 252,007 2.2 1.5
Alan Levin, M.D..................................... 78,925 * *
Leslie B. Rosen, M.D................................ 79,999 * *
Michael J. Demaray, M.D.(7)......................... 540,000 4.7 3.3
Robert P. Wynn(8)................................... 86,400 * *
Annette L. Bell..................................... -- -- --
Timothy M. Kilpatrick, M.D.(9)...................... 78,925 * *
Thomas S. Roberts(4)................................ 5,344,816 46.7 32.5
C. Arnold Renschler, M.D............................ -- -- --
E. Roe Stamps, IV(4)................................ 5,344,816 46.7 32.5
All directors and executive officers as a group
(11 persons)(4)(6)(8)............................. 6,461,072 55.7 38.9
</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 11,445,557 shares of Common Stock outstanding prior to this
offering and 16,445,557 shares of Common Stock outstanding immediately after
this offering. Pursuant to the rules of the Securities and Exchange
Commission (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. In addition to the
information contained in footnotes 4, 5, 6, 7 and 8 below, in the event the
over-allotment option is exercised in full, Alexander P. Kowalczyk, M.D. and
Evangelos G. Poulos, M.D., both of whom beneficially own less than 5% of the
outstanding shares of Common Stock, will each sell 31,590 shares of Common
Stock.
(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
5,558,607 shares of Common Stock prior to the consummation of this offering.
See "Certain Transactions."
(4) Includes 2,086,029, 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. In the event the overallotment option is exercised in full,
Summit will sell 360,750 shares of Common Stock and will own 4,984,066
shares of Common Stock, or 30.3%, after the offering.
(5) Includes 47,509.6, 57,010.8 and 14,252.8 shares of Convertible Preferred
Stock held by Schroder Incorporated, Schroder Ventures, L.P., and Schroder
Ventures U.S. Trust, respectively. These shares of Convertible Preferred
Stock will be converted into 213,791 shares of Common Stock prior to
consummation of this offering. The address of Schroder is 1 Beacon Street,
Suite 4500, Boston, Massachusetts 02108. In the event the overallotment
option is exercised in full, Schroder will sell 14,250 shares of Common
Stock and will own 199,541 shares of Common Stock, or 1.2%, after the
offering.
(6) Includes 72,000 shares subject to stock options exercisable within 60 days.
Excludes 288,011 shares subject to unexercisable options. In the event the
overallotment option is exercised in full, Mr. New will sell 50,000 shares
of Common Stock and will beneficially own 202,007 shares of Common Stock, or
1.2%, after the offering.
(7) Includes 180,000 shares held in trust for the benefit of members of Dr.
Demaray's family. Dr. Demaray disclaims beneficial ownership with respect to
such shares. In the event the overallotment option is exercised in full, Dr.
Demaray will sell 31,590
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<PAGE> 71
shares of Common Stock and will beneficially own 508,410 shares of Common
Stock, or 3.0%, after the offering. In August 1997, Dr. Demaray resigned
from his position as a director of AmPath.
(8) Includes 86,400 shares subject to stock options exercisable within 60 days.
Excludes 129,600 shares subject to unexercisable options. In the event the
overallotment option is exercised in full, Mr. Wynn will sell 20,000 shares
of Common Stock and will own 64,000 shares of Common Stock, or less than 1%,
after the offering.
(9) Includes 36,000 shares held in trust for the benefit of members of Dr.
Kilpatrick's family. Dr. Kilpatrick disclaims beneficial ownership with
respect to such shares.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 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 June 30, 1997, an aggregate of
5,883,950 shares of Common Stock were outstanding and held of record by 53
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. 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, following consummation of the offering, up to 5,000,000 shares of
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. Preferred Stock may also be used to delay, defer or prevent a
takeover attempt with respect to the Company. 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 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.
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<PAGE> 73
In addition, certain provisions of the Certificate of Incorporation and
Bylaws, which 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 is 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.
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<PAGE> 74
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, or the perception that such sales may occur, may
have an adverse impact of such market price.
Upon consummation of this offering, the Company will have 16,445,557 shares
of Common Stock outstanding, based upon the number of shares outstanding as of
August 1, 1997. Of these shares, the 5,000,000 shares sold in this offering
(5,750,000 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
As of August 1, 1997, there were 11,445,557 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 one year, 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
164,456 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 two years may resell such
shares without compliance with the foregoing requirements. In meeting the one
and two 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 additional amendments to Rule 144, including the definition of
Affiliate and the holding periods under the rule. The additional proposals have
not yet been adopted by the Commission.
OPTIONS
As of July 31, 1997, options to purchase a total of 957,211 shares of
Common Stock were outstanding. All of these shares are subject to the Lock-up
Agreements. 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
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<PAGE> 75
outstanding stock options and Common Stock issuable pursuant to the Option Plan
or the Director 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 11,445,557 shares of Common Stock outstanding
immediately prior to this offering and options to purchase an aggregate of
957,211 shares of Common Stock have agreed not to, directly or indirectly,
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, 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 this Prospectus. See "Underwriting."
REGISTRATION RIGHTS
Following the consummation of this offering and subject to the Lock-up
Agreements, Summit and Schroder will be entitled to require the Company to
register under the Securities Act a total of 5,558,607 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 and subject to certain
limitations, including the Lock-up Agreements, 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 of
1,620,000 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 85,998 shares of Common Stock
in such registration, subject to certain limitations, including the Lock-up
Agreements, on the number of shares to be included in the registration by the
underwriter of such offering.
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<PAGE> 76
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Donaldson, Lufkin & Jenrette Securities Corporation,
Morgan Stanley & Co. Incorporated, Smith Barney Inc. and Piper Jaffray Inc. are
serving as representatives (the "Representatives"), have severally agreed to
purchase from the Company an aggregate of 5,000,000 shares of Common Stock. The
number of shares of Common Stock that each Underwriter has agreed to purchase is
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Morgan Stanley & Co. Incorporated...........................
Smith Barney Inc............................................
Piper Jaffray Inc...........................................
---------
Total............................................. 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if any such shares are taken.
Prior to this offering, there has been no established trading market for
the Common Stock. The initial price to the public for the Common Stock set forth
on the cover page of this Prospectus has been determined by negotiations between
the Company and the Representatives. The principal factors considered in
determining the initial price to the public include the information set forth in
this Prospectus and otherwise available to the Representatives, the history of
and the prospects for the industry in which the Company competes, the ability of
the Company's management, the past and present earnings of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the securities markets at the time of this offering and the
recent market prices of and the demand for publicly traded common stock of
generally comparable companies.
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 that the Underwriters may be
required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus, and to
certain securities dealers (who may include the Underwriters) at such prices
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may re-allow, discounts not in excess of $ per share to any
other Underwriter and certain other dealers.
The Company and the Selling Stockholders have granted to the Underwriters
an option to purchase up to an aggregate of 750,000 additional shares of Common
Stock, at the initial public offering price less the underwriting discounts and
commissions, solely to cover over-allotments. Such option may be exercised at
anytime until 30 days after the date of this Prospectus. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option shares
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot this offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase shares of Common Stock in
the open market to stabilize the price of the Common Stock. These activities may
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<PAGE> 77
stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end these activities at any time.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 250,000 shares offered hereby for
directors, officers, employees and their relatives and other persons having
certain relationships with the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby.
The Company, its executive officers and directors, the Selling
Stockholders, and certain other stockholders of the Company who in the aggregate
beneficially own substantially all of the outstanding shares of Common Stock
immediately prior to this offering have agreed that, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, they will not,
for a period of 180 days after the date of this Prospectus, (a) 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
Common Stock (provided that such shares or securities are currently owned by
such person or are thereafter acquired from the Company) or (b) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of such shares of Common Stock, whether any such
transaction described in clause (a) or (b) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise, other than (i) the
sale to the Underwriters of the shares of Common Stock offered hereby; (ii) the
issuance by the Company of shares of Common Stock pursuant to the acquisition of
anatomic pathology practices that has been approved by the Board of Directors or
by an authorized committee thereof; or (iii) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date of this Prospectus or disclosed
herein and of which the Underwriters have been advised in writing.
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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., Fort Lauderdale, Florida. Certain legal matters
will be passed upon for the Underwriters by Alston & Bird LLP, Atlanta, GA.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedule of AmeriPath, Inc. as of December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 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, 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, of Unipath Ltd. and Affiliates as of and for the years
ended June 30, 1996 and 1997, and of CoLab Incorporated Professional
Corporation, MicroDiagnostics, P.C. and Anatomical Pathology Services, P.C. as
of December 31, 1996 and June 30, 1997 and for the year ended December 31, 1996
and the six months ended June 30, 1997, 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. as of and for the years 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.
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<PAGE> 79
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.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent public
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited consolidated financial information.
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<PAGE> 80
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, 1995 and 1996
and June 30, 1997 (Unaudited)............................. F-5
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited)........................ F-6
Consolidated Statements of Convertible Preferred Stock and
Common Stockholders' Equity (Deficit) for the years ended
December 31, 1994, 1995 and 1996 and the Six Months Ended
June 30, 1997 (Unaudited)................................. F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the Six Months Ended
June 30, 1996 and 1997 (Unaudited)........................ F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
ACQUIRED BUSINESSES
DEMARAY AND POULOS, P.A.
Independent Auditors' Report................................ F-30
Balance Sheets as of December 31, 1994 and 1995............. F-31
Statements of Operations and Retained Earnings for the years
ended December 31, 1994 and 1995.......................... F-32
Statements of Cash Flows for the years ended December 31,
1994 and 1995............................................. F-33
Notes to Financial Statements............................... F-34
AMAZON AND ROSEN, M.D., P.A. D/B/A FLORIDA PATHOLOGY
ASSOCIATES
Independent Auditors' Report................................ F-37
Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996...................................................... F-38
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-39
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-40
Notes to Financial Statements............................... F-41
DERRICK AND ASSOCIATES PATHOLOGY, INC.
Independent Auditors' Report................................ F-45
Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996...................................................... F-46
Statements of Operations for the years ended December 31,
1994 and 1995 and the Six Months Ended June 30, 1995
(Unaudited) and 1996...................................... F-47
Statements of Shareholders' Equity for the years ended
December 31, 1994 and 1995 and the Six Months Ended June
30, 1996.................................................. F-48
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-49
Notes to Financial Statements............................... F-50
SKINPATH, P.C.
Independent Auditors' Report................................ F-56
Balance Sheets as of December 31, 1995 and July 31, 1996.... F-57
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-58
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-59
Notes to Financial Statements............................... F-60
F-1
<PAGE> 81
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PATHOLOGY ASSOCIATES, P.S.C. AND TECHNICAL PATHOLOGY
SERVICES, INC.
Independent Auditors' Report................................ F-64
Combined Balance Sheets as of December 31, 1994 and 1995 and
July 31, 1996............................................. F-65
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-66
Combined Statements of Stockholders' Equity for the years
ended December 31, 1994 and 1995 and the Seven Months
Ended July 31, 1996....................................... F-67
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-68
Notes to Combined Financial Statements...................... F-69
VOLUSIA PATHOLOGY GROUP, M.D., P.A.
Independent Auditors' Report................................ F-74
Balance Sheets as of December 31, 1994 and 1995 and
September 30, 1996........................................ F-75
Statements of Operations for the years ended December 31,
1994 and 1995 and the Nine Months Ended September 30, 1995
(Unaudited) and 1996...................................... F-76
Statements of Shareholders' Equity for the years ended
December 31, 1994 and 1995 and the Nine Months Ended
September 30, 1996........................................ F-77
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-78
Notes to Financial Statements............................... F-79
DAVID R. BARRON, M.D., INC. D/B/A RICHFIELD LABORATORY OF
DERMATOPATHOLOGY
Independent Auditors' Report................................ F-83
Balance Sheets as of December 31, 1995 and September 30,
1996...................................................... F-84
Statements of Operations for the year ended December 31,
1995 and the Nine Months Ended September 30, 1995
(Unaudited) and 1996...................................... F-85
Statements of Stockholders' Equity for the year ended
December 31, 1995 and the Nine Months Ended September 30,
1996...................................................... F-86
Statements of Cash Flows for the year ended December 31,
1995 and the Nine Months Ended September 30, 1995
(Unaudited) and 1996...................................... F-87
Notes to Financial Statements............................... F-88
BENO MICHEL, M.D., INC. D/B/A CUTANEOUS PATHOLOGY &
IMMUNOFLUORESCENSE LABORATORY
Independent Auditors' Report................................ F-91
Balance Sheets as of December 31, 1994 and 1995 and
September 30, 1996........................................ F-92
Statements of Operations for the years ended December 31,
1994 and 1995 and the Nine Months Ended September 30, 1995
(Unaudited) and 1996...................................... F-93
Statements of Stockholders' Equity for the years ended
December 31, 1994 and 1995 and the Nine Months Ended
September 30, 1996........................................ F-94
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-95
Notes to Financial Statements............................... F-96
DRS. SEIDENSTEIN, LEVINE & ASSOCIATES, P.A.
Independent Auditors' Report................................ F-99
Balance Sheets as of December 31, 1994 and 1995 and
September 30, 1996........................................ F-100
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-101
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-102
Notes to Financial Statements............................... F-103
</TABLE>
F-2
<PAGE> 82
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CLAY J. COCKERELL, M.D., P.A. AND FREEMAN-COCKERELL
LABORATORIES, INC.
Independent Auditors' Report................................ F-107
Combined Balance Sheets as of December 31, 1994 and 1995 and
September 30, 1996........................................ F-108
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-109
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-110
Notes to Combined Financial Statements...................... F-111
FERNANDEZ AND KALEMERIS, P.A. D/B/A GULF COAST PATHOLOGY
ASSOCIATES
Independent Auditors' Report................................ F-115
Balance Sheets as of December 31, 1995 and September 30,
1996...................................................... F-116
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-117
Statements of Cash Flows for the year ended December 31,
1995 and the Nine Months Ended September 30, 1995
(Unaudited) and 1996...................................... F-118
Notes to Financial Statements............................... F-119
UNIPATH LTD. AND AFFILIATES
Independent Auditors' Report................................ F-123
Combined Balance Sheets as of June 30, 1996 and 1997........ F-124
Combined Statements of Operations for the years ended June
30, 1996 and 1997......................................... F-125
Combined Statements of Equity for the years ended June 30,
1996 and 1997............................................. F-126
Combined Statements of Cash Flows for the years ended June
30, 1996 and 1997......................................... F-127
Notes to Combined Financial Statements...................... F-128
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C.
AND ANATOMICAL PATHOLOGY
SERVICES, P.C.
Independent Auditors' Report................................ F-132
Combined Balance Sheets as of December 31, 1996 and June 30,
1997...................................................... F-133
Combined Statements of Operations and Retained Earnings for
the year ended December 31, 1996 and the Six Months Ended
June 30, 1997............................................. F-134
Combined Statements of Cash Flows for the year ended
December 31, 1996 and the Six Months Ended June 30,
1997...................................................... F-135
Notes to Combined Financial Statements...................... F-136
</TABLE>
F-3
<PAGE> 83
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, 1995 and 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, 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, 1995
and 1996 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 6, 1997
F-4
<PAGE> 84
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ JUNE 30, JUNE 30,
1995 1996 1997 1997
------- -------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 58 $ 2,262 $ 1,035 $ 1,035
Accounts receivable, net............................... 2,114 14,691 16,213 16,213
Inventories............................................ 162 269 290 290
Other current assets................................... 130 1,012 1,082 1,082
------- -------- -------- --------
Total current assets............................ 2,464 18,234 18,620 18,620
------- -------- -------- --------
PROPERTY AND EQUIPMENT, NET.............................. 1,460 3,932 5,337 5,337
------- -------- -------- --------
OTHER ASSETS:
Deferred tax asset..................................... 912
Goodwill, net.......................................... 3,987 57,385 60,134 60,134
Identifiable intangibles, net.......................... 10,915 74,099 72,533 72,533
Other.................................................. 296 4,204 4,707 4,707
------- -------- -------- --------
Total other assets.............................. 16,110 135,688 137,374 137,374
------- -------- -------- --------
TOTAL ASSETS.................................... $20,034 $157,854 $161,331 $161,331
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 1,027 $ 9,890 $ 10,667 $ 10,667
Current portion of long-term debt...................... 1,762 1,604 1,604
Deferred tax liability................................. 1,307 1,277 1,227
------- -------- -------- --------
Total current liabilities....................... 1,027 12,959 13,548 13,548
LONG-TERM LIABILITIES:
Revolving loan......................................... 4,146 81,652 17,308 17,308
Senior term loan....................................... 65,000 65,000
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..................................... 2,825 2,334 2,334
Dividend payable -- Convertible Preferred Stock........ 1,206
Deferred tax liability................................. 18,298 17,898 17,898
------- -------- -------- --------
Total liabilities............................... 16,173 126,734 127,088 128,294
------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 10 and 13)
CONVERTIBLE PREFERRED STOCK
Series A 6% Redeemable Cumulative Convertible Preferred
Stock -- $.01 par value, 5,000 shares authorized;
3,208 and 3,088 shares issued and outstanding at
December 31, 1995 and 1996 and June 30, 1997,
respectively; $6,502 minimum aggregate liquidation
preference at June 30, 1997.......................... 6,085 6,217 6,406
------- -------- -------- --------
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value, 30,000 shares authorized,
1,426, 5,793, 5,884 and 11,443 shares issued and
outstanding at December 31, 1995, 1996 and June 30,
1997 and pro forma, respectively..................... 14 58 59 114
Additional paid-in capital............................. (3,605) 22,093 22,913 28,058
Note receivable from officer........................... (270) (270) (270)
Retained earnings...................................... 1,367 3,022 5,135 5,135
------- -------- -------- --------
Total common stockholders' equity (deficit)..... (2,224) 24,903 27,837 33,037
------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)..... $20,034 $157,854 $161,331 $161,331
======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 85
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
Patient services.......................................... $14,461 $16,024 $41,516 $ 9,690 $42,830
Management service agreement.............................. 1,042 -- 2,014
------- ------- ------- ------- -------
Total............................................... 14,461 16,024 42,558 9,690 44,844
------- ------- ------- ------- -------
Operating costs:
Cost of services.......................................... 7,026 8,517 20,106 4,708 20,313
Selling, general and administrative expense............... 2,287 2,644 8,483 1,822 8,564
Provision for doubtful accounts........................... 1,003 1,161 3,576 645 4,116
Amortization expense...................................... 678 678 1,958 304 2,410
Loss on cessation of clinical lab operations.............. 910 910 --
------- ------- ------- ------- -------
Total............................................... 10,994 13,000 35,033 8,389 35,403
------- ------- ------- ------- -------
Income from operations...................................... 3,467 3,024 7,525 1,301 9,441
Interest expense............................................ (1,584) (1,504) (3,540) (767) (4,057)
Non-recurring charge........................................ (1,289)
Other income (expense), net................................. (46) (46) (431) (201) (57)
------- ------- ------- ------- -------
Income before income taxes.................................. 1,837 1,474 3,554 333 4,038
Provision for income taxes.................................. 692 572 1,528 127 1,736
------- ------- ------- ------- -------
Net income.................................................. $ 1,145 $ 902 $ 2,026 $ 206 $ 2,302
======= ======= ======= ======= =======
Pro forma net income per share information (unaudited):
Pro forma net income per share............................ $ 0.14 $ 0.11 $ 0.22 $ 0.03 $ 0.19
======= ======= ======= ======= =======
Pro forma weighted average common and common equivalent
shares outstanding...................................... 8,069 8,069 9,366 8,069 12,054
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 86
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK
AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON
------------------------------------------ STOCK
ADDITIONAL --------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN CAPITAL TOTAL SHARES AMOUNT PAID-IN CAPITAL EARNINGS
------ ------ --------------- ------ ------ ------ --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock....... 1,426 $14 $ 986
Issuance of Convertible
Preferred Stock.............. 3,208 $32 $5,468 $5,500
Cost of issuance............... (95) (95) (17)
Excess purchase price deemed
distributed to the PDK
shareholders................. (4,574)
Accrued dividends on
Convertible Preferred
Stock........................ 330 330 $ (330)
Net income..................... 1,145
----- --- ------ ------ ------ --- ------- ------
BALANCES, DECEMBER 31, 1994...... 3,208 32 5,703 5,735 1,426 14 (3,605) 815
Accrued dividends on
Convertible Preferred
Stock........................ 350 350 (350)
Net income..................... 902
----- --- ------ ------ ------ --- ------- ------
BALANCES, DECEMBER 31, 1995...... 3,208 32 6,053 6,085 1,426 14 (3,605) 1,367
Conversion of Convertible
Preferred Stock to common
stock........................ (120) (1) (206) (207) 216 2 205
Dividends paid on Convertible
Preferred Stock converted.... (32) (32)
Settlement of ALA Contingent
Notes........................ 194 2 240
Stock issued in connection with
1996 Acquisitions............ 3,871 39 24,790
Stock issued for loan fees..... 86 1 463
Accrued dividends on
Convertible Preferred
Stock........................ 371 371 (371)
Net income..................... 2,026
----- --- ------ ------ ------ --- ------- ------
BALANCES, DECEMBER 31, 1996...... 3,088 31 6,186 6,217 5,793 58 22,093 3,022
Accrued dividends on
Convertible Preferred Stock
(unaudited).................. 189 189 (189)
Stock issued in connection with
the 1996 Acquisitions
(unaudited).................. 91 1 820
Net income (unaudited)......... 2,302
----- --- ------ ------ ------ --- ------- ------
BALANCES, JUNE 30, 1997
(UNAUDITED).................... 3,088 $31 $6,375 $6,406 5,884 $59 $22,913 $5,135
===== === ====== ====== ====== === ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 87
AMERIPATH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
-------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 1,145 $ 902 $ 2,026 $ 206 $ 2,302
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation and amortization...................... 1,265 1,253 3,056 654 3,179
(Gain) loss on disposal of assets.................. (10) 28 775 746 (29)
Deferred income taxes.............................. 374 243 (950)
Provision for doubtful accounts.................... 1,003 1,161 3,576 645 4,116
Non-recurring charge............................... 1,289
Changes in assets and liabilities:
Increase in accounts receivable.................. (1,354) (1,534) (3,766) (346) (5,639)
(Increase) decrease in inventories............... (49) 6 (107) 89 (21)
(Increase) decrease in other current assets...... (166) 39 (632) (7) (70)
(Increase) decrease in other assets.............. (37) 21 (1,426) (143) 966
Increase (decrease) in accounts payable and
accrued expenses.............................. 154 183 (2,001) (137) 21
-------- ------- -------- -------- --------
Net cash flows provided by operating
activities.................................. 2,325 2,302 551 1,707 6,114
-------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................ (492) (488) (996) (313) (1,983)
Purchase of subsidiaries, net of cash acquired....... (20,189) (73,073) (21,379) (1,275)
Payments of contingent notes......................... (1,444)
-------- ------- -------- -------- --------
Net cash flows used in investing activities... (20,681) (488) (74,069) (21,692) (4,702)
-------- ------- -------- -------- --------
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) (250) (973)
Deferred offering costs.............................. (992) (1,591)
Principal payments on long-term debt................. (1,021) (240) (731)
Borrowing under senior term loan..................... 65,000
Net borrowings (payments) under revolving loan....... 77,506 21,224 (64,344)
Note receivable from officer......................... (270) (270)
Dividends paid to convertible preferred
stockholders....................................... (32) (32)
-------- ------- -------- -------- --------
Net cash flows provided by (used in) financing
activities.................................. 18,459 (1,859) 75,722 20,922 (2,639)
-------- ------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 103 (45) 2,204 937 (1,227)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 103 58 58 2,262
-------- ------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 103 $ 58 $ 2,262 $ 995 $ 1,035
======== ======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................. $ 1,540 $ 1,504 $ 2,856 $ 483 $ 4,219
Income taxes......................................... $ 409 $ 63 $ 2,835 $ 274 $ 1,983
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 88
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. BUSINESS AND ORGANIZATION
AmeriPath, Inc. was incorporated in February 1996 to be the leading
physician practice management company focused on providing anatomic
pathology services. The Company provides physician 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., and subsidiaries,
including American Laboratory Associates, Inc. ("ALA").
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 laboratories 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. In connection
with its capitalization, ALA issued 1,425,600 shares of common stock to the
PDK shareholders for $1,000 in cash and 3,208,120 shares of voting Series A
6% Redeemable Cumulative Convertible Preferred Stock (the "Convertible
Preferred Stock") to Summit Ventures III, L.P., Summit Subordinated Debt
Fund, L.P. and Summit Investors II, L.P. (collectively, "Summit") and
Schroder Incorporated, Schroder Ventures Limited Partnership and Schroder
Ventures U.S. Trust (collectively, "Schroder"), 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 borrowed $7,493 under a line of credit to
fund a portion of the acquisition of PDK. The Company also paid a financing
fee of $190 to Summit.
Effective January 1, 1994, ALA acquired the net assets of PDK (the "1994
Acquisition") for approximately $20,511 in cash, the issuance of $3,500 8%
Senior Subordinated Notes (the "Senior Notes") due in 1998, and the
issuance of 8% Subordinated Contingent Notes (the "ALA Contingent Notes")
in the maximum principal amount of $2,500 to the owners of PDK (See Note
13). The acquisition of the net assets of PDK was accounted for using the
purchase method of accounting. The purchase price was allocated to the net
assets acquired based on the fair values at the date of acquisition as
determined by management based on an independent consultant's report. The
PDK shareholders held approximately 20% of the voting interests and served
as the management group of the Company following the acquisition.
Accordingly, 20% of the purchase price in excess of the carryover basis of
the PDK shareholders, or $4,574, was deemed to be a distribution to the PDK
shareholders. Such amount was not allocated to the net assets acquired and
was charged to additional paid-in capital in accordance with Emerging
Issues Task Force No. 88-16. Such excess is shown as "Excess purchase price
deemed distributed to the PDK shareholders" in stockholders' equity. In
addition to the PDK shareholders, the shareholders of the Company included
Summit and Schroder holding approximately 77% and 3%, respectively of the
voting interests at the date of the acquisition.
F-9
<PAGE> 89
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
As a result of the allocation of purchase price, approximately $4,271 was
allocated to goodwill as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $24,011
Less -- Excess purchase price deemed distributed to PDK
shareholders.............................................. (4,574)
-------
19,437
-------
Net assets acquired:
Working capital........................................... 402
Property and equipment, net............................... 1,521
Identifiable intangible assets............................ 11,987
Long-term debt............................................ (274)
Deferred income taxes..................................... 1,530
-------
15,166
-------
Goodwill arising from 1994 Acquisition...................... $ 4,271
=======
</TABLE>
Subsequent to the 1994 Acquisition, 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, 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 a 40 for 1 stock split for its
common and preferred stock in the form of a stock dividend. The effect of
such stock split is reflected in all common and preferred share amounts.
On January 13, 1997, the Company effected a 1.8 for 1 stock split for its
common stock in the form of a stock dividend. The effect of such stock
split is reflected in all common share amounts.
On April 30, 1997, the authorized shares of common stock were increased to
30,000,000.
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., its wholly-owned subsidiaries, and two companies in which the Company
has the controlling financial interest by means other than direct record
ownership of voting stock, as discussed in Note 3. All significant
intercompany accounts and transactions have been eliminated.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim consolidated financial statements and the related information
in these notes as of June 30, 1997 and for the six months ended June 30,
1996 and 1997 are unaudited. Such interim consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all adjustments
(including normal accruals) necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for
the full year.
ACCOUNTING 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
F-10
<PAGE> 90
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
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 Credit
Facility 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 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 December 31, 1995,
1996 and June 30, 1997 was $10,400, $10,900 and $10,955, respectively.
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, a management service agreement and laboratory contracts
acquired in connection with acquisitions. Such assets, except the
management service agreement, 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. The management service agreement was assigned
a value equal to the excess of the cost over the fair value of the acquired
net assets and is being amortized over 35 years.
F-11
<PAGE> 91
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
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 if there has been an impairment in
the carrying value of its intangible assets. If the undiscounted future
cash flows over the remaining amortization period of the respective
intangible asset indicates that the value assigned to the intangible asset
may not be recoverable, the carrying value of the respective intangible
asset will be reduced. The amount of any such impairment would be
determined by comparing anticipated discounted future cash flows from
acquired businesses with the carrying value of the related 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
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, which approximates the interest method, 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
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, net of allowances, as of December 31, 1996 and June
30, 1997 amounted to approximately $2,202 and $1,778, respectively.
Unbilled receivables as of December 31, 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 ("SFAS") 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.
F-12
<PAGE> 92
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued 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. Adoption of the statement in 1996 did not have a material effect on
the Company's financial statements.
In February 1997, SFAS No. 128, "Earnings Per Share," was issued. SFAS No.
128, which supersedes Accounting Principles Board ("APB") Opinion No. 15,
requires a dual presentation of basic and diluted earnings per share on the
face of the income statement. Basic earnings per share excludes dilution
and is computed by dividing income or loss attributable to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. Diluted
earnings per share is computed similarly to fully diluted earnings per
share under APB Opinion No. 15. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods; earlier application is not permitted.
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that a company (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of the balance sheet. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company
has not determined the effects, if any, that SFAS No. 130 will have on its
consolidated financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued. SFAS No. 131 establishes standards
for the way that public companies report selected information about
operating segments in annual financial statements and requires that those
companies report selected information about segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131, which supersedes SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise," but retains the requirement to
report information about major customers, requires that a public company
report financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how
F-13
<PAGE> 93
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
to allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense
items, and segment assets. However, SFAS No. 131 does not require the
reporting of information that is not prepared for internal use if reporting
it would be impracticable. SFAS No. 131 also requires that a public company
report descriptive information about the way that the operating segments
were determined, the products and services provided by the operating
segments, differences between the measurements used in reporting segment
information and those used in the enterprise's general-purpose financial
statements, and changes in the measurement of segment amounts from period
to period. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company has not determined the
effects, if any, that SFAS No. 131 will have on the disclosures in its
consolidated financial statements.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
The unaudited pro forma consolidated balance sheet at June 30, 1997 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 June 30, 1997. Prior to the completion of the offering, the
holders of all outstanding Convertible Preferred Stock will convert such
shares into 5,558,607 shares of common stock of the Company. Accrued
dividends of $1,206 as of June 30, 1997 will be payable upon conversion of
the Convertible Preferred Stock.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
3. ACQUISITIONS
1996 ACQUISITIONS
In 1996 the Company completed eleven acquisitions of or affiliations with
(the "1996 Acquisitions") anatomic pathology practices (the "Practices").
The consideration given by the Company in the 1996 Acquisitions was a
combination of cash, subordinated notes, common stock, contingent notes
and/or contingently issuable common stock. In November 1996, pursuant to
Stock Rights Surrender and Restricted Stock Grant Agreements, the Company
issued 1,833,433 shares of its common stock in exchange for the surrender of
all rights to the contingently issuable common stock. Such shares represent
purchase price consideration which is not based on or related to future
earnings. 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 1996 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 to pay additional purchase price consideration to
the sellers 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
F-14
<PAGE> 94
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
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, including principal and interest, of
$37,720 over the next 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 additional purchase price for the Practices.
The total consideration paid by the Company in the 1996 Acquisitions
included cash of $78,626, subordinated notes in the aggregate principal
amount of $4,511 and 3,870,741 shares of common stock (aggregate value of
$24,829). The following table presents for each 1996 Acquisition, the date
of acquisition or affiliation, the total consideration paid, excluding the
contingent payments, if any, the number of shares of Common Stock issued by
the Company, and the maximum contingent payments.
<TABLE>
<CAPTION>
MAXIMUM
CONTINGENT
PAYMENTS
DATE TOTAL ----------------
ACQUIRED CONSIDERATION COMMON STOCK PERIOD
IN 1996 PAID ISSUED (SHARES) (YEARS) AMOUNT
----------- ------------- --------------- ------- -------
<S> <C> <C> <C> <C> <C>
Demaray and Poulos, P.A............ January 1 $ 1,679
Derrick and Associates Pathology,
Inc.............................. July 1 16,844 1,080,009 5 $ 9,680
Amazon and Rosen, M.D., P.A........ July 1 6,333 119,999 5 2,420
SkinPath, P.C...................... August 1 5,275 207,000 3 342
Pathology Associates, P.S.C........ August 1 6,795 107,399 5 908
Freeman-Cockerell Laboratories,
Inc.............................. October 1 4,806 90,000 5 1,271
Volusia Pathology Group, M.D.,
P.A.............................. October 3 7,344 169,814 5 2,228
David R. Barron, M.D., Inc......... October 4 17,700 455,999 5 4,114
Drs. Seidenstein, Levine &
Associates, P.A.................. October 10 15,657 477,721 5 6,881
Beno Michel, M.D., Inc............. October 15 8,833 262,800 3 1,710
Fernandez & Kalemeris, M.D.,
P.A.............................. November 1 16,700 900,000 5 8,166
</TABLE>
The agreements related to five of the acquisitions contain provisions which
would require the Company to repurchase the common stock issued in the
acquisitions, aggregating 1,493,520 shares, for $8.33 per share if the
Company has not completed an initial public offering of its common stock
within specified periods ranging from two to five years from the date of
acquisition.
In the six months ended June 30, 1997, the Company issued an additional
91,201 shares of common stock, valued at $821, and made other purchase
price adjustments of $1,246 in connection with certain post-closing
adjustments. Additionally, the Company made payments and accruals of
contingent consideration amounting to $1,526 relating to the 1996
Acquisitions.
The Company does not have technical majority ownership of the common stock
of David R. Barron, M.D., Inc. ("Richfield Labs") and Beno Michel, M.D.,
Inc. ("CPI"). All of the common stock of each of these companies is held in
trust. AmeriPath is the sole beneficiary of each trust and receives all
income from the trusts. The Company, at its sole discretion, can replace
the trustees, withdraw any asset from the trusts, modify the terms of the
trust agreements, or terminate the trusts, and direct the trustees to
distribute income and any asset from the trusts. No assets of the trusts
can be sold or otherwise disposed of without AmeriPath's consent.
Additionally, a wholly-owned subsidiary of the Company entered into 40-year
management agreements with each of Richfield Labs and CPI, under which such
subsidiary
F-15
<PAGE> 95
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
provides all management and other non-medical services to Richfield Labs
and CPI for a fee equal to the practice's net revenue less practice
expenses, including physician salaries, which are fixed by employment
agreements, and related professional expenses. Therefore, the Company is
entitled to all of the net income of these practices. Based on the
provisions of the purchase agreements, trust agreements and management
agreements, consolidation of Richfield Labs and CPI is required to present
the Company's financial position and results of operations in conformity
with generally accepted accounting principles because the Company has the
controlling financial interest in Richfield Labs and CPI by means other
than direct record ownership of voting stock. Accordingly, these
acquisitions are accounted for as purchase business combinations and
included in the consolidated financial statements.
In connection with the acquisition of Freeman-Cockerell Laboratories, Inc.,
a wholly-owned subsidiary of the Company (the "PA Contractor Subsidiary")
and Clay J. Cockerell, M.D., P.A. (the "Texas PA Contractor") have entered
into a 40-year management service agreement under which the PA Contractor
Subsidiary provides, on an exclusive basis, the technical laboratory
services, management and all other non-medical practice services to the
Texas PA Contractor. The PA Contractor Subsidiary employs all of the
technical employees and owns all of the laboratory facilities, testing
equipment and other assets used in connection with the pathology services
performed by the Texas PA Contractor's physicians. The Texas PA
Contractor's payments to the Company under this management service
agreement are comprised of the reimbursement of the costs and expenses for
providing services, a base fee and a performance fee based on the
achievement of goals and objectives established annually. Assuming the PA
Contractor Subsidiary achieves its goals and objectives, such fees will
result in the Company receiving substantially all net revenue less practice
expenses of the Texas PA Contractor. Practice expenses include physician
salaries which are fixed by employment agreement and related professional
expenses. Therefore, the Company is the direct beneficiary of substantially
all of the net income of the Texas PA Contractor which is reported as
management service agreement revenue in the consolidated statement of
operations. Although the Texas PA Contractor is not included in the
consolidated financial statements, the net revenue and expenses of the
Texas PA Contractor are displayed in Note 4.
Under the terms of the acquisition agreement, the sole shareholder of the
Texas PA Contractor is prohibited from selling, assigning or disposing of
the common stock of the Texas PA Contractor prior to September 30, 1997,
except that at the direction of the Company, without further consideration,
such shareholder is required to transfer ownership of the shares of the
Texas PA Contractor to, or merge the Texas PA Contractor into, a Texas
5.01(a) non-profit corporation (the "501(a) corporation"). The Company is
in the process of forming the 501(a) corporation of which the Company will
be the sole member. The formation of the 501(a) corporation is subject to
review by Texas regulatory authorities. Members of the board of directors
of the 501(a) corporation may be appointed by, and may be removed by, the
sole member, which will be the Company. The Company expects to complete the
formation of the 501(a) corporation and the transfer of the business of the
Texas PA Contractor on or about September 30, 1997. Upon such transfer, the
Company will have direct voting control over the 501(a) corporation and,
subsequent to such transfer, will consolidate the financial statements of
the 501(a) corporation in the Company's consolidated financial statements.
The allocation of the purchase price is preliminary, while the Company
continues to obtain the information to determine the fair value of the
assets acquired and liabilities assumed. When the Company obtains final
information, management believes that adjustments, if any, 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.
F-16
<PAGE> 96
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
The accompanying consolidated financial statements include the results of
operations of the 1996 Acquisitions from the date acquired through December
31, 1996. The following unaudited pro forma information presents the
combined results of the Company's operations and the results of operations
of all of the 1996 Acquisitions for the year ended December 31, 1995 and
1996 after giving effect to amortization of goodwill and identifiable
intangible assets, interest expense on the long-term debt incurred in
connection with the 1996 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 1996 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 1996
Acquisitions and does not include operational or other changes which might
have been effected by the Company.
The unaudited pro forma information for the year ended December 31, 1995
and 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,
------------------
1995 1996
------- -------
<S> <C> <C>
Net revenue................................................. $83,188 $86,784
======= =======
Net income.................................................. $ 5,467 $ 5,220
======= =======
Net income per share........................................ $ .45 $ .43
======= =======
</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 as discussed in Note 19.
PENDING ACQUISITIONS
The Company has entered into definitive agreements for the acquisition of
or affiliation with three anatomic pathology practices. The total
consideration to be paid by the Company in connection with these
acquisitions will include cash of $58,863 and 1,910,808 shares of common
stock (aggregate estimated value of $19,229). In addition, the Company has
agreed to pay additional purchase price consideration in the form of
contingent notes. The additional payments are contingent upon the
achievement of stipulated levels of cumulative operating earnings (as
defined) over a five year period. If the maximum specified levels of
cumulative operating earnings for each Practice are achieved, the Company
would be required to make aggregate maximum payments, including principal
and interest of $62,132 over the next three to five years.
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.
F-17
<PAGE> 97
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Gross accounts receivable................................... $ 4,037 $30,841 $ 34,163
Less: Allowance for contractual and other adjustments....... (908) (5,672) (6,804)
Allowance for uncollectible accounts.................. (1,015) (10,478) (11,146)
------- ------- --------
Accounts receivable, net.................................... $ 2,114 $14,691 $ 16,213
======= ======= ========
</TABLE>
The Company grants credit without collateral to individual patients, most
of whom are insured under third party payor agreements. The estimated mix
of receivables from patients and third-party payors are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1995 1996 1997
----- ----- --------
<S> <C> <C> <C>
Government programs....................................... 45.7% 35.2% 36.0%
Third-party payors........................................ 27.6 41.9 35.3
Private pay patients...................................... 15.3 17.7 20.3
Other..................................................... 11.4 5.2 8.4
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Net patient services revenue consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------ JUNE 30,
1994 1995 1996 1997
------- ------- -------- ----------
<S> <C> <C> <C> <C>
Gross revenue.................................... $17,027 $19,121 $ 56,381 $ 59,324
Less contractual and other adjustments........... (2,566) (3,097) (14,865) (16,494)
------- ------- -------- --------
Net patient services revenue............ $14,461 $16,024 $ 41,516 $ 42,830
======= ======= ======== ========
</TABLE>
A significant portion of the Company's net revenue is generated by the
hospital-based practices through contracts with 47 hospitals, primarily as
a result of the 1996 Acquisitions discussed in Note 3. Columbia Healthcare
Corporation owns 20 of these hospitals. For the year ended December 31,
1996 and the six months ended June 30, 1997, approximately 19.0% and 21.8%,
respectively of net revenue was generated directly from contracts with
hospitals owned by Columbia. 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.
F-18
<PAGE> 98
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
The components of management service agreement revenue, and the net revenue
and expenses from the date of affiliation (October 1, 1996) to December 31,
1996 and for the six months ended June 30, 1997 of Freeman-Cockerell, the
Texas PA, are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1996 1997
------ --------
<S> <C> <C>
Texas PA:
Net revenue............................................... $1,143 $2,494
Practice expenses......................................... 101 480
------ ------
Management service agreement revenue.............. $1,042 $2,014
====== ======
Components of management service agreement revenue:
Reimbursement of expenses and overhead.................... $ 878 $1,640
Base management fee....................................... 100 200
Performance fee........................................... 64 174
------ ------
Total............................................. $1,042 $2,014
====== ======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ----------------- JUNE 30,
(YEARS) 1995 1996 1997
----------- ------ ------- --------
<S> <C> <C> <C> <C>
Laboratory and data processing.............. 5 $1,617 $ 4,993 $5,795
Leasehold improvements...................... 20 413 1,038 1,153
Furniture and fixtures...................... 7 197 1,006 1,636
Mobile lab units............................ 3 42 99 99
Automotive vehicles......................... 3 48 393 537
Construction in progress.................... 7 121 --
------ ------- ------
2,324 7,650 9,220
Less accumulated depreciation............... (864) (3,718) (3,883)
------ ------- ------
Property and equipment, net................. $1,460 $ 3,932 $5,337
====== ======= ======
</TABLE>
Depreciation expense was $521, $512 and $862 for the years ended December
31, 1994, 1995 and 1996, respectively, and $608 for the six months ended
June 30, 1997.
F-19
<PAGE> 99
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
6. INTANGIBLE ASSETS
Intangible assets and the related accumulated amortization and amortization
periods are as follows:
<TABLE>
<CAPTION>
AMORTIZATION PERIODS
(YEARS)
DECEMBER 31, --------------------
----------------------- JUNE 30, WEIGHTED
1995 1996 1997 RANGE AVERAGE
------- ------------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Hospital contracts................ $29,015 $28,950 35-40 36.5
Physician client lists............ $11,987 38,863 38,863 17-30 22.2
Management service agreement...... 6,429 6,473 35 35.0
Laboratory contracts.............. 1,800 1,800 10 10.0
------- ------- -------
11,987 76,107 76,086
Accumulated amortization.......... (1,072) (2,008) (3,553)
------- ------- -------
Balance, net...................... $10,915 $74,099 $72,533
======= ======= =======
Goodwill.......................... $ 4,271 $58,264 $61,850 15-35 33.8
Accumulated amortization.......... (284) (879) (1,716)
------- ------- -------
Balance, net...................... $ 3,987 $57,385 $60,134
======= ======= =======
</TABLE>
The amortization periods for the identifiable intangible assets, except the
management service agreement, were determined by the Company based on
reports of independent consultants. The amortization period for the
identifiable intangible asset related to the management service agreement
was determined by reference to the term of the agreement. In determining
these lives the Company considered each practice's operating history,
contract renewals, stability of physician referral lists and industry
statistics.
The amortization periods for goodwill were determined by the Company with
consideration given to the lives assigned to the identifiable intangibles,
the reputation of the practice, the length of the practice's operating
history, and the potential of the market in which the acquired practice is
located.
The weighted average amortization period for identifiable intangible assets
and goodwill, is 30.8 years.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Accounts payable............................................ $ 287 $ 848 $ 1,659
Accrued compensation........................................ 432 1,572 3,031
Accrued acquisition costs................................... 1,648 1,685
Accrued interest............................................ 683 677
Income taxes payable........................................ 175 567 303
Other accrued expenses...................................... 133 3,072 2,646
Amounts due to former owners of the 1996 Acquisitions....... 1,500 666
------ ------ -------
$1,027 $9,890 $10,667
====== ====== =======
</TABLE>
F-20
<PAGE> 100
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
8. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Credit Facility:
Revolving loan.................................... $ 4,146 $81,652 $17,308
Senior term loan.................................. 65,000
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 and assumed in connection
with the 1996 Acquisitions, payable in varying
amounts through 2001, with interest at the rate of
7% and 8%......................................... 4,587 3,938
------- ------- -------
15,146 97,239 97,246
Less current portion................................ (1,762) (1,604)
------- ------- -------
Long term debt, net of current portion.............. $15,146 $95,477 $95,642
======= ======= =======
</TABLE>
As of June 30, 1997, the maturities of long-term debt were as follows:
<TABLE>
<S> <C>
Six months ended December 31, 1997.......................... $ 1,036
1998........................................................ 5,654
1999........................................................ 1,278
2000........................................................ 1,051
2001........................................................ 8,520
2002........................................................ 17,957
Thereafter.................................................. 61,750
-------
Total....................................................... $97,246
=======
</TABLE>
On May 29, 1996, the Company replaced its line of credit with a new
revolving line of credit (the "Facility") with the BankBoston N.A. (F/K/A
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 Facility was amended in October 1996, and the
aggregate amount available was increased to $85 million. Outstanding
advances under the Facility were due and payable on December 31, 1998.
Borrowings under the Facility bear interest at variable rates based, at the
Company's option, on the bank's base rate or the Eurodollar rate plus
2.50%. The Facility also required the quarterly payment of an annual
commitment fee equal to 0.375% of the unused portion of the commitment
until the commitment is terminated. During 1996, the Company issued to the
Agent, 85,999 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.
On June 26, 1997, the Company replaced its line of credit with a new
revolving line of credit and term loan agreement (the "Credit Facility")
with a syndicate of banks led by the Agent, which provides for borrowings
of up to $150 million in the form of: (i) a term loan of $65 million; and a
revolving loan of up
F-21
<PAGE> 101
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
to $85 million that may be used for working capital, in an amount limited
to 80% of the Company's eligible receivables, and to fund acquisitions, if
not otherwise used for working capital purposes. Commencing July 1, 1998,
the term loan requires annual principal payments of $650 with the balance
due and payable on June 30, 2004; all outstanding advances under the
revolving loan are due and payable on June 30, 2002. The Credit Facility
bears interests at variable interest rates based, at the Company's option,
on the Agent's base rate or the Eurodollar rate plus a premium that is
adjusted quarterly based on the Company's ratio of total debt to cash flow.
At June 30, 1997, $65.0 million and $17.3 million were outstanding under
the term loan and revolving loan, respectively, at interest rates of 9.25%
and 8.75%, respectively. Interest rates are adjusted quarterly based upon
the Company's ratio of total debt to cash flow. The Credit Facility also
requires the quarterly payment of an annual commitment fee equal to either
0.5% or 0.375%, based upon the Company's ratio of total debt to cash flow,
on the unused portion of the commitment. During 1996, the Company issued to
the Agent, 85,998 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 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 June 30, 1997, the effective annual
interest rate was approximately 9.1%.
The Company believes that it is in compliance with all of its existing
covenants at June 30, 1997.
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 1.8 shares 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 year ended December 31, 1996, the Company paid accrued dividends
in the amount of $32 with respect to the 120,004 shares of Convertible
Preferred Stock that were converted into 216,007 shares of common stock by
the holders of the Convertible Preferred Stock in their sale of shares of
common stock to the Company's President and 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
F-22
<PAGE> 102
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
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 June
30, 1997, the Company has reserved 5,558,607 shares of common stock for the
conversion of the Convertible Preferred Stock.
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 December 31, 1996:
<TABLE>
<S> <C>
1997........................................................ $1,204
1998........................................................ 1,117
1999........................................................ 1,044
2000........................................................ 851
2001........................................................ 790
Thereafter.................................................. 1,541
------
$6,547
======
</TABLE>
Rent expense under operating leases for 1994, 1995 and 1996 was $153, $170,
and $499 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 June 30, 1997,
925,211 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 June 30,
1997, 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.
F-23
<PAGE> 103
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
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.
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>
OPTION PRICE PER SHARE
NUMBER ---------------------------
OF SHARES LOW HIGH WEIGHTED
--------- ----- ------ --------
<S> <C> <C> <C> <C>
Granted 1994............................... 234,000 $1.11 $ 1.11 $1.11
-------
Outstanding December 31, 1994.............. 234,000 1.11 1.11 1.11
Granted in 1995............................ 18,000 1.67 1.67 1.67
-------
Outstanding December 31, 1995.............. 252,000 1.11 1.67 1.15
Granted in 1996............................ 738,011 1.67 10.00 5.28
Cancelled.................................. (19,800) 8.33 10.00 9.85
-------
Outstanding December 31, 1996.............. 970,211 1.11 10.00 4.12
Cancelled.................................. (45,000) 8.33 8.33 8.33
-------
Outstanding June 30, 1997.................. 925,211 $1.11 $10.00 $3.91
=======
</TABLE>
Options to purchase 187,202 shares are exercisable at June 30, 1997. The
weighted-average remaining contractual life of those options outstanding at
June 30, 1997 is 8.4 years.
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, 1994, 1995 and 1996, the Company
elected not to make contributions to the 401(k) Plan.
In addition, in connection with the 1996 Acquisitions, 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 December 31, 1996. The Company is in the process of establishing a
uniform benefit plan for all employees.
F-24
<PAGE> 104
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
Effective July 1, 1997, the Company consolidated the previous plans into a
new qualified 401(k) retirement plan covering substantially all eligible
employees as defined in the 401(k) plan. The new Plan requires employer
matching contributions equal to 25% of the employees' contributions up to a
maximum of $1,000 per employee.
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 1994 Acquisition, 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 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 Company issued 194,400 shares of its common stock, with
a fair value of $242 to redeem and cancel the Company's contingent
obligation under the ALA Contingent Notes, which had a remaining principal
balance of $1,500. The remaining contingent obligation under the ALA
Contingent Notes of $1,500 and related accrued interest of approximately
$270 would have become payable in the future only if operating earnings (as
defined) of ALA were to have exceeded a specified annual level in 1996,
1997 and 1998. The issuance of shares has been accounted for as an
additional cost of the 1994 Acquisition.
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 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 $140, in 1994, 1995
and 1996, and $70 during the six months ended June 30, 1997.
F-25
<PAGE> 105
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
Note Receivable from Officer -- In connection with the employment of the
Company's President and Chief Executive Officer, the Company provided
financing of $270 to facilitate the purchase of 216,007 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 (126,000 shares) are pledged as
collateral.
15. INCOME TAXES
The provision for income taxes for the years ended December 31, 1994, 1995
and 1996 consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -------
<S> <C> <C> <C>
Current:
Federal................................................... $272 $281 $2,133
State..................................................... 46 48 345
---- ---- ------
Total current provision........................... 318 329 2,478
---- ---- ------
Deferred:
Federal................................................... 319 207 (817)
State..................................................... 55 36 (133)
---- ---- ------
Total deferred provision (benefit)................ 374 243 (950)
---- ---- ------
Total provision for income taxes.................. $692 $572 $1,528
==== ==== ======
</TABLE>
The effective tax rate on income before income tax is reconciled to
statutory federal income tax rates as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate.................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit..... 3.6 3.7 3.6
Non-deductible items, primarily goodwill.................. 4.6
Other..................................................... .1 1.1 .8
---- ---- ----
Effective rate............................................ 37.7% 38.8% 43.0%
==== ==== ====
</TABLE>
F-26
<PAGE> 106
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
The following is a summary of the deferred income tax assets and
liabilities as of December 31, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------ --------
<S> <C> <C>
Deferred tax assets:
Intangible assets acquired................................ $ 741
Property and equipment.................................... 41 $ 307
Allowance for doubtful accounts........................... 142 1,839
Accrued liabilities....................................... 401
Other..................................................... 23 49
------ --------
Total deferred tax assets................................... 947 2,596
------ --------
Deferred tax liabilities:
Change from cash to accrual basis by the 1996
Acquisitions........................................... (3,547)
Intangible assets acquired................................ (18,643)
Other..................................................... (35) (11)
------ --------
Total deferred tax liabilities.............................. (35) (22,201)
------ --------
Net deferred tax asset (liability)................ $ 912 $(19,605)
====== ========
</TABLE>
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 1994
Acquisition and the 1996 Acquisitions consummated during the year ended
December 31, 1996. No acquisitions were consummated during the six months
ended June 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1996
------- --------
<S> <C> <C>
Assets acquired............................................. $21,201 $140,910
Liabilities assumed......................................... (1,764) (32,944)
Debt issued................................................. (3,500) (4,511)
Excess purchase price deemed distributed to PDK
shareholders.............................................. 4,574
Common stock issued......................................... (24,829)
------- --------
Cash paid................................................... 20,511 78,626
Less cash acquired.......................................... (322) (5,553)
------- --------
Net cash paid..................................... $20,189 $ 73,073
======= ========
</TABLE>
F-27
<PAGE> 107
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
17. LOSS ON CESSATION OF CLINICAL LAB OPERATIONS
In May 1996, the Company ceased the unprofitable operation of a clinical
laboratory resulting in a non-recurring charge of $910 to operations which
included severance payments, write-downs of property, equipment and other
assets to estimated realizable values, and the write-off of the unamortized
balances of intangible assets associated with the clinical operations. The
following is a summary of the net revenue and operating costs, including
the non-recurring charge, of such clinical laboratory:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net revenue.............................................. $1,712 $2,385 $1,046
Operating costs.......................................... 2,179 2,814 2,102
</TABLE>
18. NONRECURRING CHARGE
In May 1997, the Company withdrew its registration statement filed with the
Securities and Exchange Commission and postponed the planned initial public
offering of common stock. In the six months ended June 30, 1997, the
Company recorded a nonrecurring charge of $1,289, primarily professional
fees and printing costs, which represented offering costs incurred prior to
the postponement that did not have continuing benefit after the
postponement.
19. PRO FORMA NET INCOME PER SHARE INFORMATION (UNAUDITED)
The Company is planning to issue shares of its common stock in an initial
public offering late in 1997. Immediately prior to the offering, the
outstanding shares of Convertible Preferred Stock will be converted into
5,558,607 shares of common stock. In view of the planned conversion of the
Convertible Preferred Stock, 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. 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. Shares issued in the 1996
Acquisitions are included in the weighted average share calculation from
the date of acquisition. The following presents the
F-28
<PAGE> 108
AMERIPATH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(INFORMATION WITH RESPECT TO JUNE 30, 1997 AND THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
calculation of the pro forma weighted average common shares and common
equivalent shares outstanding for each period (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 AND 1995 1996 1997
------------- ----- --------
<S> <C> <C> <C>
Shares outstanding for all periods presented............ 1,426 1,426 1,426
Effects of shares subsequently issued:
Conversion of Convertible Preferred Stock in January
1996............................................... 216 216
Settlement of ALA Contingent Notes in April 1996...... 194 194 194
1996 Acquisitions..................................... 1,297 3,985
Effects of stock options................................ 674 674 674
----- ----- ------
2,294 3,807 6,495
Planned conversion of Convertible Preferred Stock....... 5,775 5,559 5,559
----- ----- ------
Pro forma weighted average common and common equivalent
shares outstanding.................................... 8,069 9,366 12,054
===== ===== ======
</TABLE>
F-29
<PAGE> 109
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-30
<PAGE> 110
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-31
<PAGE> 111
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-32
<PAGE> 112
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-33
<PAGE> 113
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
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-34
<PAGE> 114
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-35
<PAGE> 115
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-36
<PAGE> 116
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-37
<PAGE> 117
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-38
<PAGE> 118
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 THE 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-39
<PAGE> 119
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 THE 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-40
<PAGE> 120
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 THE 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-41
<PAGE> 121
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-42
<PAGE> 122
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-43
<PAGE> 123
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-44
<PAGE> 124
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-45
<PAGE> 125
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-46
<PAGE> 126
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-47
<PAGE> 127
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
RECEIVABLE
CLASS A CLASS 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-48
<PAGE> 128
DERRICK AND ASSOCIATES PATHOLOGY, INC.
STATEMENTS OF CASH FLOWS
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>
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-49
<PAGE> 129
DERRICK AND ASSOCIATES PATHOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
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-50
<PAGE> 130
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-51
<PAGE> 131
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
-------------------------
1994 1995 JUNE 30, 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-52
<PAGE> 132
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-53
<PAGE> 133
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-54
<PAGE> 134
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-55
<PAGE> 135
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-56
<PAGE> 136
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-57
<PAGE> 137
SKINPATH, P.C.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
PERIOD FROM 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>
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-58
<PAGE> 138
SKINPATH, P.C.
STATEMENTS OF CASH FLOWS
PERIOD FROM 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>
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-59
<PAGE> 139
SKINPATH, P.C.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JANUARY 5, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 AND
THE 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-60
<PAGE> 140
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-61
<PAGE> 141
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-62
<PAGE> 142
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-63
<PAGE> 143
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-64
<PAGE> 144
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-65
<PAGE> 145
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-66
<PAGE> 146
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-67
<PAGE> 147
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-68
<PAGE> 148
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-69
<PAGE> 149
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-70
<PAGE> 150
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-71
<PAGE> 151
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-72
<PAGE> 152
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-73
<PAGE> 153
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-74
<PAGE> 154
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-75
<PAGE> 155
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-76
<PAGE> 156
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 A CLASS 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-77
<PAGE> 157
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-78
<PAGE> 158
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-79
<PAGE> 159
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-80
<PAGE> 160
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-81
<PAGE> 161
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-82
<PAGE> 162
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-83
<PAGE> 163
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-84
<PAGE> 164
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-85
<PAGE> 165
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-86
<PAGE> 166
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-87
<PAGE> 167
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-88
<PAGE> 168
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-89
<PAGE> 169
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-90
<PAGE> 170
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-91
<PAGE> 171
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-92
<PAGE> 172
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-93
<PAGE> 173
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-94
<PAGE> 174
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-95
<PAGE> 175
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-96
<PAGE> 176
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-97
<PAGE> 177
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-98
<PAGE> 178
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-99
<PAGE> 179
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-100
<PAGE> 180
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-101
<PAGE> 181
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-102
<PAGE> 182
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 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-103
<PAGE> 183
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-104
<PAGE> 184
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-105
<PAGE> 185
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-106
<PAGE> 186
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-107
<PAGE> 187
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-108
<PAGE> 188
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-109
<PAGE> 189
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-110
<PAGE> 190
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-111
<PAGE> 191
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-112
<PAGE> 192
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-113
<PAGE> 193
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-114
<PAGE> 194
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-115
<PAGE> 195
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-116
<PAGE> 196
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-117
<PAGE> 197
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-118
<PAGE> 198
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-119
<PAGE> 199
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-120
<PAGE> 200
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-121
<PAGE> 201
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-122
<PAGE> 202
INDEPENDENT AUDITORS' REPORT
To Unipath Ltd.:
We have audited the accompanying combined balance sheets of Unipath Ltd. and
Affiliates ("Unipath") as of June 30, 1996 and 1997 and the related combined
statements of operations, equity and cash flows for the years then ended. These
financial statements are the responsibility of Unipath'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 Unipath as of June 30, 1996 and
1997 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
Dallas, Texas
August 22, 1997
F-123
<PAGE> 203
UNIPATH LTD. AND AFFILIATES
COMBINED BALANCE SHEETS
JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 493,922 $ 341,158
Accounts receivable (net of allowances for contractual
adjustments and doubtful accounts of $3,385,038 and
$4,247,940 at June 30, 1996 and 1997, respectively).... 3,377,897 3,531,502
Prepaid expenses and other assets......................... 27,698 18,316
---------- ----------
Total current assets.............................. 3,899,517 3,890,976
PROPERTY AND EQUIPMENT, Net (Note 3)........................ 394,699 423,606
OTHER ASSETS................................................ 100,000
---------- ----------
TOTAL............................................. $4,294,216 $4,414,582
========== ==========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 521,145 $ 622,822
Accrued liabilities....................................... 253,881 101,777
---------- ----------
Total current liabilities......................... 775,026 724,599
COMMITMENTS AND CONTINGENCIES (Note 7)
EQUITY:
Partners' capital......................................... 2,027,796 1,968,133
Arlington-Mansfield Pathology Associates, P.A.:
Common stock, no par value, 54,000 shares authorized,
54,000 issued and outstanding.......................... 1,500 1,500
Dallas Pathology Associates, Inc.:
Common stock, $1 par value, 10,000 shares authorized,
1,000 issued and outstanding........................... 1,000 1,000
Retained earnings......................................... 1,488,894 1,719,350
---------- ----------
Total equity...................................... 3,519,190 3,689,983
---------- ----------
TOTAL............................................. $4,294,216 $4,414,582
========== ==========
</TABLE>
See notes to combined financial statements.
F-124
<PAGE> 204
UNIPATH LTD. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
NET REVENUES -- (Note 5).................................... $21,433,617 $22,421,918
----------- -----------
COSTS AND EXPENSES:
Cost of services rendered................................. 7,260,555 7,965,430
Selling, billing and administrative expenses.............. 2,092,293 1,828,532
Provision for doubtful accounts........................... 1,679,894 1,916,677
----------- -----------
Total costs and expenses.......................... 11,032,742 11,710,639
----------- -----------
NET INCOME.................................................. $10,400,875 $10,711,279
=========== ===========
</TABLE>
See notes to combined financial statements.
F-125
<PAGE> 205
UNIPATH LTD. AND AFFILIATES
COMBINED STATEMENTS OF EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON RETAINED PARTNERS'
STOCK EARNINGS CAPITAL TOTAL
------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, JULY 1, 1995.......................... $2,500 $ 1,136,274 $ 1,830,348 $ 2,969,122
Net income................................... 1,932,928 8,467,947 10,400,875
Distributions................................ (1,580,308) (8,270,499) (9,850,807)
------ ----------- ----------- ------------
BALANCE, JUNE 30, 1996......................... 2,500 1,488,894 2,027,796 3,519,190
Net income................................... 2,429,179 8,282,100 10,711,279
Contributions................................
Distributions................................ (2,198,723) (8,341,763) (10,540,486)
------ ----------- ----------- ------------
BALANCE, JUNE 30, 1997......................... $2,500 $ 1,719,350 $ 1,968,133 $ 3,689,983
====== =========== =========== ============
</TABLE>
See notes to combined financial statements.
F-126
<PAGE> 206
UNIPATH LTD. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1996 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 10,400,875 $10,711,279
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 143,244 247,255
Provision for doubtful accounts........................ 1,679,894 1,916,667
Changes in assets and liabilities:
Increase in accounts receivable, net................. (2,322,377) (2,070,282)
Decrease in other current assets..................... 4,895 9,382
Increase in other assets............................. -- (100,000)
Decrease in accounts payable and accrued expenses.... (278,238) (50,427)
------------ -----------
Net cash flows provided by operating activities... 9,628,294 10,663,884
------------ -----------
CASH FLOWS USED IN INVESTING ACTIVITIES --
Acquisition of property and equipment..................... (125,254) (276,162)
------------ -----------
CASH FLOWS USED IN FINANCING ACTIVITIES --
Distributions to equity owners, net....................... (9,850,807) (10,540,486)
------------ -----------
DECREASE IN CASH AND CASH EQUIVALENTS....................... (347,767) (152,764)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 841,689 493,922
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 493,922 $ 341,158
============ ===========
</TABLE>
See notes to combined financial statements.
F-127
<PAGE> 207
UNIPATH LTD. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996 AND 1997
1. ORGANIZATION AND BUSINESS
Effective May 31, 1995, the equity holders of Arlington-Mansfield Pathology
Associates, P.A. (a Texas professional association), Dallas Pathology
Associates (a Texas partnership), Dallas Pathology Associates, Inc. (a Texas
Corporation), Plano Pathology Associates (a Texas partnership), Metroplex
Pathology Associates, P.A. (a Texas professional association), Metroplex
Pathology Associates, P.A. (a Texas professional association) and Metroplex
Pathology, Ltd. (a Texas limited partnership) entered into an agreement to
form Unipath Ltd. (a Texas limited partnership) and Unipath Management,
P.L.L.C. (a Texas professional limited liability company), (collectively
"Unipath") for the purpose of combining their individual hospital-based
anatomic and clinical pathology practices and outpatient laboratories and
consolidating the administrative support, histology laboratories and billing
operations of the individual practices. The accompanying financial
statements of Unipath and its affiliates have been prepared on a combined
basis due to the common management and the existence of significant
intercompany transactions. In addition, since the proposed acquisition of
Unipath (see Note 8) will occur in a single transaction, it is more
meaningful to present the combined financial position and results of
operations of the entities to be acquired. All material intercompany
transactions and balances have been eliminated in combination.
Unipath employs 20 pathologists which staff 10 contracted hospitals and 4
surgery centers. Unipath also provides billing services to certain hospitals
and doctors' offices. The contracts with the hospitals and centers vary in
length from 1 to 3 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 results of operations
of Unipath.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by Unipath are as
follows:
CASH AND CASH EQUIVALENTS
Unipath 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. Depreciation is calculated using
accelerated methods, including double declining balance, over the estimated
useful lives of the assets which range from five to seven years.
Expenditures for routine maintenance and repairs are charged to expense as
incurred.
INCOME TAXES
The entities comprising Unipath are formed as either partnerships or have
elected to be taxed as S corporations for federal income tax purposes. As a
partnership or an S corporation, the results of operations flow to each of
the partners or shareholders in accordance with their respective ownership
percentages; related income taxes or benefits are recognized by each of the
partners or shareholders. Accordingly, Unipath does not record a provision
for income taxes in the accompanying combined financial statements.
REVENUE RECOGNITION
Unipath recognizes revenue at the time services are performed. Unipath
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
F-128
<PAGE> 208
UNIPATH LTD. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 June 30, 1996 and 1997 amounted to approximately $325,579 and $570,383,
respectively.
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 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 Unipath to concentrations
of credit risk, consist principally of cash and cash equivalents and
accounts receivable. Unipath places its cash and cash equivalents with high
credit quality institutions. With respect to accounts receivable, Unipath
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 from patients and third-party payors at June 30, 1996 and 1997
are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Medicare and Medicaid....................................... 2% 2%
Other third-party payors.................................... 78 68
Private pay patients........................................ 20 30
--- ---
100% 100%
=== ===
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Furniture and fixtures................................ $ 106,058 $ 110,412
Computer equipment.................................... 421,741 567,440
Lab equipment......................................... 121,762 247,871
Leasehold improvements................................ 97,628 97,628
---------- ----------
Total................................................. 747,189 1,023,351
Less: Accumulated depreciation........................ (352,490) (599,745)
---------- ----------
Property and equipment, net........................... $ 394,699 $ 423,606
========== ==========
</TABLE>
Depreciation expense totaled $143,244 and $247,255 for the years ended June
30, 1996 and 1997, respectively.
4. EMPLOYEE PROFIT SHARING PLAN
Unipath has a 401(k) plan covering all employees who meet eligibility
requirements. Employer contributions are made to the plan at the discretion
of Unipath's Board of Managers. No employer contributions were made for the
years ended June 30, 1996 and 1997.
F-129
<PAGE> 209
UNIPATH LTD. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. NET REVENUES
Net revenues 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, public and private
insurance and managed care contracts under applicable laws, regulations, and
program instructions. Collectible amounts are generally less than the
established rates. Contractual 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 revenues consisted of the following for the years ended June 30, 1996
and 1997:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Gross charges at established rates.................. $24,334,652 $26,729,265
Less allowances for contractual and other
adjustments....................................... (2,901,035) (4,307,347)
----------- -----------
Net revenues.............................. $21,433,617 $22,421,918
=========== ===========
</TABLE>
6. RELATED PARTY TRANSACTIONS
Certain Unipath owners are employed by Unipath as physicians and
accordingly, receive compensation for their services to Unipath. The
compensation included in costs of services rendered for these individuals
was $964,500 and $1,215,000 for the years ended June 30, 1996 and 1997,
respectively. Other owners of Unipath perform services for Unipath but
receive compensation directly through distributions and accordingly, such
amounts are not reflected in the statements of operations.
Unipath leases its lab facilities from a partnership whose partners have
ownership interests in Unipath. The lease expires June 30, 2000 and requires
minimum annual rental payments of $103,870. Rent expense for this lease was
$103,870 for each of the years ended June 30, 1996 and 1997.
7. COMMITMENTS AND CONTINGENCIES
SELF INSURANCE
Unipath is self insured with respect to a portion of health insurance risks
on a claims made basis. Claims in excess of contracted amounts are covered
by reinsurance. Unipath has provided and reserved for claims incurred up to
the contracted maximum amounts that Unipath would incur under its insurance
arrangements. 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, results of operations or cash flows of Unipath.
LIABILITY INSURANCE
Unipath is insured with respect to medical malpractice risks on a claims
made basis. Unipath 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 will not have a material adverse effect on the
financial position, results of operations or cash flows of Unipath.
F-130
<PAGE> 210
UNIPATH LTD. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
HEALTH CARE REGULATORY ENVIRONMENT AND RELIANCE ON GOVERNMENT PROGRAMS
The health care industry in general, and the services that Unipath provides
are subject to extensive Federal and State laws and regulations.
Additionally, a portion of Unipath's revenues are from payments by
government-sponsored health care 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 Unipath's services under these programs could have a material
adverse effect on Unipath's financial position, results of operations and
cash flows.
8. SUBSEQUENT EVENT
The individual equity holders of Unipath have entered into a definitive
agreement dated August 21, 1997, to sell their respective interests in
Unipath to entities controlled by AmeriPath, Inc.
F-131
<PAGE> 211
INDEPENDENT AUDITORS' REPORT
To the Stockholders of CoLab Incorporated Professional Corporation,
MicroDiagnostics, P.C. and
Anatomical Pathology Services, P.C.:
We have audited the accompanying combined balance sheets of CoLab Incorporated
Professional Corporation, MicroDiagnostics, P.C. and Anatomical Pathology
Services, P.C. (companies under common ownership and management, collectively
the "Companies") as of December 31, 1996 and June 30, 1997, and the related
combined statements of operations and retained earnings and of cash flows for
the year ended December 31, 1996 and the six months ended June 30, 1997. These
combined financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these combined
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 combined 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,
1996 and June 30, 1997, and the results of their operations and their cash flows
for the year ended December 31, 1996 and the six months ended June 30, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Indianapolis, Indiana
August 15, 1997
F-132
<PAGE> 212
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 477,453 $ 887,365
Accounts receivable (net of allowance for contractual
adjustments and doubtful accounts of $1,981,411 and
$1,931,441 at December 31, 1996 and June 30, 1997,
respectively).......................................... 1,517,190 1,638,724
Management income receivable.............................. 91,272 166,819
Prepaid expenses.......................................... 30,847 16,671
---------- ----------
Total current assets.............................. 2,116,762 2,709,579
PROPERTY AND EQUIPMENT, net................................. 3,814 3,504
OTHER ASSETS, net........................................... 4,073 3,652
---------- ----------
TOTAL............................................. $2,124,649 $2,716,735
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 328,856 $1,031,821
Payable to stockholders................................... 351,700
Deferred taxes............................................ 519,386 610,898
---------- ----------
Total current liabilities......................... 1,199,942 1,642,719
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
COLAB INCORPORATED PROFESSIONAL CORPORATION:
Common stock, no par value, 14,000 shares authorized,
14,000 issued and outstanding......................... 14,000 14,000
MICRODIAGNOSTICS, P.C.:
Common stock, no par value, 1,000 shares authorized,
700 issued and outstanding............................ 1,400 1,400
ANATOMICAL PATHOLOGY SERVICES, P.C.:
Common stock, $100 par value, 100 shares authorized, 80
issued and outstanding................................ 8,000 8,000
Retained earnings......................................... 901,307 1,050,616
---------- ----------
Total stockholders' equity........................ 924,707 1,074,016
---------- ----------
TOTAL............................................. $2,124,649 $2,716,735
========== ==========
</TABLE>
See notes to combined financial statements.
F-133
<PAGE> 213
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1966 AND THE
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
REVENUES:
Services revenue, net..................................... $10,535,626 $4,924,426
Management income......................................... 1,220,222 641,883
Other..................................................... 33,071 19,498
----------- ----------
Total revenues.................................... 11,788,919 5,585,807
----------- ----------
EXPENSES:
COST OF SERVICES RENDERED:
Physician compensation.................................... 6,840,490 3,637,159
Other compensation........................................ 187,604 101,772
----------- ----------
Total cost of services rendered................... 7,028,094 3,738,931
SELLING, BILLING AND ADMINISTRATIVE EXPENSES:
Provision for doubtful accounts........................... 1,426,969 528,042
Other..................................................... 1,967,051 1,078,013
----------- ----------
Total selling, billing and administrative
expenses........................................ 3,394,020 1,606,055
----------- ----------
Total expenses.................................... 10,422,114 5,344,986
----------- ----------
INCOME BEFORE PROVISION FOR DEFERRED TAXES.................. 1,366,805 240,821
PROVISION FOR DEFERRED TAXES................................ 519,386 91,512
----------- ----------
NET INCOME.................................................. 847,419 149,309
DIVIDENDS................................................... (16,500)
RETAINED EARNINGS, BEGINNING................................ 70,388 901,307
----------- ----------
RETAINED EARNINGS, ENDING................................... $ 901,307 $1,050,616
=========== ==========
</TABLE>
See notes to combined financial statements.
F-134
<PAGE> 214
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ $847,419 $ 149,309
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,988 731
Deferred tax expense................................... 519,386 91,512
Provision for doubtful accounts........................ 1,426,969 528,042
Changes in assets and liabilities:
(Increase) in accounts receivable.................... (2,856,174) (649,576)
(Increase) in management income receivable........... (91,272) (75,547)
(Increase) decrease in prepaid expenses and other
assets.............................................. (30,847) 14,176
Increase (decrease) in payable to stockholders....... 351,700 (351,700)
Increase in accounts payable and accrued
liabilities......................................... 307,013 702,965
----------- ---------
Net cash provided by operating activities......... 477,182 409,912
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (2,044)
Payments for organizational costs......................... (1,966)
----------- ---------
Net cash used by investing activities............. (4,010)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 14,000
Payment of dividends...................................... (16,500)
----------- ---------
Net cash used by financing activities............. (2,500)
----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 470,672 409,912
CASH AND CASH EQUIVALENTS, BEGINNING........................ 6,781 477,453
----------- ---------
CASH AND CASH EQUIVALENTS, ENDING........................... $ 477,453 $ 887,365
=========== =========
</TABLE>
See notes to combined financial statements.
F-135
<PAGE> 215
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997
1. BUSINESS AND BASIS OF COMBINATION
CoLab Incorporated Professional Corporation ("CoLab"), MicroDiagnostics,
P.C. ("MD") and Anatomical Pathology Services, P.C. ("APS") provide
professional pathology and diagnostic services for St. Vincent's Hospitals,
Community Hospitals and various other hospitals and clinics in the greater
Indianapolis, Indiana area and employ 15 pathologists. CoLab began
operations on January 1, 1996. MD and APS act as billing entities for
non-hospital pathology services performed by CoLab.
The accompanying combined financial statements present the combined
financial position of CoLab, MD and APS (collectively the "Companies"). MD
and APS are 100% owned by stockholders of CoLab. All significant
intercompany accounts and transactions have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies followed by the Companies are
as follows:
CASH AND CASH EQUIVALENTS
The Companies consider 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 primarily consists of computer equipment and is
stated at cost less accumulated depreciation. Depreciation is calculated
using the straight-line method over the estimated useful lives of five
years.
OTHER ASSETS
Other assets consist of organizational costs and are stated at cost less
accumulated amortization. Amortization is calculated using the straight line
method over five years.
REVENUE RECOGNITION
The Companies recognize revenues at the time services are performed. The
Companies provide 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.
The Companies have contracts with certain hospitals and other organizations
to provide medical director services for the anatomic and clinical
laboratory operations. The Companies recognize revenues pro-rata over the
lives of the contracts.
PHYSICIAN COMPENSATION
The Companies recognize compensation expense as base wages are paid and
bonuses are approved by the Board of Directors, as required by the
employment contracts (Note 7).
INCOME TAXES
CoLab 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
F-136
<PAGE> 216
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
MD and APS have elected to be treated as S-Corporations for federal and
state income tax purposes. Accordingly, MD and APS do not pay federal or
state income tax. The stockholders include the taxable income of MD and APS
in their individual income tax returns.
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.
CONCENTRATION RISKS
Financial instruments, which potentially subject the Companies to
concentrations of credit risk, consist principally of cash and cash
equivalents and accounts receivable. The Companies place their cash and cash
equivalents with high credit quality institutions. With respect to accounts
receivable, the Companies grant credit without collateral to their 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 of patients, third-party
payors, and clients.
The Companies' revenues are derived from their agreements with hospitals and
clinics. The contracts vary in length up to two years. A number of the
contracts also contain cancellation clauses with notification periods
ranging from 60 to 180 days which allow either party to terminate the
agreement without cause. Termination of the agreements would have a material
adverse effect on the operations of the Companies.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following at
December 31, 1996 and June 30, 1997:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Accounts payable....................................... $ 47,737 $ 88,147
Accrued collection fees................................ 172,243 157,509
Accrued physician compensation......................... 108,876 786,165
-------- ----------
Total accounts payable and accrued
liabilities................................ $328,856 $1,031,821
======== ==========
</TABLE>
4. EMPLOYEE BENEFIT PLANS
CoLab has a defined contribution profit sharing plan and a defined
contribution pension plan which cover all full-time employees who meet
eligibility requirements. Employer contributions are made to the profit
sharing plan at the discretion of CoLab's Board of Directors and to the
pension plan in the amount of 5.7% of the participant's compensation, plus
5.7% of the participant's excess compensation, as defined. Employer
contributions are limited to the maximum amount allowable by the Internal
Revenue Code.
F-137
<PAGE> 217
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Contributions of $478,000 and $424,000 were made to the plans for the year
ended December 31, 1996 and the six months ended June 30, 1997,
respectively, and are included in other selling, billing and administrative
expenses.
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 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. It is the opinion of management that the ultimate resolution of
any claims that may be asserted as a result of reviews by program
representatives will not have a material adverse effect on the financial
position or results of operations of the Companies.
Net revenue consists of the following for the year ended December 31, 1996
and the six months ended June 30, 1997:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Gross charges at established rates................... $17,566,975 $8,524,234
Less allowances for contractual, charity and other
adjustments........................................ 7,031,349 3,599,808
----------- ----------
Net revenue................................ $10,535,626 $4,924,426
=========== ==========
</TABLE>
6. RELATED PARTY TRANSACTIONS
The Companies' stockholders are employed by the Companies as physicians and
accordingly, receive compensation for their services to the Companies. The
compensation included in costs of services rendered for these individuals
was $6,665,490 and $3,549,658 for the year ended December 31, 1996 and for
the six months ended June 30, 1997, respectively.
The stockholders of the Companies are also the shareholders of CoLab
Investments, LLC. CoLab Investments, LLC holds a 9% interest in Mid-America
Clinical Laboratories (MACL), a joint venture between Seton Health
Corporation of Central Indiana, Community Hospitals of Indiana, SmithKline
Beecham Clinical Laboratories, Inc., and CoLab Investments, LLC. MACL was
established June 1, 1997 to operate the licensed clinical laboratory of the
hospitals. CoLab provides anatomical and clinical pathology services to MACL
for a monthly fee of $83,333.
At December 31, 1996, CoLab was holding cash of $351,700 which was payable
to certain stockholders. This cash was distributed to these stockholders on
January 2, 1997.
7. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACTS
CoLab has employment agreements with each of its physicians. The agreements
generally provide for certain annual base wages and bonuses. CoLab's policy
is to award bonuses that are equal to the cash basis taxable income.
F-138
<PAGE> 218
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LIABILITY INSURANCE
The Companies, and the individual pathologists, are insured with respect to
general liability and medical malpractice risks on either a claims made or
occurrence basis. Management is not aware of any claims against the
Companies or the stockholders. In addition, the Companies have 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 financial position
or results of operations of the Companies.
HEALTH CARE REGULATORY ENVIRONMENT AND RELIANCE ON GOVERNMENT PROGRAMS
The health care industry in general, and the services that the Companies
provide are subject to extensive Federal and State laws and regulations.
Additionally, a portion of the Companies' revenues are from payments by
government-sponsored health care programs, principally Medicare, 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 Companies'
services under these programs could have a material adverse effect on the
Companies' financial position and results of operations.
8. INCOME TAXES
The provision for deferred income taxes in the accompanying statements of
operations for the year ended December 31, 1996 and the six months ended
June 30, 1997 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Federal................................................ $464,714 $81,880
State.................................................. 54,672 9,632
-------- -------
Total........................................ $519,386 $91,512
======== =======
</TABLE>
CoLab's effective tax rate differs from the statutory federal income tax
rate for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Statutory federal income tax rate....................... 34% 34%
State income taxes, net of federal income tax benefit... 4% 4%
---- -----
Effective tax rate................................. 38% 38%
==== =====
</TABLE>
The significant components of the net deferred income tax liability at
December 31, 1996 and June 30, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for contractuals and doubtful
accounts..................................... $ 752,936 $ 733,948
Tax cash basis items........................... (1,272,322) (1,344,846)
----------- -----------
$ (519,386) $ (610,898)
=========== ===========
</TABLE>
F-139
<PAGE> 219
COLAB INCORPORATED PROFESSIONAL CORPORATION, MICRODIAGNOSTICS, P.C. AND
ANATOMICAL PATHOLOGY SERVICES, P.C.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENT
On August 15, 1997, the Companies' stockholders entered into a definitive
agreement to sell all of the Companies' issued and outstanding common stock
to AmeriPath, Inc.
F-140
<PAGE> 220
======================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 9
The Company............................. 17
Dilution................................ 21
Use of Proceeds......................... 22
Dividend Policy......................... 22
Capitalization.......................... 23
Selected Consolidated Financial Data.... 24
Unaudited Pro Forma Consolidated
Financial Data........................ 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 32
Business................................ 45
Management.............................. 59
Certain Transactions.................... 65
Principal Stockholders.................. 68
Description of Capital Stock............ 70
Shares Eligible for Future Sale......... 72
Underwriting............................ 74
Legal Matters........................... 76
Experts................................. 76
Additional Information.................. 77
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
------------------------
Until , 1997 (25 days from the date of this Prospectus), all
dealers effecting transactions in the Common Stock, 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.
======================================================
======================================================
5,000,000 SHARES
[AMERIPATH LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
PIPER JAFFRAY INC.
, 1997
======================================================
<PAGE> 221
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......... $26,137
NASD filing fee............................................. 9,125
Nasdaq National Market listing fee.......................... 50,000
Printing expenses........................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Healthcare regulatory consulting 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.
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 has obtained directors and officers liability insurance for the
benefit of its directors and certain of its officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant to the 1994 Acquisition: (i) Summit and Schroder purchased
3,084,730 and 123,389 shares, respectively, of the Convertible Preferred Stock
for $5,288,250 million and $211,750 million, respectively; and (ii) ALA issued
475,200 shares of common stock to each of Drs. Demaray, Poulos and Kowalczyk,
the owners of PDK, for an aggregate purchase price of $1.0 million.
In April 1996, the remaining obligations under the ALA 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).
II-1
<PAGE> 222
In connection with the Share Exchange and formation of AmPath in February
1996, each of Summit, Schroder and Dr. Demaray, Poulos and Kowalczyk exchanged
their respective holdings of Convertible Preferred Stock and Common Stock of ALA
for the same number and type of debt and equity securities of the Company. No
additional consideration was paid in connection with these transactions. Also in
February 1996, Summit and Schroder converted 115,388 and 4,616 shares,
respectively, of the Convertible Preferred Stock to 207,698 and 8,309 shares,
respectively, of Common Stock.
In connection with the establishment of the Credit Facility and amendments
thereto and the payment of related commitment fees, the Company issued (i) to
FSC Corp., an affiliate of The First National Bank of Boston, 14,999 shares,
22,500 shares and 20,000 shares of Common Stock on June 26, 1996, August 29,
1996 and November 4, 1996, respectively, and (ii) to Atlantic Equity
Corporation, an affiliate of NationsBank, 14,999 shares and 13,500 shares of
Common Stock on June 26, 1996 and August 29, 1996, respectively.
Summit and Schroder will convert their shares of Convertible Preferred
Stock into an aggregate of 5,558,607 shares of Common Stock prior to
consummation of this offering. The Company has reserved 5,558,607 shares of
Common Stock for the conversion of the Convertible Preferred Stock.
Effective June 30, 1996, the Company consummated the acquisition of Derrick
and in connection therewith issued an aggregate of 1,080,009 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 136,501 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 275,999 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 an aggregate of 172,800 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 11,999 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 360,000 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: 79,999 to
Leslie B. Rosen, M.D.; 40,000 to Kip Amazon, M.D.; 103,500 to each of Robert E.
Jones, Jr., M.D. and James E. Elder, M.D.; 140,076 to David R. Barron, M.D.;
39,924 to Ruth S. Kleier, M.D.; 90,000 to Beno Michel, M.D.; 22,545 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.; 90,000 to Clay J.
Cockerell, M.D.; 107,399 to James E. Dunnington, M.D.; 113,740 to each of
Lawrence Seidenstein, M.D., Steven E. Levine, M.D. and David M. Reardon, M.D.;
and 270,000 to each of George C. Kalemeris, M.D. and Richard Fernandez, M.D.
In May, 1997, in connection with certain post-closing adjustments relating
to the acquisition of CPI, the Company issued 91,201 shares of Common Stock to
Beno Michel, M.D.
On August 1, 1997, the Company consummated the acquisition of the practice
of Steven D. Weiss, M.D. and in connection therewith issued 3,000 shares of
Common Stock to Steven D. Weiss, M.D.
Following the date hereof and prior to the consummation of the offering, in
connection with the Pending Acquisitions and assuming consummation of such
acquisitions, the Company will issue a total of 1,910,808 shares of Common
Stock.
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.
II-2
<PAGE> 223
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 -- Employment Agreement, dated as of June 30, 1996, between
AmeriPath Florida and Les Rosen, M.D.
10.9 -- Credit Agreement originally dated as of May 29, 1996 and
amended and restated as of June 27, 1997, among AmeriPath,
Inc., the subsidiaries of AmeriPath, Inc. from time to time
party thereto, the lenders from time to time party thereto
and Bank of Boston, N.A.
10.11 -- Lease dated as of April 8, 1988 by and between MLS
Properties, Inc. and E.G. Poulos, M.D., M.J. Demaray, M.D. &
A.P. Kowalczyk, M.D., P.A., doing business as American
Laboratory Associates
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
10.17 -- American Laboratory Associates, Inc. Series A Preferred
Stock, Common Stock and Junior Subordinated Note Purchase
Agreement, dated as of January 1, 1994
10.18 -- Letter Agreement, dated September 18, 1996, between
Acquisition Management Services, Inc. and AmeriPath, Inc.
10.19 -- AmeriPath Management Agreement by and between AmeriPath
Cincinnati, Inc. and AmeriPath Ohio, Inc., dated September
30, 1996
10.20 -- Management Agreement by and between Beno Michel, M.D., Inc.
and AmeriPath, Inc., dated October 15, 1996
10.21 -- Management Agreement by and between Clay J. Cockerell, M.D.,
P.A. and AmeriPath Texas, Inc., dated September 30, 1996, as
amended January 16, 1997
</TABLE>
II-3
<PAGE> 224
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
10.22 -- Agreement for Professional Pathology Services between
SmithKline Beecham Clinical Laboratories, Inc. and Derrick
and Associates Pathology, P.A., dated April 1, 1992
10.23 -- Agreement for Medical Directorship between SmithKline
Beecham Clinical Laboratories, Inc. and Derrick and
Associates Pathology, P.A., dated April 1, 1992
10.24 -- Agreement for Professional Pathology Services between
SmithKline Beecham Clinical Laboratories, Inc. and AmeriPath
Florida, Inc., dated November 1, 1996
10.25 -- Share Exchange Agreement, dated as of February 15, 1996, by
and among American Laboratory Associates, Inc., AmeriPath,
Inc. and the holders of common and convertible preferred
stock of American Laboratory Associates, Inc.
10.26 -- Trust Agreement, dated as of October 15, 1996, between
AmeriPath, Inc. and Beno Michel, as trustee
10.27 -- Trust Agreement, dated as of September 30, 1996, between
AmeriPath, Inc. and David R. Barron, M.D. as trustee
10.28 -- Form of Nonqualified Stock Option Agreement
10.29 -- Stock Purchase Agreement, dated as of October 15, 1996, by
and among AmeriPath, Inc., Beno Michel, M.D., Inc. and Beno
Michel, M.D.
10.30 -- Stock Purchase Agreement, dated as of October 10, 1996, by
and among AmeriPath, Inc., Drs. Seidenstein, Levine and
Associates, Inc., Seidenstein, Levine Real Estate
Partnership, Lawrence Seidenstein, M.D., Steven E. Levine,
M.D. and David M. Reardon, M.D.
10.31 -- Stock Issuance Agreement, dated as of June 26, 1996, among
AmeriPath, Inc., The First National Bank of Boston, FSC
Corp., NationsBank, N.A. (South) and Atlantic Equity
Corporation
10.32 -- Stock Issuance Agreement, dated as of August 29, 1996, among
AmeriPath, Inc., The First National Bank of Boston, FSC
Corp., NationsBank, N.A. (South) and Atlantic Equity
Corporation
10.33 -- Stock Issuance Agreement, dated as of November 4, 1996,
among AmeriPath, Inc., The First National Bank of Boston and
FSC Corp.
10.34 -- Stock Purchase Agreement, dated August 21, 1997, by and
among AmeriPath, Inc., J. Sloan Leonard, M.D., Joseph A.
Sonnier, M.D., Van Q. Telford, M.D., William C. Burton,
M.D., James Scot Milvenan, M.D., Leslie L. Walters, M.D.,
Thomas M. James, M.D., Stephen W. Aldred, M.D., John E.
McDonald, M.D. and Barbara A. Shinn, M.D.
10.35 -- Stock Purchase Agreement, dated August 15, 1997, by and
among AmeriPath, Inc., Colab Incorporated Professional
Corporation, Anatomical Pathology Services, P.C.,
Microdiagnostics, P.C. and the sellers set forth therein
10.36 -- Lease effective June 1, 1995 by and between Dallas Pathology
Leasing and Unipath, Ltd.
21.1 -- 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)
23.7 -- Consent of Deloitte & Touche LLP (Indianapolis, Indiana)
23.8 -- Consent of Jenkens & Gilchrist a professional corporation
</TABLE>
II-4
<PAGE> 225
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S> <C>
23.9 -- Consent of Bricker & Eckler LLP
23.10 -- Consent of Wyatt, Tarrant & Combs
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 430A 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-5
<PAGE> 226
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 Riviera Beach, State of
Florida, on August 22, 1997.
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 any additional
registration statements filed pursuant to Rule 462 under the Securities Act of
1933 relating hereto, 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 Executive August 22, 1997
- ----------------------------------------------------- Officer and Director
James C. New (principal executive
officer)
/s/ ALAN LEVIN, M.D. Chief Operating Officer and August 22, 1997
- ----------------------------------------------------- Director
Alan Levin, M.D.
/s/ ROBERT P. WYNN Executive Vice President and August 22, 1997
- ----------------------------------------------------- Chief Financial Officer
Robert P. Wynn (principal financial
officer and principal
accounting officer)
/s/ THOMAS S. ROBERTS Chairman of the Board and August 22, 1997
- ----------------------------------------------------- Director
Thomas S. Roberts
/s/ TIMOTHY KILPATRICK, M.D. Director August 22, 1997
- -----------------------------------------------------
Timothy Kilpatrick, M.D.
/s/ C. ARNOLD RENSCHLER, M.D. Director August 22, 1997
- -----------------------------------------------------
C. Arnold Renschler, M.D.
Director
- -----------------------------------------------------
E. Roe Stamps, IV
</TABLE>
II-6
<PAGE> 227
AMERIPATH, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 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, 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
======= ======= ======= ======== =======
Year ended December 31, 1996:
Allowances for contractual, other
adjustments and uncollectible
accounts........................... $ 1,923 $18,441 $13,758 $(17,972) $16,150
======= ======= ======= ======== =======
</TABLE>
- ---------------
(1) Represents the allowances for contractual, other adjustments and
uncollectible accounts related to the 1996 Acquisitions as defined in the
Prospectus.
S-1
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
AMERIPATH, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 CERTIFICATE OF INCORPORATION ....................................... - 1 -
Section 1.1 Contents ................................................... - 1 -
Section 1.2 Certificate in Effect ...................................... - 1 -
ARTICLE 2 MEETINGS OF STOCKHOLDERS ........................................... - 1 -
Section 2.1 Place ...................................................... - 1 -
Section 2.2 Annual Meeting ............................................. - 2 -
Section 2.3 Special Meetings ........................................... - 2 -
Section 2.4 Notice of Meetings ......................................... - 3 -
Section 2.5 Affidavit of Notice ........................................ - 3 -
Section 2.6 Quorum ..................................................... - 3 -
Section 2.7 Voting Requirements ........................................ - 4 -
Section 2.8 Proxies and Voting ......................................... - 4 -
Section 2.9 No Stockholder Action Without Meeting ...................... - 4 -
Section 2.10 Stockholder List ........................................... - 5 -
Section 2.11 Record Date ................................................ - 5 -
Section 2.12 Advance Notice of Stockholder Proposed
Business at Annual Meeting.................................. - 6 -
ARTICLE 3 DIRECTORS .......................................................... - 8 -
Section 3.1 Number; Election and Term of Office ........................ - 8 -
Section 3.2 Duties ..................................................... - 9 -
Section 3.3 Compensation ............................................... - 9 -
Section 3.4 Reliance on Books .......................................... - 9 -
Section 3.6 Amendments ................................................. - 11 -
Section 4.1 Place ...................................................... - 12 -
Section 4.2 Annual Meeting ............................................. - 12 -
Section 4.3 Regular Meetings ........................................... - 12 -
Section 4.4 Special Meetings ........................................... - 12 -
Section 4.5 Quorum ..................................................... - 12 -
Section 4.6 Action Without Meeting ..................................... - 13 -
Section 4.7 Telephone Meetings ......................................... - 13 -
ARTICLE 5 COMMITTEES OF DIRECTORS ............................................ - 13 -
Section 5.1 Designation ................................................ - 13 -
Section 5.2 Records of Meetings ........................................ - 14 -
ARTICLE 6 NOTICES ............................................................ - 15 -
Section 6.1 Method of Giving Notice .................................... - 15 -
Section 6.2 Waiver ..................................................... - 15 -
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 7 OFFICERS ........................................................... - 15 -
Section 7.1 In General ................................................. - 15 -
Section 7.2 Annual Appointment ......................................... - 16 -
Section 7.3 Election of Other Officers ................................. - 16 -
Section 7.4 Salaries ................................................... - 16 -
Section 7.5 Term of Office ............................................. - 16 -
Section 7.6 Duties of Chairman of the Board, Chief
Executive Officer, Chief Operating
Officer, Chief Financial Officer,
Medical Director and President ............................. - 16 -
Section 7.7 The Chairman of the Board of Directors ..................... - 16 -
Section 7.8 The Chief Executive Officer ................................ - 17 -
Section 7.9 The President .............................................. - 17 -
Section 7.10 The Chief Operating Officer ................................ - 18 -
Section 7.11 The Chief Financial Officer ................................ - 18 -
Section 7.12 The Medical Director ....................................... - 18 -
Section 7.13 Duties of Vice-President ................................... - 19 -
Section 7.14 Duties of Secretary ........................................ - 19 -
Section 7.15 Duties of Assistant Secretary .............................. - 19 -
Section 7.16 Duties of Treasurer ........................................ - 20 -
Section 7.17 Duties of Assistant Treasurer .............................. - 20 -
ARTICLE 8 RESIGNATIONS, REMOVALS AND VACANCIES ............................... - 21 -
Section 8.1 Directors .................................................. - 21 -
Resignations ............................................... - 21 -
Removals ................................................... - 21 -
Vacancies .................................................. - 21 -
Section 8.2 Officers ................................................... - 21 -
Section 8.3 Amendments ................................................. - 22 -
ARTICLE 9 CERTIFICATE OF STOCK ............................................... - 22 -
Section 9.1 Issuance of Stock .......................................... - 22 -
Section 9.2 Right to Certificate; Form ................................. - 22 -
Section 9.3 Facsimile Signature ........................................ - 23 -
Section 9.4 Lost Certificates .......................................... - 23 -
Section 9.5 Transfer of Stock .......................................... - 24 -
Section 9.6 Registered Stockholders .................................... - 24 -
ARTICLE 10 INDEMNIFICATION ................................................... - 24 -
Section 10.1 Third Party Actions ........................................ - 24 -
Section 10.2 Derivative Actions ......................................... - 25 -
Section 10.3 Expenses ................................................... - 26 -
Section 10.4 Authorization .............................................. - 26 -
Section 10.5 Advance Payment of Expenses ................................ - 26 -
Section 10.6 Non-Exclusiveness .......................................... - 27 -
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 10.7 Insurance .................................................. - 27 -
Section 10.8 Constituent Corporations ................................... - 27 -
Section 10.9 Additional Indemnification ................................. - 28 -
ARTICLE 11 EXECUTION OF PAPERS ............................................... - 28 -
ARTICLE 12 FISCAL YEAR ....................................................... - 28 -
ARTICLE 13 SEAL .............................................................. - 29 -
ARTICLE 14 OFFICES ........................................................... - 29 -
ARTICLE 15 AMENDMENTS ........................................................ - 29 -
</TABLE>
iii
<PAGE> 5
AMERIPATH, INC.
BYLAWS
ARTICLE 1
CERTIFICATE OF INCORPORATION
Section 1.1 CONTENTS. The name, location of principal office and
purposes of the Corporation shall be as set forth in its Certificate of
Incorporation. These Bylaws, the powers of the Corporation and of its Directors
and stockholders, and all matters concerning the conduct and regulation of the
business of the Corporation shall be subject to such provisions in regard
thereto, if any, as are set forth in said Certificate of Incorporation. The
Certificate of Incorporation is hereby made a part of these Bylaws.
Section 1.2 CERTIFICATE IN EFFECT. All references in these Bylaws to
the Certificate of Incorporation shall be construed to mean the Certificate of
Incorporation of the Corporation as from time to time amended, including (unless
the context shall otherwise require) all certificates and any agreement of
consolidation or merger filed pursuant to the Delaware General Corporation Law,
as amended.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.1 PLACE. All meetings of the stockholders may be held at such
place either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors, the Chairman of the Board of Directors
or the President and stated in the notice of the meeting or in any duly executed
waiver of notice thereof.
<PAGE> 6
Section 2.2 ANNUAL MEETING. Annual meetings of stockholders, shall be
held on the second Tuesday of April in each year, if not a legal holiday, and,
if a legal holiday, then on the next secular day following, at 10:00 A.M., or at
such other date and time as shall be designated from time to time by the Board
of Directors, the Chairman of the Board of Directors or the President and stated
in the notice of the meeting. If such annual meeting has not been held on the
day herein provided therefor, a special meeting of the stockholders in lieu of
the annual meeting may be held, and any business transacted or elections held at
such special meeting shall have the same effect as if transacted or held at the
annual meeting, and in such case all references in these Bylaws, except in this
Section 2.2, to the annual meeting of the stockholders shall be deemed to refer
to such special meeting.
Section 2.3 SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights of the holders of the Preferred Stock, special meetings of
stockholders of the Corporation may be called only by (i) the Board of Directors
pursuant to a resolution approved by a majority of the entire Board, (ii) the
Corporation's President or (iii) the Chairman of the Board of the Corporation.
Special meetings of the stockholders may be held at such time and date, and at
such place as shall be designated by the Board of Directors and set forth in the
notice of meeting required pursuant to Section 2.4. Notwithstanding anything
contained in these Bylaws to the contrary, this Section 2.3 shall not be
altered, amended or repealed except by an affirmative vote of the holders of at
least eighty percent (80%) of the combined voting power of the outstanding
shares of all capital stock entitled to vote for the election of directors. Only
such business as is set forth in the notice of a special meeting may be
transacted at such Special Meeting.
- 2 -
<PAGE> 7
Section 2.4 NOTICE OF MEETINGS. A written notice of all meetings of
stockholders stating the place, date and hour of the meeting and, in the case of
a special meeting, the purpose or purposes for which the special meeting is
called, shall be given to each stockholder entitled to vote at such meeting.
Except as otherwise provided by law, such notice shall be given not less than
ten nor more than sixty days before the date of the meeting. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.
Section 2.5 AFFIDAVIT OF NOTICE. An affidavit of the Secretary or an
Assistant Secretary or the transfer agent of the Corporation that notice of a
stockholders meeting has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
Section 2.6 QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented by proxy at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, except as hereinafter provided, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
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Section 2.7 VOTING REQUIREMENTS. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of any applicable statute or of the Certificate of Incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question.
Section 2.8 PROXIES AND VOTING. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote the pledged shares, unless in the transfer by the pledgor on the books
of the Corporation he shall have expressly empowered the pledgee to vote said
shares, in which case only the pledgee, or his proxy, may represent and vote
such shares. Shares of the capital stock of the Corporation owned by the
Corporation shall not be voted, directly or indirectly.
Section 2.9 NO STOCKHOLDER ACTION WITHOUT MEETING. Any action required
or permitted to be taken by the stockholders of the Corporation shall be taken
at a duly called annual or special meeting of such holders and may not be taken
by any consent in writing by such holders. Notwithstanding anything contained in
these Bylaws to the contrary, this Section 2.9 shall not be altered, amended or
repealed except by an affirmative vote of the holders of at
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least eighty percent (80%) of the combined voting power of the outstanding
shares of all capital stock entitled to vote for the election of directors.
Section 2.10 STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The original or duplicate stock ledger shall be the only evidence as to
who are the stockholders entitled to examine such list, the stock ledger or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 2.11 RECORD DATE. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than
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sixty days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting. If no record date is fixed by
the Board of Directors:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
Section 2.12 ADVANCE NOTICE OF STOCKHOLDER PROPOSED BUSINESS AT ANNUAL
MEETING. At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be either (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice
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thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation, not less than 120 days nor more
than 150 days prior to the first anniversary of the date of the Corporation'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 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder, and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 12; provided, however, that nothing in this
Section 12 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure.
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The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 12, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Notwithstanding anything contained in the Bylaws to the contrary, this
Section 12 shall not be altered, amended or repealed except by an affirmative
vote of the holders of at least eighty percent (80%) of the combined voting
power of the outstanding shares of all capital stock entitled to vote for the
election of directors.
ARTICLE 3
DIRECTORS
Section 3.1 NUMBER; ELECTION AND TERM OF OFFICE. The Corporation's
Board shall consist of not less than three nor more than twelve members, with
the exact number to be fixed from time to time in accordance with a resolution
adopted by a majority of the entire Board. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. The Board shall be divided into three classes. The number of directors
elected to each class shall be as nearly equal in number as possible. Each
director in the first class shall be elected to an initial term expiring at the
next ensuing annual meeting of stockholders, each director in the second class
shall be elected to an initial term expiring at the annual meeting of
stockholders held one year thereafter and each director in the third class shall
be elected to an initial term expiring at the annual meeting of stockholders
held one year thereafter, in each case until his or her successor is duly
elected and qualified or until his or her earlier resignation, death,
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incapacity or removal from office. Upon the expiration of the initial terms of
office for each class of directors, the successor directors of each class shall
be elected for a full term of three years, to serve until their successors are
duly elected and qualified or until their earlier resignation, death, incapacity
or removal from office. The Board shall apportion any increase or decrease in
the number of directors among the classes as nearly equal in number as possible.
Section 3.2 DUTIES. The business of the Corporation shall be managed by
or under the direction of its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 3.3 COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of Directors. The Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as Directors. No such payment shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 3.4 RELIANCE ON BOOKS. A member of the Board of Directors or a
member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an
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appraiser selected with reasonable care by the Board of Directors or by any
committee, or in relying in good faith upon other records of the Corporation.
Section 3.5 STOCKHOLDER NOMINATIONS FOR DIRECTOR CANDIDATES. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors. Nominations of persons for election to the
Board of Directors of the Corporation may be made at a meeting of stockholders
by or at the direction of the Board of Directors by any nominating committee or
person appointed by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3.5. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation,
not less than 120 days nor more than 150 days prior to the first anniversary of
the date of the Corporation'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 10th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs. Such stockholder's notice to the
Secretary shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person,
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(ii) the principal occupation or employment of the persons, (iii) the class and
number of shares of capital stock of the Corporation which are beneficially
owned by the person, (iv) the consent of each nominee to serve as a director of
the Corporation if so elected, and (v) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors pursuant to Rule 14a under the Securities Exchange Act of
1934, as amended; and (b) as to the stockholder giving the notice, (i) the name
and record address of that stockholder, and (ii) the class and number of shares
of capital stock of the Corporation which are beneficially owned by the
stockholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as director of the
Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 3.6 AMENDMENTS. Notwithstanding anything contained in the
Bylaws to the contrary, this Article 3 shall not be altered, amended or repealed
except by an affirmative vote of the holders of at least eighty percent (80%) of
the combined voting power of the outstanding shares of all capital stock
entitled to vote for the election of directors.
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ARTICLE 4
MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 PLACE. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 4.2 ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders or any special meeting held in lieu thereof, and no notice of such
meeting shall be necessary to the newly elected Directors in order legally to
constitute the meeting.
Section 4.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
Section 4.4 SPECIAL MEETINGS. Special meetings of the Board may be
called by the President on two days' notice to each Director either personally
or by mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
Directors unless the Board consists of only one Director, in which case special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of the sole Director.
Section 4.5 QUORUM. At all meetings of the Board a majority of the
Directors then in office shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the
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Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 4.6 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 4.7 TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
ARTICLE 5
COMMITTEES OF DIRECTORS
Section 5.1 DESIGNATION.
(a) The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
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(b) In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(c) Any such committee, to the extent provided in the
resolution of the Board of Directors designating the committee, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Section 5.2 RECORDS OF MEETINGS. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
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ARTICLE 6
NOTICES
Section 6.1 METHOD OF GIVING NOTICE. Whenever, under any provision of
the law or of the Certificate of Incorporation or of these Bylaws, notice is
required to be given to any Director or stockholder, such notice shall be given
in writing by the Secretary or the person or persons calling the meeting by
leaving such notice with such Director or stockholder at his residence or usual
place of business or by mailing it addressed to such Director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to Directors may
also be given by telegram.
Section 6.2 WAIVER. Whenever any notice is required to be given under
any provision of law or of the Certificate of Incorporation or of these Bylaws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE 7
OFFICERS
Section 7.1 IN GENERAL. The officers of the Corporation shall be chosen
by the Board of Directors and shall include a President, a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board, a
Chief Executive Officer, a Chief Financial Officer,
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a Chief Operating Officer, a Medical Director and one or more Vice Presidents,
Executive Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-Laws otherwise provide.
Section 7.2 ANNUAL APPOINTMENT. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a President, a
Secretary and a Treasurer.
Section 7.3 ELECTION OF OTHER OFFICERS. The Board of Directors may
appoint such other officers and agents as it shall deem appropriate who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board.
Section 7.4 SALARIES. The salaries of all officers and agents of the
Corporation may be fixed by the Board of Directors.
Section 7.5 TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time in the manner specified in Section 8.2.
Section 7.6 DUTIES OF CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER,
CHIEF OPERATING OFFICER, CHIEF FINANCIAL OFFICER, MEDICAL DIRECTOR AND
PRESIDENT. The following officers of the Corporation, to the extent appointed by
the Board of Directors in accordance with these By-Laws, shall have and may
exercise the following respective duties and powers:
Section 7.7 THE CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors (the "Chairman"), if any, shall make his counsel available to
the other officers of the Corporation, shall be authorized to sign stock
certificates on behalf of the Corporation and shall
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preside at all meetings of the Directors at which he is present, and, in the
absence of the Chief Executive Officer, shall preside at all meetings of the
stockholders, and shall also have such other or further duties and powers as may
from time to time be conferred upon him by the Board of Directors.
Section 7.8 THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of
the Corporation shall be the principal executive officer of the corporation,
with general executive powers and duties regarding the Corporation. The Chief
Executive Officer shall preside at all meetings of stockholders and, if he is a
Director, at all meetings of the Board of Directors if there shall be no
Chairman or in the absence of the Chairman, and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The Chief
Executive Officer shall also have and may exercise such other or further duties
and powers as may from time to time be conferred upon, or assigned to, him by
the Board of Directors. Absent a Board of Director resolution to the contrary,
the President shall be the Chief Executive Officer of the Corporation.
Section 7.9 THE PRESIDENT. The President shall be the chief
administrative officer of the Corporation and shall have powers and duties
consistent with such position. The President shall execute bonds, mortgages,
loans and other contracts requiring a seal, under the seal of the Corporation,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of the Corporation. The
President shall also have and may exercise such other or further duties and
powers as may from time to time be conferred upon, or assigned to, him by the
Chief Executive Officer, if any, or the Board of Directors.
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Absent a Board of Director resolution to the contrary, the President shall be
the Chief Executive Officer, Chief Operating Officer of the Corporation.
Section 7.10 THE CHIEF OPERATING OFFICER. The Chief Operating Officer
of the Corporation shall be the principal officer responsible for the operations
of the Corporation, and shall have general and active management of the
day-to-day business, operations and affairs of the Corporation. The Chief
Operating Officer shall also have and may exercise such other or further duties
and powers as may from time to time be conferred upon, or assigned to, him by
the Chief Executive Officer, if any, or the Board of Directors. Absent a Board
of Director resolution to the contrary, the President shall be the Chief
Operating Officer of the Corporation.
Section 7.11 THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer
of the Corporation shall be the principal officer responsible for the financial
and accounting systems of the Corporation, and shall have general and active
responsibility of the day-to-day financial systems and controls of the
Corporation. The Chief Financial Officer shall also have and may exercise such
other or further duties and powers as may from time to time be conferred upon,
or assigned to, him by the Chief Executive Officer, if any, or the Board of
Directors.
Section 7.12 THE MEDICAL DIRECTOR. The Medical Director of the
Corporation shall be the principal officer of the Corporation responsible for
the medical and health care aspects of the Corporation, and shall have general
and active responsibility with respect to all medical and health care decisions
of the Corporation. The Medical Director shall also have and may exercise such
other or further duties and powers as may from time to time be conferred upon,
or assigned to, him by the Chief Executive Officer, if any, or the Board of
Directors.
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Section 7.13 DUTIES OF VICE-PRESIDENT. In the absence of the President
or in the event of his inability or refusal to act, the Vice-President (or in
the event there be more than one Vice- President, the Vice-Presidents in the
order designated by the Directors, or in the absence of any designation, then in
the order of their election) shall perform the duties of the President not
otherwise conferred upon the Chairman of the Board, if any, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice-Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Section 7.14 DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and special meetings of the Board of
Directors, except as otherwise provided in these By-Laws, and shall perform such
other duties as may be prescribed by the Board of Directors or President, under
whose supervision he shall be. He shall have charge of the stock ledger (which
may, however, be kept by any transfer agent or agents of the Corporation under
his direction) and of the corporate seal of the Corporation.
Section 7.15 DUTIES OF ASSISTANT SECRETARY. The Assistant Secretary, or
if there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors (or if there be no such determination, then in the order
of their election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the
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powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 7.16 DUTIES OF TREASURER. The Treasurer shall have the custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all of his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of this office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 7.17 DUTIES OF ASSISTANT TREASURER. The Assistant Treasurer, or
if there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election), shall, in the absence of the Treasurer or in
the event of his inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
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ARTICLE 8
RESIGNATIONS, REMOVALS AND VACANCIES
Section 8.1 DIRECTORS.
(a) Resignations. Any Director may resign at any time by
giving written notice to the Board of Directors or the President or the
Secretary. Such resignation shall take effect at the time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
(b) REMOVALS. Subject to any provisions of the Certificate of
Incorporation, the holders of stock entitled to vote for the election of
Directors may, at any meeting called for the purpose, by vote of a majority of
the shares of such stock outstanding, remove any Director or the entire Board of
Directors with or without cause and fill any vacancies thereby created. This
Section 8.1(b) may not be altered, amended or repealed except by the holders of
a majority of the shares of stock issued and outstanding and entitled to vote
for the election of the Directors.
(c) VACANCIES. Vacancies occurring in the office of Director
and newly created Directorships resulting from any increase in the authorized
number of Directors shall be filled by a majority of the Directors then in
office, though less than a quorum, unless previously filled by the stockholders
entitled to vote for the election of Directors, and the Directors so chosen
shall hold office subject to the Bylaws until the next annual election and until
their successors are duly elected and qualify or until their earlier resignation
or removal. If there are no Directors in office, then an election of Directors
may be held in the manner provided by statute.
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Section 8.2 OFFICERS. Any officer may resign at any time by giving
written notice to the Board of Directors or the President or the Secretary. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. The Board of Directors may, at any meeting
called for the purpose, by vote of a majority of their entire number, remove
from office any officer of the Corporation or any member of a committee, with or
without cause. Any vacancy occurring in the office of President, Secretary or
Treasurer shall be filled by the Board of Directors and the officers so chosen
shall hold office subject to the By-Laws for the unexpired term in respect of
which the vacancy occurred and until their successors shall be elected and
qualify or until their earlier resignation or removal.
Section 8.3 AMENDMENTS. Notwithstanding anything contained in the
Bylaws to the contrary, this Article VIII shall not be altered, amended or
repealed except by an affirmative vote of the holders of at least eighty percent
(80%) of the combined voting power of the outstanding shares of all capital
stock entitled to vote for the election of directors.
ARTICLE 9
CERTIFICATE OF STOCK
Section 9.1 ISSUANCE OF STOCK. The Directors may, at any time and from
time to time, if all of the shares of capital stock which the Corporation is
authorized by its Certificate of Incorporation to issue have not been issued,
subscribed for, or otherwise committed to be issued, issue or take subscriptions
for additional shares of its capital stock up to the amount authorized in its
Certificate of Incorporation. Such stock shall be issued and the consideration
paid therefor in the manner prescribed by law.
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<PAGE> 27
Section 9.2 RIGHT TO CERTIFICATE; FORM. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board, the President or a
Vice-President and the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Corporation, certifying the number of shares owned
by him in the Corporation; provided that the Directors may provide by one or
more resolutions that some or all of any or all classes or series of the
Corporation's stock shall be uncertified shares. Certificates may be issued for
partly paid shares and in such case upon the face or back of the certificates
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.
Section 9.3 FACSIMILE SIGNATURE. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 9.4 LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct
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<PAGE> 28
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
Section 9.5 TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 9.6 REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE 10
INDEMNIFICATION
Section 10.1 THIRD PARTY ACTIONS. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines
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<PAGE> 29
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 10.2 DERIVATIVE ACTIONS. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a Director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
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<PAGE> 30
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 10.3 EXPENSES. To the extent that a Director, officer, employee
or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 10.1 and 10.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 10.4 AUTHORIZATION. Any indemnification under Sections 10.1 and
10.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 10.1 and 10.2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who were not parties to such action,
suit or proceeding, or (b) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
Section 10.5 ADVANCE PAYMENT OF EXPENSES. Expenses incurred by an
officer or Director in defending a civil or criminal action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of such officer or
Director to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the Corporation as authorized in this Article
10. Such expenses
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<PAGE> 31
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
Section 10.6 NON-EXCLUSIVENESS. The indemnification provided by this
Article 10 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 10.7 INSURANCE. The Corporation shall have power to purchase
and maintain insurance on behalf of any person who is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
Article 10.
Section 10.8 CONSTITUENT CORPORATIONS. The Corporation shall have power
to indemnify any person who is or was a director, officer, employee or agent of
a constituent corporation absorbed in a consolidation or merger with this
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for any person who is or was a Director, officer, employee or agent of
the Corporation, or is or
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<PAGE> 32
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
Section 10.9 ADDITIONAL INDEMNIFICATION. In addition to the foregoing
provisions of this Article 10, the Corporation shall have the power, to the full
extent provided by law, to indemnify any person for any act or omission of such
person against all loss, cost, damage and expense (including attorney's fees) if
such person is determined (in the manner prescribed in Section 10.4 hereof) to
have acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interest of the Corporation.
ARTICLE 11
EXECUTION OF PAPERS
Except as otherwise provided in these Bylaws or as the Board of
Directors may generally or in particular cases otherwise determine, all deeds,
leases, transfers, contracts, bonds, notes, checks, drafts and other instruments
authorized to be executed on behalf of the Corporation shall be executed by the
Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
President, Secretary or Treasurer.
ARTICLE 12
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
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<PAGE> 33
ARTICLE 13
SEAL
The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the word "Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE 14
OFFICES
In addition to its principal office, the Corporation may have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE 15
AMENDMENTS
The Board shall have the power to adopt, amend or repeal the Bylaws or
any part hereof. Certain provisions of the Bylaws, as stated herein, may not be
altered, amended or repealed except by an affirmative vote of the holders of at
least eighty percent (80%) of the combined voting power of the outstanding
shares of all capital stock entitled to vote for the election of directors.
Except for such provisions requiring an eighty percent (80%) vote to alter,
amend or repeal, the Bylaws may be altered, amended or repealed, and new bylaws
may be adopted, by the stockholders upon the affirmative vote of at least a
majority of the outstanding shares of capital stock of the Corporation entitled
to vote at a stockholders' meeting duly called for such purpose. Notwithstanding
anything contained in these Bylaws to the contrary, this Article 15 shall not be
altered, amended or repealed except by an affirmative vote of the holders of at
least eighty
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<PAGE> 34
percent (80%) of the combined voting power of the outstanding shares of all
capital stock entitled to vote for the election of directors.
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<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.
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<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.
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.
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<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
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<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;
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<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.
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<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
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<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
- 8 -
<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.
- 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
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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/ 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,
/s/ James C. New
----------------
James C. New
Agreed and Accepted on
this September 30, 1996.
/s/ Alan Levin
- ------------------------------
ALAN LEVIN, M.D.
<PAGE> 3
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.
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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.
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EXHIBIT "A"
EMPLOYMENT AGREEMENT
A-1
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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.
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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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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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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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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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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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(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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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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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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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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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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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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(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
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<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 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 LES B. ROSEN, 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 Amazon and Rosen, M.D., P.A., a Florida professional service
corporation d/b/a Florida Pathology Associates ("Amazon & Rosen"). Pursuant to a
certain Stock Purchase Agreement (the "Purchase Agreement") dated as of June 27,
1996 by and among AmeriPath, Inc., a Delaware corporation ("AmeriPath"), Amazon
& Rosen and Drs. Kip Amazon and Les B. Rosen, all of the issued and outstanding
capital stock of Amazon & Rosen 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 employment with
Amazon & Rosen and to 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 terminated his employment with Amazon & Rosen.
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 15 or 17 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
<PAGE> 2
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 15 or 17 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. Except as may be permitted in writing by the Company, the Employee is
not to practice medicine other than with the Company during the term of this
Agreement (and thereafter, pursuant to Section 19 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 presently served or serviced by the Employee, and use his best
efforts to gain and maintain appropriate medical staff membership and privileges
at any additional medical facilities reasonably identified 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.
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 Dade County, Florida at which the Company
renders pathology services during the term of this Agreement and to perform such
duties as the Company may direct.
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<PAGE> 3
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 Employee provides services, and with the written bylaws, rules and
regulations, policies and procedures of any such medical facility.
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 $400,000 (subject to adjustment as described in Section 6.6 of
the Purchase Agreement), 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. Annex B sets forth
the fringe benefits currently being provided. Such Annex is subject to change on
a Company-wide basis at the Company's sole discretion.
8. REIMBURSEMENT OF EXPENSES. Upon submission of proper documentation
and approval by the Board of Directors, the Company will reimburse the
Employee's reasonable expenses incurred in connection with the Employee's
employment by the Company up to an aggregate of $10,000 each year, subject to
compliance with reimbursement policies from time to time adopted by the Company.
Reimbursable expenses include:
a. License fees, membership dues in professional organizations,
and subscriptions to professional and business journals and books.
b. The Employee's necessary travel, room, board, registration fees
and other expenses incurred in providing services, attending professional or
business seminars, post graduate educational courses, meetings or conventions,
but only if the Employee's attendance 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
Company's request or otherwise benefiting the Company.
c. The Employee's entertainment and public relations expenses if
ordinary and necessary and in furtherance of the Company's business.
9. MALPRACTICE INSURANCE.
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<PAGE> 4
a. WHILE THE EMPLOYEE IS EMPLOYED BY THE COMPANY. The Company
shall maintain policies of professional liability insurance on the Employee
(including coverage for periods prior to the Employee's employment with the
Company) and the Company's other employees in such amounts and on such terms as
the Company may determine. The Employee shall comply with any requirements or
standards imposed on the Employee or the Company by the terms of the insurance,
and the Employee shall furnish such information as the insurer or the Company
shall require.
b. TAIL COVERAGE.
(1) If the Employee's employment is terminated for cause (as
defined in Section 15 hereof) or if the Employee terminates his
employment with the Company for any reason other than a Payment Breach
(as defined in Section 29c) or the death or Disability (as defined in
Section 17b) of the Employee, 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 borne and paid by the
Employee or the Employee's estate, as applicable. If the Employee or
the 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 and set-off its cost from payments otherwise payable to the
Employee or the Employee's estate.
(2) If the Employee's employment terminates for any reason
other than those set forth in (1) above, 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.
10. 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.
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<PAGE> 5
11. 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.
12. PROFESSIONAL POLICIES AND PROCEDURES. The Company shall at all
times have the exclusive authority to establish reasonable 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. Such policies and
procedures shall, where applicable and appropriate, be applied on a consistent
basis to all of the Company's physician employees.
13. 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.
14. PAID VACATION AND TIME OFF. The Employee shall be entitled to a
total of six (6) weeks of paid leave time per year (pro rated for any period of
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 a medical director appointed from time to time by the Board
of Directors of the Company 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.
15. 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
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<PAGE> 6
Employee's voluntary failure to maintain such license after becoming a
nonresident of that state);
(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;
(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 in violation of a confidentiality obligation
owed to the Company or one or more of its Affiliates;
(10) 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;
(11) If a guardian or conservator for the Employee is
appointed by a court of competent jurisdiction;
(12) If the Employee solicits business on behalf of a
competitor or potential competitor;
(13) 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;
- 6 -
<PAGE> 7
(14) If the Employee accepts other employment that places
restrictions or limitations on the Employee's ability to continue
rendering professional services under this Agreement;
(15) 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
(16) If, at any time, either of the following two events or
circumstances shall occur: (x) the Operating Earnings (as such term is
defined in the Purchase Agreement) 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 $600,000; or
(y) the termination, for any cause, reason or justification whatsoever,
or lapsing of the contract the Company (or, following the Closing,
AmeriPath Florida) has with the Miami Heart Institute, unless the
Company's Miami Division (as such term is defined in the Purchase
Agreement) is able to replace or substitute the Miami Heart Institute
contract with a Contract with another hospital or medical facility
which contract produces at least 85% of the annual revenues produced by
the Miami Heart Institute contract (with the annual revenues based upon
the average of the two years preceding the date of termination or
lapsing).
(17) If the Employee fails to comply with any of the terms or
conditions of this Agreement or any material term or condition of any
agreement between the Company and a medical facility for which the
Company provides services, and such failure to comply shall continue
for a period of thirty (30) days after notice thereof by the Company.
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.
Notwithstanding the foregoing, should there exist a Payment Breach by the
Company, the Employee may immediately terminate his employment with the Company.
- 7 -
<PAGE> 8
16. THE EMPLOYEE'S DUTIES UPON EXPIRATION OR TERMINATION. If this
Agreement expires or is otherwise terminated for any reason (other than a
termination by the Employee due to a Payment Breach):
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.
17. TERMINATION OF EMPLOYMENT UPON DEATH OR DISABILITY
a. DEATH OF THE EMPLOYEE. In the event that the Employee shall die
during the term of his employment under this Agreement, the Employee's
employment with the Company shall immediately cease and terminate and the
Employee's estate, heirs (at law), devisees, legatees or other proper and
legally-entitled descendants, or the personal representative, executor,
administrator or other proper legal representative on behalf of such
descendants, shall be entitled to receive and be paid solely the Employee's
salary, then in effect, for a period of 120 days, payable 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 hereunder (other
than for any reimbursement of reasonable out-of-pocket business expenses
properly incurred by the Employee prior to his death and documented to the
Company in accordance herewith).
b. DISABILITY OF THE EMPLOYEE. In the event that the Employee shall
become incapacitated by reason of sickness, accident or other mental or physical
disability during the term of his employment hereunder such that he is
substantially unable to perform his duties and responsibilities hereunder for a
period of 90 consecutive days, or for shorter or intermittent periods
aggregating 120 days during any 12-month period (a "Disability"), the Company
thereafter shall have the right, in its sole and absolute discretion, to
terminate the Employee's employment under this Agreement by sending written
notice of such termination to Employee or his legal guardian or other proper
legal representative and thereupon his employment hereunder shall immediately
cease and terminate. In the event of any such termination, the Employee shall be
entitled to receive and be paid solely his salary, then in effect, for a period
of 120 days, payable at the Company's regular and customary intervals for the
payment of salaries as then in effect, less any amounts, payments or benefits
the Employee might receive under the Company's disability insurance policy, and
the Company shall have no further obligation or liability hereunder (other than
for any reimbursement
- 8 -
<PAGE> 9
of reasonable out-of-pocket business expenses properly incurred by Employee
prior to his Disability and documented to the Company in accordance herewith).
18. 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 (other than routine
purchase orders in the ordinary course of business consistent with the Company's
practices).
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).
19. 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:
(1) Placement in an ongoing practice of pathology with an
established revenue base.
(2) The opportunity to establish a professional relationship among
clients served by the Company and its affiliates.
(3) Marketing support enabling the Employee to expand the
Employee's own pathology practice and to become known by additional clients.
- 9 -
<PAGE> 10
(4) The provision of contract management to enable the Employee to
obtain provider status in managed care plans.
(5) The opportunity to develop special areas of expertise leading
to requests for consultations on specific areas of pathology practice.
(6) The establishment of methodologies, practice parameters and
quality assurance programs to enhance the practice of pathology.
(7) 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).
(8) Financial support and practice coverage to facilitate
participation in continuing education opportunities.
(9) Financial support and practice coverage enabling the Employee
to pursue additional board certifications.
(10) Financial support and practice coverage to participate in
professional development and professional associations.
(11) 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
Dade, Broward or Monroe, or in any other County in the State of Florida
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, knowingly (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
- 10 -
<PAGE> 11
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 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.
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, in the
event there shall be a Payment Breach, and such breach shall continue uncured
for a period of more than thirty (30) days, then the Restricted Period shall be
reduced to 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.
e. 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 19 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 may cause irreparable injury to the Company.
20. 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
- 11 -
<PAGE> 12
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
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 20 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. Except as required by law or in connection with
the proper performance of his duties hereunder, 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.
21. 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. The Employee and the Company have
specifically agreed and acknowledged
- 12 -
<PAGE> 13
that the provisions of Sections 19 and 20 are material and of the essence to
this Agreement. 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.
22. OUTSIDE WORK. In the event that the Employee performs, provides or
renders professional or medical services outside of the Employee's employment
with the Company (only with the prior written consent of the Company), any
compensation received by or provided to or for the benefit of the Employee shall
be income of the Company and the Employee shall promptly deliver, pay and
transfer to the Company such compensation, in whatever form provided or
received, or the equivalent monetary value of such benefits.
23. APPLICABLE LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Florida.
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. 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 to any Person which, after
any such assignment, employs at least 50% of the physician employees employed by
the Company immediately prior to the assignment, PROVIDED, that AmeriPath, or
its successor, shall guaranty the obligations hereunder.
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., 800 E. Cypress Creek Road, Suite 200, Fort
Lauderdale, FL 33334, Attention: President, and (y) if to the Employee, to the
last known residential 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
- 13 -
<PAGE> 14
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 and the unsuccessful party shall pay all costs, fees and expenses,
including attorney's costs, fees and expenses, incurred in enforcing its rights
under this Agreement, including costs, expenses and fees with respect to trials,
appeals and collection.
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 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. 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
- 14 -
<PAGE> 15
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 (other than counsel or advisers) without the prior written consent
of the other party.
c. DEFINITIONS.
(1) "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.
(2) "COMPANY" 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 or the
Employee is a party or otherwise.
(3) "CONTRACT" means and includes any agreement, contract,
commitment, instrument or other binding arrangement, obligation or
understanding, whether written or oral.
(4) "PAYMENT BREACH" means and includes (i) the failure of the
Company to make payments under this Agreement for a period of thirty
(30) days after the first date upon which such payments are due and
owing; (ii) if an Event of Default as a result of the failure by
AmeriPath to pay principal or interest when due, under either the 7%
Non-Negotiable Subordinated Contingent Note or the 7% Non-Negotiable
Subordinated Note issued by AmeriPath, as borrower, to the Employee, as
the holder, pursuant to the Purchase Agreement and such failure shall
continue and remain uncured for thirty (30) days after notice from the
Employee; or (iii) the failure of AmeriPath to comply with the
obligations under the Stock Rights (as defined
- 15 -
<PAGE> 16
in the Purchase Agreement) and such failure shall continue and remain
uncured for thirty (30) days after notice from the Employee.
(5) "PERSON" means and includes any corporation, partnership,
joint venture, company, syndicate, organization, association, trust,
entity, authority or natural person.
(6) "RESTRICTED PERIOD" shall have the meaning set forth in
Section 19(c) hereof.
d. REMEDIES. The parties hereto forever waive and relinquish any
right to recover from the other consequential damages in respect of this
Agreement. For purposes hereof, the term "consequential damages" means damages
which are remote, speculative, conjectural or contingent, or are not the direct
and proximate consequence of a party's breach, action or inaction.
e. ARBITRATION. Any controversy, dispute, disagreement or claim
arising under this Agreement, or any alleged breach 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.
f. 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.
- 16 -
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement as of the date first hereinabove set forth.
AMERIPATH FLORIDA, INC.
By: /s/ Robert P. Wynn
-----------------------
Robert P. Wynn
Chief Operating Officer
June 30, 1996
EMPLOYEE:
/s/ Les B. Rosen
--------------------------
LES B. ROSEN, M.D.
Date: June 30, 1996
-------------------
The obligations and payments hereunder
are hereby guaranteed by AmeriPath, Inc. on
this 30th day of June, 1996, which guarantee
shall be of payment and not of collection.
AMERIPATH, INC.
By: /s/ Robert P. Wynn
-----------------------
Robert P. Wynn
Chief Operating Officer
- 17 -
<PAGE> 1
EXHIBIT 10.9
Execution Copy
================================================================================
AMERIPATH, INC.
CREDIT AGREEMENT
Originally Dated as of May 29, 1996
Amended and Restated as of June 27, 1997
BANKBOSTON, N.A.,
f/k/a The First National Bank of Boston, Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Restatement; Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------------
1.1. Restatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
1.2. Definitions; Certain Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------------------------------
2. The Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------
2.1. Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----------------
2.1.1. Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
--------------
2.1.2. Maximum Amount of Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
----------------------------------
2.1.3. Borrowing Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
------------------
2.1.4. Loan Account; Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------------
2.2. Term Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------
2.3. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------------
2.3.1. Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-----------------------------
2.3.2. Requests for Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------------------------
2.3.3. Form and Expiration of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------------------------------------
2.3.4. Lenders' Participation in Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------------------------------------
2.3.5. Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------
2.3.6. Payment of Drafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-----------------
2.3.7. Uniform Customs and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------------------------
2.3.8. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----------
2.3.9. Modification, Consent, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------------------
2.4. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----------------------
2.4.1. Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
--------------
2.4.2. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
---------
2.4.3. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
-----------------
2.4.4. Specifically Prohibited Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
------------------------------------
2.5. Nature of Obligations of Lenders to Make Extensions of Credit . . . . . . . . . . . . . . . . . . . 30
-------------------------------------------------------------
3. Interest; Eurodollar Pricing Options; Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
------------------------------------------
3.1. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
--------
3.2. Eurodollar Pricing Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
--------------------------
3.2.1. Election of Eurodollar Pricing Options . . . . . . . . . . . . . . . . . . . . . . . . . . 31
--------------------------------------
3.2.2. Notice to Lenders and the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
----------------------------------
3.2.3. Selection of Eurodollar Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . 31
----------------------------------------
3.2.4. Additional Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------
3.2.5. Violation of Legal Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
-------------------------------
3.2.6. Funding Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
-----------------
3.3. Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
---------------
3.4. Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
---------------------
3.5. Reserve Requirements, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-------------------------
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3.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
-----
3.7. Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
----------------
3.8. Regulatory Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
------------------
3.9. Computations of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
---------------------------------
4. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------
4.1. Payment at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
-------------------
4.2. Fixed Prepayments of Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
------------------------------
4.3. Contingent Required Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-------------------------------
4.3.1. Excess Credit Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
----------------------
4.3.2. Letter of Credit Exposure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-------------------------
4.3.3. Net Equity Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
-------------------
4.4. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
---------------------
4.5. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-----------------
4.6. Reborrowing; Application of Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
------------------------------------------
4.6.1. Reborrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-----------
4.6.2. Order of Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
--------------------
4.6.3. Payment with Accrued Interest, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------------------------------
4.6.4. Payments for Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
--------------------
5. Conditions to Extending Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
------------------------------
5.1. Conditions on Initial Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------------------------------
5.1.1. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----
5.1.2. Perfection of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
----------------------
5.1.3. Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
--------------
5.1.4. Payment of Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
--------------
5.2. Conditions to Making Each Permitted Acquisition Advance . . . . . . . . . . . . . . . . . . . . . . 40
-------------------------------------------------------
5.2.1. Permitted Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
---------------------
5.2.2. Notes and Credit Documents; Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
----------------------------------
5.2.3. Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
--------------
5.3. Conditions to Each Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
--------------------------------------
5.3.1. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
---------------------
5.3.2. Legality, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-------------
5.3.3. Proper Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
------------------
5.3.4. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-------
6. General Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------
6.1. Taxes and Other Charges; Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------------------------------
6.1.1. Taxes and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
-----------------------
6.1.2. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
----------------
6.2. Conduct of Business, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-------------------------
6.2.1. Types of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-----------------
6.2.2. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
-------------------------
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6.2.3. Statutory Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
--------------------
6.2.4. No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------------
6.2.5. Compliance with Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-----------------------------------
6.3. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
---------
6.3.1. Business Interruption Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-------------------------------
6.3.2. Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
------------------
6.3.3. Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-------------------
6.3.4. Key Executive Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
-------------------
6.3.5. Flood Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
---------------
6.4. Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
--------------------------------
6.4.1. Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
--------------
6.4.2. Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
-----------------
6.4.3. Monthly Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
---------------
6.4.4. Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
-------------
6.4.5. Notice of Litigation, Defaults, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-----------------------------------
6.4.6. ERISA Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-------------
6.4.7. Other Information; Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
------------------------
6.5. Certain Financial Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-----------------------
6.5.1. Minimum Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
------------------
6.5.2. Consolidated Senior Debt Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
---------------------------------
6.5.3. Consolidated Total Debt Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
--------------------------------
6.5.4. Consolidated Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
-----------------------------
6.6. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
------------
6.7. Guarantees; Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-----------------------------
6.8. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
-----
6.9. Investments and Permitted Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
--------------------------------------
6.10. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
-------------
6.11. Asset Dispositions and Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
------------------------------
6.12. Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
-----------------
6.13. Issuance of Stock by Subsidiaries; Subsidiary Distributions . . . . . . . . . . . . . . . . . . . . 56
-----------------------------------------------------------
6.13.1. Issuance of Stock by Subsidiaries of the Company . . . . . . . . . . . . . . . . . . . . . 56
------------------------------------------------
6.13.2. No Restrictions on Subsidiary Distributions . . . . . . . . . . . . . . . . . . . . . . . 57
-------------------------------------------
6.14. Voluntary Prepayments of Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-------------------------------------------
6.15. Derivative Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
--------------------
6.16. Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
-----------------------
6.17. ERISA, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
----------
6.18. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
----------------------------
6.19. Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
------------------------
6.20. Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
------------------
6.20.1. Compliance with Law and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
-------------------------------
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6.20.2. Notice of Claims, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
----------------------
6.21. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
--------------------
7. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
------------------------------
7.1. Organization and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
-------------------------
7.1.1. The Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
------------
7.1.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
------------
7.1.3. Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
-------------
7.1.4. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
--------------
7.2. Financial Statements and Other Information; Material Agreements . . . . . . . . . . . . . . . . . . 60
---------------------------------------------------------------
7.2.1. Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . 60
------------------------------------------
7.2.2. Material Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-------------------
7.3. Agreements Relating to Financing Debt, Investments, etc. . . . . . . . . . . . . . . . . . . . . . . 61
-------------------------------------------------------
7.4. Changes in Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
--------------------
7.5. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
---------------
7.6. Operations in Conformity With Law, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
---------------------------------------
7.7. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
----------
7.8. Authorization and Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
--------------------------------
7.9. No Legal Obstacle to Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
-------------------------------
7.10. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
--------
7.11. Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
-------------
7.12. Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-----------
7.13. Certain Business Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
--------------------------------
7.13.1. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
---------------
7.13.2. Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
---------
7.13.3. Consumer Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-------------------
7.13.4. Burdensome Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
----------------------
7.13.5. Future Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-------------------
7.14. Environmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------------------------
7.14.1. Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
------------------------
7.14.2. Environmental Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
------------------------
7.14.3. Environmental Condition of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------------------------------------
7.15. Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
-------------
7.16. Acquisition Agreement, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
--------------------------
7.17. Foreign Trade Regulations; Government Regulation; Margin Stock . . . . . . . . . . . . . . . . . . . 66
--------------------------------------------------------------
7.17.1. Foreign Trade Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
-------------------------
7.17.2. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
---------------------
7.17.3. Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
------------
7.18. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----------
8. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------
8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-----------------
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8.1.1. Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-------
8.1.2. Specified Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-------------------
8.1.3. Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
---------------
8.1.4. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
------------------------------
8.1.5. Cross Default, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
------------------
8.1.6. Ownership; Liquidation; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
---------------------------
8.1.7. Enforceability, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
-------------------
8.1.8. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
---------
8.1.9. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
-----
8.1.10. Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
----------------
8.2. Certain Actions Following an Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
---------------------------------------------
8.2.1. Terminate Obligation to Extend Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
-------------------------------------
8.2.2. Specific Performance; Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . . 70
----------------------------------------
8.2.3. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
------------
8.2.4. Enforcement of Payment; Credit Security; Setoff . . . . . . . . . . . . . . . . . . . . . . 71
-----------------------------------------------
8.2.5. Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
-------------------
8.3. Annulment of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
---------------------
8.4. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
-------
9. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
----------
9.1. Guarantees of Credit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
--------------------------------
9.2. Continuing Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
---------------------
9.3. Waivers with Respect to Credit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
------------------------------------------
9.4. Lenders' Power to Waive, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
----------------------------
9.5. Information Regarding the Borrower, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
---------------------------------------
9.6. Certain Guarantor Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
---------------------------------
9.7. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
-----------
9.8. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
-------------
9.9. Future Subsidiaries; Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
---------------------------------------
10. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
--------
10.1. Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
---------------
10.1.1. Tangible Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
--------------------------
10.1.2. Rights to Payment of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
--------------------------
10.1.3. Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
-----------
10.1.4. Pledged Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
-------------
10.1.5. Pledged Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
--------------
10.1.6. Pledged Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
--------------------
10.1.7. Chattel Paper, Instruments and Documents . . . . . . . . . . . . . . . . . . . . . . . . . 79
----------------------------------------
10.1.8. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
------
10.1.9. Deposit Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
----------------
10.1.10. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
----------
</TABLE>
-v-
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.1.11. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
-----------------
10.1.12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
---------
10.1.13. All Other Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
------------------
10.1.14. Proceeds and Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
---------------------
10.1.15. Excluded Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
-----------------
10.2. Additional Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
--------------------------
10.2.1. Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
-------------
10.2.2. Motor Vehicles and Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
---------------------------
10.3. Representations, Warranties and Covenants with Respect to Credit Security . . . . . . . . . . . . . 81
-------------------------------------------------------------------------
10.3.1. Pledged Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
-------------
10.3.2. Accounts and Pledged Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
---------------------------------
10.3.3. No Liens or Restrictions on Transfer or Change of Control . . . . . . . . . . . . . . . . 81
---------------------------------------------------------
10.3.4. Location of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
---------------------------
10.3.5. Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
-----------
10.3.6. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
---------
10.3.7. Modifications to Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
--------------------------------
10.3.8. Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
---------------------
10.3.9. Perfection of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
-----------------------------
10.4. Administration of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
---------------------------------
10.4.1. Use of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
----------------------
10.4.2. Deposits; Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
------------------
10.4.3. Pledged Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
------------------
10.5. Right to Realize upon Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
-------------------------------------
10.5.1. Assembly of Credit Security; Receiver . . . . . . . . . . . . . . . . . . . . . . . . . . 85
-------------------------------------
10.5.2. General Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
-----------------
10.5.3. Marshaling, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
----------------
10.5.4. Sales of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
------------------------
10.5.5. Sale without Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
-------------------------
10.5.6. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
-----------------------
10.6. Custody of Credit Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
--------------------------
11. Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
-------------------
11.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
--------
11.2. General Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
-----------------
11.3. Indemnity With Respect to Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
-------------------------------------------
12. Operations; Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
-----------------
12.1. Interests in Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
--------------------
12.2. Agent's Authority to Act, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
------------------------------
12.3. Borrower to Pay Agent, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
---------------------------
12.4. Lender Operations for Advances, Letters of Credit, etc. . . . . . . . . . . . . . . . . . . . . . . 90
-------------------------------------------------------
</TABLE>
-vi-
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
12.4.1. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
--------
12.4.2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
-----------------
12.4.3. Agent to Allocate Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
--------------------------------
12.4.4. Delinquent Lenders; Nonperforming Lenders . . . . . . . . . . . . . . . . . . . . . . . . 92
-----------------------------------------
12.5. Sharing of Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
-------------------------
12.6. Amendments, Consents, Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
-----------------------------------
12.7. Agent's Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
-------------------
12.8. Concerning the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
--------------------
12.8.1. Action in Good Faith, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
-------------------------
12.8.2. No Implied Duties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
----------------------
12.8.3. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
-------------
12.8.4. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
----------
12.8.5. Employment of Agents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
--------------------------------
12.8.6. Reliance on Documents and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
---------------------------------
12.8.7. Agent's Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
---------------------
12.8.8. Conveying Reports to Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
----------------------------
12.9. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
------------------
12.10. Independent Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
---------------------------
12.11. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
---------------
13. Successors and Assigns; Lender Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . 98
-------------------------------------------------------------
13.1. Assignments by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
----------------------
13.1.1. Assignees and Assignment Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
-----------------------------------
13.1.2. Terms of Assignment and Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
----------------------------------
13.1.3. Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
--------
13.1.4. Acceptance of Assignment and Assumption . . . . . . . . . . . . . . . . . . . . . . . . . 100
---------------------------------------
13.1.5. Federal Reserve Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
--------------------
13.1.6. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
------------------
13.2. Credit Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
-------------------
13.3. Replacement of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
---------------------
13.4. Foreign Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
---------------
14. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
---------------
15. Acknowledgments and Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
----------------------------
16. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
-------
17. Course of Dealing; Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
-----------------------------------------
18. Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
----------
19. Venue; Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
-------------------------
20. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
--------------------
21. No Strict Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
----------------------
22. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
-------
</TABLE>
-vii-
<PAGE> 9
EXHIBITS
<TABLE>
<S> <C><C>
1 - Applicable Interest Rates
2.1.4 - Revolving Note
2.2.2 - Term Note
5.1.4 - 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 - Company and its Subsidiaries
7.1.4 - 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
12.1 - Interests in Credits
13.1.1 - Assignment and Acceptance
</TABLE>
-viii-
<PAGE> 10
AMERIPATH, INC.
CREDIT AGREEMENT
This Agreement, originally dated as of May 29, 1996 and amended and
restated on June 27, 1997, 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 BankBoston, N.A., f/k/a 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. Restatement; Definitions.
1.1. Restatement. Effective as of the Initial
Closing Date, this Agreement amends and restates in its entirety the Credit
Agreement dated as of May 29, 1996, as amended and in effect on the date
hereof, among the Company, its Subsidiaries and a group of lenders for which
BankBoston, N.A., f/k/a The First National Bank of Boston, is acting as agent.
Amounts in respect of interest, commitment fees, Letter of Credit fees and
other amounts payable hereunder shall be payable in accordance with the terms
of this Agreement as in effect prior to the amendment and restatement on the
Initial Closing Date for periods prior to the Initial Closing Date and in
accordance with this Agreement as amended and restated hereby for periods from
and after the Initial Closing Date.
1.2. 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.
1.2.1. "Accounts" is defined in Section
10.1.2.
1.2.2. "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.
<PAGE> 11
1.2.3. "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 the Borrower in
connection with a Permitted Acquisition.
1.2.4. "Acquired Party EBITDA
Adjustment" means (a) for any calculation made
with respect to Sections 6.5 or 6.9.5 of this
Agreement in which six or less full months of the
Net Income of an Acquired Party have been
included, 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 in which more than six months but less
than one full year of the Net Income of an
Acquired Party have been included, 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
(Y) the amount of actual EBITDA of such Acquired
Party for each full month following its
Acquisition by the Borrower, divided by (Z) the
number of full months for which EBITDA of the
Acquired Party was included in Consolidated Net
Income.
1.2.5. "Acquisition Agreement" means the
documentation pursuant to which the Borrower
commits itself to make a Permitted Acquisition.
1.2.6. "Affected Class" is defined in
Section 12.6.2.
1.2.7. "Affected Lender" is defined in
Section 13.3.
1.2.8. "Affiliate" means, with respect
to the Borrower (or any other specified Person),
any other Person directly or indirectly
controlling, controlled by or under direct or
indirect common control with the Borrower (or such
specified Person), and shall include (a) any
officer or director or general partner of the
Borrower (or such specified Person) and (b) any
Person of which the Borrower (or such specified
Person) or any Affiliate (as defined in clause (a)
above) of the Borrower (or such specified Person)
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.
1.2.9. "Agent" means BankBoston in its
capacity as agent for the Lenders hereunder, as
well as its successors and assigns in such
capacity pursuant to Section 12.7.
-2-
<PAGE> 12
1.2.10. "Aggregate Percentage Interest"
means, with respect to the Loan, the ratio that
the respective Commitments of the Lenders bear to
the total Commitments of all Lenders as from time
to time in effect and reflected in the Register.
1.2.11. "Agreement" means this Agreement
as from time to time amended, modified and in
effect.
1.2.12. "Annualized Interest Expense"
means, for any period, the sum of (a) the product
of the Revolving Loan outstanding as of the last
day of such period multiplied by the then current
Applicable Rate plus (b) the product of the Term
Loan outstanding as of the last day of such period
multiplied by the then current Applicable Rate
plus (c) 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.
1.2.13. "Applicable Rate" means, at any
date, the sum of:
(a) the rate 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
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.
1.2.14. "Assignee" is defined in Section
13.1.1.
1.2.15. "Assignment and Acceptance" is
defined in Section 13.1.1.
1.2.16. "BankBoston" means BankBoston,
N.A., f/k/a The First National Bank of Boston.
1.2.17. "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
-3-
<PAGE> 13
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.
1.2.18. "Bankruptcy Code" means Title
11 of the United States Code.
1.2.19. "Bankruptcy Default" means an
Event of Default referred to in Section 8.1.10.
1.2.20. "Base Rate" means, on any date,
the greater of (a) the rate of interest announced
by BankBoston at the Boston Office as its Base
Rate or (b) the sum of 1/2% plus the Federal Funds
Rate.
1.2.21. "Borrower" means the Company.
1.2.22. "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 Borrower
has 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.
1.2.23. "Boston Office" means the
principal banking office of BankBoston in Boston,
Massachusetts.
1.2.24. "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.
1.2.25. "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.
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1.2.26. "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.
1.2.27. "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.
1.2.28. "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.
1.2.29. "CERCLA" means the federal
Comprehensive Environmental Response, Compensation
and Liability Act of 1980.
1.2.30. "CERCLIS" means the federal
Comprehensive Environmental Response Compensation
Liability Information System List (or any
successor document) promulgated under CERCLA.
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<PAGE> 15
1.2.31. "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.
1.2.32. "Class" means, applied to the
Lenders, each of the following classes of Lenders:
(i) Lenders having Commitments under the Revolving
Loan and (ii) Lenders having Commitments under the
Term Loan.
1.2.33. "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.
1.2.34. "Code" means the federal
Internal Revenue Code of 1986, as amended from
time to time.
1.2.35. "Commitment" means, with respect
to any Lender, such Lender's obligations to extend
the credits contemplated by the Credit Documents;
the original Commitments being set forth in
Section 12.1 and the current Commitments being
recorded from time to time in the Register.
1.2.36. "Company" means AmeriPath, Inc.,
a Delaware corporation.
1.2.37. "Computation Covenants" means
Sections 6.5, 6.6.7, 6.6.11, 6.9.5, 6.10, 6.11,
6.12, 6.17 and 6.21.
1.2.38. "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.
1.2.39. "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.
1.2.40. "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
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<PAGE> 16
respect of (i) taxes based upon or measured by
income, (ii) Consolidated Interest Expense and
(iii) depreciation and amortization.
1.2.41. "Consolidated Interest Expense"
means, for any period, the Interest Expense paid
or accrued by the Company and its Subsidiaries on
a Consolidated basis.
1.2.42. "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;
(f) any after-tax gains or losses
attributable to returned surplus assets of
any Plan; and
(g) the amount, up to an aggregate
of $3,500,000, included in computing such net
income (or loss) in respect of the expenses
of the
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<PAGE> 17
Company incurred on or prior to May 31, 1997
in connection with its terminated initial
public offering.
1.2.43. "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.
1.2.44. "Consolidated Senior Debt" means
all Financing Debt of the Company and the
Subsidiaries on a Consolidated basis other than in
respect of Subordinated Indebtedness.
1.2.45. "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.
1.2.46. "Consolidated Total Debt" means,
at any date, all Financing Debt of the Company and
its Subsidiaries on a Consolidated basis.
1.2.47. "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
Financing Debt, including contingent obligations
under agreements relating to Permitted
Acquisitions (made before or after the date of
this Agreement) or with respect to principal paid
or accrued by the Company in respect of
Subordinated Indebtedness and Contingent Notes
(excluding prepayments permitted by the proviso in
Section 6.14 and voluntary prepayments of the
Loan).
1.2.48. "Consolidated Total Liabilities"
means, at any date, all Indebtedness of the
Company and its Subsidiaries on a Consolidated
basis.
1.2.49. "Contingent Notes" means the
contingent promissory notes constituting
Subordinated Indebtedness issued to the Sellers in
connection with a Permitted Acquisition made
hereunder or under this Agreement prior to its
amendment and restatement on the Initial Closing
Date.
1.2.50. "Credit Documents" means:
(a) this Agreement, the Notes,
each Letter of Credit, each draft presented
or accepted under a Letter of Credit, each
Interest Rate Protection
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<PAGE> 18
Agreement provided by a Lender (or an
Affiliate of a Lender) to the Borrower or any
of its Subsidiaries 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.
1.2.51. "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 and Interest Rate Protection Agreements
provided by a Lender (or an affiliate of a
Lender), 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).
1.2.52. "Credit Participant" is defined
in Section 13.2.
1.2.53. "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.
1.2.54. "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.
1.2.55. "Delinquency Period" is defined
in Section 12.4.4.
1.2.56. "Delinquent Lender" is defined
in Section 12.4.4.
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1.2.57. "Delinquent Payment" is defined
in Section 12.4.4.
1.2.58. "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;
(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).
1.2.59. "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
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<PAGE> 20
computing such Net Income in respect of (i) taxes
based upon or measured by income, (ii) Interest
Expense and (iii) depreciation and amortization.
1.2.60. "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.
1.2.61. "Equity Transaction" means any
issuance or sale by the Company or any of its
Subsidiaries of any shares of capital stock, other
equity interests or options, warrants or other
purchase rights to acquire such capital stock or
other equity interests, of the Company or any of
its Subsidiaries, to any Person; provided,
however, that the term "Equity Transaction" shall
not include such issuances or sales (i) to any of
the Obligors or their officers, employees and
directors, (ii) to any Person pursuant to the
Company's Amended and Restated 1996 Stock Option
Plan or 1996 Director Stock Option Plan or (iii)
that comprise a portion of the Purchase Price in
any Permitted Acquisition.
1.2.62. "ERISA" means the federal
Employee Retirement Income Security Act of 1974.
1.2.63. "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 Company or any
Subsidiary within the meaning of section 414 of
the Code or section 4001(a)(14) of ERISA.
1.2.64. "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.
1.2.65. "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 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).
1.2.66. "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
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(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.
1.2.67. "Eurodollar Office" means such
non-United States office or international banking
facility of the Agent as the Agent may from time
to time select.
1.2.68. "Eurodollar Pricing Options"
means the options granted pursuant to Section
3.2.1 to have the interest on any portion of the
Loan computed on the basis of a Eurodollar Rate.
1.2.69. "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.
1.2.70. "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 Loan subject to
Eurodollar Pricing Options is determined, (c) the
principal amount of or interest on any portion of
the 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.
1.2.71. "Event of Default" is defined in
Section 8.1.
1.2.72. "Exchange Act" means the federal
Securities Exchange Act of 1934.
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1.2.73. "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.
1.2.74. "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.
1.2.75. "Final Maturity Date" means (a)
June 30, 2002 for the Revolving Loan and (b) June
30, 2004 for the Term Loan.
1.2.76. "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).
1.2.77. "Financing Debt" means each of
the items described in clauses (a) through (e) of
the definition of the term "Indebtedness."
1.2.78. "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
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. Parts 500-590 and (c)
any order, regulation, ruling, interpretation,
direction, instruction or notice relating to any
of the foregoing.
1.2.79. "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 Loan subject to a Eurodollar
Pricing Option, and (b) any portion of the 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.
1.2.80. "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.
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1.2.81. "Government Receivables" means
any Accounts as to which the United States of
America or any agency or department thereof is the
obligor.
1.2.82. "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;
(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
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<PAGE> 24
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).
1.2.83. "Guarantor" means each
Subsidiary of the Borrower listed on the signature
page hereto or which subsequently becomes party to
this Agreement as a Guarantor.
1.2.84. "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.
1.2.85. "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 6.21; or
(d) which, in the reasonable
judgment of the Required Lenders, is not
acceptable.
1.2.86. "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;
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(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.
1.2.87. "Indemnified Party" is defined
in Section 11.2.
1.2.88. "Initial Closing Date" means the
first date on or prior to June 27, 1997 on which
all the conditions set forth in Section 5.1 have
been satisfied.
1.2.89. "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.
1.2.90. "Interest Rate Protection
Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual
arrangement that converts variable interest rates
into fixed interest rates, fixed interest rates
into variable interest rates or other similar
arrangements.
1.2.91. "Investment" means, with respect
to the 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;
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(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
(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.
1.2.92. "Legal Requirement" means any
present or future requirement imposed upon any of
the Lenders or the Company and its Subsidiaries by
any law,
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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.
1.2.93. "Lender" means each of the
Persons listed as lenders on the signature page
hereto, including BankBoston in its capacity as a
Lender and such other Persons who may from time to
time own an Aggregate Percentage Interest in the
Loan, but the term "Lender" shall not include any
Credit Participant.
1.2.94. "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.
1.2.95. "Letter of Credit" is defined in
Section 2.3.1.
1.2.96. "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.
1.2.97. "Letter of Credit Issuer" means,
for any Letter of Credit, BankBoston or, in the
event BankBoston does not for any reason issue a
requested Letter of Credit, another Lender with a
Percentage Interest in the Revolving Loan willing
to issue such Letter of Credit in accordance with
Section 2.3 and who is reasonably acceptable to
the Agent.
1.2.98. "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.
1.2.99. "Loan" means the Revolving Loan
and the Term Loan, collectively.
1.2.100. "Loan Account" is defined in
Section 2.1.4.
1.2.101. "Management Agreements" shall
mean the agreements entered into by the Company or
any of its Subsidiaries, on the one hand, and a
professional association or corporation which
employs physicians engaged in a pathology
practice, on the other hand, for the long-term
management of such physician practice, including
(i) the Management Agreement by and between
AmeriPath Cincinnati, Inc. and AmeriPath Ohio,
Inc. dated September 30, 1996, as amended, (ii)
the Management Agreement by and between Beno
Michel, M.D., Inc. and AmeriPath, Inc. dated
October 15, 1996, (iii) the Management Agreement
by and between Clay J. Cockerell, M.D., P.A. and
AmeriPath Texas, Inc. dated September 30, 1996, as
amended on January 17, 1997 and (iv) any other
similar management agreement entered into by the
Company or one of its Subsidiaries after the date
hereof.
1.2.102. "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.
1.2.103. "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)
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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.
1.2.104. "Material Agreements" is
defined in Section 7.2.2.
1.2.105. "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.
1.2.106. "Maximum Amount of Revolving
Credit" is defined in Section 2.1.2.
1.2.107. "Multiemployer Plan" means any
Plan that is a "multiemployer plan" as defined in
section 4001(a)(3) of ERISA.
1.2.108. "Net Equity Proceeds" means the
cash proceeds received by the Company or any of
its Subsidiaries in connection with any Equity
Transaction (net of related actual out-of-pocket
fees and expenses incurred by the Company in the
exercise of the reasonable business judgment of
its officers).
1.2.109. "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.
1.2.110. "Nonperforming Lender" is
defined in Section 12.4.4.
1.2.111. "Notes" means each of the
Revolving Notes and the Term Notes.
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1.2.112. "Obligor" means the Company and
each Guarantor.
1.2.113. "OSHA" means the federal
Occupational Health and Safety Act.
1.2.114. "Overdue Reimbursement Rate"
means, at any date, the highest Applicable Rate
then in effect.
1.2.115. "Payment Date" means the first
Banking Day of each month, commencing with the
first such date after the Initial Closing Date.
1.2.116. "PBGC" means the Pension
Benefit Guaranty Corporation or any successor
entity.
1.2.117. "Percentage Interest" means,
with respect to the Revolving Loan, the Term Loan
or Letter of Credit Exposure, the ratio that the
respective Commitments of the Lenders with respect
to such portion of the Loan (or Letter of Credit
Exposure) bear to the total Commitments in respect
of such portion of the Loan (or Letter of Credit
Exposure) of all Lenders as from time to time in
effect and reflected in the Register.
1.2.118. "Performing Lender" is defined
in Section 12.4.4.
1.2.119. "Permitted Acquisition" means
an Investment by the Borrower permitted under
Section 6.9.5.
1.2.120. "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.
1.2.121. "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.
1.2.122. "Pledged Indebtedness" is
defined in Section 10.1.6.
1.2.123. "Pledged Rights" is defined in
Section 10.1.5.
1.2.124. "Pledged Securities" means the
Pledged Stock, the Pledged Rights and the Pledged
Indebtedness, collectively.
1.2.125. "Pledged Stock" is defined in
Section 10.1.4.
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1.2.126. "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.
1.2.127. "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 the amount of any Contingent Note included in
this definition of Purchase Price shall be the
lesser of (a) the maximum principal amount of such
Contingent Note or (b) the principal amount of
such Contingent Note that becomes payable by the
Borrower at the time that the Borrower attains the
level of Pro Forma EBITDA previously determined by
the Required Lenders.
1.2.128. "RCRA" means the federal
Resource Conservation and Recovery Act, 42 U.S.C.
Section 690, et seq.
1.2.129. "Register" is defined in
Section 13.1.3.
1.2.130. "Replacement Lender" is defined
in Section 13.3.
1.2.131. "Required Class 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 requires action by the Required
Class Lenders for either Class, such Lenders as
own at least a majority of the Percentage
Interests in the Revolving Loan or the Term Loan,
as the case may be.
1.2.132. "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
Aggregate Percentage Interests in the Loan;
provided, however, that with respect to any
matters referred to in the proviso to Section
12.6.1, Required Lenders means such Lenders as own
at least the respective portions of the Aggregate
Percentage Interests in the Loan required by such
proviso.
1.2.133. "Revolving Loan" is defined in
Section 2.1.4.
1.2.134. "Revolving Notes" is defined in
Section 2.1.4.
1.2.135. "Securities Act" means the
federal Securities Act of 1933.
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1.2.136. "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 the
Borrower pursuant to a Permitted Acquisition.
1.2.137. "Subordinated Indebtedness"
means Indebtedness of the Borrower which is
subordinated to the Credit Obligations pursuant to
a Subordination Agreement or on terms approved by
the Required Lenders in writing.
1.2.138. "Subordination Agreement" shall
be an agreement in form and substance
substantially similar to Exhibit 5.1.4.
1.2.139. "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, or through a
trust or similar entity controlled by the Company
(or other specified Person) or a Subsidiary, (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.
1.2.140. "Summit Partners" means
collectively, Summit Ventures III, L.P., Summit
Investors II, L.P. and Summit Subordinated Debt
Fund, L.P.
1.2.141. "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
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.
1.2.142. "Term Loan" is defined in
Section 2.2.1.
1.2.143. "Term Note" is defined in
Section 2.2.2.
1.2.144. "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.
1.2.145. "Uniform Customs and Practice"
is defined in Section 2.3.7.
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1.2.146. "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.
1.2.147. "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.
1.2.148. "8% Senior Subordinated Notes"
is defined in Section 6.10.5.
1.2.149. "10% Junior Subordinated Notes"
is defined in Section 6.10.5.
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 in the Revolving Loan, make
loans to the Borrower in such amounts as may be
requested by the 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 Borrower 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)
$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.
2.1.3. Borrowing Requests. The 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
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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 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 with
Percentage Interests in the Revolving Loan (by
telephone or otherwise). Each such loan will be
made at the Boston Office by depositing the amount
thereof to the general account of the Borrower
with the Agent. In connection with each such
loan, the Borrower shall furnish to the Agent a
certificate in substantially the form of Exhibit
5.3.1.
2.1.4. Loan Account; Notes. The Agent
will establish on its books a loan account for the
Borrower (the "Loan Account") which the Agent
shall administer as follows: (a) the Agent shall
add to the Loan Account, and the Loan Account
shall evidence, the principal amount of all loans
from time to time made by the Lenders to the
Borrower pursuant to Section 2.1.1 and (b) the
Agent shall reduce the Loan Account by the amount
of all payments made on account of the
Indebtedness evidenced by the Loan Account. The
aggregate principal amount of the Indebtedness
evidenced by the Loan Account 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 in the
Revolving Loan, and all payments credited to the
Loan Account shall be for the account of each
Lender in accordance with its Percentage Interest
in the Revolving Loan. The 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 Term Credit.
2.2.1. Term Loan. Subject to all the
terms and conditions hereof and so long as no
Default exists, on the Initial Closing Date the
Lenders will, severally in accordance with their
respective Percentage Interests in the Term Loan,
lend to the Company as a term loan $65,000,000.
The aggregate principal amount of the loans made
pursuant to this Section 2.2.1 at any one time
outstanding are referred to collectively as the
"Term Loan".
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2.2.2. Term Notes. The portion of Term
Loan advanced under Section 2.2.1 shall be made at
the Boston Office by crediting the amount of such
loan to the general account of the Borrower with
BankBoston against delivery to the Agent of the
separate term notes of the Company (the "Term
Notes") payable to the respective Lenders. The
Term Notes issued to each Lender shall be in an
aggregate principal amount equal to such Lender's
Percentage Interest in the Term Loan advanced
under Section 2.2.1 and shall be in substantially
the form of Exhibit 2.2.2.
2.3. Letters of Credit.
2.3.1. 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 the 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.
2.3.2. Requests for Letters of Credit.
The 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
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 the Borrower or to
such other Person as directed in writing by the
Borrower. In connection with the issuance of any
Letter of Credit, the 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.
2.3.3. Form and Expiration of Letters of
Credit. Each Letter of Credit issued under this
Section 2.3 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 the
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.
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2.3.4. 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 in the
Revolving Loan, shall automatically be deemed
granted by the Letter of Credit Issuer to each
Lender with a Percentage Interest in the Revolving
Loan 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 in the Revolving Loan 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
with a Percentage Interest in the Revolving Loan
(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.
2.3.5. 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 the 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 the
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
representative of the party authorized under such
Letter of Credit to draw or issue such drafts or
other documents.
2.3.6. 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, the Borrower will on demand pay to such
Letter of Credit Issuer in immediately available
funds the amount of such payment. Unless the
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 the Borrower and part of
the Revolving Loan.
2.3.7. 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:
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(a) Neither the Borrower 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 the
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 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 2.3.7
shall not affect or prevent the vesting of any of
the Letter of Credit Issuer's rights or powers
hereunder or the Borrower's obligation to make
reimbursement of amounts paid under any Letter of
Credit or any draft accepted thereunder.
(d) The 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. The 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,
the 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 the Borrower.
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(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.
2.3.8. 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 the 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 the Borrower, all
for the benefit of the Lenders.
2.3.9. Modification, Consent, etc. If
the 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 the 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.
2.4. Application of Proceeds.
2.4.1. Revolving Loan. Subject to
Section 2.4.4, the Borrower will apply the
proceeds of the Revolving Loan (a) to fund
Permitted Acquisitions, and (b) for working
capital to the extent of the Borrowing Base.
2.4.2. Term Loan. Subject to Section
2.4.4, the Borrower will apply the proceeds of the
Term Loan to the prepayment of the Revolving Loan.
2.4.3. Letters of Credit. Letters of
Credit shall be issued only for such lawful
corporate purposes as the Borrower has requested
in writing and to which the Letter of Credit
Issuer agrees.
2.4.4. Specifically Prohibited
Applications. The Borrower 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.
2.5. 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 in the portion of the Loan to
which such
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Commitment relates shall be appropriately
adjusted. Lenders in the Class to which such
Commitment relates 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 the Required
Class Lenders of such Class may agree, the obligations
of any Lender who has so failed and the Percentage
Interests in the portion of the Loan to which such
obligations relate shall be appropriately adjusted.
The provisions of this Section 2.5 shall not affect the
rights of the Borrower against any Lender failing to
perform its obligations hereunder.
3. Interest; Eurodollar Pricing Options; Fees.
3.1. Interest. The 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 any portion of the
Loan, the Borrower will, on each Payment Date, pay the
accrued and unpaid interest on the portions of the Loan
which were 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, the Borrower will pay the accrued and unpaid
interest on the portions of the Loan which were 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, the Borrower
will also pay the accrued and unpaid interest on the
portion of the Loan 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 Loan, the Borrower will pay all
accrued and unpaid interest on the portion of the Loan
evidenced by its Loan Account, including any accrued
and unpaid interest on any portion of such 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 for each portion of the Loan shall be made to
the Agent for the account of each Lender in accordance
with such Lender's Percentage Interest in such portion
of the Loan.
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, the 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 Loan as the 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:
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(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 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 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.
3.2.2. Notice to Lenders and the
Borrower. The Agent will promptly inform each
Lender (by telephone or otherwise) of each notice
received by it from the 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 the 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 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;
(c) a portion of the Term Loan at least
equal to the amount of the next mandatory fixed
prepayment required by Section 4.2 shall not be
subject to a Eurodollar Pricing Option on the date
such mandatory prepayment is required to be made;
and
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(d) no Eurodollar Interest Period with
respect to any part of the 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 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 Borrower will pay
to the Agent for the account of each Lender in
accordance with such Lender's Percentage Interest
in such portion of the Loan, 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 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 absence of manifest error,
be conclusive. For purposes of this Section
3.2.4, if any portion of the 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 Borrower 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 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
Borrower terminate all of the affected Eurodollar
Pricing Options, (b) the portion of the 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 Borrower shall make any
payment required by Section 3.2.4.
3.2.6. Funding Procedure. The Lenders
may fund any portion of the 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
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portion of the Loan subject to a Eurodollar
Pricing Option, however, all amounts payable
hereunder, including the interest rate applicable
to any such portion of the 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 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 Borrower will pay to the Agent
for the account of the Lenders in accordance with the Lenders' respective
Percentage Interests in the Revolving Loan, on the first Banking Day of each
fiscal quarter, an amount equal to interest computed at the rate per annum
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 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.
3.4. Letter of Credit Fees. The Borrower will pay
to the Agent for the account of each of the Lenders, in accordance with the
Lenders' respective Percentage Interests in the Revolving Loan, 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 Loan subject to a Eurodollar Pricing Option or
any
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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 Borrower 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 Borrower 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 Borrower 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 Borrower is 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) the 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 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 Borrower 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 Borrower 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 the Borrower with respect to any payments of the
Credit Obligations, the Borrower 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 Borrower fails to pay any such Taxes when
due or fails to remit to the Agent for the account of the applicable Lender the
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required receipts evidencing payment of any such Taxes so withheld or deducted,
the Borrower 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
Borrower 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
Borrower 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 Borrower 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
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 Borrower 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
Loan or the Letters of Credit or the return to be earned by such Lender on the
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 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
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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 Borrower 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 Borrower 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 Borrower 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 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 Loan, the Borrower will pay to the
Agent for the account of the Lenders an amount equal to the portion of the Loan
then due, together with all accrued and unpaid interest thereon and all other
Credit Obligations then outstanding.
4.2. Fixed Prepayments of Term Loan. On the first
Banking Day of each July, the Borrower will pay to the Agent, for the account
of the Lenders, $650,000 of the principal amount of the Term Loan, together
with accrued interest on such amount prepaid; provided, however, that the
Borrower shall not be required to make such a prepayment in July 1997.
4.3. Contingent Required Prepayments.
4.3.1. Excess Credit Exposure. If at
any time the Revolving Loan exceeds the limits set
forth in Section 2.1, the Borrower shall within
three Banking Days pay the amount of such excess
to the Agent for the account of the Lenders.
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4.3.2. Letter of Credit Exposure. If at
any time the Letter of Credit Exposure exceeds the
limits set forth in Section 2.3, the Borrower
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 4.6.
4.3.3. Net Equity Proceeds. Within
three Banking Days after the receipt of Net Equity
Proceeds, the Borrower shall pay to the Agent as a
prepayment of the Loan, to be applied as provided
in Section 4.6.2, the lesser of
(a) the sum of (i) the amount of such
Net Equity Proceeds minus (ii) the amount of all
Distributions permitted by Section 6.10.5 and made
from such Net Equity Proceeds minus (iii) the
amount of all accrued and unpaid dividends on the
3,088,113 shares of convertible preferred stock of
the Company issued on or prior to the date hereof
(on the terms of such stock on the date hereof),
or
(b) the amount of the Loan.
The Company shall give the Agent at least five
Banking Days' prior notice of its intention to
prepay the Loans, or any portion thereof, under
this Section 4.3.3.
4.4. Voluntary Prepayments. In addition to the
prepayments required by Sections 4.2 and 4.3, the Borrower may from time to
time prepay all or any portion of the 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). The 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 Loan to be paid on such date, whether the
Revolving Loan or the Term Loan will be paid, and the amount of interest to be
paid with such prepayment.
4.5. 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 Borrower 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),
in each case in an amount equal to the portion of the then Letter of Credit
Exposure issued for the account of the Borrower. 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
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by the Agent to the Borrower 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.
4.6. Reborrowing; Application of Payments, etc.
4.6.1. Reborrowing. The amounts of the
Revolving Loan prepaid pursuant to Section 4.4 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. No
portion of the Term Loan prepaid hereunder may be
reborrowed.
4.6.2. Order of Application.
Prepayments of the Loan made pursuant to Section
4.3.3 shall be applied to the Revolving Loan and
the Term Loan, pro rata according to the total of
Commitments in respect thereof at the time of such
prepayment. Any Lender who does not wish to
receive a prepayment under Section 4.3.3 in
respect of such Lender's Percentage Interest in
the Term Loan must notify the Agent and the
Company within two banking Days after receipt of
notice of such proposed prepayment. If any Lender
elects not to receive such prepayment of the Term
Loan, the portion of such prepayment that would
have been applied to the portion of the Term Loan
held by such Lender shall instead be applied (i)
first to the repayment of the Revolving Loan,
until there is no outstanding principal amount of
the Revolving Loan, and (ii) then any amount
remaining shall be applied to the prepayment of
the Term Loan, pro rata in accordance with the
respective Percentage Interests in the Term Loan
of all the Lenders. Prepayments of the Term Loan
made pursuant to Sections 4.3.3 and 4.4 shall be
applied first to the payment of the amount of
principal of the Term Loan owing at the Final
Maturity Date, and then to the prepayments of the
Term Loan required by Section 4.2 in the inverse
order of the maturity thereof. Any prepayment of
a portion of the Loan shall be applied first to
the portion of the Loan not then subject to
Eurodollar Pricing Options, then the balance of
any such prepayment shall be applied to the
portion of the 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.
4.6.3. Payment with Accrued Interest,
etc. Upon all prepayments of the Term Loan, the
Borrower shall pay to the Agent the principal
amount to be prepaid together with unpaid interest
in respect thereof accrued to the date of
prepayment. Notice of prepayment having been
given in accordance with Section 4.4, the amount
specified to be prepaid shall become due and
payable on the date specified for prepayment.
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4.6.4. Payments for Lenders. All
payments of principal of a portion of the Loan
shall be made to the Agent for the account of the
Lenders in accordance with the Lenders' respective
Percentage Interests in such portion of the Loan.
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. Notes. The Borrower shall have
duly executed and delivered to the Agent a
Revolving Note and a Term 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, 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) Ropes & Gray, special counsel for
the Agent.
The Obligors authorize and direct its counsel to furnish the
foregoing opinions.
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<PAGE> 49
5.1.4. Payment of Fee. The Borrower
shall have paid to the Agent (a) for the Lenders'
accounts a facility fee in accordance with the
separate letter agreements with the Lenders and
(b) the reasonable fees and disbursements of the
Agent's special counsel for which statements have
been rendered on or prior to the Initial Closing
Date.
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:
(a) The Acquisition Agreement relating
to such Permitted Acquisition shall have been
delivered to the Agent.
(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 Agent pursuant
to clause (a) and any amendment, modification or
waiver shall have been delivered to the Agent.
(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 Borrower 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 Borrower shall furnish to the
Agent computations demonstrating compliance with
Section 6.9.5, certified by a Financial Officer of
the Borrower.
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<PAGE> 50
(h) Contemporaneously with or
immediately after the making by the Lenders of the
extension of credit hereunder, the Agent 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 Joinder Agreement to the Credit Agreement
in the form of Exhibit 5.2.2 or (b) be merged with
and into the Borrower or one of its Subsidiaries,
in which case the Agent shall have received a
certificate of a Financial Officer of the Company
to the effect that the merger of such Acquired
Party with and into such entity has been
consummated.
5.2.3. Legal Opinions. On the date of
any Permitted Acquisition the Lenders shall have
received from counsel reasonably satisfactory to
the Agent in a form and substance reasonably
satisfactory to the Agent (a) an opinion with
respect to the transactions contemplated by the
Acquisition Agreement, and (b) if the Purchase
Price for such Permitted Acquisition exceeds
$10,000,000, an opinion with respect to the
addition of the Acquired Party as a Guarantor
under this Agreement and the other Credit
Documents.
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, 1996; and
the Borrower 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 Borrower is
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.
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<PAGE> 51
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 certified copies of the
Charter and By-Laws of the Borrower 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 Borrower and its
Subsidiaries 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 Borrower and its Subsidiaries 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
Borrower and its Subsidiaries 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
Borrower and its Subsidiaries 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
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<PAGE> 52
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 Borrower
and its Subsidiaries 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.
6.2.2. Maintenance of Properties. Each
of the Borrower and its Subsidiaries:
(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 Borrower and its Subsidiaries 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. The Borrower
shall not form or suffer to exist any Subsidiary,
except for such Subsidiaries as shall have
executed and delivered to the
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<PAGE> 53
Agent either (a) this Agreement and each other
applicable 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 Guarantor
hereunder.
6.2.5. Compliance with Material
Agreements. Each of the Borrower and its
Subsidiaries 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). Except
with respect to Acquisition Agreements, 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.
6.3. Insurance.
6.3.1. Business Interruption Insurance.
Each of the Borrower and its Subsidiaries 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
Borrower and its Subsidiaries 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
Borrower and its Subsidiaries 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 Borrower and its Subsidiaries 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
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<PAGE> 54
$2,000,000 each in form satisfactory to the Agent,
and, on each doctor employed by the Borrower or
any of its Subsidiaries in an amount not less than
and in the form of any life insurance policy
maintained by the Borrower and its Subsidiaries on
such individual as of or immediately prior to the
Initial Closing Date.
6.3.5. Flood Insurance. Each of the
Borrower and its Subsidiaries 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 Borrower and its Subsidiaries 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 fiscal year of the Borrower and its Subsidiaries 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 Borrower
shall furnish to the Agent 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 Borrower and
its 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 Borrower and its 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
Agent, 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 Borrower and its 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 Borrower and its 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
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<PAGE> 55
through 6.21 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 the Borrower 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
the Borrower has taken, is taking or proposes to
take with respect thereto.
(d) Computations by the Borrower
comparing the financial statements referred to
above with the most recent budget for such fiscal
year furnished to the Agent in accordance with
Section 6.4.4.
(e) Computations by the Borrower
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 Agent in writing, as well as any changes in
the Charter, Bylaws or incumbency of officers of
the Borrower or its Subsidiaries from those
previously certified to the Agent.
(h) In the event of a change in GAAP
after the Initial Closing Date, computations by
the Borrower, 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 Borrower
shall furnish to the Agent as soon as available
and, in any event, within 45 days after the end of
each of the first three fiscal quarters of the
Borrower, the internally prepared Consolidated and
Consolidating balance sheets of the Borrower and
its 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 Borrower and its Subsidiaries for
such fiscal quarter and for the portion of the
fiscal year then ended (all
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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 the Borrower 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
Borrower and its 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 the Borrower 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 the
Borrower has taken, is taking or proposes to take
with respect thereto.
(c) Computations by the Borrower
comparing the financial statements referred to
above with the most recent budget for the period
covered thereby furnished to the Agent in
accordance with Section 6.4.4.
(d) Computations by the Borrower
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 Agent in writing, as well as any changes in
the Charter, Bylaws or incumbency of officers of
the Borrower or its Subsidiaries from those
previously certified to the Agent.
(f) In the event of a change in GAAP
after the Initial Closing Date, computations by
the Borrower, 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. The Borrower
shall furnish to the Agent 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 Borrower 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.
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<PAGE> 57
6.4.4. Other Reports. The Borrower
shall promptly furnish to the Agent:
(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 the Borrower and its Subsidiaries,
prepared in a manner consistent with the manner in
which the financial projections described in
Section 7.2.1 were prepared.
(b) Any material updates of such budget
and projections.
(c) Any management letters furnished to
the Borrower or any of its Subsidiaries by the
Company's auditors.
(d) All budgets, projections, statements
of operations and other reports furnished
generally to the shareholders of the Borrower.
(e) 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 the Borrower or any of
its Subsidiaries with the Securities and Exchange
Commission.
(f) 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 the Borrower or any of its Subsidiaries.
(g) Any material information relating to
a material audit or investigation of the Borrower
or any of its Subsidiaries in its capacity as a
Medicare or Medicaid provider by a governmental or
administrative agency.
(h) The financial and operational
projections for the Borrower and its Subsidiaries
on a Consolidated and Consolidating basis.
6.4.5. Notice of Litigation, Defaults,
etc. Each of the Borrower and its Subsidiaries
shall promptly furnish to the Agent 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 the 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, the Borrower shall notify the Lenders of
the existence of any Default or Material Adverse
Change, specifying the nature thereof and what
action the Borrower or such Subsidiary has taken,
is taking or proposes to take with respect
thereto.
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6.4.6. ERISA Reports. Each of the
Borrower and its Subsidiaries shall furnish to the
Agent 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,
(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 the Agent, each of
the Borrower and its Subsidiaries shall furnish to
the Agent such other information regarding the
business, assets, financial condition, income or
prospects of the Borrower and its Subsidiaries as
such officer may reasonably request, including
copies of all tax returns, licenses, agreements,
leases and instruments to which any of the
Borrower and its Subsidiaries is party. The
Agent's 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 Borrower
and its Subsidiaries, 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 the Borrower and its
Subsidiaries reviewed by the Agent's commercial
financial examiners and fixed asset appraisers.
The Borrower 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 Borrower 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 Borrower,
Consolidated Net Income for the fiscal quarter
then ending shall be at least $1.00.
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6.5.2. Consolidated Senior Debt
Coverage. At all times set forth in the table
below, Consolidated Senior Debt shall not exceed
the percentage of Consolidated Adjusted EBITDA
indicated in the table below for the period of
four consecutive fiscal quarters most recently
ended:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
Initial Closing Date through March 31, 1998 400%
April 1, 1998 through March 31, 1999 350%
April 1, 1999 and thereafter 300%
</TABLE>
6.5.3. Consolidated Total Debt Coverage.
At all times set forth in the table below, 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 the
Borrower in accordance with GAAP, shall not exceed
the percentage of Consolidated Adjusted EBITDA
indicated in the table below for the period of four
consecutive fiscal quarters most recently ended:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
Initial Closing Date through March 31, 1999 450%
April 1, 1999 and thereafter 400%
</TABLE>
6.5.4. Consolidated Interest Expense.
On the last day of each fiscal quarter of the
Borrower (a) ending on or prior to March 31, 1998,
Consolidated Adjusted EBITDA for the period of four
consecutive fiscal quarters then ending shall be at
least 275% of the Annualized Interest Expense for
such period and (b) ending after March 31, 1998,
Consolidated Adjusted EBITDA for the period of four
consecutive fiscal quarters then ending shall be at
least 300% of the Annualized Interest Expense for
such period.
6.5.5. Consolidated Operating Cash Flow.
On the last day of each fiscal quarter of the
Borrower, Consolidated Operating Cash Flow for the
period of four consecutive fiscal quarters then
ending shall be at least 125% of Consolidated Total
Debt Service for such period.
6.6. Indebtedness. Neither the Borrower nor any
of its Subsidiaries 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.
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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 Borrower or any of its
Subsidiaries 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), the
Borrower or such Subsidiary 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 $1,000,000.
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
Borrower and its Subsidiaries is in compliance with
Section 6.17.
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 Borrower
and its Subsidiaries which are not prohibited by
Section 6.9.
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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. Neither the Borrower
nor any of its Subsidiaries 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 the Borrower of
Indebtedness incurred by its Subsidiaries and permitted by
Section 6.6.
6.7.3. Guarantees by the Borrower of the
obligations of its Subsidiaries under employment agreements
between such Subsidiary and its employees.
6.8. Liens. Neither the Borrower nor any of its
Subsidiaries 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 (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
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contested in good faith by the Borrower or any Subsidiary in
appropriate proceedings (so long as the Borrower or such
Subsidiary 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 the Borrower or any
Subsidiary.
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 Borrower and its Subsidiaries.
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.
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. Neither the
Borrower nor any of its Subsidiaries 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 Borrower in its
Subsidiaries.
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6.9.2. Intercompany loans and advances from the
Borrower and its Subsidiaries to any Subsidiary 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 Borrower 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 Agent 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, as specified in writing to the Borrower; and
(d) before such acquisition, the Agent shall
have received computations, certified by a Financial Officer
of the Borrower, showing
(i) pro forma compliance as of the date
of such acquisition with the financial tests set
forth in Section 6.5 (other than Section 6.5.5) ,
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 Agent the Pro Forma EBITDA of the
Acquired Party for the most recently completed period
of four consecutive fiscal quarters,
(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.
Each Lender shall be deemed to have approved any non-GAAP
adjustments used in such certified calculation of the Pro
Forma EBITDA unless, within five Banking Days after the
Company (via the Agent) gives notice to such Lender of the
proposed Pro
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Forma EBITDA calculations showing such non-GAAP adjustments,
such Lender has given notice to the Company and the Agent of
its objection to such non-GAAP adjustments.
6.9.6. Investments representing Indebtedness of
any Person owing as a result of the sale by the Borrower in
the ordinary course of business to such Person of products,
services or tangible property no longer required in the
Borrower's business.
6.10. Distributions. Neither the Borrower nor any of its
Subsidiaries shall make any Distribution except for the following:
6.10.1. Subsidiaries of the Borrower may make
Distributions to the Borrower or any other Subsidiary of the
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
the Borrower or any of its Subsidiaries; 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 a Subordination
Agreement or such other documentation relating to Subordinated
Indebtedness that has been approved by the Agent.
6.10.5. Distributions consisting of the
principal of, premium, if any, and interest on the 8%
Non-Negotiable Senior Subordinated Notes due December 31, 1998
issued pursuant to the Asset Purchase Agreement dated January
1, 1994 (the "8% Senior Subordinated Notes") and the 10%
Junior Subordinated Notes due December 31, 2001 issued
pursuant to the Series A Preferred Stock, Common Stock and
Junior Subordinated Note Purchase Agreement dated January 1,
1994 (the "10% Junior Subordinated Notes"), so long as
immediately before and after giving effect to such
Distribution, no Default shall exist.
6.11. Asset Dispositions and Mergers. Except as otherwise
set forth in Exhibit 6.11, neither the Borrower nor any of its Subsidiaries
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
Borrower and any of its Subsidiaries may sell or otherwise
dispose of: (a) inventory in the ordinary course of business;
(b) tangible assets to be
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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 the Borrower or
such Subsidiary; 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
$500,000 in any fiscal year; and (d) the portion of the assets
acquired from Gulf Coast Pathology Associates, Inc. that
comprise the operations of two clinical laboratories.
6.11.2. Any Subsidiary may merge or be
liquidated into the Borrower or any other Subsidiary of the
Borrower so long as after giving effect to any such merger to
which the Borrower is a party the Borrower shall be the
surviving or resulting Person.
6.12. Lease Obligations. Neither the Borrower nor any of
its Subsidiaries 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 $2,000,000.
6.13. Issuance of Stock by Subsidiaries; Subsidiary
Distributions.
6.13.1. Issuance of Stock by Subsidiaries of the
Company. No Subsidiary shall issue or sell any shares of its
capital stock or other evidence of beneficial ownership to any
Person other than the Borrower or any other Wholly-Owned
Subsidiary of the Borrower, which shares shall have been
pledged to the Agent as part of the Credit Security; provided,
however, that (i) in the event that applicable state law or
regulation prohibits the Company from directly holding the
capital stock of a medical practice that is a Subsidiary of
the Company, such shares may be issued or sold to a trust or
similar entity controlled solely by the Borrower or a
Wholly-Owned Subsidiary of the Borrower and (ii) James E.
Dunnington, M.D. may hold one share of AmeriPath Kentucky,
Inc., so long as the Shareholders' Agreement among Dr.
Dunnington, the Company and AmeriPath Kentucky, Inc. remains
in full force and effect.
6.13.2. No Restrictions on Subsidiary
Distributions. Except for this Agreement and the Credit
Documents, neither the Borrower nor any of its Subsidiaries
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
Subsidiary to make Distributions or extensions of credit to
the Borrower (directly or indirectly through another
Subsidiary).
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6.14. Voluntary Prepayments of Other Indebtedness. Neither
the Borrower nor any of its Subsidiaries 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 than the Credit Obligations) without the prior written consent of the
Required Lenders; provided, however that the Borrower may make a voluntary
prepayment of the principal of, premium, if any, and interest on the 8% Senior
Subordinated Notes and the 10% Junior Subordinated Notes, so long as
immediately before and after giving effect to such payment, no Default shall
exist.
6.15. Derivative Contracts. Neither the Borrower nor any
of its Subsidiaries 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.
6.16. Negative Pledge Clauses. Neither the Borrower nor any
of its Subsidiaries 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 Borrower and its
Subsidiaries 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 Borrower and its Subsidiaries 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 Borrower and
its Subsidiaries 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 $500,000.
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6.18. Transactions with Affiliates. Except with respect to
transactions set forth on Exhibit 6.18, neither the Borrower nor any of its
Subsidiaries shall effect any transaction with any of their respective
Affiliates (except for the Borrower and its Subsidiaries) on a basis less
favorable to the Borrower and its Subsidiaries than would be the case if such
transaction had been effected with a non-Affiliate.
6.19. Interest Rate Protection. Within 90 days after the
Initial Closing Date, the Borrower shall obtain and keep in effect one or more
Interest Rate Protection Agreements, each in form and substance reasonably
satisfactory to the Agent, covering at least $30,000,000, in each case for an
aggregate period of not less than two years.
6.20. Environmental Laws.
6.20.1. Compliance with Law and Permits. Each
of the Borrower and its Subsidiaries shall use and operate all
of their respective 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.
6.20.2. Notice of Claims, etc. Each of the
Borrower and its Subsidiaries shall immediately notify the
Agent, and provide copies upon receipt, of all written claims,
complaints, notices 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.
6.21. Capital Expenditures. The Borrower and its
Subsidiaries will not make Capital Expenditures in any fiscal year which in the
aggregate exceed 4% of the net revenues of the Borrower and its Subsidiaries on
a Consolidated basis as determined in accordance with GAAP, for such fiscal
year, other than with respect to the purchase of assets in connection with a
Permitted Acquisition.
7. Representations and Warranties. In order to induce the
Lenders to extend credit to the Borrower hereunder, each of the Borrower and
its Subsidiaries 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 Borrower. The Borrower is a duly
organized and validly existing corporation, in good standing
under the laws of Delaware 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) grant the Agent for the benefit of the
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Lenders the security interests in the Credit Security owned by
it to secure the Credit Obligations and (c) 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 the 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 the Borrower, (ii) the address of the
Borrower's principal executive office and chief place of
business, (iii) each name, including any trade name, under
which the Borrower conducts its business and (iv) the
jurisdictions in which the Borrower keeps tangible personal
property.
7.1.2. Subsidiaries. Each Subsidiary of the
Borrower is duly organized, validly existing and 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 Lenders
the security interest in the Credit Security owned by such
Subsidiary 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 Subsidiary of the 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 name and jurisdiction of organization of each
Subsidiary of the Borrower, (ii) the address of the chief
executive office and principal place of business of each such
Subsidiary, (iii) each name under which each such Subsidiary
conducts its business; (iv) each jurisdiction in which each
such Subsidiary keeps tangible personal property, and (v) the
number of authorized and issues shares and ownership of each
such Subsidiary.
7.1.3. Qualification. Each of the Borrower and
its Subsidiaries is duly and legally qualified to do business
as a foreign corporation or other entity and is in good
standing in each state or jurisdiction in which such
qualification is required and is duly authorized, qualified
and licensed under all laws, regulations, ordinances or orders
of public authorities, or otherwise, to carry on its business
in the places and in the manner in which it is conducted,
except for failures to be so qualified, authorized or licensed
which would not in the aggregate result, or create a material
risk of resulting, in any Material Adverse Change.
7.1.4. Capitalization. No options, warrants,
conversion rights, preemptive rights or other statutory or
contractual rights to purchase shares of capital stock or
other
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securities of any Subsidiary, now exist, nor has any
Subsidiary authorized any such right, nor is any Subsidiary
obligated in any other manner to issue shares of its capital
stock or other securities. Attached as Exhibit 7.1.4. is a
list of the holders of all the outstanding capital stock of
the Borrower together with the number of shares so held.
7.2. Financial Statements and Other Information; Material
Agreements.
7.2.1. Financial Statements and Other
Information. The Borrower has previously furnished to the
Lenders copies of the following:
(a) The audited Consolidated balance sheets of
the Borrower and its Subsidiaries as of December 31, 1996 and
the audited statements of income, of changes in shareholders'
equity and of cash flows of the Borrower and its Subsidiaries
for the fiscal year of the Borrower then ended.
(b) The unaudited balance sheets of the Borrower
and its Subsidiaries on a Consolidated basis as of March 31,
1997 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 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 the Borrower and its Subsidiaries on a Consolidated basis
at the date thereof and the results of their operations for
the periods covered thereby. The unaudited financial
statements referred to in clause (b) above were prepared in
accordance with GAAP and fairly present the financial position
of the Borrower and its Subsidiaries on a Consolidated basis
at the respective dates thereof and the results of their
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. Neither the Borrower
nor any of its Subsidiaries has any known contingent liability
material to the Borrower and its Subsidiaries on a
Consolidated basis 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 Borrower'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 Borrower
and its Subsidiaries during the periods indicated therein, it
being understood that any projected financial information
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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 Borrower has
previously furnished to the Lenders correct and complete
copies, including all exhibits, schedules and 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
Borrower and its Subsidiaries 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 Borrower or any
Subsidiary to make any Investment. The Borrower has 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, 1996 no
Material Adverse Change has occurred and between December 31, 1996 and the date
hereof, except as set forth in Exhibit 7.4, neither the Borrower nor any of its
Subsidiaries 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. The Borrower and its Subsidiaries
have good and marketable title to, or rights to use under lease 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 Borrower and its Subsidiaries as now conducted or proposed to
be conducted are not in violation of, nor is the Borrower or any of its
Subsidiaries 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. Neither the Borrower nor any of its Subsidiaries has received
notice of any such violation or default or has knowledge of any basis on which
the operations of the Borrower or its Subsidiaries, 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
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agency or any arbitrator is pending or, to the knowledge of the Borrower or any
of its Subsidiaries, 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 governmental or administrative agency or any arbitrator
has been issued against or binds the Borrower or any of Subsidiaries 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 the
Borrower, any of its Subsidiaries or any other Obligor is a
party or by which it is bound, or of the Charter or By-laws of
the Borrower, any of its Subsidiaries or any other Obligor;
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable to
the Borrower, any of its Subsidiaries or any other 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 the Borrower, any of its Subsidiaries or any
other Obligor; or
(d) any redemption, retirement or other
repurchase obligation of the Borrower, any of its Subsidiaries
or any other Obligor under any Charter, By-law, agreement,
instrument, deed or lease.
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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 Borrower, any of its Subsidiaries or any
other Obligor in connection with the execution, delivery and performance of
this Agreement, the 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. Neither the Borrower nor any of its
Subsidiaries is in default under any provision of its Charter or By-laws or of
this Agreement or any other Credit Document. Neither the Borrower nor any of
its Subsidiaries 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. Neither the Borrower nor any of its Subsidiaries 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 Borrower and its Subsidiaries
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 Borrower and its Subsidiaries as now
conducted by them. All of the foregoing are in full force and effect in all
material respects, and each of the Borrower and its Subsidiaries 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 Borrower and its Subsidiaries 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 Borrower and its
Subsidiaries 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. Neither the Borrower nor any of its
Subsidiaries knows of any material additional assessments or any basis
therefor. Neither the Borrower nor any of its Subsidiaries reasonably believes
that the charges, accruals and reserves on the books of the Borrower and its
Subsidiaries 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 the Borrower or any of its Subsidiaries
and any of their respective employees has resulted, or is
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reasonably likely to result, in any Material Adverse Change,
and neither the Borrower nor any of its Subsidiaries
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 Borrower and its
Subsidiaries 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 Borrower and
its Subsidiaries 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.
7.13.3. Consumer Protection. Neither the
Borrower nor any of its Subsidiaries 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. Neither the
Borrower nor any of its Subsidiaries 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. Neither the
Borrower nor any of its Subsidiaries anticipate that the
future expenditures, if any, by the Borrower and its
Subsidiaries 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
Borrower and its Subsidiaries 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 Borrower and
its Subsidiaries 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 Borrower
and its Subsidiaries 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.
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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 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 Borrower and its Subsidiaries, 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 the
Borrower and each of its Subsidiaries, 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 and each
Subsidiary party thereto and, to the best of the Borrower's knowledge, as to
the Sellers party thereto. The Borrower is not in default in any material
respect of its obligations under any Acquisition Agreement and, to the best of
the 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 the Borrower set
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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 the 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 the 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 constituted or resulted in or will
constitute or result in the violation of any Foreign Trade
Regulation.
7.17.2. Government Regulation. Neither the
Borrower nor any Subsidiary, nor any Person controlling the
Borrower or any of its Subsidiaries or under common control
with the Borrower or any of its Subsidiaries, 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 the Borrower or any of its
Subsidiaries of Financing Debt as contemplated by this
Agreement and the other Credit Documents.
7.17.3. Margin Stock. Neither the Borrower nor
any of its Subsidiaries 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 the Borrower
or any of its Subsidiaries 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
Borrower or any of its Subsidiaries which has resulted, or in the future (so
far as the Borrower or any of its Subsidiaries 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. The 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
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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. The Borrower or any
of its Subsidiaries shall fail to perform or observe any of
the provisions of Section 6.4.5 or Sections 6.5 through 6.21.
8.1.3. Other Covenants. The Borrower, any of
its Subsidiaries or any other 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 of (a) notice thereof by the
Agent to the Borrower 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 the Borrower
or any of its Subsidiaries or any other 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) The Borrower or any of Subsidiaries 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) the Borrower or any of its Subsidiaries
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 the Borrower or any of its Subsidiaries
shall be
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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 the Borrower or
any of its Subsidiaries 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 either Section 6.11 or Section 6.13:
(a) the Borrower shall cease to own, directly or
indirectly, all the capital stock of each of its Subsidiaries;
(b) any transaction or series of transactions
shall occur as a result of which the Persons listed on Exhibit
8.1.6 shall collectively cease to beneficially own, in the
aggregate, (A) at any time prior to consummation of the
initial public offering of the common stock of the Company,
(i) preferred stock and/or (ii) common stock representing or
convertible into at least 51% of the fully diluted equity of
the Company or (B) at any time after the consummation of the
initial public offering of the Company's common stock, a
greater amount of the Company's capital stock entitled to vote
than the aggregate amount of the Company's capital stock
entitled to vote held by any other beneficial owner (as such
term is defined in Rule 13d-3 or any other successor rule or
regulation promulgated under the Exchange Act).
(c) the Borrower, any of its Subsidiaries or any
other 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 the Borrower, any of its Subsidiaries or any other
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 Borrower or
any of its Subsidiaries, exceeds an aggregate of
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$100,000 in excess of applicable insurance coverage shall be
rendered against the Borrower or any of its Subsidiaries, 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.
8.1.10. Bankruptcy, etc. The Borrower, any of
its Subsidiaries or any other 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;
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(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
Aggregate Percentage Interests in the Loan 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 Borrower.
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
Aggregate Percentage Interests in the Loan 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 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 Aggregate Percentage Interests in
the Loan the Agent shall) by notice in writing to the Borrower
(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 Borrower 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.
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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 Aggregate Percentage Interests in the Loan 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.
8.2.6. 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.
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 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 Borrower and the other 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;
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(b) any requirement of diligence or promptness
on the part of any Lender in the enforcement of its rights
under this Agreement, the 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 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 Aggregate Percentage Interests in the
Loan 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 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
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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 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;
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(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 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:
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(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.
9.5. Information Regarding the Borrower, 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 Borrower or its Affiliates or their
properties or
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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 Borrower all information concerning this Agreement and
all other Credit Documents and all other information as to the Borrower and its
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
Borrower and its 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 Borrower 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
(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 Borrower 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.
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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 Borrower 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. The
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 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":
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").
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10.1.3. Intangibles. All of the following (to
the extent not included in Section 10.1.2): (a) contracts
(including the Management Agreements), 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".
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
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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.
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
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(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 Borrower, 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.
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.
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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.
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.
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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 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.
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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.
(a) 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, financial institutions designated on
Exhibit 10.4.2 or any financial institution approved
by the Agent.
(b) To the extent specified by prior
written notice from the Agent, whether prior to or
after the occurrence of an Event of Default, 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.
(c) In addition, the Obligors 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 maintained with any financial institution
designated on Exhibit 10.4.2 or such other financial
institution as approved by the Agent (which, in the
event such financial institution is not a
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Lender, must be party to an Assignment Agreement in
form and substance satisfactory to the Agent).
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).
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:
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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
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.
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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 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
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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.
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:
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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 Aggregate
Percentage Interests of the Lenders in the Loan;
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;
(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
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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 Borrower 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
Borrower 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 the Borrower or
any Obligor against the Lenders or the Agent which seeks enforcement of any of
the rights of the Borrower or such 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
Borrower 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 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 each portion of the Loan, and the Aggregate Percentage Interest
of each Lender in the Loan, and the related Commitments, shall be computed
based on the maximum principal amount for each Lender as
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set forth on Exhibit 12.1. Upon the consummation of any assignment pursuant to
Section 13.1 or 13.3, the Agent shall modify Exhibit 12.1 to reflect such
assignment.
12.2. Agent's Authority to Act, etc. Each of the Lenders
appoints and authorizes BankBoston 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 BankBoston to the extent of its Aggregate
Percentage Interest in the Loan and for the account of each other Lender to the
extent of the Lenders' respective Aggregate Percentage Interests in the Loan,
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. Borrower to Pay Agent, etc. The Borrower and each
Guarantor 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 account of
the Borrower, on the dates when the amounts thereof become due and payable,
with the amounts of the principal of and interest on the 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.
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
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 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 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
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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 Borrower. 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 Borrower.
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 Borrower 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 or portion of
the Loan to which such Credit Obligation relates, except as
otherwise provided in this Agreement. Under no circumstances
shall any Lender be required to produce or present its Notes
as evidence of its interests in the Credit Obligations in any
action or proceeding relating to the Credit Obligations.
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 Borrower 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 Borrower under Section 3 that would have thereafter
otherwise been payable under the Credit Documents to the
Delinquent
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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 Borrower 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 the portion of the Loan with respect to which there
is such nonperformance, in an amount equal to such Percentage
Interest of such Performing Lender divided by one minus the
Percentage Interest of the Nonperforming Lender in the portion
of the Loan with respect to which there is such
nonperformance, until the respective portions of such portion
of the Loan owed to all the Lenders are the same as the
Percentage Interests of the Lenders in such portion of the
Loan 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 Borrower 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 a portion of the 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 such portion of the 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
participations in the Percentage Interests in the portions of the 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 portion of the 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 in the relevant portion of the Loan; 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 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
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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.
12.6.1. Actions by Agent; Voting by All Lenders.
Except as otherwise set forth in this Section 12.6.1 or
Section 12.6.2, 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 the
Required Lenders (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
(other than Interest Rate Protection Agreements)
shall be made.
(b) Without the written consent of such
Lenders as own 100% of the Aggregate Percentage
Interests in the Loan (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 Loan or
reimbursement obligations for payments made
under Letters of Credit, (B) the interest
rate on the Loan or (C) the Letter of Credit
fees or commitment fees.
(ii) No change shall be made in
the stated time of payment of all or any
portion of the 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.
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(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 12.6.1(b) or of
the definition of Required Lenders shall be
made.
12.6.2. Voting by Class. In addition to any
written consent of Lenders required under Section 12.6.1:
(i) No amendment to, or modification,
termination or waiver of the provisions of Sections
2.1, 2.2 or 4 that has the effect of changing any
interim scheduled payments, voluntary or mandatory
prepayments or Commitment reductions applicable to
either Class (such Class being the "Affected Class")
in a manner that disproportionately disadvantages
such Class relative to the other Class shall be made
without the written consent of the Required Class
Lenders of the Affected Class (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 such action
to be taken).
(ii) No amendment to or modification of
this Section 12.6.2, or of the definition of Required
Class Lenders, shall be made without the written
consent of the Required Class Lenders for each of the
Revolving Loan and the Term Loan (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 such action to be taken).
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 Borrower and upon the appointment by the
Required Lenders of a successor Agent satisfactory to the Borrower. 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 Borrower,
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,
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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 Borrower. 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.
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
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Security, or (f) unless the Agent shall have failed to comply
with Section 12.8.1, for either the perfection of the security
interests in the Credit Security or for failure of the Agent
to its obligations under Section 12.8.8.
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 Borrower as to the fulfillment by the Borrower of any
conditions to such extension of credit.
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, the 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 Aggregate Percentage Interest in the Loan,
for any reasonable expenses not reimbursed by the Borrower or
the Guarantors (without limiting the obligation of the
Borrower or the Guarantors to make such reimbursement): (a)
for which the Agent is entitled to reimbursement by the
Borrower 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.
12.8.8. Conveying Reports to Lenders. The Agent
shall provide to each of the Lenders, in any reasonable form
and reasonably promptly, a copy of those communications
received from the Company pursuant to Sections 4.3.3, 5.2, 6.4
and 6.9.5.
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12.9. Rights as a Lender. With respect to any credit
extended by it hereunder, BankBoston 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, BankBoston 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 in any portion of the Loan, and the
Aggregate Percentage Interest in the Loan, of BankBoston shall be included in
any computations of Percentage Interests and Aggregate Percentage Interests in
the Loan, respectively. BankBoston 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 the Borrower, any of its Subsidiaries or any
Affiliate of any of them and any Person who may do business with or own an
equity interest in the Borrower, any of its Subsidiaries or any Affiliate of
any of them, all as if BankBoston 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 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 Aggregate Percentage Interests in the Loan, 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,
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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 portions of the Loan hereunder except as set
forth below in this Section 13.
13.1. Assignments by Lenders.
13.1.1. Assignees and Assignment Procedures.
Each Lender may (a) without the consent of the Agent or the
Borrower 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 Borrower
(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 Loan and the Letter of
Credit Exposure, of its Commitment, the portion of the Loan
and Letter of Credit Exposure at the time owing to it and the
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
$2,500,000 and in increments of $1,000,000; and
(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 $2,500 payable to
the Agent by the assigning Lender or the Assignee.
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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 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;
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(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
(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
Interests of each such Lender in the Revolving Loan and the
Term Loan, and the Aggregate Percentage Interest of each such
Lender in the Loan, all as set forth in Section 12.1 and (c)
the amount of the 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
Borrower, 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 the 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 Note or 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 Borrower, at their
own expense, shall execute and deliver to the Agent, in
exchange for the surrendered Note or Notes, a new Note or
Notes to the order of such Assignee in a principal amount
equal to the applicable Commitment and Loan assumed by it
pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Commitment and Loan, a new
Note or Notes to the order of such assigning Lender in a
principal amount equal to the applicable Commitment and Loan
retained by it. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, respectively, and
shall be dated the date of the surrendered Notes which they
replace.
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.
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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.
13.2. Credit Participants. Each Lender may, without the
consent of the Borrower 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 Loan and Letter of Credit Exposure owing to it and the Notes 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 Borrower, 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 Borrower relating to the
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 Loan or to issue any Letter of Credit on any
Closing Date when required to do so by the terms of the
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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;
(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 Aggregate Percentage Interests in the
Loan under Section 12.6.1(c) that is consented to by the other
Lenders;
then, so long as no Event of Default exists and is continuing, the Borrower
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 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 aggregate amount of
the Affected Lender's Percentage Interests in each portion of the 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 Borrower 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 in each portion of the Loan equal to the Percentage
Interest in such portion of the Loan 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 Borrower, the Agent
and the Affected Lender shall make appropriate arrangements so that a new Note
is issued to the Replacement Lender if it has acquired a portion of the Loan.
The Borrower 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 Borrower shall continue to pay to the Affected Lender
any Credit Obligations as they become due and payable.
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13.4. Foreign Lenders. If any Lender is not incorporated
or organized under the laws of the United States of America or a state thereof,
such Lender shall deliver to the Borrower and the Agent the following:
(a) Two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor form,
as the case may be, certifying in each case that such Person
is entitled to receive payments under this Agreement, the
Notes and reimbursement obligations under Letters of Credit
payable to it, without deduction or withholding of any United
States federal income taxes; and
(b) A duly completed Internal Revenue Service
Form W-8 or W-9 or successor form, as the case may be, to
establish an exemption from United States backup withholding
tax.
Each such Lender that delivers to the Borrower and the Agent a
Form 1001 or 4224 and Form W-8 or W-9 pursuant to this Section 13 further
undertakes to deliver to the Borrower and the Agent two further copies of Form
1001 or 4224 and Form W-8 or W-9, or successor applicable form, or other manner
of certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Borrower and
the Agent. Such Forms 1001 or 4224 shall certify that such Lender is entitled
to receive payments under this Agreement without deduction or withholding of
any United States federal income taxes. The foregoing documents need not be
delivered in the event any change in treaty, law or regulation or official
interpretation thereof has occurred which renders all such forms inapplicable
or which would prevent such Lender from delivering any such form with respect
to it, or such Lender advises the Borrower that it is not capable of receiving
payments without any deduction or withholding of United States federal income
tax and, in the case of a Form W-8 or W-9, establishing an exemption from
United States backup withholding tax. Until such time as the Borrower and the
Agent have received such forms indicating that payments hereunder are not
subject to United States withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Borrower shall withhold taxes from
such payments at the applicable statutory rate without regard to Section 3.6.
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;
(b) pursuant to any statutory or regulatory
requirement or any mandatory court order, subpoena or other
legal process;
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(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
Borrower, to any other Person.
15. Acknowledgments and Consents. The Borrower and each of its
Subsidiaries, in their capacities as Borrower, as guarantors of the Credit
Obligations, grantors of security interests to secure the Credit Obligations
and/or holders of Subordinated Indebtedness, as the case may be, pursuant to
the Credit Agreement dated as of May 29, 1996, as amended and in effect on the
date hereof, hereby acknowledge and agree that, as of the Initial Closing Date,
(i) the Uniform Commercial Code Financing Statements and other instruments
previously filed in connection with the perfection of the Liens created in the
Credit Security pursuant to such Credit Agreement shall be deemed to refer to
the Credit Agreement as amended and restated hereby and that the term "Credit
Obligations" as used in such financing statements and other instruments, shall
be deemed to refer to the Credit Obligations under the Credit Agreement as
amended and restated hereby; and (ii) such financing statements and other
instruments are confirmed and ratified as being in full force and effect.
16. 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 the Borrower or its Subsidiaries, to it at its 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
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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.
17. Course of Dealing; Amendments and Waivers. No course of
dealing between any Lender or the Agent, on one hand, and the Borrower 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 Borrower 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 obtain any consent from, the 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, the Required Lenders and the
Required Class Lenders.
18. 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 Borrower hereunder or under any other Credit Document,
this Agreement shall terminate and, at the Borrower's 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, 19 and 20 shall survive the termination of this Agreement.
19. Venue; Service of Process. Each of the Borrower 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
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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 Borrower 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 mail, return receipt requested, at its
address specified in or pursuant to Section 16 is reasonably calculated to give
actual notice.
20. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW THAT CANNOT BE WAIVED, EACH OF THE BORROWER, 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 BORROWER 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 Borrower and the other Obligors
acknowledges that it has been informed by the Agent that the provisions of this
Section 20 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 20 with its
counsel. Any Lender, the Agent, the Borrower or any other Obligor may file an
original counterpart or a copy of this Section 20 with any court as written
evidence of the consent of the Borrower, the other Obligors, the Agent and the
Lenders to the waiver of their rights to trial by jury.
21. 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.
22. 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
-106-
<PAGE> 116
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 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.
-107-
<PAGE> 117
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/ Robert P. Wynn
-------------------------------
Title: Executive Vice President-
Chief Financial Officer
AMERICAN LABORATORY ASSOCIATES, INC.
AMERIPATH FLORIDA, INC.
AMERIPATH ALABAMA, INC.
AMERIPATH KENTUCKY, INC.
AMERIPATH TEXAS, INC.
AMERIPATH OHIO, INC.
AMERIPATH CINCINNATI, INC.
AMERIPATH CLEVELAND, INC.
By /s/ Robert P. Wynn
-------------------------------
Executive Vice President-
Chief Financial Officer
BANKBOSTON, N.A.
By /s/ Randy J. Wehling
-------------------------------
Title: Vice President
NATIONSBANK, N.A. (South)
By /s/ Alexander L. Rody
-------------------------------
Title: Vice President
<PAGE> 118
CREDITANSTALT-BANKVEREIN
By /s/ W. Craig Stamm
--------------------------------
Title: Senior Associate
By /s/ Robert M. Biringer
--------------------------------
Title: Executive Vice President
IMPERIAL BANK
By /s/ Oscar Jazdowski
--------------------------------
Title: Senior Vice President
SILICON VALLEY BANK
By /s/ Joan Parsons
--------------------------------
Title: Senior Vice President
PARIBAS CAPITAL FUNDING
By /s/ Francois Gavrin
--------------------------------
Title: Director
ANTARES LEVERAGED CAPITAL CORP.
By /s/ David Mahon
--------------------------------
Title: Director
<PAGE> 1
EXHIBIT 10.11
LEASE
THIS LEASE, executed this 8th day of April, 1988, in consideration of
the following covenants, agreements, limitations and conditions entered into by
the parties hereto for themselves, their heirs, successors, legal
representatives and assigns, MLS PROPERTIES, INC., hereinafter called Landlord
does lease unto E.G. POULOS, M.D., M.J. DEMARAY, M.D. & A.P. KOWALCZYK, M.D.,
P.A., doing business as AMERICAN LABORATORY ASSOCIATES hereinafter jointly,
severally and collectively called the tenant, the premises described as:
LEGAL DESCRIPTION: Lot 2 and that part of the planting strip lying east of and
adjacent to the Northeast 14th Avenue right of way between the North and South
lines of Lot 2 extended East, Block 2, Coral Ridge Isles Plat Book 45 at Page
47 of the Public Records of Broward County, Florida
to be occupied only as medical laboratory unless written consent of landlord to
occupy for other purposes is first obtained for the stated period of APRIL 1,
1988 to MARCH 31, 1993. The rent for said term shall be the sum of
$658,425.00. PLUS APPLICABLE SALES TAX payable monthly at the rate of
$10,973.50 plus tax.
OPTIONS: The Tenant shall have the option to renew this lease upon the same
terms and conditions for three additional five-year periods.
1. PROVIDING ALWAYS, and the tenant hereby covenants as follows to pay
the rent punctually in advance on the 1ST day of each and every month during
the said term to the Landlord at the designated address.
2. To make any and all repairs to the said premises, plumbing,
fixtures, wiring, etc., when the damage was in any way caused by the fault or
negligence of the said tenant; will at the end of the lease surrender and
deliver up said premises, without demand, in as good order and conditions as
when entered upon, loss by fire, inevitable accident, ordinary wear and decay
only executed. The tenant shall maintain air-conditioning and heat and all
repairs on said premises, and maintain the roof in a water tight condition.
3. That in the event the premises are destroyed or so damaged by fire
or other unavoidable casualty as to be unfit for occupancy or use, then the
rent hereby reserved, or a fair and just proportion thereof, according to the
nature and extent of the damage sustained, shall, until the said premises shall
have been rebuilt or reinstated, be suspended and cease to be payable, or this
lease shall, at the election of the landlord, thereby be determined and ended,
provided, however, that this agreement shall not be construed so as to extend
the term of this lease or to render the landlord liable to rebuild or replace
the said premises.
<PAGE> 2
4. To permit the landlord or his agent, at any reasonable time to
enter said premises or any part thereof for the purpose of exhibiting the same
or making repairs thereto.
5. To pay all charges for electricity, water and gas used on said
premises; not to hold the landlord responsible for any delay in the
installation of electricity, water or gas, or meters therefor, or interruption
in the use and services of such commodities.
6. Not to use the demised premises or any part thereof, or permit the
same to be used for any illegal, immoral or improper purposes; not to make, or
permit to be made, any disturbance, noise or annoyance whatsoever detrimental
to the premises or the comfort and peace of the inhabitants of the vicinity of
the demised premises.
7. TAXES: The Tenant shall be responsible for the payment of all real
estate and personal property taxes on the subject property during the term of
this lease.
8. INSURANCE: The Tenant shall pay for Hazard Insurance on the subject
property in the minimum amount of $411,000.00. The tenants agree to obtain
premises liability insurance in the minimum amount of $100,000.00 per
individual, $300,000.00 per occurance on the subject premises.
9. DEFAULT:
If default is made in the payment of rent as above set forth, or any
part thereof, or if said tenant shall violate any of the covenants and
conditions of this lease, then the tenant shall become a tenant at sufferance,
thereby waiving all right of notice to vacate said premises, and the said
landlord shall be entitled to re-enter and re-take possession immediately of
the demised premises; that if any installment of rent shall remain unpaid for
three (3) days after written notice of such non-payment shall have been served
on the said tenant, or posted in a conspicuous place on said premises, then the
entire rental to the end of this lease shall become at once due and payable
without demand and may be recovered forthwith by distress or otherwise, and in
all proceedings under this lease for the recovery of rent in arrears, whether
said rent accrued before or after the expiration of this lease, and whether by
distress or other action at law, the said tenant hereby waives the benefit of
homestead and other exemption laws, any law to the contrary notwithstanding,
and agrees to pay the landlord reasonable attorney's fees, together with all
costs of such collection and in the event tenant is evicted by suit at law said
tenant agrees to pay to said landlord all costs of such suit, including a
reasonable attorney's fee; that no assent expressed or implied, to any breach
of one or more of the covenants and agreements hereof shall be deemed or taken
to be a waiver of any succeeding or other breach.
10. SUBORDINATION TO THE FIRST MORTGAGE:
This lease and any and all interest of the Tenant are inferior to and
are subordinated to the interest of Barnett Bank of South Florida, N.A., and or
its assigns and or successors, by reason of the first mortgage by and between
MLS Properties, Inc. as Mortgagor and the Barnett Bank of South Florida, N.A.
as Mortgagee dated April 8, 1988 encumbering said property.
2
<PAGE> 3
12. All covenants and agreements of this lease shall be binding upon
and apply to the heirs, executors, legal representatives, and assigns of the
respective parties hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the
day and year first above written.
Signed and sealed in the presence of:
AS TO TENANTS:
E.G. POULOS, M.D., M.J.
DEMARAY, M.D. & A.P.
KOWALCZYK, M.D., P.A.
/s/ Gary Davis
- ---------------------------
/s/ Bettie C. Earnest /s/ Evangelos Poulos
- ----------------------------- --------------------------------
by EVANGELOS POULOS
PRESIDENT
AS TO LANDLORD:
/s/ Michael J. Demaray MLS PROPERTIES, INC.
- -----------------------------
/s/ Robert P. Wynn /s/ Sannie Demaray
- ---------------------------- --------------------------------
by SANNIE DEMARAY,
PRESIDENT
STATE OF FLORIDA
COUNTY OF BROWARD
Before me personally appeared EVANGELOS POULOS, as PRESIDENT of E.G. POULOS,
M.D., J.M. DEMARAY, M.D. & A.P. KOWALCZYK, M.D., P.A. to me known to be the
person who signed the foregoing instrument and severally acknowledged the
execution thereof to be his free act and deed as such officer for the use and
the purpose therein mentioned and that he affixed thereto the official seal of
said corporation, and that the said instrument is the act and deed of said
corporation.
WITNESS my hand and seal this 8 day of April, 1988.
My Commission Expires: -------------------------------
Notary Public
STATE OF FLORIDA
COUNTY OF BROWARD
Before me personally appeared SANNIE DEMARAY, as PRESIDENT of MLS PROPERTIES,
INC. to me known to be the person who signed the foregoing instrument and
severally acknowledged the execution thereof to be her free act and deed as
such officer for the use and the purpose therein mentioned and that she affixed
thereto the official seal of said corporation, and that the said instrument is
the act and deed of said corporation.
WITNESS my hand and seal this 8 day of April, 1988.
My Commission Expires: -------------------------------
Notary Public
This instrument prepared by:
Frederick J. Ramirez, Esq.
6444 Pembroke Road
Miramar, FL
989-4100
<PAGE> 4
MODIFICATION OF THE LEASE
The Parties whose names appear below, representing "E.G. Poulos, M.D., M.J.
Demaray, M.D. & A.P. Kowalczyk, M.D., P.A." (the "Tenant") and MLS Properties,
Inc. (the "Landlord"), acknowledge that they had executed a certain "Lease"
dated April 8, 1988.
Whereas, the Parties determined that it was their intent that the Tenant occupy
the subject property at 6061 N.E. 14th Avenue, Fort Lauderdale, Florida for the
term as set forth in the Lease, and to use such property as a medical
laboratory.
Whereas, the Landlord has acquired an additional parcel of property contiguous
to the existing property to accommodate the Tenant's parking requirements.
Whereas the Parties determined that for certain business reasons that the
monthly payment for the initial term of the lease (April 1, 1988 to March 31,
1993) be less than the amount as stipulated in the Lease, and that the Landlord
did in fact agree to accept, and the Tenant did in fact agree to pay, a monthly
rental for the initial term of the lease of $8,550.60.
Therefore,
(1) The Parties hereby agree that the Lease dated April 8, 1988 is modified to
reflect a monthly rent of $8,550.60 during the initial lease term.
(2) The Parties hereby agree to execute the first five-year renewal option of
the Lease dated April 1, 1988.
(3) The Parties hereby agree that commencing April 1, 1993 the monthly rent
shall be $10,973.50 plus applicable sales taxes. All other terms and
conditions of the Lease, as renewed, shall remain in full force and effect.
AS TO THE TENANTS:
/s/ Evangelos Poulos
- --------------------
By: Evangelos Poulos
President
American Laboratory Associates
AS TO THE LANDLORD:
/s/ Sannie Demaray
- --------------------
By: Sannie Demaray
President
MLS Properties, Inc.
<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>
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<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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<TABLE>
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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
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<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
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<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
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<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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<PAGE> 16
(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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<PAGE> 18
(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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<PAGE> 27
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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<PAGE> 31
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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<PAGE> 32
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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<PAGE> 33
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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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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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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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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"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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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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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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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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/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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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>
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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
<TABLE>
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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
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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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<PAGE> 11
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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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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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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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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<PAGE> 20
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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<PAGE> 23
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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<PAGE> 26
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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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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<PAGE> 52
(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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<PAGE> 53
(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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<PAGE> 54
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 -
<PAGE> 55
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
- 49 -
<PAGE> 56
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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<PAGE> 57
"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
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
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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<PAGE> 3
<TABLE>
<S> <C>
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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<TABLE>
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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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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
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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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(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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<PAGE> 25
(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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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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<PAGE> 36
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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<PAGE> 38
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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<PAGE> 56
"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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<PAGE> 57
(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
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<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
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<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
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<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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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
DOCTORS:
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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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Name:
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AMERIPATH, INC.
By:
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Robert P. Wynn, Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.16
AMERIPATH INC.
1996 DIRECTOR STOCK OPTION PLAN
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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.
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(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)
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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;
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(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.
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(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
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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
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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.
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EXHIBIT 10.17
AMERICAN LABORATORY ASSOCIATES, INC.
SERIES A PREFERRED STOCK, COMMON STOCK
AND JUNIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
Dated as of January 1, 1994
<PAGE> 2
AMERICAN LABORATORY ASSOCIATES, INC.
SERIES A PREFERRED STOCK, COMMON STOCK
AND JUNIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
Dated as of January 1, 1994
INDEX
<TABLE>
<CAPTION>
Page
ARTICLE I
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Purchase and Sale of Securities
1.1 Authorization of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Reservation of Shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Creation of Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Purchase and Sale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Financing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
Terms of Junior Notes
2.1 Issue of Junior Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Redemptions and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III
Representations and Warranties of the Company
3.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Validity of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Securities 1933 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
Representations, Warranties and Agreements of the Investors
4.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Legends; Stop Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<TABLE>
ARTICLE V
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Affirmative Covenants of the Company
5.1 Accounts and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Maintenance of Key Man Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Compliance with Laws, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 Corporate Existence; Ownership of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Board Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.10 Meetings of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.11 Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.12 Rule 144A Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.13 Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.14 Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI
Negative Covenants of the Company
6.1 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Dealings with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3 Merger; Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Limitations on Restrictions on
Subsidiary Dividends and Other Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.7 No Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.8 Limitation on Certain Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII
Preemptive Right
7.1 Preemptive Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Definition of New Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Notice from the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.4 Sale by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.5 Determination of Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.6 Termination of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VIII
Registration Rights
8.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 Requested Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 "Piggy Back" Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
<S> <C>
8.4 Expenses of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.5 Registration on Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.6 Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.8 Information by Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Limitations on Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.10 Exception to Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.11 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.12 Listing Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.13 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IX
Conditions of Purchasers' Obligation
9.1 Effect of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.2 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.4 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.5 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.6 Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.7 Redemption Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.8 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.9 Board of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.10 Completion of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE X
Defaults and Remedies
10.1 Events of Default; Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10.2 Rescission of Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XI
Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE XII
Miscellaneous
12.1 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.2 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
12.3 Securities Owned by Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.4 Amendments of Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C>
12.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.8 Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.9 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.10 Future Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EXHIBITS
A Form of Junior Subordinated Note
B Statement of Terms of Preferred Stock
C Stock Option Plan
D Intentionally Omitted
E Opinion of Counsel for the Company
F Shareholders' Agreement
G Redemption Agreement
H Employment Agreement
</TABLE>
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<PAGE> 6
This Series A Preferred Stock, Common Stock and Junior Subordinated Note
Purchase Agreement is entered into as of the 1st day of January, 1994, by and
among American Laboratory Associates, Inc., a Delaware Corporation (the
"Company"), Summit Ventures III, L.P. and Summit Investors II, L.P.
(collectively "Summit"), Schroder Incorporated, Schroder Ventures Limited
Partnership and Schroder Ventures U.S. Trust (collectively, "Schroder", and
together with Summit, the "Institutional Investors"), and Drs. Evangelos Poulos,
Michael Demaray and Alexander Kowalczyk (collectively, the "Management Investors
and, together with the Institutional Investors, the "Investors").
WHEREAS, the Company has been formed for the purpose of acquiring (the
"Acquisition") substantially all of the assets and liabilities of E.G. Poulos,
M.D., M.J. Demaray, M.D. & A.P. Kowalczyk, M.D., P.A. (the "Seller") pursuant
to an Asset Purchase Agreement of even date (the "Purchase Agreement");
WHEREAS, the Investors wish to acquire Series A Preferred Stock, Common
Stock and Junior Subordinated Notes of the Company, all in accordance with and
subject to the terms of this Agreement, all of the proceeds of which securities
will be used to fund a portion of the purchase price of the Acquisition;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and conditions set forth in this Agreement, the parties to
this Agreement, intending to be legally bound, mutually agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Authorization of Securities. The Company has authorized:
(a) the issuance and delivery to the Institutional Investors of its 10%
junior subordinated notes (herein, together with any such notes which may be
issued hereunder in substitution or exchange therefor in accordance with the
terms thereof, collectively called the "Junior Notes"), in the aggregate
principal amount of $7,500,000, to be dated January 1, 1994, and to mature
December 31, 2001 (the "Maturity Date"), which Junior Notes shall be purchased
at the face amount thereof and shall be in the form of Exhibit A hereto;
(b) the issuance and delivery to the Institutional Investors of 80,203
shares of Series A Convertible Preferred
<PAGE> 7
Stock, $.01 par value per share, of the Company (the "Preferred Stock"), at a
price of $68.576 per share, for a total purchase price of all such shares of
Series A Preferred Stock of $5,500,000; and
(c) the issuance and delivery to the Management Investors of 19,800
shares of Common Stock, $.01 par value per share, of the Company (the "Common
Stock"), at a price of $50.5051 per share, for a total purchase price of all
such shares of Common Stock of $1,000,000. As used herein, the term
"Securities" shall include the Junior Notes, the Preferred Stock and the Common
Stock.
1.2 Reservation of Shares of Common Stock. The shares of Preferred Stock
shall have the rights, terms and privileges set forth in Exhibit B hereto, and
shall be convertible into shares of Common Stock on the terms set forth in said
Exhibit. The Company shall reserve from its authorized but unissued shares of
Common Stock 80,203 shares for issuance upon conversion of the Preferred Stock.
The shares of Common Stock issuable upon conversion of the Preferred Stock are
referred to herein as the "Conversion Shares", and the shares of Preferred
Stock purchased hereunder, together with the Conversion Shares, are sometimes
hereinafter referred to collectively as the "Shares".
1.3 Creation of Stock Option Plan. At the Closing (as herein defined),
the directors and shareholders of the Company shall adopt the Stock Option Plan
in the form of Exhibit C hereto pursuant to which 10,000 shares of authorized
but unissued Common Stock shall be reserved for issuance thereunder (the "Stock
Option Plan"). The Stock Option Plan shall be administered by the Compensation
Committee; provided, however, that no options shall be granted thereunder with
an exercise price less than the price payable hereunder for the Common Stock
(subject to adjustment for stock splits, dividends and other forms of
recapitalization), and none of the Management Investors shall be eligible for
participation in such Stock Option Plan.
1.4 Purchase and Sale of Securities. The Company agrees to issue and
sell to each Investor and, subject to the terms and conditions herein set forth,
each Investor agrees to purchase from the Company at the Closing (as defined
below) the aggregate principal amount of the Junior Notes and the number of
shares of Preferred Stock and Common Stock set forth opposite such Investor's
name on a Schedule which will be delivered to the Company at the Closing (as
defined below) and attached hereto as Schedule 1.4, for the aggregate purchase
price set forth opposite such Investor's name on such
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<PAGE> 8
Schedule. The partnerships comprising Summit will purchase not less than 85%
in number of the shares of Preferred Stock and not less than 85% in principal
amount of the Junior Notes.
1.5 Closing. The purchase and sale of the Securities shall be
consummated at a closing (the "Closing") to be held at the offices of Hutchins,
Wheeler, & Dittmar, A Professional Corporation, 101 Federal Street, Boston,
Massachusetts, at 10:00 A.M. on such date on or before February 28, 1994 as the
Investors and the Company may mutually agree. Payment at the Closing for the
Securities shall be by wire transfer payable in immediately available federal
funds. At the Closing, the Company will deliver to each Investor one or more
certificates representing the Junior Notes, the Preferred Stock and the Common
Stock purchased by such Investor, in such denominations and issued in such
names as may be requested by such Investor. Should the Closing not occur on or
before February 28, 1994, either the Company or the Investors may terminate
this Agreement by written notice to the other party. Concurrently with the
consummation of the issuance of the Securities as herein contemplated, the
transaction contemplated in the Purchase Agreement will be closed.
1.6 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Securities hereunder to fund in part the Acquisition.
1.7 Allocation of Purchase Price. The Company and each of the Investors
hereby agree that for Federal income tax purposes, including for purposes of
determining original issue discount and the issue price of the Junior Notes
under the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder (the "Treasury Regulations"), the issue
price for the Junior Notes shall be the principal amount thereof as set forth
on Schedule 1.4 hereto, such that in the aggregate, the issue price of the
Junior Notes shall be $7,500,000, and that the issue price of the Preferred
Stock shall be the purchase price for those shares set forth on Schedule 1.4
hereto, such that in the aggregate, the issue price for the shares of Preferred
Stock shall be $5,500,000. The Company and each of the Investors hereby
further agree that the allocation of the issue price pursuant to the preceding
sentence shall be binding on the Company for purposes of any determination by
the Company of the issue price of the Junior Notes pursuant to the Treasury
Regulations.
1.8 Financing Fee. At the Closing, upon purchase of the Securities as
provided in Section 1.4, the Company shall pay in cash to Summit Partners, L.P.
or its designee a financing fee of one hundred ninety thousand ($190,000)
dollars.
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<PAGE> 9
ARTICLE II
TERMS OF JUNIOR NOTES
2.1 Issue of Junior Notes. At the Closing, the Company shall deliver to
the Institutional Investors the Junior Notes in the aggregate principal amount
of $7,500,000 to be dated January 1, 1994, and to mature on the Maturity Date,
which Junior Notes shall be in the form of Exhibit A hereto.
2.2 Interest.
(a) Interest. The Junior Notes shall bear interest from January 1,
1994 until the Maturity Date, computed on the basis of a 360-day year and the
actual number of days elapsed, on the unpaid principal amount thereof at the
rate of ten percent (10%) per annum. Interest only shall be payable on each
March 31, June 30, September 30 and December 31 for the respective three-month
period ending on each such date, commencing on March 31, 1994.
(b) Payments. All payments of principal (including any prepayments
or redemptions) and interest hereunder shall be made by the Company in lawful
money of the United States of America in immediately available funds (or at the
written request of the Investors or any successor holder of this Junior Note,
by certified or bank check) not later than 12:00 noon, Boston time, on the date
each such payment is due.
(c) Intercreditor Agreement. The Junior Notes shall be subordinate
and junior in right of payment to senior indebtedness pursuant to an
intercreditor agreement to be on terms mutually acceptable to the holders of a
majority in principal amount of the Junior Notes (the "Intercreditor
Agreement"). For purposes of this Agreement, the term "senior indebtedness"
shall include each of the following:
(i) any indebtedness now existing or hereafter incurred for
money borrowed from or owed to a bank or other financial institution ("Bank
Debt"); and
(ii) principal and interest owed pursuant to the Senior
Subordinated Notes and Contingent Notes (as each of said terms is defined
herein).
2.3 Redemptions and Prepayments.
(a) Mandatory Annual Prepayments. The Company shall prepay, on each
of December 31, 1999 and December 31, 2000, $2,500,000 of the principal amount
of the Junior Notes
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<PAGE> 10
then outstanding and shall pay in full the remaining principal amount of the
Junior Notes then outstanding on the Maturity Date. Upon any prepayment of the
principal amount of any Junior Notes under this Section 2.3(a), the Company
shall also pay to the holder or holders of such Junior Notes any accrued and
unpaid interest thereon to the date of prepayment (or repayment). Any
prepayment made by the Company pursuant to any other provision of this Article
II shall not reduce or otherwise affect its obligations to make any prepayment
required by this Section 2.3(a).
(b) offer of Prepayment upon Major Corporate Transaction. The
Company covenants that, in the event of (x) the initial underwritten public
offering of equity securities of the Company (the "IPO") pursuant to a
registration statement filed under the Securities Act of 1933, as amended (the
"1933 Act"), (y) the sale of all or substantially all of the stock or assets of
the Company, or (z) the merger or consolidation of the Company as a result of
which those persons who hold 100% of the voting stock of the Company
immediately prior to such transaction own less than 50% of the voting stock of
the surviving resulting entity (each transaction referred to in clauses (x),
(y) or (z) being referred to as a "Major Corporate Transaction"), the Company
shall give the holders of the Junior Notes thirty days' written notice of the
pendency of such Major Corporate Transaction and the Company shall, upon
written demand of the holders of a majority in aggregate principal amount of
the Junior Notes then outstanding made within twenty days of receipt of such
notice, prepay upon consummation of such Major Corporate Transaction the entire
principal amount of the Junior Notes then outstanding, without premium,
together with accrued and unpaid interest thereon to and including the date of
such prepayment.
(c) Optional Prepayment. The Company shall be entitled to prepay the
Junior Notes, either in whole or in part, without premium or penalty, at any
time prior to the Maturity Date, at a price equal to 100% of the principal
amount so prepaid, together with accrued interest on the principal amount
prepaid to the prepayment date. The Company shall give the Investors
irrevocable written notice of each optional prepayment not less than three
business days prior to the prepayment date, specifying such prepayment and the
amount of the Junior Notes proposed to be prepaid on such date, whereupon such
principal amount of the Junior Notes specified in such notice, together with
accrued interest thereon, shall become due and payable on the prepayment date.
Any partial prepayment of the Junior Notes shall be applied to reduce the
remaining payments on the Junior Notes in inverse order of maturity.
- 5 -
<PAGE> 11
(d) Partial Redemption Pro Rata. Each and every partial prepayment
of the Junior Notes authorized by this Article II shall be made with respect to
all of the Junior Notes then outstanding under this Agreement, rather than to
any portion thereof, and the aggregate amount of each partial prepayment shall
be allocated among all of the holders of the Junior Notes at the time
outstanding in proportion to the unpaid principal amounts of the Junior Notes
held by each of such holders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that:
3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company has
been formed for the purpose of effecting the Acquisition, and has no assets or
liabilities, and has conducted no business, other than such assets and
liabilities which have been created or incurred, and such business as has been
conducted, in connection with the effecting of such Acquisition.
3.2 Capitalization. The authorized capital stock of the Company consists
of (a) 200,000 shares of Common Stock, none of which were issued and
outstanding as of immediately prior to the Closing, and 100,000 shares of
Preferred Stock, which have the rights, terms and privileges set forth in
Exhibit B attached hereto, and none of which were outstanding as of immediately
prior to the Closing. Immediately following the Closing and after giving
effect to the sale of the Securities, there will be outstanding 80,203 shares
of Series A Convertible Preferred Stock and 19,800 shares of Common Stock,
which shares will be held of record as set forth on Schedule 3.2 which will be
attached hereto at the Closing.
3.3 Authorization. All corporate action on the part of the Company and
its officers and directors necessary for the authorization, execution and
delivery of this Agreement and the Redemption Agreement, the Employment
Agreements and the Shareholders' Agreement (collectively, the "Related
Agreements") and the performance of all obligations of the Company under this
Agreement and the Related Agreements required to be performed at or prior to
the Closing and in
- 6 -
<PAGE> 12
connection with the authorization, issuance and delivery of the Securities
being sold under this Agreement has been duly taken. This Agreement and the
Related Agreements, when executed and delivered by all parties hereto and
thereto, shall constitute the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
execution by the Company of this Agreement and the Related Agreements, and the
performance by the Company of its obligations hereunder and thereunder, will
not contravene or constitute a default under or violation of, the Certificate
of Incorporation of the Company, the By-Laws of the Company, or any other
agreement to which the Company is a party or by which its assets are bound.
3.4 Validity of Shares. The shares of Preferred Stock and Common Stock,
when issued, sold and delivered in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable.
3.5 Securities Act. The sale of the Securities in accordance with the
terms of this Agreement (assuming the accuracy of the representations and
warranties contained in Article IV hereof) is exempt from the registration
requirements of the 1933 Act and applicable state securities or blue sky laws.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF
THE INVESTORS
4.1 Authorization. Each Investor represents and warrants that this
Agreement, when executed and delivered by it, will constitute a valid and
legally binding obligation of such Investor, enforceable against such Investor
in accordance with its terms, except to the extent that the enforceability
hereof may be limited by bankruptcy laws, insolvency laws, reorganization laws,
moratorium laws or other laws affecting creditors' rights generally or by
general equitable principles.
4.2 Investment Representations.
(a) This Agreement is made with each such Investor in reliance upon
such Investor's representation to the Company, which by its acceptance
hereof such Investor hereby confirms, that (i) the Securities to be
received by it will be acquired by it for investment for its own account
(except as such Investor has otherwise advised the Company and the
Company's counsel in writing), and not with
- 7 -
<PAGE> 13
a view to the sale or distribution of any part thereof in violation of
applicable Federal and state securities laws, (ii) it has no current
intention of selling, granting participation in or otherwise distributing
the same in violation of applicable Federal and state securities laws, and
(iii) that it is an "accredited investor", as that term is defined under
Regulation D promulgated under the 1933 Act. By executing this Agreement,
such Investor further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participation to such person, or to any third person, with respect
to any of the Securities in violation of applicable Federal and state
securities laws.
(b) Such Investor understands that the Securities have not been
registered under the 1933 Act on the basis that the sale provided for
in this Agreement and the issuance of securities hereunder is exempt from
registration under the 1933 Act pursuant to Section 4(2) thereof and
regulations issued thereunder, and that the Company's reliance on such
exemption is predicated on the representations of such Investor set forth
herein.
(c) Such Investor represents that it has such knowledge and
experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment. Such Investor further
represents that it has had access, during the course of the transaction
and prior to its purchase of Securities, to the same kind of information
that is specified in Part I of a registration statement under the 1933 Act
and that it has had, during the course of the transaction and prior to its
purchase of the Securities, the opportunity to ask questions of, and
receive answers from, the Company concerning the terms and conditions of
the offering and to obtain additional information (to the extent the
Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to it or to which it had access.
(d) Such Investor understands that the Securities may not be sold,
transferred or otherwise disposed of without registration under the
1933 Act or compliance with an exemption therefrom, and that in the
absence of an effective registration statement covering the Securities or
an available exemption from registration under the 1933 Act, the Shares
must be held indefinitely. In particular, such Investor is aware that the
Shares may not be sold pursuant to Rule 144 promulgated under the 1933 Act
unless all of the conditions of that Rule are met. Among
- 8 -
<PAGE> 14
the current conditions for use of Rule 144 by certain holders is the
availability to the public of current information about the Company. Such
information is not now available, and the Company has no current plans to
make such information available.
(e) Independent of the additional restrictions on the transfer of
shares of Common Stock contained in the Shareholders' Agreement, such
Investor agrees that it will not make a transfer, disposition or pledge of
any of the Securities other than pursuant to an effective registration
statement under the 1933 Act, unless and until (i) such Investor shall
have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding
the disposition, and (ii) if requested by the Company, at the expense of
such Investor or transferee, it shall have furnished to the Company
an opinion of counsel, reasonably satisfactory to the Company and its
counsel, to the effect that such transfer may be made without registration
of the Securities under the 1933 Act.
(f) Such Investor agrees that it will not sell, transfer or otherwise
dispose of any Securities unless (i) such Securities have been
registered under the 1933 Act and, to the extent required, under any
applicable state securities laws, or (ii) such Securities are sold in
accordance with the applicable requirements and limitations of Rule 144 or
Rule 144A, or (iii) the Company has been furnished with an opinion or
opinions from counsel to such Investor (which counsel and which opinion(s)
shall be reasonably satisfactory to the Company) to the effect that
registration under the 1933 Act is not required for the transfer as
proposed (which opinion may be conditioned upon the transferee assuming
the obligations of a holder of Securities under this Section) or (iv) the
Company has been furnished with a letter from the Division of Corporation
Finance of the Securities and Exchange Commission (the "Commission") to
the effect that such Division would not recommend any action to the
Commission if such proposed transfer were effected without a registration
statement effective under the 1933 Act. The Company agrees that within
five business days after receipt of any opinion referred to in (iii)
above, it will notify the holder supplying such opinion whether such
opinion is satisfactory to the Company's counsel. Any transfer of
Securities shall also be subject to the Shareholders' Agreement.
- 9 -
<PAGE> 15
4.3 Legends; Stop Transfer.
(a) Such Investor acknowledges that all certificates evidencing the
Securities purchased hereunder shall bear the following legend:
"TRANSFER RESTRICTED
These securities have not been registered under the Securities
Act of 1933, as amended, and may not be sold, offered for sale,
pledged or hypothecated in the absence of an effective registration
statement as to the securities under said Act or an opinion of
counsel satisfactory to the Company and its counsel that such
registration is not required."
(b) The certificates evidencing the Shares shall also bear any legend
required by the Shareholders' Agreement or any applicable state securities
law.
ARTICLE V
AFFIRMATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will observe (and will cause each Subsidiary to
observe) the following covenants. These covenants shall continue until
consummation of the first Qualified Public Offering. Prior to such
consummation, these covenants shall exist for the benefit of, and be
enforceable by, the Management Investors so long as any Indebtedness remains
outstanding under the Senior Notes or the Contingent Notes or the Management
Investors and their Permitted Transferees own collectively at least one-third
of the shares of Common Stock acquired pursuant to this Agreement, and these
covenants shall exist for the benefit of, and be enforceable by, the
Institutional Investors so long as any Indebtedness remains outstanding under
the Junior Notes or there are any shares of Preferred Stock held by the
Institutional Investors which have not either been converted into Common Stock
or redeemed.
5.1 Accounts and Reports. The Company will, and will cause each of its
Subsidiaries to, maintain a standard system of accounts in accordance with
generally accepted accounting principles consistently applied (except for
year-end and non-recurring adjustments effected in accordance with generally
- 10 -
<PAGE> 16
accepted accounting principles) and the Company will, and will cause each of
its Subsidiaries to, keep full and complete financial records. The Company
will furnish to each Person who is entitled to the benefits of this Article V
the information set forth in this Section 5.1.
(a) Within ninety (90) days after the end of each fiscal year, a
copy of the consolidated and consolidating balance sheet of the Company and any
Subsidiaries as at the end of such year, together with consolidated and
consolidating statements of income, shareholders' equity and cash flow of the
Company and any Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year, all
in reasonable detail and duly audited by an independent public accountant of
national recognition selected by the Board of Directors of the Company and
reasonably acceptable to Investors.
(b) Within forty-five (45) days after the end of each fiscal
quarter, a consolidated and consolidating balance sheet of the Company and any
Subsidiaries as of the end of such fiscal quarter and consolidated and
consolidating statements of income, shareholders' equity and cash flow for such
quarter and for the period from beginning of the then current fiscal year to
the end of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding fiscal
year, all in reasonable detail (it being understood that for purposes of
presentation of any comparative financial statements under this Section 5.1,
during the first year of the Company's existence, comparison will be made to
the performance of the Seller during the corresponding period of the year which
statements of the Seller may not be in accordance with generally accepted
accounting principles). The financial statements delivered pursuant to this
paragraph (b) need not be audited, but shall be certified by the chief
financial officer of the Company as presenting fairly the financial condition
of the Company and any Subsidiaries in conformity with generally accepted
accounting principles applied on a consistent basis, subject to changes
resulting from year-end and non-recurring adjustments.
(c) Within thirty (30) days after the end of each calendar month, an
unaudited consolidated balance sheet of the Company and any Subsidiaries as of
the end of such month and unaudited consolidated statements of income and
shareholders' equity for such month and for the period commencing at the end of
the previous fiscal year and ending with the end of such month, setting forth
in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, all in reasonable detail.
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(d) At the time of delivery of each monthly, quarterly and annual
statement, a certificate, executed by the chief financial officer of the
Company stating that such officer has caused this Agreement to be reviewed and
has no knowledge of any default by the Company in the performance or observance
of any of the provisions of this Agreement or, if such officer has such
knowledge, specifying such default.
(e) Prior to the end of each fiscal year, a copy of the operating
plan and budget for the next fiscal year required under Section 5.8, in form
consistent with past practice.
(f) Promptly upon receipt thereof, any written report, typically
called a "management letter", and any other communication submitted to the
Company or any Subsidiary by its independent public accountants relating to
the business, prospects or financial condition of the Company and any
Subsidiaries;
(g) Promptly after the commencement thereof, notice of (i) all
actions, suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
affecting the Company (or any Subsidiary) which, if successful, could have a
material adverse effect on the Company and any Subsidiaries, taken as a whole;
and (ii) all material defaults by the Company or any Subsidiary (whether or
not declared) under any agreement for money borrowed (unless waived or cured
within applicable grace periods);
(h) Promptly upon sending, making available, or filing the same, all
reports and financial statements as the Company (or any Subsidiary) shall send
or make available generally to the shareholders of the Company as such or to
the Commission; and
(i) Such other information with regard to the business, properties
or the condition or operations, financial or otherwise, of the Company or its
Subsidiaries as any Person entitled to the benefits of this Article VI may from
time to time reasonably request.
5.2 Payment of Taxes. The Company will pay and discharge (and cause any
Subsidiary to pay and discharge) all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits, or upon any
properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company (or any Subsidiary), provided that neither
the Company nor any Subsidiary shall be
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required to pay any such tax, assessment, charge, levy or claim which is being
contested in good faith and by proper proceedings if the Company or such
Subsidiary shall have set aside on its books adequate reserves with respect
thereto.
5.3 Maintenance of Key Man Insurance. The Company will, at its expense,
obtain prior to the Closing and thereafter maintain a life insurance policy
with a responsible and reputable insurance company payable to the Company on
the life of each of Drs. Evangelos Poulos, Michael Demaray and Alexander
Kowalczyk so long as such Person is an employee of the Company, each in the
face amount of $2,000,000. The Company will maintain such policies and will
not cause or permit any assignment of the proceeds of such policies, and will
not borrow against such policies. The Company will add one designee of the
Institutional Investors as a notice party to such policies, and will request
that the issuer of such policies provide such designee with ten (10) days'
notice before either such policy is terminated (for failure to pay premium or
otherwise) or assigned, or before any change is made in the designation of the
beneficiary thereof.
5.4 Compliance with Laws, Etc. The Company will comply (and cause each
of its Subsidiaries, if any, to comply) with all applicable laws, rules,
regulations and orders of any governmental authority, the noncompliance with
which could materially adversely affect the business or condition, financial or
otherwise, of the Company.
5.5 Inspection. At any reasonable time during normal business hours and
from time to time, but not more frequently than once per calendar quarter for
all Persons entitled to the benefits of this Article V and their transferees as
a group, upon five (5) days written notice, the Company (and any of its
Subsidiaries) will permit any one or more of the Persons entitled to the
benefits of this Article V, or any of the agents or representatives of the
foregoing Persons, to examine and make copies of and extracts from the records
and books of account of and visit the properties of the Company (and any of its
Subsidiaries) and to discuss the Company's affairs, finances and accounts with
any of its senior officers.
5.6 Corporate Existence; Ownership of Subsidiaries. The Company will,
and will cause its Subsidiaries, if any, to, at all times preserve and keep in
full force and effect their corporate existence, and rights and franchises
material to the business of the Company, and will qualify, and will cause each
of its Subsidiaries, if any, to qualify, to do business as a foreign
corporation in any jurisdiction where the failure to do so would have a
material adverse effect on the business,
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condition (financial or other), assets, properties or operations of the
Company. The Company shall at all times own of record and beneficially, free
and clear of all liens, charges, restrictions, claims and encumbrances of any
nature, all of the issued and outstanding capital stock of each of its
wholly-owned Subsidiaries.
5.7 Compliance with ERISA. The Company will comply (and cause each of
its Subsidiaries to comply) in all material respects with all minimum funding
requirements applicable to any pension or other employee benefit plans which
are subject to ERISA or to the Code, and comply in all other material respects
with the provisions of ERISA and the Code, and the rules and regulations
thereunder, which are applicable to any such plan. Neither the Company nor any
of its Subsidiaries will permit any event or condition to exist which could
permit any such plan to be terminated under circumstances which could cause the
lien provided for in Section 3068 of ERISA to attach to the assets of the
Company or any of its Subsidiaries.
5.8 Board Approval. Prior to the end of each fiscal year, the Company
will prepare and submit to its Board of Directors for approval prior to such
year-end an operating plan and budget, cash flow projections and profit and
loss projections, all itemized in reasonable detail for the immediately
following fiscal year.
5.9 Financings. The Company will promptly provide to the Board of
Directors the details and terms of, and any brochures or investment memoranda
prepared by the Company related to, any possible financing of any nature for
the Company (or any Subsidiaries), whether initiated by the Company or any
other Person.
5.10 Meetings of the Board of Directors. The Directors shall schedule
regular meetings not less frequently than once every sixty days. The Company
shall reimburse the Investors and the Principal Shareholders for all direct
reasonable out-of-pocket expenses incurred by any of their director designees
in attending such meetings. Any action required or permitted to be taken at
any meeting of the Directors, may be taken without a meeting only if all of the
Directors consent thereto in writing.
5.11 Maintenance of Properties; Insurance. The Company will maintain or
cause to be maintained in good repair, working order and condition all
properties used or useful in the business of the Company and any Subsidiaries
and from time to time will make or cause to be made all appropriate repairs,
renewals and replacements thereof. The Company shall maintain
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with financially sound and reputable insurance companies insurance with respect
to its properties and business and the properties and business of any
Subsidiaries against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar business
and similarly situated, of such type and in such amounts as are customarily
carried under similar circumstances by such other corporations.
5.12 Rule 144A Information. The Company shall, upon the written request
of any Person entitled to the benefits of this Article V, provide to such
Person and to any qualified prospective institutional transferee of the
Securities designated by such Person, such financial and other information as
is available to the Company or can be obtained by the Company without material
expense and as such Person may reasonably determine is required to permit such
transfer to comply with the requirements of Rule 144A promulgated under the
1933 Act.
5.13 Stay, Extension and Usury Laws. For so long as any of the Senior,
Contingent or Junior Notes remain outstanding, the Company covenants (to the
extent it may lawfully do so) that it will not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage of, any
stay, extension or usury law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Agreement; and
the Company hereby expressly waives (to the extent it may lawfully do so) all
benefit or advantage of any such law, but will suffer and permit the execution
of every such power as though no such law has been enacted. Notwithstanding
anything herein or in the Senior, Contingent or Junior Notes to the contrary,
in no event shall interest payable with respect to the Senior, Contingent or
Junior Notes exceed the maximum amount permitted by applicable law. If any
payments in the nature of interest, additional interest and other charges made
under this Agreement or under any of the Senior, Contingent or Junior Notes are
held to be in excess of the applicable limits imposed by any applicable federal
or state law, the amount held to be in excess shall be considered payment of
principal under the Senior, Contingent or Junior Notes and the indebtedness
evidenced thereby shall be reduced by such amount, pro-rata, in the inverse
order of maturity so that the total liability for payments in the nature of
interest, additional interest and other charges shall not exceed the applicable
limits imposed by any applicable federal or state interest rate laws.
5.14 Business Practices. The Company shall take all reasonable steps
necessary to ensure that all rates and charges
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imposed by the Company's facilities, and all billing practices relating to such
rates and charges, are legal and proper. The Company will not make or receive,
either directly or indirectly, any Sensitive Payment and the Company shall
comply with all Medicare and Medicaid fraud and abuse laws and regulations, as
well as with all other state and federal false claim, fee splitting, rebate,
patient referral and anti-kickback laws with respect to the referral of
patients or provision of services.
ARTICLE VI
NEGATIVE COVENANTS OF THE COMPANY
Without limiting any other covenants and provisions hereof, the Company
covenants and agrees that it will comply (and will cause each Subsidiary, if
any, to comply) with each of the provisions of this Article VI. These
covenants shall continue until consummation of the first Qualified Public
Offering. Prior to such consummation, the covenants set forth in Sections 6.1,
6.2, 6.7 (but only to the extent any violation thereof would or is likely to
adversely affect the interests of the Management Investors) and 6.8 shall exist
for the benefit of, and shall be enforceable by, the Management Investors so
long as any Indebtedness under the Senior Notes or the Contingent Notes remains
outstanding and the covenants contained in Sections 6.2, 6.7 (to the extent set
forth above) and 6.8 shall exist for the benefit of, and shall be enforceable
by, the Management Investors so long as the Management Investors and their
Permitted Transferees own collectively at least one-third of the shares of
Common Stock acquired pursuant to this Agreement, and the covenants set forth
in each section of this Article VI shall exist for the benefit of, and be
enforceable by, the Institutional Investors so long as any Indebtedness under
the Junior Notes remains outstanding or there are any shares of Preferred Stock
held by the Institutional Investors that have not either been converted into
Common Stock or redeemed.
6.1 Distributions. The Company will not declare or pay any dividends
(whether in securities, cash or property), issue, sell, purchase, redeem,
retire, or otherwise acquire for value any of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its shareholders as such, or make any distribution of
assets to its shareholders as such, or permit any Subsidiary to do any of the
foregoing, except that the Subsidiaries may declare and make payment of cash
and stock dividends, return capital and make distributions of assets to the
Company and
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except that nothing herein contained shall prevent the Company from:
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of
shares of such class of capital stock;
(ii) repurchasing shares of Common Stock or Preferred Stock from an
Institutional Investor in accordance with the Redemption Agreement
attached as Exhibit G; or
(iii) redeeming the Preferred Stock in accordance with its terms as
set forth on Exhibit B.
Notwithstanding the provisions of clauses (ii) and (iii) of this
Section 6.1, in, no event shall the Company repurchase shares of Common Stock
or Preferred Stock under the Company's Certificate of Incorporation or under
the Redemption Agreement or otherwise, pay dividends to the Preferred Stock
holders, prepay the Junior Notes (in whole or in part) or redeem Preferred
Stock in accordance with its terms so long as any indebtedness remains
outstanding under the Senior Notes or the Contingent Notes.
6.2 Dealings with Affiliates. The Company will not enter into any
transaction including, without limitation, any loans or extensions of credit or
royalty agreements or securities issuances, with any officer or director of the
Company or any Subsidiary or holder of any class of capital stock of the
Company, or any member of their respective immediate families or any
corporation or other entity directly or indirectly controlled by one or more of
such officers, directors or shareholders or members of their immediate
families, except for advances in reasonable amounts made to employees of the
Company or any Subsidiary for valid business purposes, provided that such
advances are repaid to the Company within 90 days, unless any such transaction
is on terms which are no less favorable to the Company than those which could
have been obtained from an unaffiliated third party, and such transaction has
been approved by a majority of the members of the Board of Directors, which
majority shall include either one of the Directors designated under the
Shareholders' Agreement by the Management Investors or a majority of the
Independent Directors.
6.3 Merger; Sale of Assets. The Company shall not, and shall not permit
any Subsidiary to, merge or consolidate with or into any other corporation, or
sell, assign, lease or otherwise dispose of or voluntarily part with the
control of
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(whether in one transaction or in a series of related transactions) all, or
substantially all, of its assets (whether now owned or hereinafter acquired),
or any portion of its assets which have accounted for more than 10% of total
revenues of the Company and its Subsidiaries taken as a whole for any of the
three most recent fiscal years of the Company, or sell, assign or otherwise
dispose of (whether in one transaction or in a series of transactions) any of
its accounts receivable (whether now in existence or hereafter created) at a
discount or with recourse, to any Person, (i) except for sales or other
dispositions of assets in the ordinary course of business, and (ii) except that
(a) any wholly owned Subsidiary may merge into or transfer assets to the
Company, and (b) any wholly owned Subsidiary may merge into or consolidate with
or transfer assets to any other wholly owned Subsidiary. Any securities of the
Company which are issued by the Company in a transaction described in this
Section 6.3 shall be issued at the fair market value thereof as determined
pursuant to Section 7.5 hereof.
6.4 Indebtedness. Neither the Company nor any of its Subsidiaries will
create, incur, guarantee, assume or otherwise become directly or indirectly
liable for any Indebtedness except: (i) Indebtedness evidenced by the Senior
Notes, Contingent Notes and Junior Notes; (ii) Bank Debt and (iii) any other
Indebtedness that is expressly subordinate and junior in right of payment to
the Junior Notes pursuant to such subordination provisions as shall be
acceptable to the Investors.
6.5 Liens. Neither the Company nor any of its Subsidiaries will create
or suffer to exist any Lien upon any of its assets, now owned or hereafter
acquired, securing any Indebtedness or other obligation except Permitted Liens.
6.6 Limitations on Restrictions on Subsidiary Dividends and Other
Distributions. The Company shall not permit any of its Subsidiaries, directly
or indirectly, to create or suffer to exist or become effective any
encumbrances or restrictions on the ability of any of its Subsidiaries to (i)
pay dividends or make any other distributions on its capital stock or any other
interest or participation in its profit owned by any of the Company or any of
its Subsidiaries, or pay any Indebtedness owed by any of the Subsidiaries, (ii)
make loans or advances to the Company, or (iii) transfer any of its properties
or assets to the Company.
6.7 No Conflicting Agreements. The Company agrees that neither it nor
any Subsidiary will, without the consent of the Investors, enter into or amend
any agreement, contract,
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commitment or understanding which would limit, restrict or prohibit the
exercise by any Investor of any of his or its rights under this Agreement or
any of the Related Agreements.
6.8 Limitation on Certain Procedures. Unless otherwise required under
applicable law, the Company shall not engage in abortion-related pathology or
fetal tissue research.
ARTICLE VII
PREEMPTIVE RIGHT
7.1 Preemptive Right. The Company hereby grants to each Investor the
right to purchase all or part of his or its pro rata share of New Securities
(as defined in Section 7.2) which the Company, from time to time, proposes to
sell and issue. An Investor's pro rata share, for purposes of this preemptive
right, is the ratio of the number of shares of Common Stock which such
Investor owns or has the right to acquire upon the conversion or exercise of
securities of the Company to the total number of shares of Common Stock then
outstanding or issuable upon the conversion or exercise of outstanding
securities of the Company then held by the Investors. Each Investor shall have
a right of over-allotment pursuant to this Article VII such that to the extent
an Investor does not exercise his or its preemptive right in full hereunder,
such additional shares of New Securities which such Investor did not purchase
may be purchased by the other Investors in proportion to the total number of
shares of Common Stock which each such other Investor owns or has the right to
acquire compared to the total number shares of Common Stock which all such
other Investors own or have the right to acquire.
7.2 Definition of New Securities. "New Securities" shall mean any
capital stock of the Company whether now or hereafter authorized, and rights,
options or warrants to purchase capital stock, and securities of any type
whatsoever that are, or may become convertible into or exchangeable for capital
stock, issued on or after the date hereof; provided that the term "New
Securities" shall not include (i) securities purchased under this Agreement at
the Closing and Common Stock issued as a stock dividend to holders of Common
Stock or upon any stock split, subdivision or combination of shares of Common
Stock, (ii) Conversion Shares, and (iii) up to 10,000 shares of Common Stock
issuable to employees of the Company other than the Management Investors
pursuant to the Stock Option Plan.
7.3 Notice from the Company. In the event the Company proposes to
undertake an issuance of New Securities, it shall give each Investor written
notice of its intention, describing
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the type of New Securities and the price and the terms upon which the Company
proposes to issue the same. Each Investor shall have 20 business days from the
date of receipt of any such notice to agree to purchase up to the Investor's
pro rata share of such New Securities (and any over-allotment amount pursuant
to the operation of Section 7.1 hereof) for the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
7.4 Sale by the Company. In the event any Investor fails to exercise in
full his or its preemptive (and/or over-allotment) right, the Company shall
have 90 days thereafter to sell the New Securities with respect to which the
Investor's option was not exercised (to the extent the other Investors do not
elect to exercise the over-allotment rights set forth in Section 7.1), at a
price and upon terms no more favorable to the purchasers thereof than specified
in the Company's notice. To the extent the Company does not sell all the New
Securities offered within said 90 day period, the Company shall not thereafter
issue or sell any such New Securities without first again offering such
securities to the Investors in the manner provided herein.
7.5 Determination of Price. All New Securities shall be issued at the
fair market value thereof. Fair market value shall be determined in good faith
by the Board of Directors; provided, however, that such determination shall be
made with the concurrence of at least one member of the Board of Directors who
is designated by the Institutional Investors pursuant to the Shareholders'
Agreement, but who is not an employee or affiliate of the Company or of any of
its Shareholders.
7.6 Termination of Rights. Notwithstanding any other provision of this
Article VII, the rights granted to the Investors under this Article VII shall
expire immediately prior to, and shall not apply in connection with, the sale
of securities in connection with the first Qualified Public Offering.
ARTICLE VIII
REGISTRATION RIGHTS
8.1 Certain Definitions. As used in this Article VIII, the following
terms shall have the following respective meanings:
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"Holder" means the person who is then the record owner of Registrable
Securities which have not been sold to the public.
"Initiating Holders" means any Institutional Investor or its assignee(s)
who in the aggregate are holders of at least fifty-one percent (51%) of the sum
of (i) the Conversion Shares now owned or hereafter acquired by the
Institutional Investors, (ii) all other shares of Common Stock owned by the
Investors, and (iii) all other shares of Common Stock issuable with respect to
securities of the Company convertible into or exercisable for shares of Common
Stock now owned or hereafter acquired by any Institutional Investors.
"Initiating Management Holders" means any Management Investor or his
assignee(s) who hold in the aggregate at least fifty-one percent (51%) of the
shares of Common Stock purchased hereunder by the Management Investors.
"Registrable Securities" means (i) all of the Conversion Shares owned by
the Institutional Investors, (ii) all shares of Common Stock owned by the
Management Investors, (iii) all other shares of Common Stock now owned or
hereafter acquired by any Investor; (iv) all shares of Common Stock issuable
with respect to securities of the Company convertible into or exercisable for
shares of Common Stock now owned or hereafter acquired by any Investor; and (v)
any Common Stock issued in respect of the shares described in clauses (i)
through (iv) upon any stock split, stock dividend, recapitalization or other
similar event.
The term "register" means to register under the 1933 Act and applicable
state securities laws for the purpose of effecting a public sale of securities.
"Registration Expenses" means all expenses incurred by the Company in
compliance with Sections 8.2, 8.3 or 8.5 hereof, including, without limitation,
all registration and filing fees, printing expenses, transfer taxes, fees and
disbursements of counsel for the Company, blue sky fees and expenses,
reasonable fees and disbursements of one counsel for all the selling Holders
and other security holders, and the expense of any special audits and comfort
letters incident to or required by any such registration.
"Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
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8.2 Demand Registrations
(a) If on any two occasions after the date hereof, the Company shall
receive from one or more Initiating Holders a written request that the Company
effect the registration of such persons' Registrable Securities, or if on any
one occasions after the earlier of (i) the fifth anniversary of the effective
date of this Agreement or (ii) the date which is six months following the date
of consummation of the IPO, the Company shall receive from one or more
Initiating Management Holders a request that the Company effect the
registration of such persons' Registrable Securities, in either case with the
Registrable Securities as to which registration has been requested representing
at least ten percent (10%) of the Registrable Securities then outstanding or
issuable (or any lesser percentage if the reasonably anticipated aggregate
price to the public of the Registrable Securities to be included in such
registration would exceed $10 million), in connection with a firm commitment
underwriting managed by a nationally recognized underwriter, the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders; and
(ii) as soon as practicable, use all commercially reasonable efforts to
effect such registration as may be so requested and as would permit or
facilitate the sale and distribution of such portion of such Registrable
Securities as are specified in such request, together with such portion of
the Registrable Securities of any Holder or Holders joining in such
request as are specified in a written request given within thirty days
after receipt of such written notice from the Company. If the underwriter
managing the offering advises the Holders who have requested inclusion of
their Registrable Securities in such registration that marketing
considerations require a limitation on the number of shares offered, such
limitation shall be imposed first upon Holders other than the
Institutional Investors and their transferees until the total of the
aggregate proceeds received by all Institutional Investors and their
transferees from the sale of equity securities of the Company to the
public equals $13.0 million, second upon Holders other than the Management
Investors and their transferees until the total of the aggregate proceeds
received by all Management investors and their transferees from the sale
of equity securities of the Company to the public equals $1.0 million, and
thereafter pro rata among all Holders who requested inclusion of
Registrable Securities in such registration according to the number of
Registrable
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Securities each such Holder requested to be included in such
registration. Neither the Company nor any other shareholder may include
shares in a registration effected under this Section 8.2 without the
consent of the Holders holding a majority of the Registrable Securities
sought to be included in such registration if the inclusion of shares by
the Company or the other shareholders would limit the number of
Registrable Securities sought to be included by the Holders or reduce the
offering price thereof. No registration initiated by any Holders hereunder
shall count as a registration under this Section 8.2 unless and until it
shall have been declared effective.
(b) Additional Demand Right. Notwithstanding the provisions of
subparagraph (a), in the event the Management Investors request a registration
hereunder, and because of the inclusion in such registration of additional
Registrable Securities by the Holders thereof, the Management Investors are
able to effect the registration of less than two-thirds of the Registrable
Securities as to which they had requested registration, then the Initiating
Management Holders shall have the right to request an additional registration
under subparagraph (a) hereof.
(c) Final Demand Right. Notwithstanding the provisions of
subparagraphs (a) and (b), in the event the Management Investors request an
additional registration of additional Registrable Securities by the Holders
thereof in accordance with subparagraph (b), and the Management Investors are
still only able to effect the registration of less than two-thirds of the
Registrable Securities as to which they had requested registration, then the
Initiating Management Holders shall have the right to request an additional
(and final) registration under subparagraph (a) hereof without participation by
any Holders in order to effect the registration of the Registrable Securities.
(d) Selection of Underwriter. The underwriter of any underwriting
requested under this Section 8.2 shall be selected by the Holders holding a
majority of the Registrable Securities included therein; provided that such
underwriter must be reasonably acceptable to the Company.
8.3 "Piggy Back" Registrations.
(a) If the Company shall determine to register any of its securities,
either for its own account or the account of a security holder or holders
exercising their registration rights, other than a registration relating solely
to employee options or benefit plans, or a registration on any registration
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form which does not permit secondary sales or does not include substantially
the same information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company will:
(i) Promptly give to each Holder of Registrable Securities written
notice thereof (which shall include the number of shares the Company or
other security holder proposes to register and, if known, the name of the
proposed underwriter); and
(ii) Use its best efforts to include in such registration all the
Registrable Securities specified in a written request or requests, made
by any Holder within twenty (20) days after the date of delivery of the
written notice from the Company described in clause (i) above. If the
underwriter advises the Company that marketing considerations require a
limitation on the number of shares offered pursuant to any registration
statement, then the Company may offer all of the securities it proposes to
register for its own account or the maximum amount that the underwriter
considers saleable and such limitation on any remaining securities that
may, in the opinion of the underwriter, be sold will be imposed (x) first
upon Holders other than the Institutional Investors and their transferees
until the total aggregate proceeds received by all Institutional Investors
and their transferees from the sale of equity securities of the Company
equals $13.0 million, (y) second upon Holders other than the Management
Investors and their transferees until the total of the aggregate proceeds
received by all Management Investors and their transferees from the sale
of equity securities of the Company to the public equals $1.0 million, and
(z) third, pro rata among all shareholders who are entitled to include
shares in such registration statement according to the number of
Registrable Securities each such shareholder requested to be included in
such registration statement.
(b) The Company shall select the underwriter for an offering made
pursuant to this Section 8.3; provided that such underwriter must be reasonably
acceptable to the Holders of a majority of the Registrable Securities being
registered in such offering.
8.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 8.2, 8.3 or 8.5 shall be paid by the Company. All Selling Expenses
incurred in connection with any such registration, qualification or compliance
shall be borne by the holders of the securities registered, pro rata on the
basis of the number of their shares so registered.
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8.5 Registration on Form S-3. The Company shall use its best efforts to
qualify or registration on Form S-3 or any comparable or successor form
following initial registration on Form S-1; and to that end the Company shall
register (whether or not required by law to do so) the Common Stock under the
Securities Exchange Act of 1934 (the "Exchange Act") in accordance with the
provisions of the Exchange Act following the effective date of the first
registration of any securities of the Company on Form S-1 or any comparable or
successor form. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Article
VIII, the Holders of Registrable Securities shall have the right to request
registrations on Form S-3 (such requests shall be in writing and shall state
the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided that the Company shall not be obligated to effect any such
registration pursuant to this Section 8.5 more than once in any six month
period, and in no event shall the Company be required to register shares with
an aggregate market value of less than $500,000.
8.6 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Article VIII, the Company will keep each Holder
of Registrable Securities included in such registration advised in writing as
to the initiation of each registration and as to the completion thereof. At
its expense, the Company will do the following for the benefit of such Holders:
(a) Keep such registration effective for a period of one hundred
twenty days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, and amend or supplement such registration statement and the prospectus
contained therein from time to time to the extent necessary to comply with the
1933 Act and applicable state securities laws;
(b) Use its best efforts to register or qualify the Registrable
Securities covered by such registration under the applicable securities or
"blue sky" laws of such jurisdictions as the selling shareholders may
reasonably request; provided, that the Company shall not be obligated to
qualify to do business in any jurisdiction where it is not then so qualified or
otherwise required to be so qualified or to take any action which would subject
it to service of process in suits other than those arising out of such
registration;
(c) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
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(d) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 8.2 hereof, the Company will
enter into any underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and is entered into by the selling Holder and
provided further that, if the underwriter so requests, the underwriting
agreement will contain customary contribution provisions on the part of the
Company;
(e) To the extent then permitted under applicable professional
guidelines and standards, obtain a comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by comfort letters and an opinion from the
Company's counsel in customary form and covering such matters of the type
customarily covered in a public issuance, of securities, in each case addressed
to the Holders, and provide copies thereof to the Holders; and
(f) Permit counsel to the selling shareholders whose expenses are
being paid pursuant to Section 8.4 hereof to inspect and copy such corporate
documents as he may reasonably request.
8.7 Indemnification.
(a) The Company will, and hereby does, indemnify each Holder, each
of its officers, directors and partners, and each person controlling such
Holder within the meaning of the 1933 Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Article VIII,
and each underwriter, if any, and each person who controls such underwriter
within the meaning of the 1933 Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
the Company of the 1933 Act or the Exchange Act or the securities act of any
state or any rule or regulation thereunder applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners,
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and each person controlling such Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, whether or not resulting in any
liability, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement (or alleged untrue statement) or omission (or
alleged omission) based upon written information furnished to the Company by
such Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by him are included in
the securities as to which such registration, qualification or compliance is
being effected, indemnify the Company, each of its directors and officers and
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of the 1933 Act and the rules and regulations thereunder,
each other such Holder and each of their officers, directors and partners, and
each person controlling such Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holder's directors,
officers, partners, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, whether or not
resulting in liability, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the liability of each Holder hereunder shall be
limited to an amount equal to the net proceeds received by such Holder upon sale
of his securities.
(c) Each party entitled to indemnification under this Section 8.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual
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knowledge of any claim as to which indemnity may be sought, but the failure of
any Indemnifying Party to give such notice shall not relieve the Indemnifying
Party of its obligations under this Section 8.7 (except and to the extent the
Indemnifying Party has been prejudiced as a consequence thereof). The
Indemnifying Party will be entitled to participate in, and to the extent that it
may elect by written notice delivered to the Indemnified Party promptly after
receiving the aforesaid notice from such Indemnified Party, at its expense to
assume, the defense of any such claim or any litigation resulting therefrom,
with counsel reasonably satisfactory to such Indemnified Party, provided that
the Indemnified Party may participate in such defense at its expense,
notwithstanding the assumption of such defense by the Indemnifying Party, and
provided, further, that if the defendants in any such action shall include both
the Indemnified Party and the Indemnifying Party and the Indemnified Party shall
have reasonably concluded that there may be legal defenses available to it
and/or other Indemnified Parties which are different from or additional to those
available to the Indemnifying Party, the Indemnified Party or Parties shall have
the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
Indemnified Party or Parties and the fees and expenses of such counsel shall be
paid by the Indemnifying Party. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall (i) furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom and
(ii) shall reasonably assist the Indemnifying Party in any such defense,
provided that the Indemnified Party shall not be required to expend its funds in
connection with such assistance.
(d) No Holder shall be required to participate in a registration pursuant
to which it would be required to execute an underwriting agreement in connection
with a registration effected under Section 8.2 or 8.3 which imposes
indemnification or contribution obligations on such Holder more onerous than
those imposed hereunder; provided, however, that the Company shall not be deemed
to breach the provisions of Section 8.2 or 8.3 if a Holder is not permitted to
participate in a registration on account of his refusal to execute an
underwriting agreement on the basis of this subsection (d).
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8.8 Information by Holder. Each Holder of Registrable Securities included
in any registration shall promptly furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Article VIII or otherwise required by applicable state or federal
securities laws.
8.9 Limitations on Registration Rights. From and after the date of this
Agreement, the Company shall not enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder (a) the right to require the Company, upon any registration
of any of its securities, to include, among the securities which the Company is
then registering, securities owned by such holder, unless under the terms of
such agreement, such holder or prospective holder may include such securities in
any such registration only to the extent that the inclusion of its securities
will not limit the number of Registrable Securities sought to be included by the
Holders of Registrable Securities or reduce the offering price thereof; or (b)
the right to require the Company to initiate any registration of any securities
of the Company.
8.10 Exception to Registration. The Company shall not be required to effect
a registration under this Article VIII if (i) in the written opinion of counsel
for the Company, which counsel and the opinion so rendered shall be reasonably
acceptable to the Holders of Registrable Securities, such Holders may sell
without registration under the 1933 Act all Registrable Securities for which
they requested registration under the provisions of the 1933 Act and in the
manner and in the quantity in which the Registrable Securities were proposed to
be sold, or (ii) the Company shall have obtained from the Commission a
"no-action" letter to that effect; provided that this Section 8.10 shall not
apply to sales made under Rule 144(k) or any successor rule promulgated by the
Commission until after the effective date of the Company's initial registration
of shares under the 1933 Act. Notwithstanding the foregoing, in no event shall
the provisions of this Section 8.10 be construed to preclude a Holder of
Registrable Securities from exercising rights under Section 9.3 for a period of
three years after the effective date of the Company's initial registration of
shares under the 1933 Act.
8.11 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of
restricted securities (as that term is used in Rule 144 under the 1933 Act) to
the public without registration, the Company agrees to:
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(a) make and keep public information available as those terms are
understood and defined in Rule 144 under the 1933 Act, at all times from and
after ninety days following the effective date of the IPO;
(b) use its best efforts to file with the Commission in a timely manner all
reports and other documents required of the Company under the 1933 Act and the
Exchange Act at any time after it has become subject to such reporting
requirements; and
(c) so long as an Investor owns any restricted securities, furnish to the
Investor forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety days following the effective date of the IPO, and of the 1933 Act
and Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as an Investor may
reasonably request in availing itself of any rule or regulation of the
Commission allowing an Investor to sell any such securities without
registration.
8.12 Listing Application. If shares of any class of stock of the Company
shall be listed on a national securities exchange, the Company shall, at its
expense, include in its listing application all of the registered shares of the
listed class then owned by any Investor.
8.13 Damages. The Company recognizes and agrees that each holder of
Registrable Shares shall not have an adequate remedy if the Company fails to
comply with the provisions of this Article VIII, and that damages will not be
readily ascertainable, and the Company expressly agrees that in the event of
such failure any Holder of Registrable Shares shall be entitled to seek specific
performance of the Company's obligations hereunder or other appropriate
equitable relief and that the Company will not oppose an application seeking
such specific performance or other appropriate equitable relief.
ARTICLE IX
CONDITIONS OF INVESTORS' OBLIGATION
9.1 Effect of Conditions. The obligation of the Investors to purchase and
pay for the Securities at the Closing shall be subject at their election to the
satisfaction of each of the conditions stated in the following Sections of this
Article.
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9.2 Representations and Warranties. The representations and warranties of the
Company contained in this Agreement shall be true and correct on the date of
such Closing with the same effect as though made on and as of that date, and the
Investors shall have received a certificate dated as of such Closing and signed
on behalf of the Company to that effect.
9.3 Performance. The Company shall have performed and complied with all of
the agreements, covenants and conditions contained in this Agreement required to
be performed or complied with by them at or prior to such Closing, and the
Investors shall have received a certificate dated as of such Closing and signed
on behalf of the Company and by the Principal Shareholders to that effect.
9.4 Opinions of Counsel. The Investors shall have received an opinion,
dated the date of such Closing, from Hutchins, Wheeler & Dittmar, A Professional
Corporation, counsel to the Company, in the form attached as Exhibit E.
9.5 No Material Adverse Change. The business and properties of the Company
shall not have been materially adversely affected since the date of this
Agreement, whether by fire, casualty, act of God or otherwise, and there shall
have been no other changes in the business, property or financial condition of
the Company that would have a material adverse effect on the value of their
respective businesses or assets.
9.6 Shareholders' Agreement. A Shareholders' Agreement in the form of
Exhibit F hereto shall have been executed by each Investor and the Company.
9.7 Redemption Agreement. A Redemption Agreement in the form of Exhibit G
attached hereto shall have been executed by the Company and each of the
Institutional Investors.
9.8 Employment Agreements. This Company and each of the Management
Investors shall have executed an Employment Agreement substantially in the form
of Exhibit H hereto.
9.9 Board Election. Concurrently with the Closing, the Board of Directors
of the Company shall have been expanded to not more than seven members
designated as provided in the Shareholders' Agreement.
9.10 Completion of Acquisition. The Purchase Agreement shall have been
executed, the Acquisition as therein contemplated shall have been completed in
accordance with the terms of such Purchase Agreement, and all of the conditions
specified in Section 6.3 thereof shall have been fulfilled or waived.
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ARTICLE X
Defaults and Remedies
10.1 Events of Default; Acceleration
An "Event of Default" shall occur with respect to the Senior Notes,
Contingent Notes or Junior Notes (collectively, the "Notes") if:
(1) The Company defaults in the payment of any principal thereof when the
same shall become due, either by the terms thereof or otherwise as herein
provided (or, with respect to the Senior Notes and the contingent Notes, in the
Purchase Agreement); or
(2) The Company defaults in the payment of interest thereon when the same
becomes due and payable and the default continues for a period of 10 days; or
(3) The Company shall fail to perform or observe any covenant contained in
this Agreement (or, with respect to the Senior Notes and the Contingent Notes,
in the Purchase Agreement) for the benefit of the holder of such Note other than
the obligation to make payments under such Note, and such default continues for
a period of 30 days after receipt of notice of such default from such holder; or
(4) The Company or any Subsidiary shall default in the payment of any
principal of or premium, if any, or interest on any other Indebtedness or
obligation with respect to borrowed money the outstanding principal of which is
in an aggregate amount greater than $250,000 or shall default in the performance
of any material term of any instrument evidencing such Indebtedness or of any
mortgage, indenture or agreement relating thereto, and the effect of such
default is to cause, the holder or holders of such obligation to cause, such
Indebtedness or obligation to become due and payable prior to its stated
maturity; or
(5) The Company or any Subsidiary pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
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(D) makes a general assignment for the benefit of its creditors, or
(E) is the debtor in an involuntary case which is not dismissed within
60 days of the commencement thereof, or
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) provides for relief against the company or any Subsidiary in an
involuntary case,
(B) appoints a Custodian of the Company or any Subsidiary for all or
substantially all of its property, or
(C) orders the liquidation of the Company or any Subsidiary; or
(7) A final judgment for the payment of money in an amount in excess of
$250,000 shall be rendered against the Company or any of its Subsidiaries (other
than any judgment as to which a reputable insurance company shall have accepted
full liability in writing) and shall remain undischarged for a period (during
which execution shall not be effectively stayed) of 30 days after the date on
which the right to appeal has expired.
Notwithstanding the provisions of clauses (1) and (2) above, no Event of
Default shall occur with respect to nonpayment under any Senior Notes or
Contingent Notes if a Management Investor is responsible, as an officer or
employee of the Company, for ensuring that the Company funds such obligation,
and such Management Investor fails to cause the Company to make such payment on
a timely basis, and no Event of Default shall occur with respect to nonpayment
under any Junior Note if an Institutional Investor or its affiliate is
responsible for ensuring that the Company funds such payment on a timely basis,
and in either such case such failure is not attributable to a lack of funds in
the Company's account to fund such payment or a directive from the Board of
Directors prohibiting or refusing to make such payment.
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
In any such case (a) upon the occurrence of any Event of Default described
in clause (1), (5) or (6) above, and subject to the terms of the Intercreditor
Agreement, the unpaid principal amount of and accrued interest on the Notes
shall
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automatically become due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, and (b) upon
the occurrence of any other Event of Default, and subject to the terms of the
Intercreditor Agreement, in addition to any other rights, powers and remedies
permitted by law or in equity, the holder or holders of greater than 51% in
principal amount of the Senior Notes, Contingent Notes or Junior Notes then
outstanding may, at its or their option, by notice in writing to the Company,
declare all of the Notes of such issue (i.e., the Senior Notes, Contingent Notes
or Junior Notes, as the case may be) to be, and all of the Notes of such issue
shall thereupon be and become, immediately due and payable together with
interest accrued thereon and all other sums due hereunder, without presentment,
demand, protest or other notice of any kind, all of which are waived by the
Company.
Upon the occurrence of any such Event of Default, and subject to the terms
of the Intercreditor Agreement, the holders of Notes may proceed to protect and
enforce their rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in the Notes held by them, for an injunction against a violation of
any of the terms hereof or thereof, or for the pursuit of any other remedy which
it may have by virtue of this Agreement or pursuant to applicable law. The
Company shall pay to the holders of Notes upon demand the costs and expenses of
collection and of any other actions referred to in this Article X, including
without limitation reasonable attorneys' fees, expenses and disbursements.
No course of dealing and no delay on the part of the holders of Notes in
exercising any of their rights shall operate as a waiver thereof or otherwise
prejudice the rights of the holders of Notes, nor shall any single or partial
exercise of any right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy thereunder. No
right, power or remedy conferred hereby or by the Notes on the holders thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise.
10.2 Rescission of Acceleration. At any time after any declaration of
acceleration of all of any issue of Notes shall have been made pursuant to
Section 10.1 by any holder or holders of such issue of Notes and before a
judgment or decree for the payment of money due has been obtained by such holder
or holders, the holder or holders of at least 51% in aggregate principal amount
of such issue of Notes at the time outstanding
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may, by written notice to the Company and to the other holders of such issue of
Notes rescind and annul such declaration and its consequences, provided that (i)
the principal of and interest on such issue of Notes which shall have become due
otherwise than by such declaration of acceleration shall have been duly paid,
and (ii) all Events of Default other than the nonpayment of principal of and
interest on such issue of Notes which have become due solely by such declaration
of acceleration shall have been cured or waived by the holders of at least 51%
in aggregate principal amount of such issue of Notes at the time outstanding. No
rescission or annulment referred to above shall affect any subsequent Default or
any right, power or remedy arising out of such subsequent Default.
ARTICLE XI
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"1933 Act" means the Securities Act of 1933, as amended.
"Agreement" means this Agreement as from time to time amended and in effect
between the parties.
"Business Day" means any day on which commercial banks are not authorized
or required to close in Boston, Massachusetts or Fort Lauderdale, Florida.
"Closing" shall have the meaning set forth in Section 1.5.
"Code" shall have the meaning set forth in Section 1.7.
"Commission" shall have the meaning set forth in Section 4.2(f).
"Common Stock" shall include (a) the Company's Common Stock as authorized
on the date of this Agreement and (b) any other securities of the Company into
which or for which any of the securities described in (a) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
"Company" means and shall have the meaning set forth in the first paragraph
hereof and shall include such company's successors and assigns.
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"Compensation Committee" shall mean the committee of the Board of Directors
constituted under Section 7 of the Shareholders' Agreement.
"Contingent Notes" shall mean those certain 8% Non-Negotiable Subordinated
Contingent Notes in the original aggregate principal amount of $2,500,000 issued
pursuant to the Purchase Agreement.
"Conversion Shares" shall have the meaning set forth in Section 1.2
hereof.
"Default" shall mean an Event of Default or any event with notice or lapse
of time or both would become an Event of Default.
"Event of Default" shall have the meaning set forth in Section 10.1.
"Holders" shall have the meaning set forth in Section 8.1 hereof.
"Indebtedness" means all obligations, contingent or otherwise, whether
current or long-term, which in accordance with generally accepted accounting
principles would be classified upon the obligor's balance sheet as liabilities
(other than deferred taxes) and shall also include capitalized leases,
guarantees, endorsements (other than for collection in the ordinary course of
business) or other arrangements whereby responsibility is assumed for the
obligations of others, including any agreement to purchase or otherwise acquire
the obligations of others or any agreement, contingent or otherwise, to furnish
funds for the purchase of goods, supplies or services for the purpose of payment
of the obligations of others.
"Independent Director" shall mean (i) so long as the Institutional
Investors own at least 51% of the shares owned by them on the date hereof, a
Director who is selected to the Board of Directors pursuant to Section 6(c) of
the Shareholders' Agreement, and (ii) in the event the Institutional
Shareholders own less than 51% of such shares, a Director who is neither an
employee of the Company nor an employee or affiliate of any Investor.
"Investors" shall have the meaning set forth in the first paragraph
hereof.
"Lien" shall mean any mortgage, deed of trust, pledge, security interest,
encumbrance, lien or charge of any kind
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(including any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any lease in the nature thereof, and the filing
of or agreement to give any financing statement under the Uniform Commercial
Code of any jurisdiction).
"Maturity Date" shall have the meaning set forth in Section 1.1.
"New Securities" shall have the meaning set forth in Section 7.2.
"Notes" shall mean collectively the Senior Notes, Contingent Notes Junior
Notes.
"Officer's Certificate" shall mean a certificate signed in the name of the
Company by its President, acting in his official capacity.
"Permitted Liens" shall mean: (i) Liens for taxes not yet due or payable
under law or being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided; (ii) carriers', warehouseman's,
mechanics, materialmen's, repairmen's and similar Liens arising in the ordinary
course of business to secure amounts owing for the provision of goods or
services; (iii) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation; (iv) easements,
rights of way and similar encumbrances incurred in the ordinary course of
business which do not, individually or in the aggregate, materially detract from
the value of the property subject thereto or interfere with the ordinary course
of business of the Company or any Subsidiary; (v) Liens on goods to secure the
payment of the purchase price of such goods; and (vi) Liens existing on the date
hereof on equipment used in the ordinary course of business to secure the
payment of the cost of acquisition or leasing thereof.
"Permitted Transferees" shall mean those persons to whom shares of capital
stock of the Company may be transferred pursuant to section 2 of the
Shareholders' Agreement.
"Person" means an individual, corporation, partnership, joint venture,
association, syndicate, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"Qualified Public Offering" means the closing of an underwritten public
offering by the Company pursuant to a registration statement filed and declared
effective under the
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1933 Act covering the offer and sale of Common Stock for the account of the
Company in which the aggregate net proceeds to the Company equal at least
$15,000,000.
"Related Agreements" shall mean the Redemption Agreement, the
Shareholders' Agreement and the Employment Agreements.
"Securities" shall have the meaning set forth in Section 1.1.
"Senior Notes" shall mean those 8% Non-Negotiable Senior Subordinated Notes
in the original principal amount of $3,500,000 issued pursuant to the Purchase
Agreement.
"Sensitive Payments" shall include, whether legal or illegal, (i) payments
to governmental officials or employees, (ii) commercial bribes or kickbacks, and
(iii) amounts paid as rebates or refunds or referral fees in contravention of
the laws or regulations of any jurisdiction.
"Subsidiary" or "Subsidiaries" means any corporation, association or other
business entity of which the Company and/or any of its other Subsidiaries (as
herein defined) directly or indirectly owns at the time more than fifty percent
(50%) of the outstanding voting shares of every class of such corporation or
trust other than directors' qualifying shares.
ARTICLE XII
MISCELLANEOUS
12.1 Survival of Representations. The representations, warranties,
covenants and agreements made herein or in any certificates or documents
executed in connection herewith shall survive the execution and delivery hereof
and the closing of the transaction contemplated hereby.
12.2 Parties in Interest. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties and undertakings contained
in this Agreement and the Related Agreements shall be binding on and shall inure
to the benefit of the respective successors and assigns of the parties hereto
(including transferees of any of the Securities). The parties agree to maintain
in confidence the terms of the purchase of the Securities hereunder, except that
the Investors may disclose such terms to their investors in the ordinary course
and except that the Company may disclose such terms to its shareholders in the
ordinary course.
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12.3 Securities Owned by Affiliates. For the purposes of applying all
provisions of this Agreement which condition the receipt of information or
access to information or exercise of any rights upon ownership of a specified
number or percentage of shares or Notes, the shares and Notes owned of record by
any affiliate of an Investor shall be deemed to be owned by such Investor. For
the purposes of this Agreement, the term "affiliate" shall mean any Person
controlling, controlled by, or under common control with, an Investor and any
general or limited partner of an Investor.
12.4 Amendments and Waivers. This Agreement may be amended, any provision
hereof can be waived, and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, if such
amendment, waiver, action or omission is approved by those Management Investors
who hold a majority of the shares of Common Stock held by all Management
Investors, and by those Institutional Investors who hold a majority of the
shares of Preferred Stock, or the shares of Common Stock issuable upon
conversion thereof, held by all Institutional Investors; provided, however, that
any such amendment, waiver, action or omission may be taken without the approval
of the Management Investors, if such amendment, waiver, action or omission does
not adversely affect the rights or interests granted hereunder to the Management
Investors; and provided further, however, that no such amendment, waiver, action
or omission which affects the rights or benefits of Schroder without a
comparable effect on the rights or benefits of all holders of Preferred Stock
may be taken without the consent of holders of a majority of the shares of
Preferred Stock held by Schroder. The Company shall promptly send copies of any
amendment, consent or waiver (and any requests for any such amendment, consent
or waiver) relating to this Agreement or the Securities to each Investor and
each other holder of the Securities and, to the extent practicable, shall
consult with each Investor and each other holder of the Securities, in
connection with each such amendment, consent and waiver. No course of dealing
between the Company and the holder of any of the Securities nor any delay in
exercise any rights hereunder or any of the Securities shall operate as a waiver
of any rights of any holder of such Securities.
12.5 Notices. All notices, requests, consents, reports and demands shall be
in writing and shall be hand delivered, sent by facsimile or other electronic
medium, or mailed, postage prepaid, to the Company or to the Investors at the
address set
- 39 -
<PAGE> 45
forth below or to such other address as may be furnished in writing to the
other parties hereto:
The Company: American Laboratory Associates, Inc.
6061 Northeast 14th Avenue
Fort Lauderdale, Florida 33334
Attn: Chairman
with copies to: Summit Partners, L.P.
Suite 3400
One Boston Place
Boston, MA 02108
Attn: Thomas S. Roberts
Schroder Ventures
101 Federal Street, 19th Floor
Boston, MA 02110
Attn: Barbara Piette
The Institutional
Investors: The address set forth opposite the
Institutional Investor's name on
Schedule 1.3 attached hereto.
with copy to: Hutchins, Wheeler & Dittmar, P.C.
101 Federal Street
Boston, MA 02110
Attn: James Westra, Esquire
The Management The Address set forth opposite
Investors: the Management Investor's name
on Schedule 1.3 attached hereto
with copy to: Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
515 E. Las Olas Blvd., 15th Floor
Ft. Lauderdale, Florida 33301
Attn: Daniel H. Aronson, Esquire
12.6 Expenses. The Company agrees, whether or not the transactions hereby
contemplated shall be consummated, to pay, and save the Investors harmless
against liability for the payment of, all out-of-pocket expenses arising in
connection with this Agreement, the Securities being purchased hereunder and the
Related Agreements and the transactions hereby and thereby contemplated,
including, without limitation, (i) all costs and expenses of the Investors
incurred in connection with the investigation, preparation, execution and
delivery of such agreements or instruments, or the transactions contemplated
hereby or thereby (and due diligence related thereto) (ii) all
- 40 -
<PAGE> 46
document production and duplication charges, (iii) all reasonable fees and
expenses of any counsel engaged by the Investors in connection with such
agreements or instruments, or the transactions contemplated hereby or thereby,
(iv) all such expenses, including reasonable attorney's fees and expenses,
incurred by the Investors with respect to the enforcement of any rights or
provisions of any such agreement or instrument, including without limitation,
costs and expenses in any bankruptcy case, and (v) all expenses incurred in
connection with the printing of such agreements and instruments and all taxes
which may be payable in respect of the execution and delivery of such agreements
or instruments, or the issuance, delivery or purchase by the Investors of any of
the Securities. The Company further agrees to indemnify and save harmless the
Investors and each of their respective partners, officers, directors, employees
and agents from and against any and all actions, causes of action, suits,
losses, liabilities and damages, and expenses (including, without limitation,
reasonable attorney's fees and disbursements in connection therewith (herein
called the "indemnified liabilities") incurred by the Investors or any of their
respective partners, officers, directors, employees or agents as a result of, or
arising out of, or relating to any of the transactions contemplated hereby or by
the Related Agreements, except for any indemnified liabilities arising on
account of the gross negligence or willful misconduct of the Investors or any of
their respective partners, officers, directors, employees, or agents; provided
that, if and to the extent such agreement to indemnify may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the indemnified liabilities which shall be permissible
under applicable law. The obligations of the Company under this Section 12.6
shall survive the transfer of any of the Securities.
12.7 Counterparts. This Agreement and any exhibit hereto may be executed in
multiple counterparts, each of which shall constitute an original but all of
which shall constitute but one and the same instrument. One or more counterparts
of this Agreement or any exhibit hereto may be delivered via telecopier, with
the intention that they shall have the same effect as an original counterpart
hereof.
12.8 Effect of Headings. The article and section headings herein are for
convenience of reference only and shall not affect the construction or
interpretation hereof.
12.9 Adjustments. All provisions of this Agreement shall be automatically
adjusted to reflect any stock dividend, stock split or other such form of
recapitalization.
- 41 -
<PAGE> 47
12-10 Future Issuances. Until the consummation of a Qualified Public
Offering, all securities of the Company hereafter acquired by the Investors
shall be granted the same rights and privileges afforded the Investors under
this Agreement and the Related Agreements.
12-11 Governing Law. This Agreement shall be deemed a contract made under
the laws of the State of Delaware and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
such State.
[Remainder of Page Intentionally Left Blank]
- 42 -
<PAGE> 48
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon, this letter shall become a binding agreement among us.
Very truly yours,
AMERICAN LABORATORY
ASSOCIATES, INC.
By: /s/ E. Roe Stamps
--------------------------------
Name: E. Roe Stamps
--------------------------
Title: Chairman
--------------------------
MANAGEMENT INVESTORS:
/s/ Dr. Evanagelos Poulos
-----------------------------------
Dr. Evangelos Poulos
/s/ Dr. Michael Demaray
-----------------------------------
Dr. Michael Demaray
/s/ Dr. Alexander Kowalczyk
-----------------------------------
Dr. Alexander Kowalczyk
INSTITUTIONAL INVESTORS:
SUMMIT VENTURES III, L.P.
By: Summit Partners, III, L.P.,
Its General Partner
By: Stamps, Woodsum & Co. III,
Its General Partner
By: /s/ E. Roe Stamps
--------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ E. Roe Stamps
--------------------------------
Authorized Signatory
- 43 -
<PAGE> 49
SCHRODERS INCORPORATED
By: /s/ Jeffrey J. Collinson
---------------------------
Jeffrey J. Collinson
Attorney-in-Fact
SCHRODER VENTURES LIMITED
PARTNERSHIP
By: Schroder Ventures
Management L.P.
Its General Partner
By: Schroder Venture
Managers, Inc.
Its General Partner
By: /s/ Jeffrey J. Collinson
-------------------------
Jeffrey J. Collinson
Attorney-in-Fact
SCHRODER VENTURES U.S. TRUST
By: Schroder International
Trust Company Limited,
Trustee
By: /s/ Jeffrey J. Collinson
-------------------------
Jeffrey J. Collinson
Attorney-in-Fact
- 44 -
<PAGE> 1
EXHIBIT 10.18
[LOGO]
Acquisition
Management
Services, Inc.
September 18, 1996
PERSONAL & CONFIDENTIAL
James C. New
President
AmeriPath, Inc.
7289 Garden Road, Suite 220
Riviera Beach, Florida 33404
Dear Jim:
This is to confirm our understanding (as described below) that Acquisition
Management Services, Inc. ("AMS") has been engaged as an advisor and consultant
to AmeriPath, Inc. (the "Company") to assist the Company by providing certain
advisory services. This Agreement shall be in effect from the date of execution
and may be extended to cover additional services with the written consent of
both parties for such periods as the parties may agree. The terms of this
Engagement Agreement will expire thirty (30) days from the date hereof unless
accepted by the Company in writing by executing and delivering to AMS the
final page of this Agreement. This Agreement will be the entire understanding
of the parties with respect to its subject matter, except for the provisions
contained in the letter from AMS to the Company (dated May 22, 1996) regarding
the amount of compensation and the time frame for completion of assignments.
A. ADVISORY SERVICES
The Company hereby retains AMS to perform human resource consulting,
purchase accounting, due diligence, financial analyses, valuations,
projections, strategic analyses and, in consultation with the
Company's management, negotiation of terms with respect to potential
acquisitions by, or other transactions involving, the Company
(the "Services"). For purposes of this Agreement, "due diligence" with
respect to an acquisition target shall include, but not be limited to,
review of (1) contracts, arrangements or other agreements; (2)
ownership structure; (3) organizational structure, including interviews
of officers of key personnel; (4) facilities; (5) insurance policies
and claims histories; (6) litigation matters; (7) tax returns and
related matters; (8) market conditions; and (9) billing practices. AMS
shall prepare appropriate written reports (for use by the Company's
officers and for presentation to the Company's Board of Directors)
documenting the results of the foregoing. AMS shall also prepare, in
consultation with the Company's management, a Memorandum of
Understanding with respect to each potential acquisition for which AMS
provides Services. AMS shall devote such time and attention to these
matters as shall be reasonably requested by the Company or determined
by AMS, in its reasonable discretion, to be necessary or appropriate
for the diligent provision of
<PAGE> 2
AmeriPath, Inc.
Page 2
the Services. All Services shall be rendered by AMS in King of
Prussia, PA, unless otherwise determined by AMS and the Company. AMS
will be compensated for the Services in accordance with the schedule
set forth in Exhibit I.
AMS shall provide the Company with the Services as described
above, and as are otherwise reasonably requested by the Company,
provided that AMS shall not be required to undertake duties not
reasonably within the scope of the Services for which it has been
engaged. In performance of its duties, AMS shall provide the Company
with the benefits of its best judgment and efforts, and shall perform
the Services in a prudent and professional manner. Except for the
foregoing sentence, AMS makes no warranties or representations of any
kind, expressed, implied or statutory, regarding the Services,
including without limitation any representation or warranty as to the
value or quality of the Services. AMS shall be obligated to render
advice, upon the request of the Company in good faith, but shall not be
obligated to spend any specific amount of time in doing so.
The Company acknowledges that AMS and/or its affiliates are in
the business of providing services similar to the Services to others.
Nothing herein shall be construed to limit or restrict AMS in
conducting such business with respect to others or in rendering such
advice to others.
The Company acknowledges and agrees that AMS shall be entitled
to rely on information and instructions supplied by the Company, and
that AMS shall not be liable to the Company (and shall be indemnified
and held harmless by the Company from and against any loss, damage or
liability resulting from) for any action taken at the request of the
Company.
B. RELEASE; LIMITATION OF LIABILITY
The Company, on behalf of itself and its officers, directors,
employees, agents, affiliates, successors and assigns (collectively,
the "Company Affiliates"), does hereby remise, release and forever
discharge AMS, and AMS's officers, directors, employees, agents,
affiliates, predecessors, successors and assigns (collectively, the
"AMS Affiliates", and together with AMS, the "AMS Entities"), of and
from all actions, suits, claims and demands in law or equity, that the
Company or any Company Affiliate ever had, now has, or hereafter may
have, by reason of any claims, demands, actions, or causes of action
for injury, death, loss or damage of any kind or nature whatsoever,
which, either directly or indirectly, arises out of or results from,
the provision of, or the failure to provide, the Services prior to the
date hereof other than the fraud, gross negligence or willful
misconduct on the part of AMS or such AMS Entity. The Company
acknowledges and agrees that neither AMS nor any other AMS Entity shall
be liable to the Company or any Company Affiliate for any liability,
loss or damage relating to, or resulting from the provision of, or
failure to provide, the Services, including but not limited to
consequential or special damages relating to loss of profit or goodwill
or other special or consequential damages, whether or not AMS is
notified of the possibility of such damages, other than liability, loss
or damage resulting from the fraud, gross negligence or willful
misconduct of AMS or such AMS Entity.
The provisions of this Section shall survive the termination of
this Agreement.
<PAGE> 3
AmeriPath, Inc.
Page 3
C. INDEMNIFICATION
Recognizing that transactions and projects of the type contemplated by
the Company sometimes result in litigation and that AMS's role in the
transactions is advisory, the Company and its subsidiaries and
affiliates agree to indemnify and hold harmless AMS and the other AMS
Entities (the "Indemnified Parties") from and against any and all
losses, claims, damages and liabilities, joint or several, related to
or arising in any manner out of any transaction, proposal, consulting
activity or any other matter (collectively, the "Matters") contemplated
by the engagement of AMS hereunder, and will promptly reimburse the
Indemnified Parties for all expenses (including fees and expenses of
legal counsel) as incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim related
to or arising in any manner out of any Matter contemplated by the
engagement of AMS hereunder, or any action or proceeding arising
therefrom (collectively, "Proceedings"), whether or not such
Indemnified Party is a formal party to any such Proceeding.
Notwithstanding the foregoing, the Company shall not be liable in
respect of any losses, claims, damages, liabilities or expenses that a
court of competent jurisdiction or arbitration shall have determined by
final judgment resulted solely from the fraud, gross negligence or
willful misconduct of an Indemnified Party. The Company further agrees
that it will not, without the prior written consent of AMS, settle,
compromise or consent to the entry of any judgment in any pending or
threatened Proceeding in respect of which indemnification may be sought
hereunder (whether or not AMS or any other Indemnified Party is an
actual or potential party to such Proceeding), unless such settlement,
compromise or consent includes an unconditional release of AMS and each
other Indemnified Party hereunder from all liability arising out of
such Proceeding.
The Company agrees that if any indemnification or reimbursement sought
pursuant to this letter were for any reason not available to any
Indemnified Party or insufficient to hold it harmless as and to the
extent contemplated by this letter, then the Company shall contribute
to the amount paid or payable by such Indemnified Party in respect of
losses, claims, damages and liabilities in such proportion as is
appropriate to reflect the relative benefits to the Company and its
stockholders on the one hand, and AMS on the other, in connection with
the Matters to which such indemnification or reimbursement relates or,
if such allocation is not permitted by applicable law, not only such
relative benefits but also the relative faults of such parties as well
as any other equitable considerations. It is hereby agreed that the
relative benefits to the Company and/or its stockholders and to AMS
with respect to AMS's engagement shall be deemed to be in the same
proportion as (i) the total value paid or received or to be paid or
received by the Company and/or its stockholders pursuant to the Matters
(whether or not consummated) for which AMS is engaged to render
financial, consulting, development or other advisory services bears to
(ii) the fees paid to AMS in connection with such engagement. In no
event shall the Indemnified Parties contribute or otherwise be liable
for an amount in excess of the aggregate amount of fees actually
received by AMS pursuant to such engagement (excluding amounts received
by AMS as reimbursement of expenses and other fixed costs of AMS
required to provide services on an ongoing basis).
<PAGE> 4
AmeriPath, Inc.
Page 4
The Company further agrees that no Indemnified Party shall have
any liability (whether direct or indirect, in contract or tort or
otherwise) to the Company for or in connection with AMS's engagement
hereunder except for losses, claims, damages, liabilities or expenses
that a court of competent jurisdiction or arbitration shall have
determined by final judgment resulted solely from the fraud, gross
negligence or willful misconduct of such Indemnified Party. The
indemnity, reimbursement and contribution obligations of the Company
shall be in addition to any liability which the Company may otherwise
have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company
or an Indemnified Party.
The indemnity, reimbursement and contribution provisions set
forth herein shall remain operative and in full force and effect
regardless of (i) any withdrawal, termination or consummation of or
failure to initiate or consummate any Matter referred to herein, (ii)
any investigation made by or on behalf of any party hereto or any
person controlling (within the meaning of Section 15 of the Securities
Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended) any party hereto, (iii) any termination or the
completion or expiration of AMS's engagement and (iv) whether or not
AMS shall, or shall not be called upon to, render any formal or informal
advice in the course of such activities to which AMS provides services
to the Company. The provisions of this section shall survive the
termination of this agreement.
D. TERMINATION
This Agreement may be terminated by either party at any item, for any
reason, by giving ten (10) days prior written notice.
E. CONFIDENTIAL NATURE OF INFORMATION AND ADVICE
AMS agrees to keep confidential all non-public information
provided to it by the Company or ascertained by it in the course of
providing the Services, except as required by law or as contemplated by
the terms of this Agreement. Notwithstanding anything to the contrary,
AMS may disclose non-public information to their agents and advisors
whenever AMS determines that such disclosure is necessary or advisable
to provide the services contemplated hereunder.
For purposes of this section, "non-public information" shall
not include information which prior to or after AMS's receipt thereof
(i) was or becomes publicly known without disclosure by AMS or (ii)
becomes available to AMS as a result of disclosure by a third party
which represents to AMS (upon which representation AMS is reasonable in
its reliance) that it is or was entitled to disclose such information.
F. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
<PAGE> 5
AmeriPath, Inc.
Page 5
G. ENTIRE AGREEMENT AND GOVERNING LAW
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Pennsylvania, without regard to
principles of conflicts of law.
H. AMENDMENT
This Agreement may not be amended or modified except in writing executed
by the Company and AMS.
I. SURVIVAL
Notwithstanding anything to the contrary contained herein, the
provisions concerning release, confidentiality, indemnification,
compensation and the Company's obligations to pay fees and reimburse
expenses contained in the indemnification provisions shall survive the
expiration or termination of this Agreement.
If the foregoing correctly sets forth the terms of our agreement, kindly so
indicate by signing and returning one copy of this letter.
Very truly yours,
ACQUISITION MANAGEMENT SERVICES, INC.
By: /s/ Brian G. Murphy
--------------------
Brian G. Murphy
President
Accepted and Agreed
this 19th day of September, 1996
AMERIPATH, INC.
By: /s/ James C. New
--------------------
James C. New
President
<PAGE> 1
EXHIBIT 10.19
AMERIPATH MANAGEMENT AGREEMENT
BY AND BETWEEN
AMERIPATH CINCINNATI, INC.
AND
AMERIPATH OHIO, INC.
<PAGE> 2
MANAGEMENT AGREEMENT
PARTIES: AMERIPATH CINCINNATI, INC. (the "Practice")
AMERIPATH OHIO, INC. ("Ameripath")
EFFECTIVE DATE: SEPTEMBER 30, 1996 (the "Effective Date")
RECITALS:
- AmeriPath is a Delaware corporation engaged in the business
of providing administrative and management services, to
pathology groups;
- The Practice is a professional association comprised of
medical practitioners who engage in the practice of pathology
("Practice Providers");
- The Practice desires to enter into this Agreement with
AmeriPath for the provision of comprehensive business
management services to enhance the efficiency of its
operations and to allow its Practice Providers to concentrate
fully on providing quality medical services;
- The Practice has designated a Managing Physician to oversee
the day to day operations of the Practice's business and to
make administrative and certain other decisions on its
behalf;
- The Practice and AmeriPath desire to enter into this
agreement (the "Agreement") to provide a statement of their
respective rights and responsibilities during its Term (as
defined in Section VI-A herein below).
FOR GOOD AND VALUABLE CONSIDERATION, AmeriPath and the Practice agree
as follows:
I. PRELIMINARY STATEMENTS
A. RECITALS. The recitals set forth above are true and accurate and
are incorporated as part of this Agreement.
B. DEFINITIONS. Many capitalized terms used in this Agreement are
defined in Attachment I to this Agreement; however, capitalized terms used in
this Agreement are also defined in the text of this Agreement, and Attachments
II and III hereof.
1
<PAGE> 3
C. ATTACHMENTS. All attachments to this Agreements are incorporated
into this Agreement by reference. The attachments to this Agreement are the
following:
Attachment I: Definitions
Attachment II: Attorney in Fact
Attachment III: Miscellaneous Contractual Provisions
II. AMERIPATH SERVICES
AmeriPath shall on behalf of Practice and as a Practice Expense,
provide the Practice and the Practice Providers with the following services:
A. STRATEGIC PLANNING AND GOALS. AmeriPath shall prepare, in
consultation with the Managing Physician, an annual Operating Plan (as defined
in Section IV-B), reflecting in reasonable detail anticipated Practice Revenues,
Practice Expenses, Allocated Expenses and Practice Provider staffing. The
Operating Plan shall include, among other things, information relating to the
growth and enhancement of the Practice, a budget for the Practice and the
Management Fee to be paid to AmeriPath.
B. EXPANSION OF PRACTICE. AmeriPath shall assist the Practice in
developing relationships and affiliations with physicians and other specialists,
hospitals, networks, health maintenance organizations and preferred provider
organizations. Subject to the terms of this Agreement, each of the Practice and
AmeriPath shall cooperate and use their respective best efforts to expand the
Practice.
C. MANAGED CARE RELATIONSHIPS. AmeriPath, together with the Managing
Physician, shall evaluate, negotiate, and administer managed care contracts and
other third party payor contracts on behalf of the Practice and its Practice
Providers.
D. FACILITY RELATIONSHIPS. AmeriPath, together with the Managing
Physician, shall evaluate, negotiate, and administer all hospital and other
medical facility contracts on behalf of the Practice and its Practice
Providers.
E. ESTABLISHMENT OF FEES. AmeriPath shall recommend, but shall not
set, fees, charges, premiums or other amounts due in connection with services
and goods provided by the Practice. The Board shall retain sole authority to
decide how physician compensation will be divided among individual physicians.
F. PRACTICE MANAGEMENT SERVICES. AmeriPath shall, in consultation with
the Managing Physician, assess business activity including product line
analysis, outcomes monitoring and customer satisfaction. AmeriPath shall
develop systems to track revenues, expenses, cost accounting, utilization,
quality assurance, physician productivity and customer satisfaction.
G. BUSINESS OFFICE AND SUPPORT SERVICES AmeriPath may, in consultation
with the Managing Physician, provide computer, bookkeeping, billing and
collection, accounts receivable and
2
<PAGE> 4
accounts payable services necessary for the management of the Practice pursuant
to this Agreement and in accordance with the Operating Plan. AmeriPath may also
order and purchase on behalf of the Practice medical and office supplies
required in the day-to-day operation of the Practice as determined by the
Managing Physician consistent with the Operating Plan. However, the Practice
shall order, purchase, stock, and monitor the inventory of pharmaceuticals and
other medical supplies, substances, or items whose purchase, maintenance, or
security require licensure as a health-care provider or require a permit,
registration, certification, or identification number that requires licensure
or certification as a health-care provider. AmeriPath shall provide access to
management information systems services to the Practice, including risk
contracting systems services. AmeriPath may also arrange laundry, waste
collection, and other necessary operational services in accordance with
applicable laws.
H. PROFESSIONAL AND CONSULTING SERVICES. AmeriPath shall arrange for or
render business and financial management consultation and advice reasonably
requested by the Managing Physician and directly related to the operations of
the Practice pursuant to this Agreement. Except as contemplated by the Operating
Plan, AmeriPath shall not be responsible for any services requested by or
rendered to any individual, employee or agent of the Practice, or any Practice
Provider, not directly related to Practice operations.
I. FINANCIAL STATEMENTS. AmeriPath shall prepare Practice profit and
loss and income statements, in accordance with the manner and form in which
AmeriPath normally keeps its accounts, books and records, and in accordance with
applicable laws. The statements shall reflect Practice Revenues generated by or
on behalf of the Practice and shall contain a comparison of actual and budgeted
Practice Revenues and expenses. AmeriPath shall provide the Managing Physician
with monthly statements within thirty (30) days after the end of each month and
shall provide a year-end statement within ninety (90) days after the end of the
calendar year.
III. PRACTICE OBLIGATIONS
A. EXCLUSIVITY. The Practice and the Practice Providers agree that
during the Term of this Agreement they will not retain, engage or employ,
directly or indirectly, any other entity or individual to provide the services
for which it is contracting with AmeriPath.
B. PROFESSIONAL STANDARDS. Medical services shall be performed solely
by, or under the direct supervision of, the Practice Providers. The Practice
shall have complete and absolute control over the methods by which the Practice,
and Practice Providers practice medicine and/or render the professional services
which they are licensed to provide under the laws of the states in which they
are practicing and Federal Law. The Practice shall require that Practice
Providers comply with applicable ethical standards, laws and regulations. The
Practice shall, with the assistance of AmeriPath (if so requested by the
Managing Physician), resolve utilization review or quality assurance issues
which may arise. In the event that disciplinary actions or professional
liability actions are initiated against any Practice Provider, the Practice
shall immediately inform AmeriPath of the action and the underlying facts and
circumstances. The Practice shall implement and maintain a program to monitor
the quality and utilization of medical care, and AmeriPath shall render
administrative assistance to the Practice, as requested by the Managing
Physician.
3
<PAGE> 5
C. MANAGED CARE ARRANGEMENTS. The Practice shall cooperate with
AmeriPath in the development and operation of managed care arrangements. The
Practice shall participate as a provider and in the administrative operation of
integrated delivery systems and managed care arrangements. The Practice and its
Practice Providers agree to comply with the quality assurance and utilization
review programs of managed care arrangements.
D. CONTINUING MEDICAL EDUCATION. The Practice shall ensure that each
of its Practice Providers participates in continuing medical education
activities, as necessary to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
E. PHYSICIAN POWERS OF ATTORNEY AND BILLING. The Practice shall appoint
AmeriPath to act as agent in the billing and collection of all Practice
Revenues, and shall require all Practice Providers to appoint AmeriPath as
attorney-in-fact for the Practice and each Practice Provider, as more
specifically set forth in Attachment II. The Practice shall cooperate and shall
cause its Practice Providers to cooperate with AmeriPath in all matters relating
to the billing and collection of all Practice Revenues. In this regard, each
Practice Provider shall review and approve the reports and other information
required to support complete and accurate bills. Additionally, the Practice and
its Practice Providers will provide such necessary support to appeal or contest
any denials of claims or other regulatory issues.
F. ADDITIONAL PRACTICE PROVIDERS. When the Practice desires to add or
change a Practice Provider, AmeriPath shall provide a business analysis of the
prospective change in the composition of the Practice. Additional Practice
Providers (the "Additional Practice Providers") shall be added to the Practice
as follows: the Practice shall review and approve the credentials and the
medical practices of the prospective Additional Practice Provider. AmeriPath
shall review the business operations, financial condition and results of
operations of the prospective Additional Practice Provider and shall provide
such information to the Managing Physician. The decision to admit an Additional
Practice Provider shall be subject to the approval of the Steering Committee.
G. ADDITIONAL PRACTICES. AmeriPath may, in its discretion, seek to add
additional practices (each such Practice being an "Additional Practice") to this
Agreement. If AmeriPath desires to add an Additional Practice, AmeriPath shall
provide the with a business analysis of the Additional Practice, including
business operations, financial condition and results of operations. The decision
to admit an Additional Practice shall be subject to the approval of the Board.
After an agreement to add an Additional Practice has been reached, the Practice
and AmeriPath shall enter into an amendment (the "New Practice Amendment") to
this Agreement. The New Practice Amendment shall include the understanding of
the parties with respect to AmeriPath's compensation and other issues agreed
upon by the Board and the Additional Practice. The New Practice Amendment shall
obligate the Additional Practice to be bound by the New Practice Amendment.
H. PRACTICE EXPENSES. The Practice shall be solely responsible for the
payment of all Practice Expenses.
4
<PAGE> 6
I. PRACTICE ORGANIZATIONAL DOCUMENTS. The Practice agrees that it shall
not, without the written consent of AmeriPath: (a) modify or amend the Practice
Organizational Documents (as defined in Attachment I); (b) admit New Practice
Providers, except as provided for in this Agreement; (c) remove the Managing
Physician; or (d) terminate or cancel any hospital contracts (or similar
contracts for the provision of services) under this Agreement. Further, the
Practice agrees that it shall consult with AmeriPath prior to the termination or
release of any Practice Provider from his or her obligations.
J. STAFFING OF FACILITIES BY THE PRACTICE. To the extent that the
Practice or the Practice Providers are responsible for staffing facilities
provided by AmeriPath, the Practice shall provide adequate staffing to ensure
that medical services are provided in a manner consistent with applicable
community and medical specialty standards. From time to time AmeriPath may
acquire new facilities that it wishes the Practice to staff. The Practice agrees
that in the event AmeriPath acquires or develops a new facility that it wishes
the Practice to staff, the Practice will use its best efforts to staff the
facility. The parties agree that the Operating Plan will be revised as necessary
to accommodate staffing of the new facility.
K. EQUIPMENT. The Practice shall advise AmeriPath on the maintenance,
repair and proper operation of medical equipment. This obligation shall relate
to the medical functionality of the equipment. Upon receipt of such advice,
AmeriPath shall cause the medical equipment to be maintained in good operating
condition.
L. MEDICAL RECORDS. The Practice shall be responsible for the
preparation of, and direct the contents of, patient medical records. All
patient medical records shall remain the property of the Practice. The Practice
shall be responsible for proper documentation of medical services provided by
the Practice and the Practice Providers.
FINANCIAL MATTERS
H. AMERIPATH COMPENSATION.
1. GENERAL. The compensation provided herein is
expected to provide AmeriPath with fair market value
payment commensurate with the services it provides,
its capital investment, use of its tradename and its
expertise in laboratory and professional practice
management. AmeriPath shall receive compensation
equal to all Practice Revenues in excess of Practice
Expenses.
2. PRACTICE EXPENSES AND ALLOCATED EXPENSES. All
Practice Expenses (as defined in Attachment I
hereto), including the compensation of Practice
Providers, shall be the sole responsibility of
Practice and shall be paid by the Practice out of
its first available Practice Revenues. Allocated
Expenses (as defined in ATTACHMENT I hereto)
incurred by AmeriPath in the course of the
performance of its duties under this Agreement on
behalf of or as agent for the
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<PAGE> 7
Practice shall be paid to AmeriPath. Allocated
Expenses may include an allocable portion of
reasonable corporate overhead of AmeriPath.
Allocated Expenses shall be billed to the Practice
at their actual cost to AmeriPath. An operating
budget for Practice Expenses and Allocated Expenses
shall be reviewed at least annually and shall be
set forth in the Operating Plan.
I. REIMBURSEMENT OF EXPENSES. AmeriPath may, from time to time, incur
Practice Expenses which are a part of the Operating Plan, a Revised Operating
Plan, or are Practice Expenses incurred in the ordinary course of business.
AmeriPath shall be entitled to be reimbursed by the Practice for these expenses
when incurred.
J. PRACTICE BANK ACCOUNT, PAYMENT OF FEES AND PAYMENT OF EXPENSES. The
Practice shall establish a bank account for the deposit of all Practice Revenues
(the "Practice Bank Account"). AmeriPath shall have a security interest in the
Practice Bank Account pursuant to this Section V. Additionally, it is understood
and agreed that AmeriPath may assign its security interest and all other
interests that it may have in the Practice Bank Account to its lender or
lenders. Should AmeriPath assign its interest, its assignee shall have a first
lien on the Practice Bank Account. AmeriPath shall have access to the Practice
Bank Account solely for the purposes stated herein. In connection herewith and
throughout the Term, Practice hereby grants to AmeriPath an exclusive special
power of attorney for the purposes herein and appoints AmeriPath as Practice's
exclusive true and lawful agent and attorney-in-fact, and AmeriPath hereby
accepts such special power of attorney and appointment, to deposit into the
Practice Bank Account all funds, fees, and revenues generated from the
Practice's provision of medical services and collected by AmeriPath, and to make
withdrawals from Practice Bank Account for payments specified in this Agreement
and as requested from time-to-time by Practice. Notwithstanding the exclusive
special power of attorney granted to AmeriPath hereunder, Practice may, with
notice to AmeriPath, draw checks on the Practice Bank Account; provided,
however, that Practice shall neither draw checks on the Practice Bank Account
nor request AmeriPath to do so if the balance remaining in the Practice Bank
Account after such withdrawal would be insufficient to enable AmeriPath to pay
on behalf of Practice any Practice Expense attributable to the operations of
Practice or to the provision of medical services, and/or any other obligations
of Practice. Disbursements made from the Practice Bank Account consent shall be
consistent with the type and amount of expenditures authorized by the Operating
Plan. Limits on authority to sign checks and purchase orders shall be mutually
agreed upon by AmeriPath and the Managing Physician.
K. COLLATERAL. As collateral security for the payment of all amounts
owed to AmeriPath pursuant to this Agreement, Practice grants to AmeriPath a
security interest in all tangible and intangible assets of the Practice,
including Practice Revenues which may be created or arise during the Term,
together with all proceeds regardless of the manner in which the entitlement to
payment for Practice Revenues exists whether as accounts, accounts receivable,
notes receivable or other evidence of entitlement to the Practice Revenues and
all of its rights, title and interest (including right to control the same), if
any, in the Bank Account and the sums on deposit (collectively, the
"Collateral") to the extent the same are not otherwise assigned to AmeriPath. In
granting this security interest, the Practice agrees to the following: (i) this
Agreement shall create and constitute a valid and perfected first priority
security interest in the Collateral enforceable against all parties; (ii) the
Practice has and shall continue
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<PAGE> 8
to have good indefeasible and merchantable title to and ownership of the
Collateral free and clear of all liens, other than liens created by AmeriPath
or any AmeriPath Affiliate; (iii) this grant of a security interest in the
Collateral shall not result in a violation of any other agreement to which
Practice is or becomes a party; and (iv) the Practice shall take all action
necessary to perfect AmeriPath's security interest in the Collateral, including
the execution of financing statements and authorization to file the same in the
appropriate recording office. AmeriPath and the Practice agree to execute such
further documents and instruments as may be deemed necessary or desirable, in
AmeriPath's sole discretion, to effect the provisions of this Section.
L. REMEDIES FOR NON-PAYMENT. AmeriPath shall have all rights and
remedies of a secured party and all rights, remedies, securities and liens of
the Practice with respect to the Collateral including, but not limited to,
extending the time of payment of, compromising, or settling for cash, credit, or
otherwise upon any terms, any part or all of the Collateral, but shall not be
liable for any failure to collect or enforce the payment thereof. AmeriPath is
authorized by the Practice, except as otherwise prohibited by applicable law, to
take possession of, and endorse in the name of the Practice any notes, checks,
money orders, drafts, cash, insurance payments and any other instruments
received in payment of the Collateral, or any part thereof; to collect, sue for
and give satisfactions for moneys due on account of the Collateral; and to
withdraw any claims, suits or proceedings pertaining to, or arising out of,
AmeriPath's and/or the Practice's rights to the Collateral. AmeriPath's costs of
collection and enforcement, including attorneys' fees and out-of-pocket
expenses, shall be borne solely by the Practice. The Practice agrees that
AmeriPath shall be permitted to place its representatives in the Medical
Offices, with full authority to take possession of and retain for AmeriPath the
books and records of the Practice with reference to the Practice's operations
pursuant to this Agreement with respect to the Collateral.
M. RIGHT OF OFFSET. Notwithstanding any other provision in this
Agreement, AmeriPath is entitled to offset against any sums owed by AmeriPath
to the Practice any amounts payable or reimbursable to AmeriPath under this
Agreement.
N. LEGAL LIMITATION ON ASSIGNMENT. This Agreement shall not constitute
an assignment of Practice Revenues to the extent that such assignment is
prohibited under applicable law. To the extent Practice Revenues are not
assignable, the Practice agrees that it shall promptly deliver non-assigned
Practice Revenues to AmeriPath.
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<PAGE> 9
IV. TERMS AND TERMINATIONS
A. TERM. The initial term of this Agreement shall be for a period of
forty (40) years commencing on September 30, 1996 and ending on September 29,
2036 (the "Initial Term"). This Agreement shall be extended for separate and
successive five (5) year periods (each such five (5) year period shall be
referred to as an "Extended Term" and the Initial Term and any Extended Term
shall be referred to in this Agreement as the "Term") unless either party
provides the other party notice not less than sixty (60) days prior to the end
of the Initial Term or an Extended Term, unless the Practice has defaulted under
the terms of this Agreement. The same terms and conditions of this Agreement
shall apply to an Extended Term unless the Practice and AmeriPath mutually agree
to alter the terms and conditions hereof with a writing signed by each party
hereto. All New Practice Amendments shall terminate at such time as this
Agreement terminates.
B. TERMINATION. A party (the "Terminating Party") may terminate this
Agreement on the basis of the following:
1. The other party breaches any material term or condition of this
Agreement, and the breach continues for sixty (60) days after the receipt of
written notice specifying the breach by the party which did not perform or
breached.
2. AmeriPath may terminate this Agreement if the Practice is
suspended or prohibited from participating in the Medicare or Medicaid programs
or excluded from entering into healthcare provider agreements with any material
portion of the managed care or healthcare insurance industry; or (ii) the
Practice or the Managing Physician, breaches any material term of this
Agreement, including the restrictive covenants provided in Attachment III.
C. EFFECTS OF AND OBLIGATIONS UPON TERMINATION. Upon the termination or
expiration of this Agreement: (i) neither party shall be discharged from any
previously accrued obligation which remains outstanding; (ii) any sums of money
owing by one party to the other shall be paid immediately, prorated through the
effective date of termination or expiration; (iii) the Practice shall return to
AmeriPath all originals and copies of any Confidential Information in the
possession of the Practice or any other person or entity to whom it has
delivered originals and/or copies; (iv) the Practice and AmeriPath shall perform
matters as are necessary to wind up their activities under this Agreement in an
orderly manner, including providing to the Practice patient billing records on
paper or electronic data; and (v) each party shall have the right to pursue
other legal or equitable relief as may be available depending upon the
circumstances of the termination.
V. LEGAL COUNSEL
The Practice agrees to retain legal counsel recommended by AmeriPath
with respect to matters in which the interests of the Practice are not adverse
to AmeriPath or its business in any significant respect and further agrees to
waive any conflicts of interest in transactional matters which may exist for
such recommended legal counsel with respect to AmeriPath.
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<PAGE> 10
VI. PRACTICE OF MEDICINE. The parties acknowledge that AmeriPath is not
authorized or qualified to engage in any activity which constitutes the practice
of medicine and nothing required herein to be shall be construed as the practice
of medicine by AmeriPath. To the extent any act or service required to be
performed or provided by AmeriPath is construed or deemed by any governmental
authority, agency or court to constitute the practice of medicine, AmeriPath
shall be released from any obligation to provide such act or service and the
provision for such required act or service shall be deemed waived and forever
unenforceable without otherwise affecting the terms of this Agreement.
Practice and AmeriPath have duly executed this Agreement on the day and
year indicated above.
AMERIPATH CINCINNATI, INC.
/s/ David R. Barron, M.D.
------------------------------
AMERIPATH OHIO, INC.
By: /s/ Robert P. Wynn
---------------------------
Name: Robert P. Wynn
-------------------------
Its: Vice President
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<PAGE> 11
ATTACHMENT I
DEFINITIONS
AGREEMENT means this agreement and any subsequent amendments
thereto.
ALLOCATED EXPENSES means the expenses relating to the operations of the
facilities of the Practice and the administrative
expenses incurred by AmeriPath on behalf of the
Practice in the performance of AmeriPath's duties under
this Agreement, including the following: billing
services (including personnel), marketing, advertising,
promotion, allocated corporate overhead, legal
expenses, service of laboratory and other expenses as
may be approved from time to time by the Board, all as
permitted to be incurred in accordance with this
Agreement.
DOCUMENTS means the articles of incorporation and bylaws of the
Practice.
MANAGING PHYSICIAN means David R. Barron, M.D., for so long as he is so
designated by Practice's Board of Directors to manage
the administrative and medical functions of the
Practice.
OPERATING PLAN means the Practice Operating Plan referred to in Section
IV.B.
PRACTICE BANK ACCOUNT means the bank account referred to in Section V.C. of
which the Practice is the owner.
PRACTICE EXPENSES means the following expenses: Practice Providers'
compensation expenses, professional liability
insurance, continuing medical education, benefits, dues
and subscriptions, automobiles, facility leases,
repairs and maintenance, telephones and pagers,
utilities, billing services, courier services, legal
expenses, travel and entertainment, outside medical
consultants, license fees and taxes, all expenses
identified in this Agreement as Practice Expenses, all
expenses identified in this Agreement as incurred by
Ameripath on behalf of Practice and other expenses
approved from time to time by the Board, all as
permitted to be incurred in accordance with this
Agreement and any New Practice Amendment (as defined in
Section III.G.).
Attachment I-1
<PAGE> 12
PRACTICE PROVIDERS means individuals who are duly licensed to practice
medicine and who are employed by the Practice, or other
individuals who are under contract with the Practice to
provide physician services to patients of the Practice.
PRACTICE REVENUES means all revenues generated by or on behalf of the
Practice, after the date hereof, as a result of
professional medical services furnished to patients,
ancillary services provided to patients,
pharmaceuticals and other items and supplies sold to
patients and other fees or income generated by the
Practice or Practice Providers rendered in an inpatient
or outpatient setting and regardless of whether
rendered to health maintenance organization, preferred
provider organization, Medicare, Medicaid or other
patients, including, but not limited to, payments
received under capitation arrangements, less account
adjustments for uncollectible accounts, discounts,
Medicare, Medicaid, workers' compensation, professional
courtesy discounts and other write-offs.
Attachment I-2
<PAGE> 13
ATTACHMENT II
APPOINTMENT OF AMERIPATH AS ATTORNEY IN FACT
On behalf of and for the account of Practice, AmeriPath shall assist
Practice in Practice's establishment and maintenance of credit and billing and
collection policies and procedures, and shall coordinate and supervise Practice
personnel to ensure the timely billing and collection of all professional and
other fees for all billable pathology services provided by Practice or
Physicians. AmeriPath shall advise and consult with Practice regarding the fees
for pathology services provided by Practice; it being understood, however, that
Practice shall establish the fees to be charged for pathology services and that
AmeriPath shall have no authority whatsoever with respect to the establishment
of such fees. In connection with the billing and collection services to be
provided hereunder, and throughout the term of this Agreement, Practice hereby
grants to AmeriPath an exclusive special power of attorney and appoints
AmeriPath as Practice's exclusive true and lawful agent and attorney-in-fact,
and AmeriPath hereby accepts such special power of attorney and appointment, for
the following purposes:
1. To supervise and coordinate the billing of Practice's
patients, in the name of Practice and on behalf of Practice,
as applicable, for all billable pathology services provided
by Practice to patients.
2. To supervise and coordinate the billing in Practice's name
and on Practice's behalf, as applicable, all claims for
reimbursement or indemnification from Blue Shield/Blue Cross,
insurance companies, Medicare, Medicaid, and all other third
party payors or fiscal intermediaries for all covered
billable pathology services provided by Practice to patients.
3. To ensure the collection and receipt in AmeriPath's name and
for AmeriPath's account all accounts receivable of Practice
purchased by AmeriPath, and to deposit such collections in an
account selected by AmeriPath and maintained in AmeriPath's
name.
4. To ensure the collection and receipt in Practice's name and
on Practice's behalf, as applicable, of all accounts
receivable generated by such billings and claims for
reimbursement that have not been purchased by AmeriPath, to
administer such accounts including, but not limited to, (i)
extending the time of payment of any such accounts for cash,
credit or otherwise; (ii) discharging or releasing the
obligors of any such accounts; (iii) with the consent of the
Board, suing, assigning or selling at a discount such
accounts to collection agencies; or (iv) with the consent of
the Practice's Board of Directors ("Board"), taking other
measures to require the payment of any such accounts.
5. To deposit all amounts collected in Practice's name and on
behalf of Practice into Practice Bank Account which shall be
and at all times remain in Practice's name.
Attachment II-1
<PAGE> 14
Practice covenants to transfer and deliver to AmeriPath for
deposit into Practice Bank Account or itself to make such
deposit of all funds received by Practice from patients or
third party payors for pathology services. Upon receipt by
AmeriPath of any funds from patients or third party payors or
from Practice pursuant hereto for pathology services,
AmeriPath shall immediately deposit same into the Practice
Bank Account. AmeriPath shall disburse such deposited funds
to creditors and other persons on behalf of Practice,
maintaining records of such receipt and disbursement of funds
as directed by Practice.
6. To take possession of, endorse in the name of Practice, and
deposit into the Practice Bank Account any notes, checks,
money orders, insurance payments, and any other instruments
received in payment for pathology services.
7. To sign checks, drafts, bank notes or other instruments on
behalf of Practice, and to make withdrawals from the Practice
Bank Account for payments specified in this Agreement and as
requested from time to time by Practice.
Upon request of AmeriPath, Practice shall execute and deliver to the financial
institution wherein the Practice Bank Account is maintained, such additional
documents or instruments as may be necessary to evidence or effect the special
and limited power of attorney granted to AmeriPath by Practice pursuant to this
Agreement. The special and limited power of attorney granted herein shall be
coupled with an interest and shall be irrevocable except with AmeriPath's
written consent. The irrevocable power of attorney shall expire on the later of
when this Agreement has been terminated, when all accounts receivable purchased
by AmeriPath have been collected, or when all management fees due to AmeriPath
have been paid. If AmeriPath assigns this Agreement in accordance with its
terms, then Practice shall execute a power of attorney in favor of the assignee.
Attachment II-2
<PAGE> 15
ATTACHMENT III
MISCELLANEOUS CONTRACTUAL PROVISIONS
1. ADDITIONAL ACTS. Each party agrees to perform any further acts and to
execute and deliver any documents which may be
reasonably necessary to carry out the provisions of
this Agreement.
2. CONTRACT CONSTRUCTION, INTERPRETATION
AND ENFORCEMENT PROVISIONS.
(a) Assignment Neither party may assign this Agreement
without the other's written consent. Nevertheless:
AmeriPath may assign this Agreement to a parent,
subsidiary or affiliate. This Agreement shall be
binding on and shall inure to the benefit of the
parties to this Agreement, and their successors and
permitted assigns. Subject to the foregoing sentence,
no person or entity not a party to this Agreement shall
have any right under or by virtue of this Agreement,
except for AmeriPath Ohio, Inc. as an intended third
party beneficiary of this Agreement.
(b) Captions The captions or headings in this Agreement are made for
convenience and general reference only and shall not be
construed to describe, define or limit the scope or
intent of the provisions of this Agreement.
(c) Costs of
Enforcement In the event that either party files suit in any
court against the other party to enforce the
terms of or to obtain performance under this
Agreement, the prevailing party shall be entitled to
recover all reasonable costs, including reasonable
attorneys' fees, from the other party as part of any
judgment in the suit. The term "prevailing party"
means the party in whose favor final judgment after
appeal (if any) is rendered with respect to the claims
asserted in the complaint. "Reasonable attorneys'
fees" are those attorneys' fees actually incurred in
obtaining a judgment in favor of the prevailing party.
(d) Counterparts The parties may execute this Agreement in several
counterparts, each of which shall be deemed to be an
original, and counterparts shall constitute and be one
and the same instrument.
(e) Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of
Ohio, applied without giving effect to any conflicts of
law principles.
Attachment III-1
<PAGE> 16
(f) Modifications. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and
supersedes any prior or contemporaneous negotiations,
understandings or agreements between the parties,
written or oral, with respect to the transactions
contemplated by this Agreement. This Agreement may not
be changed or terminated orally but may only be changed
by an agreement in writing signed by AmeriPath and the
Practice.
(g) Notices The parties to this Agreement shall give notice under
this Agreement by U.S. mail, postage prepaid, by hand
delivery or by overnight express, charges prepaid.
Notices shall be addressed as follows:
IF TO THE PRACTICE:
AmeriPath Cincinnati, Inc.
9670 Kenwood Road
Cincinnati, Ohio 45242
Attention: David R. Barron, M.D.
IF TO AMERIPATH:
AmeriPath Ohio, Inc.
6061 N.E. 14th Avenue
Ft. Lauderdale, Florida 33334
Attention: President
or other addresses as furnished in writing by a party
to the other party. All notices shall be considered
received when received by the addressee, if by mail,
when hand delivered or one business day after
delivery to the overnight courier.
(h) Severability. A determination by a court of competent jurisdiction
that a provision or part of any provision of this
Agreement is invalid or unenforceable shall not affect
the remaining parts or provisions of this Agreement
which shall continue in full force and effect.
3. LEGAL EVENTS TRIGGERING
CONTRACT MODIFICATION OR TERMINATION
(a) Changes in
Reimbursement. In the event that Medicare, Medicaid, Blue Shield or
any other third party payor, or any other Federal,
state or local laws, rules, regulations or
interpretations, at any time during the Term prohibit,
restrict or in any way materially and adversely change
the method or amount of reimbursement or compensation
for either party provided
Attachment III-2
<PAGE> 17
for in this Agreement, then the parties shall negotiate
in good faith to amend this Agreement to provide for
payment of compensation in a manner consistent with
such changes, taking into account any materially
adverse change in reimbursement or payment for
physician services. If the parties cannot reach
agreement on an amendment prior to the effective date
of the change, the parties agree to jointly select a
mediator and share equally in the cost of the
mediation. If mediation does not resolve such dispute,
then the matter shall be settled exclusively by binding
arbitration, which shall be conducted in Broward
County, Florida, in accordance with the National Health
Lawyer's Association, Alternative Dispute Resolution
Service, Rules of Procedure for Arbitration. The
expenses of such arbitration shall be borne equally by
the parties, provided that each party shall pay for the
cost and its own experts, evidence, and attorney's fees
(unless otherwise directed by the arbitrator).
(b) Enactment or Interpretation of Relevant
Statutes and Regulations.
In the event any state or federal laws or regulations,
now existing or enacted or promulgated after the date
hereof, are interpreted by judicial decision, a
regulatory agency, or legal counsel acceptable to both
AmeriPath and the Practice in such a manner as to
indicate that this Agreement or any provision hereof
may be in violation of such laws or regulations, the
Practice and AmeriPath shall amend this Agreement as
necessary to preserve the underlying economic and
financial arrangements between the Practice and
AmeriPath and without substantial economic detriment to
any party. If such an amendment is not possible, either
party shall have the right to terminate this Agreement.
4. INDEPENDENT CONTRACTOR STATUS.
The Practice and AmeriPath are to perform and exercise
their rights and obligations under this Agreement as
independent contractors. AmeriPath's sole function
under this Agreement is to provide services, as
requested, in a competent and satisfactory manner,
exercising reasonable care in the performance of all
such duties. AmeriPath shall not become liable for any
of the obligations, liabilities, debts or losses of the
Practice unless otherwise specifically provided by this
Agreement. AmeriPath shall have no liability whatsoever
for damages suffered on account of the willful
misconduct or negligence of any employee, agent or
independent contractor (other than AmeriPath) of the
Practice. Each party shall be solely responsible for
compliance
Attachment III-3
<PAGE> 18
with all state and federal laws pertaining to
employment taxes, income withholding, unemployment
compensation contributions and other employment related
statutes regarding their respective employees, agents
and servants. In the event that any court or regulatory
authority (or AmeriPath, in good faith) determines that
the relationship established by this Agreements creates
an employment relationship, the parties shall negotiate
in good faith to reach an arrangement involving
AmeriPath and the then current Practice Providers which
substantially preserves for the parties the benefits of
this Agreement. If such an arrangement cannot be
reached, AmeriPath may terminate this Agreement upon
thirty (30) days prior written notice to the Practice.
5. PROHIBITION AGAINST DISCRIMINATION.
The Practice and AmeriPath agree that, in fulfilling
their respective obligations and duties under this
Agreement, they shall not discriminate against any
individual on the basis of race, religion, age, sex,
disability or national origin.
6. USE OF NAMES.
Subject to the approval of the Managing Physician,
which approval shall not be unreasonably withheld,
AmeriPath may include the name of the Practice, the
Practice Providers and the Practice Providers in any
brochures, promotional materials or the like relating
to AmeriPath.
Attachment III-4
<PAGE> 1
EXHIBIT 10.20
MANAGEMENT AGREEMENT
PARTIES: BENO MICHEL, M.D., INC. (the "Practice")
AMERIPATH, INC. ("Ameripath")
EFFECTIVE DATE: OCTOBER 15, 1996 (the "Effective Date")
RECITALS:
- AmeriPath is a Delaware corporation engaged in the business
of providing administrative and management services, to
pathology and dermatopathology groups;
- The Practice is a professional association comprised of
medical practitioners who engage in the practice of
pathology and dermatology ("Practice Providers");
- The Practice desires to enter into this Agreement with
AmeriPath for the provision of comprehensive business
management services to enhance the efficiency of its
operations and to allow its Practice Providers to
concentrate fully on providing quality medical services;
- The Practice has designated a Managing Physician to oversee
the day to day operations of the Practice's business and to
make administrative and certain other decisions on its
behalf;
- The Practice and AmeriPath desire to enter into this
agreement (the "Agreement") to provide a statement of their
respective rights and responsibilities during its Term (as
defined in Section VI-A herein below).
FOR GOOD AND VALUABLE CONSIDERATION, AmeriPath and the Practice
agree as follows:
I. PRELIMINARY STATEMENTS
A. RECITALS. The recitals set forth above are true and
accurate and are incorporated as part of this Agreement.
B. DEFINITIONS. Many capitalized terms used in this Agreement
are defined in Attachment I to this Agreement; however, capitalized terms used
in this Agreement are also defined in the text of this Agreement, and
Attachments II and III hereof.
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<PAGE> 2
C. ATTACHMENTS. All attachments to this Agreements are
incorporated into this Agreement by reference. The attachments to this
Agreement are the following:
<TABLE>
<S> <C>
Attachment I: Definitions
Attachment II: Attorney in Fact
Attachment III: Miscellaneous Contractual Provisions
</TABLE>
I. AMERIPATH SERVICES
AmeriPath shall on behalf of Practice and as a Practice Expense,
provide the Practice and the Practice Providers with the following services for
the dermatopathology practice conducted by the Practice (the "Lab Practice"):
A. STRATEGIC PLANNING AND GOALS. AmeriPath shall prepare, in
consultation with the Managing Physician, an annual Operating Plan (as defined
in Section IV-B), reflecting in reasonable detail anticipated Practice
Revenues, Practice Expenses, Allocated Expenses and Practice Provider staffing.
The Operating Plan shall include, among other things, information relating to
the growth and enhancement of the Lab Practice, a budget for the Lab Practice
and the Management Fee to be paid to AmeriPath.
B. EXPANSION OF PRACTICE. AmeriPath shall assist the Practice
in developing relationships and affiliations with physicians and other
specialists, hospitals, networks, health maintenance organizations and
preferred provider organizations. Subject to the terms of this Agreement, each
of the Practice and AmeriPath shall cooperate and use their respective best
efforts to expand the Lab Practice.
C. MANAGED CARE RELATIONSHIPS. AmeriPath, together with the
Managing Physician, shall evaluate, negotiate, and administer managed care
contracts and other third party payor contracts on behalf of the Lab Practice
and its Practice Providers.
D. FACILITY RELATIONSHIPS. AmeriPath, together with the
Managing Physician, shall evaluate, negotiate, and administer all hospital and
other medical facility contracts on behalf of the Lab Practice and its Practice
Providers.
E. ESTABLISHMENT OF FEES. AmeriPath shall recommend, but
shall not set, fees, charges, premiums or other amounts due in connection with
services and goods provided by the Lab Practice. The Steering Committee (see
Section IV) may adopt recommendations in its reasonable discretion on behalf of
the Practice and its Practice Providers. The Practice shall retain sole
authority to decide how physician compensation will be divided among individual
physicians.
F. PRACTICE MANAGEMENT SERVICES. AmeriPath shall, in
consultation with the Managing Physician, assess business activity including
product line analysis, outcomes monitoring and customer satisfaction in respect
of the Lab Practice. AmeriPath shall develop systems to track
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<PAGE> 3
revenues, expenses, cost accounting, utilization, quality assurance, physician
productivity and customer satisfaction in respect of the Lab Practice.
G. BUSINESS OFFICE AND SUPPORT SERVICES. With the prior
approval of the Management Committee, AmeriPath may, in consultation with the
Managing Physician, provide computer, bookkeeping, billing and collection,
accounts receivable and accounts payable services necessary for the management
of the Lab Practice pursuant to this Agreement and in accordance with the
Operating Plan. Billing and collections shall initially be performed by the
Practice, but may be performed at AmeriPath's option, by AmeriPath at a later
date. AmeriPath may also order and purchase on behalf of the Lab Practice
medical and office supplies required in the day-to-day operation of the Lab
Practice as determined by the Managing Physician consistent with the Operating
Plan. However, the Practice shall order, purchase, stock, and monitor the
inventory of pharmaceuticals and other medical supplies, substances, or items
whose purchase, maintenance, or security require licensure as a health-care
provider or require a permit, registration, certification, or identification
number that requires licensure or certification as a health-care provider.
AmeriPath shall provide access to management information systems services to
the Lab Practice, including risk contracting systems services. AmeriPath may
also arrange laundry, waste collection, and other necessary operational
services for the Lab Practice in accordance with applicable laws.
H. PROFESSIONAL AND CONSULTING SERVICES. AmeriPath shall
arrange for or render business and financial management consultation and advice
reasonably requested by the Managing Physician and directly related to the
operations of the Lab Practice pursuant to this Agreement. Except as
contemplated by the Operating Plan, AmeriPath shall not be responsible for any
services requested by or rendered to any individual, employee or agent of the
Practice, or any Practice Provider, not directly related to Lab Practice
operations.
I. FINANCIAL STATEMENTS. AmeriPath shall prepare Lab Practice
profit and loss and income statements, in accordance with the manner and form
in which AmeriPath normally keeps its accounts, books and records, and in
accordance with applicable laws. The statements shall reflect Practice
Revenues generated by or on behalf of the Practice and shall contain a
comparison of actual and budgeted Practice Revenues and expenses. AmeriPath
shall provide the Managing Physician with monthly statements within thirty (30)
days after the end of each month and shall provide a year-end statement within
ninety (90) days after the end of the calendar year.
III. PRACTICE OBLIGATIONS
A. EXCLUSIVITY. The Practice agrees that during the Term of
this Agreement it will not retain, engage or employ, directly or indirectly,
any other entity or individual to provide the services for the Lab Practice for
which it is contracting with AmeriPath.
B. PROFESSIONAL STANDARDS. Medical services shall be
performed solely by, or under the direct supervision of, the Practice
Providers. The Practice shall have complete and absolute control over the
methods by which the Practice, and Practice Providers practice medicine and/or
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<PAGE> 4
render the professional services which they are licensed to provide under the
laws of the states in which they are practicing and Federal Law. The Practice
shall require that Practice Providers comply with applicable ethical standards,
laws and regulations. The Practice shall, with the assistance of AmeriPath (if
so requested by the Managing Physician), resolve utilization review or quality
assurance issues which may arise. In the event that disciplinary actions or
professional liability actions are initiated against any Practice Provider, the
Practice shall immediately inform AmeriPath of the action and the underlying
facts and circumstances. The Practice shall implement and maintain a program to
monitor the quality and utilization of medical care, and AmeriPath shall render
administrative assistance to the Lab Practice, as requested by the Managing
Physician.
C. MANAGED CARE ARRANGEMENTS. The Practice shall cooperate
with AmeriPath in the development and operation of managed care arrangements
for the Lab Practice. The Practice shall participate as a provider and in the
administrative operation of integrated delivery systems and managed care
arrangements for the Lab Practice. The Practice and its Practice Providers
agree to comply with the quality assurance and utilization review programs of
managed care arrangements for the Lab Practice.
D. CONTINUING MEDICAL EDUCATION. The Practice shall ensure
that each of its Practice Providers participates in continuing medical
education activities, as necessary to remain current in their respective
specialties, including, but not limited to, the minimum continuing medical
education requirements imposed by applicable laws and policies of applicable
specialty boards.
E. PHYSICIAN POWERS OF ATTORNEY AND BILLING. At such times as
AmeriPath performs Billing and Collection functions, the Practice shall appoint
AmeriPath to act as agent in the billing and collection of all Practice
Revenues, and shall require all Practice Providers to appoint AmeriPath as
attorney-in-fact for the Practice and each Practice Provider, as more
specifically set forth in Attachment II. The Practice shall cooperate and
shall cause its Practice Providers to cooperate with AmeriPath in all matters
relating to the billing and collection of all Practice Revenues. In this
regard, each Practice Provider shall review and approve the reports and other
information required to support complete and accurate bills. Additionally, the
Practice and its Practice Providers will provide such necessary support to
appeal or contest any denials of claims or other regulatory issues.
F. ADDITIONAL PRACTICE PROVIDERS. When the Practice desires
to add or change a Practice Provider for the Lab Practice, AmeriPath shall
provide a business analysis of the prospective change in the composition of the
Lab Practice. Additional Practice Providers for the Lab Practice (the
"Additional Practice Providers") shall be added to the Lab Practice as follows:
the Practice shall review and approve the credentials and the medical practices
of the prospective Additional Practice Provider. AmeriPath shall review the
business operations, financial condition and results of operations of the
prospective Additional Practice Provider and shall provide such information to
the Managing Physician. The decision to admit an Additional Practice Provider
shall be subject to the approval of the Steering Committee.
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<PAGE> 5
G. ADDITIONAL PRACTICES. AmeriPath may, in its discretion,
seek to add additional practices for Dermatopathology services (each such
Practice being an "Additional Practice") to this Agreement. If AmeriPath
desires to add an Additional Practice, AmeriPath shall provide to the Steering
Committee a business analysis of the Additional Practice, including business
operations, financial condition and results of operations. The decision to
admit an Additional Practice shall be subject to the approval of the Steering
Committee. After an agreement to add an Additional Practice has been reached,
the Practice and AmeriPath shall enter into an amendment (the "New Practice
Amendment") to this Agreement. The New Practice Amendment shall include the
understanding of the parties with respect to AmeriPath's compensation and other
issues agreed upon by the Steering Committee and the Additional Practice. The
New Practice Amendment shall obligate the Additional Practice to be bound by
the New Practice Amendment.
H. PRACTICE EXPENSES. The Practice shall be solely
responsible for the payment of all Practice Expenses.
I. PRACTICE ORGANIZATIONAL DOCUMENTS. The Practice agrees
that it shall not, without the written consent of AmeriPath: (a) modify or
amend the Practice Organizational Documents (as defined in Attachment I); (b)
admit New Practice Providers, except as provided for in this Agreement; (c)
remove the Managing Physician; or (d) terminate or cancel any hospital
contracts (or similar contracts for the provision of services) under this
Agreement. Further, the Practice agrees that it shall consult with AmeriPath
prior to the termination or release of any Practice Provider from his or her
obligations.
J. STAFFING OF FACILITIES BY THE PRACTICE. To the extent that
the Practice or the Practice Providers are responsible for staffing facilities
provided by AmeriPath, the Practice shall use reasonable efforts to provide
adequate staffing to ensure that medical services are provided in a manner
consistent with applicable community and medical specialty standards. From
time to time AmeriPath may acquire new facilities that it wishes the Practice
to staff. The Practice agrees that in the event AmeriPath acquires or develops
a new facility that it wishes the Practice to staff, the Practice will use
reasonable efforts to staff the facility with Additional Practice Providers and
other new personnel. The parties agree that the Operating Plan will be revised
as necessary to accommodate staffing of the new facility.
K. EQUIPMENT. The Practice shall advise AmeriPath on the
maintenance, repair and proper operation of medical equipment. This obligation
shall relate to the medical functionality of the equipment. Upon receipt of
such advice, AmeriPath shall cause the medical equipment for the Lab Practice
to be maintained in good operating condition.
L. MEDICAL RECORDS. The Practice shall be responsible for the
preparation of, and direct the contents of, patient medical records. All
patient medical records shall remain the property of the Practice. The
Practice shall be responsible for proper documentation of medical services
provided by the Practice and the Practice Providers.
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<PAGE> 6
IV. STEERING COMMITTEE
A. CREATION AND GENERAL DUTIES OF STEERING COMMITTEE.
AmeriPath and the Practice shall establish a Steering Committee composed of
three members, one of which shall be the Managing Physician and one of which
shall be designated by AmeriPath and one shall be designated by the Practice's
Board of Directors. The Steering Committee shall meet periodically and at the
reasonable request of either party. The Steering Committee shall consider,
review, determine and approve the following matters as they relate to the
operation of the Lab Practice: (i) the Operating Plan; (ii) employment and
recruitment of Additional Practice Providers; (iii) long term strategic
planning; (iv) establishment and maintenance of relationships with health care
providers and payors; (v) the fee schedule for services and items provided by
the Lab Practice; and (vi) approval of all marketing and advertising of
services performed by the Lab Practice or Practice Providers.
B. OPERATING PLAN. One of the Steering Committee's primary
responsibilities shall be the approval of a Lab Practice Operating Plan (the
"Operating Plan"). AmeriPath shall, not less often than one time each fiscal
year, develop a proposed Operating Plan. The proposed Operating Plan shall be
submitted to the Steering Committee for approval. When Approved by the
Steering Committee, both AmeriPath and the Managing Physician shall, as their
responsibilities are allocated in this Agreement, use reasonable efforts to
implement the Operating Plan. The Operating Plan shall set forth the estimated
income and expenditures of the Lab Practice for the period covered, such income
and expenditures to be set forth in reasonable detail. The Practice shall
retain sole authority for proposing the compensation levels and manner of
distribution of physician income among individual physicians. Such proposals
shall be included in the budget of the Lab Practice which shall be incorporated
into the Operating Plan as approved by the Steering Committee. The Operating
Plan shall include Practice Expenses, Allocated Expenses and AmeriPath
compensation. The Steering Committee may revise, from time to time, the
Operating Plan as it determines to be necessary or desirable (as revised, the
"Revised Operating Plan"). AmeriPath and the Managing Physician shall be
authorized without the need for further approval by AmeriPath, the Steering
Committee or the Practice Providers, to make the expenditures and incur the
obligations provided for in a Revised Operating Plan. Additionally, AmeriPath
or the Managing Physician may make expenditures and incur obligations that
differ from an Operating Plan, but incurred in the ordinary course of business.
For example, an increase in professional liability premiums shall create a
variance in the Operating Plan which may be incurred without a revision to the
Operating Plan.
V. FINANCIAL MATTERS
A. AMERIPATH COMPENSATION.
1. GENERAL. The compensation provided herein is
expected to provide AmeriPath with fair market
value payment commensurate with the services it
provides, its capital investment, use of its
tradename and its expertise in laboratory and
professional practice management. AmeriPath
shall, subject to compliance with any applicable
laws, receive compensation equal to all Practice
Revenues in excess of Practice Expenses and
Allocated Expenses paid to AmeriPath.
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2. PRACTICE EXPENSES AND ALLOCATED EXPENSES. All
Practice Expenses (as defined in Attachment I
hereto), including the compensation of Practice
Providers, shall be the sole responsibility of
Practice and shall be paid by the Practice out of
its first available Practice Revenues. Allocated
Expenses (as defined in ATTACHMENT I hereto)
incurred by AmeriPath in the course of the
performance of its duties under this Agreement on
behalf of or as agent for the Practice shall be
paid to AmeriPath. Allocated Expenses may include
an allocable portion of reasonable corporate
overhead of AmeriPath. Allocated Expenses shall
be billed to the Practice at their actual cost to
AmeriPath. An operating budget for Practice
Expenses and Allocated Expenses shall be reviewed
at least annually and shall be set forth in the
Operating Plan.
B. REIMBURSEMENT OF EXPENSES. AmeriPath may, from time to
time, incur Practice Expenses which are a part of the Operating Plan, a Revised
Operating Plan, or are Practice Expenses incurred in the ordinary course of
business. AmeriPath shall be entitled to be reimbursed by the Practice for
these expenses when incurred.
C. PRACTICE BANK ACCOUNT, PAYMENT OF FEES AND PAYMENT OF
EXPENSES. The Practice shall establish a bank account for the deposit of all
Practice Revenues arising from the Lab Practice (the "Practice Bank Account").
AmeriPath shall have a security interest in the Practice Bank Account pursuant
to this Section V. Additionally, it is understood and agreed that AmeriPath
may assign its security interest and all other interests that it may have in
the Practice Bank Account to its lender or lenders. Should AmeriPath assign
its interest, its assignee shall have a first lien on the Practice Bank
Account. AmeriPath shall have access to the Practice Bank Account solely for
the purposes stated herein. In connection herewith and throughout the Term,
Practice hereby grants to AmeriPath an exclusive special power of attorney for
the purposes herein and appoints AmeriPath as Practice's exclusive true and
lawful agent and attorney-in-fact, and AmeriPath hereby accepts such special
power of attorney and appointment, to deposit into the Practice Bank Account
all funds, fees, and revenues generated from the Lab Practice's provision of
Dermatopathology services and collected by AmeriPath, and to make withdrawals
from Practice Bank Account for payments specified in this Agreement and as
requested from time-to-time by Practice. Notwithstanding the exclusive special
power of attorney granted to AmeriPath hereunder, Practice may, with notice to
AmeriPath, draw checks on the Practice Bank Account; provided, however, that
Practice shall neither draw checks on the Practice Bank Account nor request
AmeriPath to do so if the balance remaining in the Practice Bank Account after
such withdrawal would be insufficient to enable AmeriPath to pay on behalf of
Practice any Practice Expense attributable to the operations of Practice or to
the provision of medical services, and/or any other obligations of Practice.
Disbursements made from the Practice Bank Account consent shall be consistent
with the type and amount of expenditures authorized by the Operating Plan.
Limits on authority to sign checks and purchase orders shall be mutually agreed
upon by AmeriPath and the Managing Physician.
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<PAGE> 8
D. COLLATERAL. As collateral security for the payment of all
amounts owed to AmeriPath pursuant to this Agreement, Practice grants to
AmeriPath a security interest in all tangible and intangible assets of the
Practice used exclusively for the Lab Practice including Practice Revenues of
the Lab Practice which may be created or arise during the Term, together with
all proceeds regardless of the manner in which the entitlement to payment for
such Lab Practice Revenues exists whether as accounts, accounts receivable,
notes receivable or other evidence of entitlement to such Lab Practice Revenues
and all of its rights, title and interest (including right to control the
same), if any, in the Practice Bank Account and the sums on deposit
(collectively, the "Collateral") to the extent the same are not otherwise
assigned to AmeriPath. In granting this security interest, the Practice agrees
to the following, subject in each case to the obligations of the Practice and
the rights of Lenders under the Joinder dated as of October 15, 1996 to the
Credit Agreement dated as of May 29, 1996, among AmeriPath, Subsidiaries of
AmeriPath, the Lenders party thereto and the First National Bank of Boston, as
Agent: (i) this Agreement shall create and constitute a valid and perfected
first priority security interest in the Collateral enforceable against all
parties; (ii) the Practice has and shall continue to have good indefeasible and
merchantable title to and ownership of the Collateral free and clear of all
liens, other than liens created by AmeriPath or any AmeriPath Affiliate; (iii)
this grant of a security interest in the Collateral shall not result in a
violation of any other agreement to which Practice is or becomes a party; and
(iv) the Practice shall take all action necessary to perfect AmeriPath's
security interest in the Collateral, including the execution of financing
statements and authorization to file the same in the appropriate recording
office. AmeriPath and the Practice agree to execute such further documents and
instruments as may be deemed necessary or desirable, in AmeriPath's sole
discretion, to effect the provisions of this Section.
E. REMEDIES FOR NON-PAYMENT. AmeriPath shall have all rights
and remedies of a secured party and all rights, remedies, securities and liens
of the Practice with respect to the Collateral including, but not limited to,
extending the time of payment of, compromising, or settling for cash, credit,
or otherwise upon any terms, any part or all of the Collateral, but shall not
be liable for any failure to collect or enforce the payment thereof. AmeriPath
is authorized by the Practice, except as otherwise prohibited by applicable
law, to take possession of, and endorse in the name of the Practice any notes,
checks, money orders, drafts, cash, insurance payments and any other
instruments received in payment of the Collateral, or any part thereof; to
collect, sue for and give satisfactions for moneys due on account of the
Collateral; and to withdraw any claims, suits or proceedings pertaining to, or
arising out of, AmeriPath's and/or the Practice's rights to the Collateral.
AmeriPath's costs of collection and enforcement, including attorneys' fees and
out-of-pocket expenses, shall be borne solely by the Practice. The Practice
agrees that AmeriPath shall be permitted to place its representatives in the
Medical Offices, with full authority to take possession of and retain for
AmeriPath the books and records of the Lab Practice with reference to the Lab
Practice's operations pursuant to this Agreement with respect to the
Collateral.
F. RIGHT OF OFFSET. Notwithstanding any other provision in
this Agreement, AmeriPath is entitled to offset against any sums owed by
AmeriPath to the Practice any amounts payable or reimbursable to AmeriPath
under this Agreement.
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G. LEGAL LIMITATION ON ASSIGNMENT. This Agreement shall not
constitute an assignment of Practice Revenues to the extent that such
assignment is prohibited under applicable law. To the extent Practice Revenues
are not assignable, the Practice agrees that it shall promptly deliver
non-assigned Practice Revenues of the Lab Practice to AmeriPath.
VI. TERMS AND TERMINATIONS
A. TERM. The initial term of this Agreement shall be for a
period of forty (40) years commencing on October 15, 1996 and ending on October
14, 2036 (the "Initial Term"). This Agreement shall be extended for separate
and successive five (5) year periods (each such five (5) year period shall be
referred to as an "Extended Term" and the Initial Term and any Extended Term
shall be referred to in this Agreement as the "Term") unless either party
provides the other party notice not less than sixty (60) days prior to the end
of the Initial Term or an Extended Term, unless the Practice has defaulted
under the terms of this Agreement. The same terms and conditions of this
Agreement shall apply to an Extended Term unless the Practice and AmeriPath
mutually agree to alter the terms and conditions hereof with a writing signed
by each party hereto. All New Practice Amendments shall terminate at such time
as this Agreement terminates.
B. TERMINATION. A party (the "Terminating Party") may
terminate this Agreement on the basis of the following:
1. The other party breaches any material term or
condition of this Agreement, and the breach continues for sixty (60) days after
the receipt of written notice specifying the breach by the party which did not
perform or breached.
2. AmeriPath may terminate this Agreement if the
Practice is suspended or prohibited from participating in the Medicare or
Medicaid programs or excluded from entering into healthcare provider agreements
with any material portion of the managed care or healthcare insurance industry;
or (ii) the Practice breaches any material term of this Agreement.
C. EFFECTS OF AND OBLIGATIONS UPON TERMINATION. Upon the
termination or expiration of this Agreement: (i) neither party shall be
discharged from any previously accrued obligation which remains outstanding;
(ii) any sums of money owing by one party to the other shall be paid
immediately, prorated through the effective date of termination or expiration;
(iii) the Practice shall return to AmeriPath all originals and copies of any
Confidential Information in the possession of the Practice or any other person
or entity to whom it has delivered originals and/or copies; (iv) the Practice
and AmeriPath shall perform matters as are necessary to wind up their
activities under this Agreement in an orderly manner, including providing to
the Practice patient billing records on paper or electronic data; and (v) each
party shall have the right to pursue other legal or equitable relief as may be
available depending upon the circumstances of the termination.
VII. LEGAL COUNSEL
The Practice agrees to retain legal counsel recommended by
AmeriPath with respect to Lab Practice matters in which the interests of the
Practice are not adverse to AmeriPath or its business in
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<PAGE> 10
any significant respect and further agrees to waive any conflicts of interest
in transactional matters which may exist for such recommended legal counsel
with respect to AmeriPath.
VIII. PRACTICE OF MEDICINE.
The parties acknowledge that AmeriPath is not authorized or
qualified to engage in any activity which constitutes the practice of medicine
and nothing required herein to be shall be construed as the practice of
medicine by AmeriPath. To the extent any act or service required to be
performed or provided by AmeriPath is construed or deemed by any governmental
authority, agency or court to constitute the practice of medicine, AmeriPath
shall be released from any obligation to provide such act or service and the
provision for such required act or service shall be deemed waived and forever
unenforceable without otherwise affecting the terms of this Agreement.
Practice and AmeriPath have duly executed this Agreement on the
day and year indicated above.
BENO MICHEL, M.D., INC.
By: /s/ Beno Michel, M.D.
--------------------------------
Name: Beno Michel, M.D.
------------------------------
Its: President
-------------------------------
AMERIPATH, INC.
By: /s/ Robert P. Wynn
--------------------------------
Name: Robert P. Wynn
------------------------------
Its : Vice President
------------------------------
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ATTACHMENT I
DEFINITIONS
AGREEMENT means this agreement and any subsequent amendments
thereto.
ALLOCATED EXPENSES means the expenses relating to the operations of
the facilities of the Lab Practice and the
administrative expenses incurred by AmeriPath on
behalf of the Lab Practice in the performance of
AmeriPath's duties under this Agreement, including
the following: billing services (including
personnel), marketing, advertising, promotion,
allocated corporate overhead, legal expenses,
service of laboratory and other expenses as may be
approved from time to time by the Steering
Committee, all as permitted to be incurred in
accordance with this Agreement.
DOCUMENTS means the articles of incorporation and bylaws of
the Practice.
MANAGING PHYSICIAN means Beno Michel, M.D., for so long as he is so
designated by Practices Board of Directors to
manage the administrative and medical functions of
the Practice.
OPERATING PLAN means the Practice Operating Plan referred to in
Section IV.B.
PRACTICE BANK ACCOUNT means the bank account referred to in Section V.C.
of which the Practice is the owner.
PRACTICE EXPENSES means the following expenses: Practice Providers'
compensation expenses, professional liability
insurance, continuing medical education, benefits,
dues and subscriptions, automobiles, facility
leases, repairs and maintenance, telephones and
pagers, utilities, billing services, courier
services, legal expenses, travel and
entertainment, outside medical consultants,
license fees and taxes, all expenses identified in
this Agreement as Practice Expenses, all expenses
identified in this Agreement as incurred by
Ameripath on behalf of Practice and other expenses
approved from time to time by the Steering
Committee, all as permitted to be incurred in
accordance with this Agreement and any New
Practice Amendment (as defined in Section III.G.).
Attachment I-1
<PAGE> 12
PRACTICE PROVIDERS means individuals who are duly licensed to
practice medicine and who are employed by the
Practice, or other individuals who are under
contract with the Practice to provide physician
services to patients of the Practice.
PRACTICE REVENUES means all revenues generated by or on behalf of
the Practice, after the date hereof, as a result
of professional medical services furnished to
patients, ancillary services provided to patients,
pharmaceuticals and other items and supplies sold
to patients and other fees or income generated by
the Practice or Practice Providers rendered in an
inpatient or outpatient setting and regardless of
whether rendered to health maintenance
organization, preferred provider organization,
Medicare, Medicaid or other patients, including,
but not limited to, payments received under
capitation arrangements, less account adjustments
for uncollectible accounts, discounts, Medicare,
Medicaid, workers' compensation, professional
courtesy discounts and other write-offs.
Attachment I-2
<PAGE> 13
ATTACHMENT II
APPOINTMENT OF AMERIPATH AS ATTORNEY IN FACT
On behalf of and for the account of Practice, AmeriPath shall
assist Practice in Practice's establishment and maintenance of credit and
billing and collection policies and procedures, and shall coordinate and
supervise Practice personnel to ensure the timely billing and collection of all
professional and other fees for all billable pathology services provided by
Practice or Physicians. AmeriPath shall advise and consult with Practice
regarding the fees for pathology services provided by Practice; it being
understood, however, that Practice shall establish the fees to be charged for
pathology services and that AmeriPath shall have no authority whatsoever with
respect to the establishment of such fees. In connection with the billing and
collection services to be provided hereunder, and throughout the term of this
Agreement, Practice hereby grants to AmeriPath an exclusive special power of
attorney and appoints AmeriPath as Practice's exclusive true and lawful agent
and attorney-in-fact, and AmeriPath hereby accepts such special power of
attorney and appointment, for the following purposes:
1. To supervise and coordinate the billing of Practice's
patients, in the name of Practice and on behalf of
Practice, as applicable, for all billable pathology
services provided by Practice to patients.
2. To supervise and coordinate the billing in Practice's name
and on Practice's behalf, as applicable, all claims for
reimbursement or indemnification from Blue Shield/Blue
Cross, insurance companies, Medicare, Medicaid, and all
other third party payors or fiscal intermediaries for all
covered billable pathology services provided by Practice to
patients.
3. To ensure the collection and receipt in AmeriPath's name
and for AmeriPath's account all accounts receivable of
Practice purchased by AmeriPath, and to deposit such
collections in an account selected by AmeriPath and
maintained in AmeriPath's name.
4. To ensure the collection and receipt in Practice's name and
on Practice's behalf, as applicable, of all accounts
receivable generated by such billings and claims for
reimbursement that have not been purchased by AmeriPath, to
administer such accounts including, but not limited to, (i)
extending the time of payment of any such accounts for
cash, credit or otherwise; (ii) discharging or releasing
the obligors of any such accounts; (iii) with the consent
of the Steering Committee, suing, assigning or selling at a
discount such accounts to collection agencies; or (iv) with
the consent of the Steering Committee, taking other
measures to require the payment of any such accounts.
Attachment II-1
<PAGE> 14
5. To deposit all amounts collected in Practice's name and on
behalf of Practice into Practice Bank Account which shall
be and at all times remain in Practice's name. Practice
covenants to transfer and deliver to AmeriPath for deposit
into Practice Bank Account or itself to make such deposit
of all funds received by Practice from patients or third
party payors for pathology services. Upon receipt by
AmeriPath of any funds from patients or third party payors
or from Practice pursuant hereto for pathology services,
AmeriPath shall immediately deposit same into the Practice
Bank Account. AmeriPath shall disburse such deposited
funds to creditors and other persons on behalf of Practice,
maintaining records of such receipt and disbursement of
funds as directed by Practice.
6. To take possession of, endorse in the name of Practice, and
deposit into the Practice Bank Account any notes, checks,
money orders, insurance payments, and any other instruments
received in payment for pathology services.
7. To sign checks, drafts, bank notes or other instruments on
behalf of Practice, and to make withdrawals from the
Practice Bank Account for payments specified in this
Agreement and as requested from time to time by Practice.
Upon request of AmeriPath, Practice shall execute and deliver to the financial
institution wherein the Practice Bank Account is maintained, such additional
documents or instruments as may be necessary to evidence or effect the special
and limited power of attorney granted to AmeriPath by Practice pursuant to this
Agreement. The special and limited power of attorney granted herein shall be
coupled with an interest and shall be irrevocable except with AmeriPath's
written consent. The irrevocable power of attorney shall expire on the later
of when this Agreement has been terminated, when all accounts receivable
purchased by AmeriPath have been collected, or when all management fees due to
AmeriPath have been paid. If AmeriPath assigns this Agreement in accordance
with its terms, then Practice shall execute a power of attorney in favor of the
assignee.
Attachment II-2
<PAGE> 15
ATTACHMENT III
MISCELLANEOUS CONTRACTUAL PROVISIONS
1. ADDITIONAL ACTS. Each party agrees to perform any further
acts and to execute and deliver any
documents which may be reasonably
necessary to carry out the provisions of
this Agreement.
2. CONTRACT CONSTRUCTION, INTERPRETATION
AND ENFORCEMENT PROVISIONS.
(a)Assignment Neither party may assign this Agreement
without the other's written consent.
Nevertheless: AmeriPath may assign this
Agreement to a parent, subsidiary or
affiliate. This Agreement shall be
binding on and shall inure to the
benefit of the parties to this
Agreement, and their successors and
permitted assigns. Subject to the
foregoing sentence, no person or entity
not a party to this Agreement shall have
any right under or by virtue of this
Agreement, except for AmeriPath, Inc. as
an intended third party beneficiary of
this Agreement.
(b)Captions The captions or headings in this
Agreement are made for convenience and
general reference only and shall not be
construed to describe, define or limit
the scope or intent of the provisions of
this Agreement.
(c)Costs of
Enforcement In the event that either party files
suit in any court against the other
party to enforce the terms of or to
obtain performance under this Agreement,
the prevailing party shall be entitled
to recover all reasonable costs,
including reasonable attorneys' fees,
from the other party as part of any
judgment in the suit. The term
"prevailing party" means the party in
whose favor final judgment after appeal
(if any) is rendered with respect to the
claims asserted in the complaint.
"Reasonable attorneys' fees" are those
attorneys' fees actually incurred in
obtaining a judgment in favor of the
prevailing party.
(d)Counterparts The parties may execute this Agreement
in several counterparts, each of which
shall be deemed to be an original, and
counterparts shall constitute and be one
and the same instrument.
Attachment III-1
<PAGE> 16
(e) Governing Law. This Agreement shall be interpreted,
construed and enforced in accordance
with the laws of the State of Ohio,
applied without giving effect to any
conflicts of law principles.
(f) Modifications. This Agreement contains the entire
agreement of the parties with respect
to the subject matter hereof and
supersedes any prior or
contemporaneous negotiations,
understandings or agreements between
the parties, written or oral, with
respect to the transactions
contemplated by this Agreement. This
Agreement may not be changed or
terminated orally but may only be
changed by an agreement in writing
signed by AmeriPath and the Practice;
provided, however, that this Agreement
shall not be modified without the
consent of the Managing Physician for
so long as Beno Michel, M.D., shall be
the Managing Physician, or AmeriPath,
Inc., shall have continuing financial
obligations (contingent or otherwise)
owing to Dr. Michel.
(g) Notices The parties to this Agreement shall
give notice under this Agreement by
U.S. mail, postage prepaid, by hand
delivery or by overnight express,
charges prepaid. Notices shall be
addressed as follows:
If to the Practice:
Beno Michel, M.D., Inc.
23200 Chagrin Building 5, Suite 350
Beachwood, Ohio 44122
Attention: Beno Michel, M.D.
If to AmeriPath:
AmeriPath, Inc.
800 Cypress Creek Road, Suite 200
Ft. Lauderdale, Florida 33334
Attention: James C. New, President
or other addresses as furnished in writing by a party to the other party. All
notices shall be considered received when received by the addressee, if by
mail, when hand delivered or one business day after delivery to the overnight
courier.
(h) Severability. A determination by a court of
competent jurisdiction that a
provision or part of any provision of
this Agreement is invalid or
unenforceable shall not affect the
remaining parts or provisions of this
Agreement which shall continue in full
force and effect.
Attachment III-2
<PAGE> 17
3. LEGAL EVENTS TRIGGERING
CONTRACT MODIFICATION OR TERMINATION
(a)Changes in Reimbursement. In the event that Medicare,
Medicaid, Blue Shield or any other third party
payor, or any other Federal, state or local
laws, rules, regulations or interpretations, at
any time during the Term prohibit, restrict or
in any way materially and adversely change the
method or amount of reimbursement or
compensation for either party provided for in
this Agreement, then the parties shall negotiate
in good faith to amend this Agreement to provide
for payment of compensation in a manner
consistent with such changes, taking into
account any materially adverse change in
reimbursement or payment for physician services.
If the parties cannot reach agreement on an
amendment prior to the effective date of the
change, the parties agree to jointly select a
mediator and share equally in the cost of the
mediation. If mediation does not resolve such
dispute, then the matter shall be settled
exclusively by binding arbitration, which shall
be conducted in Broward County, Florida, in
accordance with the National Health Lawyer's
Association, Alternative Dispute Resolution
Service, Rules of Procedure for Arbitration. The
expenses of such arbitration shall be borne
equally by the parties, provided that each party
shall pay for the cost and its own experts,
evidence, and attorney's fees (unless otherwise
directed by the arbitrator).
(b)Enactment or Interpretation of Relevant Statutes and
Regulations. In the event any state or federal
laws or regulations, now existing or enacted or
promulgated after the date hereof, are
interpreted by judicial decision, a regulatory
agency, or legal counsel acceptable to both
AmeriPath and the Practice in such a manner as
to indicate that this Agreement or any provision
hereof may be in violation of such laws or
regulations, the Practice and AmeriPath shall
amend this Agreement as necessary to preserve
the underlying economic and financial
arrangements between the Practice and AmeriPath
and without substantial economic detriment to
any party. If such an amendment is not
possible, either party shall have the right to
terminate this Agreement.
Attachment III-3
<PAGE> 18
4. INDEPENDENT CONTRACTOR STATUS.
The Practice and AmeriPath are to perform and
exercise their rights and obligations under this
Agreement as independent contractors.
AmeriPath's sole function under this Agreement
is to provide services, as requested, in a
competent and satisfactory manner, exercising
reasonable care in the performance of all such
duties. AmeriPath shall not become liable for
any of the obligations, liabilities, debts or
losses of the Practice unless otherwise
specifically provided by this Agreement.
AmeriPath shall have no liability whatsoever for
damages suffered on account of the willful
misconduct or negligence of any employee, agent
or independent contractor (other than AmeriPath)
of the Practice. Each party shall be solely
responsible for compliance with all state and
federal laws pertaining to employment taxes,
income withholding, unemployment compensation
contributions and other employment related
statutes regarding their respective employees,
agents and servants. In the event that any court
or regulatory authority (or AmeriPath, in good
faith) determines that the relationship
established by this Agreements creates an
employment relationship, the parties shall
negotiate in good faith to reach an arrangement
involving AmeriPath and the then current
Practice Providers which substantially preserves
for the parties the benefits of this Agreement.
If such an arrangement cannot be reached,
AmeriPath may terminate this Agreement upon
thirty (30) days prior written notice to the
Practice.
5. PROHIBITION AGAINST DISCRIMINATION.
The Practice and AmeriPath agree that, in
fulfilling their respective obligations and
duties under this Agreement, they shall not
discriminate against any individual on the basis
of race, religion, age, sex, disability or
national origin.
6. USE OF NAMES. Subject to the approval of the Managing
Physician, which approval shall not be
unreasonably withheld, AmeriPath may include the
name of the Practice, the Practice Providers and
the Practice Providers in any brochures,
promotional materials or the like relating to
AmeriPath.
Attachment III-4
<PAGE> 19
7. SUBORDINATION. AmeriPath and the Company, for themselves and
on behalf of their respective successors and
assigns, hereby agree, for the benefit of Beno
Michel, the Practice Providers, Beno Michel &
Associates, M.D., Inc. and their respective
successors and assigns (collectively, the "Other
Creditors") that AmeriPath's right to payment of
compensation and reimbursement of expenses
pursuant to this Agreement (the "Junior
Obligations") shall be junior and subordinate in
right of payment to the prior final payment in
full, in cash, of all amounts owed (whether
fixed or contingent, due or to become due) under
the Other Agreements (as defined in paragraph 8,
hereunder) and employment contracts with other
Practice Providers (collectively, the "Senior
Obligations"). AmeriPath agrees that it will
not take or demand, and the Company agrees that
it will not make, any payment of or on account
of any Senior Obligations, without the prior
written consent of the Other Creditors, prior to
final payment in full, in cash, of all Junior
Obligations.
8. CONFLICTING PROVISIONS.
Nothing in this Agreement shall expand the
obligations of or impair any rights of the
Managing Physician under his employment
agreement with the Company, and if any term or
provision in this Agreement conflicts with or is
consistent with any term or provision in the
employment agreement, the term or provision in
the employment agreement shall control. Nothing
in this Agreement shall affect in any way any
obligations of the Practice or AmeriPath under
the Stock Purchase Agreement pursuant to which
the Practice was acquired, the contingent notes
issued pursuant to the Stock Purchase Agreement,
the Employment Agreement between the Practice
and the Managing Physician, the Option Agreement
referred to in the Employment Agreement, or any
other agreement to which the Practice or
AmeriPath, on the one hand, and Beno Michel or
Beno Michel & Associates, M.D., Inc., on the
other hand, are parties (collectively, the
"Other Agreements"), and if any term or
provision in this Agreement conflicts with or is
consistent with any term or provision in any
such Other Agreement, the term or provision in
such Other Agreement shall control the rights
and obligations of Beno Michel or Beno Michel &
Associates, M.D., Inc., as applicable.
Attachment III-5
<PAGE> 1
EXHIBIT 10.21
MANAGEMENT AGREEMENT
PARTIES: AMERIPATH TEXAS, INC. ("AmeriPath")
CLAY J. COCKERELL, M.D., P.A. (the "Practice")
EFFECTIVE DATE: SEPTEMBER 30, 1996 (the "Effective Date")
RECITALS:
- AmeriPath is a corporation engaged in the business of operating a
pathology laboratory and is a wholly-owned subsidiary of AmeriPath, Inc., a
corporation engaged in the business of providing administrative and management
services, facilities and equipment to pathology groups;
- The Practice is a professional association comprised of medical
practitioners who engage in the practice of pathology and other medical
specialties ("Practice Providers");
- The Practice desires to enter into this Agreement with AmeriPath for
the provision of comprehensive business management services and facilities to
enhance the efficiency of its operations and to allow its Practice Providers to
concentrate fully on providing quality medical services;
- The Practice has designated a Managing Physician to oversee the day
to day operations of the Practice's business and to make administrative and
certain other decisions on its behalf;
- The Practice and AmeriPath desire to enter into this agreement (the
"Agreement") to provide a statement of their respective rights and
responsibilities during its Term (as defined in Section VI-A herein below).
FOR GOOD AND VALUABLE CONSIDERATION, AmeriPath and the Practice agree
as follows:
I. PRELIMINARY STATEMENTS
A. RECITALS. The recitals set forth above are true and accurate
and are incorporated as part of this Agreement.
B. DEFINITIONS. Many capitalized terms used in this Agreement
are defined in Attachment I to this Agreement; however, capitalized terms used
in this Agreement are also defined in the text of this Agreement, and
Attachments II through VI hereof.
<PAGE> 2
C. ATTACHMENTS. All attachments to this Agreements are
incorporated into this Agreement by reference. The attachments to this
Agreement are the following:
<TABLE>
<S> <C>
Attachment I: Definitions
Attachment II: Appointment of AmeriPath as Attorney in Fact
Attachment III: Restrictive Covenants
Attachment IV: Medical Offices
Attachment V: Miscellaneous Contractual Provisions
Attachment VI: Non-Profit Health Corporation
</TABLE>
II. AMERIPATH SERVICES
AmeriPath shall on behalf of Practice and as a Practice Expense,
provide the Practice and the Practice Providers with the following services:
A. STRATEGIC PLANNING AND GOALS. AmeriPath shall prepare, in
consultation with the Managing Physician, an annual Operating Plan (as defined
in Section IV-B), reflecting in reasonable detail anticipated Practice
Revenues, Practice Expenses, Allocated Expenses and Practice Provider staffing.
The Operating Plan shall include, among other things, information relating to
the growth and enhancement of the Practice, a budget for the Practice and the
Base Fee and Performance Fee to be paid to AmeriPath..
B. EXPANSION OF PRACTICE. AmeriPath shall assist the Practice in
developing relationships and affiliations with physicians and other
specialists, hospitals, networks, health maintenance organizations and
preferred provider organizations. Subject to the terms of this Agreement, each
of the Practice and AmeriPath shall cooperate and use their respective best
efforts to expand the Practice.
C. MANAGED CARE RELATIONSHIPS. AmeriPath, together with the
Managing Physician, shall evaluate, negotiate, and administer managed care
contracts and other third party payor contracts on behalf of the Practice and
its Practice Providers.
D. FACILITY RELATIONSHIPS. AmeriPath, together with the Managing
Physician, shall evaluate, negotiate, and administer all hospital and other
medical facility contracts on behalf of the Practice and its Practice
Providers.
E. ESTABLISHMENT OF FEES. AmeriPath shall recommend, but shall
not set, fees, charges, premiums or other amounts due in connection with
services and goods provided by the Practice. The Steering Committee (see
Section IV) may adopt recommendations in its reasonable discretion on behalf of
the Practice and its Practice Providers. The Practice shall retain sole
authority to decide how physician compensation will be divided among individual
physicians.
F. PRACTICE MANAGEMENT SERVICES. AmeriPath shall, in
consultation with the Managing Physician, assess business activity including
product line analysis, outcomes monitoring
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<PAGE> 3
and customer satisfaction. AmeriPath shall develop systems to track revenues,
expenses, cost accounting, utilization, quality assurance, physician
productivity and customer satisfaction.
G. PERSONNEL. AmeriPath shall, on behalf of Practice as a
Practice Expense, employ and provide all personnel necessary to provide
Practice services (other than Practice Providers), in accordance with the
Practice's operational needs and the Operating Plan then in effect. AmeriPath
shall employ and provide the AmeriPath benefits package to all personnel (other
than Practice Providers) rendering services in connection with the Practice.
AmeriPath shall provide the following personnel services to the Practice:
1. NON-MEDICAL PERSONNEL. AmeriPath shall employ non-medical
personnel (i.e., managerial, clerical, secretarial,
bookkeeping and collection personnel) as determined by
AmeriPath, and as necessary for the Practice's effective
operation, as contemplated by the Operating Plan.
AmeriPath shall provide personnel for the maintenance of
patient records, billing, collection and maintenance of
the financial records. AmeriPath shall determine the
assignments, salaries and fringe benefits of all the
non-medical personnel. AmeriPath will consult with the
Managing Physician but retains decision-making authority
regarding all such matters. Non-medical personnel may
perform services from time to time for other individuals
or entities. AmeriPath may utilize employees or
independent contractors, in its discretion.
2. LICENSED TECHNICAL PERSONNEL. AmeriPath shall employ and
provide to the Practice licensed technical personnel
other than Practice Providers ("Licensed Technical
Personnel"). Licensed Technical Personnel shall be
retained as determined by the Managing Physician, in
consultation with the Steering Committee, in the exercise
of his professional judgment to be reasonably necessary
for the effective operation of the Practice, as
contemplated by the Operating Plan. AmeriPath shall
facilitate the recruitment and retention of all Licensed
Technical Personnel. Although AmeriPath may employ
Licensed Technical Personnel, the Managing Physician, or
its designee, shall have the right to interview, make
determinations to hire, and terminate Licensed Technical
Personnel. All Licensed Technical Personnel providing
services in connection with the Practice shall be under
the direct control and supervision of the Practice and
its Practice Providers.
3. PRACTICE PROVIDERS. AmeriPath shall perform
administrative services relating to the recruitment of
new Practice Providers and Practice Providers. Selection
of new Practice Providers and Practice Providers shall be
the sole responsibility of the Practice. The hiring of
new Practice Providers shall require the prior written
approval of AmeriPath only with respect to economic and
practice management issues. All Practice Providers shall
be
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<PAGE> 4
employees of the Practice (if such personnel are hired
as employees) and not of AmeriPath. AmeriPath shall
provide technical support to the Practice's risk
management program. Additionally, AmeriPath shall advise,
make arrangements for the purchase of, and manage the
Practice's professional liability coverage program.
H. FACILITIES, UTILITIES, LICENSES, PERMITS AND OTHER RELATED
EXPENSES. AmeriPath shall own, lease or sublease on behalf of the Practice,
Medical Offices necessary for the operation of the Practice pursuant to the
Operating Plan.. The Medical Offices provided as of the Effective Date shall
be those listed on Attachment IV. AmeriPath shall provide, manage and maintain
the Medical Offices in good condition and repair, including the provision of
routine janitorial and maintenance services. AmeriPath shall provide on behalf
of the Practice utilities and shall pay other related expenses, consistent with
the Operating Plan. AmeriPath shall assist the Practice and its Practice
Providers in obtaining required laboratory permits and licenses. The Practice
shall have exclusive use of both existing and new Medical Offices during the
Term.
I. FURNITURE, FIXTURES AND EQUIPMENT. AmeriPath shall provide
necessary and appropriate furniture, fixtures and equipment ("FF&E") on behalf
of the Practice in accordance with the Operating Plan. Nothing in this
Agreement shall be construed to affect or limit in any way the professional
discretion of the Practice to select and use equipment, furnishings, inventory,
and supplies which the Managing Physician deems necessary and appropriate for
the practice of medicine. AmeriPath shall, on behalf of the Practice, provide
for all repairs and maintenance of the FF&E and shall, at the reasonable
request of the Managing Physician, acquire new or replacement FF&E. Title to
existing, new and replacement FF&E shall be in the name of AmeriPath or a
leasing company. The Practice shall have exclusive use of both existing and
new FF&E provided by AmeriPath during the Term.
THE PRACTICE ACKNOWLEDGES THAT AMERIPATH MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE FITNESS, SUITABILITY OR ADEQUACY
OF ANY FURNITURE, FIXTURES, EQUIPMENT, INVENTORY, OR SUPPLIES LEASED OR
PROVIDED PURSUANT TO THIS AGREEMENT FOR THE CONDUCT OF A MEDICAL PRACTICE OR
FOR ANY OTHER PARTICULAR PURPOSE.
J. BUSINESS OFFICE AND SUPPORT SERVICES. AmeriPath shall, in
consultation with the Managing Physician, provide computer, bookkeeping,
billing and collection, accounts receivable and accounts payable services
necessary for the management of the Practice pursuant to this Agreement and in
accordance with the Operating Plan. AmeriPath shall also order and purchase on
behalf of the Practice medical and office supplies required in the day-to-day
operation of the Practice as determined by the Managing Physician consistent
with the Operating Plan. However, the Practice shall order, purchase, stock,
and monitor the inventory of pharmaceuticals and other medical supplies,
substances, or items whose purchase, maintenance, or security require licensure
as a health-care provider or require a permit, registration, certification, or
identification number that requires licensure or certification as a health-care
provider. AmeriPath shall provide access to
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<PAGE> 5
management information systems services to the Practice, including risk
contracting systems services. AmeriPath shall also arrange laundry, waste
collection, and other necessary operational services in accordance with
applicable laws.
K. PROFESSIONAL AND CONSULTING SERVICES. AmeriPath shall arrange
for or render business and financial management consultation and advice
reasonably requested by the Managing Physician and directly related to the
operations of the Practice pursuant to this Agreement. Except as contemplated
by the Operating Plan, AmeriPath shall not be responsible for any services
requested by or rendered to any individual, employee or agent of the Practice,
or any Practice Provider, not directly related to Practice operations.
L. PATIENT AND FINANCIAL RECORDS. AmeriPath shall maintain files
and records relating to the operation of the Practice, including, but not
limited to, customary financial records and patient files. The management of
all files and records shall comply with applicable Federal, state and local
statutes and regulations, regarding their confidentiality and retention. Files
and records shall be located to be readily accessible for patient care,
consistent with customary records management practices. AmeriPath shall have
reasonable access to files and records, and, subject to applicable laws, shall
be permitted to retain copies of them. The Practice shall be responsible for
the preparation of, and direct the contents of, patient medical records. All
patient medical records shall remain the property of the Practice. The
Practice shall be responsible for proper documentation of medical services
provided by the Practice and the Practice Providers.
M. FINANCIAL STATEMENTS. AmeriPath shall prepare Practice profit
and loss and income statements, in accordance with the manner and form in which
AmeriPath normally keeps its accounts, books and records, and in accordance
with applicable laws. The statements shall reflect Practice Revenues generated
by or on behalf of the Practice and shall contain a comparison of actual and
budgeted Practice Revenues and expenses. AmeriPath shall provide the Managing
Physician with monthly statements within thirty (30) days after the end of each
month and shall provide a year-end statement within ninety (90) days after the
end of the calendar year.
III. PRACTICE OBLIGATIONS
A. EXCLUSIVITY. The Practice and the Practice Providers agree
that during the Term of this Agreement they will not retain, engage or employ,
directly or indirectly, any other entity or individual to provide the services
for which it is contracting with AmeriPath.
B. PROFESSIONAL STANDARDS. Medical services shall be performed
solely by, or under the direct supervision of, the Practice Providers. The
Practice shall have complete and absolute control over the methods by which the
Practice, the Practice Providers and Non-Independent Professional Personnel
practice medicine and/or render the professional services which they are
licensed to provide under the laws of the states in which they are practicing.
The Practice shall require that Practice Providers comply with applicable
ethical standards, laws and regulations. The Practice shall, with the
assistance of AmeriPath (if so requested by the Managing Physician), resolve
utilization review or quality assurance issues which may arise. In the event
that disciplinary
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<PAGE> 6
actions or professional liability actions are initiated against any Practice
Provider, the Practice shall immediately inform AmeriPath of the action and the
underlying facts and circumstances. The Practice shall implement and maintain a
program to monitor the quality and utilization of medical care, and AmeriPath
shall render administrative assistance to the Practice, as requested by the
Managing Physician.
C. MANAGED CARE ARRANGEMENTS. The Practice shall cooperate with
AmeriPath in the development and operation of managed care arrangements. The
Practice shall participate as a provider and in the administrative operation of
integrated delivery systems and managed care arrangements. The Practice and
its Practice Providers agree to comply with the quality assurance and
utilization review programs of managed care arrangements.
D. CONTINUING MEDICAL EDUCATION. The Practice shall ensure that
each of its Practice Providers participates in continuing medical education
activities, as necessary to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
E. PHYSICIAN POWERS OF ATTORNEY AND BILLING. The Practice shall
appoint AmeriPath to act as agent in the billing and collection of all Practice
Revenues, and shall require all Practice Providers to appoint AmeriPath as
attorney-in-fact for the Practice and each Practice Provider, as more
specifically set forth in Attachment II. The Practice shall cooperate and
shall cause its Practice Providers to cooperate with AmeriPath in all matters
relating to the billing and collection of all Practice Revenues. In this
regard, each Practice Provider shall review and approve the reports and other
information required to support complete and accurate bills. Additionally, the
Practice and its Practice Providers will provide such necessary support to
appeal or contest any denials of claims or other regulatory issues.
F. ADDITIONAL PRACTICE PROVIDERS. When the Practice desires to
add or change a Practice Provider, AmeriPath shall provide a business analysis
of the prospective change in the composition of the Practice. Additional
Practice Providers (the "Additional Practice Providers") shall be added to the
Practice as follows: the Practice shall review and approve the credentials and
the medical practices of the prospective Additional Practice Provider.
AmeriPath shall review the business operations, financial condition and results
of operations of the prospective Additional Practice Provider and shall provide
such information to the Managing Physician. The decision to admit an
Additional Practice Provider shall be subject to the approval of the Steering
Committee.
G. ADDITIONAL PRACTICES. AmeriPath may, in its discretion, seek
to add additional practices (each such Practice being an "Additional Practice")
to this Agreement. If AmeriPath desires to add an Additional Practice,
AmeriPath shall provide to the Steering Committee a business analysis of the
Additional Practice, including business operations, financial condition and
results of operations. The decision to admit an Additional Practice shall be
subject to the approval of the Steering Committee. After an agreement to add
an Additional Practice has been reached, the Practice and AmeriPath shall enter
into an amendment (the "New Practice Amendment") to this Agreement. The New
Practice Amendment shall include the understanding of the parties with
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<PAGE> 7
respect to AmeriPath's compensation and other issues agreed upon by the
Steering Committee and the Additional Practice. The New Practice Amendment
shall obligate the Additional Practice to be bound by the New Practice
Amendment.
H. RESTRICTIVE COVENANTS. The Practice and each Practice
Provider shall comply with the terms, conditions and provisions of the
Restrictive Covenants set forth in Attachment III. AmeriPath and its parent
company, AmeriPath, Inc., shall be third party beneficiaries of the Restrictive
Covenants and shall have the right to enforce them independently and without
the consent, action or approval of the Practice or any Practice Provider.
Additionally, the Practice and the Practice Providers agree to fully cooperate
with AmeriPath should it desire to enforce the Restrictive Covenants.
I. PRACTICE EXPENSES. The Practice shall be solely responsible
for the payment of all Practice Expenses.
J. PRACTICE ORGANIZATIONAL DOCUMENTS. The Practice agrees that
it shall not, without the written consent of AmeriPath: (a) modify or amend
the Practice Organizational Documents (as defined in Attachment I); (b) admit
New Practice Providers, except as provided for in this Agreement; (c) remove
the Managing Physician; (d) sell all or substantially all its assets or capital
stock; or (e) terminate or cancel any hospital contracts (or similar contracts
for the provision of services) under this Agreement. Further, the Practice
agrees that it shall consult with AmeriPath prior to the termination or release
of any Practice Provider from his or her obligations.
K. STAFFING OF FACILITIES BY THE PRACTICE. To the extent that
the Practice or the Practice Providers are responsible for staffing facilities
provided by AmeriPath, the Practice shall provide adequate staffing to ensure
that medical services are provided in a manner consistent with applicable
community and medical specialty standards. From time to time AmeriPath may
acquire new facilities that it wishes the Practice to staff. The Practice
agrees that in the event AmeriPath acquires or develops a new facility that it
wishes the Practice to staff, the Practice will use its best efforts to staff
the facility. The parties agree that the Operating Plan will be revised as
necessary to accommodate staffing of the new facility.
L. EQUIPMENT. The Practice shall advise AmeriPath on the
maintenance, repair and proper operation of medical equipment. This obligation
shall relate to the medical functionality of the equipment. Upon receipt of
such advice, AmeriPath shall cause the medical equipment to be maintained in
good operating condition.
M. SUPERVISION OF LICENSED TECHNICAL PERSONNEL. The Practice
shall be responsible for the supervision of Licensed Technical Personnel. As
such, it shall provide Licensed Technical Personnel with appropriate training
and medical supervision. The Practice shall determine the responsibilities of
Licensed Technical Personnel and the manner in which they provide services.
Licensed Technical Personnel shall report to such Practice Providers as
designated by the Practice.
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IV. STEERING COMMITTEE
A. CREATION AND GENERAL DUTIES OF STEERING COMMITTEE. AmeriPath
and the Practice shall establish a Steering Committee composed of two members,
one of which shall be the Managing Physician and one of which shall be a
physician designated by AmeriPath. The Steering Committee shall meet
periodically and at the reasonable request of either party. The Steering
Committee shall consider, review, determine and approve the following matters
as they relate to the operation of the Practice: (i) the Operating Plan; (ii)
employment and recruitment of additional Practice Providers; (iii) long term
strategic planning; (iv) establishment and maintenance of relationships with
health care providers and payors; (v) the fee schedule for services and items
provided by the Practice; and (vi) approval of all marketing and advertising of
services performed by the Practice or Practice Providers.
B. OPERATING PLAN. One of the Steering Committee's primary
responsibilities shall be the approval of a Practice Operating Plan (the
"Operating Plan"). AmeriPath shall, not less often than one time each fiscal
year, develop a proposed Operating Plan. The proposed Operating Plan shall be
submitted to the Steering Committee for approval. When Approved by the
Steering Committee, both AmeriPath and the Managing Physician shall, as their
responsibilities are allocated in this Agreement, use their best efforts to
implement the Operating Plan. The Operating Plan shall set forth the estimated
income and expenditures of the Practice for the period covered, such income and
expenditures to be set forth in reasonable detail. The Practice shall retain
sole authority for proposing the compensation levels and manner of distribution
of physician income among individual physicians. Such proposals shall be
included in the budget of the Practice which shall be incorporated into the
Operating Plan as approved by the Steering Committee. The Operating Plan shall
include Practice Expenses, Allocated Expenses and AmeriPath compensation. The
Steering Committee may revise, from time to time, the Operating Plan as it
determines to be necessary or desirable (as revised, the "Revised Operating
Plan"). AmeriPath and the Managing Physician shall be authorized without the
need for further approval by AmeriPath, the Steering Committee or the Practice
Providers, to make the expenditures and incur the obligations provided for in a
Revised Operating Plan. Additionally, AmeriPath or the Managing Physician may
make expenditures and incur obligations that differ from an Operating Plan, but
are incurred in the ordinary course of business. For example, an increase in
professional liability premiums shall create a variance in the Operating Plan
which may be incurred without a revision to the Operating Plan. The Practice
has in the past maintained a fellowship program for the University of Texas
Southwestern Medical Center ("UTSWMC"), which has included up to three
dematopathologists per year. The parties acknowledge that it is important to
the reputation of the Practice to continue the Practice's relationship with
UTSWMC, therefore, the Operating Plan shall include the expenses necessary and
appropriate to continue the Practice's relationship with UTSWMC consistent with
past practices and to expand such relationship as shall reasonably be directed
by the Managing Physician.
V. FINANCIAL MATTERS
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A. AMERIPATH COMPENSATION.
1. GENERAL. The compensation provided herein is expected to
provide AmeriPath with fair market value payment commensurate
with the services it provides, its capital investment, use of
its tradename and its expertise in laboratory and professional
practice management. AmeriPath shall receive compensation, as
provided in the Operating Plan and in accordance with this
Section V.
2. PRACTICE EXPENSES AND ALLOCATED EXPENSES. All Practice
Expenses (as defined in Attachment I hereto), including the
compensation of Practice Providers, shall be the sole
responsibility of Practice and shall be paid by the Practice
out of its first available Practice Revenues. Allocated
Expenses (as defined in ATTACHMENT I hereto) incurred by
AmeriPath in the course of the performance of its duties under
this Agreement on behalf of or as agent for the Practice shall
be paid to AmeriPath. Allocated Expenses may include an
allocable portion of reasonable corporate overhead of
AmeriPath. Allocated Expenses shall be billed to the Practice
at their actual cost to AmeriPath. An operating budget for
Practice Expenses and Allocated Expenses shall be reviewed at
least annually and shall be set forth in the Operating Plan.
3. MANAGEMENT FEE. AmeriPath shall be paid a base management fee
(the "Base Fee") for its services performed and to be
performed pursuant to this Agreement. The Base Fee shall be a
flat amount and shall be reviewed annually and shall be set
forth in the Operating Plan. The Base Fee shall be paid to
AmeriPath as provided in the Operating Plan, subject only to
the prior payment of Practice Expenses and Allocated Expenses.
Any portion of the Base Fee that is not paid when due shall
accrue and be paid with the next available Practice Revenues.
4. PERFORMANCE FEE. On an annual basis, the Steering Committee
shall determine a set of performance goals and objectives for
AmeriPath in the performance of its duties under this
Agreement. Such goals and objectives may include, among other
things, the identification and recruitment of Additional
Practice Providers, the retention of Practice Providers, the
procurement or expansion of managed care or other contracts or
the achievement of operating efficiencies. AmeriPath may be
paid a performance fee (the "Performance Fee") based on the
achievement of such specified goals and objectives. The
amount of such Performance Fee shall be as set forth in the
Operating Plan.
B. REIMBURSEMENT OF EXPENSES. AmeriPath may, from time to time, incur
Practice Expenses which are a part of the Operating Plan, a Revised Operating
Plan, or are Practice
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Expenses incurred in the ordinary course of business. AmeriPath shall be
entitled to be reimbursed by the Practice for these expenses when incurred.
C. PRACTICE BANK ACCOUNT, PAYMENT OF FEES AND PAYMENT OF
EXPENSES. The Practice shall establish a bank account for the deposit of all
Practice Revenues (the "Practice Bank Account"). AmeriPath shall have a
security interest in the Practice Bank Account pursuant to this Section V.
Additionally, it is understood and agreed that AmeriPath may assign its
security interest and all other interests that it may have in the Practice Bank
Account to its lender or lenders. Should AmeriPath assign its interest, its
assignee shall have a first lien on the Practice Bank Account. AmeriPath shall
have access to the Practice Bank Account solely for the purposes stated herein.
In connection herewith and throughout the Term, Practice hereby grants to
AmeriPath an exclusive special power of attorney for the purposes herein and
appoints AmeriPath as Practice's exclusive true and lawful agent and
attorney-in-fact, and AmeriPath hereby accepts such special power of attorney
and appointment, to deposit into the Practice Bank Account all funds, fees, and
revenues generated from the Practice's provision of medical services and
collected by AmeriPath, and to make withdrawals from Practice Bank Account for
payments specified in this Agreement and as requested from time-to-time by
Practice. Notwithstanding the exclusive special power of attorney granted to
AmeriPath hereunder, Practice may, with notice to AmeriPath, draw checks on the
Practice Bank Account; provided, however, that Practice shall neither draw
checks on the Practice Bank Account nor request AmeriPath to do so if the
balance remaining in the Practice Bank Account after such withdrawal would be
insufficient to enable AmeriPath to pay on behalf of Practice any Practice
Expense attributable to the operations of Practice or to the provision of
medical services, and/or any other obligations of Practice. Disbursements made
from the Practice Bank Account consent shall be consistent with the type and
amount of expenditures authorized by the Operating Plan. Limits on authority
to sign checks and purchase orders shall be mutually agreed upon by AmeriPath
and the Managing Physician.
D. COLLATERAL. As collateral security for the payment of all
amounts owed to AmeriPath pursuant to this Agreement, Practice grants to
AmeriPath a security interest in all tangible and intangible assets of the
Practice, including Practice Revenues which may be created or arise during the
Term, together with all proceeds regardless of the manner in which the
entitlement to payment for Practice Revenues exists whether as accounts,
accounts receivable, notes receivable or other evidence of entitlement to the
Practice Revenues and all of its rights, title and interest (including right to
control the same), if any, in the Bank Account and the sums on deposit
(collectively, the "Collateral") to the extent the same are not otherwise
assigned to AmeriPath. In granting this security interest, the Practice agrees
to the following: (i) this Agreement shall create and constitute a valid and
perfected first priority security interest in the Collateral enforceable
against all parties; (ii) the Practice has and shall continue to have good
indefeasible and merchantable title to and ownership of the Collateral free and
clear of all liens, other than liens created by AmeriPath or any AmeriPath
Affiliate; (iii) this grant of a security interest in the Collateral shall not
result in a violation of any other agreement to which Practice is or becomes a
party; and (iv) the Practice shall take all action necessary to perfect
AmeriPath's security interest in the Collateral, including the execution of
financing statements and authorization to file the same in the appropriate
recording office. AmeriPath and the Practice agree to execute such further
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documents and instruments as may be deemed necessary or desirable, in
AmeriPath's sole discretion, to effect the provisions of this Section.
E. REMEDIES FOR NON-PAYMENT. AmeriPath shall have all rights and
remedies of a secured party and all rights, remedies, securities and liens of
the Practice with respect to the Collateral including, but not limited to,
extending the time of payment of, compromising, or settling for cash, credit,
or otherwise upon any terms, any part or all of the Collateral, but shall not
be liable for any failure to collect or enforce the payment thereof. AmeriPath
is authorized by the Practice, except as otherwise prohibited by applicable
law, to take possession of, and endorse in the name of the Practice any notes,
checks, money orders, drafts, cash, insurance payments and any other
instruments received in payment of the Collateral, or any part thereof; to
collect, sue for and give satisfactions for moneys due on account of the
Collateral; and to withdraw any claims, suits or proceedings pertaining to, or
arising out of, AmeriPath's and/or the Practice's rights to the Collateral.
AmeriPath's costs of collection and enforcement, including attorneys' fees and
out-of-pocket expenses, shall be borne solely by the Practice. The Practice
agrees that AmeriPath shall be permitted to place its representatives in the
Medical Offices, with full authority to take possession of and retain for
AmeriPath the books and records of the Practice with reference to the
Practice's operations pursuant to this Agreement with respect to the Collateral.
F. RIGHT OF OFFSET. Notwithstanding any other provision in this
Agreement, AmeriPath is entitled to offset against any sums owed by AmeriPath
to the Practice any amounts payable or reimbursable to AmeriPath under this
Agreement.
G. LEGAL LIMITATION ON ASSIGNMENT. This Agreement shall not
constitute an assignment of Practice Revenues to the extent that such
assignment is prohibited under applicable law. To the extent Practice Revenues
are not assignable, the Practice agrees that it shall promptly deliver
non-assigned Practice Revenues to AmeriPath.
VI. TERMS AND TERMINATIONS
A. TERM. The initial term of this Agreement shall be for a
period of forty (40) years commencing on October 1, 1996 and ending on
September 30, 2036 (the "Initial Term"). This Agreement shall be extended for
separate and successive five (5) year periods (each such five (5) year period
shall be referred to as an "Extended Term" and the Initial Term and any
Extended Term shall be referred to in this Agreement as the "Term") unless
either party provides the other party notice not less than sixty (60) days
prior to the end of the Initial Term or an Extended Term, unless the Practice
has defaulted under the terms of this Agreement. The same terms and conditions
of this Agreement shall apply to an Extended Term unless the Practice and
AmeriPath mutually agree to alter the terms and conditions hereof with a
writing signed by each party hereto. All New Practice Amendments shall
terminate at such time as this Agreement terminates.
B. TERMINATION. A party (the "Terminating Party") may terminate
this Agreement on the basis of the following:
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1. The other party breaches any material term or condition
of this Agreement, and the breach continues for sixty (60) days after the
receipt of written notice specifying the breach by the party which did not
perform or breached.
2. AmeriPath may terminate this Agreement if the Practice
or the Managing Physician is suspended or prohibited from participating in the
Medicare or Medicaid programs or excluded from entering into healthcare
provider agreements with any material portion of the managed care or healthcare
insurance industry; or (ii) the Practice or the Managing Physician, breaches
any material term of this Agreement, including the restrictive covenants
provided in Attachment III.
C. EFFECTS OF AND OBLIGATIONS UPON TERMINATION. Upon the
termination or expiration of this Agreement: (i) neither party shall be
discharged from any previously accrued obligation which remains outstanding;
(ii) any sums of money owing by one party to the other shall be paid
immediately, prorated through the effective date of termination or expiration;
(iii) the Practice shall return to AmeriPath all originals and copies of any
Confidential Information in the possession of the Practice or any other person
or entity to whom it has delivered originals and/or copies; (iv) the Practice
and AmeriPath shall perform matters as are necessary to wind up their
activities under this Agreement in an orderly manner, including providing to
the Practice patient billing records on paper or electronic data; and (v) each
party shall have the right to pursue other legal or equitable relief as may be
available depending upon the circumstances of the termination.
VII. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE PRACTICE. The Practice
represents and warrants to AmeriPath the following:
1. The Practice is a professional association duly
organized, validly existing and in good standing under
the laws of the State of Texas.
2. The Practice has all necessary power to own all of its
properties and assets and to carry on its business as
now being conducted.
3. The Managing Physician has the authority on behalf of
the Practice to execute, deliver and perform this
Agreement and all other agreements and documents
executed and delivered by the Practice pursuant to this
Agreement.
4. The Practice has the authority to execute, deliver and
perform this Agreement and all other agreements and
documents executed and delivered by it pursuant to this
Agreement.
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5. The Practice has taken all action required by law, its
Practice Organizational Documents, or otherwise to
authorize the execution, delivery and performance of
this Agreement and the related documents.
6. The execution and delivery of this Agreement does not
violate any provisions of the Practice Organizational
Documents or any agreement, instrument, order,
arbitration award, judgment or decree to which the
Practice is a party or by which it is bound.
7. This Agreement has been duly executed and delivered by
the Practice and constitutes the legal, valid and
binding obligation of the Practice, enforceable in
accordance with its terms.
B. REPRESENTATIONS AND WARRANTIES OF AMERIPATH. AmeriPath
represents and warrants to the Practice as follows:
1. AmeriPath is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Texas.
2. AmeriPath has all necessary power to own all of its
properties and assets and to carry on its business as
now being conducted.
3. AmeriPath has the corporate authority to execute,
deliver and perform this Agreement and all agreements
executed and delivered by it pursuant to this
Agreement.
4. AmeriPath has taken all action required by its Articles
of Incorporation, its Bylaws or otherwise to authorize
the execution, delivery and performance of this
Agreement and related documents.
5. The execution and delivery of this Agreement does not
and, subject to the consummation of the transactions
contemplated by this Agreement, shall not, violate any
provisions of the Articles of Incorporation or Bylaws
of AmeriPath or any agreement, instrument, order,
arbitration award, judgment or decree to which
AmeriPath is a party or by which it is bound, which
would adversely affect the ability of AmeriPath to
perform its obligations under this Agreement.
6. This Agreement has been duly executed and delivered by
AmeriPath and constitutes the legal, valid and binding
obligation of AmeriPath, enforceable against AmeriPath
in accordance with its terms.
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VIII. LEGAL COUNSEL
The Practice agrees to retain legal counsel recommended by AmeriPath
with respect to matters in which the interests of the Practice are not adverse
to AmeriPath or its business in any significant respect and further agrees to
waive any conflicts of interest in transactional matters which may exist for
such recommended legal counsel with respect to AmeriPath.
IX. MEDICAL PRACTICE ISSUES
A. PRACTICE OF MEDICINE. The parties acknowledge that AmeriPath
is not authorized or qualified to engage in any activity which constitutes the
practice of medicine and nothing required herein to be shall be construed as
the practice of medicine by AmeriPath. To the extent any act or service
required to be performed or provided by AmeriPath is construed or deemed by any
governmental authority, agency or court to constitute the practice of medicine,
AmeriPath shall be released from any obligation to provide such act or service
and the provision for such required act or service shall be deemed waived and
forever unenforceable without otherwise affecting the terms of this Agreement.
B. INSURANCE. The Practice shall provide, or arrange for the
provision of, and maintain throughout the Term, for the Practice and each
Practice Provider professional liability/malpractice insurance coverage in the
minimum amount of $1,000,000 per occurrence and $3,000,000 annual aggregate (or
such other amount as required by law, prevailing in the community, or required
by managed care companies) and workers' compensation insurance coverage in the
minimum amounts required by applicable law. The Practice shall maintain
general liability insurance and other insurance of the type generally
maintained by business involved in the same business as the Practice. The
Practice shall, at its sole cost and expense, pay the premium costs of all
insurance coverage during the Term of this Agreement and, upon request by
AmeriPath, provide AmeriPath with evidence of such coverage.
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Practice and AmeriPath have duly executed this Agreement on the day
and year indicated above.
CLAY J. COCKERELL, M.D., P.A.
By: /s/ Clay J. Cockerell, M.D.
---------------------------------
Name: Clay J. Cockerell, M.D.
-------------------------------
Its: President
--------------------------------
AMERIPATH TEXAS, INC.
By: /s/ Robert P. Wynn
---------------------------------
Name: Robert P. Wynn
-------------------------------
Its Vice President
---------------------------------
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ATTACHMENT I
DEFINITIONS
AGREEMENT means this agreement and any subsequent amendments thereto,
including, NEW PRACTICE AMENDMENTS.
ALLOCATED EXPENSES means the expenses relating to the operations of the
facilities of the Practice and the administrative expenses incurred by
AmeriPath on behalf of the Practice in the performance of AmeriPath's duties
under this Agreement, including the following: billing services (including
personnel), marketing, advertising, promotion, allocated corporate overhead,
legal expenses, service of laboratory and other expenses as may be approved
from time to time by the Steering Committee, all as permitted to be incurred in
accordance with this Agreement and any New Practice Amendment (as defined in
Section III.G.)
BASE FEE has the meaning ascribed to it in Section V.A.3.
CONFIDENTIAL INFORMATION has the meaning ascribed to it in Attachment III.
FF&E has the meaning ascribed to it in Section II-I.
MANAGING PHYSICIAN means Clay J. Cockerell, M.D., for so long as he remains
employed by the Practice or its successor, and thereafter "Managing Physician"
shall mean the Practice Provider designated by the Practice and AmeriPath in
the Operating Plan to manage the administrative and medical functions of the
Practice.
MEDICAL OFFICES means the medical offices and laboratory facilities listed on
Attachment IV and/or at such other place or places of business as may be agreed
upon by the parties in writing.
NEW PRACTICE AMENDMENT means those individual amendments to this Agreement
executed by the Practice, an Additional Practice and AmeriPath.
OPERATING PLAN means the Practice Operating Plan referred to in Section IV.B.
PRACTICE BANK ACCOUNT means the bank account referred to in Section V.C. of
which the Practice is the owner.
PRACTICE EXPENSES means the following expenses: Practice Providers'
compensation expenses, professional liability insurance, continuing medical
education, benefits, dues and subscriptions, automobiles, facility leases,
repairs and maintenance, telephones and pagers, utilities, billing services,
courier services, legal expenses, travel and entertainment, outside medical
consultants, license fees and taxes, all expenses identified in this Agreement
as Practice Expenses, all expenses identified in this Agreement as incurred by
AmeriPath on behalf of Practice and other expenses approved from time to time
by the Steering Committee, all as permitted to be incurred in accordance with
this Agreement and any New Practice Amendment (as defined in Section III.G.).
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PRACTICE PROVIDERS means individuals who are duly licensed to practice medicine
and who are employed by the Practice, or other individuals who are under
contract with the Practice to provide physician services to patients of the
Practice.
PRACTICE ORGANIZATIONAL DOCUMENTS means the articles of incorporation and
bylaws of the Practice.
PRACTICE REVENUES means all revenues generated by or on behalf of the Practice,
after the date hereof, as a result of professional medical services furnished
to patients, ancillary services provided to patients, pharmaceuticals and other
items and supplies sold to patients and other fees or income generated by the
Practice or Practice Providers rendered in an inpatient or outpatient setting
and regardless of whether rendered to health maintenance organization,
preferred provider organization, Medicare, Medicaid or other patients,
including, but not limited to, payments received under capitation arrangements,
less account adjustments for uncollectible accounts, discounts, Medicare,
Medicaid, workers' compensation, professional courtesy discounts and other
write-offs. Notwithstanding the foregoing, Practice Revenues shall not include
revenues generated by Clay J. Cockerell, M.D. (a) from consulting and related
services as a medical doctor for any medical practice or health care provider
other than the Practice or an affiliate of AmeriPath; (b) from clinical
dermatology services for any patient in a clinic environment or otherwise; (c)
as a member, director, associate director, consultant to, or advisor to The
University of Texas Southwestern Medical Center, (d) as an employee of a local,
federal or state government or agency; (e) in performing duties as a member of
the United States military services or the National Guard; (or) on a locum
tenens basis.
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ATTACHMENT II
APPOINTMENT OF AMERIPATH AS ATTORNEY IN FACT
On behalf of and for the account of Practice, AmeriPath shall
assist Practice in Practice's establishment and maintenance of credit and
billing and collection policies and procedures, and shall coordinate and
supervise Practice personnel to ensure the timely billing and collection of all
professional and other fees for all billable pathology services provided by
Practice or Physicians. AmeriPath shall advise and consult with Practice
regarding the fees for pathology services provided by Practice; it being
understood, however, that Practice shall establish the fees to be charged for
pathology services and that AmeriPath shall have no authority whatsoever with
respect to the establishment of such fees. In connection with the billing and
collection services to be provided hereunder, and throughout the term of this
Agreement, Practice hereby grants to AmeriPath an exclusive special power of
attorney and appoints AmeriPath as Practice's exclusive true and lawful agent
and attorney-in-fact, and AmeriPath hereby accepts such special power of
attorney and appointment, for the following purposes:
1. To supervise and coordinate the billing of Practice's
patients, in the name of Practice and on behalf of Practice,
as applicable, for all billable pathology services provided by
Practice to patients.
2. To supervise and coordinate the billing in Practice's name and
on Practice's behalf, as applicable, all claims for
reimbursement or indemnification from Blue Shield/Blue Cross,
insurance companies, Medicare, Medicaid, and all other third
party payors or fiscal intermediaries for all covered billable
pathology services provided by Practice to patients.
3. To ensure the collection and receipt in AmeriPath's name and
for AmeriPath's account all accounts receivable of Practice
purchased by AmeriPath, and to deposit such collections in an
account selected by AmeriPath and maintained in AmeriPath's
name.
4. To ensure the collection and receipt in Practice's name and on
Practice's behalf, as applicable, of all accounts receivable
generated by such billings and claims for reimbursement that
have not been purchased by AmeriPath, to administer such
accounts including, but not limited to, (i) extending the time
of payment of any such accounts for cash, credit or otherwise;
(ii) discharging or releasing the obligors of any such
accounts; (iii) with the consent of the Steering Committee,
suing, assigning or selling at a discount such accounts to
collection agencies; or (iv) with the consent of the Steering
Committee, taking other measures to require the payment of any
such accounts.
5. To deposit all amounts collected in Practice's name and on
behalf of Practice into Practice Bank Account which shall be
and at all times remain in Practice's name.
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Practice covenants to transfer and deliver to AmeriPath for
deposit into Practice Bank Account or itself to make such
deposit of all funds received by Practice from patients or
third party payors for pathology services. Upon receipt by
AmeriPath of any funds from patients or third party payors or
from Practice pursuant hereto for pathology services,
AmeriPath shall immediately deposit same into the Practice
Bank Account. AmeriPath shall disburse such deposited funds
to creditors and other persons on behalf of Practice,
maintaining records of such receipt and disbursement of funds
as directed by Practice.
6. To take possession of, endorse in the name of Practice, and
deposit into the Practice Bank Account any notes, checks,
money orders, insurance payments, and any other instruments
received in payment for pathology services.
7. To sign checks, drafts, bank notes or other instruments on
behalf of Practice, and to make withdrawals from the Practice
Bank Account for payments specified in this Agreement and as
requested from time to time by Practice.
Upon request of AmeriPath, Practice shall execute and deliver to the financial
institution wherein the Practice Bank Account is maintained, such additional
documents or instruments as may be necessary to evidence or effect the special
and limited power of attorney granted to AmeriPath by Practice pursuant to this
Agreement. The special and limited power of attorney granted herein shall be
coupled with an interest and shall be irrevocable except with AmeriPath's
written consent. The irrevocable power of attorney shall expire on the later
of when this Agreement has been terminated, when all accounts receivable
purchased by AmeriPath have been collected, or when all management fees due to
AmeriPath have been paid. If AmeriPath assigns this Agreement in accordance
with its terms, then Practice shall execute a power of attorney in favor of the
assignee.
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ATTACHMENT III
RESTRICTIVE COVENANTS
The Practice shall cause each Practice Provider to enter into an
agreement with respect to restrictive covenants, such as the confidentiality of
information relating to the Practice or AmeriPath, restrictions on solicitation
of employees or customers of the Practice or AmeriPath and restrictions on such
Practice Provider's right to compete with the Practice after termination of the
Practice Provider's employment by the Practice. Such agreement shall be in a
form reasonably satisfactory to AmeriPath and shall provide that AmeriPath
shall be a third party beneficiary of such agreements.
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ATTACHMENT IV
2330 Butler Street, Suite 115, Dallas, Texas 75235
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ATTACHMENT V
MISCELLANEOUS CONTRACTUAL PROVISIONS
1. ADDITIONAL ACTS. Each party agrees to perform any further acts
and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
2. CONTRACT CONSTRUCTION, INTERPRETATION AND ENFORCEMENT PROVISIONS.
(a) Assignment. Neither party may assign this Agreement without
the other's written consent. Nevertheless: 1) AmeriPath may
assign this Agreement to a parent, subsidiary or affiliate, and;
2) the Practice may assign this Agreement to a non-profit
organization organized to conduct the business of the Practice, as
provided in Attachment VII. This Agreement shall be binding on
and shall inure to the benefit of the parties to this Agreement,
and their successors and permitted assigns. Subject to the
foregoing sentence, no person or entity not a party to this
Agreement shall have any right under or by virtue of this
Agreement, except for AmeriPath, Inc. as an intended third party
beneficiary of this Agreement.
(b) Captions. The captions or headings in this Agreement are
made for convenience and general reference only and shall not be
construed to describe, define or limit the scope or intent of the
provisions of this Agreement.
(c) Costs of Enforcement. In the event that either party files
suit in any court against the other party to enforce the terms of
or to obtain performance under this Agreement, the prevailing
party shall be entitled to recover all reasonable costs, including
reasonable attorneys' fees, from the other party as part of any
judgment in the suit. The term "prevailing party" means the party
in whose favor final judgment after appeal (if any) is rendered
with respect to the claims asserted in the complaint. "Reasonable
attorneys' fees" are those attorneys' fees actually incurred in
obtaining a judgment in favor of the prevailing party.
(d) Counterparts. The parties may execute this Agreement in
several counterparts, each of which shall be deemed to be an
original, and counterparts shall constitute and be one and the
same instrument.
(e) Governing Law. This Agreement shall be interpreted,
construed and enforced in accordance with the laws of the State of
Texas, applied without giving effect to any conflicts of law
principles.
(f) Modifications. This Agreement contains the entire agreement
of the parties with respect to the subject matter hereof and
supersedes any prior or contemporaneous negotiations,
understandings or agreements between the parties, written or oral,
with respect to the transactions contemplated by this Agreement.
This Agreement may not be changed
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or terminated orally but may only be changed by an agreement in
writing signed by AmeriPath and the Practice; provided, however,
that this Agreement shall not be modified without the consent of
the Managing Physician for so long as Clay J. Cockerell, M.D.,
shall be the Managing Physician and AmeriPath, Inc., shall have
continuing contingent financial obligations owing to Dr. Cockerell
pursuant to that certain Stock Purchase Agreement dated as of the
date hereof.
(g) Notices. The parties to this Agreement shall give notice
under this Agreement by U.S. mail, postage prepaid, by hand
delivery or by overnight express, charges prepaid. Notices shall
be addressed as follows:
If to the Practice:
Clay J. Cockerell, M.D., P.A.
2330 Butler Street, Suite 115
Dallas, Texas 75235
Attention: Clay J.Cockerell, M.D.
If to AmeriPath:
AmeriPath Texas, Inc.
2330 Butler Street, Suite 115
Dallas, Texas 75235
Attention: President
With a copy to:
AmeriPath, Inc.
800 Cypress Creek Road, Suite 200
Fort Lauderdale, Florida 33334
Attention: President
or other addresses as furnished in writing by a party to the other
party. All notices shall be considered received when received by
the addressee, if by mail, when hand delivered or one business day
after delivery to the overnight courier.
(h) Severability. A determination by a court of competent
jurisdiction that a provision or part of any provision of this
Agreement is invalid or unenforceable shall not affect the
remaining parts or provisions of this Agreement which shall
continue in full force and effect.
3. LEGAL EVENTS TRIGGERING CONTRACT MODIFICATION OR TERMINATION
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(a) Changes in Reimbursement. In the event that Medicare,
Medicaid, Blue Shield or any other third party payor, or any other
Federal, state or local laws, rules, regulations or
interpretations, at any time during the Term prohibit, restrict or
in any way materially and adversely change the method or amount of
reimbursement or compensation for either party provided for in
this Agreement, then the parties shall negotiate in good faith to
amend this Agreement to provide for payment of compensation in a
manner consistent with such changes, taking into account any
materially adverse change in reimbursement or payment for
physician services. If the parties cannot reach agreement on an
amendment prior to the effective date of the change, the parties
agree to jointly select a mediator and share equally in the cost
of the mediation. If mediation does not resolve such dispute,
then the matter shall be settled exclusively by binding
arbitration, which shall be conducted in Broward County, Florida,
in accordance with the National Health Lawyer's Association,
Alternative Dispute Resolution Service, Rules of Procedure for
Arbitration. The expenses of such arbitration shall be borne
equally by the parties, provided that each party shall pay for the
cost and its own experts, evidence, and attorney's fees (unless
otherwise directed by the arbitrator).
(b) Enactment or Interpretation of Relevant Statutes and
Regulations. In the event any state or federal laws or
regulations, now existing or enacted or promulgated after the date
hereof, are interpreted by judicial decision, a regulatory agency,
or legal counsel acceptable to both AmeriPath and the Practice in
such a manner as to indicate that this Agreement or any provision
hereof may be in violation of such laws or regulations, the
Practice and AmeriPath shall amend this Agreement as necessary to
preserve the underlying economic and financial arrangements
between the Practice and AmeriPath and without substantial
economic detriment to any party. If such an amendment is not
possible, either party shall have the right to terminate this
Agreement.
4. INDEPENDENT CONTRACTOR STATUS. The Practice and AmeriPath are to
perform and exercise their rights and obligations under this
Agreement as independent contractors. AmeriPath's sole function
under this Agreement is to provide services, as requested, in a
competent and satisfactory manner, exercising reasonable care in
the performance of all such duties. AmeriPath shall not become
liable for any of the obligations, liabilities, debts or losses of
the Practice unless otherwise specifically provided by this
Agreement. AmeriPath shall have no liability whatsoever for
damages suffered on account of the willful misconduct or
negligence of any employee, agent or independent contractor (other
than AmeriPath) of the Practice. Each party shall be solely
responsible for compliance with all state and federal laws
pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes
regarding their respective employees, agents and servants. In the
event that any court or regulatory authority (or AmeriPath, in
good faith) determines that the relationship established by this
Agreements creates an employment relationship, the parties shall
negotiate in good faith to reach an arrangement involving
AmeriPath and the then current Practice Providers which
substantially preserves for the parties the benefits of this
Agreement. If such an arrangement cannot be reached,
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AmeriPath may terminate this Agreement upon thirty (30) days prior
written notice to the Practice.
5. PROHIBITION AGAINST DISCRIMINATION. The Practice and AmeriPath
agree that, in fulfilling their respective obligations and duties
under this Agreement, they shall not discriminate against any
individual on the basis of race, religion, age, sex, disability or
national origin.
6. USE OF NAMES. Subject to the approval of the Managing Physician,
which approval shall not be unreasonably withheld, AmeriPath may
include the name of the Practice, the Practice Providers and the
Practice Providers in any brochures, promotional materials or the
like relating to AmeriPath.
7. INDEMNIFICATION.
(a) AmeriPath agrees to indemnify and hold the Practice and its
directors, officers, agents employees, Practice Providers and
affiliates (collectively, the "Practice Group") harmless from and
against any and all filings, suits, proceedings, claims,
penalties, damages, costs and expenses (including, but not limited
to, court costs and reasonable attorney and paralegal fees)
incurred by the Practice Group, resulting or arising from any
breach in any representation or warranty of AmeriPath contained
herein or any default in the performance of any covenant or
agreement of AmeriPath contained herein.
(b) The Practice agrees to indemnify and hold AmeriPath and its
directors, officers, agents employees, stockholders and
affiliates, and the directors, officers, agents and employees of
its stockholders and affiliates (collectively, the "AmeriPath
Group"), harmless from and against any and all filings, suits,
proceedings, claims, penalties, damages, costs and expenses
(including, but not limited to, court costs and reasonable
attorney and paralegal fees) incurred by the AmeriPath Group,
resulting or arising from any breach in any representation or
warranty of the Practice contained herein or any default in the
performance of any covenant or agreement of the Practice contained
herein.
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<PAGE> 26
ATTACHMENT VI
1. ORGANIZATION OF NON-PROFIT HEALTH CORPORATION
The parties shall cause to be formed a Non-Profit Health
Corporation organized pursuant to Section 5.01(a) of the Texas Medical Practice
Act (the "Corporation"). The Corporation shall be named AmeriPath Pathology
Group, Inc. and shall have articles and bylaws as attached to this Attachment
VI. The parties shall fully cooperate with each other to effectuate the
organization of the Corporation, and its qualification to engage in the
practice of medicine. Clay J. Cockerell, M.D. agrees, on behalf of the
Practice and of himself to become a director of the Corporation. AmeriPath
shall bear all reasonable costs associated with the organization and
qualification of the Corporation.
2. ASSIGNMENT OF INTERESTS
The parties agree that the following agreements shall be assigned
to the Corporation on or promptly after the Corporation becomes qualified: 1)
this Agreement; 2) all Physician Employment Agreements entered into by the
Practice, including Agreements Not To Compete 3) Managed Care Agreements and 4)
all other agreements for the provision of pathology services. The Corporation
shall assume all of the liabilities of the Practice and shall be entitled to
receipt of all of its assets.
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<PAGE> 1
EXHIBIT 10.22
AGREEMENT FOR PROFESSIONAL PATHOLOGY SERVICES
BETWEEN
SMITHKLINE BEECHAM CLINICAL LABORATORIES, INC.
AND
DERRICK AND ASSOCIATES PATHOLOGY, P.A.
<PAGE> 2
AGREEMENT FOR PROFESSIONAL PATHOLOGY SERVICES
THIS AGREEMENT is made this 1st day of April, 1992, by and between
SmithKline Beacham Clinical Laboratories, Inc., a Delaware corporation, with a
principal office located at 4225 East Fowler Avenue, Tampa, Florida 33617
("SBCL") and Derrick and Associates Pathology, P.A., a professional corporation
organized under the laws of the state of Florida with a principal office
located at 8100 Chancellor Drive, Suite 130, Orlando, Florida 32809
("Association").
WITNESSETH
WHEREAS, SBCL is a corporation organized under the laws of the state
of Delaware which owns and operates or manages clinical laboratories or
provides laboratory services, management support and reference testing to
laboratories which perform various tests for the purpose of providing
information for the diagnosis, prevention or treatment of disease or the
assessment of medical conditions; and
WHEREAS, Association is a professional corporation organized under the
laws of the state of Florida, which employs physicians who are duly licensed to
practice medicine in the state of Florida and specialists that are Board
Certified in the fields of anatomic pathology; and
WHEREAS, SBCL owns laboratory facilities located in the Florida
counties of Brevard, Orange, Osceola and Seminole (the "Laboratories") for
which professional pathology services and other medical services are needed
from time to time to ensure its proper operation; and
WHEREAS, Association owns a licensed laboratory facility located at
8100 Chancellor Drive, Suite 130, Orlando, Florida 32809 ("Orlando Laboratory")
in which anatomic pathology services are provided;
WHEREAS, SBCL desires to contract with Association for the provision
by Association of anatomic pathology services to SBCL at the Orlando Laboratory
and to compensate Association therefor; and
WHEREAS, Association desires to provide anatomic pathology services to
SBCL; and
WHEREAS, Association and SBCL, desire to provide a statement of their
respective rights, obligations and duties in connection with the performance of
services hereunder.
<PAGE> 3
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
A. RESPONSIBILITIES OF ASSOCIATION
1. Services. Association agrees to provide professional
anatomic pathology services to SBCL in the Florida counties of Brevard, Orange,
Osceola, Seminole and Volusia (Volusia County is subject hereto only to the
extent Volusia County or any part thereof is not subject to a prior pathology
services agreement of SBCL) as shall from time to time be necessary to fulfill
the needs of SBCL as determined by SBCL, including providing such services to
SBCL's clients at the Orlando Laboratory. In the event SBCL requires
professional anatomic pathology services in the Florida counties of Indian
River, Okeechobee, St. Lucie and Volusia (to the extent not covered above) and
SBCL is not restricted to whom it may refer such services, Association agrees
to provide professional anatomic pathology services to SBCL in such counties as
shall from time to time be necessary to fulfill the needs of SBCL as determined
by SBCL. Such medical services will include the professional aspects of tissue
pathology and cytology (with all gynecologic cytology services being performed
on-site at the Orlando Laboratory) and professional consultations. Association
shall at all times have members or engage physicians as more fully described
below in numbers sufficient for such purposes, including particularly those
services performed at the Orlando Laboratory. In addition, Association commits
to at least one pathologist on site at the Orlando Laboratory, from 8:00 a.m.
to 5:00 p.m., Monday through Friday, for consultation regarding cytology and
biopsy services, including, but not limited to, interpretation of results and
explanation of procedures with SBCL or any of SBCL's clients.
2. Licensure and Certification. All members and professional
employees of Association shall be licensed to practice medicine in the state of
Florida and shall be Board Certified pathologists, and shall maintain any other
licensing required by applicable laws or regulations to provide services under
this Agreement. At all times during the term of this Agreement and any renewal
thereof, all cytotechnologists employed by Association, if any, shall be
licensed by the state of Florida, if such licensing exists, and shall meet the
standards set forth in 42 CFR 493.1433-1437 and any amendments or revisions
thereto. The medical services to be provided hereunder shall be rendered in
accordance with the professional standards adopted by the College of American
Pathologists.
3. Quality Assurance and Document/Slide Retention. All services
provided by Association hereunder will be conducted in accordance with the
applicable state and federal laws and regulations pertaining to the services
provided under this Agreement. All services provided by Association hereunder
will be conducted in such a way as to fulfill all SBCL quality assurance
2
<PAGE> 4
requirements, and Association agrees to participate in the SBCL quality
assurance audit programs. With respect to all SBCL requirements, said
requirements shall not result in any substantial increase in cost to the
Association. SBCL will advise the Association in advance as to any change in
any said SBCL requirements and SBCL, will work with the Association in regard
to providing for compliance. Further, Association agrees to abide by SBCL's
document and slide retention policies/protocols, and with the requirements of
all applicable laws and regulations pertaining to document/slide retention.
Upon receipt of a request for documents and/or slides, Association shall
immediately notify SBCL of the request and shall not release such documents and
slides or any information pertaining thereto until permission is granted by
SBCL.
4. Nondisclosure of Proprietary Information.
a. Proprietary Information. Association acknowledges
that, this Agreement creates a relationship of confidence and trust between the
parties with respect to any information disclosed by SBCL to Association during
the course of this Agreement including, but not limited to, secret processes,
formulas, trade secrets, techniques, inventions (whether or not patentable) and
know-how (hereinafter collectively called "proprietary information").
Association agrees to hold such proprietary information communicated to it by
SBCL and documents containing it such an customer lists, specifications, sales
and service manuals, samples and correspondence, in trust and confidence at all
times during the term of this Agreement and after its termination and will
refrain from using or disclosing any such proprietary information except when
acting pursuant to this Agreement.
b. Nondisclosure. All proprietary information received
from SBCL either prior to this Agreement or during its existence shall remain
the property of SBCL, shall be treated as proprietary by Association, shall be
treated with the same degree of care with which Association treats its own
proprietary information, and shall not be divulged or disclosed to others
except with the prior written consent of SBCL. Association agrees that it will
not, without prior written consent of SBCL, communicate proprietary information
to any person or organization other than to those of Association's partners,
associates, employees, agents or representatives to whom it shall be necessary
to disclose it in order to carry out the purposes of this Agreement.
Association agrees to use its best efforts to prevent its partners, associates,
employees, agents or representatives from disclosing any proprietary
information to any other person or organization. Association will promptly
return all such proprietary information provided in written form upon the
written demand therefor by SBCL.
c. Exceptions. The provisions of this paragraph 4 shall
not apply to the extent (i) the information in the public domain or is publicly
known, (ii) the Association obtains said
3
<PAGE> 5
information from a third party who is not under any duty of confidentiality,
(iii) any disclosure is made with the consent of SBCL or is otherwise required
in order for the Association to fulfill its duties and obligations under this
Agreement, or (iv) the Association is compelled to do so by legal process or
the disclosure is otherwise required by applicable law.
B. RESPONSIBILITIES OF SBCL
1. Fees. a. The schedule of fees not forth in Exhibit A
attached hereto shall represent Association's full compensation for all
services provided by Association under this Agreement. Such fee schedule may
be renegotiated annually to take effect January 1 of each year. Any change in
the fee schedule must be approved in writing by both parties. Such fee
schedule must at all times, comply with all applicable laws, rules, regulations
and contractual arrangements with third-party payors.
b. SBCL and Association agree to renegotiate the fee
schedule in good faith. If SBCL and Association can not agree upon a fee
schedule by December 1 of each year then either party may cancel this Agreement
within thirty (30) days of written notice to the other party of such
cancellation.
c. if this Agreement in not renewed or SBCL
terminates this Agreement to obtain another provider for cytology and histology
testing, other than for reasons of non-performance or quality assurance, SBCL
shall provide Association a right of first. refusal to provide those services
but only if SBCL proposes to pay to the other provider a fee schedule greater
than that which SBCL last proposed to Association prior to the expiration or
termination of this Agreement.
d. Association shall invoice SBCL on a monthly basis.
Within twenty (20) days after SBCL's receipt of each invoice, SBCL will pay
Association at Association's office located at 8100 Chancellor Drive, Suite
130, Orlando, Florida 32809, an amount equal to the total professional and
technical fees for services performed during the preceding month in accordance
with the fee schedule set forth in Exhibit A.
2. Services. SBCL shall provide the following services or perform
the following obligations on an ongoing basis during the term of this Agreement
and any renewals thereof:
a. all supplies, including but not limited to, glass
slides, slide holders, collection supplies, requisition slips, reporting forms
and other supplies as needed by SBCL clients, at no cost to Association;
b. sell supplies, equipment and requisitions to
Association for its clients at cost;
4
<PAGE> 6
c. Distribution services which include courier and report
delivery, at no cost to Association (such courier services shall apply to all
clients of the Association regardless of whether said clients are also SBCL
clients and shall be of such frequency and timing as are customarily required
by the Association to perform its duties and obligations under this Agreement);
d. order entry and accessioning of cytology work to
interface with Association's computer system and providing Association with a
copy of requisition, at no cost to Association;
e. microfilm copy of all cytology and histology
requisitions, at no cost to Association;
f. installation of the necessary telephone lines into
Association to be used solely for the purpose of carrying out the terms of this
Agreement (SBCL shall permit Association to utilize its Florida WATS line for
the purpose of carrying out this Agreement and for Association's other
clients), at no cost to Association;
g. data processing capabilities at no cost to
Association except to the extent SBCL incurs any additional, third party costs
as a direct result of said sharing by Association (and which costs would not
previously have been incurred by SBCL but for this Agreement). SBCL shall
notify Association of such costs and provide evidence to Association
substantiating such costs. Association shall pay such costs within twenty (20)
days of notice. Depreciation and other similar non-cash expenses and SBCL
salaries shall not be considered a cost or expense under this provision; and
h. maintain appropriate licenses and certifications
necessary for SBCL to operate the Laboratories.
3. Nonsolicitation. During the term of this Agreement and any
renewals thereof and continuing for a period of one (1) year following
expiration, nonrenewal or termination of this Agreement, SBCL agrees not to
solicit directly or indirectly the services, including employment or consulting
agreements, of any person employed by Association without the consent of
Association.
4. Primary Vendor. In the counties which are subject to this
Agreement (which would include such additional counties under paragraph A.1. as
may from time to time be subject to this Agreement), the Association shall be
the primary vendor of pathology services to SBCL and SBCL clients. As such,
subject to the further provisions of this paragraph 4, SBCL shall refer to the
Association all specimens for anatomic pathology services in said areas for the
Association to provide said services hereunder. The provisions of this
paragraph 4 are subject to the following terms:
a. if a client of SBCL wishes to utilize cytology and
histology services from another pathology provider, then SBCL shall
5
<PAGE> 7
not be obligated to refer or said specimens to the Association hereunder
provided, and
b. In regard to cytology/histology testing, the provisions
of paragraph D.2.e. shall apply as to any substantial increase in volume.
C. PROFESSIONAL LIABILITY INSURANCE AND NOTICE
1. Professional Liability Insurance Coverage. Each party shall
obtain and maintain at its own expense respectively, professional liability
insurance, or in the case of SBCL only self insurance, in the minimum amount.
of One Million Dollars ($1,000,000) per claim/occurrence and Three Million
Dollars ($3,000,000) in the aggregate to cover said party for any and all
liability it may have with respect to the provision of services pursuant to
this Agreement or with respect to its responsibilities hereunder.
2. Notice. Each party hereto shall promptly notify the other in
writing of any claim asserted against the other party, or any of either party's
employees, agents, servants or representatives, relating to the services
provided under this Agreement or the responsibilities hereunder, and further
shall promptly deliver to the other party a true copy of any such claim
including, but not limited to, a true copy of any summons or other process,
pleading or notice issued in any lawsuit or other proceeding to assert or
enforce any such claim.
D. TERM AND TERMINATION
1. Initial Term and Renewal. This Agreement shall commence on
the 1st day of April, 1992 and shall remain in effect for an initial term of
one (1) year. Thereafter, this Agreement shall automatically renew for
successive terms of three (3) years subject to all terms and conditions herein
contained (except that the fees provided for in paragraph B.1, above, are
subject to review and adjustment on an annual basis), unless and until either
the Association or SBCL shall give the other party written notice not less than
ninety (90) days prior to expiration of the then current term of its intention
to terminate this Agreement as of the expiration of the initial yearly term or
any subsequent term.
2. Termination. This Agreement will immediately and
automatically terminate on and as of the date any of the following occur:
a. Default. Failure of either party to comply with any
of the material terms of this Agreement after thirty (30) days' written notice
of such failure or violation by the other party giving notice of such default
or noncompliance and written notice of its intention to so terminate, unless
within such thirty (30) day period the defaulting party has cured such default;
or
6
<PAGE> 8
b. Discontinuance of Operations. Discontinuance of its
operations by either party by law or otherwise for a period of fifteen (15) or
more days; or
c. Bankruptcy. The filing of a petition in bankruptcy
by either party or the making by either party of an assignment for the
benefit of creditors; or if any involuntary petition in bankruptcy or petition
for an arrangement pursuant to the Bankruptcy Act is filed against either
party and is not dismissed within thirty (30) days; or if a receiver is
appointed for the business of either party, or any part thereof.
d. Sale of Association. The sale of the Association or
any part of the Association to a third party.
e. SBCL may terminate this Agreement immediately upon
written notice to Association under the following circumstances;
(1) any shareholder, physician employee or
physician contractor of Association is
charged with gross misconduct of either a
professional or personal nature, or engages
in other conduct which is grounds for
immediate discharge without pay under SBCL's
personnel policies; or
(2) any shareholder, physician employee or
physician contractor of Association is
convicted of a crime other than a minor
traffic violation; or
(3) any shareholder, physician employee or
physician contractor of Association has his
or her right to practice medicine in the
State either suspended, lapsed, revoked, or
placed under probation, or is excluded from
the Medicare or Medicaid programs, or fails
to maintain his or her standing as a Board-
Certified clinical and anatomic pathologist
or licensed cytotechnologist; or
(4) any shareholder, physician employee or
physician contractor has a guardian or
conservator of the person or estate appointed
by a court of competent jurisdiction; or
(5) any shareholder, physician employee or
physician contractor of Association becomes
permanently disabled to the extent he or she
is unable to perform the duties required by
this Agreement.
7
<PAGE> 9
This subparagraph e. shall not apply if, within thirty (30) days after the
receipt by the Association of said notice, the Association in regard to said
particular shareholder, physician employee or physician contractor either
terminates said person or undertakes said actions as are necessary so that said
person will no longer be involved in the rendering of services to SBCL under
this Agreement.
f. Association may terminate this Agreement in the event SBCL
does not provide Association with cytology and histology tests in an amount
equal to at least seventy-five (75) percent of the number of tests provided in
1992, during each year of this Agreement and any renewals thereof. In the
event SBCL proposes to furnish to the Association additional cytology and
histology tests resulting in a substantial increase in number over that set
forth herein or from that previously agreed to between SBCL and the
Association, the parties will agree to cooperate and work together so that the
Association shall have time within which to increase its capacity to handle
said increase and once the Association has increased its capacity, said
increase as agreed to shall constitute the revised number of tests under this
subparagraph f.
E. MISCELLANEOUS
1. Nonbreach. Each party represents and warrants that execution
of and performance under this Agreement shall not constitute or cause a breach
of any other agreement between that party and any third party.
2. Entire Agreement: Amendments. This Agreement contains the
entire understanding between the parties hereto and supersedes any and all
prior agreements, understandings and arrangements between the parties relating
to the subject matter hereof. No amendment, change, modification or alteration
of the terms and conditions hereof shall be binding unless evidenced by a
writing signed by all the parties hereto.
3. Waiver. The failure of any party to this Agreement to exercise
or enforce any right conferred upon it hereunder shall not be deemed to be a
waiver of any such right nor operate to bar the exercise or performance thereof
at any time or times thereafter, nor shall a waiver of any right hereunder at
any given time, including rights to any payments, be deemed a waiver thereof
for any other time.
4. Force Majeure. No party to this Agreement shall be liable for
failure to perform any duty or obligation that said party may have under the
Agreement where such failure has been occasioned by any act of God, fire,
strike, inevitable accident, war or any cause outside the reasonable control of
the party who had the duty to perform.
8
<PAGE> 10
5. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, the
parties shall, if possible, agree on a legal, valid and enforceable substitute
provision which is as similar in effect to the deleted provision as possible.
The remaining portion of the Agreement not declared illegal, invalid or
unenforceable shall, in any event, remain valid and effective for the term
remaining unless the provision found illegal, invalid or unenforceable goes to
the essence of this Agreement.
6. Assignment. Without prior written consent of the other party
hereto, neither party may assign any of its rights or delegate any of its
obligations hereunder. Notwithstanding anything to the contrary herein
contained, SBCL may assign its rights hereunder to SmithKline Beecham
Corporation or any of its affiliated companies without the consent of
Association. Subject to the foregoing, this Agreement inures to the benefit
of, and is binding upon, the successors and assigns of the parties hereto.
7. Legislative/Regulatory Modification. In the event Medicare,
Medicaid or any third-party payor, or any other federal, state or local law,
rule, regulation or interpretation thereof at any time during the term of this
Agreement prohibits, restricts or in any way substantially changes the method
or amount of reimbursement or payment for services under this Agreement, then
this Agreement shall, in good faith, be amended by the parties to provide for
payment of compensation in a manner consistent with any such prohibition,
restriction or limitation. If as a result of any such prohibition, restriction
or change Association incurs additional costs, SBCL shall compensate
Association for such additional costs. However, if as a result of any such
prohibition, restriction or change Association's costs are reduced, Association
shall pay SBCL an amount equal to such reduction. With respect to any such
prohibitions, restrictions or changes that require amendment of this Agreement,
if this Agreement is not so amended in writing prior to the effective date of
said change, this Agreement shall terminate, unless otherwise agreed upon.
8. Notice. All notices hereunder shall be in writing, personally
delivered or sent by certified mail, return receipt requested, addressed to
the other party as follows:
If to Association: Derrick & Associates Pathology, P.A.
8100 Chancellor Drive, Suite 130
Orlando, Florida 32809
Attention: Sherry P. Larson, CEO
9
<PAGE> 11
If to SBCL: SmithKline Beecham Clinical
Laboratories, Inc.
4225 East Fowler Avenue
Tampa, Florida 33617
Attention: John B. Okkerse, Jr.,
Vice President and
General Manager
With a copy to: SmithKline Beecham
Law Department (FP2225)
One Franklin Plaza
P.O. Box 7929
Philadelphia, Pennsylvania 19101
Attention: Robert F. Harchut, Esq.
and
Akerman, Senterfitt & Eidson
17th Floor, Firstate Tower
255 South Orange Avenue
Post Office Box 231
Orlando, Florida 32802-0231
Attention: Patrick T. Christiansen, Esq.
Either party may change its address to which notices shall be sent by a notice
similarly sent.
9. Execution in Counterpart. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10. Section Headings. Section headings contained in this Agreement
are for reference purposes only and shall not affect, in any way, the meaning
and interpretation of this Agreement.
11. Parties as Independent Contractors. The parties to this
Agreement understand and agree that no agency, employment, partnership or joint
venture is created by this Agreement, and the businesses operated by SBCL and
Association are separate. The parties further agree that neither party is the
general agent of the other and no representation shall be made by either party
that would create apparent agency, employment, partnership or joint venture.
Neither party will have the authority to act for the other in any manner, nor
to create obligations or debts that would be binding upon the other.
12. Governing Law. This Agreement and the rights and obligations
of the parties hereunder shall in all respects be governed by the substantive
law of the state of Florida, including all matters of construction, validity
and performance, but without
10
<PAGE> 12
giving effect to Florida choice-of-law or conflict-of-law principles.
13. No Third Party Beneficiaries. This Agreement is solely
between SBCL and the Association, and no other parties shall have any rights or
privileges hereunder either as third party beneficiaries or otherwise.
14. Cross Default/Cross-Termination. This Agreement has been
entered into simultaneous with the parties also entering into a certain
Agreement for Medical Directorship (the "Medical Directorship Agreement"). This
Agreement and the Medical Directorship Agreement shall be subject to cross
default and cross termination provisions such that a default under either
agreement shall be and constitute a default under the other agreement and the
termination or expiration of one agreement shall also constitute the
termination or expiration of the other agreement.
[INTENTIONALLY LEFT BLANK]
11
<PAGE> 13
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this Agreement in duplicate effective as of the date first above
written, each party to retain a duplicate original.
SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC. ("SBCL")
By: /s/John B. Okkerse, Jr.
-----------------------------------
Name: John B. Okkerse, Jr.
---------------------------------
Title: Vice President/General Manager
--------------------------------
DERRICK & ASSOCIATES PATHOLOGY
P.A. ("ASSOCIATION")
By: /s/Gert G. Larbig, M.D.
-----------------------------------
Name: Gert G. Larbig, M.D.
---------------------------------
Title: President
--------------------------------
12
<PAGE> 1
EXHIBIT 10.23
AGREEMENT FOR MEDICAL DIRECTORSHIP
THIS AGREEMENT is made this 1st day of April, 1992, by and between
SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation, with a
principal office located at 4225 East Fowler Avenue, Tampa, Florida 36617
("SBCL") and Derrick and Associates Pathology, P.A., a professional corporation
organized under the laws of the state of Florida with a principal office
located at 8100 Chancellor Drive, Suite 130, Orlando, Florida 32809
("Association").
WITNESSETH
WHEREAS, SBCL is a corporation organized under the laws of the state of
Delaware which owns and operates or manages clinical laboratories or provides
laboratory services, management support and reference testing to laboratories
which perform various tests for the purpose of providing information for the
diagnosis, prevention or treatment of disease or the assessment of medical
conditions; and
WHEREAS, Association is a professional corporation organized under the
laws of the state of Florida, which employs physicians who are duly licensed to
practice medicine in the state of Florida and specialists that are Board
Certified in the fields of anatomic and clinical pathology; and
WHEREAS, SBCL owns a laboratory facility located at 7520 Commerce
Center, Orlando, Florida 32819 (the "Laboratory") for which professional
pathology services and medical director services are needed from time to time
to ensure its proper operation; and
WHEREAS, SBCL desires to contract with Association for the provision by
Association of clinical pathology and medical director services to the
Laboratory and to compensate Association therefor; and
WHEREAS, Association desires to provide clinical pathology and medical
director services to SBCL; and
WHEREAS, Association and SBCL desire to provide a statement of their
respective rights, obligations and duties in connection with the performance of
services hereunder.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
<PAGE> 2
A. RESPONSIBILITIES OF ASSOCIATION
1. Medical Director. Association agrees to make available to
the Laboratory the services of a qualified pathologist, who shall be designated
by Association (subject to SBCL's approval and consent), to perform the duties
of Medical Director of the Laboratory ("Medical Director") and qualified
substitutes on a temporary basis when the appointed Medical Director of that
facility is temporarily absent. If Association is unable to designate a
qualified pathologist who meets with SBCL's approval to act as a replacement or
substitute Medical Director for the Laboratory, SBCL may terminate this
Agreement as set forth in paragraph D 2 hereof. Said Medical Director will
initially be on-site at the Laboratory a minimum of four (4) hours per week.
As the testing activities of the Laboratory increase, the number of hours
on-site shall be increased accordingly as agreed by Association and SBCL.
2. Responsibilities of Medical Director.
a. Director of Laboratory. Medical Director shall act as
Director of the Laboratory and shall be responsible for the administration of
all technical and scientific operations of the Laboratory, including
supervision of testing procedures and result reporting. Medical Director shall
be responsible for ensuring that the Laboratory is in compliance with all
applicable local, state and federal laws, rules and regulations.
b. Quality Assurance. Medical Director will be a
participating member of SBCL's Quality Assurance Committee, which includes
participating in national quality assurance assignments at SBCL's request.
Each week Medical Director will devote at a minimum thirty percent (30%) of
Medical Director's on-site time at the Laboratory to qualify assurance matters.
3. Additional Professional Services. At such time as SBCL
requires professional pathology services and medical direction for any
additional laboratory or laboratories which SBCL owns or provides management
support in the Florida counties of Brevard, Orange, Osceola, Seminole, Indian
River, Lake, Okeechobee, St. Lucie and Volusia, Association agrees to provide
clinical pathology services and a medical director (subject to SBCL's approval
and consent) upon the request of SBCL, unless the parties mutually agree that
Association need not perform these additional services. Additional
compensation for such services will be negotiated in good faith as required.
SBCL retains the right to choose the pathology group and medical director for
the additional laboratory or laboratories at its sole discretion.
4. Nondisclosure of Proprietary Information.
a. Proprietary Information. Association acknowledges
that this Agreement creates a relationship of confidence and trust
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<PAGE> 3
between the parties with respect to any information disclosed by SBCL to
Association during the course of this Agreement including, but not limited to,
secret processes, formulas, trade secrets, techniques, inventions (whether or
not patentable) and know-how (hereinafter collectively called "proprietary
information"). Association agrees to hold such proprietary information
communicated to it by SBCL and documents containing it such as customer lists,
specifications, sales and service manuals, samples and correspondence, in trust
and confidence at all times during the term of this Agreement and after its
termination and will refrain from using or disclosing any such proprietary
information except when acting pursuant to this Agreement.
b. Nondisclosure. All proprietary information received from SBCL
either prior to this Agreement or during its existence shall remain the
property of SBCL, shall be treated as proprietary by Association, shall be
treated with the same degree of care with which Association treats its own
proprietary information, and shall not be divulged or disclosed to others
except with the prior written consent of SBCL. Association agrees that it will
not, without prior written consent of SBCL, communicate proprietary information
to any person or organization other than to those of Association's partners,
associates, employees, agents or representatives to whom it shall be necessary
to disclose it in order to carry out the purposes of this Agreement.
Association agrees to use its best efforts to prevent its partners, associates,
employees, agents or representatives from disclosing any proprietary
information to any other person or organization. Association will promptly
return all such proprietary information provided in written form upon the
written demand therefor by SBCL.
c. Exceptions. The provisions of this paragraph 4 shall not apply to
the extent (i) the information is in the public domain or is publicly known,
(ii) the Association obtains said information from a third party who is not
under any duty of confidentiality, (iii) any disclosure is made with the
consent of SBCL or is otherwise required in order for the Association to
fulfill its duties and obligations under this Agreement, or (iv) the
Association is compelled to do so by legal process or the disclosure is
otherwise required by applicable law.
B. RESPONSIBILITIES OF SBCL
1. Fees. SBCL shall pay Association for the professional services
rendered Twenty-four Thousand Dollars ($24,000.00) per year. Such fee-for
service remuneration shall be paid in equal monthly installments of Two
Thousand Dollars ($2,000.00) per month on the last day of each month following
the month in which services have been provided by Association hereunder. The
installments must at all times, comply with all applicable laws, rules,
regulations and contractual arrangements with third-party payors.
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<PAGE> 4
2. Nonsolicitation. During the term of this Agreement and any
renewals thereof and continuing for a period of one (1) year following
expiration, nonrenewal or termination of this Agreement, SBCL agrees not to
solicit directly or indirectly the services, including employment or consulting
agreements, of any person employed by Association without the consent of
Association which consent shall not be unreasonably withheld.
C. PROFESSIONAL LIABILITY INSURANCE AND NOTICE
1. Professional Liability Insurance Coverage. Each party shall obtain
and maintain at its own expense respectively, professional liability insurance,
or in the case of SBCL only self-insurance, in the minimum amount of One
Million Dollars ($1,000,000) per claim/occurrence and Three Million Dollars
($3,000,000) in the aggregate to cover said party for any and all liability it
may have with respect to the provision of services pursuant to this Agreement
or with respect to its responsibilities hereunder.
2. Notice. Each party hereto shall promptly notify the other in
writing of any claim asserted against the other party, or any of either party's
employees, agents, servants or representatives, relating to the services
provided under this Agreement or the responsibilities hereunder, and further
shall promptly deliver to the other party a true copy of any such claim
including, but not limited to, a true copy of any summons or other process,
pleading or notice issued in any lawsuit or other proceeding to assert or
enforce any such claim.
D. TERM AND TERMINATION
1. Initial Term and Renewal. This Agreement shall commence on the 1st
day of April, 1992 and shall remain in effect for an initial term of one (1)
year. Thereafter, this Agreement shall automatically renew for successive
terms of three (3) years subject to all terms and conditions herein contained
(except that the installments provided for in paragraph B.1, above, are subject
to review and adjustment on an annual basis), unless and until either the
Association or SBCL shall give the other party written notice not less than
ninety (90) days prior to expiration of the then current term of its intention
to terminate this Agreement as of the expiration of the initial or any
subsequent yearly term.
2. Termination. This Agreement will immediately and automatically
terminate on and as of the date any of the following to occur:
a. Default. Failure of either party to comply with any of the
material terms of this Agreement after thirty (30) days written notice of such
failure or violation by the other party
4
<PAGE> 5
giving notice of such default or noncompliance and written notice of its
intention to so terminate, unless within such thirty (30) day period the
defaulting party has cured such default; or
b. Discontinuance of Operations. Discontinuance of its operations by
either party by law or otherwise for a period of fifteen (15) or more days; or
c. Bankruptcy. The filing of a petition in bankruptcy by either party
or the making by either party of any assignment for the benefit of creditors;
or if any involuntary petition in bankruptcy or petition for an arrangement
pursuant to the Bankruptcy Act is filed against either party and is not
dismissed within thirty (30) days; or if a receiver is appointed for the
business of either party, or any part thereof.
d. Sale of Association. The sale of the Association or any part of
the Association or any part of the Association to a third party.
e. SBCL may terminate this Agreement immediately upon written notice
to Association under the following circumstances:
(1) Medical Director is charged with gross misconduct of either a
professional or personal nature, or engages in other conduct
which is grounds for immediate discharge without pay under
SBCL's personnel policies; or
(2) Medical Director is convicted of a crime other than a minor
traffic violation; or
(3) Medical Director has his or her right to practice medicine in
the State either suspended, lapsed, revoked, or placed under
probation, or is excluded from the Medicare or Medicaid
programs, or fails to maintain his or her standing as a
Board-Certified clinical and anatomic pathologist or licensed
cytotechnologist; or
(4) Medical Director has guardian or conservator of the person or
estate appointed by a court of competent jurisdiction; or
(5) Medical Director becomes permanently disabled to the extent he
or she is unable to perform the duties required by this
Agreement and ABCL does not approve the pathologist designated
by Association to act as the replacement or substitute for the
Medical Director.
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<PAGE> 6
This subparagraph e. shall not apply if, within thirty (30) days after the
receipt by the Association of said notice, the Association in regard to said
Medical Director either terminates said Medical Director or undertakes said
actions as are necessary so that said Medical Director will no longer be
involved in the rendering of services to SBCL under this Agreement and
Association designates a pathologist who is approved by SBCL to act as the
replacement or substitute for the Medical Director.
E. Miscellaneous
1. Nonbreach. Each party represents and warrants that execution of and
performance under this Agreement shall not constitute or cause a breach of any
other agreement between that party and any third party.
2. Entire Agreement; Amendments. This Agreement contains the entire
understanding between the parties hereto and supersedes any and all prior
agreements, understandings and arrangements between the parties relating to the
subject matter hereof. No amendment, change, modification or alteration of the
terms and conditions hereof shall be binding unless evidenced by a writing
signed by all the parties hereto.
3. Waiver. The failure of any party to this Agreement to exercise or
enforce any right conferred upon it hereunder shall not be deemed to be a
waiver of any such right nor operate to bar the exercise or performance thereof
at any time or times thereafter, nor shall a waiver of any right hereunder at
any given time, including rights to any payments, be deemed a waiver thereof
for any other time.
4. Force Majeure. No party to this Agreement shall be liable for failure
to perform any duty or obligation that said party may have under the Agreement
where such failure has been occasioned by any act of God, fire, strike,
inevitable accident, war or any cause outside the reasonable control of the
party who had the duty to perform.
5. Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, the
parties shall, if possible, agree on a legal, valid and enforceable substitute
provision which is as similar in effect to the deleted provision as possible.
The remaining portion of the Agreement not declared illegal, invalid or
unenforceable shall, in any event, remain valid and effective for the term
remaining unless the provision found illegal, invalid or unenforceable goes to
the essence of this Agreement.
6. Assignment. Without prior written consent of the other party hereto,
neither party may assign any of its rights or delegate any of its obligations
hereunder. Notwithstanding anything
6
<PAGE> 7
to the contrary herein contained, SBCL may assign its rights hereunder to
SmithKline Beecham Corporation or any of its affiliated companies without the
consent of Association. Subject to the foregoing, this Agreement inures to the
benefit of, and is binding upon, the successors and assigns of the parties
hereto.
7. Legislative/Regulatory Modification. In the event Medicare, Medicaid
or any third-party payor, or any other federal, state or local law, rule,
regulation or interpretation thereof at any time during the term of this
Agreement prohibits, restricts or in any way substantially changes the method
or amount of reimbursement or payment for services under this Agreement, then
this Agreement shall, in good faith, be amended by the parties to provide for
payment of compensation in a manner consistent with any such prohibition,
restriction or change Association incurs additional costs, SBCL shall
compensate Association for such additional costs. However, if as a result of
any such prohibition, restriction or change Association's costs are reduced,
Association shall pay SBCL an amount equal to such reduction. With respect to
any such prohibitions, restriction or changes that require amendment of this
Agreement, if this Agreement is not so amended in writing prior to the
effective date of said change, this Agreement shall terminate, unless otherwise
agreed upon.
8. Notice. All notices hereunder shall be in writing, personally
delivered or sent by certified mail, return receipt requested, addressed to the
other party as follows:
If to Association: Derrick & Associates Pathology, P.A.
8100 Chancellor Drive, Suite 130
Orlando, Florida 32809
Attention: Sherry P. Larson, CEO
If to SBCL: SmithKline Beecham Clinical
Laboratories, Inc.
4225 East Fowler Avenue
Tampa, Florida 33617
Attention: John B. Okkerse, Jr.,
Vice President and
General Manager
With a copy to: SmithKline Beecham
Law Department (FP2225)
One Franklin Plaza
P.O. Box 7929
Philadelphia, Pennsylvania 19101
Attention: Robert F. Harchut, Esq.
and
7
<PAGE> 8
Akerman, Senterfitt Edison
17th Floor, Firstate Tower
255 South Orange Avenue
Post Office Box 231
Orlando, Florida 32802-0231
Attention: Patrick T. Christiansen, Esq.
Either party may change its address to which notices shall be sent by a notice
similarly sent.
9. Execution in Counterpart. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10. Section Headings. Section headings contained in this Agreement
are for reference purposes only and shall not affect, in any way, the meaning
and interpretation of this Agreement.
11. Parties as Independent Contractors. The parties to this
Agreement understand and agree that no agency, employment, partnership or joint
venture is created by this Agreement, and the businesses operated by SBCL and
Association are separate. The parties further agree that neither party in the
general agent of the other and no representation shall be made by either party
that would create apparent agency, employment, partnership or joint venture.
Neither party will have the authority to act for the other in any manner, nor
to create obligations or debts that would be binding upon the other.
12. Governing Law. This Agreement and the rights and obligations
of the parties hereunder shall in all respects be governed by the substantive
law of the state of Florida, including all matters of construction, validity
and performance, but without giving effect to Florida choice-of-law or
conflict-of-law principles.
13. No Third Party Beneficiaries. This Agreement in solely
between SBCL and the Association, and no other parties shall have any rights or
privileges hereunder either as third party beneficiaries or otherwise.
14. Cross Default/Cross-Termination. This Agreement has been
entered into simultaneous with the parties also entering into a certain
Agreement for Professional Pathology Services (the "Pathology Services
Agreement"). This Agreement and the Pathology Services Agreement shall be
subject to cross default and cross termination provisions such that a default
under either agreement shall be and constitute a default under the other
agreement and the
8
<PAGE> 9
termation or expiration of one agreement shall also constitute the termination
or expiration of the other agreement.
(INTENTIONALLY LEFT BLANK)
9
<PAGE> 10
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this Agreement in duplicate effective as of the date first above
written, each party to retain a duplicate original.
SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC. ("SBCL")
By: /s/John B. Okkerse, Jr.
-----------------------------------
Name: John B. Okkerse, Jr.
---------------------------------
Title: Vice President/General Manager
--------------------------------
DERRICK & ASSOCIATES PATHOLOGY
P.A. ("ASSOCIATION")
By: /s/Gert G. Larbig, M.D.
-----------------------------------
Name: Gert G. Larbig, M.D.
---------------------------------
Title: President
--------------------------------
10
<PAGE> 1
EXHIBIT 10.24
AGREEMENT FOR PROFESSIONAL PATHOLOGY SERVICES
THIS AGREEMENT is made this 1st day of November 1996, by and between
SmithKline Beecham Clinical Laboratories, Inc., a Delaware corporation, with a
principal office located at 4225 East Flower Avenue, Tampa, Florida 36617
("SBCL") and AmeriPath Florida, Inc. Derrick and Associates Pathology, a
corporation organized under the laws of the state of Florida with a principal
facility located at 8100 Chancellor Drive, Suite 130, Orlando, Florida 32809
("AmeriPath").
WITNESSETH
WHEREAS, SBCL is a corporation organized under the laws of the state of
Delaware which owns and operates or manages clinical laboratories or provides
laboratory services, management support and reference testing to laboratories
which perform various tests for the purpose of providing information for the
diagnosis, prevention or treatment of disease or the assessment of medical
conditions; and
WHEREAS, AmeriPath is a professional corporation organized under the
laws for the state of Florida, which employs physicians who are duly licensed to
practice medicine in the State of Florida and specialists that are Board
Certified in the fields of anatomic and clinical pathology; and
WHEREAS, SBCL owns laboratory facilities located in Florida (the
"Laboratories") for which professional pathology services and other medical
services are needed from time to time to ensure its proper operation; and
WHEREAS, AmeriPath owns a licensed laboratory facility located at 8100
Chancellor Drive, Suite 130, Orlando, Florida 32809 ("Orlando Laboratory") in
which anatomic pathology services are provided;
WHEREAS, SBCL desires to contract with AmeriPath for the provision by
AmeriPath of anatomic pathology services to SBCL and to compensate AmeriPath;
and
WHEREAS, AmeriPath desires to provide anatomic pathology services to
SBCL; and
WHEREAS, AmeriPath and SBCL desire to provide a statement of their
respective rights, obligations and duties in connection with the performance of
services hereunder.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties agree as follows:
A. RESPONSIBILITIES OF AMERIPATH
1. Services: AmeriPath agrees to provide professional
anatomic pathology services (including histological and cytological services to
SBCL as SBCL shall from time-to-time request. Such medical services will
include, without limitation, the professional aspects of tissue pathology and
cytology and professional consultations and shall be performed only on site at
(site(s) licensed for anatomic pathology under federal regulations and by the
state of Florida. AmeriPath agrees that it will provide written [or
electronic] reports to SBCL with respect to its findings as to all tissue
specimens by AmeriPath. Such reports shall set forth the name and address of
the facility where the examination was performed and the Unique Physician
Identification Numbers ("UPINs") of the physicians rendering the professional
anatomic pathology services.
<PAGE> 2
AMERIPATH DBA DERRICK AND ASSOCIATES PATHOLOGY
SMITHKLINE BEECHAM CLINICAL LABORATORIES
OCTOBER, 96
PAGE 2
AmeriPath shall at all times have members or engage physicians in numbers
sufficient for such purposes and in numbers sufficient to meet any and all
applicable federal, state or local regulations.
2. Specimen Handling: AmeriPath agrees to provide specimen
receiving and computer accessioning services for all cytology and history
specimens. The accessioning will be performed on the SBCL "Top Lab" system
following established SBCL procedures.
3. Licensure and Certification. All members and professional
employees of AmeriPath shall be licensed to practice medicine in the state of
Florida and shall be Board Certified pathologists, and shall maintain any other
licensing required by applicable laws or regulations to provide services under
this Agreement. At all times during the term of this Agreement and any renewal
thereof, all cytotechnologists employed by AmeriPath, if any, shall be Licensed
by the state of Florida, if such licensing exists, and any other applicable
Federal, state or local regulations, and also be registered or eligible for
registration by the American Society of Clinical Pathologists and shall meet
the standards set forth in 42 CFR 493.1433-1437 and any amendments or revisions
thereto. The medical services to be provided hereunder shall be rendered in
accordance with the professional standards adopted by the College of American
Pathologists. AmeriPath will maintain appropriate licenses and certifications
necessary to operate the pathology services and laboratories.
4. Quality Assurance and Document/Slide Retention. All services
provided by AmeriPath hereunder will be conducted in accordance with the
applicable laws and regulations pertaining to the services provided under this
Agreement. All services provided by AmeriPath hereunder will be conducted in
such a way as to fulfill all SBCL quality assurance requirements (including,
without limitation, the requirement that results or cytological findings be
reported using the then current Bethesda System), and AmeriPath agrees to
participate in all SBCL quality assurance efforts. Further, AmeriPath agrees
to abide by SBCL's document and slide retention policies/protocols, and with
the requirements of all applicable laws and regulations pertaining to document
/slide retention. Upon receipt of a request for documents and/or slides,
AmeriPath shall immediately notify SBCL of the request and shall coordinate the
release of such documents, slides and/or any information pertaining thereto
with the SBCL well in advance of such release.
5. Nondisclosure of Proprietary Information.
a. Proprietary Information. Ameripath acknowledges
that this Agreement creates a relationship of confidence and trust between the
parties with respect to any information disclosed by SBCL to AmeriPath during
the course of this Agreement including, but not limited to, secret processes,
formulas, trade secrets, techniques, inventions (whether or not patentable) and
know-how (hereinafter collectively called "proprietary information").
AmeriPath agrees to hold such proprietary information communicated to it by
SBCL and documents containing it such as customer lists, specifications, sales
and service manuals, samples and correspondence, in trust and confidence at all
times during the term of this Agreement and after its termination and will
refrain from using or disclosing any such proprietary information except when
acting pursuant to this Agreement.
b. Nondisclosure. All proprietary information received
from SBCL either prior to this Agreement or during its existence shall remain
the property of SBCL, shall be treated as proprietary by AmeriPath, shall be
treated with the same degree of care with which AmeriPath treats its own
proprietary information, and shall not be divulged or disclosed to others
except with the prior written consent of SBCL. AmeriPath agrees that it will
not, without prior written consent of SBCL, communicate proprietary information
to any person or organization other than to those of AmeriPath's partners,
associates, employees, agents or representatives to whom it shall be necessary
to disclose it in order to carry out the purposes of this Agreement. AmeriPath
<PAGE> 3
AMERIPATH DBA DERRICK AND ASSOCIATES PATHOLOGY
SMITHKLINE BEECHAM CLINICAL LABORATORIES
OCTOBER 96
PAGE 3
agrees to use its best efforts to prevent its partners, associates, employees,
agents or representatives from disclosing any proprietary information to any
other person or organization. AmeriPath will promptly return all such
proprietary information provided in written form upon the written demand by
SBCL.
e. Exceptions. The provisions of this paragraph 4 shall not apply to
the extent (i) the information is in the public domain or is publicly known,
(ii) AmeriPath obtains said information from a third party who is not under any
duty of confidentiality, (iii) any disclosure is made with the consent of SBCL
or is otherwise required in order for AmeriPath to fulfill its duties and
obligations under this Agreement, or (iv) AmeriPath is compelled to do so by
legal process or the disclosure is otherwise required by applicable law.
However, in such cases AmeriPath will give SBCL prior written notification of
its disclosure.
B. RESPONSIBILITIES OF SBCL
1. Fees and Billing. The schedule of fees set forth in Exhibit A
attached hereto shall represent AmeriPath's full compensation for all services
provided by AmeriPath under this Agreement. Such fee schedule may be
renegotiated annually, on the anniversary date of the contract, to take effect
within 60 days of Agreement each year and to remain in effect for the
succeeding twelve (12) month period. Any change in the fee schedule must be
approved in writing by both parties. Such fee schedule must at all times,
comply with all applicable laws, rules, regulations and contractual
arrangements with third-party payors. SBCL and AmeriPath agree to renegotiate
the fee schedule in good faith.
AmeriPath shall invoice SBCL on a monthly basis. Within twenty (20) days after
SBCL's receipt of each invoice, SBCL will pay AmeriPath an amount equal to the
total professional and technical fees for services performed during the
preceding month in accordance with the fee schedule set forth in Exhibit A.
AmeriPath shall use electronic interface for transmitting invoices to SBCL
including the CPT codes of services provided.
2. Billing Penalty: AmeriPath has agreed to provide a PAP smear final
report to SBCL within 21 calendar days of receiving the slide in the AmeriPath
facility. If the turnaround time exceeds 21 calendar days, SBCL will notify
AmeriPath in writing of this Problem. AmeriPath has one week to correct the
problem without penalty. After one week, a penalty of 5% of the PAP smear fee
will be imposed until the turnaround time is corrected to less than 21
calendar days.
3. Renewal: If this Agreement is not renewed or SBCL terminates
this Agreement to obtain another provider for cytology and histology testing,
other than for reasons of non-performance or quality assurance, SBCL shall
provide AmeriPath a right of first refusal to provide those services at the same
rate.
4. Services: SBCL shall provide the following services or perform
the following obligations on an ongoing basis during the term of this Agreement
and any renewals thereof;
a. all supplies, including but not limited to, glass slides,
slide holders, collection supplies, regulations slips, reporting forms and
other supplies as needed by SBCL clients, at no cost to AmeriPath;
b. distribution services which include courier and report
delivery, at no cost to AmeriPath (such courier services shall apply to all
clients of AmeriPath and shall be of such obligations under this Agreement);
<PAGE> 4
AMERIPATH DBA DERRICK AND ASSOCIATES PATHOLOGY
SMITKLINE BEECHAM CLINICAL LABORATORIES
OCTOBER, 96
PAGE 4
c. installation of the necessary telephone lines into
AmeriPath to be used solely for the purpose of carrying out the terms of this
Agreement (SBCL shall permit AmeriPath to utilize its Florida Watts line for
the purpose of carrying out this Agreement), at no cost to AmeriPath;
d. data processing capabilities necessary for handling the
patient demographic, billing and clinical information.
e. access to computer programmers and analysts as required
to set up and maintain the information interfaces described in this agreement.
5. Nonsolicitation. During the term of this Agreement and any
renewals thereof and continuing for a period of one (1) year following
expiration, nonrenewable or termination of this Agreement, SBCL agrees not to
solicit directly or indirectly the services, including employment or
consulting agreements, or any person employed by or under contract with
AmeriPath without the consent of AmeriPath. AmeriPath agrees not to solicit
directly or indirectly the SBCL clients to which it gains access as a result
of this Agreement unless agreed to in writing by SBCL.
6. Exclusive Vendor. In the areas which are subject to this
Agreement (which would include such additional areas as may from time to time
be subject to this Agreement (which would include such additional areas as may
from time to time be subject to this Agreement), AmeriPath shall be the
exclusive vendor of pathology services to SBCL and SBCL clients. As such, SBCL
shall refer to AmeriPath all specimens for anatomic pathology services in said
areas for AmeriPath to provide said services hereunder. Listing of exclusive
areas are noted on Exhibit B. AmeriPath shall be given the right of first
refusal to bid on certain managed care contracts for the "carve out" of
anatomic pathology services.
C. PROFESSIONAL LIABILITY INSURANCE AND NOTICE
1. Professional Liability Insurance Coverage. Each party shall
obtain and maintain at its own expense respectively, professional liability
insurance, or in the case of SBCL only self-insurance, in the minimum amount of
One Million Dollars ($1,000,000) per claim/occurrence and Five Million Dollars
($5,000,000) per in the aggregate to cover said party for any and all liability
it may have with respect to the provision of services pursuant to this
Agreement or with respect to its responsibilities hereunder or any services
performed by AmeriPath for or on behalf of SBCL. AmeriPath agrees to furnish
SBCL upon request with a current and valid certificate of endurance relating to
the extent of professional liability coverage called for under this Agreement.
In the event of termination or nonrenewal of this Agreement, if AmeriPath did
not maintain insurance on a claims-made basis for the full term of this
Agreement (as is required under this Agreement), AmeriPath shall provide a
reporting endorsement of "tail" coverage relating to AmeriPath's duties under
this Agreement.
2. Notice. Each party hereto shall promptly notify the other in
writing of any claim asserted against the other party, or any of either party's
employees, agents, servants or representatives, relating to the services
provided under this Agreement of the responsibilities hereunder, and further
shall promptly deliver to the other party a true copy of any such claim
including, but not limited to, a true copy of any summons or other process,
pleading or notice issued in any lawsuit or other proceeding to assert or
enforce any such claim.
D. TERM AND TERMINATION
1. Initial Term and Renewal. This Agreement shall commence
on the 1st day of November, 1996 and shall remain in effect for an initial term
of two (2) years. Thereafter, this Agreement shall automatically renew for
successive terms of three (3) years subject to all terms and
<PAGE> 5
AMERIPATH DBA DERRICK AND ASSOCIATES PATHOLOGY
SMITHKLINE BEECHAM CLINICAL LABORATORIES
OCTOBER, 96
PAGE 5
conditions herein contained (except that the fees provided for in paragraph
B.1, above are subject to review and adjustment on an annual basis), unless and
until either AmeriPath or SBCL shall give the other party written notice not
less than ninety (90) days prior to expiration of the then current term of its
intention to terminate this Agreement as of the expiration of the initial term
or any subsequent term.
2. Termination. This Agreement will immediately and
automatically terminate on and as of the date of any of the following occur:
a. Default. Failure of either party to comply with
any of the material terms of this Agreement after thirty (30) days written
notice of such failure or violation by the other party giving notice of such
default or noncompliance and written notice of its intention to so terminate,
unless within such thirty (30) day period the defaulting party has cured such
default; or
b. Discontinuance of Operations. Discontinuance of its
operations by either party by law or otherwise for a period of fifteen (15) or
more days; or
c. Bankruptcy. The filing of a petition in bankruptcy
by either party or the making by either party of an assignment for the benefit
of creditors; or if any involuntary petition in bankruptcy or petition for an
arrangement pursuant to the Bankruptcy Act is filed against either party and is
not dismissed within thirty (30) days; or if a receiver is appointed for the
business of either party, or any party thereof.
d. SBCL may terminate this Agreement immediately without
written notice to AmeriPath as the date of any of the following occur:
1. any physician employee or physician contractor
of AmeriPath is charged with gross misconduct of either a professional or
personal nature, or engages in other conduct which is grounds for immediate
discharge without pay under SBCL's personnel policies; or
2. any physician employee or physician contractor
of AmeriPath is convicted of a crime other than a minor traffic violation; or
3. any physician employee or physician contractor
of AmeriPath providing services under this Agreement has his or her right to
practice medicine in the State either suspended, revoked, or placed under
probation, or is excluded from the Medicare or Medicaid programs, or fails to
maintain his or her standing as a Board-Certified clinical and anatomic
pathologist or licensed cytotechnologies; or
4. any physician employee or physician contractor
providing services under this Agrement has a guardian or conservator of the
person or estate appointed by a court of competent jurisdiction; or
5. any physician employee or physician contractor
of AmeriPath becomes permanently disabled to the extent her or she is unable to
perform the duties required by this Agreement.
This subparagraph d. shall not apply if, within ten (10) days after SBCL's
termination, AmeriPath cures the above circumstances in regard to said
particular physician employee or physician contractor either terminates said
person or confirms to SBCL in writing that said person will no longer be
involved in the rendering of services to SBCL under this Agreement and the
continued association or employment by AmeriPath shall not have a material
adverse effect on AmeriPath's ability to perform or on SBCL's reputation.
<PAGE> 6
AMERIPATH DBA DERRICK AND ASSOCIATES PATHOLOGY
SMITHKLINE BEECHAM CLINICAL LABORATORIES
OCTOBER, 96
PAGE 6
e. In the event SBCL proposes to furnish to AmeriPath additional
cytology and histology tests resulting in a substantial increase in number over
that set forth herein or from that previously agreed to between SBCL and
AmeriPath, the parties will agree to cooperate and work together so that
AmeriPath shall have time within which to increase its capacity to handle said
increase.
E. MISCELLANEOUS
1. Nonbreach. Each party represents and warrants that execution of and
performance under this Agreement shall not constitute or cause a breach of any
other agreement between that party and any third party.
2. Entire Agreement: Amendments. This Agreement contains the entire
understanding between the parties hereto and supersedes any and all prior
agreements, understandings and arrangements between the parties relating to the
subject matter hereof. No amendment, change, modification or alteration of the
terms and conditions hereof shall be binding unless evidenced by a writing
signed by all the parties hereto.
3. Waiver. The failure of any party to this Agreement to exercise or
enforce any right conferred upon it hereunder shall not be deemed to be a
waiver of any such right nor operate to bar the exercise or performance thereof
at any time or times thereafter, nor shall a waiver of any right hereunder
at any given time, including rights to any payments, be deemed a waiver thereof
for any other time.
4. Force Majeure. No party to this Agreement shall be liable for failure to
perform any duty or obligation that said party may have under the Agreement
where such failure has been occasioned by any act of God, fire, strike,
inevitable accident, war or any cause outside the reasonable control of the
party who had the duty to perform.
5. Severability. If any provision of this Agreement is held to be illegal,
invalid or unenforceable by a court of competent jurisdiction, the parties
shall, if possible, agree on a legal, valid and enforceable substitute provision
which is as similar in effect to the deleted provision as possible. The
remaining portion of the Agreement not declared illegal, invalid or
unenforceable shall, in any event, remain valid and effective for the term
remaining unless the provision found illegal, invalid or unenfoceable goes to
the essence of this Agreement.
6. Assignment. Without prior written consent of other party hereto, neither
party may assign any of its rights or delegate any of its obligations hereunder.
Notwithstanding anything to the contrary herein contained, SBCL may assign its
rights hereunder to SBCL or any of its affiliated companies without the consent
of AmeriPath. Subject to the foregoing, this Agreement inures to the benefit of,
and is binding upon, the successors and assigns of the parties hereto.
7. Legislative/Regulatory Modification. In the event Medicare, Medicaid or
any third-party payor, or any other federal, state or local law, rule,
regulation or interpretation thereof at any time during the term of this
Agreement prohibits, restricts or in any way substantially changes the method or
amount of reimbursement or payment for services under this Agreement, then this
Agreement shall, in good faith, be amended by the parties to provide for payment
of compensation in a manner consistent with any such prohibition, restriction or
limitation. If as a result of any such prohibition, restriction or change
AmeriPath incurs additional costs, SBCL shall compensate AmeriPath for such
additional costs. However, if as a result of any costs, SBCL shall compensate
AmeriPath for such additional costs. However, if as a result of any such
prohibition, restriction or change AmeriPath's costs are reduced, AmeriPath
shall pay SBCL an amount equal to such reduction. With respect to any such
prohibitions, restrictions or changes that require amendment of this Agreement,
if this Agreement is not so amended in writing prior to the effective date of
said change, this Agreement shall terminate, unless otherwise agreed upon.
<PAGE> 7
AMERIPATH DBA DERRICK AND ASSOCIATES PATHOLOGY
SMITHKLINE BEECHAM CLINICAL LABORATORIES
OCTOBER 96
PAGE 7
8. Notice. All notices hereunder shall be in writing, personally
delivered or sent by certified mail, return receipt requested, addressed to the
other party as follows:
If to AmeriPath: AmeriPath dba Derrick and Associates Pathology
8100 Chancellor Drive, Suite #130
Orlando, FL 32809
Attention: Sherry R. Larson, COO
If to SBCL: General; Manager
SmithKline Beecham Clinical Laboratories, Inc.
4225 East Fowler Avenue
Tampa, FL 33617
Attention: Doug Elhart
With a copy to: SmithKline Beecham
Law Department (FP2225)
One Franklin Plaza
P.O. Box 7929
Philadelphia, Pennsylvania 19101
Attention: Jan M. Festa, Esq.
and
Foley and Lardner
111 North Orange Avenue
P.O. Box 2193
Orlando, FL 32802-2193
Attention: Chris Rolle, Esq.
Either party may change its address to which notices shall be sent by a notice
similarly sent.
9. Execution in Counterpart. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10. Section Headings. Section headings contained in this Agreement
for reference purposes only and shall not affect, in any way, the meaning and
interpretation of this Agreement.
11. Parties as Independent Contractors. The parties to this
Agreement understand and agree that no agency, employment, partnership or joint
venture is created by this Agreement, and the businesses operated by SBCL and
AmeriPath are separate. The parties further agree that neither party is the
general agent of the other and no representation shall be made by either party
that would create apparent agency, employment, partnership or joint venture.
Neither party will have the authority to act for the other in any manner, nor
to create obligations or debts that would be binding upon the other.
12. Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall in all respects be governed by the substantive law
of the state of Florida, including all matters of construction, validity and
performance, but without giving effect to Florida choice-of-law or
conflict-of-law principles.
<PAGE> 8
AMERIPATH DBA DERRICK AND ASSOCIATES PATHOLOGY
SMITHKLINE BEECHAM CLINICAL LABORATORIES
OCTOBER 96
PAGE 8
13. No Third Party Beneficiaries. This Agreement is solely between
SBCL and AmeriPath, and no other parties shall have any rights or privileges
hereunder either as third party beneficiaries or otherwise.
IN WITNESS WHEREOF, the duly authorized representatives of the parties
have executed this Agreement in duplicate effective as of the date first above
written, each party to retain a duplicate original/.
SMITHKLINE BEECHAM CLINICAL
LABORATORIES, INC. ("SBCL")
By: /s/ John B. Okkese, Jr.
-----------------------------------
Name: John B. Okkese, Jr.
---------------------------------
Title: Vice President
---------------------------------
AMERIPATH FLORIDA INC., DBA
DERRICK AND ASSOCIATES PATHOLOGY
("AMERIPATH")
By: /s/ SHERRY LARSON
-----------------------------------
Name: Sherry Larson
Title: CCO
<PAGE> 1
Exhibit 10.25
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (the "Agreement"), is entered into as of
February 15, 1996, in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), by and among AMERICAN LABORATORY ASSOCIATES, INC., a
Delaware corporation ("ALA"), AMERIPATH, INC., a Delaware corporation
("Holding"), the holders of Common Stock, $.01 par value per share (the "ALA
Common Stock"), of ALA listed on SCHEDULE I attached hereto (the "ALA Common
Stockholders"), and the holders of Series A Convertible Preferred Stock, $.01
par value per share (the "ALA Preferred Stock"), of ALA listed on SCHEDULE II
attached hereto (the "ALA Preferred Stockholders" and, together with the ALA
Common Stockholders, the "ALA Stockholders").
WHEREAS, as of the date hereof, the authorized capital stock of ALA
consists of (i) 8,000,000 shares of ALA Common Stock, of which 912,004 shares
are presently issued and outstanding (as set forth in Schedule I hereto); and
(ii) 5,000,000 shares of ALA Preferred Stock, of which 3,088,116 shares are
presently issued and outstanding (as set forth in Schedule II hereto); and
WHEREAS, ALA and the ALA Stockholders are parties to a Shareholders'
Agreement dated as of January 1, 1994, as amended by a First Amendment to
Shareholders' Agreement dated as of August 1, 1994 (collectively, the "ALA
Shareholders' Agreement"), which ALA Shareholders' Agreement provides, among
other things, for certain rights and restrictions relating to the transfer of
capital stock of ALA owned by such ALA Stockholders;
WHEREAS, pursuant to the Amended and Restated American Laboratory
Associates, Inc. 1994 Stock Option Plan (the "ALA Option Plan"), options to
purchase up to 400,000 shares of ALA Common Stock are available for grant and
issuance to employees of ALA under the plan, with options to purchase a total
of 340,000 shares of ALA Common Stock (the "ALA Stock Options") having been
granted to the persons covering the aggregate number of shares indicated in
SCHEDULE III attached hereto, all pursuant to the ALA Option Plan;
WHEREAS, Holding is a newly formed Delaware corporation, with
authorized capital stock consisting of (i) 8,000,000 shares of Common Stock,
$.01 par value per share ("Holding Common Stock"), of which one (1) share is
presently issued and outstanding and owned of record by ALA; and (ii) 5,000,000
shares of Preferred Stock, $.01 par value per share, of which 3,500,000 shares
have been authorized and designated as the Series A Convertible Preferred Stock
("Holding Preferred Stock"), of which no shares are presently issued or
outstanding; and
<PAGE> 2
WHEREAS, pursuant to the AmeriPath, Inc. 1996 Stock Option Plan (the
"Holding Option Plan"), previously approved by the Board of Directors of
Holding, options to purchase up to 500,000 shares of Holding Common Stock are
available for grant and issuance to employees of Holding or its subsidiaries
under the plan, with no options having been granted under such plan as of the
date hereof; and
WHEREAS, the Board of Directors and stockholders of ALA believe that
it is in the best interests of ALA and its stockholders to reorganize ALA into
a holding company structure and to transfer and exchange the equity ownership
of ALA to Holding, such that, among other things, immediately following
consummation of the agreements and transactions contemplated by this Agreement
(the "Closing"): (i) ALA will become a wholly-owned subsidiary of Holding; (ii)
Holding will be owned by persons who, prior to the Closing, constituted the ALA
Stockholders, with such stockholders owning exactly the same type and amount of
equity securities of Holding following the Closing as such stockholders owned
in ALA immediately prior to the Closing; (iii) each holder of a stock option
under the ALA Option Plan will surrender his stock options in exchange for an
option to purchase a like number of shares of Holding Common Stock, all under
the Holding Option Plan and in accordance with the terms of certain new
non-qualified stock option agreements; and (iv) Holding will assume the rights
and obligations of ALA under various agreements; all in accordance with and
pursuant to the terms, provisions and conditions provided under this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
mutual representations, covenants and agreements set forth herein, and for
other good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged by all parties, the parties hereto hereby agree as follows:
ARTICLE 1.
EXCHANGE OF SHARES
1.1 EFFECTIVE TIME. The exchange of shares and options, and the
other agreements and transactions contemplated hereunder, shall be and become
effective (the "Effective Time") upon the Closing, which shall take place (i)
immediately following the satisfaction of the conditions to closing set forth
in Article 5 hereof, and, assuming such satisfaction, (ii) on the date that (a)
the Secretary of each of ALA and Holding files a fully executed original of
this Agreement in the official stockholders' minute book of ALA and Holding,
respectively, and (b) certificates representing the shares of Holding Common
Stock and Holding Preferred Stock are issued, in exchange for certificates
representing ALA Common Stock and ALA Preferred Stock, in accordance with the
provisions of this
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<PAGE> 3
Agreement, with such issuance and exchange being recorded and reflected in the
stock books of Holding.
1.2 MANNER AND BASIS OF EXCHANGING SHARES. At the Effective Time:
(a) each share of ALA Common Stock issued and
outstanding immediately prior to the Effective Time shall be exchanged
for one share of Holding Common Stock, which upon such issuance shall
be duly authorized, validly issued, fully paid and non-assessable;
(b) each share (and/or fraction of a share) of ALA
Preferred Stock issued and outstanding immediately prior to the
Effective Time shall be exchanged for one share (and/or like fraction
of a share) of Holding Preferred Stock, which upon such issuance shall
be duly authorized, validly issued, fully paid and non-assessable;
(c) The one (1) share of Holding Common Stock issued and
outstanding prior to the Effective Time, as owned and held by ALA,
shall be canceled and shall thereupon become an authorized and
unissued share of Holding Common Stock;
(d) each share (and/or fraction of a share) of ALA
Preferred Stock, upon surrender for exchange pursuant to Section
1.2(b) above, shall be contributed by Holding to ALA, shall no longer
be issued or outstanding, shall be canceled and retired and shall
thereupon become authorized but unissued shares of ALA (in accordance
with and subject to ALA's certificate of incorporation, as such may be
amended from time to time);
(e) each share of ALA Common Stock, upon surrender for
exchange pursuant to Section 1.2(a) above, shall be owned and held by
Holding, and shall remain issued and outstanding; provided, however,
that, to the extent the number of such shares of ALA Common Stock
exceeds One Hundred (100), all of such shares of ALA Common Stock in
excess of 100 shares shall be cancelled and retired and shall
thereupon become authorized but unissued shares of ALA (in accordance
with and subject to ALA's certificate of incorporation, as such may be
amended from time to time); and
(f) Holding shall become the owner and holder of all the
issued and outstanding shares of ALA Common Stock.
1.3 TREATMENT OF PREFERRED STOCK. In consideration of the
surrender and cancelation of the issued and outstanding ALA Preferred Stock by
the ALA Preferred Stockholders pursuant to Section 1.2(d) above, which ALA
Preferred Stock has accumulated dividends, which have remained unpaid, since
January 1, 1994, the
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<PAGE> 4
parties hereto expressly acknowledge, understand and agree that (a) the Holding
Preferred Stock, as authorized and designated in Holding's restated certificate
of incorporation, provides for the accumulation of dividends on such ALA
Preferred Stock from January 1, 1994 (notwithstanding that Holding was not in
existence on that date), and (b) by virtue of such accumulation of dividends
provision(s), as of the Effective Time, Holding is assuming the dividend
obligation of ALA, as accumulated and unpaid through the Effective Time, in
connection with the issued and outstanding ALA Preferred Stock.
1.4 MANNER AND BASIS OF EXCHANGING OPTIONS. As a condition to
consummation of the transactions contemplated by this Agreement, pursuant to
Article 5 hereof, prior to the Effective Time, each holder of one or more
options to purchase ALA Common Stock granted under the ALA Option Plan (each,
an "ALA Option Holder") shall have entered into (i) a surrender and grant
letter agreement, and (ii) a Holding non-qualified stock option agreement, each
in the form set forth in EXHIBIT A attached hereto (the "Holding
Surrender/Option Agreements"). Accordingly, at the Effective Time, each ALA
Stock Option outstanding immediately prior to the Effective Time will be
surrendered in exchange for an option to purchase that number of shares of
Holding Common Stock (each, a "Holding Stock Option") equal to the number of
shares of ALA Common Stock subject to the ALA Stock Option immediately prior to
the surrender of such option, all in accordance with the Holding
Surrender/Option Agreements. From and after the Effective Time, all Holding
Stock Options shall be subject to adjustment in accordance with the terms and
provisions of the respective Holding Option Agreement and the Holding Option
Plan.
1.5 POST CLOSING MATTERS.
(a) Amendment of ALA Certificate of Incorporation. Immediately
following the Effective Time, Holding, as sole stockholder of ALA, shall cause
the ARTICLE FOURTH of the Certificate of Incorporation of ALA to be amended so
as to (i) reduce the authorized number of shares of common stock of ALA from
8,000,000 shares to 10,000 shares, and (ii) delete from such Article any
authorization with respect to shares of preferred stock of ALA.
(b) Termination of ALA Option Plan. Immediately following the
Effective Time, the ALA Option Plan shall be terminated.
ARTICLE 2.
ASSIGNMENT AND ASSUMPTION OF RIGHTS AND OBLIGATIONS
2.1 SHAREHOLDERS' AGREEMENTS. Effective immediately prior to the
Effective Time, the parties hereto (insofar as such parties are parties to the
ALA Shareholders' Agreement) hereby agree to
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<PAGE> 5
terminate the ALA Shareholders' Agreement, such that at the Effective Time the
ALA Shareholders' Agreement shall be terminated, canceled, null, void and of no
further force or effect. As a condition to consummation of the transactions
contemplated by this Agreement, Holding and each person who, immediately prior
to the Effective Time, is a holder of ALA Common Stock or ALA Preferred Stock
shall have executed and delivered a counterpart signature page to the
AmeriPath, Inc. Shareholders' Agreement dated as of February 15, 1996, in the
form of EXHIBIT B attached hereto (the "Holding Shareholders' Agreement"). All
such parties agree to be bound by and comply with the terms and provisions of
the Holding Shareholders' Agreement.
2.2 SECURITIES PURCHASE AGREEMENT. Evangelos Poulos, M.D.,
Michael Demaray, M.D., Alexander Kowalczyk, M.D. (collectively, the "Original
ALA Common Stockholders"), the ALA Preferred Stockholders (together with the
Original ALA Common Stockholders, the "Original ALA Stockholders") and ALA are
parties to that certain Series A Preferred Stock, Common Stock and Junior
Subordinated Note Purchase Agreement dated as of January 1, 1994, a complete
copy of which is attached hereto as EXHIBIT C (the "ALA Purchase Agreement").
The parties to the ALA Purchase Agreement acknowledge, understand and agree
that various provisions of such agreement were intended to provide for certain
rights and obligations of the Original ALA Stockholders, as holders of issued
and outstanding capital stock of ALA, and for certain rights and obligations of
ALA, as the issuer of the issued and outstanding capital stock of ALA.
Following the Effective Time, the Original ALA Stockholders will become
stockholders of Holding, and not ALA, and Holding, and not ALA, will be the
issuer of the shares of capital stock held by such stockholders. Accordingly,
by executing this Agreement, Holding and each of the parties to the ALA
Purchase Agreement agree as follows:
(i) effective at the Effective Time, Holding hereby agrees to assume,
satisfy and perform when due all duties, obligations, responsibilities
and liabilities (the "duties") of ALA arising under or pursuant to the
ALA Purchase Agreement, and Holding shall be vested with all the
rights, privileges, powers and franchises (the "rights") of ALA under
the ALA Purchase Agreement, in each case as (and solely as) such
duties and rights relate to the common stock or preferred stock, and
the holders thereof, as set forth in Articles V, VI, VII and VIII of
the ALA Purchase Agreement (together with such related definitions and
other enabling provisions as may be contained in other sections of
such agreement) (the "Stock Provisions"), it being understood and
agreed that for purposes of effecting the agreement contained in this
clause (i) from and after the Effective Time, the term "Company" in
such ALA Purchase Agreement shall mean and refer to Holding, the term
"Common Stock" shall mean and refer to the Holding Common Stock and
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<PAGE> 6
the term "Preferred Stock" shall mean and refer to the Holding
Preferred Stock;
(ii) from and after the Effective Time, the holders of Holding Common
Stock and Holding Preferred Stock shall (continue to) be vested with
and entitled to the rights, privileges, powers and franchises of the
holders of ALA Common Stock and ALA Preferred Stock under the Stock
Provisions of the ALA Purchase Agreement, it being understood and
agreed that for purposes of effecting the agreement contained in this
clause (ii) from and after the Effective Time, the term "Company" in
such ALA Purchase Agreement shall mean and refer to Holding, the term
"Common Stock" shall mean and refer to the Holding Common Stock and
the term "Preferred Stock" shall mean and refer to the Holding
Preferred Stock; and
(ii) from and after the Effective Time, ALA shall continue to be
responsible and liable for the duties, and vested in the rights,
contained in the ALA Purchase Agreement as (and solely as) such duties
and rights relate to the purchase and sale transactions contemplated
thereby and the Senior Notes, Contingent Notes and Junior Notes (as
such terms are defined in such agreement), and the holders thereof, as
set forth in Articles II, III and IV of the ALA Purchase Agreement
(together with such related definitions and other enabling provisions
as may be contained in other sections of such agreement).
2.3 REDEMPTION AGREEMENT. ALA and the ALA Preferred Stockholders
are parties to that certain Redemption Agreement dated as of January 1, 1994, a
complete copy of which is attached hereto as EXHIBIT D (the "ALA Redemption
Agreement"). The parties to the ALA Redemption Agreement acknowledge,
understand and agree that various provisions of such agreement were intended to
provide for certain redemption rights to the ALA Preferred Stockholders, as
holders of issued and outstanding ALA Preferred Stock (together with any ALA
Common Stock issued upon conversion thereof), and for certain obligations of
ALA, as the issuer of the issued and outstanding ALA Preferred Stock (together
with any ALA Common Stock issued upon conversion thereof). Following the
Effective Time, the ALA Preferred Stockholders will become holders of capital
stock of Holding, and not ALA. Accordingly, by executing this Agreement,
Holding and each of the ALA Preferred Stockholders agree that, effective at the
Effective Time, Holding hereby agrees to assume, satisfy and perform when due
all duties, obligations, responsibilities and liabilities of ALA arising under
or pursuant to the ALA Redemption Agreement, and the holders of Holding
Preferred Stock shall (continue to) be vested with and entitled to all the
rights, privileges, powers and franchises of the "Investors" under the ALA
Redemption Agreement.
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<PAGE> 7
2.4 ALA DEBT SECURITIES; HOLDING GUARANTEE. (a) ALA is the
borrower and obligor under the following debt securities (each, a "Debt
Security"):
(i) 8% Non-Negotiable Senior Subordinated Notes Due December
31, 1998 in the aggregate principal amount of $3,500,000 (3 notes)
(the "Senior Notes");
(ii) 8% Non-Negotiable Subordinated Contingent Notes in the
aggregate principal amount of $2,500,000 (5 notes) (the "Contingent
Notes"); and
(iii) 10% Junior Subordinated Notes due December 31, 2001 in the
aggregate principal amount of $7,500,000 (5 notes) (the "Subordinated
Notes").
(b) From and after the Effective Time, each of the Senior
Notes, the Contingent Notes and the Subordinated Notes shall remain outstanding
and unaffected by the agreements and transactions consummated as a result of
the Closing. To the extent the agreements and transactions consummated as a
result of the Closing trigger or cause any default under any such Debt
Securities, such default is hereby waived.
(c) At the Effective Time, Holding shall execute and
deliver a guarantee agreement with respect to each Debt Security, and promptly
deliver such guarantee agreement to the holder of each such Debt Security,
under which guarantee agreement Holding shall guarantee the full, timely and
faithful payment and performance of the obligations of ALA under each such Debt
Security.
2.5 FURTHER ASSURANCES. From and after the Effective Time, ALA
and Holding agree to take all necessary action, including, without limitation,
preparing and executing instruments of transfer, assignment, guarantee and
assumption, and amendments, as may be necessary or appropriate in order to
effectuate the intent and purpose of this Article 2.
ARTICLE 3.
EFFECT OF EXCHANGE
3.1 STOCKHOLDER RIGHTS. At the Effective Time, the holders of ALA
Common Stock and ALA Preferred Stock shall cease to have any rights,
privileges, powers or franchises as stockholders of ALA (common stock or
preferred stock, as the case may be) and their sole rights, privileges, powers
and franchises shall be as holders of Holding Common Stock and Holding
Preferred Stock, respectively.
3.2 SURRENDER AND EXCHANGE OF STOCK CERTIFICATES. (a) Prior to
the Effective Time, each holder of an outstanding certificate or certificates
theretofore representing shares of ALA Common Stock
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<PAGE> 8
(the "Old Certificate") shall surrender the same to Holding which, at the
Effective Time, shall cancel such Old Certificate and issue a new certificate
or certificates representing shares of Holding Common Stock (the "New
Certificate") in such holder's name, and each such holder shall be entitled to
receive one or more New Certificates representing the same number of shares of
Holding Common Stock as the number of shares of ALA Common Stock previously
represented by the Old Certificate(s) so surrendered. In the event any Old
Certificate is not surrendered to Holding prior to Closing, and the Closing
takes place, then until such time as such Old Certificate is surrendered to
Holding, such Old Certificate which, immediately prior to the Effective Time,
evidenced shares of ALA Common Stock, shall be deemed and treated for all
purposes to evidence solely the right to receive in exchange therefor one or
more New Certificates representing the same number of shares of Holding Common
Stock as the number of shares of ALA Common Stock previously represented by
such Old Certificate(s).
(b) Prior to the Effective Time, each holder of an outstanding
certificate or certificates theretofore representing shares (or fractions of a
share) of ALA Preferred Stock (the "Old Preferred Certificate") shall surrender
the same to Holding which, at the Effective Time, shall cancel such Old
Preferred Certificate and issue a new certificate or certificates representing
shares of Holding Preferred Stock (the "New Preferred Certificate") in such
holder's name, and each such holder shall be entitled to receive one or more
New Preferred Certificates representing the same number of shares (including
fractions of a share) of Holding Preferred Stock as the number of shares
(including fractions of a share) of ALA Preferred Stock previously represented
by the Old Preferred Certificate(s) so surrendered. In the event any Old
Preferred Certificate is not surrendered to Holding prior to Closing, and the
Closing takes place, then until such time as such Old Preferred Certificate is
surrendered to Holding, such Old Preferred Certificate which, immediately prior
to the Effective Time, evidenced shares of ALA Preferred Stock, shall be deemed
and treated for all purposes to evidence solely the right to receive in
exchange therefor one or more New Preferred Certificates representing the same
number of shares of Holding Preferred Stock as the number of shares of ALA
Preferred Stock previously represented by such Old Preferred Certificate(s).
ARTICLE 4.
OTHER AGREEMENTS AND REPRESENTATIONS
4.1 HOLDING CERTIFICATE OF INCORPORATION, BY-LAWS, OPTION PLAN AND
SHAREHOLDERS' AGREEMENT. Each of the ALA Stockholders (who, from and after the
Effective Time, shall become and be the stockholders of Holding) hereby
ratifies, confirms and approves each of the following instruments, plans and
agreements:
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<PAGE> 9
(i) the Restated Certificate of Incorporation of Holding, as
initially filed with the Secretary of State of the State of Delaware
on February 13, 1996, and as amended and restated and filed with the
Secretary of State of the State of Delaware on February 15, 1996, a
complete copy of which is attached hereto as EXHIBIT E;
(ii) the By-Laws of Holding, a complete copy of which is
attached hereto as EXHIBIT F (the "Holding By- Laws");
(iii) the Holding Option Plan, a complete copy of which is
attached hereto as EXHIBIT G, and the reservation of 500,000 shares of
Holding Common Stock to be issued pursuant to the Holding Option Plan;
and
(iv) the form, terms and provisions of the Holding
Shareholders' Agreement, a complete copy of which is attached hereto
as EXHIBIT B.
4.2 HOLDING'S BOARD OF DIRECTORS. Effective at the Effective
Time, (i) the persons named below shall be elected as the members of the Board
of Directors of Holdings, to serve in accordance with the Holding By-Laws until
their successors are duly elected and qualified (or until their earlier death,
incapacity, resignation or removal) (each of such persons being initially
designated in accordance with and pursuant to Section 6 of the Holding
Shareholders' Agreement), and (ii) any person other than those persons named
below serving as a director of Holdings at the Effective Time shall be removed
as of the Effective Time:
Evangelos Poulos, M.D.
Michael Demaray, M.D.
Alexander Kowalczyk, M.D.
E. Roe Stamps, IV
Thomas S. Roberts
Barbara A. Piette
James C. New
4.3 ALA'S BOARD OF DIRECTORS. Effective at the Effective Time,
(i) the following persons shall be elected as the members of the Board of
Directors of ALA, to serve in accordance with the By-Laws of ALA until their
successors are duly elected and qualified (or until their earlier death,
incapacity, resignation or removal), and (ii) any person other than those
persons named below serving as a director of Holdings at the Effective Time
shall be removed as of the Effective Time:
Evangelos Poulos, M.D.
Michael Demaray, M.D.
Alexander Kowalczyk, M.D.
James C. New
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<PAGE> 10
4.4 HOLDING'S ORGANIZATION AND OPERATIONS. Holding represents and
warrants that (i) Holding was organized solely for the purpose of effecting the
agreements and transactions contemplated by this Agreement, and (ii) prior to
the date hereof, Holding has conducted no operations, purchased no assets and
assumed no liabilities.
ARTICLE 5.
CONDITIONS TO CONSUMMATION
The obligations of ALA and Holding to cause the agreements and
transactions contemplated hereby to be consummated shall be, at each such
party's sole option and election, subject to the satisfaction of the following
conditions at or before the Effective Time, except as any such condition may be
waived in writing by ALA and Holding.
5.1 EXECUTION AND APPROVAL OF THIS AGREEMENT. Each of Holding,
ALA and the ALA Stockholders shall have executed and delivered a counterpart
signature page to this Agreement, and the Board of Directors of ALA and Holding
shall have duly authorized the execution and delivery of this Agreement.
5.2 EXECUTION OF HOLDING SURRENDER/OPTION AGREEMENTS . Each ALA
Option Holder shall have executed and delivered (i) a surrender and grant
letter agreement, and (ii) a Holding non-qualified stock option agreement, each
in the form set forth in Exhibit A attached hereto.
5.3 EXECUTION OF HOLDING SHAREHOLDERS' AGREEMENTS . Holding and
each person who, immediately prior to the Effective Time, is a holder of ALA
Common Stock or ALA Preferred Stock shall have executed and delivered a
counterpart signature page to the Holding Shareholders' Agreement in the form
of Exhibit B attached hereto.
5.4 REGULATORY APPROVALS. ALA shall have received such approvals
of regulatory authorities (including, without limitation, the State of Florida)
as the management of ALA, upon the advice of counsel, shall have determined are
necessary or appropriate in order properly to consummate the agreements and
transactions contemplated by this Agreement.
5.5 BANK WAIVER. ALA shall have received such consents and/or
waivers from ALA's senior lender, Bank of Boston, as the management of ALA,
upon the advice of counsel, shall have determined are necessary or appropriate
in order properly to consummate the agreements and transactions contemplated by
this Agreement. In connection with obtaining any such consent and/or waiver,
Holding is hereby expressly authorized to enter into a guarantee agreement with
Bank of Boston, under which guarantee agreement Holding shall guarantee the
full, timely and faithful
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<PAGE> 11
payment and performance of the obligations of ALA under ALA's senior credit
facility.
ARTICLE 6.
MISCELLANEOUS
6.1 Expenses. All legal and other costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby,
regardless of whether the Closing is consummated, shall be borne by ALA.
6.2 Notices. Any notice or other communications required or
permitted hereunder shall be sufficiently given if delivered personally or sent
by a nationally-recognized courier service, all charges or postage prepaid,
return receipt requested, addressed as follows:
To Holding:
AmeriPath, Inc.
6061 N.E. 14th Avenue
Fort Lauderdale, FL 33334
Attention: James C. New
To ALA:
American Laboratory Associates, Inc.
6061 N.E. 14th Avenue
Fort Lauderdale, FL 33334
Attention: Robert P. Wynn
To Other Parties:
To their last known address as such appears
on the stockholder records of ALA;
or to such other address that shall be furnished in writing by any such party,
and any such notice or communication shall be deemed to have been given on the
earlier of the date of receipt thereof or the second business day after
mailing.
6.3 Binding Effect and Assignment. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns, provided that this Agreement may not be
assigned by any party without the consent of the other parties.
6.4 Waiver and Amendment. Any party may, at any time prior to the
Effective Time, waive any of the terms or conditions of this Agreement that
operate in favor of such party, including any conditions to consummation set
forth in Article 5. This Agreement
- 11 -
<PAGE> 12
may only be amended or modified by written agreement of all the parties hereto.
6.5 Entire Agreement. This Agreement (and the schedules and
exhibits hereto) constitutes the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersedes any and all previous or
contemporaneous oral or written communications, representations, promises,
assurances, agreements or arrangements between or among the parties hereto.
6.6 Limitation on Rights. Except as otherwise specifically
provided herein, nothing expressed or implied in this Agreement is intended or
shall be construed to confer upon or give any person, entity, firm or
corporation other than the parties to this Agreement any rights or remedies
under or by reason of this Agreement or any transaction contemplated hereby.
6.7 Captions. The headings and captions in this Agreement are for
convenience or reference only and shall not be considered a part of or affect
the construction or interpretation of any provision of this Agreement.
6.8 Deemed Written Consent. Any term or provision contained in
this Agreement which, in order to be effective, requires or would require
formal action or approval by the board of directors or stockholders of either
ALA or Holdings under the DGCL, shall be deemed to have been taken by such
board of directors or stockholders, respectively, pursuant to action taken by
written consent under Section 228 and 141(f), as the case may be, of the DGCL.
6.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original and all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties.
- 12 -
<PAGE> 13
IN WITNESS WHEREOF, the parties to this Agreement have each executed
and delivered same, thereunto duly authorized, intending to be legally bound
hereby:
AMERIPATH, INC.
By: /s/ James C. New
--------------------------------------
James C. New
President
AMERICAN LABORATORY ASSOCIATES, INC.
By: /s/ Robert P. Wynn
--------------------------------------
Robert P. Wynn
Chief Operating Officer
ALA STOCKHOLDERS:
/s/ Evangelos G. Poulos, M.D.
--------------------------------------
EVANGELOS G. POULOS, M.D.
/s/ Michael J. Demaray, M.D.
--------------------------------------
MICHAEL J. DEMARAY, M.D.
/s/ Alexander P. Kowalczyk, M.D.
--------------------------------------
ALEXANDER P. KOWALCZYK, M.D.
- 13 -
<PAGE> 14
SUMMIT VENTURES III, L.P.
By: Summit Partners III,
L.P., its General Partner
By: Stamps, Woodsum & Co.,
III, its General Partner
By: /s/ E. Roe Stamps, IV
-------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ E. Roe Stamps, IV
-----------------------------------
Authorized Signatory
Name:
---------------------------------
Title:
--------------------------------
SCHRODERS INCORPORATED
By: /s/ Jeffrey Gellman
-----------------------------------
Authorized Signatory
Name: Jeffrey Gellman
---------------------------------
Title: Attorney-in-Fact
--------------------------------
SCHRODER VENTURES LIMITED
PARTNERSHIP
By: Schroder Ventures Management L.P.,
its General Partner
By: Schroder Venture Managers Inc.,
its General Partner
By: /s/ Peter L. Everson
-----------------------------------
Authorized Signatory
Name: Peter L. Everson
---------------------------------
Title: Director & V.P.
--------------------------------
- 14 -
<PAGE> 15
SCHRODER VENTURES U.S. TRUST
By: Schroder International Trust
Company Limited, Trustee
By: /s/ Peter L. Everson
-----------------------------------
Authorized Signatory
Name: Peter L. Everson
---------------------------------
Title: Director & V.P.
--------------------------------
- 15 -
<PAGE> 1
Exhibit 10.26
TRUST AGREEMENT
This Trust Agreement ("Agreement") is made as of 15th day of October
1996 between Ameripath, Inc., a Delaware corporation (the "Settlor"), and Beno
Michel ("Michel") as trustee (in such capacity, the "Trustee").
WHEREAS, as of the date hereof, Michel owns one hundred percent (100%)
of the outstanding capital shares of Beno Michel, M.D., Inc., an Ohio
professional corporation (the "Ohio PC");
WHEREAS, promptly after the execution of this Agreement, the trust
created hereby (the "Trust") shall enter a certain Stock Purchase Agreement (the
"PC Purchase Agreement") with Michel pursuant to which Michell shall agree to
sell all of the outstanding Ohio PC shares to the Trust on the terms and
conditions set forth in the PC Purchase Agreement; and
WHEREAS, the Settlor seeks to create the Trust as provided herein and
seeks to appoint Michel as the initial Trustee of the Trust.
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, the parties agree to be legally bound as follows:
1. CREATION OF THE TRUST; INITIAL TRUSTEE: SUCCESSOR TRUSTEE.
(a) Name. The Trust shall be named and referred to as the "AmeriPath
Ohio Trust."
(b) Initial Trustee. The Settlor hereby appoints Michel to act as the
initial Trustee in accordance with the terms of this Agreement. Michel hereby
accepts such appointment and agrees to act as the Trustee in accordance with the
terms of this Agreement.
(c) Successor Trustee. If Michel or any Successor Trustee ceases to
serve, is removed, or resigns as Trustee pursuant to Section 6 hereof, the
Successor Trustee (as defined below) shall be named pursuant to Section 6(a) and
6(b) of this Agreement, as appropriate. A Successor Trustee shall have all the
powers, obligations and discretions given to the original Trustee. Any person or
institution may rely upon the representations of a Successor
<PAGE> 2
Trustee, as to its authority and incumbency, until receiving written
instructions to the contrary from the Settlor.
2. PROPERTY IN TRUST.
(a) Initial Deposit in Trust. Concurrently with the execution of this
Agreement, the Settlor is delivering to the Trustee, on behalf of the Trust,
$6,500,000 (in immediately available funds), stock certificate evidencing 96,000
shares of Common Stock of the Settlor and a promissory note of the Settlor in
the stated principal amount of $1,500,000 (collectively, the "Initial Trust
Estate"). The Trustee acknowledges receipt of the Initial Trust Estate. Promptly
following the execution of this Agreement, Michel, acting in his individual
capacity, shall deliver all outstanding shares of the Ohio PC to the Trustee,
acting on behalf of the Trust, pursuant to the terms and conditions of the PC
Purchse Agreement. The Initial Trust Estate, Ohio PC shares and all other
property of any kind that becomes a part of the Trust in accordance with this
Agreement and the PC Purchase Agreement for the primary benefit of the Settlor.
(b) Other Additions To The Trust. At any time, the Settlor may add
property to the Trust. All such additions, however, shall be subject to the
Trustee's power to refuse to accept such property if, in its sole discretion, it
determines that such property would cause the Trustee to incur liability under
any federal, state, or local law or regulation. The Settlor agrees that it shall
add, and the Trustee agrees that it shall accept, hold, manage and distribute,
funds and securities issued by the Settlor in such amounts and at such times as
may be required to discharge the Trust's obligations under the PC Purchase
Agreement.
3. WITHDRAWAL, TERMINATION, AND MODIFICATION.
(a) Withdrawal. The Settlor reserves the right at any time without the
consent of the Trustee to withdraw any asset of the Trust or to terminate the
Trust by written instrument delivered personally or by certified mail, return
receipt requested, to the Trustee.
(b) Modification. The Settlor reserves the right at any time without
the consent of the Trustee to modify this Agreement in any respect by delivery
personally or by
2
<PAGE> 3
certified mail, return receipt requested, of a written modification to the
Trustee; provided, however, that any modification affecting the powers or
obligations of the Trustee shall be subject to the written approval of the
Trustee, who, upon disagreement with said modifications, shall be deemed to have
resigned its office as Trustee.
(c) Termination of Trust Agreement. This Agreement and the Trust
created hereunder shall continue until the earlier of (i) the date specified in
a written notice given to the Trustee by the Settlor, and (ii) 21 years after
the death of the last survivor of the descendants of the late King George V of
the United Kingdom of Great Britain and Northern Ireland who were living on the
date hereof, but if any rights, privileges or options hereunder shall be or
become valid under applicable law for a period subsequent to the 21st
anniversary of the death of such last survivor (or, without limiting the
generality of the foregoing, if legislation shall become effective providing for
the validity or permitting the effective grant of such rights, privileges and
options for a period in gross exceeding the period for which such rights,
privileges and options are hereinabove stared to extend and be valid), then such
right, privileges or options shall not terminate as aforesaid but shall extend
to and continue in effect, but only if such non-termination and extension shall
then be valid under applicable law, until such time as the same shall, under
applicable law, cease to be valid.
(d) Actions by the Trustee upon Termination. Upon termination of this
Agreement and the Trust created hereby, the Trustee shall take such action as
may be specified in writing by the Settlor to transfer the Assets to the
Settlor.
(e) Compliance with Laws. The Settlor agrees not to exercise any right
reserved in Section 3(a), 3(b) or 3(c) hereof in a manner that could foreseeably
result in a violation of any Laws (as hereinafter defined) by any one or more of
the Settlor, the Ohio PC, the Trustee or Michel.
4. DISTRIBUTIONS FROM TRUST.
(a) Distribution of Income. The Trustee shall distribute the net income
of the Trust, if any, to the Settlor at such times and in such amounts as the
Settlor directs in writing.
3
<PAGE> 4
(b) Distribution of Property or Principal. The Trustee shall pay or
distribute the property or principal of the Trust to the Settlor at such times
and in such amounts as the Settlor directs in writing. The Settlor agrees not to
direct the distribution of the Ohio PC shares in a manner that could foreseeably
result in a violation of any Laws (as hereinafter defined) by any one or more of
the Settlor, the Ohio PC, the Trustee or Michel.
5. POWERS AND OBLIGATIONS OF TRUSTEE.
(a) Powers. The Trustee, as a fiduciary, shall have, subject to the
restrictions set forth in this Section 5 and in addition to all other powers
granted to the Trustee by law, the powers set forth in this Section 5. The
Trustee shall have such powers without giving bond and without being supervised
by any court.
i) General Powers Over Trust Funds. The Trustee may not
distribute, sell, transfer, pledge or exchange any or all of the assets of the
Trust (the "Assets") without the prior written consent of the Settlor; but
otherwise has full power and authority to do everything in the management and
for the preservation of the Assets that it considers proper and for the best
interests of the Trust. The Settlor hereby authorizes and instructs the
Trustee to deliver such Assets, execute and deliver such documents, and take
such other actions as may be required, to discharge the Trust's obligations
under the PC Purchase Agreement, without further written consent or other
action by the Settlor, to the extent, but only to the extent, such obligations
are to be discharged at the Closing referred to in the PC Purchase Agreement.
ii) Fiduciary Responsibility. The Trustee shall not be held
responsible for any loss sustained by the Trust through any error of judgment
made in good faith, but shall be liable only for the Trustee's own willful
misconduct, gross negligence or breach of good faith. The Trustee shall not be
personally liable upon any debt of or claim against the Trust unless personal
liability has been expressly assumed in writing by the Trustee.
iii) Practice of Medicine. It is anticipated that the Assets shall
include shares of stock in one or more professional corporations. Nothing
contained in any provision of this Agreement shall be construed so as to
4
<PAGE> 5
constitute the practice of medicine by the Trust, the Trustee, or the Settlor.
iv) Indemnification. The Settlor shall indemnify the Trustee, in
the Trustee's individual capacity, from any liability, loss, claim, damage,
judgment, award or expense (including reasonable attorney's fees and
disbursements) arising out of the performance of the trustee's duties hereunder;
provided, however, that the Settlor shall have no obligation to indemnify the
Trustee for the Trustee' s own willful misconduct, gross negligence or breach of
good faith. The Settlor may provide insurance for the Trustee in such types and
amounts as the Settlor deems reasonably necessary. The Trustee's right to
indemnification hereunder shall survive any resignation or removal of the
Trustee, or and termination of the Trust, with respect to any claim or matter
arising out of any action taken or not taken by the Trustee, or any other
circumstance or event occurring or existing, on or before the date of any such
resignation, removal or termination.
(b) Records. The Trustee shall keep such records of Trust transactions
as may be requested in writing by the Settlor; and the Settlor, through any
executive officer, shall at all reasonable times have the right to inspect the
records of the Trust.
(c) Release of Trustee's Obligation to Examine Records. The Trustee or
Successor Trustee shall have no responsibility for inquiring into, reviewing or
auditing the administration of any Asset before such asset was accepted as Trust
property, and Successor Trustee shall have no liability for any act or omission
of any prior Trustee or prior Successor Trustee regarding the administration of
Assets; provided, however, that no Trustee or Successor Trustee shall be
relieved of responsibility with reference to its own acts or omissions in any
other capacity.
(d) Action Upon Instructions. Subject to the provisions of Section 8
hereof, upon the written instructions of the Settlor, the Trustee will: (i) give
such notice or direction or exercise such right, remedy or power hereunder or in
respect of all or any part of the Assets, as may be specified in such
instructions; (ii) take such action to hold, preserve, protect or otherwise deal
with the Assets as may be specified in such instructions; (iii) approve as
satisfactory all matters required by the terms of the PC
5
<PAGE> 6
Purchase Agreement to be satisfactory to the Trustee as may be specified in
such instructions; and (v) exercise the Trust's rights as holder of Ohio PC
shares in such manner as may be specified in such instructions (including
exercising rights to consent in writing, vote at meetings of stockholders (in
person or by proxy) or otherwise take such actions as under applicable law
shareholders are permitted or required to take (including election of
directors)). Except as provided in the last sentence of Section 5(a)(i), the
Trustee shall not be obligated to take any action in performance of its
convenants under the PC Purchase Agreement unless such actions is specified in
written instructions from the Settlor.
(e) No Duties Except as Specified in Trust Agreement or Instructions.
The Trustee shall not have any duty or obligation to manage, control, use, make
any payment in respect of, register, record, insure, inspect, sell, dispose of
or otherwise deal with the Assets, or to otherwise take or refrain from taking
any action under or in connection with the Assets, except as expressly provided
by the terms of this Agreement or in written instructions from the Settlor, and
no implied duties or obligations shall be read into this Agreement against the
Trustee.
(f) Absence of Duties. Except in accordance with written instructions
furnished pursuant to Section 5(d) and without limiting the generality of
Section 5(e), the Trustee shall have no duty to (i) file, record or deposit this
Agreement or any instrument or document described herein or in the PC Purchase
Agreement, or to maintain any such filing, recording or deposit or to refile,
rerecord or redeposit any such document, (ii) obtain insurance on Assets or
effect or maintain any such insurance, other than to receive and forward to the
Settlor any notices, policies, certificates or binders furnished to the Trustee
pursuant to the PC Purchase Agreement, (iii) maintain the Assets, (iv) pay or
discharge any tax or any lien owing with respect to or assessed or levied
against any part of the Assets, other than to forward notice of such tax or lien
received by the Trustee to the Settlor, or (vi) manage, control, use, sell,
dispose of or otherwise deal with any part of the Assets.
6
<PAGE> 7
(g) Reliance; Advice of Counsel. The Trustee shall not incur any
liability to any Person in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, resort, opinion, bond or other
document or paper believed by him to be genuine and believed by him to be signed
by the proper party or parties. The Trustee may accept and rely upon a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the manner of ascertainment of which is not specifically
prescribed herein, the Trustee may for all purposes hereof rely on an officer's
certificate of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Trustee for any action taken
or omitted to be taken by him in good faith in reliance thereon. In the
administration of the trusts hereunder, the Trustee may execute any of the
trusts or powers hereof and perform his powers and duties hereunder directly or
through agents or attorneys and may, at the expense of the Trust, consult with
counsel, accountants and other skilled persons to be selected and employed by
him, and the Trustee shall not be liable for anything done, suffered or omitted
in good faith by it in accordance with the advice or opinion of any such
counsel, accountants or other skilled persons and not contrary to express
provisions of this Agreement, unless the selection of such counsel, accountants
or other persons shall have been made with negligence, willful misconduct or bad
faith.
6. SUCCESSOR TRUSTEE AND COMPENSATION.
(a) Removal of Trustee and Appointment of Successor. Any Trustee may be
removed at any time with or without cause by a document signed by the Settlor.
The Settlor shall designate and appoint a Successor Trustee or Trustees (a
"Successor Trustee") who, to the extent required by law shall be a doctor of
medicine duly licensed to practice medicine in the State of Ohio. Any such
Successor Trustee shall be appointed in accordance with the terms of this
Agreement, and the Settlor shall deliver by certified mail, return receipt
requested, a document making such appointment, accompanied by the documents
removing the Trustee, to the Trustee being removed and to such Successor
Trustee. The Successor Trustee appointed in accordance with the foregoing shall
promptly deliver a written acceptance thereof to the then acting Trustee. All of
the Trust
7
<PAGE> 8
property in the possession of the then acting Trustee shall be delivered to the
Successor Trustee, together with an accounting of Trust property, receipts and
disbursements (which accounting shall be conducted at the expense of the
Settlor); upon so doing, the then acting Trustee shall have no further
responsibility or right to administer the Trust. Thereupon, such Successor
Trustee shall become vested with all of the Trust property with the same effect
as if originally designated as Trustee.
(b) Resignation of Trustee. Michel, as Trustee, or any successor
Trustee acting hereunder may resign at any time by giving written notice to the
Settlor which resignation shall be effective immediately upon receipt of such
notice In that event, the Settlor shall select a Successor Trustee and the Trust
Assets shall be transferred in accordance with terms set forth in Section 6(a)
above.
(c) Compensation of Trustee. Any individual serving as the Trustee
hereunder shall serve without bond. As compensation for all services under this
Agreement, the Settlor shall pay to the Trustee, for his individual account,
$100 per year (or portion thereof) during the term of this Agreement, payable in
arrears on September 30 of each year (commencing September 30, 1997) or earlier
removal or resignation of the Trustee or termination of the Trust. The Trustee
will be entitled to reimbursement only for actual expenses as the Trustee
hereunder and the indemnification provided in Section 5 hereof.
(d) Situs of Trust. Except as otherwise expressly provided herein, the
validity, effect, and interpretation of this Agreement, and of the property
interests created herein, shall be controlled by the laws of the State of Ohio;
such laws shall also govern the administration of the Trust hereunder.
7. NOTICE. Any notice required or permitted to be given under this
Agreement shall be given by registered or certified mail, return receipt
requested in a pre-paid envelope, by overnight mail or courier, or by facsimile
transmission with receipt acknowledged addressed to the parties as follows (or
at other addresses as shall be given in writing by either party to the other):
8
<PAGE> 9
If to Settlor: AmeriPath, Inc.
800 Cypress Creek Road, Suite 200
Fort Lauderdale, Florida 33334
Attn: James C. New, President
If to Trustee: Beno Michel, M.D.
23200 Chagrin Building 5, Suite 350
Beechwood, OH 44122
8. NO VIOLATION OF LAW. Nothing in this Agreement shall be construed
to impose upon Michel any requirement if complying with such requirement could
foreseeably result in a violation of any law, rule, regulation, order,
judgment, award or determination of any court, arbitrator, governmental or
other authority, including the violation of any code of professional ethics or
other mandate of the medical profession (collectively, the "Laws"). The Settlor
shall not knowingly issue to Michel any direction or impose on him any
requirements, which if performed by Michel could foreseeably violate the Laws.
Without limiting the foregoing, the Settlor shall not interfere in any way with
the exercise by Michel of his professional judgment.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10. SALE OF THE ASSETS BY THE TRUSTEE IS BINDING. Any sale, transfer,
or other conveyance of the Assets or any part thereof by the Trustee made
pursuant to the terms of this Agreement or the PC Purchase Agreement shall bind
the Settlor and shall be effective to sell, transfer and convey all right, title
and interest of the Trustee and the Settlor in and to such Assets or any part
thereof. Michel, acting in his individual capacity as Seller under the PC
Purchase Agreement, shall not be required to inquire as to the authorization,
necessity, expediency or regularity of such sale, transfer or conveyance with
respect thereto by the Trustee or the Settlor.
11. SUCCESSORS AND ASSIGNS. All covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the Settlor and its
successors and assigns and the Trustee and his successors, representatives and
assigns, all as herein provided. Any request, notice, direction, consent, waiver
or other instrument or action by
9
<PAGE> 10
each of the parties hereto shall bind the successors and assigns of such party.
Upon the death of any individual acting as the Trustee hereunder, his estate or
other legal representative shall promptly resign as the Trustee pursuant to
Section 6(b) hereof.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this document as of the
date first above written.
AMERIPATH, INC.
By: /s/ Robert P. Wynn
-------------------------------------
Its: Vice President
TRUSTEE:
/s/ Beno Michel, M.D.
----------------------------------------
11
<PAGE> 12
FIRST MODIFICATION TO THE TRUST AGREEMENT
TRUST AGREEMENT
This First Modification to the Trust Agreement ("Modification") is made
as of the 30th day of October, 1996 by AMERIPATH, INC., a Delaware corporation
(the "Settlor"), pursuant to that certain Trust Agreement dated as of October
15, 1996, by and between the Settlor and BENO MICHEL, M.D., as trustee (the
"Trustee").
WHEREAS, the Settlor and the Trustee entered into a Trust Agreement
dated October 15, 1996 (the "Trust Agreement"), a copy of which is attached
hereto; and
WHEREAS, Section 3(b) of the Trust Agreement provides that the Trust
Agreement may be modified by the Settlor without the consent of the Trustee by
delivering to the Trustee, by certified mail, return receipt requested, a
written modification.
WHEREAS, the Settlor desires to modify the Trust Agreement as provided
herein.
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, the parties agree to be legally bound 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 Modification without definition
shall have the meanings assigned thereto in the Trust Agreement.
3. Section 1(a) of the Trust Agreement is hereby amended by deleting
Section 1(a) in its entirety and replacing it with the following:
"(a) Name. The Trust shall be named and referred to as the
"AmeriPath Cleveland Trust."
4. All other terms and conditions of the Trust Agreement shall remain
unchanged.
IN WITNESS WHEREOF, the undersigned has executed this Modification as
of the date first above-written.
AMERIPATH, INC.
By: /s/ Robert P. Wynn
----------------------------------
Robert P. Wynn, Executive Vice
President and Chief Financial
Officer
<PAGE> 1
Exhibit 10.27
TRUST AGREEMENT
This Trust Agreement ("Agreement") is effective as of the 30th day of
September, 1996 between AMERIPATH, INC., a Delaware corporation (the
"Settlor"), and DAVID R. BARRON, M.D. ("Barron") as trustee (in such capacity,
the "Trustee").
WHEREAS, as of the date hereof, the Settlor owns one hundred percent
(100%) of the outstanding capital stock of AmeriPath Cincinnati, Inc., an Ohio
professional corporation (the "Cincinnati PC");
WHEREAS, prior to the execution of this Agreement, the Settlor entered
into a certain Stock Purchase Agreement (the "PC Purchase Agreement") with
Barron and Ruth Kleier, M.D. ("Kleier") pursuant to which Barron and Kleier
sold all of the outstanding Cincinnati PC shares to the Settlor on the terms
and conditions set forth in the PC Purchase Agreement; and
WHEREAS, the Settlor seeks to create the Trust as provided herein (the
"Trust") and seeks to appoint Barron as the initial Trustee of the Trust.
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, the parties agree to be legally bound as follows:
1. CREATION OF THE TRUST; INITIAL TRUSTEE: SUCCESSOR TRUSTEE.
(a) Name. The Trust shall be named and referred to as
the "AmeriPath Cincinnati Trust."
(b) Initial Trustee. The Settlor hereby appoints Barron
to act as the initial Trustee in accordance with the terms of this Agreement.
Barron hereby accepts such appointment and agrees to act as the Trustee in
accordance with the terms of this Agreement.
(c) Successor Trustee. If Barron or any Successor
Trustee ceases to serve, is removed, or resigns as Trustee pursuant to Section
6 hereof, the Successor Trustee (as defined below) shall be named pursuant to
Section 6(a) and 6(b) of this Agreement, as appropriate. A Successor Trustee
shall have all the powers, obligations and discretions given to the original
Trustee. Any person or institution may rely upon the representations of a
Successor Trustee, as to its authority and incumbency, until receiving written
instructions to the contrary from the Settlor.
2. PROPERTY IN TRUST.
(a) Initial Deposit in Trust. Concurrently with the
execution of this Agreement, the Settlor is delivering to the Trustee, on
behalf of the Trust, a stock certificate evidencing 50 shares of capital stock
of the Cincinnati PC (the "Initial Trust Estate"). The Trustee acknowledges
receipt of the Initial Trust Estate. The Trustee agrees that it will hold,
manage and distribute the Initial Trust Estate, Cincinnati PC shares and all
other property of any
<PAGE> 2
kind that becomes a part of the Trust in accordance with this Agreement and the
PC Purchase Agreement for the primary benefit of the Settlor.
(b) Other Additions To The Trust. At any time, the
Settlor may add property to the Trust. All such additions, however, shall be
subject to the Trustee's power to refuse to accept such property if, in its
sole discretion, it determines that such property would cause the Trustee to
incur liability under any federal, state, or local law or regulation. The
Settlor agrees that it shall add, and the Trustee agrees that it shall accept,
hold, manage and distribute, funds and securities issued by the Settlor in such
amounts and at such times as may be required to discharge the Trust's
obligations under the PC Purchase Agreement.
3. WITHDRAWAL, TERMINATION, AND MODIFICATION.
(a) Withdrawal. The Settlor reserves the right at any
time without the consent of the Trustee to withdraw any asset of the Trust or
to terminate the Trust by written instrument delivered personally or by
certified mail, return receipt requested, to the Trustee.
(b) Modification. The Settlor reserves the right at any
time without the consent of the Trustee to modify this Agreement in any respect
by delivery personally or by certified mail, return receipt requested, of a
written modification to the Trustee; provided, however, that any modification
affecting the powers or obligations of the Trustee shall be subject to the
written approval of the Trustee, who, upon disagreement with said
modifications, shall be deemed to have resigned its office as Trustee.
(c) Termination of Trust Agreement. This Agreement and
the Trust created hereunder shall continue until the earlier of (i) the date
specified in a written notice given to the Trustee by the Settlor, and (ii) 21
years after the death of the last survivor of the descendants of the late King
George V of the United Kingdom of Great Britain and Northern Ireland who were
living on the date hereof, but if any rights, privileges or options hereunder
shall be or become valid under applicable law for a period subsequent to the
21st anniversary of the death of such last survivor (or, without limiting the
generality of the foregoing, if legislation shall become effective providing
for the validity or permitting the effective grant of such rights, privileges
and options for a period in gross exceeding the period for which such rights,
privileges and options are hereinabove stared to extend and be valid), then
such right, privileges or options shall not terminate as aforesaid but shall
extend to and continue in effect, but only if such non-termination and
extension shall then be valid under applicable law, until such time as the same
shall, under applicable law, cease to be valid.
(d) Actions by the Trustee upon Termination. Upon
termination of this Agreement and the Trust created hereby, the Trustee shall
take such action as may be specified in writing by the Settlor to transfer the
Assets to the Settlor.
(e) Compliance with Laws. The Settlor agrees not to
exercise any right reserved in Section 3(a), 3(b) or 3(c) hereof in a manner
that could foreseeably result in a
- 2 -
<PAGE> 3
violation of any Laws (as hereinafter defined) by any one or more of the
Settlor, the Cincinnati PC, the Trustee or Barron.
4. DISTRIBUTIONS FROM TRUST.
(a) Distribution of Income. The Trustee shall distribute
the net income of the Trust, if any, to the Settlor at such times and in such
amounts as the Settlor directs in writing.
(b) Distribution of Property or Principal. The Trustee
shall pay or distribute the property or principal of the Trust to the Settlor
at such times and in such amounts as the Settlor directs in writing. The
Settlor agrees not to direct the distribution of the Cincinnati PC shares in a
manner that could foreseeably result in a violation of any Laws (as hereinafter
defined) by any one or more of the Settlor, the Cincinnati PC, the Trustee or
Barron.
5. POWERS AND OBLIGATIONS OF TRUSTEE.
(a) Powers. The Trustee, as a fiduciary, shall have,
subject to the restrictions set forth in this Section 5 and in addition to all
other powers granted to the Trustee by law, the powers set forth in this
Section 5. The Trustee shall have such powers without giving bond and without
being supervised by any court.
i) General Powers Over Trust Funds. The Trustee
may not distribute, sell, transfer, pledge or exchange any or all of the assets
of the Trust (the "Assets") without the prior written consent of the Settlor;
but otherwise has full power and authority to do everything in the management
and for the preservation of the Assets that it considers proper and for the
best interests of the Trust.
ii) Fiduciary Responsibility. The Trustee shall
not be held responsible for any loss sustained by the Trust through any error
of judgment made in good faith, but shall be liable only for the Trustee's own
willful misconduct, gross negligence or breach of good faith. The Trustee
shall not be personally liable upon any debt of or claim against the Trust
unless personal liability has been expressly assumed in writing by the Trustee.
iii) Practice of Medicine. It is anticipated that
the Assets shall include shares of stock in one or more professional
corporations. Nothing contained in any provision of this Agreement shall be
construed so as to constitute the practice of medicine by the Trust, the
Trustee, or the Settlor.
iv) Indemnification. The Settlor shall indemnify
the Trustee, in the Trustee's individual capacity, from any liability, loss,
claim, damage, judgment, award or expense (including reasonable attorney's fees
and disbursements) arising out of the performance of the trustee's duties
hereunder; provided, however, that the Settlor shall have no obligation to
indemnify the Trustee for the Trustee' s own willful misconduct, gross
negligence or breach of good faith. The Settlor may provide insurance for the
Trustee in such types and amounts as
- 3 -
<PAGE> 4
the Settlor deems reasonably necessary. The Trustee's right to indemnification
hereunder shall survive any resignation or removal of the Trustee, or and
termination of the Trust, with respect to any claim or matter arising out of
any action taken or not taken by the Trustee, or any other circumstance or
event occurring or existing, on or before the date of any such resignation,
removal or termination.
(b) Records. The Trustee shall keep such records of
Trust transactions as may be requested in writing by the Settlor; and the
Settlor, through any executive officer, shall at all reasonable times have the
right to inspect the records of the Trust.
(c) Release of Trustee's Obligation to Examine Records.
The Trustee or Successor Trustee shall have no responsibility for inquiring
into, reviewing or auditing the administration of any Asset before such asset
was accepted as Trust property, and Successor Trustee shall have no liability
for any act or omission of any prior Trustee or prior Successor Trustee
regarding the administration of Assets; provided, however, that no Trustee or
Successor Trustee shall be relieved of responsibility with reference to its own
acts or omissions in any other capacity.
(d) Action Upon Instructions. Subject to the provisions
of Section 8 hereof, upon the written instructions of the Settlor, the Trustee
will: (i) give such notice or direction or exercise such right, remedy or
power hereunder or in respect of all or any part of the Assets, as may be
specified in such instructions; (ii) take such action to hold, preserve,
protect or otherwise deal with the Assets as may be specified in such
instructions; (iii) deliver certificates evidencing Cincinnati PC shares to
such person for safekeeping as may be specified in such instructions; and (iv)
exercise the Trust's rights as holder of Cincinnati PC shares in such manner as
may be specified in such instructions (including exercising rights to consent
in writing; vote at meetings of stockholders (in person or by proxy) or
otherwise take such actions as under applicable law shareholders are permitted
or required to take (including election of directors)).
(e) No Duties Except as Specified in Trust Agreement or
Instructions. The Trustee shall not have any duty or obligation to manage,
control, use, make any payment in respect of, register, record, insure,
inspect, sell, dispose of or otherwise deal with the Assets, or to otherwise
take or refrain from taking any action under or in connection with the Assets,
except as expressly provided by the terms of this Agreement or in written
instructions from the Settlor, and no implied duties or obligations shall be
read into this Agreement against the Trustee.
(f) Absence of Duties. Except in accordance with written
instructions furnished pursuant to Section 5(d) and without limiting the
generality of Section 5(e), the Trustee shall have no duty to (i) file, record
or deposit this Agreement or any instrument or document described herein, or to
maintain any such filing, recording or deposit or to refile, rerecord or
redeposit any such document, (ii) obtain insurance on Assets or effect or
maintain any such insurance, other than to receive and forward to the Settlor
any notices, policies, certificates or binders furnished to the Trustee, (iii)
pay or discharge any tax or any lien owing with respect
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<PAGE> 5
to or assessed or levied against any part of the Assets, other than to forward
notice of such tax or lien received by the Trustee to the Settlor, or (iv)
manage, control, use, sell, dispose of or otherwise deal with any part of the
Assets.
(g) Reliance; Advice of Counsel. The Trustee shall not
incur any liability to any Person in acting upon any signature, instrument,
notice, resolution, request, consent, order, certificate, resort, opinion, bond
or other document or paper believed by him to be genuine and believed by him to
be signed by the proper party or parties. The Trustee may accept and rely upon
a certified copy of a resolution of the board of directors or other governing
body of any corporate party as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and effect.
As to any fact or matter the manner of ascertainment of which is not
specifically prescribed herein, the Trustee may for all purposes hereof rely on
an officer's certificate of the relevant party, as to such fact or matter, and
such certificate shall constitute full protection to the Trustee for any action
taken or omitted to be taken by him in good faith in reliance thereon. In the
administration of the trusts hereunder, the Trustee may execute any of the
trusts or powers hereof and perform his powers and duties hereunder directly or
through agents or attorneys and may, at the expense of the Trust, consult with
counsel, accountants and other skilled persons to be selected and employed by
him, and the Trustee shall not be liable for anything done, suffered or omitted
in good faith by it in accordance with the advice or opinion of any such
counsel, accountants or other skilled persons and not contrary to express
provisions of this Agreement, unless the selection of such counsel, accountants
or other persons shall have been made with negligence, willful misconduct or
bad faith.
6. SUCCESSOR TRUSTEE AND COMPENSATION.
(a) Removal of Trustee and Appointment of Successor. Any
Trustee may be removed at any time with or without cause by a document signed
by the Settlor. The Settlor shall designate and appoint a Successor Trustee or
Trustees (a "Successor Trustee") who, to the extent required by law shall be a
doctor of medicine duly licensed to practice medicine in the State of Ohio.
Any such Successor Trustee shall be appointed in accordance with the terms of
this Agreement, and the Settlor shall deliver by certified mail, return receipt
requested, a document making such appointment, accompanied by the documents
removing the Trustee, to the Trustee being removed and to such Successor
Trustee. The Successor Trustee appointed in accordance with the foregoing
shall promptly deliver a written acceptance thereof to the then acting Trustee.
All of the Trust property in the possession of the then acting Trustee shall be
delivered to the Successor Trustee, together with an accounting of Trust
property, receipts and disbursements (which accounting shall be conducted at
the expense of the Settlor); upon so doing, the then acting Trustee shall have
no further responsibility or right to administer the Trust. Thereupon, such
Successor Trustee shall become vested with all of the Trust property with the
same effect as if originally designated as Trustee.
(b) Resignation of Trustee. Barron, as Trustee, or any
successor Trustee acting hereunder may resign at any time by giving written
notice to the Settlor which resignation
- 5 -
<PAGE> 6
shall be effective immediately upon receipt of such notice In that event, the
Settlor shall select a Successor Trustee and the Trust Assets shall be
transferred in accordance with terms set forth in Section 6(a) above.
(c) Compensation of Trustee. Any individual serving as
the Trustee hereunder shall serve without bond. As compensation for all
services under this Agreement, the Settlor shall pay to the Trustee, for his
individual account, $100 per year (or portion thereof) during the term of this
Agreement, payable in arrears on September 30 of each year (commencing
September 30, 1997) or earlier removal or resignation of the Trustee or
termination of the Trust. The Trustee will be entitled to reimbursement only
for actual expenses as the Trustee hereunder and the indemnification provided
in Section 5 hereof.
(d) Situs of Trust. Except as otherwise expressly
provided herein, the validity, effect, and interpretation of this Agreement,
and of the property interests created herein, shall be controlled by the laws
of the State of Ohio; such laws shall also govern the administration of the
Trust hereunder.
7. NOTICE. Any notice required or permitted to be given under
this Agreement shall be given by registered or certified mail, return receipt
requested in a pre-paid envelope, by overnight mail or courier, or by facsimile
transmission with receipt acknowledged addressed to the parties as follows (or
at other addresses as shall be given in writing by either party to the other):
If to Settlor: AmeriPath, Inc.
800 Cross Creek Road, Suite 200
Fort Lauderdale, Florida 33334
Attn: James C. New, President
If to Trustee: David R. Barron, M.D., Inc.
9670 Kenwood Road
Cincinnati, OH 45242
Attn: David R. Barron, M.D.
8. NO VIOLATION OF LAW. Nothing in this Agreement shall be
construed to impose upon Barron any requirement if complying with such
requirement could foreseeably result in a violation of any law, rule,
regulation, order, judgment, award or determination of any court, arbitrator,
governmental or other authority, including the violation of any code of
professional ethics or other mandate of the medical profession (collectively,
the "Laws"). The Settlor shall not knowingly issue to Barron any direction or
impose on him any requirements, which if performed by Barron could foreseeably
violate the Laws. Without limiting the foregoing, the Settlor shall not
interfere in any way with the exercise by Barron of his professional judgment.
- 6 -
<PAGE> 7
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10. SALE OF THE ASSETS BY THE TRUSTEE IS BINDING. Any sale,
transfer, or other conveyance of the Assets or any part thereof by the Trustee
made pursuant to the terms of this Agreement or the PC Purchase Agreement shall
bind the Settlor and shall be effective to sell, transfer and convey all right,
title and interest of the Trustee and the Settlor in and to such Assets or any
part thereof. Barron, acting in his individual capacity as Seller under the PC
Purchase Agreement, shall not be required to inquire as to the authorization,
necessity, expediency or regularity of such sale, transfer or conveyance with
respect thereto by the Trustee or the Settlor.
11. SUCCESSORS AND ASSIGNS. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Settlor and its successors and assigns and the Trustee and his successors,
representatives and assigns, all as herein provided. Any request, notice,
direction, consent, waiver or other instrument or action by each of the parties
hereto shall bind the successors and assigns of such party. Upon the death of
any individual acting as the Trustee hereunder, his estate or other legal
representative shall promptly resign as the Trustee pursuant to Section 6(b)
hereof.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this document as of the
date first above written.
AMERIPATH, INC.
By: /s/ Robert P. Wynn
-----------------------------------
Its: Vice President
----------------------------------
TRUSTEE:
/s/ David R. Barron, M.D
--------------------------------------
David R. Barron, M.D.
- 8 -
<PAGE> 1
Exhibit 10.28
AMERIPATH, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
-------------------------
AMERIPATH, INC., a Delaware corporation (the "Company"), as of this
____ day of ___________, 199__, hereby grants to _____________ (the
"Optionee"), an option ("Option") to purchase a total of ________________
(_________) shares (the "Shares") of Common Stock, par value $.01 per share
(the "Common Stock"), of the Company, at the price determined as provided
herein, pursuant to the AMERIPATH INC. 1996 Stock Option Plan (the "Plan")
adopted by the Company and its stockholders, which Plan is incorporated
herein by reference. The Optionee hereby acknowledges receipt of the Plan
and agrees to be bound by all of the terms and conditions hereof and
thereof. All capitalized terms which are defined in the Plan shall have the
meanings ascribed to such terms in the Plan.
1. NATURE OF THE OPTION. This Option is a Non-Statutory Stock
Option.
2. EXERCISE SCHEDULE. Except as otherwise provided in Sections
7, 8, 9 and 16 of the Plan, this Option shall be exercisable in whole or in
part and cumulatively according to the following schedule:
20% on or after the first anniversary of the date of grant
20% on or after the second anniversary of the date of grant
20% on or after the third anniversary of the date of grant
20% on or after the fourth anniversary of the date of grant
20% on or after the fifth anniversary of the date of grant
(with all share amounts subject to adjustment in accordance with this grant
agreement and the Plan); provided, however, that, notwithstanding any other
provision herein, each 2,000 Share increment of this Option set forth in the
schedule above shall vest and shall be and become exercisable by the Optionee
if and only if the Optionee is in the employ of the Company on the date
indicated.
This Option shall be exercised in the manner set forth in Section 7
of the Plan. In no event shall this Option be exercisable earlier than six
months after the date of this Agreement (which represents the date upon
which the Company's Board of Directors authorized and approved the grant
reflected herein).
3. EXERCISE PRICE. The exercise price of the Shares subject to
this Option is $_____ for each Share.
<PAGE> 2
4. TERMINATION OF OPTION PERIOD. The unexercised portion of
this Option that is or becomes exercisable shall automatically and without
notice terminate and become null and void (and no longer exercisable) at the
time set forth in Section 9 of the Plan.
5. TRANSFERABILITY OF OPTIONS; ISSUANCE OF SHARES; RESTRICTIVE
LEGEND. This Option is not transferable by the Optionee otherwise than by
will or by the laws of descent and distribution and the Option shall be
exercisable during the Optionee's lifetime only by the Optionee. Any Shares
purchased by the Optionee pursuant to the exercise of this Option shall be
subject to the Company's Shareholders' Agreement relating to the Shares and
related and other matters (the "Shareholders' Agreement"), including, but not
limited to, any restrictions on transferability, any rights of first refusal
and any option of the Company to "call" or purchase such Shares, so long as
the Shareholders' Agreement remains in effect. As a condition to the issuance
of such Shares, the Optionee shall execute and deliver to the Company a
counterpart to the Shareholders' Agreement, so long as the Shareholders'
Agreement remains in effect..
Each and every stock certificate representing shares of Common Stock
issued to the Optionee upon exercise of the Option shall bear the following
(or similar) restrictive legend ()to the extent applicable), together with such
other legend(s) as the Committee shall in its discretion deem appropriate:
"The shares represented by this certificate (the "Shares")
have been acquired from the Issuer pursuant to the Issuer's
1996 Stock Option Plan (the "Plan"). The Shares are subject
to each and every one of the terms, conditions and
restrictions set forth in the Plan. The Shares are also
subject to each and every one of the terms, conditions and
restrictions set forth in the Shareholders' Agreement
(the "Shareholders" Agreement"), as amended, including,
but not limited to, any restrictions on transferability, any
rights of first refusal and any option of the Company
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 7289 Garden Road, suite 200, Riviera Beach, Florida
33404."
6. OPTIONEE'S REPRESENTATIONS. In the event the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended ("Securities Act"), at the time
this Option is exercised, and such registration is required for the Optionee
to effect the sale or transfer of such Shares, the Optionee shall,
concurrently with the exercise of all or any portion of this Option, deliver
to the Company his or her Investment Representation Statement in the form
attached hereto as Annex "A".
7. RESTRICTIONS ON EXERCISE. This Option may not be exercised
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would
- 2 -
<PAGE> 3
constitute a violation of any applicable federal or state securities or other
law or regulation, including any rule under Part 207 of Title 12 of the Code of
Federal Regulations ("Regulation G") as promulgated by the Federal Reserve
Board. As a condition to the exercise of this option, the Company may require
the Optionee to make any representation and warranty to the Company as may be
required by any applicable law or regulation.
8. DEATH OF OPTIONEE. Upon the death of Optionee this Option
may be exercised by Optionee's estate or by a person who acquired the right
to exercise this Option by bequest or inheritance, but only to the extent of
the right to exercise that had accrued at the date of termination and only for
such period of time as shall be permitted pursuant to Section 9(a) of the
Plan, and subject to all of the restrictions contained in this Option
Agreement.
9. TERM OF OPTION. Notwithstanding anything to the contrary
contained herein, this Option may not be exercised more than 10 years from
the date of grant of this Option, and may be exercised during such term
only in accordance with the terms of the Plan and this Option.
10. METHOD OF PAYMENT. Payment for the Shares upon exercise
of this Option shall be made in cash, by certified or official bank check,
by money order, with Shares (which may include Shares to be received upon the
exercise of an Option) having a Fair Market Value on the date of delivery
equal to the aggregate exercise price of the Shares as to which said Option
is being exercised, or by any combination of such methods of payment or by
any other method of payment as may be permitted under applicable law and as
may be authorized by the Committee, such as by personal check or promissory
note of the Optionee (subject to the provisions of Section 7 of the Plan).
11. EXERCISE OF OPTION. An Option, or any fraction thereof,
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms of this Option by the person
entitled to exercise the Option, full payment for the Shares with respect to
which the Option is exercised has been received by the Company, and the
withholding provided for in Section 13 of this Agreement have been
satisfactorily provided for. Full payment may consist of any form of
consideration and method of payment allowable under Section 10 hereof. With
regard to any Shares issued upon the exercise of an Option, the Optionee,
after receipt of such Shares, shall have the right upon such exercise to
vote, receive dividends and exercise all rights as a stockholder with
respect to such Shares.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
Subject to any required action by the stockholders of the Company, the
number of Shares covered by this Option, and the aggregate number of Shares
which have been authorized for issuance hereunder, as well as the exercise
price per share of Common Stock, covered by this Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock dividend or through any
recapitalization, reclassification, stock split-up, 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). Such adjustment shall be made by the Committee, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock
of any class, or securities convertible into shares of stock of any class,
shall
- 3 -
<PAGE> 4
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to this Option.
Unless otherwise expressly provided herein, in the event of (A)
the initial underwritten public offering of equity securities of the
Company pursuant to a registration statement filed under the Securities
Act of 1933, as amended, (B) the sale of all or substantially all of the
stock or assets of the Company, or (C) the merger or consolidation of
the Company as a result of which those persons who hold 100% of the
voting stock of the Company immediately prior to such transaction own less
than 50% of the voting stock of the surviving resulting entity, this Option
may, in the Committee's sole discretion, terminate immediately prior to the
consummation of such proposed action, provided that if the Option is then
exercisable, the Optionee shall have received written notice within a
reasonable time prior to the consummation of such action advising the
Optionee of (i) any of the foregoing and (ii) that the Optionee has the
opportunity to exercise his Option during such period. The Committee may, in
the exercise of its sole discretion, in such instances declare that any
Option shall terminate as of a date fixed by the Board and give each
Optionee the right to exercise his or her Option.
13. WITHHOLDING. In order to enable the Company to meet any
applicable federal, state or local withholding tax requirements arising as a
result of the exercise of this Option, and as a condition to the issuance
of Shares hereunder, the Optionee shall pay the Company cash for the amount of
tax to be withheld.
14. INTERPRETATION.
(a) If any provision of this agreement should be held invalid
for the granting of Options or illegal for any reason, such determination
shall not affect the remaining provisions hereof, but instead this agreement
shall be construed and enforced as if such provision had never been included
in this Agreement.
(b) This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware.
(c) Headings contained in this agreement are for convenience
only and shall in no manner be construed as part of this Agreement.
(d) Any reference to the masculine, feminine, or neuter gender
shall be a reference to such other gender as is appropriate.
(e) This agreement shall not confer upon the Optionee any
right with respect to continuation of employment by, or consulting
relationship with, the Company, nor shall it interfere in any way with his or
her right to terminate his or her employment or consulting relationship at any
time.
- 4 -
<PAGE> 5
15. ACKNOWLEDGMENT. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Committee upon any questions arising under the Plan or this Agreement.
DATE OF GRANT:
AMERIPATH, INC.
(The Company)
By:
------------------------------------
Robert P. Wynn, Chief Financial
Officer
Accepted and Agreed to this
___ day of ___________, 1996.
OPTIONEE
- ------------------------------
Name:
- 5 -
<PAGE> 6
ANNEX "A"
INVESTMENT REPRESENTATION STATEMENT
PURCHASER:
SELLER: AmeriPath, Inc.
COMPANY: AmeriPath, Inc.
SECURITY: _________ Shares of Common Stock
DATE: _____________, 199_
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company, the following:
(a) I am aware of the Company's business affairs and
financial condition, and have acquired all such information about the
Company as I deem necessary and appropriate to enable me to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment and not with a view to, or for
the resale in connection with, any "distribution" thereof for purposes of the
Securities Act of 1933, as amended ("Securities Act").
(b) I understand that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein.
(c) I further understand that the Securities may not be sold
publicly and must be held indefinitely unless they are subsequently
registered under the Securities Act or unless an exemption from registration
is available. I am able, without impairing my financial condition, to hold
the Securities for an indefinite period of time and to suffer a complete loss
on my investment. I understand that the Company is under no obligation to
register the Securities. In addition, I understand that the certificate
evidencing the Securities will be imprinted with a legend which prohibits the
transfer of the Securities unless they are registered or such registration is
not required in the opinion of counsel for the Company.
(d) I am familiar with the provisions of Rule 144,
promulgated under the Securities Act, which, in substance, permits limited
public resale of "restricted securities" acquired, directly or indirectly,
from the issuer thereof (or from an affiliate of such issuer), in a
non-public offering subject to the satisfaction of certain conditions,
including, among other things: (1) the availability of certain public
information about the Company; (2) the resale occurring not less than two
years after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than three
years (3) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934) and the amount of
securities being sold during any three month period not exceeding the specified
limitations stated therein, if applicable.
A-1
<PAGE> 7
(e) I further understand that at the time I wish to sell the
Securities there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and
that, in such event, I would be precluded from selling the Securities under
Rule 144 even if the two-year minimum holding period had been satisfied. I
understand that the Company is under no obligation to make Rule 144 available.
(f) I further understand that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under
the Securities Act, or some other registration exemption will be required;
and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own risk.
(g) I further understand that in addition to the
restrictions set forth above the transfer of the Securities is restricted
under the terms of my Option Agreement and such other agreements that I may
be required to execute pursuant to my Option Agreement and may not be
transferred without complying with the provisions of the Plan or such other
agreements.
SIGNATURE OF PURCHASER:
---------------------------------------
Date: ____________, 199__
A-2
<PAGE> 1
Exhibit 10.29
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERIPATH, INC.,
BENO MICHEL, M.D., INC.
AND
BENO MICHEL, M.D.
EFFECTIVE AS OF OCTOBER 15, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
ARTICLE I
PURCHASE OF CAPITAL STOCK
<S> <C>
1.1 Purchase and Sale of Capital Stock....................................................................... 1
1.2 The Contingent Note...................................................................................... 4
1.3 Contingent Issuance of AmeriPath Stock................................................................... 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND CP&I
2.1 Corporate Organization, Qualification, etc............................................................... 15
2.2 Subsidiaries............................................................................................. 16
2.3 Capital Stock............................................................................................ 16
2.4 Corporate Record Books................................................................................... 16
2.5 Title to Stock........................................................................................... 16
2.6 Options and Rights....................................................................................... 16
2.7 Authorization, Etc....................................................................................... 16
2.8 No Violation............................................................................................. 17
2.9 Financial Statements..................................................................................... 17
2.10 Employees................................................................................................ 18
2.11 Absence of Certain Changes............................................................................... 18
2.12 Contracts................................................................................................ 19
2.13 True and Complete Copies................................................................................. 21
2.14 Title and Related Matters................................................................................ 21
2.15 Litigation............................................................................................... 22
2.16 Tax Matters.............................................................................................. 22
2.17 Compliance with Law and Applicable Government Regulations................................................ 23
2.18 ERISA and Related Matters................................................................................ 24
2.19 Intellectual Property.................................................................................... 25
2.20 Environmental Matters.................................................................................... 26
2.21 Dealings with Affiliates................................................................................. 27
2.22 Banking Arrangements..................................................................................... 27
2.23 Insurance................................................................................................ 27
2.24 Consents................................................................................................. 28
2.25 Investment Representations............................................................................... 28
2.26 Accounts Receivable; Inventories......................................................................... 29
2.27 Brokerage................................................................................................ 30
2.28 Improper and Other Payments.............................................................................. 30
</TABLE>
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<TABLE>
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2.29 Participation in Audits.................................................................................. 30
2.30 Health Care Laws......................................................................................... 30
2.31 Financial Condition at Closing........................................................................... 32
2.32 Disclosure............................................................................................... 32
2.33 Limitation............................................................................................... 32
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1 Corporate Organization, etc.............................................................................. 32
3.2 Subsidiaries............................................................................................. 33
3.3 Authorization, Etc....................................................................................... 33
3.4 No Violation............................................................................................. 33
3.5 Governmental Authorities................................................................................. 33
3.6 Issuance of AmeriPath Stock.............................................................................. 34
3.7 Financial Statements..................................................................................... 34
3.8 Capitalization; Options.................................................................................. 34
3.9 Compliance with Material Laws and Regulations............................................................ 35
3.10 Litigation............................................................................................... 35
3.11 Insurance................................................................................................ 35
3.12 Disclosure............................................................................................... 35
ARTICLE IV
COVENANTS OF THE SELLER
4.1 Regular Course of Business............................................................................... 35
4.2 Amendments............................................................................................... 36
4.3 Capital Changes; Pledges................................................................................. 36
4.4 Dividends................................................................................................ 36
4.5 Capital and Other Expenditures........................................................................... 36
4.6 Cash and Cash Equivalents................................................................................ 36
4.7 Borrowing................................................................................................ 36
4.8 Other Commitments........................................................................................ 36
4.9 Transfer of Business..................................................................................... 37
4.10 Interim Financial Information............................................................................ 37
4.11 Full Access and Disclosure............................................................................... 37
4.12 Confidentiality.......................................................................................... 37
4.13 Fulfillment of Conditions Precedent...................................................................... 37
</TABLE>
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<TABLE>
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ARTICLE V
COVENANTS OF THE PURCHASER
<S> <C>
5.1 Confidentiality.......................................................................................... 38
5.2 Full Access and Disclosure............................................................................... 38
5.3 Fulfillment of Conditions Precedent...................................................................... 38
ARTICLE VI
OTHER AGREEMENTS
6.1 Further Assurances....................................................................................... 39
6.2 Agreement to Defend...................................................................................... 39
6.3 Consents................................................................................................. 39
6.4 No Solicitation or Negotiation........................................................................... 39
6.5 Public Announcements..................................................................................... 39
6.6 Employment Agreements.................................................................................... 40
6.7 --DELETED--.............................................................................................. 40
6.8 Observer Rights.......................................................................................... 40
6.9 Certain Tax Matters...................................................................................... 40
6.10 Non-Competition Covenant................................................................................. 41
6.11 Non-disclosure; Confidentiality.......................................................................... 43
6.12 Rule 144 Best Efforts.................................................................................... 44
6.13 Exclusive Territory...................................................................................... 44
6.14 First Rights............................................................................................. 44
6.15 Unpaid Tax Liability..................................................................................... 44
6.16 Trade Names.............................................................................................. 45
6.17 Access to Books.......................................................................................... 45
6.18 Deliveries After Closing................................................................................. 45
6.19 Post Closing Operations.................................................................................. 45
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
7.1 Representations and Warranties; Covenants and Agreements................................................. 46
7.2 No Injunction............................................................................................ 46
7.3 --DELETED--.............................................................................................. 46
7.4 --DELETED--.............................................................................................. 46
7.5 No Material Adverse Change............................................................................... 46
7.6 Opinion of Seller's Counsel.............................................................................. 46
7.7 Employment Agreement..................................................................................... 46
7.8 Delivery of CP&I Share Certificates...................................................................... 47
</TABLE>
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<TABLE>
<S> <C>
7.9 Shareholders' Agreement.................................................................................. 47
7.10 Subordination Agreement.................................................................................. 47
7.11 Other Agreements......................................................................................... 47
7.12 Transfer of Business..................................................................................... 47
7.13 Acquisition Agreement.................................................................................... 47
7.14 Escrow Agreement......................................................................................... 47
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
8.1 Representations and Warranties; Performance.............................................................. 48
8.2 No Injunction............................................................................................ 48
8.3 Purchase Consideration................................................................................... 48
8.4 Other Agreements......................................................................................... 48
8.5 Acquisition Agreement.................................................................................... 48
8.6 Opinion of Counsel....................................................................................... 48
8.7 Approval Certificate..................................................................................... 48
8.8 Escrow Agreement......................................................................................... 48
ARTICLE IX
CLOSING
9.1 Closing.................................................................................................. 48
9.2 Closing Deliveries....................................................................................... 49
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination................................................................................... 50
10.2 Procedure Upon Termination............................................................................... 51
ARTICLE XI
SURVIVAL; INDEMNIFICATION
11.1 Survival................................................................................................. 51
11.2 Indemnification by the Seller............................................................................ 52
11.3 Indemnification by the Purchaser......................................................................... 53
11.4 Third-Party Claims....................................................................................... 53
</TABLE>
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<TABLE>
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11.5 Deductible............................................................................................... 54
11.6 Benefits................................................................................................. 55
11.7 Maximum Liability........................................................................................ 55
11.8 Insurance................................................................................................ 55
11.9 Notice of Claims......................................................................................... 55
11.10 Time Bar................................................................................................. 55
11.11 Exclusive Remedy......................................................................................... 55
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification............................................................................... 56
12.2 Entire Agreement......................................................................................... 56
12.3 Certain Definitions...................................................................................... 56
12.4 Notices.................................................................................................. 59
12.5 Waiver of Compliance; Consents........................................................................... 60
12.6 Assignment............................................................................................... 60
12.7 Governing Law............................................................................................ 60
12.8 Consent to Jurisdiction; Service of Process.............................................................. 60
12.9 Injunctive Relief........................................................................................ 61
12.10 Counterparts............................................................................................. 61
12.11 Headings................................................................................................. 61
12.12 Binding Effect........................................................................................... 61
12.13 Severability............................................................................................. 61
12.14 Expenses................................................................................................. 61
12.15 Attorneys' Fees.......................................................................................... 61
</TABLE>
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SCHEDULES
1.3 Contingent Stock
2.1 Jurisdictions of Qualification
2.2 Subsidiaries; Investments; Interests
2.8 Violations
2.9(a) 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
2.15 Litigation
2.17(a) Permits and Licenses
2.17(b) Jurisdictions Licensed to Provide Health Care; Status
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
3.8 Options, Rights
3.10 Litigation - AmeriPath
3.11 Insurance - AmeriPath
4.9 Assets and Liabilities of Medical Practices
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EXHIBITS
1.2 Form of 7% Non-Negotiable Subordinated Contingent Promissory Note
1.2(k) Escrow Agreement
1.3 Approval Certificate
2.1 CP&I's Articles of Incorporation, as amended, and By-laws
2.9 CP&I's Financial Statements
3.1 AmeriPath Certificate of Incorporation, as amended, and By-laws
3.7 AmeriPath Financial Statements
6.6 Form of Employment Agreement for the Seller
7.6 Opinion of Seller's Counsel
7.9 Signature Page to Shareholders' Agreement
7.10 Subordination Agreement
7.13 Acquisition Agreement
8.6 Opinion of Purchaser's Counsel
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<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") dated as of October 15,
1996, by and among AMERIPATH, INC., a Delaware corporation, or its permitted
assigns ("AmeriPath" or the "Purchaser"), BENO MICHEL, M.D., INC. (d/b/a
Cutaneous Pathology & Immunofluorescence Laboratory), an Ohio corporation
("CP&I"), and BENO MICHEL, M.D., who is the holder of One Hundred (100) common
shares, no par value per share, of CP&I (Dr. Michel shall be referred to herein
as the "Seller").
WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of CP&I, organized as a professional service corporation under
Section 1785.01 of the Revised Code of Ohio;
WHEREAS, AmeriPath desires to purchase and acquire from the Seller, and
the Seller desires to sell, transfer and deliver to AmeriPath, all of the issued
and outstanding shares of capital stock of CP&I, upon the terms and subject to
the conditions set forth herein;
WHEREAS, in order to comply with applicable federal and Ohio State
Health Care Laws, a grantor trust, a permitted assign hereunder (the "Trust"),
with AmeriPath as its sole beneficiary and with the Seller as the trustee, shall
acquire all of the issued and outstanding shares of stock of CP&I pursuant to
the terms and conditions set forth herein; and
WHEREAS, although the parties hereto have agreed as to the minimum
value of CP&I, they are not able to agree as to the total value of CP&I, and
thus the parties hereto have agreed to certain additional contingent purchase
price consideration based upon the results of operations of CP&I as more fully
set forth herein.
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 Seller and CP&I 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
Seller agrees to sell, transfer and deliver to the Purchaser, and the
Purchaser agrees to purchase, acquire and accept delivery from the
Seller, all of the issued and outstanding capital stock of CP&I (the
"CP&I Shares").
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<PAGE> 10
(b) Upon the sale, transfer and delivery to the Purchaser by
the Seller of the CP&I Shares at the Closing (as such term is defined
in Section 9.1 hereof), and in consideration therefor, AmeriPath shall
deliver to the Seller the following consideration in the aggregate (the
"Purchase Price"):
(i) SIX MILLION FIVE HUNDRED THOUSAND DOLLARS
($6,500,000.00), by wire transfer to such bank account as the
Seller may designate in a written notice delivered to the
Purchaser no later than five business days prior to the
Closing Date (as defined in Section 9.1);
(ii) Certificates evidencing 96,000 shares of Common
Stock, par value $.01 per share, of AmeriPath Inc., a Delaware
corporation (the "AmeriPath Stock");
(iii) 7% Non-Negotiable Subordinated Contingent
Promissory Note, in the form attached hereto as Exhibit 1.2
(the "Contingent Note"), in the aggregate maximum principal
amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000.00), the issuance and certain terms and conditions
of which Contingent Note are set forth in Section 1.2 below;
and
(iv) Up to 100,000 shares of AmeriPath Stock,
issuable over three years subject to the satisfaction of
certain contingencies, subject to and in accordance with
Section 1.3 hereof.
The consideration referred to in Sections 1.1(b) (i) through
(iii) shall be delivered to the Seller at the Closing, and the
consideration referred to in Section 1.1(b)(iv) shall be delivered to
the Seller as provided in Section 1.3(a).
(c) Purchase Price Adjustments.
(i) Within sixty (60) days of the Closing Date, the
Purchaser shall determine (in accordance with Section 1.2(b)
hereof) and advise the Seller by written notice (the
"Adjustment Notice") of the Operating Earnings (as defined
below) of CP&I for the twelve month period ended September 30,
1996 (the "Adjustment Earnings"); provided, however, the
Adjustment Earnings shall include pro forma adjustments
including setting the Seller's salary at the annual rate set
forth in his Employment Agreement, excluding non-recurring
charges and expenses and proportional charges with respect to
entertainment and continuing education expenses attributable
to the Seller's medical practice. In the event either party
believes there is a basis for a purchase price adjustment as
described herein (an "Adjustment"), such party shall notify
the other of such Adjustment within ten (10) days of receipt
by the Seller of the Adjustment Notice, and the other party
shall have the right to dispute such Adjustment. AmeriPath and
the Seller shall negotiate in good faith to resolve any such
dispute. In the event AmeriPath and the Seller cannot resolve
such dispute within thirty (30) days, the independent
<PAGE> 11
certified public accounting firm which then audits
AmeriPath's financial statements shall resolve the dispute,
with such firm's opinion being final and binding on all
parties; provided, however, the Seller, at his own expense,
may refer the matter to another independent public accounting
firm, and the average of the decisions of the two firms shall
be the final and binding resolution of the matter. If neither
party has requested an Adjustment pursuant this Section
1.1(c)(i) within ten (10) days of the receipt by the Seller of
the Adjustment Notice (the Adjustment Notice will be deemed to
have been received by the Seller two business days after it
was sent by the Purchaser if it was delivered by overnight
delivery with a reputable national courier), then AmeriPath
shall issue and deliver to the Seller certificates
representing 50,667 shares of AmeriPath Stock and no further
Adjustment shall be made hereunder. If the parties agree that
an Adjustment is necessary and they have agreed on the
Adjustment Earnings, then the Adjustment shall be determined
as follows:
a. In the event that the Adjustment Earnings
are greater than $1,500,000.00, the Purchaser shall
issue and deliver additional shares of AmeriPath
Stock to the Seller. The number of additional shares
shall be equal to 50,667 plus a fraction (x) the
numerator of which is the product of (a) 3.8 and (b)
the amount by which the Adjustment Earnings exceed
$1,500,000.00 and (y) the denominator of which is
$15.00.
b. In the event that the Adjustment Earnings
are greater than or equal to $1,300,000.00, but less
than $1,500,000.00, the Purchaser shall issue and
deliver certificates to the Seller representing the
number of shares of AmeriPath Stock as determined in
the following sentence. The number of shares to be
issued and delivered by AmeriPath to the Seller shall
be equal to a fraction (x) the numerator of which is
the amount by which the product of the Adjustment
Earnings and 3.8 exceeds $5,000,000.00 and (y) the
denominator of which is $15.00.
c. In the event that the Adjustment Earnings
are less than $1,300,000.00, the Seller shall refund
to AmeriPath $3.80 for every $1.00 for which the
Adjustment Earnings are below $1,300,000.
(ii) Upon the consummation of the first to occur of
(a) an underwritten offering of AmeriPath Stock pursuant to a
registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), as declared effective by the
Securities and Exchange Commission (the "SEC") resulting in
gross proceeds to AmeriPath of at least $20,000,000.00 (a
"Qualified IPO") or (b) a Sale of Control (as defined in
Section 12.3 hereof), and the value of the AmeriPath Stock
(the price at which the AmeriPath Stock is sold to the public
in connection with the Qualified IPO or, with respect to a
Sale of Control, the purchase price paid, consideration
exchanged or value received for the shares, in either case,
the "Per
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<PAGE> 12
Share Value") is determined to be less than $15.00
per share, then AmeriPath shall issue additional shares of
AmeriPath Stock to the Seller. The number of shares to be
issued and delivered to the Seller shall equal the amount by
which (x) $2,200,000.00 divided by the Per Share Value
(provided, however, if the Per Share Value is less than $10.00
per share, the denominator shall be $10.00) exceeds (y)
146,667. Such number of shares shall be issued and delivered
to the Seller within sixty (60) days of the consummation of
such determination transaction.
(iii) The parties hereto agree to adjust the Purchase
Price (the "Working Capital Adjustment"), within one hundred
fifty (150) days from the Closing Date such that (x) the
amount by which CP&I's Positive Working Capital (as defined in
Section 2.31 hereof) exceeds $141,000 shall be additional
Purchase Price and the amount of the Working Capital
Adjustment shall be paid to the Seller and (y) the amount by
which CP&I's Positive Working Capital is below $141,000 shall
be a reduction to the Purchase Price and the Seller shall, and
hereby agrees to, remit or pay to the Purchaser the amount of
the Working Capital Adjustment.
1.2 The Contingent Note.
(a) Principal Amounts; Issuance. The Contingent Note shall be
due and payable in the applicable principal amount specified in or
calculated pursuant to the Contingent Note and the Annexes to such
Contingent Note (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 Note and the Annexes thereto, with respect to each of
the three (3) twelve month periods ending September 30, 1997 through
September 30, 1999, if, and only if, (i) with respect to the twelve
month period ending September 30, 1997, Operating Earnings for such
year equal or exceed the specified minimum target amount of $750,000.00
(the "Year-1 Minimum Target") or, (ii) with respect to the 24 month
period ending September 30, 1998 and the 36 month period ending
September 30, 1999, Cumulative Operating Earnings for such periods
equal or exceed $1,500,000.00 and $2,250,000.00, respectively (together
with the Year-1 Minimum Target, as relevant to the applicable year, the
"Minimum Targets"). For each of the periods 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 Note, 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.
(b) "Operating Earnings"; "Cumulative Operating
Earnings".
(i) Definition of "Operating Earnings". For purposes
hereof (and Section 1.3 and the Contingent Note), the term
"Operating Earnings", with respect
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<PAGE> 13
to any twelve-month period, shall mean the income of
or attributable to CP&I, which following the Closing shall be
a wholly-owned subsidiary of AmeriPath, for such twelve-month
period (i.e., October 1 through September 30), before
deduction for (in each case, with respect to CP&I) (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 fees or
expenses incurred by CP&I in connection with the transactions
contemplated by this Agreement, (v) the effect of any change
after the Closing Date in the accounting principles or
policies of CP&I (including reserves, expenses or accounting
charges), and (vii) costs, expenses and charges relating to
management, billing or other services provided by AmeriPath or
its Affiliates (as defined in Section 12.3) not requested or
approved by the Seller; provided, however that any invoice for
charges, costs or expenses for less than $5,000 may only be
renegotiated (and shall not otherwise be deemed approved by
the Seller) if the Seller objects to the charge by sending a
notification to the Company within sixty (60) days of
receiving the invoice. All such calculations shall be
determined in accordance with GAAP (as defined in Section 12.3
hereof) requested or approved by the Seller (or for which the
Seller failed to timely object) and any such changes in GAAP
adopted by the Financial Accounting Standards Board; provided
that (A) revenues shall be calculated on a cash basis and
expenses shall be calculated on an accrual basis and (B)
revenues and expenses attributable to the practice of
dermatology shall be excluded from CP&I revenues and expenses
for purposes of determining Operating Earnings hereunder.
(ii) Calculation of Operating Earnings. A statement
of the Operating Earnings, prepared by AmeriPath senior
management, will be delivered to the Seller as soon as
practicable following the end of each year, but in all events
within 80 days after the end of each such period. If the
Seller 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 the
Seller, within 30 days after receipt of such statement of
Operating Earnings. The Objection Notice shall set forth in
reasonable detail the Seller's 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 Seller 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 Seller, 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
Seller, at his own expense, may refer the matter to another
independent public accounting firm, 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
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<PAGE> 14
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 Note with respect
to such period shall be paid within five (5) days after the
earlier of the end of the 30-day period within which the
Seller is entitled to deliver an Objection Notice, or receipt
by AmeriPath of notice from the Seller that he accepts the
calculation of Operating Earnings. If the Seller objects to
the calculation of Operating Earnings for the purpose of
determining compliance with this Section, the Appropriate
Principal Amount of the Contingent Note for such period shall
be paid within five (5) 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.
(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 and the 36 month period ending September
30, 1999, the Operating Earnings of CP&I, 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)).
(iv) Limitations--Termination. If the Seller's
employment is terminated by CP&I for any reason prior to the
fourth anniversary of the Closing Date, or if CP&I is sold,
liquidated or closed or its operations suspended or terminated
(in whole or in part) without the Seller's consent (in each
case, a "CP&I Termination"), then Operating Earnings with
respect to the twelve month period in which such CP&I
Termination occurred, and Operating Earnings for each
subsequent period, shall in no event be less than the
Operating Earnings for the four fiscal quarters prior to such
CP&I Termination; provided, however, if the CP&I Termination
occurs after (A) the end of the first fiscal quarter in any
fiscal year, the annualized Operating Earnings for the twelve
month period in which the CP&I Termination occurs shall be
twice the Operating Earnings for the last fiscal quarter of
the prior year and the first fiscal quarter of the year in
question; and (B) the end of the second fiscal quarter in any
fiscal year, the annualized Operating Earnings for the period
in which the CP&I Termination occurs shall be 4/3 times the
Operating Earnings for the last fiscal quarter of the prior
year and the first two fiscal quarters of the year in
question.
(v) Limitations--Services. For purposes of
calculating Operating Earnings (and, as relevant, Cumulative
Operating Earnings) hereunder, the expenses associated with
CP&I may include costs, expenses and charges relating to
management, billing or other services provided by AmeriPath or
its Affiliates requested or approved by the Seller (or for
which the Seller failed to timely
- 6 -
<PAGE> 15
object) to the extent 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 by a Person (as such term is
defined in Section 12.3 hereof) not affiliated with AmeriPath
on an arms'-length, negotiated basis.
(c) Effect of Sale on Contingent Note. Should any Person
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 Note, as a
condition to consummation of the AmeriPath Acquisition, the acquiring
Person shall be required either to acknowledge and guarantee
AmeriPath's on-going obligations under the Contingent Note or to assume
the obligations under the Contingent Note.
(d) Effect of Acquisitions on Contingent Note. 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 CP&I
or its business.
(e) Maturity and Redemption. For each year for which Operating
Earnings or Cumulative Operating Earnings equal or exceed the
applicable Minimum Target, the Appropriate Principal Amount of the
Contingent Note, together with interest accrued on such Appropriate
Principal Amount, shall become due and payable and shall be paid as
provided in subparagraph (a) above and (g) below. 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 independent counsel),
it is determined that the Contingent Note, or the holding of the
Contingent Note by the Seller, 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 such counsel), the
Contingent Note may be canceled and voided and the Board of Directors
of AmeriPath, acting in good faith, shall provide the Seller a
reasonably equivalent economic and financial substitute consideration
therefor.
(f) Payments. Except as set forth in Section 1.2(l) below, all
payments of principal (including any prepayments or redemptions), and
interest under the Contingent Note 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.
- 7 -
<PAGE> 16
(g) Option to take Principal Payments in AmeriPath Stock. The
Seller, at his sole option and election, exercisable by delivering a
signed notice to AmeriPath at least five (5) days prior to any payment
date with respect to the Contingent Note, and subject to Section 1.2(l)
below, may elect to receive AmeriPath Stock instead of the Appropriate
Principal Amount to which he is entitled, if, and only if, Operating
Earnings with respect to the year for which the Seller has delivered
notice to AmeriPath exceed $1,500,000.00, and so long as AmeriPath
Stock, if publicly traded, has not had a closing price during the five
trading day period prior to the election of less than $10.00 per share.
The number of shares of AmeriPath Stock which the Seller is entitled to
receive pursuant hereto is equal to a fraction, (x) the numerator of
which is the Appropriate Principal Amount for such twelve month period,
less $600,000.00, and (y) the denominator of which is $15.00, or if
AmeriPath Stock is publicly traded, the lower of $15.00 or the current
market price of the AmeriPath Stock (not to be less than $10.00).
(h) Subordination; Subordination Agreement. The Contingent
Note shall be subordinate and junior in right of payment to certain
senior indebtedness pursuant to the attached subordination agreement
attached hereto as Exhibit 7.10 (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 Note, the Seller agrees to execute and deliver appropriate
documents and agreements evidencing the subordination of the Contingent
Note to such senior indebtedness of AmeriPath.
(i) Notes Non-negotiable. The Contingent Note shall be
non-transferable and non-negotiable other than in connection with
estate planning, by will or pursuant to the laws of descent and
distribution.
(j) Right of Set-Off on Seller's Contingent Note. With respect
to the Contingent Note, AmeriPath shall have the right, following prior
written notice to the Seller, to set-off against principal or interest
payable under the Contingent Note 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
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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) Escrow. Notwithstanding anything contained herein or in
the Contingent Note to the contrary, to the extent that principal
and/or interest is due and payable under the Contingent Note, the first
$100,000 for each of the three payment periods (on an aggregate basis
such that after 36 months, the escrow account shall have $300,000
unless less than $300,000 had been earned in the aggregate under the
Contingent Note in which case the total amount earned under the
Contingent Note shall be held in escrow) shall be held, subject to the
Escrow Agreement attached hereto as Exhibit 1.2(k) (the "Escrow
Agreement").
(l) Defaults. The Seller shall be entitled to the benefit of
the Events of Default set forth in the applicable form of Contingent
Note.
(m) Conflict. To the extent there is any conflict or
inconsistency between the terms of this Agreement and the terms
specified in the Contingent Note, the terms specified in the Contingent
Note shall govern and prevail.
1.3 Contingent Issuance of AmeriPath Stock. As additional purchase
price consideration, the Purchaser shall issue to the Seller, subject to the
conditions and restrictions set forth in this Section 1.3 (the "Stock Rights"),
up to an aggregate maximum of 100,000 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 twelve month period ending September 30, 1997 through
the 36 month period ending September 30, 1999, 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 the 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 December 31 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
$750,000.00 (the "First Year Minimum Stock Target") or, (ii) with
respect to the 24 month period ending September 30, 1998 and the 36
month period ending September 30, 1999, Cumulative Operating Earnings
for such periods equal or exceed $1,500,000.00 and $2,250,000.00,
respectively (together with the First Year Minimum Stock Target, as
relevant to the applicable period, the "Minimum Stock Targets").
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<PAGE> 18
(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 reasonably
determined in good faith by the Board of Directors of AmeriPath,
provided, however, the Seller, at his own expense, may refer the matter
to an independent public accounting or investment banking firm which
firm's decision shall be final and binding unless the Purchaser refers
the matter to its independent public accounting firm, in which case,
the average of the decisions of the two firms shall be the final and
binding resolution of the matter).
(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 CP&I or its
business.
(d) Termination of Stock Rights; Call on AmeriPath Stock. If,
in the judgment of a majority of the full Board of Directors of
AmeriPath (based upon the written legal opinion of independent counsel,
a copy of which shall be delivered to the Seller), it is determined
that the Stock Rights, or the holding of the AmeriPath Stock by the
Seller, violates any Regulation or Order of any Authority and
divestiture of such Stock Rights and AmeriPath Stock is required by
such Regulation or Order, then, at AmeriPath's sole discretion and
option, (i) the Stock Rights may be canceled and voided (and the
parties shall endeavor in good faith to arrive at a reasonably
equivalent substitute consideration therefor, including, if
permissible, contingent cash payments) and (ii) all outstanding shares
of AmeriPath Stock issued to or held by the Seller may be redeemed or
purchased by AmeriPath (the "Call"), and the Seller hereby irrevocably
and unconditionally agrees 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, provided, however, the Seller, at
his own expense, may refer the matter to an independent public
accounting or investment banking firm which firm's decision shall be
final and binding unless the Purchaser refers the matter to its
independent public accounting firm, in which case, the average of the
decisions of the two firms shall be the final and binding resolution of
the matter). AmeriPath shall give the Seller irrevocable written notice
of any cancellation of the Stock Rights and any Call of the AmeriPath
Stock permitted hereunder not less than five (5) 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 Seller.
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<PAGE> 19
(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 Seller,
by bank check) after proper tender by the Seller of certificates
representing all of the AmeriPath Stock owned by the 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 (other than
Permitted Liens and transfer restrictions under the Shareholders'
Agreement (as defined in Section 7.9) or under any applicable federal
or state securities laws) 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 Right
is not transferable by the Seller other than in connection with estate
planning, by will or pursuant to the laws of descent and distribution.
Any shares of AmeriPath Stock issued pursuant to this Agreement 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 other than Sections 9 and 10 thereof. 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), the Seller shall
execute and deliver to the Purchaser a counterpart to the Shareholders'
Agreement, in the form of Exhibit 7.9 hereto, and the 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 Seller 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 as of 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) Representations. In the event any shares of AmeriPath
Stock issued pursuant to the Stock Right have not been registered for
resale under the Securities Act, and such registration is required for
the Seller to effect the sale or transfer of such shares, the Seller
shall, prior to each issuance by AmeriPath to the Seller of the
AmeriPath Stock,
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<PAGE> 20
deliver to the Purchaser a letter of representation, if requested
by the Purchaser, making the statements set forth in Section
2.25 hereof.
(i) 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, 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 reasonable good faith 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 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 the value of such shares before such adjustment event shall
equal the value of such shares after the adjustment event.
(j) Reservation of Shares. The Purchaser will at all times
reserve for issuance and delivery all shares of AmeriPath Stock from
time to time issuable 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.
(k) 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 herewith.
(l) Failure to Deliver. If the Seller becomes obligated to
sell any AmeriPath Stock to the Purchaser as a result of a Call under
this Agreement, 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 the purchase price to the
Seller, the Purchaser, upon written notice to the 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.
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<PAGE> 21
(m) Put Option of Seller. Notwithstanding anything to the
contrary set forth in this Agreement, the Seller shall have an
exclusive and irrevocable option, exercisable by notice to the
Purchaser given within ten (10) days of 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 Seller, if, and only if, the Purchaser has not, prior to
such date, consummated a Qualified IPO. The Purchaser hereby
irrevocably agrees to purchase and acquire such AmeriPath Stock on the
terms and subject to the conditions set forth in this Section 1.3(m),
provided, however, if the Purchaser is legally prohibited from
purchasing all of the Seller's AmeriPath Stock at a purchase price of
$15.00 per share, then (i) the Non-Competition Covenant of Section 6.10
hereof and the restrictions and agreements set forth therein, shall
immediately terminate and expire and be of no further force and effect,
and (ii) the rights of the Purchaser to the trade names "CPI" and
"Cutaneous Pathology & Immunofluorescence Laboratory" shall be
immediately transferred to the Seller and the Purchaser's rights
thereto and therein shall immediately cease, terminate and expire.
(n) Bring-Along Provision. Until a Qualified IPO, if there is
a Sale of Control, the Purchaser shall, not less than forty (40) days
prior to the scheduled date of consummation of the proposed Sale of
Control, deliver a notice (the "Sale Participation Notice") to the
Seller containing the following information:
a. the aggregate number of shares of
AmeriPath Stock or other AmeriPath securities
proposed to be so sold and the scheduled date of
closing;
b. the terms and conditions of the proposed
sale, including the identity (i.e., name, occupation
and address) of the proposed purchaser(s) and the per
share price to be paid for the shares of AmeriPath
Stock or other AmeriPath securities to be sold and
the amount, type and nature of the consideration to
be paid therefor; and
c. the total number of shares of AmeriPath
Stock held by all stockholders prior to the
consummation of the Sale of Control on a fully
diluted basis (including the exercise of all
outstanding options to purchase AmeriPath Stock and
the conversion of all securities convertible into
AmeriPath Stock).
Subject to compliance with subsections (ii) and (iii) hereof,
the Seller shall have the right and option (but not the
obligation) to elect to participate in any such Sale of
Control, and if properly effected the Purchaser shall arrange
for such participation in such Sale of Control (other than a
Qualified IPO), on the same terms and conditions as the other
stockholders and pro rata according to the following formula:
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<PAGE> 22
Total number of shares owned by the Seller
before the sale
Total number of shares to be X
purchased ------------------------------------------
Total number of shares owned before
the Sale of Control by all stockholders
participating in such Sale of Control on a
fully diluted basis (assuming exercise of
all outstanding options and conversion of
all convertible securities that are to be
exercised, converted or sold in connection
with such Sale of Control)
To the extent such formula yields a fractional number of
shares, then the number of shares the Seller may sell in a
Sale of Control shall be rounded down to the nearest whole
number of shares. The maximum number of shares which the
Seller shall be entitled to elect to include and sell in a
Sale of Control, in accordance with the foregoing formula, is
referred to herein as the "Maximum Share". To the extent that
AmeriPath Preferred Stock is sold in connection with any such
Sale of Control without conversion into AmeriPath Stock, the
price per share paid for AmeriPath Stock to other stockholders
participating in such Sale of Control shall be determined by
dividing the aggregate consideration paid to holders of such
Preferred Stock, less any amount attributable to any accrued
but unpaid dividends, by the number of shares of AmeriPath
Stock into which such Preferred Stock could then be converted.
(i) In order to effect an election to participate in
a Sale of Control, the Seller shall provide and deliver
written notice (an "Election Notice") to AmeriPath, not later
than ten (10) days after delivery of the Sale Participation
Notice to the Seller. Such Election Notice shall contain the
irrevocable agreement of the Seller to sell a specified number
of shares of AmeriPath Stock, which shall be not less than 100
shares and not more than the Seller's Maximum Share, in the
Sale of Control (such number of shares elected to be sold in
the Sale of Control by the Seller being referred to herein as
the "Elected Share"), in accordance with the terms and
conditions of the Sale of Control. The Seller's failure to
deliver an Election Notice, in proper form, within such ten
(10) day period shall conclusively constitute an election not
to participate in the Sale of Control. The Seller may elect to
sell and transfer in a Sale of Control less than his Maximum
Share (but not less than 100 shares), in which case the
Purchaser shall have the right to sell the balance of the
Seller's Maximum Share (as aggregated with the balance of all
other Maximum Shares not exercised in whole or in part by
other stockholders).
(ii) The Seller shall cooperate, fully, promptly and
in good faith, with all reasonable requests of the Purchaser
in connection with the documentation and closing of the Sale
of Control. This includes (i) entering into a purchase and
sale agreement (or counterpart thereto) in form provided by
the Purchaser (and making any required representations and
warranties, customary for a minority shareholder, therein),
and (ii) at the closing of a Sale of Control (or earlier if
requested by the Purchaser), the Seller shall present to the
Purchaser, for delivery to the purchaser(s) at closing, all
share certificates for AmeriPath Stock included in the
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<PAGE> 23
Elected Share and to be sold in the Sale of Control,
in proper form for transfer. Such AmeriPath Stock shall be
transferred at closing free and clear of all Liens, security
interests and encumbrances or adverse Claims of any kind or
character, other than any applicable transfer restrictions
under the Shareholders' Agreement, securities laws, this
Agreement or as otherwise noted on the certificates of the
AmeriPath Stock included in the Elected Share. All reasonable
fees and expenses incurred by the Purchaser in connection with
the Sale of Control (including the reasonable fees and
expenses of counsel) shall be shared by each participating
stockholder and the Seller (based upon the proportionate share
the Elected Share bears to the total number of shares sold in
the Sale of Control), and the Purchaser may withhold and
deduct the Seller's proportionate share of such fees and
expenses from the purchase price delivered at closing, and the
Seller's purchase price to be received in exchange for the
sale of his Elected Share shall be net of such proportionate
amount of fees and expenses.
(iii) Summit Ventures III, L.P. and Summit Investors,
II, L.P. shall evidence their agreement to comply with this
Section 1.3(n) by executing an approval certificate (the
"Approval Certificate") in the form of Exhibit 1.3 hereto.
(o) Subscription Rights. In the event that the Purchaser
issues additional securities to its stockholders, other than in
connection with a public offering, an acquisition, an employee benefit,
stock or stock option plan, or in connection with a stock split, stock
dividend, recapitalization, reclassification, stock split-up,
combination, merger or exchange of shares or a similar transaction, the
Seller shall have the right to subscribe for additional shares of
AmeriPath Stock, on the same terms as other stockholders, so as to keep
his proportionate ownership of the AmeriPath Stock the same after the
issuance as it was immediately prior to such issuance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND CP&I
The 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. CP&I 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. CP&I 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 CP&I's
business, the ownership
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<PAGE> 24
or lease of its properties, the proposed conduct of its business or 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 (as
defined in Section 12.3). CP&I's articles of incorporation have not been amended
or supplemented since April 15, 1976, and are in full force and effect as of the
date hereof. True, complete and correct copies of CP&I's articles of
incorporation and by-laws, as presently in effect, are attached hereto as
Exhibit 2.1.
2.2 Subsidiaries. Except as set forth on Schedule 2.2, CP&I 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, other than cash or cash equivalent
investments.
2.3 Capital Stock. As of the date hereof, the authorized capital stock
of CP&I consists of FIVE HUNDRED (500) Common shares, without par value. The
stock record book of CP&I 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 CP&I
Shares constitute all of the issued and outstanding shares of capital stock of
CP&I, and all of the CP&I Shares are owned beneficially and of record by the
Seller.
2.4 Corporate Record Books. The corporate minute books of CP&I have
been made available to the Purchaser, are complete and correct and contain all
of the proceedings of the shareholders and directors of CP&I.
2.5 Title to Stock. All of the issued and outstanding shares of the
capital stock of CP&I that are, and at the Closing will be, owned by the Seller
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 Seller at the Closing, assuming the Purchaser buys in good faith without
notice of any adverse claim (as defined in Section 8-302 of the Uniform
Commercial Code), the Seller will convey and the Purchaser will acquire good
title to the CP&I Shares, free and clear of all Liens or contractual
restrictions or limitations whatsoever, other than any created by the Purchaser
or arising under applicable federal and state securities laws.
2.6 Options and Rights. There are no outstanding subscriptions,
options, warrants, rights, securities, contracts, commitments, understandings or
arrangements under which CP&I 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 Seller
and/or CP&I and any other Person (other than the Purchaser) regarding the CP&I
Shares (or the transfer, disposition, holding or voting thereof).
2.7 Authorization, Etc. CP&I has full power and authority and the
Seller has full capacity to enter into this Agreement, the Employment Agreement,
the Escrow Agreement, the Management Agreement, the Trust Agreement, the Option
Agreement and the agreements and documents contemplated hereby to which CP&I or
the Seller is a party, and perform their respective obligations hereunder and
thereunder. The execution, delivery and performance of this
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<PAGE> 25
Agreement, the Employment Agreement, the Escrow Agreement, the Management
Agreement, the Trust Agreement, the Option Agreement and all other agreements
and transactions contemplated hereby have been duly authorized by the Board of
Directors of CP&I and no other corporate proceedings on its part are necessary
to authorize this Agreement and the other agreements and transactions
contemplated hereby. The Seller is entering into this Agreement, the Employment
Agreement, the Escrow Agreement, the Trust Agreement, the Acquisition Agreement
and the Option Agreement on the Seller's own volition, free from any undue
influence or coercion. Upon execution and delivery of this Agreement, the
Employment Agreement, the Escrow Agreement, the Management Agreement, the Trust
Agreement, the Option Agreement and the Acquisition Agreement by the parties
hereto this Agreement, the Employment Agreement, the Escrow Agreement, the
Management Agreement, the Trust Agreement, the Option Agreement, the Acquisition
Agreement and all other agreements contemplated hereby shall constitute the
legal, valid and binding obligation of each of CP&I and the Seller party hereto,
enforceable against each such party in accordance with their respective terms,
except to the extent that the enforcement thereof may be limited by applicable
(i) bankruptcy, reorganization, insolvency, and similar laws affecting the
enforcement of creditors' rights and (ii) equitable principles.
2.8 No Violation. The execution and delivery by CP&I and the Seller of
this Agreement, the Employment Agreement, the Escrow Agreement, the Management
Agreement, the Trust Agreement, the Option Agreement, the Acquisition Agreement
and any and all other agreements contemplated hereby to which CP&I or the Seller
is a party, and the fulfillment of and compliance with the respective terms
hereof and thereof by CP&I and the Seller 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 CP&I 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 CP&I or any Regulation, Order or Contract (as
defined in Section 12.3) to which CP&I or the Seller is subject. CP&I and the
Seller will comply with all applicable Regulations and Orders in connection with
the execution, delivery and performance of this Agreement, the Employment
Agreement, the Escrow Agreement, the Management Agreement, the Trust Agreement,
the Option Agreement, the Acquisition Agreement and the transactions
contemplated hereby.
2.9 Financial Statements. Attached as Exhibit 2.9 hereto are the
following financial statements of CP&I: (i) balance sheets (prepared on a cash
basis) for the fiscal years ended December 31, 1994 and December 31, 1995 (the
"Balance Sheets"), (ii) income statements (prepared on a cash basis) for the
fiscal years ended December 31, 1994 and December 31, 1995 (the "Income
Statements"), and (iii) balance sheet and income statement (prepared on a cash
basis) for the six months ended June 30, 1996 (collectively, together with the
Balance Sheets and the Income Statements, the "Financial Statements"). The
balance sheets included in the Financial Statements fairly present the financial
position of CP&I on a cash basis as at the respective dates thereof, and the
income statements included in the Financial Statements (x) fairly present the
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<PAGE> 26
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 CP&I at the
respective date of on a cash basis, and for the period covered by, such
statements; provided, however, that such Financial Statements are compilations
which have not been prepared in accordance with GAAP. Except as set forth on
Schedule 2.9(a) attached hereto, CP&I 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 December 31, 1995, in the ordinary course of business
consistent with past practice, (ii) liabilities reflected in the June 30, 1996
balance sheet, (iii) liabilities covered by insurance or reinsurance (a complete
and detailed description of which is provided in Schedule 2.9(b)) and (iv)
liabilities that would typically be reflected in footnotes of financial
statements prepared in accordance with GAAP. Schedule 2.9(c) contains a complete
list of the accounts payable of CP&I at September 30, 1996.
2.10 Employees. CP&I 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 CP&I (including those
Regulations promulgated by the Equal Employment Opportunity Commission),
including terms and conditions of employment and wages and hours. Except as set
forth on Schedule 2.18, CP&I does not maintain any "pension" and "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 December 31, 1995, there has not
been (a) any Material Adverse Change (as defined in Section 12.3) in respect of
CP&I; (b) any damage, destruction or loss, whether covered by insurance or not,
having a Material Adverse Effect, with regard to CP&I's properties and business;
(c) any payment by CP&I to, or any notice to or acknowledgment by CP&I of any
amount due or owing to, CP&I's self-insured carrier, if any, in connection with
any self-insured amounts or liabilities under health insurance covering
employees of CP&I, in each case, in excess of a reserve therefor on the balance
sheet for the fiscal year ended December 31, 1995 included in the Financial
Statements; (d) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) in respect of CP&I's capital
stock (other than distributions made in accordance with past practices), or any
redemption or other acquisition of such capital stock by CP&I; (e) except as set
forth in Schedule 2.11, any increase in the rate of compensation or in the
benefits payable or to become payable by CP&I to its directors, officers,
employees or consultants (other than fees of professionals in connection with
the transactions contemplated hereby); (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 CP&I other than in the ordinary course of business
consistent with past practice; (g) any entry into any material Contract not in
the ordinary course of business, including without limitation relating to any
borrowing or capital expenditure other than in the ordinary course of business
consistent with past practice; (h) any disposition by CP&I of any asset other
than in the ordinary course of
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business consistent with past practice; or (i) any change by CP&I in accounting
methods or principles (except as noted in Schedule 2.11).
2.12 Contracts.
(a) Except as set forth in Schedule 2.12 hereto, CP&I 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 CP&I without
penalty or other financial obligation (and, except as set
forth on Schedule 2.12, no officer or employee of CP&I
receives total salary, bonus and other compensation from CP&I
of $30,000.00 or more per annum).
(iii) Contract containing covenants or agreements
limiting the freedom of CP&I or any of its employees to
compete in any line of business presently conducted by CP&I
with any Person or to compete in any such line of business in
any area;
(iv) Contract with the Seller or with any affiliate
or relative of the 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 CP&I 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 CP&I;
(viii) guarantee or endorsement of any obligation
other than endorsements of instruments in the ordinary course
of business consistent with past practice;
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<PAGE> 28
(ix) Contract under which CP&I 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 CP&I is lessor of or
permits any third party to hold or operate any property, real
or personal, owned or controlled by CP&I;
(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 CP&I;
(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 other than Contracts terminable by
CP&I without penalty;
(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, the 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 CP&I'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 CP&I without penalty
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<PAGE> 29
or other financial obligation, and (z) in each case,
involve aggregate payments by or to CP&I of $7,500.00 or less.
(b) Except as set forth on Schedule 2.8, 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) CP&I 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 CP&I 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 CP&I is subject
(including without limitation all performance bonds, warranty
obligations or otherwise); CP&I does not have any present expectation
or intention of not fully performing all such obligations; CP&I 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 written Contracts and
documents delivered and to be delivered hereunder by the Seller or CP&I are and
will be true and complete copies of such agreements, contracts and documents.
2.14 Title and Related Matters.
(a) CP&I has good title to all of the properties and assets
reflected as owned by it in the balance sheet for the fiscal year ended
December 31, 1995 included in the Financial Statements or acquired
after the date thereof and except for properties sold or otherwise
disposed of since the date thereof in the ordinary course of business,
free and clear of all Liens, except Permitted Liens (as defined in
Section 12.3).
(b) CP&I will on the Closing Date own, good title to all the
personal property and assets, tangible or intangible, used in its
laboratory business except as to those assets leased or licensed, all
of which leases or licenses are in good standing and no party is in
default thereunder. Except as set forth on Schedule 2.14, none of the
assets belonging to or held by CP&I will be, on the Closing Date,
subject to any (i) Contracts of sale or lease, or (ii) Liens other than
Permitted Liens. Except for normal breakdowns and servicing
requirements, all machinery and equipment regularly used by CP&I in the
conduct of its laboratory 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 CP&I of any of its assets or properties and any
other assets now or hereafter owned by it, except (i) transactions in
the ordinary and regular course of business, (ii) the transactions
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<PAGE> 30
contemplated by Section 4.9, and (iii) as otherwise consented to by the
Purchaser. At the Closing, CP&I will own, or have the right to use, all
properties and assets that are currently used in connection with the
non-medical practice business of the Seller.
(d) Schedule 2.14 attached hereto also sets forth a
description of all real and personal property in excess of $1,000 owned
or leased by CP&I (as it relates to its laboratory business).
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
Claim (as defined in Section 12.3) pending or, to the best knowledge of the
Seller and CP&I, threatened against either of the Seller or CP&I which, if
adversely determined, would have a Material Adverse Effect on CP&I. Nor is there
any Order outstanding against either the Seller or CP&I having, or which,
insofar as can reasonably be foreseen, in the future may have, a Material
Adverse Effect on CP&I. The Seller agrees to indemnify and hold the Purchaser
harmless from any loss, charge, expense, Claim or liability with respect to the
litigation set forth on Schedule 2.15.
2.16 Tax Matters.
(a) CP&I 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
(including interest and penalties) (collectively, the "Taxes") and in
accordance with all tax sharing agreements to which the Seller or CP&I
may be a party. Except as provided in Section 6.15, all Taxes required
to be paid on or prior to the Closing Date have been paid, including
any of CP&I's Taxes 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 CP&I 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 CP&I except for liens for Taxes not yet due and payable.
Neither the Seller nor CP&I 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) No audit of CP&I or CP&I's Tax Returns by any Taxing
Authority is currently pending or threatened, and no issues have been
raised by any Taxing Authority
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in connection with any Tax Returns. No material issues have
been raised in any examination by any Taxing Authority with respect to
CP&I 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 CP&I on
the Tax Returns filed by or on behalf of CP&I 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 CP&I and such information was
derived from the books and records of CP&I, except for the Tax
Liability referred to in Section 6.15.
(c) CP&I 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).
2.17 Compliance with Law and Applicable Government Regulations. CP&I 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 CP&I are there any Claims threatened, nor has the Seller
received any written notice, regarding any violations of any Regulations and
Orders enforced by any Authority claiming jurisdiction over CP&I, 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 CP&I for its laboratory
business. The Permits listed on Schedule 2.17(a) are the only Permits
that are required for CP&I to conduct its laboratory business as
presently conducted, except for those the absence of which would not
have any Material Adverse Effect in respect of CP&I. Each such Permit
is in full force and effect and, to the best of the knowledge of CP&I,
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) CP&I 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 laboratory business of CP&I in
the jurisdictions in which CP&I presently operates. Except as set forth
on Schedule 2.17(b), neither the Seller nor CP&I is aware of any event,
transaction, correspondence or circumstance (other than lapse of time)
which would
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<PAGE> 32
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 CP&I, nor any ERISA Affiliate of
CP&I, 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 CP&I 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 CP&I, 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> 33
(c) Compliance with Laws; Liabilities. As to all Benefit
Plans, except as otherwise specified on Schedule 2.18, CP&I 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 CP&I nor any ERISA Affiliate of
CP&I 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 CP&I'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, CP&I has no trade
name, service mark, patent, copyright or trademark related to its
business.
(b) CP&I 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 Seller, threatened, against the Seller
that its use of any of the Proprietary Rights listed on Schedule 2.19
infringes the rights of any Person. The Seller has no knowledge of any
conflicting use of any of such Proprietary Rights.
(c) CP&I is not a party in any capacity to any franchise,
license or royalty agreement respecting any Proprietary Right and there
is no conflict known to the Seller 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 CP&I 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 CP&I's
management information or development staff or by consultants
on CP&I's behalf, is original and capable of copyright
protection in the United States, and CP&I has
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complete rights to and ownership of such Software. To
the Seller's knowledge, 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, contractual rights, copyrights and trade secrets.
CP&I 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" or "tailored" software, is held by CP&I
legitimately and is fully useable by the Purchaser without any
third party consent. All of CP&I's computer hardware regularly
used by CP&I in its business has legitimately-licensed
software installed therein.
(iii) No Errors; Nonconformity. The Seller and CP&I,
to the best of their respective knowledge, after due inquiry
of employees and agents of CP&I who work with or are
knowledgeable about CP&I's computers and software, warrant
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.
2.20 Environmental Matters. Except as disclosed in Schedule 2.20: (a)
neither CP&I'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 CP&I or the Purchaser or creates or could create a
liability or loss for CP&I or the Purchaser) which, with notice or the passage
of time or both, would constitute a violation of any Environmental Law; (b) CP&I
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
CP&I's laboratory business, and CP&I is in full compliance with all of the
requirements and limitations included in such Environmental Permits; (c) CP&I
has not stored or used and is not storing or using 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 CP&I'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) CP&I has
not received any notice from any Authority or any private Person that CP&I'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
CP&I'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 CP&I or the
Seller, CP&I 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
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groundwater) owned, leased, or operated by CP&I; (f) CP&I 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 in violation of any applicable
Environmental Law; (g) no by-products of any manufacturing process employed in
the operation of CP&I'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 CP&I's property in a
manner that violates any applicable Environmental Law; (h) no property now or
previously owned, leased or operated by CP&I, 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 CP&I that would subject CP&I to Claims for violation of any
applicable Environmental Law; (j) CP&I has not directly transported or directly
arranged for the transportation of any Hazardous Material to any location which
is listed 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 CP&I 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 CP&I that would subject CP&I to Claims for
violation of any applicable Environmental Law. CP&I 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 CP&I 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, to the extent that either CP&I or any of such Affiliates will have
any rights or obligations or any liabilities thereunder after the Closing Date,
other than the Employment Agreement, this Agreement, the Contingent Note and the
Lease.
2.22 Banking Arrangements. Schedule 2.22 attached hereto sets forth the
name of each bank in or with which CP&I 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. CP&I has no liability or obligation relating
to funds or money borrowed by or loaned to CP&I (whether under any credit
facility, line of credit, loan, indenture, advance, pledge or otherwise), other
than accounts payable in the ordinary course of business consistent with past
practice.
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
CP&I as of the date hereof. Such policies are valid, outstanding and enforceable
policies, as to which premiums have been paid currently. Except as set forth in
Section 2.15, neither CP&I nor the Seller know of any event that has occurred
which might
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<PAGE> 36
reasonably (a) form the basis for any Claim against CP&I 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 CP&I.
2.24 Consents. Schedule 2.24, annexed hereto, sets forth a complete
list of consents of Authorities required to be received by or on the part of
CP&I and the Seller to enable CP&I or the Seller 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
Seller (including AmeriPath Stock pursuant to Section 1.3), then the Seller
hereby represents and warrants to AmeriPath as follows:
(a) The 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 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
the Seller has deemed necessary in order to 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, the Seller is familiar with the
operations, business plans and financial condition of AmeriPath.
(b) The 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 herein by the Seller.
(c) The Seller understands that he must bear the economic risk
of the AmeriPath Stock, if and when issued to the Seller, for an
indefinite period of time because, except as provided in this
Agreement, (i) the 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; 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) the 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; the Seller may not be
able to avail himself of the provisions of
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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 an
opinion of counsel for or reasonably 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 the Seller
nor has it agreed to do so in the future.
(d) The 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) The 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 the Seller's financial position is such
that the 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 the Seller's investment.
(f) The Seller is acquiring his shares of AmeriPath Stock for
the 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) The 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 CP&I
reflected on Schedule 2.26 attached hereto on the date hereof are good, valid,
genuine and subsisting, arise out of bona fide sales and deliveries of goods,
performance of services or other business transactions and, to the best of the
Seller's knowledge, are collectible, subject to allowances, adjustments and
write-offs in the ordinary course of business consistent with past practice. The
inventories reflected on the balance sheets included in the Financial
Statements, and the inventories held by CP&I on the date hereof, (i) do not
include any items which are not usable or saleable in the ordinary course of
business of CP&I, 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 December 31, 1995, inventories of
raw materials and supplies have been purchased by CP&I 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. CP&I is not
aware of any material adverse conditions affecting the supply of materials
available to CP&I, and, to the best
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knowledge of CP&I, the consummation of the transactions contemplated hereby will
not adversely affect any such supply.
2.27 Brokerage. Neither CP&I nor the 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 CP&I or the 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 Seller has engaged Haverford Healthcare Advisors
(the "Haverford"), 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, Haverford shall be
entitled to a specified fee to be paid by the Seller. The Seller is solely
responsible for paying the fees and expenses of Haverford.
2.28 Improper and Other Payments. Except as set forth on Schedule 2.28
hereto, (a) neither CP&I, any director, officer, employee thereof, nor, to
CP&I's knowledge, any agent or representative of CP&I 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 CP&I are believed by CP&I'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,
CP&I 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 CP&I and the 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 CP&I.
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 CP&I and the Seller threatened by any third-party payor or governmental
authority having jurisdiction over CP&I for amounts arising from or related to
payments to CP&I 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 Seller's and CP&I's knowledge, CP&I 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
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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 CP&I in the ordinary course of business. CP&I 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 CP&I (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), CP&I is in compliance with each third-party
payor's Contract, and CP&I 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. CP&I 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 CP&I 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 CP&I.
Except as set forth on Schedule 2.30(c) hereto, there are no Claims
pending or, to CP&I's knowledge, threatened or scheduled before any
Authority, including without limitation, any intermediary, carrier, the
Administrator of the Health Care Financing Administration, the
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 CP&I on or before the
Closing Date, or program compliance matters, which would have a
Material Adverse Effect on CP&I, or its assets, the operations or
utility thereof, or the consummation of the transactions contemplated
hereby. CP&I 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 CP&I's Medicare and
Medicaid Contracts, no valid review or program integrity review related
to CP&I has been conducted by any Authority in connection with the
Medicare or Medicaid programs and no such review is scheduled, or to
CP&I's knowledge, pending or threatened against or affecting CP&I, its
business, assets, or the consummation of the transactions contemplated
hereby.
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(d) Rate Limitations and Rates. Each facility currently
operated by CP&I charges rates and accordingly bills for services which
are legal and proper, and CP&I'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. CP&I 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 CP&I, as that term is defined in 42 U.S.C. Section
1395nn, has referred patients or services directly or indirectly to
CP&I, 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, CP&I shall
have current assets less liabilities ("Positive Working Capital") of not less
than $141,000.00.
2.32 Disclosure. Neither this Agreement nor any of the exhibits,
attachments, or schedules hereto supplied to the Purchaser by or on behalf of
the Seller or CP&I 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 in light of the
circumstances in which made.
2.33 Limitation. The Seller and CP&I make no representations or
warranties of any kind, express or implied, concerning the Management Agreement
(as hereinafter defined), notwithstanding anything to the contrary in this
Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller 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, 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. True, complete and correct copies of the
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Purchaser's certificate of incorporation and by-laws, as presently in effect,
are attached hereto as Exhibit 3.1.
3.2 Subsidiaries. As of September 25, 1996, 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, the Management Agreement, the Trust
Agreement, the Escrow Agreement and the Contingent Notes and to carry out the
transactions contemplated hereby and thereby. The Board of Directors of the
Purchaser has duly authorized the execution, delivery and performance of this
Agreement, the Employment Agreement, the Contingent Notes, the Management
Agreement, the Trust Agreement, the Escrow Agreement 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 and thereby. Upon execution and delivery of this Agreement,
the Employment Agreement, the Trust Agreement, the Management Agreement and the
Escrow Agreement by the parties hereto and thereto this Agreement, the
Employment Agreement, the Trust Agreement, the Management Agreement and the
Escrow 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, except to the extent that the
enforcement thereof may be limited by applicable (i) bankruptcy, reorganization,
insolvency, and similar laws affecting the enforcement of creditors' rights and
(ii) equitable principles.
3.4 No Violation. The execution, delivery and performance by the
Purchaser of this Agreement, the Management Agreement, the Trust Agreement, the
Escrow Agreement, the Contingent Notes and all other agreements contemplated
hereby, and the fulfillment of and compliance with the respective terms hereof
and thereof by the Purchaser, do 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 the execution, delivery and performance of this Agreement, the Employment
Agreement, the Management Agreement, the Trust Agreement, the Escrow Agreement,
the Contingent Notes, as applicable, and the transactions contemplated hereby
and thereby.
3.5 Governmental Authorities. The Purchaser has complied in all
material respects with all applicable Regulations and Orders in connection with
its execution, delivery and performance of this Agreement, the Trust Agreement,
the Management Agreement, the Contingent Notes and the agreements and
transactions contemplated hereby and thereby. 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, the Management
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Agreement, the Trust Agreement, the Contingent Notes or the consummation of the
transactions contemplated hereby and thereby. No authorization, consent,
approval, exemption or notice is required to be obtained by the Purchaser in
connection with its execution, delivery, and performance of this Agreement, the
Management Agreement, the Trust Agreement, the Contingent Notes and the
agreements and transactions contemplated hereby and thereby.
3.6 Issuance of AmeriPath Stock. All shares of AmeriPath Stock required
to be issued by AmeriPath to the Seller, 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,
free and clear of all Liens and adverse Claims, except as provided in this
Agreement.
3.7 Financial Statements. Attached as Exhibit 3.7 hereto are the
following financial statements of AmeriPath ("American Laboratory Associates,
Inc.," the predecessor company): audited balance sheet, income statement, and
statement of cash flows and related notes thereto, for the fiscal years ended
December 31, 1995 and 1994 (the "Audited Financial Statements"), and (ii)
AmeriPath's consolidated balance sheet (unaudited), consolidated income
statement (unaudited) and statement of cash flows (unaudited), for the six month
period ended June 30, 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, "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 Capitalization; Options. As of the date hereof, the authorized
capital stock of AmeriPath consists of (i) 8,000,000 shares of Common Stock and
(ii) 5,000,000 shares of Preferred Stock, $.01 par vale per share. The stock
record book of AmeriPath has been made available to CP&I 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
on Schedule 3.8 hereof and other than securities issuable or to be issuable in
connection with acquisitions of pathology practices or the Purchaser's
predecessor there are no outstanding subscriptions, options, warrants, rights,
securities, contracts, commitments, understandings or arrangements under which
AmeriPath is bound or obligated to issue any additional shares of its capital
stock or rights to purchase shares of its capital stock. Except as set forth on
Schedule 3.8, other than the Shareholders' Agreement, agreements related to
acquisitions of pathology practices or the Purchaser's predecessor and the
Purchaser's credit facility, there are no agreements, arrangements or
understandings between the Purchaser and any other Person regarding the
AmeriPath Stock (or the transfer, disposition, holding or voting thereof). True,
correct and complete copies of the Shareholders' Agreement, the Purchaser's
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credit facility and each of the agreements referred to in Schedule 3.8 have been
furnished to the Seller.
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, 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, 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 Litigation. Except as set forth in Schedule 3.10, there is no
Claim pending or, to the best knowledge of the Purchaser, threatened against the
Purchaser which, if adversely determined, would have a Material Adverse Effect
on the Purchaser. Nor is there any Order outstanding against the Purchaser
having, or which, insofar as can reasonably be foreseen, in the future may have,
a Material Adverse Effect on the Purchaser.
3.11 Insurance. Schedule 3.11 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
AmeriPath. Such policies are valid, outstanding and enforceable policies, as to
which premiums have been paid currently.
3.12 Disclosure. Neither this Agreement nor any of the exhibits,
attachments, or schedules supplied to the Seller by or on behalf of the
Purchaser 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 IV
COVENANTS OF THE SELLER
From the date hereof until the Closing, except as otherwise consented
to or approved by the Purchaser in writing, CP&I covenants and agrees that it
shall act, and the Seller shall cause CP&I to so act or refrain from acting
where required hereinafter, to comply with the following:
4.1 Regular Course of Business. CP&I shall operate its business
diligently and in good faith and in the ordinary and usual course, consistent
with past management practices; shall
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maintain its properties in good order and condition consistent with past
practice, shall maintain (except for expiration due to lapse of time) all
material leases and Contracts in effect without change except as expressly
provided herein; shall comply with the provisions of all Regulations and Orders
applicable to CP&I and the conduct of its respective business; shall not cancel,
release, waive or compromise any debt, Claim or right in its favor except in the
ordinary course of business; shall not alter the rate or basis of compensation
of any of its officers, directors or employees; shall maintain insurance
coverage as in effect on the date hereof up to the Closing Date; and shall
preserve the business of CP&I intact except as provided in Section 4.9, and use
its reasonable efforts to keep available for CP&I and the Purchaser the services
of the officers and employees of CP&I, and to preserve the good will of clients,
patients, suppliers and others having business relations with CP&I.
4.2 Amendments. No change or amendment shall be made in the articles of
incorporation or by-laws of CP&I. CP&I 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, except as provided in Section 4.9, the
character of its business.
4.3 Capital Changes; Pledges. Except as contemplated under this
Agreement, CP&I 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 CP&I
shall not pledge or otherwise encumber any shares of its capital stock.
4.4 Dividends. CP&I shall not declare, pay or set aside for payment any
dividend or other distribution in respect of its capital stock to the extent
that any such distribution would result in a breach of Section 2.31, nor shall
CP&I, directly or indirectly, redeem, purchase or otherwise acquire any shares
of its capital stock.
4.5 Capital and Other Expenditures. CP&I shall not make any capital
expenditures, or commitments with respect thereto, except in the ordinary course
of business consistent with past practice.
4.6 Cash and Cash Equivalents. Cash and cash equivalents shall not be
expended to the extent such expenditure would result in a breach of Section
2.31.
4.7 Borrowing. CP&I 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 consistent with past practice or for purposes of consummation
of the transactions contemplated by this Agreement.
4.8 Other Commitments. Except as set forth in this Agreement or
incurred or transacted in the ordinary course of business, or permitted in
writing by the Purchaser, CP&I shall not enter into any transaction or make any
commitment or incur any obligation (including entering into any real property
leases).
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4.9 Transfer of Business. Prior to the Closing, CP&I shall transfer to
another Person certain of the assets and cause such person to assume all of the
liabilities relating to the medical practices of Drs. Michel, Petroff and
Wieselthier, other than those assets and liabilities of the laboratory business
as set forth on Schedule 4.9 hereto, which Schedule sets forth all the material
assets and liabilities to be retained by CP&I.
4.10 Interim Financial Information. To the extent prepared and
available, CP&I 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 the Purchaser may otherwise reasonably request.
4.11 Full Access and Disclosure.
(a) CP&I shall afford to the Purchaser and its counsel,
accountants and other authorized representatives reasonable access
during business hours to CP&I'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 CP&I; and the Seller shall cause CP&I'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 CP&I made by CP&I's independent auditors
in connection with any examination of CP&I's Financial Statements and
books and records.
(b) From time to time prior to the Closing Date, CP&I 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) The Seller shall fully cooperate with any "due diligence"
examination performed by the Purchaser with respect to the business of
CP&I.
4.12 Confidentiality. The Seller and CP&I 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 Fulfillment of Conditions Precedent. CP&I and the Seller shall use
their reasonable 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
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Agreement in order to fully and expeditiously consummate the transactions
contemplated by this Agreement.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with CP&I and the 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 Seller's prior
consent, all information received by it from the Seller or CP&I'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 CP&I and the 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 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 the 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
CP&I and/or the 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 with any "due
diligence" examination performed by CP&I or the 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.
5.3 Fulfillment of Conditions Precedent. The Purchaser shall use its
reasonable efforts to obtain at its 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
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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.
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 reasonable 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
reasonable efforts to cause the Closing to take place on or before October 30,
1996.
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 before
the Closing Date, all the parties hereto agree to cooperate and use reasonable
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 reasonable 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, except as may otherwise be required by Regulation or Order, neither
the Seller nor CP&I 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, CP&I,
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 CP&I or the Seller be contacted
with respect to any offer, inquiry or proposal, CP&I 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 Public Announcements. Neither party hereto nor any Affiliate,
representative or shareholder 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
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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 each party hereto. No press
releases, public announcements or publicity statements shall be released by
either party without prior mutual agreement.
6.6 Employment Agreements. The Seller shall enter into an employment
agreement in the form of Exhibit 6.6 hereto (the "Employment Agreement"). The
Purchaser hereby assumes and agrees to perform in accordance with their terms
(by or through CP&I), effective the Closing Date, the employment agreements with
Nina Petroff, M.D. and Janet S. Wieselthier, M.D.
The parties hereto further agree, from and after the Closing Date, as
follows:
6.7 --DELETED--
6.8 Observer Rights. So long as the Seller is employed by an Affiliate
of AmeriPath and the Contingent Notes have not matured or been paid in full
(solely to the extent required to be paid under the Contingent Note), the Seller
shall have the right, at his expense, to attend all meetings of the Board of
Directors of AmeriPath as an observer. The Seller shall receive notices of all
meetings of the Board of Directors of AmeriPath, shall receive copies of all
materials supplied to the Directors of AmeriPath, and shall be entitled to
attend and participate in all meetings of the Board of Directors of AmeriPath;
provided, that the Seller shall have no right to vote on any matters submitted
to the Board of Directors (or any committee thereof). Nothing in this section
shall be deemed to prohibit AmeriPath from taking action by written consent of
the Board of Directors without notice to, or participation by, the Seller.
Furthermore, if the Directors of AmeriPath elect to convene a meeting without
notice, they shall use their best efforts to advise the Seller of such meeting,
but the failure or inability to advise the Seller of such meeting shall not
vitiate any action taken at such meeting. The Seller may be a member of the
physician's committee of AmeriPath, if and when such committee is constituted
from time to time.
6.9 Certain Tax Matters.
(a) The Seller shall cause CP&I to file all Tax Returns and
reports with respect to Taxes which are required to be filed prior to
the Closing date (a "Pre-Closing Tax Return"), and CP&I shall pay all
Taxes due in respect of, and all costs associated with the preparation
of, such Pre-Closing Tax Returns to the appropriate Taxing Authority.
In addition, the Seller shall cause CP&I to file all S corporation
income tax returns (federal form 1120S and comparable state and local
forms, where applicable) required to be filed after the Closing Date in
respect of a period beginning prior to the Closing Date. The Buyer
shall file, or cause CP&I to file, all other Tax Returns and reports
with respect to Taxes which are required to be filed on or after the
Closing Date, and Buyer and CP&I shall pay all Taxes due and costs
associated with such returns.
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<PAGE> 49
(b) The parties hereto agree that there shall not be made any
election for the Company pursuant to Section 338(g) or 338(h)(10) of
the Code.
(c) CP&I shall elect, and the Purchaser and the Seller shall
each consent, pursuant to Section 1362(e)(3) of the Code, to allocate
tax items to CP&I's S short year and C short year (as defined in
Section 1362(e)(1) of the Code) pursuant to normal tax accounting rules
(i.e., using the closing of the books method) rather than by the pro
rata allocation method contained in Section 1362(e)2) of the Code.
(d) The Purchaser and CP&I agree to pay to the Seller the
amount of any federal, state and local income tax savings realized by
them (including with respect to the payment made pursuant to this
paragraph and any interest received by them) based on a final
determination of an adjustment (by reason of an amended return, claim
for refund, audit or other action) involving a decrease in CP&I's
taxable income for a taxable period ending after the Closing Date and a
corresponding increase in the federal, state or local, taxable income
of the Seller in respect of a taxable period ending on or before the
Closing Date.
(e) The Seller and CP&I agree to pay to the Purchaser the
amount of any federal, state and local income tax savings realized by
them (including with respect to the payment made pursuant to this
paragraph and any interest received by them) based on a final
determination of an adjustment (by reason of an amended return, claim
for refund, audit or other action) involving an increase in CP&I's
taxable income for a taxable period ending after the Closing Date and a
corresponding decrease in the federal, state or local, taxable income
of the Seller in respect of a taxable period ending on or before the
Closing Date.
6.10 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), the 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 any
County within the State of Ohio in which AmeriPath or an
AmeriPath Affiliate is then doing business (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
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customer, client or patient of an AmeriPath Affiliate,
except that it shall not be a violation of this
Section 6.10 for the 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 the Seller's duties as a member of the
United States military services or the National Guard; (c) on
a locum tenens basis or (d) for the Purchaser or any Affiliate
of the Purchaser. The Seller shall also be permitted to
perform medical services as a dermatologist on a part-time
basis for his own medical practice, and engage in any other
activities permitted by Section 3 of his Employment Agreement.
(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 the Seller is employed by an AmeriPath Affiliate
and so long as Seller is employed with CP&I or any AmeriPath Affiliate,
provided, however, should (i) AmeriPath fail to purchase Seller's
AmeriPath Stock in accordance with Section 1.3(m), or fail to make a
payment with respect to the Contingent Notes, and such failure
continues for more than ninety (90) days after notice from the Seller,
or (ii) there is a Loan Default (as defined in Section 12.3), upon
notice by the Seller, the Restricted Period shall equal zero (0) days.
(c) The 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 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 the Seller obtains the prior written consent of AmeriPath.
(d) The Seller covenants and agrees that the restrictions set
forth in this Section 6.10 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) The Seller acknowledges and agrees that the provisions of
Section 6.10 and Section 6.11 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 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
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<PAGE> 51
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.
6.11 Non-disclosure; Confidentiality.
(a) Confidential Information. By virtue of the Seller's
employment, association or involvement with an AmeriPath Affiliate, the
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," client 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 Seller or becomes public thereafter, provided
such information is not in the public domain as a consequence of
disclosure by the Seller in violation of this Agreement, and (b) any
information not considered confidential information by similar
enterprises operating in the anatomical laboratory industry or
otherwise in the ordinary course.
(b) Non-Disclosure. The 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, court order,
subpoena or other legal process or as may be required to enforce his
rights under this Agreement or the Employment Agreement, 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, 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
Confidential
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Information prepared by him or that may come into his possession
or under his control by reason of his employment by an
AmeriPath Affiliate or by reason of any consulting services he has
performed or may in the future perform for an AmeriPath Affiliate. The
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, except in connection with performing his
duties under the Employment Agreement.
6.12 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
Seller who then own AmeriPath Stock consistent with the requirements and
limitations of Rule 144. Nothing in this Section 6.12 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 Seller.
6.13 Exclusive Territory. Without the prior written consent of the
Seller (which shall not be unreasonably withheld), so long as the Seller is
employed by CP&I and the Contingent Note has not matured or been paid in full
(solely to the extent required under the Contingent Note), the Purchaser shall
not, directly or indirectly, alone or as a partner or shareholder of, lender to
or investor in another Person engage in, or acquire businesses or practices
within 150 miles of 23200 Chagrin Building 5, Suite 350, Beachwood, Ohio, which
engage in the practice of pathology or any anatomical laboratory business that
competes with the business then conducted by CP&I; provided, however, that this
Section shall not apply to the acquisition of the practice of David R. Barron,
M.D. solely to the extent of any clients, referrals, hospitals, medical
facilities or customers of such practice located within such 150 mile area on
the Closing Date.
6.14 First Rights. Upon (i) a Loan Default or (ii) the sale,
liquidation, closure, suspension or termination (in whole or in part) of the
business or operations of CP&I, the Seller shall be entitled to purchase all
(but not less than all) of the capital stock or assets of CP&I, upon the same
terms and conditions as either the Purchaser, or the Purchaser's senior lenders,
would sell to any other Person. The Seller's first purchase rights shall
terminate 120 days after the Purchaser has delivered notice to the Seller of the
proposed sale or transaction and the terms thereof, including the nature and
amount of consideration proposed to be paid.
6.15 Unpaid Tax Liability. Prior to the Closing, the Seller shall have
paid, settled or otherwise resolved to the satisfaction of AmeriPath, the unpaid
tax liability associated with the Seller's Subchapter S election and 1994
accounts receivable, other than any interest, penalties or other charges that
have not been assessed prior to the Closing (all of which shall be the sole
responsibility of the Seller).
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<PAGE> 53
6.16 Trade Names. The Seller hereby agrees to lease to the Purchaser
for $10.00 per year the trade names "Cutaneous Pathology & Immunofluorescence
Laboratory" and "CPI". The term of the lease shall be the earlier of (i) such
time as the Contingent Note has been paid in full (solely to the extent required
under such note) or (ii) five years from the Closing Date. At the end of the
lease term, the Purchaser shall have the option to purchase the trade names for
$10.00 each. During the term of the tradename lease, AmeriPath shall use the
tradenames with respect to the business and operations of CP&I. Upon the
occurrence of (i) a Loan Default or (ii) a CP&I Termination, the lease of the
trade names shall terminate and expire and the trade names shall immediately and
automatically revert to the Seller and the Purchaser shall have no further
rights or interests in such names.
6.17 Access to Books. Following the Closing and until all contingent
consideration has been paid to the Seller, the Seller shall have reasonable
access to the books and records of CP&I and AmeriPath to verify the Operating
Earnings. AmeriPath shall cause CP&I to maintain such books and records as the
Seller may reasonably request in order to compute, verify and audit Operating
Earnings.
6.18 Deliveries After Closing. From time to time after the Closing, at
the Purchaser's request and without expense to CP&I and without further
consideration from the Purchaser or CP&I, the 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.
6.19 Post Closing Operations. Following the Closing, until all amounts
due under this Agreement (including Sections 1.2 and 1.3 hereof) and the
Contingent Note have been paid in full (only to the extent applicable targets
have been achieved), AmeriPath shall cause the business and operations of CP&I
to be conducted in the ordinary course, consistent with past practice, as a
stand-alone cost-center separate and distinct from AmeriPath and its other
Affiliates. Without limiting the generality of the foregoing, except as
contemplated in this Agreement, without the prior written consent of the Seller
(which consent may not be unreasonably withheld), AmeriPath shall not:
(a) cause or permit CP&I to convey, transfer, lease or otherwise
dispose of, in one or any series of transactions, all or any material
part of its assets, properties or business, dissolve, liquidate or
reorganize, engage in business with unreasonably small capital,
suspend, terminate or discontinue all or any material portion of its
business operations, seek relief under any bankruptcy, reorganization,
insolvency or other law for the relief of debtors, issue any securities
to any Person other than AmeriPath or otherwise engage in any
transaction that might adversely affect Operating Earnings of CP&I; or
(b) sell, assign, exchange, transfer or otherwise dispose of any
capital stock or other securities of CP&I held at any time by
AmeriPath.
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<PAGE> 54
(c) cause or permit CP&I to merge or consolidate with or into
any other Person other than AmeriPath or an Affiliate of AmeriPath
controlled by AmeriPath, provided in each case that such Person
expressly assumes in writing CP&I's obligations under the Employment
Agreement with the Seller.
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 Seller 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 Seller or CP&I 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 Seller and CP&I
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 Seller and
the president of CP&I 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 --DELETED--
7.4 --DELETED--
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 CP&I, certifying
to the foregoing.
7.6 Opinion of Seller's Counsel. The Purchaser shall have received an
opinion of counsel to the Seller and CP&I (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 Seller shall have executed and delivered
to the Purchaser an Employment Agreement with CP&I in the form of Exhibit 6.6.
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<PAGE> 55
7.8 Delivery of CP&I Share Certificates. The 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 CP&I Shares, duly endorsed for transfer to the Purchaser, together with
stock powers duly executed in blank.
7.9 Shareholders' Agreement. At the Closing, the 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 the Seller agrees to be bound by the provisions of the
Shareholders' Agreement, in accordance with their terms, to the same extent as
if he had been an original signatory thereto (except as specifically set forth
in such counterpart).
7.10 Subordination Agreement. At the Closing, the Seller shall have
executed and delivered to the Purchaser the Subordination Agreement.
7.11 Other Agreements. The Seller shall have executed and delivered the
Trust Agreement, pursuant to which AmeriPath shall be the beneficiary of the
Trust and the Seller shall be the trustee (the "Trust Agreement"), Beno Michel
and Associates, M.D., Inc. shall have executed and delivered the Option
Agreement pursuant to which Beno Michel and Associates, M.D., Inc. has the
option to purchase the assets of the medical practice from CP&I (the "Option
Agreement"), and CP&I shall have executed and delivered the Management Agreement
pursuant to which AmeriPath shall provide certain management services to CP&I
(the "Management Agreement").
7.12 Transfer of Business. The Purchaser shall receive adequate proof
that certain of the assets and liabilities of the medical practices of Drs.
Michel, Petroff and Wieselthier had been properly transferred out of CP&I to
another Person.
7.13 Acquisition Agreement. The Seller shall have executed and
delivered to the Purchaser the Broker Fee Agreement between AmeriPath and the
Seller in the form of Exhibit 7.13 attached hereto the ("Acquisition
Agreement").
7.14 Escrow Agreement. The Seller shall have executed and delivered to
the Purchaser the Escrow Agreement.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
Each and every obligation of the Seller 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 Seller:
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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 Seller, 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
Seller 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 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 the Seller is entitled pursuant
to Section 1.1 hereof.
8.4 Other Agreements. AmeriPath shall have executed and delivered to
the Seller the Management Agreement and the Trust Agreement.
8.5 Acquisition Agreement. AmeriPath shall have executed and delivered
to the Seller the Acquisition Agreement between AmeriPath and the Seller in the
form of Exhibit 7.14 attached hereto.
8.6 Opinion of Counsel. The Seller shall have received an opinion of
counsel to the Purchaser, dated the Closing Date, in the form of Exhibit 8.6
hereto.
8.7 Approval Certificate. The Seller shall have received the Approval
Certificate evidencing the agreement of Summit Investors, II, L.P. and Summit
Ventures III, L.P. to comply with Section 1.3(n) hereto.
8.8 Escrow Agreement. The Purchaser shall have executed and delivered
to the Seller the Escrow Agreement.
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 15, 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 Seller and CP&I shall deliver or cause to be
delivered to the Purchaser:
(i) a certificate or certificates evidencing all of
the CP&I Shares, duly endorsed for transfer with all necessary
transfer stamps affixed;
(ii) copies of all consents and approvals required
7.12;
(iii) the Opinion of Counsel required by Section 7.6;
(iv) the Officer's Certificates required by Sections
7.1 and 7.5;
(v) the Employment Agreement 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 Management Agreement, Option Agreement and
Trust Agreement required by Section 7.11;
(ix) the Acquisition Agreement required by Section
7.13;
(x) the Escrow Agreement required by Section 7.14;
(xi) a certificate, signed by the secretary of CP&I,
as to the articles of incorporation and by-laws of CP&I, the
resolutions adopted by the board of directors and shareholders
of CP&I in connection with this Agreement and the incumbency
of certain officers of CP&I, in form acceptable to the
Purchaser;
(xii) 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 CP&I 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.
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(xiii) such other certified resolutions, documents
and certificates as are required to be delivered by the Seller
or CP&I pursuant to the provisions of this Agreement.
(b) The Purchaser shall deliver to the Seller:
(i) the consideration (in the form of cash, AmeriPath
Stock and Contingent Notes) required to be paid or delivered
to the Seller at Closing in accordance with Section 1.1.
(ii) the Officer's Certificate required by Section
8.1; and
(iii) the Management Agreement and Trust Agreement
required by Section 8.4;
(iv) the Acquisition Agreement required by Section
8.5;
(v) the Opinion of Counsel required by Section 8.6;
(vi) the Approval Certificate required by Section
8.7;
(vii) the Escrow Agreement required by Section 8.8;
(viii) a certificate, signed by the secretary of
AmeriPath, as to the resolutions adopted by the board of
directors of AmeriPath in connection with this Agreement and
the incumbency of certain officers of AmeriPath;
(ix) 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 and the Seller;
(b) by the Purchaser or the Seller if the Closing has not
occurred on or before October 30, 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
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breaching or defaulting party may not terminate this Agreement
pursuant to this Section 10.1(b), 10.1(c) or 10.1(d), as applicable,
and the non-breaching or non-defaulting 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 CP&I or the Seller is otherwise in
default under this Agreement; or
(d) by the Seller if as of the Closing Date (including any
extensions) any of the conditions specified in Article VIII hereof
shall not have been satisfied 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 CP&I (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; INDEMNIFICATION
11.1 Survival. All of the representations and warranties 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
until:
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(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
CP&I 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, March 31, 1998, except for representations,
warranties and indemnities for which an indemnification Claim
shall be pending as of March 31, 1998, in which event such
indemnities shall survive with respect to such Claim until the
final disposition thereof.
11.2 Indemnification by the Seller. Subject to this Article XI, the
Purchaser shall be indemnified and held harmless by the 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 (including
the reasonable 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 Seller or CP&I
under this Agreement, or contained in any schedule or exhibit to this
Agreement or any certificate, schedule or other instrument required to
be provided by the Seller or CP&I hereunder;
(b) Any and all liabilities of CP&I of any nature whether
accrued, absolute, contingent or otherwise, and whether known or
unknown, existing at the Closing Date to the extent that:
(i) such liabilities are not reflected in the
balance sheet for the quarter ended June 30,
1996 included in the Financial Statements
and such liabilities should have been, in
accordance with GAAP, reflected in, reserved
for, or disclosed in footnotes to such
balance sheet;
(ii) such liabilities were not disclosed in this
Agreement (or the schedules or exhibits
hereto) and, taking into account any
materiality, knowledge, dollar amount,
timing or other limitations set forth
herein, should have been disclosed in this
Agreement (or the schedules exhibits hereto)
in accordance with the terms hereof;
(iii) such liabilities (x) did not arise in the
ordinary course of business consistent with
past practice of CP&I after June 30, 1996
and (y)
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were not required to be disclosed in
this Agreement (or the schedules or exhibits
hereto) in accordance with the terms 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.
11.3 Indemnification by the Purchaser. Subject to this Article XI, the
Seller 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 reasonable
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, the Contingent Note or the
Employment Agreement, any document relating thereto or contained in any schedule
or exhibit to this Agreement, the Contingent Note or the Employment Agreement or
from any misrepresentation in or omission from any certificate, schedule, other
agreement or instrument by the Purchaser hereunder or thereunder. The Purchaser
shall also indemnify the Seller and Drs. Petroff and Wieselthier with respect to
any damages, losses, deficiencies, liabilities, obligations, commitments, costs
or expenses (including the reasonable fees and expenses of counsel) incurred by
the Seller, Dr. Petroff or Dr. Wieselthier, as the case may be, in connection
with the structure of the transaction contemplated by this Agreement resulting
from the employment of such Person by CP&I or any AmeriPath Affiliate and the
violation or alleged violation (only if alleged by a Person not affiliated with
the Seller, Dr. Petroff or Dr. Wieselthier) of any Health Care Laws due to the
structure of this transaction; provided, however, that AmeriPath shall have the
right to assume and control the defense of any such actions with counsel of
reputable standing (subject to the limitations set forth in (x) the fourth
sentence of the first paragraph of Section 11.4 and (y) the third paragraph of
Section 11.4).
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 and control
the defense of such action unless such action (i) is reasonably likely to result
in injunctions or other equitable remedies in respect of the indemnitee or its
business; (ii) is reasonably likely to result in liabilities of a substantial
nature (in relation to liabilities indemnified hereunder) which, taken with
other then existing Claims under this Article XI, would not be fully indemnified
hereunder; or (iii) is reasonably likely to have adverse impact on the business
or
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financial condition of the indemnitee after the Closing Date (including an
effect on the Tax liabilities, earnings or ongoing business relationships of the
indemnitee); provided, that nothing herein shall affect the Seller's rights,
under Section 1.1(k) to control all aspects of the defense or settlement of
Claims subject to the Escrow Agreement with respect to Section 2.30 hereof. 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 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,
that nothing herein shall affect the Seller's rights to control all inspects of
the defense or settlement of Claims subject to the Escrow Agreement.
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 $125,000.00 (the
"Deductible"), and then only to the extent in excess of the Deductible.
Notwithstanding the foregoing, (i) 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 CP&I Shares), 2.6 (options and
rights on capital stock), 2.31 (Positive Working Capital as of Closing), 6.15
(tax liability) or Claims arising under common law fraud shall at any time be
subject to the Deductible or Section 11.7 hereof.
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11.6 Benefits. In the event either party is required to make one or
more payments (an "Indemnification Payment") with respect to any indemnification
obligation provided hereunder, and such payment results in the realization of a
net reduction in the other party'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.
11.7 Maximum Liability. 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 $4,000,000.00.
11.8 Insurance. The Purchaser shall be entitled to indemnification
under this Agreement, only to the extent that the aggregate amount of its claims
exceeds the amount of any payment received by CP&I or the Purchaser under any
insurance policy that may be maintained by CP&I or the Purchaser to cover losses
relating to such claim.
11.9 Notice of Claims. Any person seeking indemnification under this
Agreement shall give to the indemnitor prompt written notice of any claim or
potential claim hereunder. Such notice shall contain a description of any claim,
event or facts known to the indemnitee which do or may give rise to a claim by
the indemnitee against the indemnitor based on this Agreement, stating the
nature and basis of said claims or events and the amounts thereof, to the extent
know.
11.10 Time Bar. No claim for indemnification may be made by the
Purchaser for breach of representations and warranties on any matter after the
expiration of that period of time which, under Section 11.1, is the period that
the representation and warranty for that matter "survives."
11.11 Exclusive Remedy. Except for actions to enforce specific
performance of rights or obligations hereunder, the right to make a claim for
indemnification pursuant to this Article XI shall be the sole and exclusive
remedy of the Purchaser with respect to any matter referred to in Section 11.2
and of the Seller with respect to any matter referred to in Section 11.3, and no
other claim, action, suit or proceeding shall be initiated or maintained against
the Seller or his assets or the Purchaser or its assets, as the case may be, in
respect of any matter referred to in Section 11.2 or 11.3 respectively,
notwithstanding that a remedy may not be available under this Article by virtue
of the lapse of time, limitation on the amounts that may be claimed, the
Deductible or otherwise.
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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 CP&I, the Purchaser and the 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, 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.
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"Environmental Law" means any Regulation, Order, 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 as practiced in the United States.
"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 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.
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"Lien" means any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, Claim, easement, restriction or interest of
another Person of any kind or nature in respect of property.
"Loan Default" means (i) the Purchaser failed to make a
payment under the Contingent Notes within sixty days of such payment
being due and payable, (ii) the Purchaser failed to make a payment when
due under its senior lending facility and such payment default remained
uncured for 60 days or (iii) any default followed by the acceleration
of the indebtedness under the Purchaser's senior lending facility.
"Material Adverse Change" means any development or change
which has, had or would have a Material Adverse Effect.
"Material Adverse Effect" means, with respect to any Person,
any circumstances, state of facts or matters which has, or might
reasonably be expected to have, a material adverse effect in respect of
such Person's business, operations, properties, assets, condition
(financial or otherwise), financial results.
"Order" means any decree, judgment, award, order, injunction,
rule, consent of or by an Authority.
"Permitted Liens" means (i) statutory Liens (including in
respect of Taxes) not yet delinquent or being contested in good faith
(subject to the establishment of adequate reserves therefor), (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 in any material respect present business operations at
such properties; or do not detract in any material respect 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 December 31,
1995 included in Financial Statements or the notes thereto.
"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, other than an Order.
"Sale of Control" means any merger, share exchange,
recapitalization, sale, issue, exchange or other disposition of
AmeriPath Stock (or any securities convertible into or exchangeable or
exercisable for AmeriPath Stock) in any transaction, that results in
any
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Person (other than a Preferred Shareholder (as defined in the
Shareholders' Agreement) or James C. New, each an "Excluded Person") or
any "group" of Persons (within the meaning of Section 13(d)(3) of the
Securities Exchange Act) (other than a group consisting entirely of
Excluded Persons) beneficially owning 40% or more of the issued and
outstanding AmeriPath Stock (or any securities convertible into or
exchangeable or exercisable for AmeriPath Stock) on a fully diluted
basis.
"Subsidiary" means any Person which the Purchaser or CP&I, 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 by overnight receipted courier
service:
(a) If to the Seller or CP&I, to:
Beno Michel, M.D., Inc.
23200 Chagrin Building 5, Suite 350
Beachwood, OH 44122
Attn: Beno Michel, M.D., President
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
Attn: Charles E. Hord, III, Esq.
or to such other person or address as the Seller or
CP&I 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
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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 the 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,
except that the Purchaser may grant security interests in respect of its rights
hereunder, without the prior approval of the Seller. It is specifically
understood and agreed that AmeriPath may assign its rights hereunder to purchase
the CP&I Shares to the trust created pursuant to the Trust Agreement for the
purpose of acquiring such CP&I Shares; provided, however, that, in any such
event, (i) all agreements herein with respect to AmeriPath Stock shall continue
to relate to AmeriPath Stock, and not to the capital stock of any such trust,
and (ii) in any such event, AmeriPath shall remain obligated with respect to and
liable for, and shall be the guarantor of, the performance of each and every
obligation of AmeriPath hereunder (notwithstanding that its rights hereunder to
purchase the CP&I Shares have been assigned to such trust), including without
limitation Article XI hereof, and (iii) each representation and warranty
hereunder shall be deemed made (x) as to both AmeriPath and, to the extent
applicable, such trust and (y) jointly and severally by both AmeriPath and, to
the extent applicable, such trust.
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. CP&I and the 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
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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.
12.9 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 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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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
SELLER:
/s/ Beno Michel
-----------------------------------------------
BENO MICHEL, M.D.
BENO MICHEL, M.D., INC.
By: /s/ Beno Michel
--------------------------------------------
Beno Michel, M.D., President
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FIRST AMENDMENT TO THE
STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT to the Stock Purchase Agreement (the "Amendment")
is entered into as of January 13, 1997, by and among AMERIPATH, INC., a Delaware
corporation, ("AmeriPath"), AMERIPATH CLEVELAND, INC. f/k/a Beno Michel, M.D.,
Inc. (d/b/a Cutaneous Pathology & Immunofluorescence Laboratory), an Ohio
corporation ("CP&I"), and BENO MICHEL, M.D.
R E C I T A L S
A. The parties hereto entered into a Stock Purchase Agreement (the
"Agreement") dated as of October 15, 1996.
B. Section 12.1 of the Agreement provides that the Agreement may be
amended by a written instrument executed by each of the parties thereto.
C. AmeriPath has filed a registration statement with the Securities and
Exchange Commission with respect to the underwritten public offering of the
Common Stock of AmeriPath.
D. In connection with AmeriPath's under written public offering of its
Common Stock, the parties hereto desire to clarify the rights and obligations of
the parties under the Agreement and amend the terms of the 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 Agreement.
3. Section 6.19 of the Agreement is hereby deleted in its entirety and
replaced with the following language:
<PAGE> 72
"6.19Post Closing Operations. Following the Closing, until all
amounts due under this Agreement (including Sections 1.2 and 1.3
hereof) and the Contingent Note have been paid in full (only to the
extent applicable targets have been achieved), AmeriPath shall cause
the business and operations of CP&I to be conducted in the ordinary
course, consistent with past practice, as a stand-alone cost-center
separate and distinct from AmeriPath and its other Affiliates."
4. The rights of Dr. Michel and the obligations of AmeriPath
under the former Section 6.19 are terminated by this Amendment and there
shall be no continuing rights or obligations under former Section 6.19 except
as it is hereby amended above. All other terms and conditions of the Agreement
shall remain unchanged.
IN WITNESS WHEREOF, the undersigned have each executed this Amendment
as of the date first above-written.
PURCHASER:
AMERIPATH, INC.
By: /s/ ROBERT P. WYNN
------------------------------------------
Robert P. Wynn, Chief Financial Officer
SELLER:
/s/ BENO MICHEL, M.D.
----------------------------------------------
BENO MICHEL, M.D.
AMERIPATH CLEVELAND, INC. F/K/A BENO
MICHEL, M.D., INC.
By: /s/ BENO MICHEL, M.D.
------------------------------------------
Beno Michel, M.D., Managing Director
Attest: /s/ ROBERT P. WYNN
---------------------------------------
By: Robert P. Wynn, Secretary
<PAGE> 1
Exhibit 10.30
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERIPATH, INC.,
DRS. SEIDENSTEIN, LEVINE AND ASSOCIATES, INC.,
SEIDENSTEIN, LEVINE REAL ESTATE PARTNERSHIP
LAWRENCE SEIDENSTEIN, M.D.,
STEVEN E. LEVINE, M.D.,
AND
DAVID M. REARDON, M.D.
DATED AS OF OCTOBER 10, 1996
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
ARTICLE I
PURCHASE OF CAPITAL STOCK
<S> <C>
1.1 Purchase and Sale of Capital Stock............................................................ 1
1.2 The Contingent Notes.......................................................................... 3
1.3 Contingent Issuance of AmeriPath Stock........................................................ 12
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND SLA
2.1 Corporate Organization, Qualification, etc.................................................... 18
2.2 Subsidiaries.................................................................................. 18
2.3 Capital Stock................................................................................. 18
2.4 Corporate Record Books........................................................................ 18
2.5 Title to Stock................................................................................ 18
2.6 Options and Rights............................................................................ 19
2.7 Authorization, Etc............................................................................ 19
2.8 No Violation.................................................................................. 19
2.9 Financial Statements.......................................................................... 19
2.10 Employees..................................................................................... 20
2.11 Absence of Certain Changes.................................................................... 20
2.12 Contracts..................................................................................... 21
2.13 True and Complete Copies...................................................................... 23
2.14 Title and Related Matters..................................................................... 23
2.15 Litigation.................................................................................... 24
2.16 Tax Matters................................................................................... 24
2.17 Compliance with Law and Applicable Government Regulations..................................... 25
2.18 ERISA and Related Matters..................................................................... 26
2.19 Intellectual Property......................................................................... 27
2.20 Environmental Matters......................................................................... 28
2.21 Dealings with Affiliates...................................................................... 29
2.22 Banking Arrangements.......................................................................... 29
2.23 Insurance..................................................................................... 29
2.24 Consents...................................................................................... 29
2.25 Investment Representations.................................................................... 30
2.26 Accounts Receivable; Inventories.............................................................. 31
2.27 Brokerage..................................................................................... 32
2.28 Improper and Other Payments................................................................... 32
2.29 Participation in Audits....................................................................... 32
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
2.30 Health Care Laws.............................................................................. 32
2.31 Financial Condition at Closing................................................................ 34
2.32 Disclosure.................................................................................... 34
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1 Corporate Organization, etc................................................................... 35
3.2 Subsidiaries.................................................................................. 35
3.3 Authorization, Etc............................................................................ 35
3.4 No Violation.................................................................................. 35
3.5 Governmental Authorities; Consents............................................................ 36
3.6 Issuance of AmeriPath Stock................................................................... 36
3.7 Additional Purchaser Representations: Books and Records; Financial
Statements.................................................................................... 36
3.8 Compliance.................................................................................... 36
3.9 Capitalization................................................................................ 36
3.10 Litigation.................................................................................... 36
3.11 No Additional Seller Representations.......................................................... 37
3.12 Tax Matters................................................................................... 37
3.13 Dealing with Affiliates....................................................................... 37
3.14 Disclosure.................................................................................... 38
ARTICLE IV
COVENANTS OF THE SELLERS
4.1 Regular Course of Business.................................................................... 38
4.2 Amendments.................................................................................... 38
4.3 Capital Changes; Pledges...................................................................... 38
4.4 Dividends..................................................................................... 38
4.5 Capital and Other Expenditures................................................................ 39
4.6 Cash and Cash Equivalents..................................................................... 39
4.7 Borrowing..................................................................................... 39
4.8 Other Commitments............................................................................. 39
4.9 Amendments to Charter......................................................................... 39
4.10 Full Access and Disclosure.................................................................... 39
4.11 Confidentiality............................................................................... 40
4.12 Breach of Agreement........................................................................... 40
4.13 Fulfillment of Conditions Precedent........................................................... 40
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE V
COVENANTS OF THE PURCHASER
<S> <C>
5.1 Confidentiality............................................................................... 40
5.2 Full Access and Disclosure.................................................................... 40
5.3 Breach of Agreement........................................................................... 41
5.4 Fulfillment of Conditions Precedent........................................................... 41
ARTICLE VI
OTHER AGREEMENTS
6.1 Further Assurances............................................................................ 41
6.2 Agreement to Defend........................................................................... 42
6.3 Consents...................................................................................... 42
6.4 No Solicitation or Negotiation................................................................ 42
6.5 No Termination of Sellers' Obligations by Subsequent Incapacity, Etc.......................... 42
6.6 Employment Agreements......................................................................... 42
6.7 Public Announcements.......................................................................... 42
6.8 Deliveries After Closing...................................................................... 43
6.9 Non-Competition Covenant...................................................................... 43
6.10 Non-disclosure; Confidentiality............................................................... 44
6.11 Rule 144 Best Efforts......................................................................... 46
6.12 Real Estate................................................................................... 46
6.13 Delivery of Purchaser Statements.............................................................. 46
6.14 Stock Options................................................................................. 47
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
7.1 Representations and Warranties; Covenants and Agreements...................................... 47
7.2 No Injunction................................................................................. 48
7.3 Third Party Consents.......................................................................... 48
7.4 No Material Adverse Change.................................................................... 48
7.5 Employment Agreement.......................................................................... 48
7.7 Delivery of SLA Share Certificates............................................................ 48
7.8 Shareholders' Agreement....................................................................... 48
7.9 Subordination Agreement....................................................................... 48
7.10 SLA Charter Amendments........................................................................ 49
7.11 Creditors..................................................................................... 49
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
<S> <C>
8.1 Representations and Warranties; Performance................................................... 49
8.2 No Injunction................................................................................. 49
8.3 Material Adverse Change....................................................................... 49
8.4 Third Party Consents.......................................................................... 49
8.5 Purchase Consideration........................................................................ 50
8.6 Employment Agreements......................................................................... 50
ARTICLE IX
CLOSING
9.1 Closing....................................................................................... 50
9.2 Closing Deliveries............................................................................ 50
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination........................................................................ 52
10.2 Procedure Upon Termination.................................................................... 53
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
11.1 Survival...................................................................................... 53
11.2 Indemnification by the Sellers................................................................ 54
11.3 Indemnification by the Purchaser.............................................................. 55
11.4 Third-Party Claims............................................................................ 55
11.5 Indemnification Basket; Maximum Liability..................................................... 56
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification.................................................................... 57
12.2 Entire Agreement.............................................................................. 57
12.3 Certain Definitions........................................................................... 57
12.4 Notices....................................................................................... 59
12.5 Assignment.................................................................................... 61
12.6 Governing Law................................................................................. 61
12.7 Consent to Jurisdiction; Service of Process................................................... 61
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
12.8 Injunctive Relief............................................................................. 61
12.9 Counterparts.................................................................................. 61
12.10 Headings...................................................................................... 61
12.11 Binding Effect................................................................................ 61
12.12 Delays or Omissions........................................................................... 61
12.13 Severability.................................................................................. 62
12.14 Expenses...................................................................................... 62
12.15 Arbitration................................................................................... 62
</TABLE>
<PAGE> 7
SCHEDULES
1.1 Sellers
1.2(b)(i) Accounts Existing at Closing
1.3 Conditions & Restrictions on Shares
2.1 Jurisdictions of Qualification
2.2 SLA's Subsidiaries
2.6 Agreements Regarding SLA's Shares
2.9(a) Additional Liabilities
2.9(b) Liabilities covered by Insurance
2.9(c) Accounts Payable
2.12 Contracts
2.14 Real and Personal Property
2.15 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
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
3.7 Books and Records
3.9 Capitalization
3.10 Litigation
3.13 Agreements and Arrangements with Affiliates
7.3 Third Party Consents
7.11 Creditor Consents
EXHIBITS
1.2 Form of 7% Non-Negotiable Subordinated Contingent Promissory Note
2.1 SLA's Articles of Incorporation, as amended, and By-laws
2.9 Financial Statements
3.1 AmeriPath Florida's Charters and Bylaws
<PAGE> 8
6.6 Form of Employment Agreement
6.12 Lease
7.6 Opinion of Seller's Counsel
7.8 Subordination Agreement
8.7 Opinion of Purchaser's Counsel
<PAGE> 9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of October
10, 1996, by and among AMERIPATH, INC., a Delaware corporation, ("AmeriPath" or
the "Purchaser"), DRS. SEIDENSTEIN, LEVINE AND ASSOCIATES, INC., a Florida
professional service corporation ("SLA"), all of the shareholders of SLA (set
forth on Schedule 1.1 hereto) who collectively hold One Hundred (100) shares,
par value $1.00 per share, of SLA (each shareholder shall be referred to herein
as the "Seller" and collectively, the "Sellers") and SEIDENSTEIN, LEVINE REAL
ESTATE PARTNERSHIP, a Florida general partnership.
.
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock of SLA; SLA, although initially organized as a professional
service corporation under Chapter 621 of the Florida Statutes, has, prior to the
closing of the transactions contemplated by this Agreement, upon the terms and
subject to the conditions set forth herein, converted itself to and is presently
organized as, 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 SLA, upon the terms and
subject to the conditions set forth herein;
WHEREAS, although the parties hereto have agreed as to the minimum
value of SLA, they are not able to agree as to the total value of SLA, and thus
the parties hereto have agreed to certain additional contingent purchase price
consideration based upon the results of operations of SLA, as more fully set
forth herein; and
WHEREAS, upon the closing of the transactions contemplated by this
Agreement, (i) SLA shall be and become a wholly-owned subsidiary of AmeriPath,
and (ii) such wholly-owned subsidiary may 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 SLA hereby agree,
intending to be legally bound, as follows:
ARTICLE I
PURCHASE OF CAPITAL STOCK
1.1 Purchase and Sale of Capital Stock and Certain Assets.
(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> 10
and accept delivery from the Sellers, all of the issued and outstanding
capital stock of SLA (the "SLA Shares") owned or held by such Sellers,
which number of SLA Shares to be sold and purchased hereunder is set
forth opposite each such Seller's respective name on Schedule 1.1
attached hereto.
(b) Upon the sale, transfer and delivery to the Purchaser by
the Sellers of the SLA 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) TEN MILLION TWO HUNDRED THIRTY SEVEN THOUSAND
FIVE HUNDRED DOLLARS ($10,237,500.00), by cashier's check or
by wire transfer;
(ii) Certificates evidencing 75,834 shares of Common
Stock, par value $.01 per share, of AmeriPath (the "AmeriPath
Stock");
(iii) Three (3) 7% Non-Negotiable Subordinated
Contingent Promissory Notes, in the form attached hereto as
Exhibit 1.1(C) (the "Contingent Notes"), in the aggregate
maximum principal amount of FIVE MILLION SIX HUNDRED
EIGHTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS
($5,687,500.00)($1,895,833.33 for each Seller), the issuance
and certain terms and conditions of which Contingent Notes are
set forth in Section 1.2 below;
(iv) Up to 379,166 shares of AmeriPath Stock,
issuable over five years subject to the satisfaction of
certain contingencies set forth in Section 1.3 hereof; and
(v) In accordance with the terms of this Section
1.1(b)(vi), the net proceeds (1/3 of such net amount to each
Seller delivered by cashier's check or by wire transfer) of
the sale of 5,500 shares of Florida Physicians Insurance
Company ("the FPIC Shares") stock currently owned by SLA.
Purchaser shall cause SLA to execute an order to sell the FPIC
Shares within three (3) trading days of the date on which all
restrictions on the transferability of such FPIC Shares are
terminated, provided that such shares are listed for trading
on a national exchange or quotation system at such time. In
the event that the FPIC shares are freely tradeable by SLA and
are listed for trading on a national exchange or quotation
system but are not sold by December 20, 1996, then Purchaser
shall pay to Sellers an amount equal to the Closing price per
share of the FPIC Shares on the first trading day on which the
FPIC Shares become freely tradeable by SLA, multiplied by
5,500, less applicable sales commissions, such amount to be
paid one-third to each Seller.
<PAGE> 11
(c) Upon the sale, transfer and delivery to the Purchaser by
the Seidenstein, Levine Real Estate Partnership (the "Partnership") of
all of the assets of the Partnership, other than the condominium unit
with a common address 3949 Evans Avenue, Unit 403, Ft. Myers, Florida,
relating to or utilized in the operation of (i) the hospital billing
company and (ii) SLA (the "Assets"), Purchaser shall purchase and
acquire the Assets from the Partnership at the Closing (as such term is
defined in Section 9.1 hereof), and in consideration therefor,
AmeriPath shall deliver to the Partnership cash equal to FOUR HUNDRED
FIFTEEN DOLLARS ($415,000.00). The Partnership, by executing and
delivering this Agreement, agrees to sell, transfer and convey the
Assets to the Purchaser on the terms and conditions set forth in this
Section 1.1(c), in Section 6.12 or elsewhere in this Agreement.
Further, the Partnership agrees that promptly following the Closing it
will deliver to Purchaser a complete schedule of the Assets.
(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 SLA 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. Notwithstanding anything else to the contrary in this
Agreement, these obligations of the Purchaser shall survive for so long
as there are any remaining obligations under the Contingent Notes and
the contingent rights to receive AmeriPath Stock.
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 FIVE MILLION SIX HUNDRED EIGHTY-SEVEN THOUSAND
FIVE HUNDRED DOLLARS ($5,687,500.00) ($1,895,833.33 for each Seller).
At the Closing, the Purchaser shall deliver to each Seller a Contingent
Note, with the final payment thereon, if applicable, due on December
31, 2001, which Contingent Note shall be in the form of Exhibit 1.2
hereto. The Contingent Notes shall be due and payable in the applicable
principal amount (with applicable interest) specified in or calculated
pursuant to this Agreement, 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 12-calendar month periods ending September
30, from 1997 through 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
$1,820,001.00 (the "Year-1
<PAGE> 12
Minimum Target") subject to Section 1.2(b)(iv) and (d) hereof, 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
$3,640,002.00, $5,460,003.00, $7,280,004.00 and $9,100,005.00,
respectively (together with the Year-1 Minimum Target, as relevant to
the applicable period, the "Minimum Targets") subject to Section
1.2(b)(iv) and (d) hereof. For each of the five 12-calendar month
periods ending September 30, from 1997 through 2001 for which Operating
Earnings or Cumulative Operating Earnings, as the case may be, are less
than the applicable Minimum Target (subject to Section 1.2(b)(iv) and
(d) hereof, 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 $5,687,500.00.
(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 SLA, which following the
Closing shall become a division of AmeriPath, or AmeriPath
Florida, named the Southwest Florida Division (as defined
below), for such full twelve month period (i.e., October 1
through September 30), before deduction for (in each case,
with respect to SLA or the Southwest Florida Division (as
defined below)) (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) severance pay, if any, that is payable to a Seller as a
result of a termination of such Seller pursuant to his
Employment Agreement with AmeriPath Florida or its permitted
assign, and (v) any fees or expenses incurred by SLA in
connection with the transactions contemplated by this
Agreement. With respect to the first twelve month period, such
period shall be deemed to have started on October 1, 1996
(despite the date of this Agreement or the Closing Date).
Purchaser agrees that certain non-recurring expenses that were
not incurred in the ordinary course of business and are listed
on Schedule 1.2(b) hereof have been incurred by SLA since
October 1, 1996 and prior to the date hereof and such expenses
will not be excluded for purposes of calculating Operating
Earnings and the Profitability Percentage (defined below) for
such initial 12-month period. All such calculations shall be
determined in accordance with GAAP (as defined in Section 12.3
hereof) applied by the Purchaser on a consistent basis. For
purposes hereof (and Section 1.3 and the Contingent Notes),
the term "SLA," with respect to Operating Earnings or
Cumulative Operating Earnings, shall mean and include the
business, operations,
<PAGE> 13
contracts, assets and liabilities of SLA (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, medical facilities and other parties
within the SLA Territory (defined below) in effect from time
to time, to which SLA, prior to the Closing, and AmeriPath
Florida, following the Closing, is a party, and which are
serviced by the employees who from time to time are employed
by AmeriPath Florida and who work within the Southwest Florida
Division (as defined below) (collectively, such employees
being referred to herein as the "SLA-Based Employees"), or
(ii) AmeriPath Florida's (or such other applicable AmeriPath
Affiliates) employment of, and employment agreements with, any
and all SLA-Based Employees. For purposes hereof (and Section
1.3 and the Contingent Notes), the term "Southwest Florida
Division" shall mean and include that portion of the business
and operations of AmeriPath Florida (or such other applicable
AmeriPath Affiliate) which, prior to consummation of the
transactions contemplated by this Agreement, constituted the
business and operations of Drs. Seidenstein, Levine and
Associates, Inc. within the SLA Territory, as same may change
and increase from time to time subsequent to the Closing.
Steven E. Levine, M.D., shall be the Managing Director of the
Southwest Florida Division for the later of (i) the duration
of the Contingent Notes, or (ii) his employment term with
AmeriPath or AmeriPath Florida.
(ii) Calculation of Operating Earnings. A statement
of the Operating Earnings, Cumulative Operating Earnings, as
well as Sellers' entitlement to any payments under the
Contingent Notes or AmeriPath Stock under the Stock Rights,
prepared by AmeriPath senior management, will be delivered to
the Sellers as soon as practicable following the end of each
applicable 12-month period, but in all events within 90 days
after the end of each such period. If AmeriPath's computation
provides that Sellers are entitled to payments under the
Contingent Notes, then the Appropriate Principal Amount
(together with accrued and unpaid interest thereon) that each
Seller is entitled to under the Contingent Notes shall be paid
within five (5) days of delivery of this statement. If any
Seller wishes to challenge the calculation of Operating
Earnings as set forth in the statement, he may do so by giving
written notice of such objection (the "Objection Notice") to
AmeriPath, signed by the Seller, within 40 days after receipt
of such statement of Operating Earnings. The Objection Notice
shall set forth in reasonable detail the Seller's 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 objecting Seller
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 rendered within 30 days and shall be binding
on all parties, unless either party decides to dispute the
computation through arbitration pursuant to Section 12.15
<PAGE> 14
of this Agreement. If none of the Sellers timely deliver an
Objection Notice to AmeriPath, then AmeriPath's statement of
Operating Earnings and Cumulative Operating Earnings shall be
binding upon the Sellers. If any Seller fails to deliver an
Objection Notice, then AmeriPath's statement of Operating
Earnings shall be binding with respect to such Seller,
regardless of the outcome of a dispute, if any, between
another Seller and the Purchaser. If the Sellers object to the
calculation of Operating Earnings or Cumulative Operating
Earnings for the purpose of determining compliance with this
Section, the difference between the Appropriate Principal
Amount of the Contingent Notes for such period and the amount,
if any, actually paid and accompanying the AmeriPath
statement, 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
any such amount remains unpaid.
(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 SLA, 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 and including September 30, 1998 (i.e., twenty
four full months of Operating Earnings would be included)).
(iv) Minimum Target Adjustments. For purposes of
calculating Operating Earnings, or Cumulative Operating
Earnings, as the case may be, in the event that AmeriPath
intentionally (and without the consent of the Sellers)
terminates, or fails to negotiate in good faith and allows to
expire, any profitable SLA hospital or medical facility
Contract in Lee, Charlotte, Collier or Sarasota Counties,
Florida (the "SLA Territory"), and AmeriPath does not replace
that Contract with a Contract of substantially similar or
greater value within 60 days, or if AmeriPath benefits from a
contract amendment affecting its operations outside of the
Southwest Florida Division in return for an unfavorable
amendment to a contract in the SLA Territory, the Minimum
Targets (but not the Appropriate Principal Amounts) shall be
reduced to reflect the lost earnings from such Contract; and
should AmeriPath assign a hospital Contract existing between
AmeriPath or an AmeriPath Affiliate and a facility as of the
Closing Date within the SLA Territory to the Southwest Florida
Division, the Minimum Targets shall be increased to reflect
additional earnings from the new Contract to neutralize the
effect of such termination, expiration, amendment or
assignment. The Minimum Targets may also be adjusted as set
forth in Section 1.2(d) below. Notwithstanding or in any way
limiting the definition set forth above in Section 1.2(b)(i),
the income attributable to SLA for purposes of computing
Operating Earnings and Cumulative Operating Earnings shall
include all revenues derived
<PAGE> 15
from services performed or originated within the SLA
Territory, other than revenues derived from AmeriPath accounts
(the "Existing AmeriPath Accounts") existing on the Closing
Date (which accounts are all listed on Schedule 1.2(b)(i)),
and the hospital contracts held by the Other Practice (as
defined in Section 1.2(b)(v) below) on the Closing Date,
provided that services performed on such Existing AmeriPath
Accounts or hospital contracts are not performed by the
SLA-Based Employees. If services are performed on Existing
Ameripath Accounts by SLA-Based Employees, revenue from such
service shall be attributed to the Southwest Florida Division.
Costs, charges and expenses associated with revenues
attributable to the Southwest Florida Division, including
inter-company charges for the technical/processing fee, if the
originating work is not processed by the Southwest Florida
Division, at the best available price, shall also be
attributed to SLA. For purposes hereof, services shall be
deemed to have been "performed" or "originated" within the SLA
Territory if the address or zip code of the referring
physician's office, the performing or referring facility is
within the SLA Territory. Sellers shall have access to
Purchaser's information or other available systems or records
with respect to data on referring physicians. In the event
that Purchaser controls the billing and collection process for
the Southwest Florida Division, Purchaser shall use its best
efforts to maintain a collection ratio consistent with that of
SLA during the 12 months prior to the Closing Date, allowing
for future negotiated contractual adjustments and consistent
with AmeriPath's policies. AmeriPath shall make its books and
records available, upon reasonable notice, so that the Sellers
can verify the proper calculation of Operating Earnings during
any time that the Contingent Notes remain outstanding. Sellers
shall have the right to audit the records of AmeriPath. As
prepared by AmeriPath in the normal course of business, or
upon the request of the Managing Director of the Southwest
Florida Division, Sellers shall be entitled to receive any
AmeriPath reports with respect to services performed on behalf
of referring physicians and the entities that perform such
services. In addition, the Managing Physician may download
available information from AmeriPath for purpose of extracting
information and preparing reports on other systems.
(v) Anatomic Pathology Reference Lab and Office-Based
Revenues. To align the incentives of all AmeriPath
Pathologists operating within the SLA Territory, if AmeriPath
closes on its acquisition of another pathology practice in the
SLA Territory (the "Other Practice"), the Southwest Florida
Division shall be credited with 45% (the "SFD Percentage") of
the gross revenues derived by AmeriPath for all anatomic
pathology reference lab and office-based services performed
in, or originating out of, the SLA Territory (the
"Reference-Office Revenues"), and the Other Practice shall be
credited with 55% of the Reference-Office Revenues. After the
closing, AmeriPath will provide Sellers with documentation
substantiating the 45%/55% allocation described herein. If
Sellers do not agree that such 45%/55% allocation is fair and
accurate or, alternatively, agree upon another allocation of
the Reference-Office Revenues, then this provision shall be
void and each of the Southwest Florida Division and the Other
<PAGE> 16
Practice will be credited with their own respective
Reference-Office Revenues. If, however, the percentages are
set in accordance with this Section 1.2(b)(v), and the
Southwest Florida Division is ever, during any 12-consecutive
month period commencing on October 1, and ending on the
following September 30th (a "Period"), responsible for
actually generating Reference-Office Revenues in an amount
equal to 20 percentage points less than, or 20 percentage
points more than, the SFD Percentage, then the "SFD
Percentage" shall, for such Period and all subsequent Periods
(unless another adjustment is effectuated hereunder), become
such higher or lower percentage, and the lower and upper
ranges of such new SFD Percentage for purposes of any
subsequent adjustments shall be equal to the new SFD
Percentage, less 20 percentage points, and the new SFD
Percentage plus 20 percentage points, respectively. By way of
illustration and not of limitation, if the Southwest Florida
Division actually generated 66% of the Reference-Office
Revenues for any given applicable Period, the SFD Percentage
shall, for such Period and all subsequent Periods (unless
another adjustment is effectuated hereunder) become 66%. For
subsequent adjustments thereafter, if any, the lower range
will be 46% (i.e. 66% - 20%) and the upper range will be 86%
(i.e. 66% + 20%). Notwithstanding the definition of Operating
Earnings in this Section 1.2 and elsewhere in this Agreement,
if AmeriPath acquires the Other Practice, and a percentage
allocation of Reference-Office Revenues is set pursuant to
this Section 1.2(b)(4), then the "Operating Earnings" for any
Period (or portion thereof) commencing after the allocation is
implemented shall be equal to the Adjusted Gross Revenues,
defined below, multiplied by the Profitability Percentage,
defined below. The "Adjusted Gross Revenues" shall mean the
sum of (i) the Reference-Office Revenues allocated to the
Southwest Florida Division hereunder, and (ii) all other gross
revenues of the Southwest Florida Division, excluding all
Reference-Office Revenues of the Southwest Florida Division.
The "Profitability Percentage" shall be equal to one minus a
fraction, the numerator of which is all of the expenses
attributable to the Southwest Florida Division (as described
in this Agreement), and the denominator of which will be the
actual gross revenues of the Southwest Florida Division
without any reallocation. If, during any twelve month period,
the Reference-Office Revenues allocated to the Southwest
Florida Division fall within the applicable ranges so that
there is no adjustment to the SFD Percentage, but either the
Other Practice or the Southwest Florida Division believe that
there should be a reallocation of the expenses incurred by the
Southwest Florida Division and the Other Practice in
generating the Reference-Office Revenues, because the
allocation of such revenues utilizing the SFD Percentage was
materially different from the actual performance of the two
divisions, then the Sellers, on the one hand, or the Other
Practice, on the other hand, may, by sending written notice to
AmeriPath, cause a representative of the selling shareholders
of the Other Practice a representative of the Sellers to meet
and discuss the disproportionately incurred expenses. The
parties may by mutual agreement, but are not in any way
obligated to, decide to reallocate between the Other Practice
and the Southwest Florida Division, the expenses incurred in
generating their respective Reference-Office Revenues, prior
to performing the
<PAGE> 17
computation of Operating Earnings as described herein.
"Reference-Office Revenues" shall be defined as gross revenues
derived from all anatomic pathology professional and/or
technical services including surgical pathology, gynecologic
and non-gynecologic cytology, bone marrow biopsies, aspirates
and peripheral smear studies, special stains and procedures
including but not limited to immunoperoxidase,
immunofluorescence, and decalcification that are performed on
any patient, specimen or sample referred or originating from
any physician's office, regardless of the physician's employer
(e.g. an independently practicing physician, or a physician
employee of an insurance company, or managed care plan, or
hospital), any free-standing ambulatory surgery center, or by
way of a reference lab service contract (e.g. Smith Kline,
Labcorp). Reference-Office Revenues shall not include services
provided for patients, on specimens or samples referred or
originating from a hospital in-patient or out-patient facility
or ambulatory surgery facility that has a majority ownership
interest held by a hospital, or subsidiary or other affiliate
of a hospital. In addition, Reference-Office Revenues shall
not include revenues derived from clinical laboratory
services. The parties hereto agree that subsequent to the
closing of the acquisition of the Other Practice, they shall
mutually agree on adjustments to the fee schedules of the
respective practices in order to develop a substantially
similar fee schedule for purposes of the calculations set
forth in this Section 1.2(b)(v).
(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 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 guarantee
AmeriPath's ongoing obligations under the Contingent Notes or (ii)
assume the obligations under the Contingent Notes, with AmeriPath
remaining liable if it survives the transaction.
(d) Effect of Acquisitions on Contingent Notes. In the event
that AmeriPath acquires one or more Persons or businesses, 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 (except the anatomic pathology and
reference laboratory and office-based revenues pursuant to Section
1.2(b)(v)), and (ii) any selling, general administrative, or other
expenses which do not relate to SLA or its business (except to the
anatomic pathology and reference laboratory and office-based revenues
pursuant to Section 1.2(b)(v)). Notwithstanding anything to the
contrary herein, in the event AmeriPath or an AmeriPath Affiliate so
acquires one or more Persons or businesses within the SLA Territory,
the Minimum Targets shall be decreased by 12% of the net revenues of
such acquired Person or business (i) during the applicable 12-month
period utilized to compute the valuation of such acquired Person, or
(ii) if no such computation was utilized, then during the 12-calendar
months preceding the calendar month on which AmeriPath entered into a
binding agreement with such acquiree. However, in no event shall
Minimum Target be reduced pursuant to this Section 1.2(d)
<PAGE> 18
to less than $1,365,001, $2,730,002, $4,095,003, $5,460,004, and
$6,825,005 for periods ending September 30, 1997, September 30, 1998,
September 30, 1999, September 30, 2000, and September 30, 2001,
respectively. Any such reduction shall be calculated within 30 days
after the closing date of the acquisition to which it applies. If such
an acquisition occurs during a 12-month period, then the reduction
shall be applicable to the Minimum Target for that portion of the
12-month period that remains after the acquisition and all subsequent
12-month periods. The Applicable Stock Amount for Operating Earnings or
Cumulative Operating Earnings, as applicable, that fall within such
reduced range utilizing the new Minimum Target shall be equal to the
lowest Applicable Stock Amount for such period as set forth on Schedule
1.3, less 5.55 x ([the difference between (i) the lowest stated
Operating Earnings or Cumulative Operating Earnings, as applicable, on
the appropriate Annex to the Contingent Notes, and (ii) the actual
amount of Operating Earnings or Cumulative Operating Earnings, as
applicable, for such period]/100).
(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 immediately converted into non-contingent
promissory notes, payable in the amounts and at the time intervals that
would be applicable pursuant to the Contingent Notes if the Operating
Earnings for the then current 12-month period, and each of the
subsequent 12- month periods, of the Contingent Notes were equal to the
average of the Operating Earnings for all prior full 12-month periods
of the Contingent Notes, provided if such decision occurs during the
first two 12-month periods (i.e. prior to September 30, 1998), then the
Operating Earnings for each 12-month period for purposes of computing
future payments under this Section 1.2(f) shall be deemed to be
$2,275,000. If AmeriPath in good faith deems there to be a legal
problem with Sellers holding any promissory notes of AmeriPath, even
non-contingent notes, then AmeriPath will pay the Sellers in one lump
sum the total principal amounts that would be payable over time
pursuant to the preceding sentence along with interest computed through
the date of such payment. AmeriPath shall
<PAGE> 19
indemnify the Sellers from any and all costs, damage, losses, or
expenses, that may arise as a result of the Contingent Notes violating
any Regulation or Order of any Authority. In its sole and absolute
discretion, AmeriPath may prepay the Contingent Notes by paying, in the
aggregate, $568,750.00 for each year (or portion thereof) remaining
under the Contingent Notes, along with applicable interest as of the
date of prepayment. 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.
(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. Each Seller
shall have the right to respond to such notice, and if any 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 21 days after receipt of such notice of
set-off, the Seller contests in writing (sent to AmeriPath) AmeriPath's
claim of indemnification under Article XI hereof, then the amount which
AmeriPath would
<PAGE> 20
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 binding resolution of such matter in an arbitration held
pursuant to Section 12.16 below, at which time the amount held in such
segregated account, together with any interest accrued thereon, shall
be released to the prevailing party and possibly with a portion
distributed to the non-prevailing party, as and to the extent agreed
upon or instructed by the arbitrator. 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.
(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, provided, however, much of
the text of this Agreement, and in particular this Section 1.2, expands
upon, but does not expressly conflict with, the terms of the Contingent
Notes, and such expansive language herein shall not be deemed a
conflict.
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 379,166 shares of AmeriPath Stock (to be divided
among the Sellers as set forth on Schedule 1.1 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 and as addressed in this
Section 1.3, with respect to each period commencing with 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 and on such
Schedule 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
12-month 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
$1,820,001.00 (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 $3,640,002.00,
$5,460,003.00,
<PAGE> 21
$7,280,004.00 and $9,100,005.00, respectively (together with the First
Year Minimum Stock Target, as relevant to the applicable period, the
"Minimum Stock Targets"), subject to the same adjustments as those to
the Minimum Targets, set forth in Sections 1.2(b)(iv) and (d),
substituting "Minimum Stock Target" for "Minimum Target" therein. If
any Seller contests the amount of AmeriPath Stock paid to the Seller
pursuant to this Section 1.3, the contest and resolution of same shall
be initiated and resolved in the same manner described in Section
1.2(b)(ii) above, with payment of the AmeriPath Stock, if any after any
such dispute paid within 10 days after such resolution in the same
manner as payment under the Contingent Notes.
(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, each Seller shall have the option to either
(i) require that the acquiring Person assume the obligations under the
Stock Rights by converting the rights to receive AmeriPath Stock into
rights to receive stock in the acquiring Person (of substantially
equivalent value, based upon acquisition value, as determined in good
faith by the Board of Directors of AmeriPath) or (ii) convert the Stock
Rights into a subordinated promissory note payable with interest at
prime plus two percent in a principal amount equal to the "stated
value" (as defined below) of the Stock Rights remaining outstanding at
the time of such acquisition. For purposes of this Section 1.3(b), the
"stated value" of the Stock Rights shall be $15.00 multiplied by the
number of shares that would be due and owing in the future if the
Operating Earnings for the current 12- month period and each of the
subsequent 12-month periods of the Stock Rights are equal to the
average of the Operating Earnings for all prior full 12-month periods
of the Stock Rights, provided, if such AmeriPath Acquisition occurs
during the first two 12-month periods, (i.e.occurs before September 30,
1998), then the annual Operating Earnings for purposes of computing the
payment hereunder shall be deemed to be $2,275,000.
(c) Effect of Acquisitions on Stock Rights. In the event that
AmeriPath acquires one or more Persons or businesses, Operating
Earnings will be calculated without including (i) the income generated
by, or expenses incurred in connection with, the acquisition of the
acquired Person or business (except the anatomic pathology and
reference laboratory and office-based revenues pursuant to Section
1.2(b)(v)), and (ii) any selling, general administrative or other
expenses which do not relate to SLA or its business (except the
anatomic pathology and reference laboratory and office-based revenues
pursuant to Section 1.2(b)(v)). Notwithstanding anything to the
contrary herein, in the event AmeriPath or an AmeriPath Affiliate so
acquires one or more Persons or businesses within the SLA Territory,
the Minimum Stock Target shall be decreased in the same manner as the
Minimum Targets pursuant to Section 1.2(d), substituting "Minimum Stock
Targets" for "Minimum Targets." The Applicable Stock Amount for
Operating Earnings or Cumulative Operating Earnings, as applicable,
that fall within such reduced range utilizing the new Minimum Stock
Target shall be equal to the lowest Applicable Stock Amount for such
period as set forth on Schedule 1.3, less 5.55 shares x the
<PAGE> 22
difference between (i) the lowest stated Operating Earnings or
Cumulative Operating Earnings, as applicable, on the appropriate chart
to Schedule 1.3 and (ii) the actual amount of Operating Earnings or
Cumulative Operating Earnings, as applicable, for such period.
(d) Termination of Stock Rights; Call on AmeriPath Stock. For
each period for which SLA'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 reasonable judgment of a
majority of the full Board of Directors of AmeriPath (which judgment is
based upon the advice of counsel), 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 upon the issuance to Sellers of
the number of shares of AmeriPath Stock that Sellers would be entitled
to pursuant to this Section 1.3 if the Operating Earnings for the
current 12-month period and each of the subsequent 12-month periods
through September 30, 2001 were equal to the average of the Operating
Earnings for all prior full 12-month periods, provided if such a
determination is made during the first two 12-month periods (i.e.
before September 30, 1998) then the Operating Earnings for each
12-month period, for purposes of computing the amount of shares of
AmeriPath Stock payable to the Seller(s) hereunder, shall be deemed to
be $2,275,000, or (ii) if it is determined that ownership of AmeriPath
Stock by Sellers could violate a Regulation or Order, then the Stock
Rights may be canceled and all outstanding shares of AmeriPath Stock
issued to or held by the Sellers (and all AmeriPath Stock that would
have been issued to Sellers if AmeriPath had elected to proceed under
"(i)" of this Section 1.3(d)) 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 the
greater of (i) $15 per share of AmeriPath Stock, or (ii) if AmeriPath
Stock is publicly traded on a national exchange, the average closing
price for AmeriPath Stock on the applicable exchange for the ten
consecutive trading days immediately preceding the date of AmeriPath's
determination to call the AmeriPath Stock and Stock Rights. AmeriPath
shall give the Sellers written notice of any such election not less
than three (3) business days prior to the closing 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
or Stock Rights 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
<PAGE> 23
AmeriPath Stock so called shall be satisfied and released, to the
reasonable 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 Right are not transferable by the Sellers other
than by will or the laws of intestate succession, in accordance with
Purchaser's Shareholders' Agreement, or in accordance with applicable
securities laws including but not limited to Rule 144. 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. Sellers shall have the rights and
obligations of a Common Shareholder pursuant to the Shareholders'
Agreement. As a condition to the issuance of shares of AmeriPath Stock
in connection with any Stock Rights (and 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
reasonably satisfactory to AmeriPath and Sellers, and the Sellers shall
make such commercially reasonable 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 pursuant to the Stock
Right shall bear the following (or similar) restrictive legend,
together with such other legend(s) as the Purchaser shall in its
discretion deem appropriate, provided such additional legends may not
contain any restrictions on Sellers, unless imposed by this Agreement,
the Purchasers' Shareholders' Agreement, or applicable law:
"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 of
AmeriPath, Inc. 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, Inc. 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, Inc. 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
<PAGE> 24
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 reasonably 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 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 by Sellers 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 as 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.
<PAGE> 25
(m) Put Option of Sellers. Notwithstanding anything to the
contrary set forth in this Agreement, each Seller shall have an
exclusive and irrevocable option, exercisable by notice to the
Purchaser given no later than February 15, 2002 (or, with respect to
disputed amounts only, if any, within thirty (30) days after the
resolution of a dispute with respect to the final contingent payments),
to sell to the Purchaser for $15.00 per share (and thus to require the
Purchaser to purchase) all, but not less than all, of the AmeriPath
Stock owned or held by such Seller(s), if, and only if, the AmeriPath
Stock is not, on such date, traded on the American Stock Exchange, New
York Stock Exchange, or quoted on the Nasdaq National Market. The
Purchaser hereby irrevocably agrees to purchase and acquire such
AmeriPath Stock on the terms and subject to the conditions set forth
herein.
(n) All Cash Option of Sellers. Notwithstanding anything to
the contrary set forth in this Agreement, if, and only if prior to the
second anniversary of the Closing Date, AmeriPath Stock is not traded
on the American Stock Exchange, New York Stock Exchange, or quoted on
the Nasdaq National Market, each Seller shall have an exclusive and
irrevocable option, exercisable by notice to the Purchaser given 30
days prior to any issuance of AmeriPath Stock under the Stock Rights,
to receive from the Purchaser, instead of all, but not less than all,
the AmeriPath Stock that such Seller(s)s is/are entitled to receive
under this Section 1.3, the value of such AmeriPath Stock that the
Seller(s) is/are entitled to receive as set forth on Schedule 1.3 (and
thus to require the Purchaser to make the contingent purchase price
payment in cash and not in AmeriPath Stock). For purposes of the
preceding sentence "value" shall be deemed to mean $15 per share.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND SLA
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 material correctness and completeness of each of such representations
and warranties notwithstanding any independent investigation):
2.1 Corporate Organization, Qualification, etc. SLA is a professional
service 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 to own, operate and lease
its properties and assets as they are currently owned, operated, and leased. SLA
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 SLA's business, the 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). SLA's
articles of incorporation have not been amended or supplemented since January 1,
1984 other than as required pursuant to Section 4.9 below, and are in full force
and effect as of the date hereof.
<PAGE> 26
True, complete and correct copies of SLA's articles of incorporation and
by-laws, as presently in effect, are attached hereto as Exhibit 2.1.
2.2 Subsidiaries. Except as listed on Schedule 2.2, SLA 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 SLA consists of ONE HUNDRED (100) shares, $1.00 per share par value. The
stock record book of SLA 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 SLA
Shares constitute all of the issued and outstanding shares of capital stock of
SLA, and all of the SLA Shares are owned beneficially and of record by the
Sellers.
2.4 Corporate Record Books. The corporate minute books of SLA have been
made available to the Purchaser, are complete and correct in all material
respects and contain all of the documented and material proceedings of the
shareholders and directors of SLA.
2.5 Title to Stock. All of the issued and outstanding shares of the
capital stock of SLA 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 SLA Shares, free and clear of all
Liens or contractual restrictions or limitations whatsoever.
2.6 Options and Rights. Except as set forth in Schedule 2.6, there are
no outstanding subscriptions, options, warrants, rights, securities, contracts,
commitments, understandings or arrangements under which SLA is bound or
obligated to issue any additional shares of its capital stock or rights to
purchase shares of its capital stock. Except as set forth on Schedule 2.6, other
than the Shareholders' Agreement (which will be canceled prior to the Closing),
there are no agreements, arrangements or understandings between the Sellers
and/or SLA and any other Person regarding the SLA Shares (or the transfer,
disposition, holding or voting thereof).
2.7 Authorization, Etc. SLA 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 SLA 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 SLA and the Sellers, enforceable against each such party in accordance
with their respective terms, except as may otherwise be limited under any
applicable state or federal bankruptcy laws or laws affecting creditors rights
generally.
<PAGE> 27
2.8 No Violation. The execution and delivery by SLA 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
SLA and the Sellers do not and will not, (a) conflict with or result in a
material breach of the terms, conditions or provisions of, (b) constitute a
material 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 SLA pursuant to, (d) give any third party the right to accelerate any
material obligation under, (e) result in a material 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
SLA or any Regulation, Order or Contract (as defined in Section 12.3) to which
SLA or the Sellers are subject. SLA and the Sellers will comply with all
applicable Regulations and Orders imposed upon them 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 SLA: (i) Balance sheets (prepared on a
modified cash basis) for the fiscal years ended December 31, 1994 and 1995, and
the six months ended June 30, 1996 (the "Balance Sheets"), and (ii) statements
of revenues and expenses (prepared on a modified cash basis) for the fiscal
years ended December 31, 1995 and 1996 and the six months ended June 30, 1996
(the "Statements of Revenues and Expenses" and, collectively with the Balance
Sheets and the Statements of Revenues and Expenses, the "Financial Statements").
To the best of the Sellers' knowledge, the balance sheets included in the
Financial Statements fairly present the financial position of SLA on a modified
cash basis as at the respective dates thereof, and the statements of revenues
and expenses included in the Financial Statements (x) fairly present in all
material respects the results of operations for the periods therein referred to,
on a modified cash basis applied on a consistent basis, and (y) fairly present
in all material respects the financial condition of SLA at the respective date
of on a modified cash basis, and for the period covered by, such statements. To
the best of the Sellers' knowledge SLA has no material 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, disclosed on Schedule 2.9(a) attached
hereto, (ii) liabilities covered by insurance or reinsurance (a complete and
detailed description of which is provided in Schedule 2.9(b)), and (iii) any
liabilities of SLA disclosed to Purchaser throughout this Agreement or in the
Schedules and Exhibits hereto. Schedule 2.9(c) contains a complete list of the
accounts payable of SLA.
2.10 Employees. To the best of the Sellers' knowledge, SLA has been for
the past four years, and currently is, in material compliance with all
applicable Federal, State and local Regulations and Orders affecting and
applicable to the employment and employment practices of SLA (including those
Regulations promulgated by the Equal Employment Opportunity Commission),
including terms and conditions of employment and wages and hours. SLA does
maintain "pension" and "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, prospects, financial
<PAGE> 28
condition, revenues, expenses, accounts receivable, accounts payable or
operations of SLA; (b) any damage, destruction or loss, whether covered by
insurance or not, having a Material Adverse Effect, with regard to SLA's
properties and business; (c) any payment by SLA to, or any notice to or
acknowledgment by SLA of any amount due or owing to, SLA's self-insured carrier,
if any, in connection with any self-insured amounts or liabilities under health
insurance covering employees of SLA, in each case, in excess of a reserve
therefor on the balance sheet for the fiscal year ended December 31, 1995
included in the Financial Statements; (d) any declaration, setting aside or
payment of any dividend or distribution of tangible property in respect of SLA's
capital stock; (e) any material increase other than the ordinary course of
business in the rate of compensation or in the benefits payable or to become
payable by SLA 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 SLA; (g) any entry into any
material Contract not in the ordinary course of business, other than at the
recision of Mark Mangano, M.D.'s arrangement including without limitation
relating to any borrowing or capital expenditure; (h) any disposition by SLA of
any asset; or (h) any change by SLA in accounting methods or principles. Nothing
in this Section 2.11 shall be violated by SLA reimbursing its employees for
business expenses and paying discretionary bonuses to its employees, provided
there is cash on hand on the closing, as required pursuant to Section 2.31.
2.12 Contracts.
(a) Except as listed in Schedule 2.12 hereto, SLA is neither a
party to nor subject to any written:
(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 SLA without
penalty or other financial obligation (and, except for
contracts listed on Schedule 2.12, no officer or employee of
SLA receives total salary, bonus and other compensation from
SLA of $30,000.00 or more per annum).
(iii) Contract containing covenants or agreements
limiting the freedom of SLA or any of its employees to compete
in any line of business presently conducted by SLA with any
Person or to compete in any such line of business in any area;
<PAGE> 29
(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 of SLA;
(vi) Contract under which SLA 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 SLA;
(viii) guarantee or endorsement of any obligation;
(ix) Contract under which SLA is a 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 SLA is lessor of or
permits any third party to hold or operate any property, real
or Personal, owned or controlled by SLA;
(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 SLA;
(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;
<PAGE> 30
(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 SLA'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 SLA without penalty or other
financial obligation, and (z) in each case, involve aggregate
payments by or to SLA of $7,500.00 or less.
(b) To the best of the Seller's knowledge 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) To the best of the Sellers' knowledge, SLA 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 Contract to which
SLA 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 SLA is subject (including without limitation all performance
bonds, warranty obligations or otherwise); SLA does not have any
present expectation or intention of not fully performing all such
obligations; and SLA 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.
(d) Oral Arrangements. Other than as set forth on Schedule
2.12 and the supplement provided thereto, there are no material oral
arrangements of SLA known to Sellers.
2.13 True and Complete Copies. Copies of all Contracts and documents
delivered and to be delivered hereunder by the Sellers or SLA, to the best of
the Sellers' knowledge, are and will be true and complete copies of such
agreements, contracts and documents.
2.14 Title and Related Matters.
(a) To the best of the Sellers' knowledge, SLA has good and
marketable title to all of the properties and assets reflected in the
balance sheet for the fiscal year ended July 31, 1996 included in the
Financial Statements or acquired after the date thereof, free
<PAGE> 31
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 July 31, 1996 included in Financial
Statements.
(b) SLA owns, and will on the Closing Date own, good and
marketable title to all the material 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
material default thereunder. To the Sellers' best knowledge, except as
disclosed in this Agreement, none of the assets belonging to or held by
SLA is or will be on the Closing Date subject to any (i) Contracts of
sale or lease, or (ii) Liens. All machinery and equipment currently
used by SLA in the conduct of its business is in operating condition
and repair, ordinary wear and tear expected.
(c) Except as disclosed herein, there has not been since July
31, 1996, and will not be prior to the Closing Date, any sale, lease,
or any other disposition or distribution by SLA of any of its assets or
properties and any other assets now owned by it, except transactions in
the ordinary and regular course of business or as otherwise consented
to by the Purchaser. To the best of the Sellers' knowledge, after the
Closing, SLA, as the wholly-owned subsidiary of the Purchaser, will
own, or have the right to use, all properties and assets that are
currently used in connection with the business of the Sellers, with the
same rights and in the same manner that they were used prior to the
Closing Date.
(d) Schedule 2.14 attached hereto sets forth a description of
all real and material personal property owned or leased by SLA.
2.15 Litigation. Except as set forth on Schedule 2.15, there is no
Claim (as defined in Section 12.3) pending or, to the best knowledge of the
Sellers and SLA, threatened against either the Sellers or SLA which, if
adversely determined, would have a Material Adverse Effect on SLA. Nor is there
any Order outstanding against either the Sellers or SLA having, or which,
insofar as can reasonably be foreseen, in the future may have, a Material
Adverse Effect on SLA.
2.16 Tax Matters.
(a) SLA 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
<PAGE> 32
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 SLA may be a
party. All Taxes required to be paid for all periods prior to and
including the Closing Date have been paid, including any of SLA'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 SLA 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 SLA except for liens for Taxes not yet due and payable.
Neither the Sellers nor SLA 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) No audit of SLA or SLA's Tax Returns by any Taxing
Authority is currently pending or to the best of the Sellers' knowledge
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 SLA 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 SLA on the Tax Returns
filed by or on behalf of SLA for all taxable years (including the
supporting schedules filed therewith), available copies of which have
been supplied to the Purchaser, in all material respects state
accurately the information requested with respect to SLA and such
information was derived from the books and records of SLA.
(c) SLA 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 SLA 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 SLA shall pay all Taxes due in respect of such
Pre-closing Tax Returns to the appropriate Taxing Authority; and SLA
shall pay all costs associated with the preparation thereof.
2.17 Compliance with Law and Applicable Government Regulations. To the
best of the Sellers' knowledge, SLA 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, applicable Health Care Laws (as defined in Section 12.3), all
applicable Regulations relating
<PAGE> 33
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 SLA
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 SLA, 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 required
permits, licenses, provider numbers, orders, franchises and approvals
(collectively, "Permits") from all Federal, state, local and foreign
governmental regulatory bodies held by SLA. The Permits listed on
Schedule 2.17(a) are the only Permits that are required for SLA 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 SLA. To the best of the Sellers' knowledge, each such Permit is in
full force and effect and, to the best of the knowledge of SLA, 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) SLA has all required 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
SLA in the jurisdictions in which SLA 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 SLA 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 SLA, nor any ERISA Affiliate of
SLA, 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); or
(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).
<PAGE> 34
For purposes of this Section, the term "ERISA
Affiliate" shall mean any trade or business, whether or not
incorporated, that together with SLA 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 SLA, 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, SLA 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 SLA nor any ERISA Affiliate of
SLA 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 SLA'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.
(d) Prior to the Closing Date, SLA shall take the necessary
steps to approve termination of SLA's Pension Benefit Plan. After the Closing
Date, the Sellers, who are the Trustees of the Pension Benefit Plan, will
commence winding up and terminating such plan upon Internal Revenue Service
approval of paying out all plan account balances to the participants (or to the
participants IRA's). Neither Purchaser, nor SLA after the Closing Date, shall
have any
<PAGE> 35
rights in the SLA's Pension Benefit Plan, trust accounts, or proceeds therefrom,
which accounts shall belong solely to the applicable employee.
2.19 Intellectual Property.
(a) Except as set forth on Schedule 2.19, SLA has no trade
name, service mark, patent, copyright or trademark related to its
business.
(b) SLA has the right to use each Proprietary Right listed in
Schedule 2.19, and except as otherwise set forth therein, each of such
Proprietary Right 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
and 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) SLA 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) Licensed Software. To the best of the Sellers'
knowledge, the current software applications used by SLA in
the operation of its business (the "Software") to the extent
it is licensed from any third party licensor or constitutes
"off-the-shelf" software, is held by SLA legitimately. To the
best of the Sellers' knowledge, all of SLA's computer hardware
has legitimately-licensed software installed therein, to the
extent licensing is required.
2.20 Environmental Matters. Except as disclosed in Schedule 2.20: To
the Sellers' best knowledge, (a) neither SLA'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 which, with
notice or the passage of time or both, would constitute a violation of any
Environmental Law; (b) SLA 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 SLA's business (or any part thereof), and SLA is in full
compliance with all of the requirements and limitations included in such
Environmental Permits; (c) SLA 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 which are used or to be
used in the ordinary course of SLA'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) SLA has
not received any notice from any Authority or any private Person that SLA'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
<PAGE> 36
any of SLA's property, or at, on or beneath any land adjacent thereto or in
connection with any waste or contamination site; (e) SLA 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 SLA; (f) SLA 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 SLA'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 SLA's property; (h) no property now or
previously owned, leased or operated by SLA, 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 SLA; (j) SLA 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 Priories List pursuant to CERCLA, on the
CERCLIS or on any for listing 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 against SLA 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 SLA. To the Sellers' best
knowledge, SLA 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 existing written agreements and
arrangements between SLA and any one or more Affiliates of SLA.
2.22 Banking Arrangements. Schedule 2.22 attached hereto sets forth the
name of each bank in or with which SLA, as of the Closing Date, 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 as of the Closing Date, to draw thereon or having access thereto. SLA
has no material liability or obligation relating to funds or money borrowed by
or loaned to SLA (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 SLA
as of the date hereof. To the best of the Sellers' knowledge, such policies are
valid, outstanding and enforceable policies, as to which premiums have been paid
currently. Neither SLA 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
<PAGE> 37
SLA 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 SLA.
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, of which Sellers are aware are required to be received by
or on the part of SLA and the Sellers to enable SLA 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 reasonably 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 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; it is possible that
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 except pursuant to
<PAGE> 38
Purchaser's Shareholders Agreement (for so long as same remains in
effect), and may not be sold without an opinion of counsel delivered
and reasonably satisfactory to AmeriPath that registration under the
Securities Act or any applicable state securities law 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 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.
<PAGE> 39
(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 SLA
reflected on Schedule 2.26 attached hereto on the date hereof 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. Since December 31, 1995, supplies have been
purchased by SLA 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. SLA is not aware of any material adverse
conditions affecting the supply of materials available to SLA, and, to the best
knowledge of SLA, the consummation of the transactions contemplated hereby will
not adversely affect any such supply.
2.27 Brokerage. Neither SLA 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 SLA 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, to the Sellers' best knowledge, (a) neither SLA, any director, officer,
employee thereof, nor, to SLA's knowledge, any agent or representative of SLA
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 SLA
are believed by SLA's management to be adequate to detect any of the foregoing
acts by SLA under current circumstances.
2.29 Participation in Audits. Except as set forth in Schedule 2.29, SLA
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 SLA 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 SLA prior
to the Closing Date. 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 SLA and the Sellers threatened by any third-party
payor or governmental authority having jurisdiction over SLA for amounts arising
from or related to payments to SLA 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 SLA's knowledge, SLA and its officers,
directors, employees, shareholders and providers, have not
intentionally engaged in any activities which are
<PAGE> 40
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 materially 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. To the best of the Sellers' knowledge,
all Contracts with third-party payors were entered into by SLA in the
ordinary course of business. To the best of the Sellers' knowledge, SLA
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 SLA (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), to the best of the Sellers' knowledge, SLA is in
compliance with each third-party payor's Contract, and SLA 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. To the
best of the Sellers' actual knowledge, SLA 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 SLA 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 SLA. Except as set forth on
Schedule 2.30(c) hereto, there are no Claims pending or, to SLA'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 SLA on or before the Closing Date, or program
compliance matters, which would have a Material Adverse Effect on SLA,
or its assets, the operations or utility thereof, or the consummation
of the transactions contemplated hereby. SLA has delivered to the
Purchaser accurate and
<PAGE> 41
complete copies of any Claims, actions or appeals listed on Schedule
2.30(c). Except for routinely scheduled reviews pursuant to SLA's
Medicare and Medicaid Contracts, no valid review or program integrity
review related to SLA has been conducted by any Authority in connection
with the Medicare or Medicaid programs and no such review is scheduled,
or to SLA's knowledge, pending or threatened against or affecting SLA,
its business, assets, or the consummation of the transactions
contemplated hereby.
(d) Rate Limitations and Rates. To the best of the Sellers'
knowledge, each facility currently operated by SLA charges rates and
accordingly bills for services which are legal and proper, and SLA'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 to the best of the Sellers'
knowledge, are set forth on said Schedule 2.30(d).
(e) Reimbursement Documentation. To the best of the Sellers'
knowledge, SLA 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 material compliance with applicable
contractual provisions and/or laws, regulations and rules.
(f) Patient Referrals. No Person having a "financial
relationship" with SLA, 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 SLA, other than referrals which comply with, or fall within
an exception of, 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, SLA shall
have cash on hand equal to $50,000.00.
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 SLA 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. Any document or item disclosed by
Sellers to Purchaser in this Agreement, or in a Schedule or Exhibit hereto,
shall be deemed disclosed for all purposes including other sections of the
Agreement which may require disclosure of such document or item. Each Seller
makes the representations and warranties in this Article II as to himself and
SLA. Accordingly each Seller is only individually responsible for the
representations made as they relate to each such Seller(s) and is jointly and
severally responsible for the representations made as they relate to SLA, but is
not responsible for any inaccuracy of the representations and warranties made by
the other Seller(s), but rather solely such other Seller(s) shall be responsible
for the inaccurate representation or warranty that related to him (them).
<PAGE> 42
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 the State of
Delaware 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, and 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. True, complete and correct copies of Purchaser's and AmeriPath
Florida's charters and by-laws, as presently in effect, are attached as Exhibit
3.1.
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
except as may otherwise be limited under any applicable state or federal
bankruptcy laws or laws affecting creditors rights generally.
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 material
breach of the terms, conditions or provisions of, (b) constitute a material
default or event of default under (with due notice, lapse of time or both), (c)
give any third party the right to accelerate any material obligation under, (d)
result in a material violation of, or (e) 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 imposed upon it in connection with its
execution, delivery and performance of this Agreement and the transactions
contemplated hereby.
<PAGE> 43
3.5 Governmental Authorities; Consents. 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, or obtain any consent from, any Authority
in connection with its execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby. To Purchaser's knowledge,
no authorization, consent, approval, exemption or notice is required to be
obtained by the Purchaser from any Authority or from any other party 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 and
free from all Liens or contractual restrictions or limitations whatsoever,
except as set forth in this Agreement and Purchaser's Shareholders' Agreement or
as otherwise created by a Seller.
3.7 Additional Purchaser Representations: Books and Records; 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") have been delivered to the Sellers. 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.
3.8 Compliance. To the best of Purchaser's knowledge, Purchaser has not
failed to comply with any applicable Regulation or Order which could result in a
material adverse effect to its business, operations or financial position.
3.9 Capitalization. Schedule 3.9 hereto sets forth the Purchaser's
authorized, issued and outstanding securities, as well as its outstanding
options with respect to its securities pursuant to Purchaser's stock option
plan, and securities reserved for issuance pursuant to completed acquisitions
each as of the date hereof.
3.10 Litigation. Other than as described in Schedule 3.10, there is no
Claim (as defined in Section 12.3) pending or, to the best knowledge of the
Purchaser, threatened against the Purchaser which, if adversely determined,
would have a material adverse effect on Purchaser. Nor is there any Order
outstanding against the Purchaser having, or which, insofar as can reasonably be
foreseen, in the future may have, a material adverse effect on Purchaser.
<PAGE> 44
3.11 No Additional Seller Representations. Purchaser has been offered
the opportunity to ask questions of, and receive answers from, the Sellers, and
the Purchaser has been given access to available information and data relating
to the business and assets of SLA, has obtained such additional information
about SLA which the Purchaser has deemed necessary in order to evaluate the
opportunities, both financial and otherwise, with respect to SLA and, other than
statements made in the Agreement, has not relied on any representation, warranty
or other statement of Sellers or SLA concerning SLA or the SLA Shares, in its
evaluation of the decision to consummate the transactions contemplated herein.
Purchaser has had an opportunity to review and is familiar with the Contracts of
SLA which SLA and Sellers have provided to Purchaser prior to the Closing Date.
On the basis of the foregoing, to Purchaser's knowledge, it is familiar with the
operations, business, and financial condition of SLA.
3.12 Tax Matters.
(a) Purchaser has filed all Tax Returns required to be filed
with any Taxing Authority in respect of all relevant Taxes and in
accordance with all tax sharing agreements to which any Purchaser may
be a party. There are no Liens for Taxes upon any property or assets of
Purchaser except for liens for Taxes not yet due and payable. The
Purchaser has not 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.
(b) No audit of Purchaser's Tax Returns by any Taxing
Authority is currently pending or to the best of Purchaser's knowledge
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 Purchaser 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.
3.13 Dealing with Affiliates. Schedule 3.13 hereto sets forth a
complete list, including the parties, of all current material written agreements
and arrangements between Purchaser and any of its executive officers, directors
or holders of 5% or more of Purchaser's outstanding securities.
<PAGE> 45
3.14 Disclosure. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items prepared
for or supplied to the Sellers by or on behalf of the Purchaser 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 IV
COVENANTS OF THE SELLERS
From the date hereof until the Closing, except in the ordinary course
of business, or as otherwise consented to or approved by the Purchaser in
writing, which consent shall not be unreasonably withheld, SLA covenants and
agrees that it shall act, and the Sellers shall cause SLA to so act or refrain
from acting where required hereinafter, to comply with the following:
4.1 Regular Course of Business. SLA shall operate its business
diligently and in good faith and in the ordinary and usual course, materially
consistent with past management practices; shall maintain all of its respective
material properties in the same order and condition as of the date hereof, shall
maintain (except for expiration due to lapse of time) all material leases and
Contracts in effect without change except as expressly provided herein; shall
materially comply with the provisions of all Regulations and Orders applicable
to SLA and the conduct of its 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; and shall materially preserve the
business of SLA intact, and use its reasonable best efforts to keep available
for SLA and the Purchaser the services of the officers and employees of SLA, and
to preserve the good will of clients, patients, suppliers and others having
business relations with SLA.
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
SLA. SLA 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, SLA 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 SLA
shall not pledge or otherwise encumber any shares of its capital stock.
4.4 Dividends. SLA shall not declare, pay or set aside for payment any
dividend or other distribution in respect of its capital stock, nor shall SLA,
directly or indirectly, redeem, purchase or otherwise acquire any shares of its
capital stock, other than clarifying and documenting the lack of any equity
interest of Mark Mangano, M.D. in SLA.
<PAGE> 46
4.5 Capital and Other Expenditures. SLA shall not make any material
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.
4.7 Borrowing. SLA 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 such 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, SLA shall not enter into any material transaction or make any
commitment or incur any material obligation (including entering into any real
property leases).
4.9 Amendments to Charter. Prior to the Closing, the Sellers shall
cause SLA'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 SLA's capital stock. All of
such amendments (together, the "SLA Charter Amendments") shall be in form and
substance reasonably satisfactory to AmeriPath.
4.10 Full Access and Disclosure.
(a) SLA shall afford to the Purchaser and its counsel,
accountants and other authorized representatives reasonable access
during business hours to SLA's facilities, properties, books and
records, subject to all applicable confidentiality agreements, in order
that the Purchaser may have full opportunity to make such reasonable
investigations as it shall desire to make of the affairs of SLA,
provided such investigations do not interfere with the ordinary course
of SLA's business; and the Sellers shall cause SLA'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 SLA made by SLA's independent
auditors in connection with any examination of SLA's Financial
Statements and books and records.
(b) From time to time prior to the Closing Date, SLA 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.
<PAGE> 47
(c) In connection with any "due diligence" examination
performed by the Purchaser with respect to the business of SLA, the
Sellers shall fully cooperate with the Purchaser.
4.11 Confidentiality. Commencing on the date hereof through and
including the Closing Date or termination of this Agreement, the Sellers and SLA
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 SLA shall
intentionally take any action which, if taken on or prior to the Closing Date,
would constitute a material breach of this Agreement.
4.13 Fulfillment of Conditions Precedent. SLA 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 in
connection with the transactions contemplated by this Agreement in order to
fully and expeditiously consummate the transactions contemplated by this
Agreement.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with SLA 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 SLA'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 SLA 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, subject to applicable confidentiality
agreements, 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, provided such investigations do not interfere
with the ordinary course of Purchaser's
<PAGE> 48
business; 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
SLA 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 SLA 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.
5.3 Breach of Agreement. Purchaser shall not intentionally take any
action which, if taken on or prior to the Closing Date, would constitute a
material breach of this Agreement.
5.4 Fulfillment of Conditions Precedent. Purchaser shall use its best
efforts to obtain at its 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 in connection with the
transactions contemplated by this Agreement in order to fully and expeditiously
consummate the transactions contemplated by this Agreement.
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
reasonably 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 September 30, 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 reasonably necessary, desirable or proper to
vest, perfect or confirm, of record or otherwise, in the Purchaser (or SLA, 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
<PAGE> 49
or proper to vest, perfect or confirm title to such property or rights in SLA
and otherwise to carry out the purpose of this Agreement. Likewise, at any
Sellers' request, after the Closing Date, Purchaser shall perform such
reasonable acts that are necessary to fully perform all obligations of Purchaser
hereunder and to otherwise carry out the purposes 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 reasonably 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 SLA 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, SLA (other than terminating any interest that Dr. Mangano may have
in SLA), 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.
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.
6.6 Employment Agreements. SLA and the Sellers shall, at or prior to
the Closing, terminate the existing employment agreements between SLA 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 Purchaser, the Sellers nor SLA nor
any Affiliate, representative or shareholder of any 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 mutual
<PAGE> 50
approval of the Purchaser and the Sellers. 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 and the Sellers' request and without expense to SLA or the
Sellers, respectively, and without further consideration from the requesting
party, the Sellers and the Purchaser shall execute and deliver such other
instruments of conveyance and transfer and take such other action as the
Purchaser or the Sellers 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, and to
effectuate all of the Sellers' entitlement to the Purchase Price 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 30
miles from any facility in which DSLA operated as of the date
of the Closing Date; provided, however, that such radius shall
not be less than the SLA Territory (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 known to Seller to be a prospective
customer, client or patient of an AmeriPath Affiliate with
whom such AmeriPath Affiliate is engaged in discussions;
except that it shall not be a violation of this Section 6.9
for the Sellers 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.
(b) As used in this Agreement, the term "Restricted Period"
for each Seller, shall mean and include a period of five (5) years,
from the Closing to the fifth (5th) anniversary of the Closing;
provided, however, should the Purchaser (i) fail to make any payments
of money or AmeriPath Stock required under this Agreement, the Secured
<PAGE> 51
Notes, the Contingent Notes or such Seller's Employment Agreement, and
such failure shall continue for a period of 45 days following notice of
such non-payment or (ii) terminate such Seller's Employment Agreement
without cause, the Restricted Period for such Seller shall equal zero
(0) days.
(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.
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 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,
<PAGE> 52
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, (b) any
information obtained by Sellers separate and apart from their
association or involvement with an AmeriPath Affiliate and (c) 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, other than in the
ordinary course of business as needed to perform the Seller's normal
functions for the AmeriPath Affiliate. Each Seller further agrees that
while employed at an AmeriPath Affiliate, no Confidential Information
shall be removed from the AmeriPath Affiliate's business premises,
other than in the ordinary course of business and as needed to perform
the Seller's normal functions for the AmeriPath Affiliate, 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,
<PAGE> 53
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 Exchange Act of 1934, as amended, and
listed or quoted for trading by a national securities exchange or inter-dealer
quotation system, AmeriPath will ensure that AmeriPath is in compliance with the
requirements of Rule 144 under the Securities Exchange Act of 1934, as amended,
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 Real Estate. The Purchaser, at the Closing, shall purchase and
acquire from the Partnership, the Assets of the Partnership. The Partnership, by
executing and delivering this Agreement, agrees to sell, transfer and convey the
Assets to the Purchaser on the terms of this Section 6.12, subject to the
conditions of this Agreement. The Partnership and AmeriPath Florida shall enter
into a seven (7) year lease (the "Lease"), a form of which is attached as
Exhibit 6.12 hereto, to lease the facility SLA is presently utilizing for a fair
market value rent of $10/square foot, plus all real estate taxes and condominium
assessment fees. An appropriate Bill of Sale shall be executed and delivered by
the Partnership to the Purchaser to transfer the Assets.
6.13 Delivery of Purchaser Statements. Purchaser covenants that,
commencing on the Closing Date through and including March 31, 2002, Purchaser
shall deliver to each Seller (without the need for each Seller to request such
delivery) copies of Purchaser's monthly, quarterly and annual financial
statements and all amendments thereto, the annual financial statement to be
audited by independent public accountants, at such times as such financial
statements are finalized. Purchaser covenants that such financial statements
shall be prepared in accordance with general accepted accounting principles and
will fully and fairly reflect the Purchaser's financial position and financial
results as of their dates. Purchaser further covenants
<PAGE> 54
to provide to each Seller from time to time, after Closing Date and until March
31, 2002, such other information about the Purchaser's business, operations,
financial position and capitalization as each such Seller shall reasonably
request in connection with such Seller's acquisition of AmeriPath Stock pursuant
to Section 1.3 hereof.
6.14 Stock Options. Subject to the approval of the Board of Directors
of AmeriPath, AmeriPath shall grant non-statutory options (the "Options") to
purchase an aggregate of 15,000 shares of AmeriPath Stock to the persons
designated by the Managing Director of the Southwest Florida Division in his
discretion, such designation to made promptly after the Closing. 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 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.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
Each and every material obligation of the Purchaser under this
Agreement shall be subject to the satisfaction in all material respects, 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 SLA to the Purchaser, 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 Sellers and SLA shall have performed and complied in all material
respects 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 SLA
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 Sellers and SLA shall have obtained all
required consents, approvals, waivers or other authorizations with respect to
the execution, delivery and performance of this Agreement by Sellers and SLA 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
<PAGE> 55
assignment, payment, increase in rates or compensation payable, penalty,
interest or other adverse effect) from and after the Closing Date in materially
the same manner as such contracts and leases operated and were in effect before
the Closing Date.
7.4 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 of SLA, certifying to the foregoing.
7.5 Employment Agreements. The Sellers shall have terminated their
existing employment agreements with SLA 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.
7.6 Opinion of Seller's Counsel. The Purchaser shall have received an
opinion of counsel to the Sellers and SLA (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 Delivery of SLA 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 SLA
Shares, duly endorsed for transfer to the Purchaser, together with stock powers
duly executed in blank.
7.8 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 and
entitled to all of the rights of the Shareholders' Agreement, in accordance with
their terms, to the same extent as if he had been an original signatory thereto,
for so long as such agreement is valid.
7.9 Subordination Agreement. At the Closing, the Sellers shall have
executed and delivered the Subordination Agreement, attached hereto as Exhibit
7.8, pursuant to which each Seller agrees to be bound by all of the provisions
of the Subordination Agreement in accordance with their terms.
7.10 SLA Charter Amendments. SLA, 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 SLA's articles of
incorporation, which amendment (i) shall be in form and substance reasonably
satisfactory to AmeriPath, and (ii) shall include the SLA Charter Amendments (as
such term is defined in Section 4.9 hereof).
<PAGE> 56
7.11 Creditors. The creditors and amounts set forth on Schedule 7.11
hereto are the correct amounts owed in order for such creditors to have been
paid in full and release all Liens, if any, in favor of such creditors.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
Each and every material obligation of the Sellers under this Agreement
shall be subject to the satisfaction in all material respects, 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 executed and
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 Material Adverse Change. There shall have been no material adverse
change since the date of this Agreement. The Sellers shall have received a
certificate (which shall be addressed to the Sellers), dated the Closing Date,
of the president of SLA, certifying to the foregoing.
8.4 Third Party Consents. The Purchaser shall have obtained all
required consents, approvals, waivers or other authorizations with respect to
the execution, delivery and performance of this Agreement by Purchaser and the
consummation of the transactions contemplated hereby.
8.5 Purchase Consideration. The Sellers shall have received from the
Purchaser the consideration (in the form of cash, AmeriPath Stock 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.
8.6 Employment Agreements. AmeriPath Florida shall have executed and
delivered to each of the Sellers the Employment Agreements.
<PAGE> 57
8.7 Opinion of Purchaser's Counsel. The Sellers shall have received an
opinion of counsel to the Purchaser, dated the Closing Date, in the form of
Exhibit 8.7 hereto.
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 11, 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,
(a) the Sellers and SLA shall deliver or cause to be
delivered to the Purchaser:
(i) a certificate or certificates (or affidavits of
lost certificates) evidencing all of the SLA Shares, duly
endorsed for transfer with all necessary transfer stamps
affixed;
(ii) the Officer's Certificates required by Sections
7.1 and 7.4;
(iii) copies of all consents and approvals required
by Sections 7.3, and 7.10;
(iv) the Opinion of Counsel required by Section 7.6;
(v) the Employment Agreements required by Section
7.5;
(vi) the counterpart signature pages to the
Shareholders' Agreement required by Section 7.7;
(vii) the Subordination Agreement required by Section
7.8;
(viii) a certificate, signed by the secretary of SLA,
as to the articles of incorporation and by-laws of SLA, the
resolutions adopted by the board of directors and shareholders
of SLA in connection with this Agreement, the incumbency of
certain officers of SLA and the jurisdictions in which SLA is
qualified to conduct business, in form reasonably 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 SLA 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
<PAGE> 58
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
SLA 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 the 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) copies of all consents and approvals required
by Section 8.4;
(iii) the Officer's Certificate required by Section
8.1;
(iv) the Employment Agreements required by Section
8.6;
(v) the Opinion of Counsel required by Section
8.7;
(vi) a certificate, signed by the secretary of
Purchaser, as to the articles of incorporation and by-laws of
Purchaser, the resolutions adopted by the board of directors
and shareholders of Purchaser in connection with this
Agreement, the incumbency of certain officers of Purchaser and
the jurisdictions in which Purchaser is qualified to conduct
business, in form acceptable to SLA.
(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 Purchaser and AmeriPath Florida 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
Delaware and Florida, respectively, and as a foreign
corporation authorized to do business under the laws of the
various jurisdictions where it is so qualified; and
(viii) such other certified resolutions, documents
and certificates as are required to be delivered by the
Purchaser pursuant to the provisions of this Agreement.
(c) The Partnership shall deliver to the Purchaser:
(i) the Assets
(ii) the Bill of Sale; and
<PAGE> 59
(iii) the Lease
(d) The Purchaser shall deliver to the Partnership:
(i) the cash consideration for the Assets; and
(ii) the Lease
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 the unanimous consent of the Purchaser, the Sellers and
SLA;
(b) by the Purchaser or all of the Sellers and SLA if the
Closing does not occur on or before September 30, 1996; provided,
however, that if any party has materially breached or defaulted with
respect to its respective material 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;
(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 materially satisfied or if SLA or any of the Sellers is
otherwise in material default under this Agreement; or
(d) by all, but not less than all, of the Sellers, if as of
the Closing Date (including any extensions) any of the conditions
specified in Article VIII hereof shall not have been materially
satisfied or if Purchaser is otherwise in material 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;
<PAGE> 60
(b) all information received by any party hereto with respect
to the business of any other party or SLA (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 and 3.9 (capitalization), 2.5
(title to the SLA Shares), 3.6 (Issuance of AmeriPath Stock)
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 earlier of (i) 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, or (ii) April 30, 1999.
<PAGE> 61
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 SLA
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 SLA hereunder;
(b) Any and all liabilities of SLA 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
quarter ended March 31, 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 SLA, together with any
interest or penalties thereon or related thereto, through the
Closing Date and any Tax liability of SLA arising in
connection with the transactions contemplated hereby. Any
Taxes, penalties or interest attributable to the operations of
SLA prior to the Closing Date, 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
SLA's properties, including federal, state and local
environmental liability, together with any interest or
penalties thereon or related thereto, that arose 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 quarter ended March 31, 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 SLA 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 SLA; 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.
<PAGE> 62
(d) All 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 assume the defense of such action with counsel of
reputable standing unless such action: (i) is likely to result in injunctions or
other equitable remedies in respect of the indemnitee or its business; or (ii)
is likely to result in liabilities which, taken with other than existing Claims
under this Article XI, would not be fully indemnified hereunder. 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. Upon an indemnitor
making payment hereunder, the indemnitor shall be subrogated to the rights of
the indemnitee.
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 the claim and an
opportunity to defend against or settle same as set forth herein and must first
receive the written approval of the terms and conditions of any
<PAGE> 63
settlement from the indemnitor prior to settling any claims. An indemnitor shall
have the right to settle any Claim against the indemnitee, subject to the prior
written approval of the indemnitee, which approval shall not be unreasonably
withheld and may not be withheld at all if the settlement includes the complete
release of the indemnitee.
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, or (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.
11.5 Indemnification Basket; Maximum Liability. Neither the Sellers, on
the one hand, or the Purchaser, on the other hand, shall be entitled to
indemnification under this Article XI, unless and until their or its,
respectively, total damage exceeds $50,000, and then only to the extent of
aggregate damages in excess of $50,000; provided, however, that such threshold
shall not apply to actions against Purchaser for failure to make payments of
cash or stock due pursuant to this Agreement. In the event that such threshold
amount is exceeded with respect to a claim by Purchaser against SLA, then the
threshold shall be deemed to also be met with respect to each Seller. The
maximum liability under this Agreement for each Seller with respect to such
Seller's personal obligations shall be the total value of the Purchase Price
that such Seller has received. Each Seller shall be severally liable with
respect to matters personal to such Seller and jointly and severally liable with
respect to matters affecting SLA.
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 SLA, 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.
12.3 Certain Definitions.
<PAGE> 64
"Affiliate" means, with regard to any Person, (a) any other
Person, directly or indirectly, controlled by, under common control of,
or controlling such first Person, (b) any other Person, directly or
indirectly, in which such first Person holds, of record or
beneficially, five percent or more of the equity or voting securities,
(c) any other Person that holds, of record or beneficially, five
percent or more of the equity or voting securities of such first
Person, (d) any other Person that, through Contract, relationship or
otherwise, exerts a substantial influence on the management of such
first Person's affairs, (e) any other Person that, through Contract,
relationship or otherwise, is influenced substantially in the
management of their affairs by such first Person, or (f) any director,
officer, partner or individual holding a similar position in respect of
such first Person.
"Authority" means any governmental, regulatory or
administrative body, agency, arbitrator, 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, 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 written agreement, contract, commitment,
instrument or other binding arrangement or understanding.
"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 required by Environmental
Law and necessary or desirable for the Corporation's business.
"GAAP" means generally accepted accounting principles, applied
on a consistent basis.
<PAGE> 65
"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, 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 SLA'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.
<PAGE> 66
"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 SLA, 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 (i) when delivered if delivered by hand, (ii) three days after
mailing if mailed, first class certified mail with postage paid, or (iii) the
next business day if sent by overnight receipted courier service:
(a) If to SLA, to:
Drs. Seidenstein, Levine and Associates, P.A.
3949 Evans Avenue
Suite 403
Ft. Myers, Florida 33901
Attn: David M. Reardon, M.D., President
If to a Seller, to:
Lawrence Seidenstein, M.D.
1225 Caloosa Drive
Fort Myers, Florida 33901
Steven E. Levine, M.D.
4105 West Riverside Drive
Ft. Myers, Florida 33901
David M. Reardon, M.D.
1383 Coconut Drive
Ft. Myers, Florida 33901
<PAGE> 67
in each case with a copy to:
McDermott Will & Emery
201 S. Biscayne Blvd., 22nd Floor
Miami, Florida 33131-4336
Attn: Jerry J. Sokol, Esq.
or to such other person or address as the Sellers or
SLA 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 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.
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. SLA and the Sellers
hereby irrevocably submit to the jurisdiction of the state or federal courts
located in Broward, Dade, 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.
<PAGE> 68
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 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, and Purchaser shall
be deemed the party who incurred the expense of SLA's audit.
<PAGE> 69
12.15 Arbitration. If any dispute arises with respect to this Agreement
between two or more of the parties to it, each party to the dispute shall use
its best efforts to resolve the dispute amicably. If after 20 days the dispute
has not been resolved, any of the parties may elect to submit the dispute to
mediation by an independent certified circuit civil mediator selected jointly by
the parties by giving notice, in accordance with Section 12.4, to the other
parties of its election to mediate ("Mediation Notice"). If a party elects to
mediate a dispute, the other parties must mediate the dispute, although the
result of the mediation will not be binding on either party. If the parties fail
to jointly select a mediator within 15 days after the effective date of the
Mediation Notice, each party shall submit to the other party a proposed list of
not less than eight certified circuit civil mediators to mediate the dispute
within 25 days after the effective date of the Mediation Notice. A party who
fails to submit a proposed list of mediators within the prescribed 25-day period
waives the right to select a mediator and the other party may select the
mediator. If both paries timely submit their proposed lists of mediators, each
party shall select two mediators from the other party's list and Purchaser's
regular legal counsel shall blindly select the mediator from a box containing
the names of each mediator so selected on a "3 x 5" card. The mediator shall
convene a meeting of the parties to the dispute within 21 days after his or her
appointment.
Any party to a dispute that arises with respect to this Agreement may,
prior to receipt of Mediation Notice or after an attempted resolution throughout
the mediation process described in the paragraph above, elect to submit the
dispute to binding non-appealable arbitration before a panel of arbitrators in
accordance with the rules of the American Arbitration Association by giving the
other party a notice of arbitration, in accordance with Section 12.4, (the
"Arbitration Notice"). If the parties do not resolve the dispute through
mediation, arbitration will be the sole and exclusive method of resolving the
dispute. All parties must arbitrate the dispute, and each party will be barred
from filing a lawsuit concerning the subject matter of the dispute, except to
obtain an equitable remedy.
The parties shall make every effort to select a mutually acceptable
Florida corporate lawyer who is rated "AV" by Martindale-Hubbell law directory
to arbitrate the dispute. If within 10 days after the effective date of the
Arbitration Notice the parties are unable to select such an arbitrator, an
arbitration panel will be selected. The arbitration panel will consist of three
arbitrators. At least one of the arbitrators must be a Florida corporate lawyer
who is rated "AV" by Martindale-Hubbell law directory. Each party shall select
an arbitrator within 20 days after the effective date of the Arbitration Notice
and the two selected arbitrators shall select the third. A party who fails to
select an arbitrator within the prescribed 20-day period waives the right to
select an arbitrator, and two arbitrators chosen by the other party will select
the third arbitrator.
Every mediator or arbitrator must be independent (not a lawyer or
relative of a party to this Agreement or an officer, director, employee, or
shareholder of AmeriPath) without any economic or financial interest of any kind
in the outcome of the mediation or arbitration. Each arbitrator's conduct will
be governed by the Code of Ethics for Arbitrators in Commercial Disputes (1986)
(as amended or any successor thereto) that has been approved and recommended by
the American Bar Association or the American Arbitration Association.
<PAGE> 70
Within 45 days after the date of the election or appointment of the
last arbitrator, the arbitration panel shall convene a hearing for the dispute
to be held on such date and at such time and place in Dade County, Florida, as
the arbitration panel designates upon 21 days' advance notice to the parties to
the dispute. The arbitration panel shall render its decision within 30 days
after the conclusion of the hearing. The decision of the arbitration panel will
be binding and conclusive as to all the parties to the dispute and, upon the
pleading of any party to the dispute, any court having jurisdiction may enter a
judgment of any award rendered in the arbitration, which may include an award of
any damages. The arbitration panel shall hear and decide the dispute based on
the evidence produced, notwithstanding the failure or refusal to appear by a
party who has been duly notified of the date, time, and place of the hearing.
The parties agree that the cost of the arbitrators or mediators in any mediation
or arbitration shall be shared equally by the parties to the dispute.
12.16 Attorneys' Fees. Subject to required arbitration pursuant to
Section 12.16 if any party to this Agreement seeks to enforce the terms and
provisions of this Agreement, then the prevailing party in such action,
including arbitration, 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 arbitration or the trial court
and all appellate levels (for equitable relief).
<PAGE> 71
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/ Lawrence Seidenstein, M.D.
-------------------------------------------
Lawrence Seidenstein, M.D.
/s/ Steven E. Levine, M.D.
-------------------------------------------
Steven E. Levine, M.D.
/s/ David M. Reardon, M.D.
-------------------------------------------
David M. Reardon, M.D.
DRS. SEIDENSTEIN, LEVINE AND
ASSOCIATES, INC.
By: /s/ David M. Reardon, M.D.
-------------------------------------------
David M. Reardon, M.D., President
SEIDENSTEIN, LEVINE REAL ESTATE
PARTNERSHIP
By: /s/ Steven E. Levine, M.D.
-------------------------------------------
Steven E. Levine, M.D., General Partner
<PAGE> 1
Exhibit 10.31
STOCK ISSUANCE AGREEMENT
This STOCK ISSUANCE AGREEMENT is made as of June 26, 1996 among
Ameripath, Inc., a Delaware corporation (the "Company"), The First National
Bank of Boston ("FNBB"), FSC Corp., a Massachusetts corporation and an
affiliate of FNBB, NationsBank, N.A. (South) ("NationsBank") and Atlantic
Equity Corporation, a North Carolina corporation and an affiliate of
(NationsBank).
RECITALS
The Company and FNBB and NationsBank (the "Banks") are party to a
Credit Agreement dated as of May 29, 1996 as amended and as in effect on the
date hereof (the "Credit Agreement") in which the Company agreed to pay to the
Banks in accordance with their respective Percentage Interests a closing fee of
$200,000 (the "Closing Fee").
FNBB and NationsBank are willing to assign their respective rights to
the Closing Fee to FSC Corp. and Atlantic Equity Corporation (the "Holders"),
respectively, and the Company is willing to issue and sell to such Holders as
satisfaction of the Closing Fee owed to the Banks, the number of shares of
Common Stock set forth opposite the name of the Holders on Schedule 1 hereto,
all on the terms and conditions set forth herein.
AGREEMENT
In consideration of the foregoing, and the representations, warranties,
covenants and conditions set forth below, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions. Capitalized terms defined in the Credit Agreement and
used but not otherwise defined in this Agreement are used herein as so defined.
2. Assignment. FNBB and NationsBank hereby assign to FSC Corp. and
Atlantic Equity Corporation, respectively, and FSC Corp. and Atlantic Equity
Corporation hereby assume, all of the FNBB's and NationsBank's respective
rights to the Closing Fee.
3. Sale and Purchase of Subscription Securities. On the terms and
subject to the conditions hereof, the Company hereby agrees to sell to each
Holder, and by its execution of this Agreement such Holder agrees to accept
from the Company as payment by the Company of the Closing Fee the number of
shares of Common Stock set forth opposite the name of such Holder on Schedule 1
hereto. The shares of Common Stock being purchased by the Holders hereunder
are referred to herein as the "Securities." The Company agrees to deliver
<PAGE> 2
certificates for the Securities to each Holder, registered in the name of such
Holder, immediately following the execution of this Agreement.
4. Representations and Warranties of the Company. The Company
represents and warrants to each of the Banks and Holders that"
4.1 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 enter into and perform this
Agreement and own its properties and carry on the business now conducted
or proposed to be conducted by it. The Company has made available to
the Holders true and complete copies of the Company's certificate of
incorporation and the by-laws as in effect on the date hereof.
4.2 The Company has taken all corporate action required to
authorize the execution and delivery of this Agreement and the issuance
of the Securities.
4.3 The Securities, when issued, will be duly authorized,
validly issued, fully paid and non-assessable.
4.4 This Agreement is a legal, valid and binding obligation of the
Company, enforceable in accordance with terms.
5. Incidental ("Piggy-Back") Registration Rights. In the event the
Company effects any registration of shares of its capital stock under the
Securities Act of 1933, as amended, for its own account or for the account of
any other Person subsequent to the initial registration by the Company of
shares of its capital stock, then the Holders shall have the right to include
the Securities in such registration if and to the extent of the most favorable
rights of any other holder of any other shares of capital stock of the Company
to include shares in such registration. Notwithstanding the foregoing
provisions of this Section 5, in the event such registration relates to an
underwritten offering (whether or not on a firm commitment basis), if the
managing underwriter of such underwritten offering shall determine that the
shares to be included in such registration should be limited due to market
conditions or otherwise, all of the Securities shall be excluded prior to the
exclusion of any other shares not held by officers or employees of the Company
and shall be included prior to the inclusion of any shares held by officers or
employees of the Company.
6. Indemnities. The Company agrees to indemnify and hold harmless
each Holder, from and against all losses, damages, liabilities and expenses
(including without limitation reasonable attorneys fees and charges) resulting
from any breach of any representation, warranty or agreement of such
indemnifying party or any misrepresentation by such indemnifying party in this
Agreement.
-2-
<PAGE> 3
7. Restrictions on Transfer.
7.1 Restrictive Legend. All certificates representing Securities shall
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A PRIVATE
PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT COVERING THE TRANSFER OR
A LEGAL OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT REGISTRATION UNDER THE
ACT IS NOT REQUIRED."
7.2 Termination of Restrictions. The restrictions imposed by Section 7.1
hereof upon the transferability of Securities shall cease and terminate as to
any particular Securities when, in the written opinion of Ropes & Gray or other
counsel reasonably acceptable to the Company, which opinion shall also be
delivered and reasonably acceptable to the Company's transfer agent, (i) such
restrictions are no longer required in order to assure compliance with the
Securities Act or (ii) such Securities shall have been registered under the
Securities Act or transferred in compliance with Rule 144 thereunder. Whenever
such restrictions shall cease and terminate as to any Securities or such
Securities shall be transferable in compliance with paragraph (k) of Rule 144,
the holder thereof shall be entitled to receive from the Issuer, without
expense, new certificates not bearing the legend set forth in Section 7.1
hereof.
8. Miscellaneous.
8.1 This Agreement shall be considered a Credit Document.
8.2 This Agreement and the other agreements referred to herein set forth
the entire understanding among the parties with respect to the subject matter
thereof.
8.3 This Agreement can be changed only by an instrument in writing signed
by the party against whom enforcement of such change is sought.
8.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and representatives;
provided, however, that no Holder may assign any of such Holder's rights
hereunder except in connection with a transfer of the Securities in compliance
with the terms and conditions of Section 7 of this Agreement.
8.5 All covenants, agreements, representations and warranties made herein
shall survive the execution and delivery hereof and transfer of any Securities.
-3-
<PAGE> 4
8.6. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which shall together constitute
one and the same instrument.
8.7. All notices, requests, consents and demands will be in writing and will
be personally delivered, mailed, postage prepaid, telecopied or telegraphed, if
to the company to it at its address set forth in Exhibit 1.7 of the Credit
Agreement or if to the Holders as follows:
If to FSC Corp., at
100 Federal Street
Boston, MA 02110
Telecopy: (617) 434-1153
Attention: Mary Reilly
if to Atlantic Equity Corporation
c/o NationsBank, N.A. (South)
One Financial Plaza, 10th Floor
Fort Lauderdale, FL 33394
Telecopy: (954) 765-2026
Attention: Alexander Rody
8.8. The Company recognizes that the rights of the Holders under this
Agreement are unique, and, accordingly, the Holders will, in addition to such
other remedies as may be available to them at law or in equity, have the right
to enforce their rights hereunder by actions for injunctive relief and specific
performance to the extent permitted by law. This Agreement is not intended to
limit or abridge any rights of the Holders which may exist apart from this
Agreement.
8.9. The Company agrees that so long as any Securities purchased hereunder
remain outstanding the Company will furnish to each of the Holders all of the
information and reports required to be furnished to the Lenders pursuant to
Section 6.4 of the Credit Agreement as in effect on the date hereof.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
by the terms hereof, have caused this Agreement to be executed, under seal, as
of the date first above written by their officers or other representatives
thereunto duly authorized.
THE COMPANY AMERIPATH, INC.
By /s/ Robert P. Wynn
------------------------------------
Title: EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
THE BANKS: THE FIRST NATIONAL BANK OF BOSTON
By /s/ Randy J. Wehling
------------------------------------
Title: Vice President
NATIONSBANK, N.A. (SOUTH)
By: /s/ Steven I. Rody
------------------------------------
Title: Vice President
THE HOLDERS: FSC CORP.
By: /s/ Mary Joseph Reilly
------------------------------------
Title: Vice President
-----------------------------
ATLANTIC EQUITY CORPORATION
By: /s/ John E. Mack
------------------------------------
Title: President
<PAGE> 1
Exhibit 10.32
STOCK ISSUANCE AGREEMENT
This STOCK ISSUANCE AGREEMENT is made as of August 29, 1996 among
Ameripath, Inc., a Delaware corporation (the "Company"), The First National
Bank of Boston ("FNBB"), FSC Corp., a Massachusetts corporation and an
affiliate of FNBB, NationsBank, N.A. (South) ("NationsBank") and Atlantic
Equity Corporation, a North Carolina corporation and an affiliate of
(NationsBank).
Recitals
The Company and FNBB and NationsBank (the "Banks") entered into an
Amendment No. 1 dated August 29, 1996 to the Credit Agreement dated as of May
29, 1996, as amended and as in effect on the date hereof (the "Credit
Agreement"), for which the Company agreed to pay to the Banks an amendment fee
in accordance with their respective interests in the increase in the Maximum
Amount of Credit made effective by such Amendment (the "Amendment Fee").
Each of FNBB and NationsBank has elected to receive $125,000 of the
Amendment Fee in Common Stock of the Company (the "Common Stock Payment"),
Each of FNBB and NationsBank is willing to assign its right to the
Common Stock Payment to FSC Corp. and Atlantic Equity Corporation (the
"Holders"), respectively, and the Company is willing to issue and sell to such
Holders as full satisfaction of the Amendment Fee owed to NationsBank and as
partial satisfaction of the Amendment Fee owed to FNBB, the number of shares of
Common Stock set forth opposite the name of the Holders on Schedule 1 hereto,
all on the terms and conditions set forth herein.
Agreement
In consideration of the foregoing, and the representations, warranties,
covenants and conditions set forth below, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions. Capitalized terms defined in the Credit
Agreement and used but not otherwise defined in this Agreement are used herein
as so defined.
2. Assignment. FNBB and NationsBank hereby assign to FSC Corp,
and Atlantic Equity Corporation, respectively, and FSC Corp. and Atlantic
Equity Corporation hereby assume, all of the FNBB's and NationsBank's
respective rights to the Common Stock Payment.
<PAGE> 2
3. Sale and Purchase of Securities. On the terms and subject to
the conditions hereof, the Company hereby agrees to sell to each Holder, and by
its execution of this Agreement such Holder agrees to accept from the Company
as payment by the Company of the Common Stock Payment the number of shares of
Common Stock set forth opposite the name of such Holder on Schedule 1 hereto.
The shares of Common Stock being purchased by the Holders hereunder are
referred to herein as the "Securities". The Company agrees to deliver
certificates for the Securities to each Holder, registered in the name of such
Holder, immediately following the execution of this Agreement.
4. Representations and Warranties of the Company. The Company
represents and warrants to each of the Banks and Holders that:
4.1. 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 enter into and perform this
Agreement and own its properties and carry on the business now
conducted or proposed to be conducted by it. The Company has made
available to the Holders true and complete copies of the Company's
certificate of incorporation and the by-laws as in effect on the date
hereof.
4.2. The Company has taken all corporate action required
to authorize the execution and delivery of this Agreement and the
issuance of the Securities.
4.3. The Securities, when issued, will be duly authorized,
validly issued, fully paid and non-assessable.
4.4. This Agreement is a legal, valid and binding
obligation of the Company, enforceable in accordance with terms.
5. Incidental ("Piggy-Back") Registration Rights. In the event the
Company effects any registration of shares of its capital stock under the
Securities Act of 1933, as amended, for its own account or for the account of
any other Person subsequent to the initial registration by the Company of
shares of its capital stock, then the Holders shall have the right to include
the Securities in such registration if and to the extent of the most favorable
rights of any other holder of any other shares of capital stock of the Company
to include shares in such registration. Notwithstanding the foregoing
provisions of this Section 5, in the event such registration relates to an
underwritten offering (whether or not on a firm commitment basis), if the
managing underwriter of such underwritten offering shall determine that the
shares to be included in such registration should be limited due to market
conditions or otherwise, all of the Securities shall be excluded prior to the
exclusion of any other shares not held by officers or employees of the Company
and shall be included prior to the inclusion of any shares held by officers or
employees of the Company.
-2-
<PAGE> 3
6. Indemnities. The Company agrees to indemnify and hold
harmless each Holder, from and against all losses, damages, liabilities and
expenses (including without limitation reasonable attorneys fees and charges)
resulting from any breach of any representation, warranty or agreement of such
indemnifying party or any misrepresentation by such indemnifying party in this
Agreement.
7. Restrictions on Transfer.
7.1. Restrictive Legend. All Certificates representing
Securities shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE ACT COVERING THE TRANSFER OR A LEGAL OPINION
OF COUNSEL ACCEPTABLE TO THE ISSUER THAT REGISTRATION UNDER THE ACT
IS NOT REQUIRED."
7.2. Termination of Restrictions. The restrictions imposed
by Section 7.1 hereof upon the transferability of Securities
shall cease and terminate as to any particular Securities when, in
the written opinion of Ropes & Gray or other counsel reasonably
acceptable to the Company which opinion shall also be delivered and
reasonably acceptable to the Company's transfer agent, (i) such
restrictions are no longer required in order to assure compliance
with the Securities Act or (ii) such Securities shall have been
registered under the Securities Act or transferred in compliance with
Rule 144 thereunder. Whenever such restrictions shall cease and
terminate as to any Securities or such Securities shall be
transferable in compliance with paragraph (k) of Rule 144, the holder
thereof shall be entitled to receive from the Issuer, without
expense, new certificates not bearing the legend set forth in Section
7.1 hereof.
8. Miscellaneous,
8.1. This Agreement shall be considered a Credit Document.
8.2. This Agreement and the other agreements referred to
herein set forth the entire understanding among the parties with
respect to the subject matter thereof.
8.3. This Agreement can be changed only by an instrument in
writing signed by the party against whom enforcement of such change
is sought.
8.4. This Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs and
representatives; provided, however, that
-3-
<PAGE> 4
no Holder may assign any of such Holder's rights hereunder
except in connection with a transfer of the Securities in compliance
with the terms and conditions of Section 7 of this Agreement.
8.5. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery
hereof and transfer of any Securities.
8.6. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same instrument.
8.7. All notices, requests, consents and demands will be in
writing and will be personally delivered, mailed, postage prepaid,
telecopied or telegraphed, if to the Company to it at its address
set forth in Exhibit 1.7 of the Credit Agreement or if to the
Holders as follows:
If to FSC Corp., at
100 Federal Street
Boston, MA 02110
Telecopy: (617) 434-1153
Attention: Mary Reilly
if to Atlantic Equity Corporation,
c/o NationsBank, N.A. (South)
One Financial Plaza, 10th Floor
Fort Lauderdale, FL 33394
Telecopy: (954) 765-2026
Attention: Alexander Rody
8.8. The Company recognizes that the rights of the Holders
under this Agreement are unique, and, accordingly, the Holders will,
in addition to such other remedies as may be available to them
at law or in equity, have the right to enforce their rights hereunder
by actions for injunctive relief and specific performance to the
extent permitted by law. This Agreement is not intended to limit or
abridge any rights of the Holders which may exist apart from this
Agreement.
8.9. The Company agrees that so long as any Securities
purchased hereunder remain outstanding the Company will furnish to
each of the Holders all of the information and reports required to
be furnished to the Lenders pursuant to Section 6.4 of the Credit
Agreement as in effect on the date hereof.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound by
the terms hereof, have caused this Agreement to be executed, under seal, as of
the date first above written by their officers or other representatives
thereunto duly authorized.
THE COMPANY: AMERIPATH, INC.
By /s/ Robert P. Wynn
------------------------------------
Title: Executive Vice President and
Chief Financial Officer
THE BANKS: THE FIRST NATIONAL BANK OF
BOSTON
By /s/ Randy J. Wehling
------------------------------------
Title: Vice President
NATIONSBANK, N.A. (SOUTH)
By: /s/ Steven I. Rody
-----------------------------------
Title: Vice President
THE HOLDERS: FSC CORP.
By: /s/ Mary Joseph Reilly
-----------------------------------
Title: Vice President
-----------------------------
ATLANTIC EQUITY CORPORATION
By: /s/ John E. Mack
-----------------------------------
Title: President
<PAGE> 6
Schedule 1 - to Stock
Issuance Agreement
------------------
<TABLE>
<CAPTION>
Securities
----------
Name-of Holder Common Purchase Price
- -------------- ------ --------------
<S> <C> <C>
FSC Corp. 12,500 $125,000
Atlantic Equity Corporation 7,500 $ 75,000
------ --------
TOTAL 20,000 $200,000
</TABLE>
<PAGE> 1
Exhibit 10.33
STOCK ISSUANCE AGREEMENT
This STOCK ISSUANCE AGREEMENT is made as of November 4, 1996 among
Ameripath, Inc., a Delaware corporation (the "Company"), The First National
Bank of Boston ("FNBB") and FSC Corp., a Massachusetts corporation and an
affiliate of FNBB.
Recitals
The Company, FNBB and NationsBank, N.A. (South) entered into an
Amendment No. 2 dated as of November 4, 1996 to the Credit Agreement dated as
of May 29, 1996, as amended and as in effect on the date hereof (the "Credit
Agreement"), for which the Company agreed to pay to FNBB an amendment fee
consisting of cash and 11,111 shares of Common Stock, $.01 par value per
share, of the Company (the "Common Stock Payment"), as described in the letter
agreement between FNBB and the Company dated as of the date hereof and attached
hereto.
FNBB is willing to assign its right to the Common Stock Payment to
to FSC Corp ("FSC") and the Company is willing to issue and sell to FSC 11,111
shares of Common Stock, all on the terms and conditions set forth herein,
Agreement
In consideration of the foregoing, and the representations,
warranties, covenants and conditions set forth below, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Definitions. Capitalized terms defined in the Credit
Agreement and used but not otherwise defined in this Agreement are used herein
as so defined.
2. Assignment. FNBB hereby assigns to FSC, and FSC hereby
assumes, all of FNBB's rights to the Common Stock Payment.
3. Sale, and purchase Securities. On the terms and subject to the
conditions hereof, the Company hereby agrees to sell to FSC, and by its
execution of this Agreement FSC agrees to accept from the Company as payment by
the Company of the Common Stock Payment, 11,111 shares of the Company's
Common Stock. The shares of Common Stock being purchased by FSC hereunder are
referred to herein as the "Securities". The Company agrees to deliver
certificates for the Securities to FSC, registered in the name of FSC,
immediately following the execution of this Agreement.
<PAGE> 2
4. Representations and Warranties of the Company. The Company
represents and warrants to FNBB and FSC that;
4.1. 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 enter into and
perform this Agreement and own its properties and carry on the
business now conducted or proposed to be conducted by it. The
Company has made available to FNBB and FSC true and complete copies
of the Company's certificate of incorporation and the by-laws as in
effect on the date hereof.
4.2. The Company has taken all corporate action required to
authorize the execution and delivery of this Agreement and the
issuance of the Securities.
4.3. The Securities, when issued, will be duly authorized,
validly issued, fully paid and non-assessable.
4.4. This Agreement is a legal, valid and binding obligation
of the Company, enforceable in accordance with terms.
5. Incidental ("Piggy-Back") Registration Rights. In the event
the Company effects any registration of shares of its capital stock under the
Securities Act of 1933, as amended, for its own account or for the account of
any other Person subsequent to the initial registration by the Company of
shares of its capital stock, then FSC shall have the right to include the
Securities in such registration if and to the extent of the most favorable
rights of any other holder of any other shares of capital stock of the Company
to include shares in such registration. Notwithstanding the foregoing
provisions of this Section 5, in the event such registration relates to an
underwritten offering (whether or not on a from commitment basis), if the
managing underwriter of such underwritten offering shall determine that the
shares to be included in such registration should be limited due to market
conditions or otherwise, all of the Securities shall be excluded prior to the
exclusion of any other shares not held by officers or employees of the Company
and shall be included prior to the Inclusion of any shares held by officers or
employees of the Company.
6. Indeminities. The Company agrees to indemnify and hold
harmless FSC and FNBB, from and against all losses, damages, liabilities and
expenses (including without limitation reasonable attorneys fees and charges)
resulting from any breach of any representation, warranty or agreement of such
indemnifying party or any misrepresentation by such indemnifying party in this
Agreement.
-2-
<PAGE> 3
7. Restrictions on Transfer,
7.1. Restrictive Legend. All certificates representing
Securities shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN
A PRIVATE PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE ACT COVERING THE TRANSFER OR A LEGAL OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED."
7.2. Termination of Restrictions. The restrictions imposed
by Section 7.1 hereof upon the transferability of Securities
shall cease and terminate as to any particular Securities when, in
the written opinion of Ropes & Gray or other counsel reasonably
acceptable to the Company, which opinion shall also be delivered and
reasonably acceptable to the Company's transfer agent, (i) such
restrictions are no longer required in order to assure compliance
with the Securities Act or (ii) such Securities shall have been
registered under the Securities Act or transferred in compliance with
Rule 144 thereunder. Whenever such restrictions shall cease and
terminate as to any Securities or such Securities shall be
transferable in compliance with paragraph (k) of Rule 144, the holder
thereof shall be entitled to receive from the Issuer, without
expense, new certificates not bearing the legend set forth in Section
7.1 hereof.
8. Miscellaneous.
8.1. This Agreement shall be considered a Credit Document.
8.2. This Agreement and the other agreements referred to
herein set forth the entire understanding among the parties with
respect to the subject matter thereof.
8.3. This Agreement can be changed only by an instrument in
writing signed by the party against whom enforcement of such change
is sought.
8.4. This Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors, assigns, heirs
and representatives; provided, however, that FSC may not assign any
of its rights hereunder except in connection with a transfer of the
Securities in compliance with the terms and conditions of Section 7
of this Agreement.
8.5. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery
hereof and transfer of any Securities.
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<PAGE> 4
8.6. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of
which shall together constitute one and the same instrument.
8.7. All notices, requests, consents and demands will be in
writing and will be personally delivered, mailed, postage prepaid,
telecopied or telegraphed, if to the Company to it at its address
set forth in Exhibit 1.7 of the Credit Agreement or if to FSC as
follows:
If to FSC Corp., at
100 Federal Street
Boston, MA 02110
Telecopy: (617) 434-1153
Attention: Mary Reilly
8.8. The Company recognizes that the rights of FSC under
this Agreement are unique, and; accordingly, FSC will, in
addition to such other remedies as may be available to it at law or
in equity, have the right to enforce its rights hereunder by actions
for inactive relief and specific performance to the extent permitted
by law. This Agreement is not intended to limit or abridge any
rights of FSC or FNBB which may exist apart from this Agreement.
8.9. The Company agrees that so long as any Securities
purchased hereunder remain outstanding the Company will furnish to
FSC all of the information and reports required to be furnished
to the Lenders pursuant to Section 6.4 of the Credit Agreement as in
effect on the date hereof.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
by the terms hereof, have caused this Agreement to be executed, under seal, as
of the date first above written by their officers or other representatives
thereunto duly authorized.
AMERIPATH, INC.
By /s/ Robert P. Wynn
------------------------------------
Title: Executive Vice President and
Chief Financial Officer
THE FIRST NATIONAL BANK OF
BOSTON
By /s/ Randy J. Wehling
------------------------------------
Title: Vice President
FSC CORP.
By: /s/ Mary Joseph Reilly
-----------------------------------
Title: Vice President
<PAGE> 1
Exhibit 10.34
EXECUTION
COPY
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERIPATH, INC.,
J. SLOAN LEONARD, M.D.,
JOSEPH A. SONNIER, M.D.,
VAN Q. TELFORD, M.D.,
WILLIAM C. BURTON, M.D.,
JAMES SCOT MILVENAN, M.D.,
LESLIE L. WALTERS, M.D.,
THOMAS M. JAMES, M.D.,
STEPHEN W. ALDRED, M.D.,
JOHN E. MCDONALD, M.D.
AND
BARBARA A. SHINN, M.D.
DATED AS OF AUGUST 21, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page No.
ARTICLE I
PURCHASE OF STOCK
1.1 Purchase and Sale of Capital Stock.................................... 2
1.2 Purchase Price........................................................ 2
1.3 338(h)(10) Election................................................... 3
1.4 The Contingent Notes.................................................. 3
1.5 AmeriPath Stock....................................................... 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
2.1 Corporate Organization, Qualification, etc............................ 12
2.2 Subsidiaries.......................................................... 15
2.3 INTENTIONALLY DELETED................................................. 15
2.4 Corporate Record Books................................................ 15
2.5 Authorization, Etc.................................................... 16
2.6 No Violation.......................................................... 16
2.7 Financial Statements.................................................. 16
2.8 Employees............................................................. 17
2.9 Absence of Certain Changes............................................ 17
2.10 Contracts............................................................. 18
2.11 True and Complete Copies.............................................. 20
2.12 Title and Related Matters............................................. 20
2.13 Equipment and Other Tangible Property................................. 21
2.14 Litigation............................................................ 21
2.15 Tax Matters........................................................... 21
2.16 Compliance with Law and Applicable Government Regulations............. 23
2.17 ERISA and Related Matters............................................. 23
2.18 Intellectual Property................................................. 25
2.19 Environmental Matters................................................. 26
2.20 Dealings with Affiliates.............................................. 27
2.21 Banking Arrangements.................................................. 27
2.22 Insurance............................................................. 27
2.23 Consents.............................................................. 28
2.24 Investment Representations............................................ 28
2.25 Accounts Receivable; Inventories...................................... 29
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2.26 Brokerage............................................................ 30
2.27 Improper and Other Payments.......................................... 30
2.28 Participation in Audits.............................................. 30
2.29 Healthcare Laws...................................................... 30
2.30 INTENTIONALLY DELETED................................................ 32
2.31 Capitalization....................................................... 32
2.32 Title to Stock....................................................... 32
2.33 Options and Rights................................................... 33
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.1 Corporate Organization, etc.......................................... 33
3.2 Authorization, Etc................................................... 33
3.3 No Violation......................................................... 33
3.4 Governmental Authorities............................................. 34
3.5 Issuance of AmeriPath Stock.......................................... 34
3.6 Information Regarding AmeriPath...................................... 34
ARTICLE IV
COVENANTS OF THE SELLERS
4.1 Regular Course of Business........................................... 34
4.2 Amendments........................................................... 35
4.3 Capital Changes; Pledges............................................. 35
4.4 Dividends............................................................ 35
4.5 Capital and Other Expenditures....................................... 35
4.6 Cash and Cash Equivalents............................................ 35
4.7 Borrowing............................................................ 36
4.8 Other Commitments.................................................... 36
4.9 Interim Financial Information........................................ 36
4.10 Full Access and Disclosure........................................... 36
4.11 Confidentiality...................................................... 36
4.12 Breach of Agreement.................................................. 37
4.13 Fulfillment of Conditions Precedent.................................. 37
4.14 Banking Arrangements................................................. 37
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ARTICLE V
COVENANTS OF THE PURCHASER
5.1 Confidentiality....................................................... 37
5.2 Full Access and Disclosure............................................ 37
ARTICLE VI
OTHER AGREEMENTS
6.1 Further Assurances................................................... 38
6.2 Agreement to Defend.................................................. 38
6.3 Consents............................................................. 38
6.4 No Solicitation or Negotiation....................................... 39
6.5 No Termination of the Sellers' Obligations by Subsequent
Incapacity, Etc...................................................... 39
6.6 Employment Agreements................................................ 39
6.7 Public Announcements................................................. 39
6.8 Operational Guidelines and Covenants Related to Contingent Notes..... 40
6.9 Non-Competition Covenant............................................. 40
6.10 Non-disclosure; Confidentiality...................................... 41
6.11 Rule 144 Best Efforts................................................ 43
6.12 Deliveries After Closing............................................. 43
6.13 Structural Changes................................................... 43
6.14 Observer Rights...................................................... 44
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
7.1 Representations and Warranties; Covenants and Agreements............. 45
7.2 No Injunction........................................................ 45
7.3 Third Party Consents................................................. 45
7.4 Regulatory Approvals................................................. 46
7.5 No Material Adverse Change........................................... 46
7.6 Opinion of the Sellers' Counsel...................................... 46
7.7 INTENTIONALLY DELETED................................................ 46
7.8 Employment Agreements................................................ 46
7.9 Shareholders' Agreement.............................................. 46
7.10 Creditor Consents.................................................... 46
7.11 Subordination Agreement.............................................. 46
7.12 Delivery of Stock.................................................... 46
7.13 Merger of Entities................................................... 47
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<PAGE> 5
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
8.1 Representations and Warranties; Performance.......................... 47
8.2 No Injunction........................................................ 47
8.3 Purchase Consideration............................................... 47
8.4 Employment Agreements................................................ 47
8.5 Third Party Consents................................................. 47
8.6 Regulatory Approvals. The Federal and State regulatory agencies or
Authorities listed in Schedule 2.23 hereto shall have approved the
applications listed in such Schedule with respect to the transfer of
assets or 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
8.7 No Material Adverse Change........................................... 48
8.8 Opinion of Counsel................................................... 48
ARTICLE IX
CLOSING
9.1 Closing.............................................................. 48
9.2 Closing Deliveries................................................... 48
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination............................................... 50
10.2 Procedure Upon Termination........................................... 50
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
11.1 Survival............................................................. 51
11.2 Indemnification by the Sellers....................................... 51
11.3 Indemnification by the Purchaser..................................... 52
11.4 Third-Party Claims................................................... 52
11.5 Deductible........................................................... 53
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<PAGE> 6
11.6 Maximum Liability.................................................... 53
11.7 Transaction Liability................................................ 54
11.8 Several Liability.................................................... 54
11.9 Notice of Claims..................................................... 54
11.10 Exclusive Remedy..................................................... 55
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification........................................... 56
12.2 Entire Agreement..................................................... 56
12.3 Certain Definitions.................................................. 56
12.4 Notices.............................................................. 58
12.5 Exhibits and Schedules............................................... 59
12.6 Waiver of Compliance; Consents....................................... 59
12.7 Assignment........................................................... 59
12.8 Governing Law........................................................ 60
12.12 Injunctive Relief.................................................... 60
12.13 Binding Effect....................................................... 60
12.14 Delays or Omissions; Waiver.......................................... 60
12.15 Severability......................................................... 61
12.16 Expenses............................................................. 61
12.17 Attorneys' Fees...................................................... 61
12.18 Dealings in Good Faith; Best Efforts................................. 61
12.20 Counterparts......................................................... 61
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<PAGE> 7
SCHEDULES
1.1 Capitalization; MD Stock and S Corp Stock owned by Sellers
1.2 Allocation of Consideration to Sellers
2.2 Subsidiaries; Investments; Interests
2.4 Corporate Records
2.6 Violations; Third Party Consents
2.7(a) Additional Liabilities
2.7(b) Liabilities covered by Insurance
2.7(c) Accounts Payable
2.8 Employees
2.9 Certain Changes
2.10 Contracts
2.12 Real and Personal Property
2.14 Litigation
2.16(a) Permits and Licenses
2.16(b) Jurisdictions Licensed to Provide Healthcare; Status
2.17 ERISA, Benefit Plans and Other Matters
2.18 Intellectual Property
2.18(d) Software
2.19 Environmental Matters
2.20 Affiliated Transactions
2.21 Banking Arrangements
2.22 Insurance
2.23 Consents; Regulatory Approvals
2.25 Accounts Receivable
2.27 Improper Payments
2.28 Participation in Audits
2.29(a) Fraud and Abuse
2.29(b) Third-Party Payors
2.29(c) Medicare and Medicaid Compliance
2.29(d) Rate Limitations and Rates
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<PAGE> 8
EXHIBITS
1.4 Form of 7% Non-Negotiable Contingent Subordinated Promissory Note
2.1(a) Unipath's organizational documents
2.1(b) PLLC's organizational documents
2.1(c) DPA's articles of incorporation and bylaws
2.1(d) DPP's organizational documents
2.1(e) AMPA's articles of incorporation and bylaws
2.1(f) Plano's organizational documents
2.1(g) Metro, Ltd.'s organizational documents
2.1(h) Metro, P.A.'s articles of incorporation and bylaws
2.1(i) Articles of incorporation and bylaws of each MDPA
2.7 Financial Statements
3.6 Information Statement
6.6 Form of Employment Agreement
7.6 Opinion of Sellers' Counsel
7.9 Shareholders' Agreement
7.11 Subordination Agreement
8.8 Purchaser's Opinion of Counsel
- vii -
<PAGE> 9
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of August __, 1997, by
and among AMERIPATH, INC., a Delaware corporation, or its permitted assigns
("AmeriPath" or the "Purchaser"), J. SLOAN LEONARD, M.D., JOSEPH A. SONNIER,
M.D., VAN Q. TELFORD, M.D., WILLIAM C. BURTON, M.D., JAMES SCOT MILVENAN, M.D.,
LESLIE L. WALTERS, M.D., THOMAS M. JAMES, M.D., STEPHEN W. ALDRED, M.D., JOHN E.
MCDONALD, M.D. and BARBARA A. SHINN, M.D., collectively referred to herein as
the "Sellers" and individually as a "Seller").
R E C I T A L S
WHEREAS, the Sellers, collectively, constitute all of the ultimate
beneficial owners, through the MDPAs (as defined below) and otherwise, of each
of UNIPATH, LTD., a Texas limited partnership ("Unipath"), UNIPATH, PLLC, a
Texas professional limited liability company and the general partner of Unipath
("PLLC"), DALLAS PATHOLOGY ASSOCIATES, INC., a Texas corporation ("DPA"),
ARLINGTON MANSFIELD PATHOLOGY ASSOCIATES, P.A., a Texas professional association
("AMPA"), DALLAS PATHOLOGY ASSOCIATES, a Texas general partnership ("DPP"),
PLANO PATHOLOGY ASSOCIATES, a Texas general partnership ("Plano"), METROPLEX
PATHOLOGY ASSOCIATES, P.A., a Texas professional association ("Metro, P.A."),
METROPLEX PATHOLOGY, LTD., a Texas limited partnership ("Metro, Ltd." and,
together with Unipath, PLLC, DPA, DPP, AMPA, Metro, P.A. and Plano, collectively
referred to herein as the "Unipath Entities"). Metro, P.A., AMPA and DPA are
collectively referred to herein as the "S Corps" and individually as an "S
Corp").
WHEREAS, the Unipath Entities are engaged in the business of providing
pathology related services (the "Business").
WHEREAS, the Sellers listed on Schedule 1.1 hereto constitute the sole
shareholders of, and own all of the issued and outstanding shares of common
stock of, each of the professional associations listed on Schedule 1.1 (the
"MDPAs") and of each of the S Corps (as set forth on Schedule 1.1.
WHEREAS, the Purchaser desires to purchase all of the capital stock of the
MDPAs (collectively, the "MD Stock") and all of the capital stock of the S Corps
(the "S Corp Shares" and together with the MD Stock, the "Stock") from the
Sellers, on the terms and subject to the conditions hereinafter set forth.
WHEREAS, the Sellers desire to sell, assign, convey, transfer and deliver
the Stock to the Purchaser, on the terms and subject to the conditions
hereinafter set forth.
WHEREAS, in order to enable AmeriPath to acquire the Stock, each of the
Sellers shall cause the MDPA which it owns to merge with and into a regular
Texas business corporation owned by such Seller pursuant to a reorganization
that will qualify under Section 368 (a)(1)(F) of the Internal Revenue Code of
1986, as amended and the regulations thereunder (the "Code"), as a mere change
in identity, form or place of organization of a corporation, however effected;
and each of Metro, P.A. and AMPA shall be merged with and into separate regular
Texas
<PAGE> 10
business corporations pursuant to a reorganization that will qualify under
Section 368 (a)(1)(F) of the Code as a mere change in identity, form or place of
organization of a corporation.
WHEREAS, in connection with the closing of the transactions contemplated by
this Agreement, AmeriPath has formed and is the sole member of a non-profit
health organization certified to practice medicine and qualified under Section
5.01(a) of the Texas Medical Practice Act (the "5.01(a)"), and AmeriPath shall
direct certain of the Stock, assets and liabilities of the Unipath Entities to
be transferred, conveyed or assigned to the 5.01(a) through contract and by
operation of law.
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 the S Corps, pursuant to an
election in accordance with Sections 338(g) and 338(h)(10) of 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
the Business, they are not able to agree as to the total value of the Business,
and thus the parties hereto have agreed to certain additional contingent
purchase price consideration based upon the results of operations of the
Business as more fully set forth herein.
O P E R A T I V E P R O V I S I O N S
NOW, THEREFORE, for and in consideration of the mutual benefits to be
derived hereby and the recitals, premises, representations, warranties,
covenants, understandings and agreements herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, AmeriPath, the Sellers, intending to be legally bound, hereby
agree as follows:
ARTICLE I
PURCHASE OF STOCK
1.1 Purchase and Sale of Capital Stock. Subject to the terms and conditions
of this Agreement, each Seller agrees to sell, transfer and deliver to the
Purchaser (or to the 5.01(a), as directed by the Purchaser), and the Purchaser
agrees to purchase, acquire and accept delivery (or direct delivery to the
5.01(a)) from each Seller, all of the issued and outstanding shares of Stock
owned or held by such Seller, which amount of Stock to be sold and purchased
hereunder is set forth opposite each such Seller's name on Schedule 1.1 attached
hereto.
1.2 Purchase Price. In reliance on the representations, warranties,
agreements and covenants of the Sellers made herein, and as full consideration
for the Stock to be sold, transferred, conveyed and delivered by the Sellers, to
the Purchaser pursuant to this Agreement
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<PAGE> 11
at the Closing, AmeriPath shall deliver to the Sellers the following
consideration (the "Purchase Price") in the aggregate (which aggregate
consideration shall be divided among the Sellers in the amounts and as indicated
on Schedule 1.2 attached hereto):
(a) THIRTY-TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($32,500,000.00), by cashier's check or by wire transfer;
(b) Certificates evidencing 1,000,001 shares of Common Stock, par
value $.01 per share, of AmeriPath (the "AmeriPath Stock"), issuable
at Closing but subject to restrictions over five years, in accordance
with Section 1.5 hereof; and
(c) 7% Non-Negotiable Contingent Subordinated Promissory Notes,
due on the first business day after January 1, 2003, in the form
attached hereto as Exhibit 1.4 (the "Contingent Notes"), in the
maximum aggregate principal amount of THIRTY-NINE MILLION SIX HUNDRED
THOUSAND DOLLARS ($39,600,000.00), the issuance and certain terms and
conditions of which Contingent Notes are described in Section 1.4
below.
1.3 338(h)(10) Election. The parties hereto agree that (i) the acquisition
of the S Corp 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 the independent public
accounting firm who then audits the annual financial statements of AmeriPath
(the "Auditor") consistent with GAAP (as defined in Section 12.3 hereof); and
the balance shall be attributed to goodwill or other intangible assets. For
purposes of determining the balance, the fair value of the AmeriPath Stock shall
be determined in good faith by the Purchaser and shall be based upon an
independent evaluation thereof. The Sellers shall indemnify AmeriPath (and its
Affiliates) and hold AmeriPath (and its Affiliates) harmless from any loss,
charge or expense resulting from the Election and the payment of the taxes due
in connection therewith and herewith.
1.4 The Contingent Notes.
(a) Principal Amounts; Issuance. The aggregate maximum principal
amount of the Contingent Notes to be issued and delivered at the Closing by
the Purchaser to the Sellers as additional purchase price consideration
pursuant to Section 1.2(d) hereof shall be THIRTY-NINE MILLION SIX HUNDRED
THOUSAND DOLLARS ($39,600,000.00). At the Closing, the Purchaser shall
deliver to each Seller a Contingent Note, due on the first business day
after January 1, 2003, in the maximum stated principal amount set forth on
Schedule 1.2, which Contingent Notes shall be in the form of Exhibit
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<PAGE> 12
1.4 hereto. The Contingent Notes shall be due and payable in the applicable
payment amount specified in or calculated pursuant to the Contingent Notes
and the Annexes to such Contingent Notes (the "Applicable Payment Amount")
corresponding to a target range of Operating Earnings 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
twelve-month periods ending on August 31, for the years 1998 through 2002
(the "Five Periods"), if, and only if, (i) with respect to the twelve month
period ending August 31, 1998, Operating Earnings for such period equal or
exceed the specified minimum target amount of $6,230,000.00 (the "Year-1
Minimum Target") or, (ii) with respect to the 24 month period ending August
31, 1999, the 36 month period ending August 31, 2000, the 48 month period
ending August 31, 2001 and the 60 month period ending August 31, 2002,
Cumulative Operating Earnings for such periods equal or exceed
$12,460,000.00, $18,690,000.00, $24,920,000.00 and $31,150,000.00,
respectively (together with the Year-1 Minimum Target, as relevant to the
applicable period, the "Minimum Targets"). Payment of principal and
interest, when required to be paid hereunder, shall be made on the first
business day after January 1 following the period for which the Minimum
Targets had been achieved. For each of the Five Periods 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, but only with respect to such period,
shall be canceled and voided. The Applicable Payment Amount for any payment
period for which an Applicable Payment Amount is due and payable shall be
reduced by any and all amounts of principal previously paid under or with
respect to the Contingent Notes. 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 $39,600,000.00.
(b) "Operating Earnings"; "Cumulative Operating Earnings".
(i) Definition of "Operating Earnings". For purposes hereof (and
the Contingent Notes), the term "Operating Earnings", with respect to
any period, shall mean the income of or attributable to the Business
for such full twelve-month period (i.e. September 1 through August 31)
before deduction for (in each case, with respect to the Business) (i)
interest expense for such period, (ii) income tax expense (based on
income) for such period, (iii) charges for amortization of goodwill
and other intangible assets created as a result of this transaction,
(iv) any additional depreciation resulting from a step-up in basis by
the Purchaser as a result of this transaction, (v) $50,000 additional
salary per year payable to Dr. Sonnier and his designee, (vi) gains or
losses on disposition of tangible assets, and (vii) any fees or
expenses incurred by the Business in connection with the transactions
contemplated by this Agreement. All such calculations shall be
determined in accordance with GAAP. For purposes hereof (and the
Contingent
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<PAGE> 13
Notes), the "Business" shall include the business, operations,
contracts, assets and liabilities of the Unipath Entities (as such is
constituted immediately prior to the Closing), which 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 5.01(a), (ii) the
contracts with hospitals and medical facilities in effect from time to
time, to which the Unipath Entities, prior to the Closing, and the
5.01(a), the Unipath Entities and/or AmeriPath's wholly-owned
subsidiary, AmeriPath Texas, Inc., a Texas corporation ("AmeriPath
Texas"), following the Closing, is a party, and which are serviced by
the physicians who from time to time are employed by the 5.01(a)
and/or AmeriPath Texas and who report to the medical director for the
Unipath Division (as defined below) (collectively, such physicians
being referred to herein as the "Unipath-Based Pathologists"), and
(iii) the Unipath Division's employment of, and employment agreements
with, any and all Unipath-Based Pathologists. For purposes hereof (and
the Contingent Notes), the term "Unipath Division" shall mean and
include the business and operations of the 5.01(a) and/or AmeriPath
Texas which, prior to consummation of the transactions contemplated by
this Agreement, constituted the business and operations of Unipath,
PLLC, DPA, DPP, AMPA, Plano, Metro, Ltd. and Metro, P.A.
(ii) Calculation of Operating Earnings. A statement of the
Operating Earnings, prepared by AmeriPath senior management, will be
delivered to the Sellers, along with the Applicable Payment Amount
required under the Contingent Notes (to the extent, and solely to the
extent, that such statement indicates that the Minimum Target has been
met or exceeded for such period), as calculated by AmeriPath based
upon such statement of Operating Earnings, as soon as practicable
following the end of each twelve month period, but in all events
within 90 days after the end of each such period. If the holders of a
majority of the outstanding principal balance of the Contingent Notes
(the "Holders") wish to challenge the calculation of Operating
Earnings, they may do so by giving written notice of such objection
(the "Objection Notice") to AmeriPath, signed by such Holders, within
90 days after receipt of such statement of Operating Earnings. The
Objection Notice shall set forth in reasonable detail the Holders'
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 Holders shall use their best efforts to
resolve as soon as practicable any difference of opinion. If they are
unable to resolve such difference within 90 days after receipt by
AmeriPath of the Objection Notice from the Holders, the matter shall
be referred to another independent public accounting firm of similar
experience and reputation as the Auditor acceptable to the Sellers and
the Purchaser, whose decision shall be final and binding on all
parties. If, as a result of such written determination, there is an
increase in the Operating Earnings or Cumulative Operating Earnings
from that set forth in the Operating Earnings statement to which the
dispute relates, then, within twenty (20) days from receipt of such
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determination, AmeriPath shall pay each Seller the difference between
the payments (including principal and all interest accrued on the
underpayment of such principal through the date of payment) which
should have been paid to Sellers based on the revised Operating
Earnings or Cumulative Operating Earnings statement and the actual
payments previously made by AmeriPath to the Sellers with respect to
such Operating Earnings statement. In the event that any dispute
concerning Operating Earnings or Cumulative Operating Earnings is
submitted to such independent auditor for resolution, the
non-prevailing party shall pay the reasonable fees of such auditor
incurred in connection therewith.
(iii) Cumulative Operating Earnings. For purposes hereof (and the
Contingent Notes), the term "Cumulative Operating Earnings" shall mean
and include, with respect to the 24 month period ending August 31,
1999, the 36 month period ending August 31, 2000, the 48 month period
ending August 31, 2001 and the 60 month period ending August 31,
2002,the Operating Earnings of the Business, on a cumulative basis,
from September 1, 1997 through the end of such period (e.g., the
Cumulative Operating Earnings for the period ending August 31, 2000
shall equal the Operating Earnings, on a cumulative basis, from
September 1, 1997 through August 31, 2000 (i.e., thirty-six full
months of Operating Earnings would be included)).
(iv) Regulatory Adjustments. Notwithstanding anything to the
contrary contained herein, if, in the judgment of a majority of the
full Board of Directors of AmeriPath (after agreement with the
Physician Committee (a committee consisting of three Sellers and two
other Persons designated by AmeriPath, as more fully described in
Section 15(d) of the employment agreements between each of the Sellers
and the 5.01(a) (the "Employment Agreements"))), in their sole and
absolute discretion acting in good faith, it is determined that (A)
the inclusion of certain income, from referrals or otherwise, in the
calculation of Operating Earnings or Cumulative Operating Earnings, as
the case may be, may cause the Contingent Notes, or the holding of the
Contingent Notes by any Holder, to violate any Regulation or Order of
any Authority (as such terms are defined in Section 12.3), or (B) any
income was derived or the result of a violation of the policies and
procedures of AmeriPath adopted from time to time by the Board of
Directors of AmeriPath, then, such income shall not be included in
Operating Earnings or Cumulative Operating Earnings, as the case may
be, and shall not be taken into account in determining the payments to
be made under the Contingent Notes.
(v) Limitations--Services. For purposes of calculating Operating
Earnings (and, as relevant, Cumulative Operating Earnings) hereunder,
the expenses associated with the Business may include costs, expenses
and charges relating to management, billing or other services provided
by AmeriPath or its Affiliates requested or approved by the Sellers
(or for which the Sellers failed to timely object) to the extent the
price or amount charged or allocated with respect
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to such services is based upon the fair market value thereof and is
competitive with the price or amount that would be charged by a Person
(as such term is defined in Section 12.3 hereof) not affiliated with
AmeriPath on an arms'-length, negotiated basis. AmeriPath shall not
allocate any of its corporate overhead to the Business without the
express written consent of the Sellers.
(c) Effect of Sale on Contingent Notes. Should any Person 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 Disposition"), then,
with respect to such Contingent Notes, or any one or more of them, that
have not theretofore been canceled or voided because the Minimum Target was
not or has not been met for the period in question, as a condition to
consummation of the AmeriPath Disposition, the acquiring Person shall be
required to assume AmeriPath's on-going obligations under the Contingent
Notes and to assume or honor the obligations under the Employment
Agreements and any other agreement entered into in connection with the
transactions contemplated hereby.
(d) Effect of Acquisitions on Contingent Notes. In the event that
AmeriPath or an Affiliate of AmeriPath acquires one or more Persons or
businesses after the Closing Date (an "AmeriPath Acquisition"), other than
in the ordinary course of business and upon agreement of the Purchaser and
the Sellers, Operating Earnings will be calculated without deducting any
selling, general or administrative expenses which do not relate to the
Unipath Entities or the Business, and without taking into account the
income generated by, or expenses incurred in connection with, the AmeriPath
Acquisition or the acquired Person or business; provided, however, with
respect to an AmeriPath Acquisition whose income the Purchaser and the
Sellers have agreed to include in the Operating Earnings or Cumulative
Operating Earnings, as the case may be, of the Business, interest,
amortization and depreciation with respect to such acquired practice shall
be deducted from the Operating Earnings or Cumulative Operating Earnings,
as the case may be, of the Business.
(e) Interest. Each Contingent Note shall bear interest as set forth in
the Contingent Note, computed on the basis of a 360-day year and the actual
number of days elapsed, on the Applicable Payment Amount thereof at the
rate of seven percent (7.0%) per annum. Simple interest shall accrue and
shall be payable only upon payment of principal, if any. In the event
Operating Earnings are less than the Minimum Target or Cumulative Operating
Earnings are less than the Cumulative Target for any given period, interest
on the principal amount of all Contingent Notes with maturities prior to
and including such date shall be forgiven, canceled and voided.
(f) Maturity, Redemption and Prepayments. For each period for which
Operating Earnings or Cumulative Operating Earnings, as the case may be,
equal or exceed the applicable Minimum Target, the appropriate Applicable
Payment Amount of the Contingent Notes, together with interest accrued on
such Applicable Payment Amount,
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<PAGE> 16
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, it is determined that the Contingent Notes, or the holding of
the Contingent Notes by any Holder, may violate any Regulation or Order of
any Authority (a "Violation"), then, in AmeriPath's sole discretion (as
recommended by counsel to Ameripath), AmeriPath shall prepay the Contingent
Notes. In its sole and absolute discretion, AmeriPath may prepay the
Contingent Notes by paying (in the aggregate, for all Contingent Notes) the
Payoff Amount (as defined below) for any or all of each of YR1, YR2, YR3,
YR4 or YR5 (each as defined in the Contingent Notes), other than for any
such year for which (i) the Purchaser paid the Applicable Payment Amount
and interest thereon to the Holder without default or (ii) the Operating
Earnings or Cumulative Operating Earnings, as the case may be, were less
than the applicable Minimum Target for such year). AmeriPath shall give the
Holders irrevocable written notice of any prepayment hereunder not less
than three (3) business days prior to the prepayment date, specifying such
prepayment and the date thereof, whereupon the Payoff Amount, together with
accrued interest thereon, shall become due and payable on the prepayment
date. For purposes hereof, the "Payoff Amount" shall mean the product of
(x) 1.5 and (y) the Applicable Payment Amount (as set forth on the Annexes
to the Contingent Notes for the period ending August 31, 1998) for the
average 12 month Operating Earnings for the previous 24 month period;
provided, however, if the prepayment occurs during the first 12 month
period following the Closing Date, then the average 12 month Operating
Earnings shall be calculated using only the previous 12 month period
(including any portion of such 12 month period prior to the Closing
hereunder, with appropriate adjustments to restate such pre-Closing period
earnings as if such earnings had occurred following the Closing hereunder);
provided further, however, if the Contingent Notes are prepaid due to a
Violation, then the multiplier in clause (x) above shall be 1.25.
(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
certified or bank check) not later than five o'clock p.m., Dallas, Texas
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 attached hereto as
Exhibit 7.11 (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, each
Holder agrees to execute and deliver appropriate documents and agreements
evidencing the subordination of the Contingent Notes to senior indebtedness
of AmeriPath.
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<PAGE> 17
(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 the Contingent Notes. With respect to all
Contingent Notes issued hereunder, AmeriPath shall have the right,
following prior written notice to the Holder, to set-off against principal
or interest payable to such Holder under a Contingent Note held by such
Holder the amount of any indemnification payment owed by such Holder 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
Holder shall have the right to respond to such notice, and if the Holder
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
Holder against whom AmeriPath intends to assert such right of set-off
contests in writing (sent to AmeriPath) AmeriPath's claim that the Holder
is obligated to pay such amount as indemnification under Article XI hereof,
then the amount which AmeriPath would otherwise have paid to the Holder 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 Holder 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 Holder agree that they will use their
best efforts to resolve any such dispute within 30 days of receipt of
notice by AmeriPath of the Holder's objection to the set-off. If the
dispute shall not have been settled at the end of such 30-day period, the
Purchaser shall forthwith seek a declaratory judgment or some other
judicial resolution of the matter and the funds escrowed shall be placed
with the registry of the court for the benefit of the prevailing party.
(k) Defaults. The Holders of the Contingent Notes shall be entitled to
the benefit of the Events of Default set forth in the form of Contingent
Note.
(l) Conflict. To the extent there is any conflict or inconsistency
between the terms of this Agreement and the terms specified in any
Contingent Note, the terms specified in the Contingent Note shall govern
and prevail.
(m) Tax Reporting. The parties agree that the Contingent Notes are
"contingent payment obligations" issued under section 1274 of the Code and
payment of principal and interest on the Contingent Notes shall be
recognized for federal income tax purposes in accordance with treasury
regulation section 1.1275-4(c).
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<PAGE> 18
1.5 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 1.5, the AmeriPath Stock (to be divided among the
Sellers as set forth on Schedule 1.2 hereof).
(a) Restrictions on Transfer; Release.
(1) Except as is specifically permitted by the provisions of this
Section 1.5, the sale, assignment, transfer, conveyance, pledge,
margin, hypothecation, gift, bequest, devise, levy, execution or other
disposition (hereinafter, each, a "transfer") of the AmeriPath Stock,
either directly or indirectly, by operation of law or otherwise, to
any Person is strictly prohibited.
(2) In furtherance and not in limitation of the foregoing, no
Seller shall transfer any shares of the AmeriPath Stock 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 AmeriPath Stock under any such Securities Laws, or
a breach of any undertaking or agreement of such Seller entered into
with AmeriPath pursuant to such Securities Laws or in connection with
obtaining an exemption thereunder, and AmeriPath shall not transfer
upon its books any shares of AmeriPath Stock unless prior thereto
AmeriPath shall have received an opinion, in form and substance
satisfactory to AmeriPath, of counsel, reasonably satisfactory to
AmeriPath, that such transfer is in compliance with this Section 1.5
and the Securities Laws.
(3) For purposes of this Agreement (and the restrictions set
forth in this Section 1.5), the term "AmeriPath Stock" shall mean and
include (i) the shares of AmeriPath Stock issued, granted, conveyed
and delivered to each Seller pursuant to Section 1.2 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").
(4) Release of Restrictions. Notwithstanding the provisions of
Section 1.5(a)(1), commencing the date which is one year following the
Closing Date, and on each of the four one-year anniversaries of such
date, 20% of the shares of AmeriPath Stock (including both the Primary
Shares and any Additional Shares issued with respect to such Primary
Shares) owned by each Seller shall be free of the restrictions set
forth in Section 1.5(a)(1), such restrictions at such time having
lapsed and no longer being applicable to such percentage of the
AmeriPath Stock, so that after five (5) years none of the shares of
AmeriPath Stock (including
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<PAGE> 19
Primary Shares and Additional Shares) shall be subject to the
restrictions set forth in Section 1.5(a)(1) hereof. The ownership of
the AmeriPath Stock by the Sellers is not subject to the employment of
such Sellers with an AmeriPath Affiliate.
(b) Permitted Conditional Transfer Upon Death. Notwithstanding the
provisions of this Section 1.5, upon a Seller's death, the AmeriPath Stock
owned by such Seller shall be transferable solely pursuant to the Seller's
will or in accordance with the laws of descent and distribution, if, and
only if, the descendants or devisees or assignees or beneficiaries, as
applicable, of the AmeriPath Stock execute and deliver to AmeriPath an
agreement, in form and substance satisfactory to AmeriPath, evidencing
their agreement to the restrictions contained in this Section 1.5.
(c) Transferability; Shareholders' Agreement. Any shares of AmeriPath
Stock issued pursuant hereto, shall be subject to that certain
Shareholders' Agreement, dated as of February 29, 1996, as amended from
time to time, by and among AmeriPath and each of the stockholders of
AmeriPath, attached hereto as Exhibit 7.9 (the "Shareholders' Agreement"),
relating to the AmeriPath Stock and related and other matters, including,
but not limited to, any restrictions on transferability and any rights of
first refusal. 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), the Sellers shall execute and deliver to the Purchaser a
counterpart to the Shareholders' Agreement. In addition, in connection with
the closing, the Sellers agree that, if an underwriter requests the
Purchaser, in connection with an underwritten public offering of any of its
securities, to secure and obtain a lock-up agreement, whereby a Person
agrees to refrain from selling, transferring, pledging or otherwise
conveying its securities for a certain period, less than 181 days (the
"Lock-up"), from any of the Purchaser's stockholders, optionholders or
employees, the Sellers shall execute and deliver to the Purchaser a
Lock-up, in form and substance acceptable to the Purchaser and the
underwriters of such offering, within ten (10) days of receipt a written
request from the Purchaser.
(d) Legend(s) on Stock Certificates. Each Seller understands and
agrees that any and all stock certificates evidencing the AmeriPath Stock
shall contain appropriate restrictive legends indicating, in form
satisfactory to AmeriPath, the restrictions to which the AmeriPath Stock is
subject, as provided under this Agreement, including, but not limited to,
the following:
"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 and any rights of first refusal, and may not, in
whole or in part, be sold, transferred, pledged, gifted,
hypothecated or otherwise disposed of in any manner other
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<PAGE> 20
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 7289 Garden
Road, Suite 200, Riviera Beach, Florida 33404."
(e) Representations. Each Seller understands that, in connection with
the issuance of the AmeriPath Stock, AmeriPath is relying upon the
representations and warranties being made by Sellers to AmeriPath in
Section 2.24 hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally to the extent set forth in Section
11.8 hereof, make the following representations and warranties to the Purchaser
(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
unless the Purchase had actual knowledge that such representations and
warranties were not correct and complete):
2.1 Corporate Organization, Qualification, etc.
(a) Unipath is a limited partnership duly organized, validly existing
and in good standing under the laws of the State of Texas with full 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. Unipath is duly qualified or licensed to do business in good
standing in Texas, that being the only jurisdiction in which the conduct of
Unipath'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. Unipath's partnership agreement has not been amended or
supplemented since May 31, 1995, and is in full force and effect as of the
date hereof. A true, complete and correct copy of Unipath's partnership
agreement as presently in effect, is attached hereto as Exhibit 2.1(a).
(b) PLLC is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Texas 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. PLLC is duly qualified or licensed to do
business in good standing in Texas, that being the only jurisdiction in
which the conduct of PLLC'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. PLLC's articles
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<PAGE> 21
of organization have not been amended or supplemented since May 11, 1995,
and are in full force and effect as of the date hereof. True, complete and
correct copies of PLLC's articles of organization and regulations, as
presently in effect, are attached hereto as Exhibit 2.1(b).
(c) DPA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas 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. DPA is duly qualified or licensed to do business in good standing
in Texas, that being the only jurisdiction in which the conduct of DPA'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.
DPA's articles of incorporation have not been amended or supplemented since
April 7, 1976, and are in full force and effect as of the date hereof.
True, complete and correct copies of DPA's articles of incorporation and
by-laws, as presently in effect, are attached hereto as Exhibit 2.1(c).
(d) DPP is a partnership duly organized, validly existing and in good
standing under the laws of the State of Texas with full legal 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. DPP is duly qualified or licensed to do business in good standing
in Texas, that being the only jurisdiction in which the conduct of DPP'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.
DPP's partnership agreement has not been amended or supplemented since
April 11, 1990, and is in full force and effect as of the date hereof. A
true, complete and correct copy of DPP's partnership agreement, as
presently in effect, is attached hereto as Exhibit 2.1(d).
(e) AMPA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas 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. AMPA is duly qualified or licensed to do business in good standing
in Texas, that being the only jurisdiction in which the conduct of AMPA'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.
AMPA's articles of incorporation have not been amended or supplemented
since July 9, 1990, and are in full force and effect as of the date hereof.
True, complete and correct copies of AMPA's articles of incorporation and
by-laws, as presently in effect, are attached hereto as Exhibit 2.1(e).
(f) Plano is a partnership duly organized, validly existing and in
good standing under the laws of the State of Texas with full legal power
and authority to carry on its
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<PAGE> 22
business as it is now being conducted and proposed to be conducted, and to
own, operate and lease its properties and assets. Plano is duly qualified
or licensed to do business in good standing in Texas, that being the only
jurisdiction in which the conduct of Plano'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. Plano's partnership
agreement has not been amended or supplemented since April 20, 1992, and is
in full force and effect as of the date hereof. A true, complete and
correct copy of Plano's partnership agreement, as presently in effect, is
attached hereto as Exhibit 2.1(f).
(g) Metro, Ltd. is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Texas with
full legal 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. Metro is duly qualified or licensed to do business
in good standing in Texas, that being the only jurisdiction in which the
conduct of Metro'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. Metro's limited partnership agreement has not been
amended or supplemented since June 27, 1994, and is in full force and
effect as of the date hereof. A true, complete and correct copy of Metro's
limited partnership agreement, as presently in effect, is attached hereto
as Exhibit 2.1(g).
(h) Metro, P.A. is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas 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. Metro, P.A. is duly qualified or licensed to do business in
good standing in Texas, that being the only jurisdiction in which the
conduct of Metro, P.A.'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. Metro, P.A.'s articles of incorporation
have not been amended or supplemented since November 9, 1994, and are in
full force and effect as of the date hereof. True, complete and correct
copies of Metro, P.A.'s articles of incorporation and by-laws, as presently
in effect, are attached hereto as Exhibit 2.1(h).
(i) Each MDPA is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas 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. Each MDPA is duly qualified or licensed to do business in good
standing in Texas, that being the only jurisdiction in which the conduct of
such MDPA'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. None of the
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<PAGE> 23
MDPA's articles of incorporation have been amended or supplemented since
such MDPA's date of incorporation, and are in full force and effect as of
the date hereof. True, complete and correct copies of each MDPA's articles
of incorporation and by-laws, as presently in effect, are attached hereto
as Exhibit 2.1(i).
2.2 Subsidiaries. Except as set forth on Schedule 2.2, none of the Sellers,
MDPAs or S Corps has any 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, partner or shareholder.
2.3 INTENTIONALLY DELETED.
2.4 Corporate Record Books. Except as set forth on Schedule 2.4 attached
hereto.
(a) The partnership minute book of UniPath which has been made
available to the Purchaser is complete and correct and contains all of the
proceedings of the partners of Unipath.
(b) The corporate minute book of PLLC which has been made available to
the Purchaser is complete and correct and contains all of the proceedings
of the shareholders, members and directors of PLLC.
(c) The corporate minute books of each DPA which have been made
available to the Purchaser are complete and correct and contain all of the
proceedings of the shareholders and directors of each DPA.
(d) The partnership minute books and records of DPP which have been
made available to the Purchaser are complete and correct and contain all of
the proceedings of the partners of DPP.
(e) The corporate minute books of AMPA which have been made available
to the Purchaser are complete and correct and contain all of the
proceedings of the shareholders and directors of AMPA.
(f) The partnership minute books and records of Plano which have been
made available to the Purchaser are complete and correct and contain all of
the proceedings of the partners of Plano.
(g) The partnership minute books and records of Metro, Ltd. which have
been made available to the Purchaser are complete and correct and contain
all of the proceedings of the partners of Metro, Ltd.
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<PAGE> 24
(h) The corporate minute books of Metro, P.A. which have been made
available to the Purchaser are complete and correct and contain all of the
proceedings of the shareholders and directors of Metro, P.A.
(i) The corporate minute books of each MDPA which have been made
available to the Purchaser are complete and correct and contain all of the
proceedings of the shareholders and directors of each MDPA.
2.5 Authorization, Etc. Each Seller has full power, authority and 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 each Seller
and no other proceedings or actions 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
and all other agreements contemplated hereby, this Agreement and such other
agreements shall constitute the legal, valid and binding obligation of each
Seller party thereto, enforceable against each such party in accordance with
their respective terms.
2.6 No Violation. The execution and delivery by the Sellers of this
Agreement and all other agreements contemplated hereby, and the fulfillment of
and compliance with the respective terms hereof and thereof by each Seller and
each Unipath Entity, do not and will not, except as set forth on Schedule 2.6,
(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,
partnership or other interests or assets of any Seller or any Unipath Entity
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 Person, court or
Authority pursuant to, the organizational documents of any Unipath Entity or any
Regulation, Order or Contract (as defined in Section 12.3) to which any Seller
or any Unipath Entity is currently subject.
2.7 Financial Statements. Attached as Exhibit 2.7 hereto are the following
financial statements of the Unipath Entities: (i) balance sheets for the fiscal
year ended June 30, 1996 and June 30, 1997 (the "Balance Sheets"), (ii) income
statements and related schedules thereto for the fiscal years ended June 30,
1996 and June 30, 1997 (the "Income Statements"), and (iii) balance sheet,
statement of revenues and expenses and related schedules thereto for the three
months ended June 30, 1997 (collectively, together with the Balance Sheets and
the Income Statements, the "Financial Statements"). The balance sheets (and the
schedules thereto) included in the Financial Statements fairly present the
financial position of the Unipath Entities as at the respective dates thereof,
and the Income Statements (and the schedules thereto) included in the Financial
Statements (x) fairly present the results of operations for the periods therein
referred to, (except as stated therein or in the notes or schedules thereto)
applied on a consistent basis, and
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(y) fairly present the financial condition of the Unipath Entities at the
respective date of and for the period covered by, such statements. No Unipath
Entity has any 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
disclosed on Schedule 2.7(a) attached hereto, (ii) liabilities less than $10,000
incurred since June 30, 1997 in the ordinary course of business, and (iii)
liabilities covered by insurance or reinsurance (a complete and detailed
description of which is provided in Schedule 2.7(b)). Schedule 2.7(c) contains a
complete list of the accounts payable in excess of $100 of each Unipath Entity
as of the date hereof and a summary description as of the Closing Date (to be
supplemented at the Closing).
2.8 Employees. As of June 30, 1997, and as of the date hereof, the Unipath
Entities had the aggregate number of employees set forth on Schedule 2.8 hereto.
To the best knowledge of each Seller, after due investigation and inquiry, each
Unipath Entity has been for the past four years (or as many years as such entity
has been organized, as applicable, and currently is, in compliance with all
Federal, State and local Regulations and Orders affecting employment and
employment practices of the Unipath Entities (including those Regulations
promulgated by the Equal Employment Opportunity Commission), including terms and
conditions of employment and wages and hours.
2.9 Absence of Certain Changes. Except as set forth in Schedule 2.9 hereto.
Since June 30, 1997, except as contemplated herein, there has not been (a) any
Material Adverse Change (as defined in Section 12.3) in or to the Unipath
Entities; (b) any decrease in the cash and cash equivalents of the Unipath
Entities from the amounts shown on the balance sheet for the fiscal year ended
June 30, 1997 included in the Financial Statements, (c) any damage, destruction
or loss, whether covered by insurance or not, having a Material Adverse Effect
(as defined in Section 12.3), with regard to the Unipath Entities' assets,
properties or business; (d) any payment by the Unipath Entities to, or any
notice to or acknowledgment by any Unipath Entity of any amount due or owing to,
the Unipath Entities' self-insured carrier, if any, in connection with any
self-insured amounts or liabilities under health insurance covering employees of
the Unipath Entities, in each case, in excess of a reserve therefor on the
balance sheet for the fiscal year ended June 30, 1997 included in the Financial
Statements; (e) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) in respect of the Unipath
Entities' capital stock or capital or partnership interests, or any redemption
or other acquisition of such capital stock or capital or partnership interests
by the Unipath Entities (other than that which would not cause a breach of
Section 2.30 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 the Unipath Entities to their directors, officers, partners,
employees or consultants; (g) any amendment, modification or termination of any
existing, or entering into any new, Contract or plan relating to any salary,
bonus, insurance, pension, health or other employee welfare or benefit plan for
or with any directors, officers, partners, employees or consultants of a Unipath
Entity (other than in the ordinary course of business); (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 a Unipath Entity of any asset; (j) any
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adverse change in the sales patterns, pricing policies, accounts receivable or
accounts payable relating to the Sellers; or (k) any write-down of the value of
any inventory having an aggregate value in excess of $5,000, or write-off, as
uncollectible, of any notes, trade accounts or other receivables having an
aggregate value in excess of $5,000; or (l) any change by a Unipath Entity in
accounting methods or principles.
2.10 Contracts.
(a) Except as set forth in Schedule 2.10 hereto, no Seller or Unipath
Entity is a party to or 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 2.17 hereto), or any Contract with any
labor union;
(ii) employment, consultation, or other compensation Contract
which is not terminable on notice of 30 days' or less by a Unipath
Entity without penalty or other financial obligation (and, except as
set forth on Schedule 2.10, no officer or employee of any Unipath
Entity receives total salary, bonus and other compensation from such
Unipath Entity of $35,000.00 or more per annum).
(iii) Contract containing covenants or agreements limiting the
freedom of an Unipath Entity or any of their employees to compete in
any line of business presently conducted by any Unipath Entity with
any Person or to compete in any such line of business in any area;
(iv) Contract with any Seller or with any Unipath Entity or with
any affiliate or relative of any Seller or with any affiliate of any
Unipath Entity (except for any Contract disclosed in Schedule 2.10
pursuant to clauses (ii) or (iii) of this Section 2.10(a));
(v) Contract relating to or providing for loans to officers,
directors, employees or Affiliates;
(vi) Contract under which any Unipath Entity has advanced or
loaned, or are 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 any Unipath Entity;
(viii) guarantee or endorsement of any obligation;
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<PAGE> 27
(ix) Contract under which any Unipath Entity 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 $10,000.00;
(x) Contract pursuant to which any Unipath Entity is lessor of or
permits any third party to hold or operate any property, real or
personal, owned or controlled by a Unipath Entity;
(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 a Unipath Entity;
(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 $10,000.00;
(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,
any Seller also has a Contract; or
(xx) any other Contract which is material to any Unipath Entity'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 such Unipath Entity without penalty or other financial
obligation, and (z) in each case, involve aggregate payments by or to
any Unipath Entity of $10,000.00 or less.
(b) Except as set forth on Schedule 2.6, 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.
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<PAGE> 28
(c) Each Unipath Entity 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 such Unipath Entity 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 any Unipath Entity is
subject (including without limitation all performance bonds, warranty
obligations or otherwise); no Unipath Entity has any present expectation or
intention of not fully performing all such obligations; and no Unipath
Entity has any knowledge of any breach or anticipated breach by the other
parties to any such Contract to which it is a party.
2.11 True and Complete Copies. Copies of all Contracts and documents
delivered and to be delivered hereunder by the Sellers are and will be true and
complete copies of such agreements, Contracts and documents.
2.12 Title and Related Matters.
(a) The Unipath Entities own all of the properties and assets
reflected in the balance sheet for the fiscal year ended June 30, 1997
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 (as defined in
Section 12.3), 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 do
not 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,
1997 included in the Financial Statements or the notes thereto.
(b) Each Unipath Entity owns, and will on the Closing Date own, all
the personal property and assets, tangible or intangible, used in the
Business except as to those assets (1) leased all of which leases are in
good standing and no party is in default thereunder, and (2) set forth on
Schedule 2.12, which are the personal property of the Sellers, not to be
transferred to the Purchaser hereunder. Upon the sale, transfer and
conveyance of the Stock to the Purchaser hereunder, the Unipath Entities
(as they are constituted immediately prior to the Closing and the 5.01(a)
immediately after the Closing) shall retain good title to all of their
properties and assets as set forth in (a) above. None of the assets
belonging to or held by any Unipath Entity 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 any Unipath Entity in the conduct of its
business is in good operating condition and repair, ordinary wear and tear
excepted.
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<PAGE> 29
(c) There has not been since June 30, 1997, and will not be prior to
the Closing Date, any sale, lease, or any other disposition or distribution
by a Unipath Entity 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,
including the assets which are to remain the property of the Sellers, as
set forth on Schedule 2.12. After the Closing, either the 5.01(a) or
AmeriPath Texas, 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 Unipath Entities.
(d) Schedule 2.12 attached hereto sets forth a description of all real
and personal property owned or leased by the Unipath Entities, as well as
the property to be retained by the individual Sellers.
2.13 Equipment and Other Tangible Property. The Unipath Entities'
equipment, furniture, machinery, structures, fixtures and other tangible
property are adequate for the purposes for which intended and are in good
operating condition and repair consistent with normal industry standards, except
for ordinary wear and tear, and except for such assets as shall have been taken
out of service on a temporary basis for repairs or replacement consistent with
the Sellers' prior practices and normal industry standards.
2.14 Litigation. Except as set forth on Schedule 2.14 hereto, there are no
Claims (as defined in Section 12.3) pending or, to the best knowledge of any
Seller, threatened against any of the Sellers or the Unipath Entities which, if
adversely determined, would have a Material Adverse Effect on any Unipath
Entity. Nor is there any Order outstanding against any of the Sellers or the
Unipath Entities having, or which, insofar as can reasonably be foreseen, in the
future may have, a Material Adverse Effect on any Unipath Entity.
2.15 Tax Matters.
(a) Each Unipath Entity 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 Unipath Entity 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 accrued, including any of the
Unipath Entities' Taxes that may be due or claimed to be due as a result of
the consummation of the transactions contemplated by this Agreement.
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<PAGE> 30
All Taxes which are required to be withheld or collected by the Unipath
Entities 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 any Unipath Entity except for liens for Taxes not
yet due and payable. No Unipath Entity 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. There shall be no gains recognized
upon or as a result of the dissolution of the partnerships. 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. PLLC has been and shall be up to Closing treated as a partnership
for federal tax purposes.
(b) No audit of any Unipath Entity or any Unipath Entity's Tax Returns
by any Taxing Authority is currently pending or, to the best knowledge of
the Sellers, 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 any
Unipath Entity 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 any Unipath
Entity on the Tax Returns filed by or on behalf of such Unipath Entity for
all taxable years (including the supporting schedules filed therewith),
available copies of which have been made available to the Purchaser, state
accurately the information requested with respect to such Unipath Entity
and such information was derived from the books and records of such Unipath
Entity.
(c) No Unipath Entity has made or 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 each Unipath Entity 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 each Unipath Entity shall pay all Taxes due in respect of
such Pre-Closing Tax Returns to the appropriate Taxing Authority. The
Sellers, if AmeriPath so requests, shall assist AmeriPath in causing the
Unipath Entities which are partnerships to make and timely file elections
pursuant to Section 754 of the Code, and the Election pursuant to Section
1.3 hereof shall be made and timely filed in accordance with Section 1.3.
(e) In order to enable AmeriPath to acquire the Stock, each of the
Sellers shall cause the MDPA which it owns to merge with and into a regular
Texas business corporation owned by such Seller pursuant to a
reorganization that will qualify under Section 368 (a)(1)(F) of the Code as
a mere change in identity, form or place of
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<PAGE> 31
organization of a corporation, however effected; and each of Metro, P.A.
and AMPA shall be merged with and into separate regular Texas business
corporations pursuant to a reorganization that will qualify under Section
368 (a)(1)(F) of the Code as a mere change in identity, form or place of
organization of a corporation.
2.16 Compliance with Law and Applicable Government Regulations. Each
Unipath Entity 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, Healthcare Laws, 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 the Sellers are there any Claims threatened, nor has any Seller or
Unipath Entity received any written notice, regarding any violations of any
Regulations and Orders enforced by any Authority claiming jurisdiction over any
Unipath Entity, including any requirement of OSHA or any pollution and
environmental control agency (including air and water).
(a) Schedule 2.16(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 each Unipath Entity. The Permits listed on
Schedule 2.16(a) are the only Permits that are required for each Unipath
Entity to conduct its business as presently conducted, except for those the
absence of which would not have any Material Adverse Effect on any Unipath
Entity. Each such Permit is in full force and effect and, to the best of
the knowledge of the Sellers, 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) Each Unipath Entity has the licenses to provide healthcare
services in the jurisdictions set forth in Schedule 2.16(b) hereto, which
such licenses are all those necessary to conduct the business of such
Seller in the jurisdictions in which such Unipath Entity presently
operates. Schedule 2.16(b) also sets forth a true and complete description
of the status of each such license. Except as set forth on Schedule
2.16(b), the Sellers are not 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.
2.17 ERISA and Related Matters.
(a) Benefit Plans; Obligations to Employees. Except as set forth in
Schedule 2.17 hereto, no Unipath Entity, or any ERISA Affiliate of any
Unipath Entity, is a party to or participates in or has any liability or
contingent liability with respect to:
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(i) any "employee welfare benefit plan" or "employee pension
benefit plan" or "multiemployer 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 2.17
for which any Unipath Entity or any ERISA Affiliate of any Unipath Entity 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 any Unipath Entity 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 2.17, 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 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 each Unipath Entity, 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 2.17, each Unipath Entity 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
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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 no
Unipath Entity or any ERISA Affiliate of any Unipath Entity 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 each Unipath Entity's balance sheet for the fiscal year ended June 30,
1997 included in the 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.
2.18 Intellectual Property.
(a) Except as set forth on Schedule 2.18, no Unipath Entity has a
trade name, service mark, patent, copyright or trademark related to its
business.
(b) Each Unipath Entity has the right to use each Proprietary Right
listed in Schedule 2.18, 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 any Seller, threatened against any Seller that its
use of any of the Proprietary Rights listed on Schedule 2.18 infringes the
rights of any Person. The Sellers have no knowledge of any conflicting use
of any of such Proprietary Rights.
(c) No Unipath Entity is 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. To the best knowledge of the Sellers, the
current software applications used by the Unipath Entities in the
operation of their business, as set forth and described on Schedule
2.18(d) hereto (the "Software"), to the extent it has been designed or
developed by a Unipath Entity's management information or development
staff or by consultants on such Unipath Entity's behalf, is original
and capable of copyright protection in the United States, and each
Unipath Entity has complete rights to and ownership of such Software.
To the best knowledge of the Sellers, 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,
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trade secrets, and rights of privacy or publicity. No Unipath Entity
has sold, assigned, licensed, distributed or in any other way disposed
of or encumbered the Software.
(ii) Licensed Software. To the best knowledge of the Sellers, the
Software, to the extent it is licensed from any third party licensor
or constitutes "off-the-shelf" software, is held by the Unipath
Entities legitimately and is fully transferable to the Purchaser
without any third party consent. All of the Unipath Entities' computer
hardware has legitimately-licensed software installed therein.
(iii) No Errors; Nonconformity. To the best knowledge of the
Sellers, 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.
2.19 Environmental Matters. Except as disclosed in Schedule 2.19: (a) no
Unipath Entity's business nor the operation thereof violates any applicable
Environmental Law (as defined in Section 12.3) 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 any
Unipath Entity or the Purchaser or creates or could create a liability or loss
for any Unipath Entity or the Purchaser) which, with notice or the passage of
time or both, would constitute a violation of any Environmental Law; (b) each
Unipath Entity 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 such Unipath Entity's business (or any part thereof), and each
Unipath Entity is in full compliance with all of the requirements and
limitations included in such Environmental Permits; (c) no Unipath Entity has
stored or used any pollutants, contaminants or hazardous or toxic wastes,
substances or materials on or at any property or facility now or previously
owned, leased or operated by such Unipath Entity, except for inventories of
chemicals which are used or to be used in the ordinary course of such Unipath
Entity'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) no Unipath Entity has received any notice
from any Authority or any private Person that such Unipath Entity'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 property or facility
now or previously owned, leased or operated by such Unipath Entity, or at, on or
beneath any land adjacent thereto or in connection with any waste or
contamination site; (e) no Unipath Entity is 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 such
Unipath Entity; (f) no Unipath Entity has buried, dumped, disposed, spilled or
released any pollutants, contaminants or hazardous or toxic wastes, substances
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or materials on, beneath or adjacent to any property or facility now or
previously owned, leased or operated by any Unipath Entity, or any property
adjacent thereto; (g) no by-products of any manufacturing or mining process
employed in the operation of any Unipath Entity'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
property or facility now or previously owned, leased or operated by any Unipath
Entity; (h) no property or facility now or previously owned, leased or operated
by any Unipath Entity, 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
any Unipath Entity; (j) no Unipath Entity has 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 any Unipath Entity 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 in violation of applicable laws at any property now or
previously owned or leased by any Unipath Entity. Each Unipath Entity 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.
2.20 Dealings with Affiliates. Schedule 2.20 hereto sets forth a complete
list, including the parties, of all oral or written Contracts to which each
Unipath Entity 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.
2.21 Banking Arrangements. Schedule 2.21 attached hereto sets forth the
name of each bank in or with which any Unipath Entity 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. Except as so noted on
Schedule 2.21, no Unipath Entity has a liability or obligation relating to funds
or money borrowed by or loaned to any Unipath Entity (whether under any credit
facility, line of credit, loan, indenture, advance, pledge or otherwise).
2.22 Insurance. Schedule 2.22 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 any
Unipath Entity as of the date hereof, as well as a schedule of Claims filed with
each Unipath Entity's current insurance carrier, including a history of such
Claims and a description and estimated dollar amount of any unresolved Claims.
Such policies are valid, outstanding and enforceable policies, as to which
premiums have been paid currently. Except as set forth on Schedule 2.22, the
Sellers do not know of any state of facts, or of the occurrence of any event
which might reasonably (a) form the basis for any Claim against a
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Unipath Entity not fully covered by insurance for liability on account of any
express or implied warranty or tortious omission or commission, or (b) result in
a material increase in insurance premiums of any Unipath Entity.
2.23 Consents. Schedule 2.23 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 any Unipath Entity or
Seller to enable the Unipath Entities and 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.
2.24 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
Unipath Entity or Seller, then each Seller hereby represents and warrants to
AmeriPath as follows:
(a) Each 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 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 such Person has 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. Each Seller has reviewed the information
included in Exhibit 3.6, attached hereto. On the basis of the foregoing,
each Seller is familiar with the operations, business plans and financial
condition of AmeriPath.
(b) Each understands that he or she must bear the economic risk of the
AmeriPath Stock, if and when issued to such Person, for an indefinite
period of time because, except as provided in this Agreement, (i) each
Person 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 of
1933, as amended (the "Securities Act") or the Securities Act of Texas,
that for such purpose AmeriPath will rely upon the representations,
warranties, covenants and agreements contained in this Section, as well as
any additional representations, warranties, covenants, agreements and
certifications of a similar nature requested by AmeriPath to be delivered
by the Sellers at such time(s) of issuance or reissuance 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 its shares of AmeriPath Stock; its shares of AmeriPath
Stock may be transferred only if registered under the Securities Act or if
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an exemption from such registration is available; a Seller may not be able
to avail itself 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 except in compliance with this Agreement and the Shareholders'
Agreement and the receipt by AmeriPath of 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 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 the
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 Texas. Each Seller executed and will
execute all documents contemplated hereby in Texas, and each Seller is a
natural person and a resident of Texas.
(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, when and if issued, will bear appropriate
restrictive legends.
2.25 Accounts Receivable; Inventories. The accounts receivable of each
Unipath Entity reflected on Schedule 2.25 attached hereto 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 practice). 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 each Unipath Entity on the date hereof,
(i) do not include any items which are not usable or saleable in the ordinary
course of business of
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each Unipath Entity, 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, 1997, inventories and
supplies have been purchased by each Unipath Entity 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.
2.26 Brokerage. Neither any Unipath Entity 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 any Unipath
Entity 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 have
engaged Wellington Associates, Inc. (the "Broker"), 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, the Broker shall be entitled to a fee, to be paid by the Sellers,
of $934,500. The Sellers are solely responsible for paying any and all fees and
expenses of the Broker, and shall indemnify and hold harmless the Purchaser from
any expense, Claim or liability therefor.
2.27 Improper and Other Payments. Except as set forth on Schedule 2.27
hereto, (a) neither any Unipath Entity nor any Seller, director, officer, or
employee thereof, nor, to each Seller's knowledge, any agent or representative
of any Unipath Entity or any Person acting on behalf of any of them, has made,
paid or received any 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 in excess of
$1,000 since June 30, 1995; (c) no improper foreign payment (as defined in the
Foreign Corrupt Practices Act) has been made; and (d) the internal accounting
controls of each Unipath Entity are believed by each Seller to be adequate to
detect any of the foregoing under current circumstances.
2.28 Participation in Audits. Except as set forth in Schedule 2.28, no
Unipath Entity has 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 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 any Unipath Entity or Seller. For purposes of this Section 2.28 the
term "Recoupment Claim" shall mean any recoupment or overpayment, set-off,
penalty or fine, pending or, to the knowledge of each Unipath Entity and each
Seller, threatened by any third-party payor or governmental authority having
jurisdiction over any Unipath Entity for amounts arising from or related to
payments to any Unipath Entity for services rendered prior to the Closing.
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2.29 Healthcare Laws & Regulations.
(a) Fraud and Abuse. Except as set forth on Schedule 2.29(a), to the
best of each Seller's knowledge, neither any Unipath Entity, nor any of
their officers, directors, employees, shareholders or providers, have
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 the Unipath Entities in the ordinary course of business.
Each Unipath Entity 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 any Unipath Entity (as set forth on Schedule 2.29(b)),
together with accurate and complete copies of all such Contracts. Except as
set forth on Schedule 2.29(b), each Unipath Entity is in compliance with
each third-party payor's Contract, and each Unipath Entity 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. Each Unipath
Entity 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 any Unipath Entity 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 to
any Unipath Entity. Except as set forth on Schedule 2.29(c) hereto, there
are no Claims pending or, to any Seller's knowledge, threatened or
scheduled before any Authority, including without limitation, any
intermediary, carrier, the Administrator of the Health Care Financing
Administration, the Texas Department of Health and Rehabilitative Services,
the Agency for Healthcare Administration or any other state or federal
agency with respect to any Medicare and Medicaid claim filed by any Unipath
Entity on or before
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the Closing Date, or program compliance matters, which would have a
Material Adverse Effect on any Unipath Entity, or its assets, the
operations or utility thereof, or the consummation of the transactions
contemplated hereby. Each Unipath Entity has delivered to the Purchaser
accurate and complete copies of any Claims, actions or appeals listed on
Schedule 2.29(c). Except for routinely scheduled reviews pursuant to each
Unipath Entity's Medicare and Medicaid Contracts, no valid review or
program integrity review related to the Unipath Entities has been conducted
by any Authority in connection with the Medicare or Medicaid programs and
no such review is scheduled, or to any Seller's knowledge, pending or
threatened against or affecting any Unipath Entity, its business, assets,
or the consummation of the transactions contemplated hereby.
(d) Rate Limitations and Rates. Each facility currently operated by
the Unipath Entities charges rates and accordingly bills for services which
are legal and proper, and each Unipath Entity's standard and Medicare rates
are set forth on Schedule 2.29(d). Certain reimbursement rates established
by third-party payors are subject to retrospective adjustment, which
adjustments are set forth on said Schedule 2.29(d).
(e) Reimbursement Documentation. Each Unipath Entity 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 any Unipath Entity, 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 any Unipath Entity, other than referrals which comply with (or
are exempt from) the requirements of 42 U.S.C. Section 1395nn and the
regulations promulgated pursuant thereto.
2.30 INTENTIONALLY DELETED.
2.31 Capitalization. As of the date hereof, the authorized capital stock of
each MDPA and each S Corp is as set forth on Schedule 1.1 hereto. The stock
record book of each MDPA and each S Corp 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 MD Stock constitutes all of the issued and outstanding shares of
capital stock of the MDPAs; and all of the MD Stock is owned beneficially and of
record by the parties executing this Agreement, and no one else. The S Corp
Shares constitute all of the issued and outstanding shares of capital stock of
the S Corps, and all of the S Corp Shares are owned beneficially and of record
by the parties executing this Agreement, and no one else.
2.32 Title to Stock. All of the issued and outstanding shares of the
capital stock of the MDPAs and the S Corps are, and at the Closing will be,
owned by the Sellers (in the amounts and as set forth in Schedule 1.1 hereto),
are duly authorized, validly issued and fully paid, nonassessable, and are free
of all Liens. Upon delivery of the Purchase Price to the Sellers at
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the Closing, each Seller will convey, and the Purchaser will own and hold, good
and marketable title to the Stock, free and clear of all Liens or contractual
restrictions or limitations whatsoever, except those put in place by the
Purchaser.
2.33 Options and Rights. There are no outstanding subscriptions, options,
warrants, rights, securities, contracts, commitments, understandings or
arrangements under which any MDPA, any S Corp or any Seller 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 any MDPA or any S Corp and any other
Person regarding the Stock (or the transfer, disposition, holding or voting
thereof).
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, 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 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.
3.3 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 material
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 material Contract or Order to which
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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.
3.4 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.
3.5 Issuance of AmeriPath Stock. The 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.
3.6 Information Regarding AmeriPath. The information attached hereto as
Exhibit 3.6, taken as a whole, is true and correct in all material respects, and
does not contain any untrue statement of a material fact or omit a material fact
necessary to make each statement contained therein not misleading. The financial
statements contained in Exhibit 3.6 fairly present the financial condition of
the Purchaser. The Sellers, in executing, delivering and consummating this
Agreement, have relied and will rely upon the correctness and completeness of
each of the foregoing representations and warranties, as well as the information
included in Exhibit 3.6, notwithstanding any independent investigation.
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, each Seller covenants and agrees that it
shall act, and the Sellers shall cause each Unipath Entity so to act or refrain
from acting where required hereinafter, to comply with the following:
4.1 Regular Course of Business. Each Unipath Entity 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 any Unipath Entity and the conduct of its
business; shall not cancel, release, waive or compromise any debt, Claim or
right in its favor (except in
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exchange for payment thereof or as bad debt in the ordinary course of business
consistent with past practices); 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 each Unipath Entity
intact, and use its best efforts to keep available for each Unipath Entity and
the Purchaser the services of the officers and employees of each Unipath Entity,
and to preserve the good will of clients, patients, suppliers and others having
business relations with the Unipath Entities. Each Seller and each Unipath
Entity will comply with all applicable Contracts, Regulations and Orders in
connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
4.2 Amendments. Except as expressly set forth in this Agreement, no change
or amendment shall be made in the articles of incorporation, by-laws,
partnership agreement, articles of organization or other organizational
documents of any Unipath Entity, and no Unipath Entity shall 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. Each MDPA,
and each of AMPA and Metro, P.A., shall merge with and into a regular Texas
business corporation prior to the Closing to effectuate and permit the
acquisition of the Stock by the Purchaser.
4.3 Capital Changes; Pledges. Except as expressly set forth in this
Agreement, no Unipath Entity shall 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;
no Unipath Entity shall issue or sell any interests in or to any of its
partnership or other interests or issue or sell any securities convertible into,
or options, warrants to purchase or rights to subscribe to, any such interests;
and the Unipath Entities shall not pledge or otherwise encumber any shares of
their capital stock or any of their partnership or limited liability corporation
interests.
4.4 Dividends. No Unipath Entity shall declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock or
partnership interests, nor shall any Unipath Entity, directly or indirectly,
redeem, purchase or otherwise acquire any shares of its capital stock or
partnership interests.
4.5 Capital and Other Expenditures. No Unipath Entity shall 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, in
compliance with this Section. At and as of the Closing, the Unipath Entities, in
the aggregate, shall have a cash balance of not less than $100,000 plus an
amount to cover any accounts payable on hand at the close of business on August
28, 1997. It is understood and agreed that AmeriPath, through its purchase of
the Unipath Entities, is purchasing and acquiring all accounts receivable of the
Unipath Entities and no accounts payable on hand on the close of business on
August 28, 1997. Other than for a
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breach of this representation by the Sellers, there shall be no adjustments with
respect hereto after the Closing.
4.7 Borrowing. No Unipath Entity shall 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, no Unipath Entity shall enter into any transaction or make any
commitment or incur any obligation (including entering into any real property
leases).
4.9 Interim Financial Information. The Sellers and the Unipath Entities
shall supply the Purchaser with unaudited financial statements (including,
without limitation, balance sheets and Income Statements) and information for
each calendar month, promptly following the conclusion of such month, and as the
Purchaser may otherwise reasonably request.
4.10 Full Access and Disclosure.
(a) Each Unipath Entity shall afford to the Purchaser and its counsel,
accountants and other authorized representatives reasonable access during
business hours to each Unipath Entity'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 each
Unipath Entity; and the Sellers shall cause each Unipath Entity'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 any Unipath Entity made by any Unipath
Entity's independent auditors in connection with any examination of any
Unipath Entity's Financial Statements and books and records.
(b) From time to time prior to the Closing Date, each Unipath Entity
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 any Unipath Entity, the
Sellers shall fully cooperate.
4.11 Confidentiality. Each Seller and each Unipath Entity 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
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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 any Seller nor any Unipath Entity 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. Each Unipath Entity and each
Seller shall use its best efforts to obtain at its expense, on or prior to the
Closing, 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.
4.14 Banking Arrangements. Each Unipath Entity shall open such bank
accounts as directed by AmeriPath and shall transfer all funds to such accounts,
all in accordance with the Purchaser's credit facility.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with each Seller 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 Unipath Entities'
prior consent, all information received by it from the Sellers or from any of
the Unipath Entities' 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 each Unipath Entity 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 Unipath Entities and 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
Unipath Entities and the Sellers shall from time to time reasonably request
including, without limitation, any internal
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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 the
Unipath Entities 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 the Unipath Entities 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:
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 September 2, 1997. 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 in the 501(a) or any Unipath Entity, as
appropriate), the title to any property or rights of the Unipath Entities
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 the
Assets 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 in connection with the consummation of the
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transactions contemplated by this Agreement prior to the Closing Date. With
respect to every material Contract of the Unipath Entities, even those Contracts
for which a consent or approval is not required under the terms of such
Contract, upon the execution and delivery of this Agreement, each party to each
such Contract shall, after consultation with and coordination by AmeriPath, be
advised of the transaction contemplated hereby.
6.4 No Solicitation or Negotiation. Unless and until this Agreement is
terminated, neither the Sellers nor the Unipath Entities, through their
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, any Unipath Entity, 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 any Unipath Entity or any Seller be contacted with respect to
any offer, inquiry or proposal, such Unipath Entity or 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 the Sellers' Obligations by Subsequent Incapacity,
Etc. Each Seller specifically agrees that the obligations of such Seller
hereunder, including, without limitation, obligations pursuant to Article XII
and Section 6.4 shall not be terminated by the death or incapacity of any
Seller.
6.6 Employment Agreements. Each Seller shall, at or prior to the Closing,
terminate the existing employment agreement between such Unipath Entity and such
Sellers employed by such Unipath Entity and each Seller shall enter into an
Employment Agreement with the 5.01(a) in the form of Exhibit 6.6 attached
hereto.
6.7 Public Announcements. Neither the Purchaser, any Seller, any Unipath
Entity nor any Affiliate, representative or shareholder of any 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 such prior mutual
agreement.
The parties hereto further agree, from and after the Closing Date, as
follows:
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6.8 Operational Guidelines and Covenants Related to Contingent Notes.
AmeriPath agrees that during the period following Closing through the earlier of
(A) the date the Contingent Notes are paid in full (solely to the extent
prepaid, or earned and payable at maturity) or (B) August 31, 2002 (the
"Contingency Period"), the Business shall be operated substantially in the same
manner as such business was conducted by the Unipath Entities prior to Closing.
In furtherance thereof, during each 12 month period during the Contingency
Period, so long as Operating Earnings exceed $6,230,000 for the previous 12
month period, AmeriPath agrees as follows:
(a) The Physician Committee, except as otherwise provided herein or in
the Employment Agreements, shall manage and control hiring, firing,
staffing, scheduling, compensation, benefits (including sick leave and
holidays) and fees with respect to the Business, consistent with the
policies and procedures adopted from time to time by AmeriPath.
(b) Except as otherwise provided herein, neither AmeriPath nor any
Affiliate of AmeriPath shall interfere with the conduct of the Business, or
otherwise prevent the Business from operating its business in the ordinary
and usual course so that the Sellers have every opportunity to achieve the
maximum level of Operating Earnings.
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, unless otherwise
permitted by AmeriPath in writing, 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, engage
in the practice of pathology at, with or for any medical facility,
laboratory or healthcare provider in which AmeriPath, or any Affiliate of
AmeriPath (each, an "AmeriPath Entity"), is then doing business or
providing services or has done business or provided service within the
preceding twelve (12) month period or for which an AmeriPath Entity is
actively negotiating to provide services (i.e., has had two or more
meetings regarding that subject).
(b) As used in this Agreement, the term "Restricted Period" shall mean
and include the longer of (x) a period of seven (7) years, from the Closing
to the seventh (7th) anniversary of the Closing, and (y) during such time
as the Seller is employed by an AmeriPath Entity and for a period of one
(1) year following the effective date of any termination of such Seller's
employment with any such AmeriPath Entity (regardless of the cause, reason
or justification of any such termination); provided, however:
(i) in the event of a termination of Seller's employment without
"cause" pursuant to Sections 15(c) and 15(d) of the Employment
Agreement, if the
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AmeriPath Entity fails to make payment of the amount(s) required to be
paid under Section 15(c) thereof, and such failure shall continue
uncured for a period of more than ninety (90) days following notice
from the Sellers, then the Restricted Period shall be reduced to a
period of zero (0) days; or
(ii) 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 Seller or if the Seller is not paid his or her salary
under such Seller's Employment Agreement, and such failure or
non-payment shall continue uncured for a period of more than sixty
(60) days following notice from such Seller, then the Restricted
Period shall be reduced to a period of zero (0) days.
(c) Each Seller further agrees that during the Restricted Period
which follows any termination of the Seller's employment with any
AmeriPath Entity, the Sellers will not, directly or indirectly, (i)
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 Seller's termination of employment with the
AmeriPath Entity, or (ii) induce any employee of an AmeriPath Entity
to leave the employ of any such AmeriPath Entity, or (iii) solicit any
Payor contracts from any Payor of an AmeriPath Entity, or otherwise
interfere with any such Payor, or (iv) solicit or otherwise interfere
with any referral sources of any Ameripath Entity, 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 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 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 (i)
it is the parties intention and agreement that the covenants and
restrictions contained herein be enforced as written, and (ii) 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 Entity, each Seller may obtain
confidential or proprietary information developed, or to be developed, by
an AmeriPath Entity. "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 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 of such
information, data or documents qualify as a "trade secret" under applicable
Federal or State law. "Confidential Information" shall not include (i) 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 any Seller in
violation of this Agreement, and (ii) 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
such Seller's employer, as required or otherwise contemplated under this
Agreement or the Employment Agreement or as otherwise required by law, he
or she will not at any time (during the term of such the 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 or her
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.
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(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.
6.11 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 or Sellers who then own AmeriPath Stock consistent with the requirements
and limitations of Rule 143. Nothing in this Section 6.11 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.
6.12 Deliveries After Closing. From time to time after the Closing, at the
Purchaser's request and without expense to any Seller and without further
consideration from the Purchaser, 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 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 Texas Health Care Laws.
Accordingly, notwithstanding any other term or provision of this Agreement in
the event that AmeriPath, upon the advice of counsel (and after agreement with
the Sellers), determines at any time following the Closing that the transactions
contemplated
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by this Agreement do not comply with, or are inconsistent with, federal or Texas
Health Care Laws, or that another structure would be better for AmeriPath
without adversely affecting the Sellers, 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 (after agreement with the Sellers) 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 Texas Health Care Laws, or will improve the
performance or results of operations of AmeriPath 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 the Sellers of a
professional corporation, partnership, 5.01(a) or similar entity owned by such
Sellers or Sellers (the "New Entity"), the organization and form of which New
Entity shall be satisfactory in all respects to AmeriPath, (ii) the assignment
to such Entity of (a) AmeriPath Texas' and/or the 5.01(a)'s obligations under
all Employment Agreements (the performance of which obligations shall be
guaranteed by AmeriPath or AmeriPath Texas) and (b) all contracts under which
AmeriPath Texas or the 5.01(a) were required to provide or deliver professional
pathology services, (iii) the execution and delivery by the New Entity or the
5.01(a) of a management agreement with AmeriPath Texas (or an Affiliate
thereof), which management agreement shall be in form and substance satisfactory
to AmeriPath, pursuant to which AmeriPath Texas (or such other Person as
AmeriPath, in its sole and absolute discretion, shall choose) will provide
certain management and other services to the New Entity or the 5.01(a) in
consideration of management fees and the reimbursement of expenses, and (iv) the
execution and delivery by each Unipath Entity or Seller of a buy-sell agreement
with AmeriPath, in form and substance satisfactory to AmeriPath, pursuant to
which AmeriPath may, at its option, cause each Unipath Entity or Seller to
transfer its, his or her ownership interest in the New Entity (or all of the
assets of such New Entity) to a person designated by AmeriPath and qualified to
own and hold such interest or such assets.
6.14 Observer Rights. So long as a majority of the Sellers are employed by
an Affiliate of AmeriPath and the Contingent Notes have not matured or been paid
in full (solely to the extent required to be paid under the Contingent Notes),
the Sellers shall have the right, at their expense, to have one designated
Seller attend all meetings of the Board of Directors of AmeriPath as an
observer. Such designated Seller shall receive notices of all meetings of the
Board of Directors of AmeriPath, shall receive copies of all materials supplied
to the Directors of AmeriPath, and shall be entitled to attend and participate
in all meetings of the Board of Directors of AmeriPath; provided, that such
Seller shall have no right to vote on any matters submitted to the Board of
Directors (or any committee thereof). Nothing in this section shall be deemed to
prohibit AmeriPath from taking action by written consent of the Board of
Directors without notice to, or participation by, such Seller or the Sellers.
Furthermore, if the Directors of AmeriPath elect to convene a meeting without
notice, they shall use their best efforts to advise the designated Seller of
such meeting, but the failure or inability to advise such Seller of such meeting
shall not vitiate any action taken at such meeting. The Purchaser agrees to
nominate one of the Sellers
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(designated by the Sellers, agreeable to the Purchaser) to the next available
vacancy for inside directors on the Board of Directors of AmeriPath.
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 Unipath Entities and the Sellers contained
in Article III 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 the Unipath Entities to the
Purchaser at Closing, 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. Each Seller and each Unipath Entity 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 president or managing
partner of each Unipath Entity, the president of each MDPA and each Seller 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 each Unipath
Entity 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 2.6 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.
With respect to the material Contracts of the Unipath Entity for which notice of
the transaction had been, or should have been, delivered to the other party
thereto pursuant to Section 6.3 hereof; (a) all such parties to such Contracts
shall have been notified of the transactions contemplated hereby and (b) neither
the Purchaser nor any Unipath Entity or Seller shall have received any notice of
terminations or amendments of, or any indication from such party of their intent
to terminate or amend, such contract, unless such amendment shall not adversely
affect the Purchaser or any Unipath Entity.
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7.4 Regulatory Approvals. The Federal and State regulatory agencies or
Authorities listed in Schedule 2.23 hereto shall have approved the applications
listed in such Schedule with respect to the transfer of assets or 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 addressed to the Purchaser), dated the Closing Date,
of the president and chief financial officer of each Unipath Entity, certifying
to the foregoing.
7.6 Opinion of the Sellers' Counsel. The Purchaser shall have received an
opinion of counsel to the Sellers and the Unipath Entities (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 INTENTIONALLY DELETED.
7.8 Employment Agreements. The Sellers shall have terminated their existing
employment agreements with the appropriate Unipath Entities and shall have
executed and delivered to the Purchaser Employment Agreements with the 5.01(a)
in the form of Exhibit 6.6 attached hereto.
7.9 Shareholders' Agreement. At the Closing, each person who shall be
granted a stock option (an "Optionee") and each Seller shall have executed a
counterpart signature page to the Shareholders' Agreement, pursuant to which
each Optionee and 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 such Person had been an original signatory thereto.
7.10 Creditor Consents. The creditors set forth on Schedule 2.6 hereto
shall have agreed in writing with the Sellers 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. The Sellers shall have obtained from the creditors set forth
on Schedule 2.6 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.
7.11 Subordination Agreement. At the Closing, the Sellers shall have
executed and delivered the Subordination Agreement, pursuant to which each
Seller agrees to be bound by all of the provisions of the Subordination
Agreement in accordance with their terms.
7.12 Delivery of Stock. The Sellers shall have executed and delivered this
Agreement, or a counterpart hereof, to AmeriPath, and shall have delivered at
the Closing Stock Certificates representing all of the Stock, duly endorsed for
transfer to the Purchaser, together with stock powers duly executed in Blank.
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7.13 Merger of Entities. Each MDPA and each of AMPA and Metro, P.A. shall
have merged with and into a regular Texas business corporation.
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 IV and elsewhere in this
Agreement and all information contained in any exhibit, schedule or attachment
hereto, 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.
An authorized 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 AmeriPath Stock, cash and Contingent Notes) to
which the Sellers are entitled pursuant to Section 1.1 hereof (to be allocated
among the Sellers in accordance therewith).
8.4 Employment Agreements. The 5.01(a) shall have executed and delivered to
each of the Sellers an Employment Agreement between the 5.01(a) and such Seller
in the form of Exhibit 6.6 attached hereto.
8.5 Third Party Consents. The Purchaser, the Sellers and each Unipath
Entity 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 2.6 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.
With respect to the material Contracts of the Unipath Entity for which notice of
the transaction had been, or should have been, delivered to the other party
thereto pursuant to Section 6.3 hereof; (a) all such parties to such Contracts
shall have been notified of
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the transactions contemplated hereby and (b) neither the Purchaser nor any
Unipath Entity or Seller shall have received any notice of terminations or
amendments of, or any indication from such party of their intent to terminate or
amend, such contract, unless such amendment shall not adversely affect the
Purchaser or any Unipath Entity.
8.6 Regulatory Approvals. The Federal and State regulatory agencies or
Authorities listed in Schedule 2.23 hereto shall have approved the applications
listed in such Schedule with respect to the transfer of assets or 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.
8.7 No Material Adverse Change. There shall have been no Material Adverse
Change since the date of this Agreement. The Purchaser shall deliver a
certificate (which shall be addressed to the Sellers), dated the Closing Date,
of the president and chief financial officer of the Purchaser, certifying to the
foregoing.
8.8 Opinion of Counsel. The Sellers shall have received an opinion of
counsel to the Purchaser, dated the Closing Date, in the form of Exhibit 8.8
hereto.
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 September 2,
1997, 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,
(a) the Sellers shall deliver or cause to be delivered to the
Purchaser:
(i) the Officers' Certificates required by Sections 7.1 and 7.5;
(ii) copies of all consents and approvals required by Sections
7.3 and 7.4;
(iii) the Opinion of Counsel required by Section 8.8;
(iv) the Employment Agreements required by Section 7.8;
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(v) a certificate, signed by the secretary of each Seller, as to
the articles of incorporation and by-laws (or other organizational
documents) of each Seller, the resolutions adopted by the board of
directors and shareholders, or the consents of partners, as the case
may be, of each Seller in connection with this Agreement, the
incumbency of certain officers of each Seller and the jurisdictions in
which each Seller is qualified to conduct business, in form acceptable
to the Purchaser;
(vi) 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 each
Seller as of a date not more than 10 days prior to the Closing Date,
as a corporation, partnership or limited liability corporation, as the
case may be, organized under the laws of the State of Texas and as a
foreign corporation authorized to do business under the laws of the
various jurisdictions where such Person is so qualified.
(vii) the counterpart signature pages to the Shareholders'
Agreement required by Section 7.9;
(viii) the UCC termination statements, releases of mortgages or
other releases of Liens required by Section 7.10;
(ix) the Subordination Agreement and counterpart signature page
thereto required by Section 7.11;
(x) the Stock Certificates required by Section 7.12;
(xi) such other certified resolutions, documents and certificates
as are required to be delivered by any Seller 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 the Sellers (and
allocated to each Seller) in accordance with Section 1.1).
(ii) the Officers' Certificate required by Section 8.1;
(iii) the Employment Agreements required by Section 8.4;
(iv) the Opinion of Counsel required by Section 8.8; and
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(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 and the Sellers;
(b) by the Sellers or the Purchaser if this Agreement is not
consummated on or before September 2, 1997; 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 any of the Sellers or any of the Sellers is
otherwise in default under this Agreement.
(d) by the Sellers if as of the Closing Date (including any
extensions) any of the conditions specified in Article VIII hereof shall
not have been satisfied or if any of the Purchasers 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 (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
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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 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
2.15 (Tax matters), 2.17 (ERISA matters), 2.19 (environmental matters) and
2.29 (healthcare 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
2.31 (capitalization), 2.32 (title to stock), and 2.31 (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, 1999
(the "1999 Audit Date"), except for representations, warranties and
indemnities for which an indemnification Claim shall be pending as of the
1999 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 the Sellers, jointly and
severally, 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 reasonable fees and expenses of counsel), as well as
any demands, assessments, judgments, costs, fines, penalties and legal,
investigative, audit and other expenses
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arising from or in connection with any Claim incident to or resulting from, or
in respect of, any misrepresentation, breach of warranty, or non-fulfillment of
any obligation on the part of any Seller under this Agreement, any document
relating hereto 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 hereunder. All other Claims of the
Purchaser shall be resolved in accordance with Section 11.3.
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 reasonable
fees and expenses of counsel), as well as any demands, assessments, judgments,
costs, fines, penalties and legal, investigative, audit and other expenses
arising from or in connection with any Claim incident to or 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
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Agreement, the indemnitor shall promptly reimburse the indemnitee in an amount
equal to the amount of such payment plus all reasonable expenses (including
reasonable 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 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 reasonable 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 $200,000.00 (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 Section 1.3 or of any of
the representations or warranties contained in Sections 2.15 (tax matters), 2.29
(healthcare), 4.6 (cash at closing), 2.31 (capitalization), 2.32 (title to
Stock), 2.33 (options and rights on capital stock) shall at any time be subject
to the Deductible or be counted in determining the Maximum Liability (as defined
in Section 11.6) or with respect to the limitations set forth in Section 11.8.
11.6 Maximum Liability. 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 or
otherwise with respect to this transaction shall be in the aggregate, with
respect to each Seller, the maximum allocable share of the Purchase Price
received by such Seller as set forth on Schedule 1.2 hereto, including only the
cash, AmeriPath Stock (valued at $10 per share) and payments of principal and
interest actually paid under the Contingent Notes; provided, however, to the
extent any Seller desires to use AmeriPath Stock to pay any Claim under this
Article XI, the AmeriPath Stock shall be valued at the closing price of
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such stock on the last business day preceding the payment of a Claim hereunder
and, in addition, the Purchaser may recover from the Sellers any amounts paid
with respect to the Contingent Notes and may set off against principal and
interest payments to be earned and paid under the Contingent Notes any amounts
with respect to a Claim hereunder in excess of the amounts already received by
any indemnifying Sellers. The Purchaser's maximum liability shall be equal to
the total maximum liability of the Sellers on the date any Claim is made
hereunder.
11.7 Transaction Liability. Notwithstanding anything to the contrary
contained in this Agreement, the liability in connection with any and all Claims
for indemnification or breach or violation of representations or warranties
under Section 2.15(e) of this Agreement, or Section 2.15(a) of this Agreement to
the extent such subsection relates to the transactions addressed in Section
2.15(e), shall be in the aggregate, with respect to all Sellers, Fifty Percent
(50%) of the result of (a) the maximum Claim for indemnification that the
Purchaser could request hereunder (without taking into account the limitations
of this Section 11.7) with respect to a violation or breach of Section 2.15(e)
(or such portion of Section 2.15(a)), less (b) the present value of the net tax
benefit (calculated with an after tax discount factor of 6%; and with the
assumption that any tax benefits allowed under the Code will be utilized in full
by AmeriPath when and if they become available) which will be recovered by the
Purchaser or any Affiliate of AmeriPath as a result of the treatment of the
structure of the transaction other than as described in Section 2.15(e) hereof.
Such liabilities shall be shared pro rata among the Sellers based upon each
Seller's pro rata share of the Purchase Price received at Closing.
11.8 Several Liability. Notwithstanding anything to the contrary contained
herein, except as provided in the last sentence of Section 11.5 above, and
except with respect to any liabilities described in Section 11.7 above (all of
which liabilities shall be shared pro rata among the Sellers based upon each
Seller's pro rata share of the Purchase Price received at Closing), if a Claim
for indemnification under this Article XI arises out of an act or omission by
one or more of the Unipath Entities (which causation is readily apparent and
identifiable and agreed to by the Sellers), then the Purchaser shall look first
to such readily identifiable shareholders, partners or owners of such Unipath
Entities (the "Obligated Sellers"), and then to the other Sellers, but only to
such other Sellers up to a maximum of 20% of the excess of any Claim over the
aggregate maximum liability of the Obligated Sellers. With respect to those
liabilities excluded hereunder by the last sentence of Section 11.5 above, the
Purchaser shall look first to the Obligated Sellers and then to the other
Sellers, however the Purchaser may look to the other Sellers only up to a
maximum of 50% of the excess of any Claim over the aggregate maximum liability
of the Obligated Sellers.
11.9 Notice of Claims. Any person seeking indemnification under this
Agreement shall give to the indemnitor prompt written notice of any Claim or
potential Claim hereunder. Such notice shall contain a description of any Claim,
event or facts known to the indemnitee which do or may give rise to a Claim by
the indemnitee against the indemnitor based on this Agreement, stating the
nature and basis of said Claims or events and the amounts thereof, to the extent
known.
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11.10 Exclusive Remedy. Except for actions to enforce specific performance
of rights or obligations under this Agreement, a Claim for indemnification
pursuant to this Article XI shall be the sole and exclusive remedy of the
Purchaser with respect to any matter referred to in Section 11.2 and of the
Sellers with respect to any matter referred to in Section 11.3, and no other
Claim, action, suit or proceeding shall be initiated or maintained against the
Sellers or their assets or the Purchaser or its assets, as the case may be, in
respect of any matter referred to in Section 11.2 or 11.3 respectively,
notwithstanding that a remedy may not be available under this Article by virtue
of the lapse of time, limitation on the amounts that may be claimed, the
Deductible or otherwise.
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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
the Purchaser and 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 documents, annexes, attachments, certificates and instruments
referred to herein and therein, and the agreements executed in connection with
the consummation of the transactions contemplated hereby, 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, 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
regulatory agency, whether 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.
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"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 conduct of a person's business.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis.
"Healthcare 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 Person's business subject to such
Healthcare Laws, including but not limited to laws governing home health
agencies, laws regulating the professional standards of health care
professionals; The Texas Health Maintenance Organization Act; the Texas
Pharmacy Act; the Comprehensive Drug Abuse Prevention and Control Act; the
Patient Self-Referral Act; 21 U.S.C. ss.301-392, the Federal Food Drug and
Cosmetic Act; 21 U.S.C. ss.821 et seq., Section 1128B of the Social
Security Act; The Clinical Laboratory Improvement Amendments of 1988; 42
U.S.C. ss.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 42 U.S.C. ss.1857(h) et seq., 33 U.S.C. ss.1368 et
seq., Executive Order 11738 and 40 CFR Part 15, Title VI of the Civil
Rights Act of 1964; 42 U.S.C. ss.2000 d et seq., Section 504 of the
Rehabilitation Act of 1933; 29 U.S.C. ss.7940; Title IX of the Education
Amendments of 1972, 20 U.S.C. ss.1681 et seq., 42 U.S.C. ss.6101 et seq.,
Section 654 of OBRA '81; 42 U.S.C. ss.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.
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"Lien" means any security interest, lien, mortgage, pledge,
hypothecation, encumbrance, Claim, restriction or interest of another
Person of any kind or nature.
"Material Adverse Change" means any development or change which has,
had or is reasonably likely to 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 the Unipath Entities' or AmeriPath's (as the
case may be) business, operations, properties, assets, condition (financial
or otherwise), revenues, expenses, accounts receivable, accounts payable,
results, plans, strategies or prospects.
"Order" means any decree, consent decree, judgment, award, order,
injunction, rule, ruling, 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.
"Subsidiary" means any Person which the Purchaser or any Unipath
Entity, 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, to:
Unipath
4350 Alpha Road
Dallas, Texas 75244
Attention: Joseph Sonnier, M.D.
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with a copy to:
Thompson & Knight
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201-4693
Attention: Steven Cochran, Esq.
or to such other person or address as the Sellers or PRACTICE
shall furnish by notice to the Purchaser in writing.
(b) If to the Purchaser to:
AmeriPath, Inc.
7289 Garden Road, Suite 200
Riviera Beach, Florida 33404
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 the Sellers in writing.
12.5 Exhibits and Schedules. The Exhibits and Schedules referred to in this
Agreement are attached hereto and incorporated herein by this reference.
Disclosure of a specific item in any one Schedule shall be deemed restricted
only to the Section of this Agreement to which such disclosure relates, except
where, and to the extent that, there is an explicit cross-reference in such
Schedule to another Schedule.
12.6 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.
12.7 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
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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; provided that AmeriPath guarantees the
obligations of the Purchaser hereunder and remains liable jointly with the
Subsidiary for any obligations so assigned.
12.8 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.
12.9 Headings. The article, section and other headings contained in this
Agreement are for reference purposes only and do not affect in any way the
meaning or interpretation of this Agreement (or any provision hereof).
12.10 Pronouns and Plurals. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine, or
neuter forms, and the singular forms of nouns, pronouns, and verbs include the
plural and vice versa.
12.11 Construction. The parties acknowledge that each party has reviewed
and revised this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement.
12.12 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.
12.13 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.
12.14 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
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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.
12.15 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.
12.16 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.
12.17 Attorneys' Fees. If any party to this Agreement seeks to enforce the
terms and provisions of this Agreement or to interpret rights hereunder, then
the prevailing party in such action shall be entitled to recover from the losing
party or parties 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.
12.18 Dealings in Good Faith; Best Efforts. Each party hereto agrees to act
in good faith with respect to the other party in exercising its rights and
discharging its obligations under this Agreement. Each party further agrees to
use its best efforts to ensure that the purposes of this Agreement are realized
and to take all further steps as are reasonably necessary to implement the
provisions of this Agreement. Each party agrees to execute, deliver and file any
document or instrument necessary or advisable to realize the purposes of this
Agreement.
12.19 Action by Sellers. Whenever in this Agreement action or consent is
required by the Sellers, the act, consent or action of a majority of the Sellers
that make up the Physician Committee shall be deemed to be the act, consent and
action of all of the Sellers.
12.20 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.
* * * *
[Remainder of Page Intentionally Left Blank]
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<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
AMERIPATH, INC.
By: /s/ James C. New
--------------------------------------
James C. New, President
SELLERS:
J. SLOAN LEONARD, M.D., ASSOCIATED
By: /s/ J. Sloan Leonard
--------------------------------------
J. Sloan Leonard, M.D., President
JOSEPH A. SONNIER, M.D., P.A.
By: /s/ Joseph A. Sonnier
--------------------------------------
Joseph A. Sonnier, M.D., President
V. Q. TELFORD, M.D., ASSOCIATED
By: /s/ V. Q. Telford
--------------------------------------
V. Q. Telford, M.D., President
WILLIAM C. BURTON, M.D., P.A.
By: /s/ William C. Burton
--------------------------------------
William C. Burton, M.D., President
- 62 -
<PAGE> 71
JAMES SCOTT MILVENAN, M.D., P.A.
By: /s/ James Scot Milvenan
--------------------------------------
James Scot Milvenan, M.D., President
LESLIE L. WALTERS, M.D., ASSOCIATED
By: /s/ Leslie L. Walters
--------------------------------------
Leslie L. Walters, M.D., President
THOMAS M. JAMES, M.D., P.A.
By: /s/ Thomas M. James
--------------------------------------
Thomas M. James, M.D., President
/s/ J. SLOAN LEONARD
--------------------------------------
J. SLOAN LEONARD, M.D.
/s/ JOSEPH A. SONNIER
--------------------------------------
JOSEPH A. SONNIER, M.D.
/s/ VAN Q. TELFORD
--------------------------------------
VAN Q. TELFORD, M.D.
/s/ WILLIAM C. BURTON
--------------------------------------
WILLIAM C. BURTON, M.D.
/s/ JAMES SCOT MILVENAN
--------------------------------------
JAMES SCOT MILVENAN, M.D.
- 63 -
<PAGE> 72
/s/ LESLIE L. WALTERS
--------------------------------------
LESLIE L. WALTERS, M.D.
/s/ THOMAS M. JAMES
--------------------------------------
THOMAS M. JAMES, M.D.
/s/ STEPHEN W. ALDRED
--------------------------------------
STEPHEN W. ALDRED, M.D.
/s/ JOHN E. MCDONALD
--------------------------------------
JOHN E. MCDONALD, M.D.
/s/ BARBARA A. SHINN
--------------------------------------
BARBARA A. SHINN, M.D.
- 64 -
<PAGE> 1
EXHIBIT 10.35
EXECUTION COPY
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
AMERIPATH, INC.,
COLAB INCORPORATED PROFESSIONAL CORPORATION,
ANATOMICAL PATHOLOGY SERVICES, P.C.,
MICRODIAGNOSTICS, P.C.,
AND
THE PERSONS SET FORTH ON EXHIBIT 1.1 HERETO
DATED AS OF AUGUST 15, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
ARTICLE I
PURCHASE OF CAPITAL STOCK
<S> <C>
1.1 Purchase and Sale of Capital Stock............................ 2
1.2 The Contingent Notes.......................................... 3
1.3 AmeriPath Stock............................................... 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND THE COMPANIES
2.1 Organization, Qualification, etc.............................. 11
2.2 Subsidiaries.................................................. 11
2.3 Capital Stock................................................. 12
2.4 Record Books.................................................. 12
2.5 Title to Company Stock........................................ 12
2.6 Options and Rights............................................ 12
2.7 Authorization, Etc............................................ 12
2.8 No Violation.................................................. 12
2.9 Financial Statements.......................................... 13
2.10 Employees..................................................... 13
2.11 Absence of Certain Changes.................................... 14
2.12 Contracts..................................................... 14
2.13 True and Complete Copies...................................... 16
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...................................................... 24
2.25 Investment Representations.................................... 24
2.26 Accounts Receivable; Inventories.............................. 25
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
2.27 Brokerage..................................................... 26
2.28 Improper and Other Payments................................... 26
2.29 Participation in Audits....................................... 26
2.30 Health Care Laws.............................................. 26
2.31 Financial Condition........................................... 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
3.8 Litigation.................................................... 30
3.9 Disclosure.................................................... 31
3.10 Consents...................................................... 31
3.11 Senior Credit Facility........................................ 31
ARTICLE IV
COVENANTS OF THE SELLERS AND THE COMPANIES
4.1 Regular Course of Business.................................... 31
4.2 Amendments to Organizational Documents........................ 31
4.3 Capital Changes; Pledges...................................... 32
4.4 Dividends..................................................... 32
4.5 Capital and Other Expenditures................................ 32
4.6 Cash and Cash Equivalents..................................... 32
4.7 Borrowing..................................................... 32
4.8 Other Commitments............................................. 32
4.9 Interim Financial Information................................. 32
4.10 Full Access and Disclosure.................................... 33
4.11 Confidentiality............................................... 33
4.12 Breach of Agreement........................................... 33
4.13 Fulfillment of Conditions Precedent........................... 33
4.14 Banking Arrangements.......................................... 34
4.15 Termination of ERISA Plans.................................... 34
</TABLE>
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<PAGE> 4
ARTICLE V
COVENANTS OF THE PURCHASER
<TABLE>
<S> <C>
5.1 Confidentiality............................................... 34
5.2 Full Access and Disclosure.................................... 34
ARTICLE VI
OTHER AGREEMENTS
6.1 Further Assurances............................................ 35
6.2 Agreement to Defend........................................... 35
6.3 Consents...................................................... 35
6.4 No Solicitation or Negotiation................................ 35
6.5 No Termination of Sellers' Obligations by
Subsequent Incapacity, Etc.................................. 36
6.6 Employment Agreements......................................... 36
6.7 Public Announcements.......................................... 36
6.8 Deliveries After Closing...................................... 36
6.9 Non-Competition Covenant...................................... 36
6.10 Non-disclosure; Confidentiality............................... 38
6.11 Rule 144 Best Efforts......................................... 39
6.12 338(h)(10) Election........................................... 40
6.13 Assignment of Contracts....................................... 40
7.1 Representations and Warranties; Covenants and Agreements...... 41
7.2 No Injunction................................................. 41
7.3 Third Party Consents.......................................... 41
7.4 Regulatory Approvals.......................................... 41
7.5 No Material Adverse Change.................................... 41
7.6 Opinion of Seller's Counsel................................... 42
7.7 Employment Agreements......................................... 42
7.8 Delivery of Company Share Certificates........................ 42
7.9 Subordination Agreement....................................... 42
7.10 Shareholders' Agreement....................................... 42
7.11 Creditor Consents............................................. 42
7.12 Company Charter Amendments.................................... 42
7.13 Trust Agreement; Management Agreement......................... 42
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF THE SELLERS
8.1 Representations and Warranties; Performance................... 43
8.2 No Injunction................................................. 43
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</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
8.3 Purchase Consideration........................................ 43
8.4 Employment Agreements......................................... 43
8.5 Trust Agreement; Management Agreement......................... 43
8.6 Opinion of Purchaser's Counsel................................ 43
ARTICLE IX
CLOSING
9.1 Closing....................................................... 44
9.2 Closing Deliveries............................................ 44
ARTICLE X
TERMINATION AND ABANDONMENT
10.1 Methods of Termination........................................ 45
10.2 Procedure Upon Termination.................................... 46
ARTICLE XI
SURVIVAL OF TERMS; INDEMNIFICATION
11.1 Survival...................................................... 46
11.2 Indemnification by the Sellers................................ 47
11.3 Indemnification by the Purchaser.............................. 48
11.4 Third-Party Claims............................................ 48
11.5 Deductible; Maximum Liability................................. 49
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Amendment and Modification.................................... 50
12.2 Entire Agreement.............................................. 50
12.3 Certain Definitions........................................... 50
12.4 Notices....................................................... 52
12.5 Waiver of Compliance; Consents................................ 53
12.6 Assignment.................................................... 53
12.7 Governing Law................................................. 54
12.8 Consent to Jurisdiction; Service of Process................... 54
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
12.9 Injunctive Relief............................................. 54
12.10 Counterparts.................................................. 54
12.11 Headings...................................................... 54
12.12 Binding Effect................................................ 54
12.13 Delays or Omissions........................................... 54
12.14 Severability.................................................. 55
12.15 Expenses...................................................... 55
12.16 Attorneys' Fees............................................... 55
</TABLE>
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<PAGE> 7
SCHEDULES
1.1 Shareholders; Ownership of Company Shares; Consideration
1.2 Contingent Stock Payments
2.1 Jurisdictions of Qualification
2.2 Subsidiaries; Investments; Interests
2.3 Capital Stock of the Companies
2.8 Violations
2.9(a) Liabilities
2.9(b) Liabilities Covered by Insurance
2.9(c) Accounts Payable
2.12 Contracts
2.14 Real and Personal Property
2.17 Permits and Licenses
2.18 ERISA, Benefit Plans and Other Matters
2.19(a) 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
2.29 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
6.6 Employment Agreement Sellers
6.13 Contract Assignments
7.3 Third Party Consents
7.4 Regulatory Approvals
7.11 Creditor Consents
- vi -
<PAGE> 8
EXHIBITS
1.1 Selling Shareholders
1.2 Form of 7% Contingent Subordinated Promissory Note
2.1 Organizational Documents of the Companies
2.9 Financial Statements
3.7 Purchaser's Financial Statements
6.6 Form of Employment Agreement
7.6 Opinion of Sellers' Counsel
7.9 Subordination Agreement
7.13(a) Form of Trust Agreement
7.13(b) Form of Management Agreement
8.6 Opinion of Purchaser's Counsel
- vii -
<PAGE> 9
STOCK PURCHASE AGREEMENT (the "AGREEMENT"), dated as of August 15,
1997, by and among AMERIPATH, INC., a Delaware corporation, or its permitted
designees or assigns ("AMERIPATH" or the "PURCHASER"), COLAB INCORPORATED
PROFESSIONAL CORPORATION, an Indiana professional corporation ("COLAB"),
ANATOMICAL PATHOLOGY SERVICES, P.C., an Indiana professional corporation
("APS"), MICRODIAGNOSTICS, P.C., an Indiana professional corporation ("MICRO"
and, together with Colab and APS, collectively referred to herein as the
"COMPANY" or the "COMPANIES"), and the individuals set forth on EXHIBIT 1.1
hereto who together constitute the holders of all of the issued and outstanding
shares of capital stock of the Companies (such persons to be collectively
referred to herein as the "SELLERS" and individually as a "SELLER").
WHEREAS, the Sellers together own all of the issued and outstanding
shares of capital stock of the Companies, each of which is organized as a
professional service corporation under Section 23-1.5-1-1 of the Indiana
Professional Corporations Act;
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 the Companies upon the terms
and subject to the conditions set forth herein;
WHEREAS, in the case of APS and Micro, an election shall be made 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");
WHEREAS, each of the Companies, although presently organized as
professional service corporations, will immediately prior to the closing of the
transactions contemplated by this Agreement, upon the terms and subject to the
conditions set forth herein, amend their respective Articles of Incorporation in
order to convert themselves to regular business corporations organized under the
Indiana Business Corporations Law;
WHEREAS, immediately following the closing of the transactions
contemplated by this Agreement, APS and Micro will be merged with and into
Colab, which, upon consummation of the transactions contemplated by this
Agreement, shall be and have become a wholly-owned subsidiary of AmeriPath, and
Colab shall change its name to AmeriPath Indiana, Inc. ("AMERIPATH INDIANA");
WHEREAS, in order to comply with Indiana State Health Care Laws,
AmeriPath shall form a grantor trust (the "TRUST"), with AmeriPath as its sole
beneficiary and an Indiana physician as the trustee, and the Trust shall form
and become the sole member of an Indiana Limited Liability Company ("AMERIPATH
INDIANAPOLIS");
WHEREAS, in connection with the transactions contemplated by this
Agreement, AmeriPath Indianapolis shall enter into an employment agreement with
certain of the Sellers and a management agreement with AmeriPath Indiana; and
WHEREAS, although the parties hereto have agreed as to the minimum
value of the Companies, they are not able to agree as to the total value of the
Companies, and thus the parties
<PAGE> 10
hereto have agreed to certain additional contingent purchase price consideration
based upon the results of operations of the Companies as more fully set forth
herein;
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, each Seller and the Companies 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,
each Seller agrees to sell, transfer and deliver to the Purchaser, and
the Purchaser agrees to purchase, acquire and accept delivery from each
Seller, all of the issued and outstanding shares of capital stock (the
"COMPANY SHARES") of each of the Companies owned or held by such
Seller, which Company Shares to be sold and purchased hereunder is set
forth opposite each Seller's name on SCHEDULE 1.1 attached hereto.
(b) Upon the sale, transfer and delivery to the Purchaser by
the Sellers of the Company Shares at the Closing (as such term is
defined in SECTION 9.1 hereof), and in consideration therefor,
Purchaser 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):
(i) TWENTY-FOUR MILLION THIRTY-SEVEN THOUSAND SIX
HUNDRED DOLLARS ($24,037,600.00), by cashier's check or by
wire transfer;
(ii) 850,390 shares of AmeriPath common stock, par
value $.01 per share (the "AMERIPATH STOCK"), issuable at
Closing but subject to vesting over five years, in accordance
with SECTION 1.3 hereof;
(iii) 7% Non-Negotiable Contingent Subordinated
Promissory Notes, due on December 31, 2002, each in the form
attached hereto as EXHIBIT 1.2 (the "CONTINGENT NOTES"), in
the aggregate maximum principal amount of FOURTEEN MILLION
NINE HUNDRED SIXTY-SEVEN THOUSAND DOLLARS ($14,967,000.00),
the issuance and certain terms and conditions of which
Contingent Notes are set forth in SECTION 1.2 below; and
(c) ADDITIONAL PURCHASE PRICE. The parties hereto agree to
increase the Purchase Price by the amount by which the Net Working
Capital (as defined in SECTION 2.31) of the Companies at and as of the
Closing Date (as defined in SECTION 9.1) exceeds
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<PAGE> 11
$1,000,000. Such amount shall be additional Purchase Price and shall be
paid to the Sellers pro rata in accordance with SCHEDULE 1.1 hereto.
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 FOURTEEN MILLION NINE HUNDRED SIXTY-SEVEN THOUSAND
DOLLARS ($14,967,000.00). As additional purchase price consideration,
at the Closing, the Purchaser shall deliver to each Seller a Contingent
Note, due on December 31, 2002, in the maximum stated principal amount
as set forth on SCHEDULE 1.2 hereof, which Contingent Notes shall be in
the form of EXHIBIT 1.2 hereto. Each Contingent Note shall be due and
payable in the applicable principal amount specified in or calculated
pursuant to such Contingent Note and the Annexes to such Contingent
Note (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 such
Contingent Note and the Annexes thereto, with respect to each of the
five (5) twelve-month periods ending September 30, 1998 through
September 30, 2002, if, and only if, (i) with respect to the period
ending September 30, 1998, Operating Earnings for such year equal or
exceed the specified minimum target amount of $5,080,000.00 (the
"YEAR-1 MINIMUM TARGET") or, (ii) with respect to each of the next four
(4) periods ending September 30, 1999, 2000, 2001 and 2002, Cumulative
Operating Earnings for such year equal or exceed $10,160,000.00,
$15,240,000.00, $20,320,000.00 and $25,400,000.00, respectively
(together with the Year-1 Minimum Target, as relevant to the applicable
year, the "MINIMUM TARGETS"). For each of the periods ending September
30, 1998 through 2002 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 due or payable had the
applicable Minimum Target been achieved for such year, 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 all the Contingent Notes shall not exceed $14,967,000.
(b) "OPERATING EARNINGS"; "CUMULATIVE OPERATING EARNINGS".
(i) DEFINITION OF "OPERATING EARNINGS". For purposes
hereof (and the Contingent Notes), the term "OPERATING
EARNINGS", with respect to any year or period, shall mean the
income of or attributable to the Business (as defined below)
for such year or period, BEFORE deduction for (in each case,
with respect to the 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
- 3 -
<PAGE> 12
payments made under the Contingent Notes, (iv) any fees or
expenses incurred by the Business in connection with the
transactions contemplated by this Agreement, (v) allocations
of corporate overhead of the Purchaser or AmeriPath Indiana
that is unrelated to the Business, and (vi) amounts payable to
the Managing Director or other administrators of the Companies
(provided that such amounts shall not exceed $50,000 in the
aggregate in any 12 month period). All such calculations shall
be determined in accordance with GAAP (as defined in SECTION
12.3 hereof). For purposes hereof (and the Contingent Notes),
the "Business" shall include the business, operations,
contracts, assets and liabilities of the Companies (as
constituted immediately prior to the Closing), which 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 Companies, (ii) the contracts with hospitals, medical
facilities and other entities, including, but not limited to
Mid America Clinical Laboratories, L.L.C., in effect from time
to time, to which the Companies, prior to the Closing, and the
Companies and/or AmeriPath Indiana and/or AmeriPath
Indianapolis, following the Closing, are a party, and which
are serviced by the physicians who from time to time are
employed by the Companies and/or AmeriPath Indiana and/or
AmeriPath Indianapolis and who report to the medical director
for AmeriPath Indiana and/or AmeriPath Indianapolis
(collectively, such physicians being referred to herein as the
"INDIANA-BASED PATHOLOGISTS"), and (iii) AmeriPath
Indianapolis' employment of, and employment agreements with,
any and all Indiana-Based Pathologists.
(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 twelve month period, but
in all events within 80 days after the end of each such
period. If a majority of the holders of Contingent Notes (the
"HOLDERS") wish to challenge the calculation of Operating
Earnings, they may do so by giving written notice of such
objection (the "OBJECTION NOTICE") to AmeriPath, signed by
such Holders, within 20 days after receipt of such statement
of Operating Earnings. The Objection Notice shall set forth in
reasonable detail the Holders' 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 Holders 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 Holders, 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 Applicable Payment Amount of the
Contingent Notes with respect to such period shall be paid
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<PAGE> 13
within ten (10) days after the earlier of the end of the 20
day period within which the Holders are entitled to deliver an
Objection Notice, or receipt by AmeriPath of notice from all
the Holders that they accept the calculation of Operating
Earnings. If the Holders object to the calculation of
Operating Earnings for the purpose of determining compliance
with this Section, the Applicable Payment Amount of the
Contingent Notes for such year 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.
(iii) CUMULATIVE OPERATING EARNINGS. For purposes
hereof (and the Contingent Notes), the term "CUMULATIVE
OPERATING EARNINGS" shall mean and include, with respect to
the 24 month period ending September 30, 1999, the 36 month
period ending September 30, 2000, the 48 month period ending
September 30, 2001 and the 60 month period ending September
30, 2002,the Operating Earnings of the Business, on a
cumulative basis, from October 1, 1997 through the end of such
period (E.G., the Cumulative Operating Earnings for the period
ending September 30, 2000 shall equal the Operating Earnings,
on a cumulative basis, from October 1, 1997 through September
30, 2000 (I.E., three full cumulative years of Operating
Earnings would be included)).
(iv) REGULATORY ADJUSTMENTS. Notwithstanding anything
to the contrary contained herein, if, in the judgment of a
majority of the full Board of Directors of AmeriPath, in their
sole and absolute discretion acting in good faith, it is
determined that (A) the inclusion of certain income, from
referrals or otherwise, in the calculation of Operating
Earnings or Cumulative Operating Earnings, as the case may be,
may cause the Contingent Notes, or the holding of the
Contingent Notes by any Holder, to violate any Regulation or
Order of any Authority (as such terms are defined in SECTION
12.3), or (B) any income was derived or the result of a
violation of the policies and procedures of AmeriPath adopted
from time to time by the Board of Directors of AmeriPath,
then, such income shall not be included in Operating Earnings
or Cumulative Operating Earnings, as the case may be, and
shall not be taken into account in determining the payments to
be made under the Contingent Notes; PROVIDED, HOWEVER, that
Sellers shall be given prompt notice of any such determination
by the Board of Directors and shall have an opportunity to
review the basis for such determination with the Board of
Directors.
(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
such Contingent Notes, as a condition to consummation of the AmeriPath
Acquisition, the acquiring Person shall be required either to
acknowledge and guarantee
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<PAGE> 14
AmeriPath's on-going obligations under the Contingent Notes or to
assume the obligations under the Contingent Notes.
(d) EFFECT OF ACQUISITIONS ON CONTINGENT NOTES. In the event
that AmeriPath or an Affiliate of AmeriPath acquires one or more
Persons or businesses after the Closing Date (an "AMERIPATH
ACQUISITION"), other than in the ordinary course of business and upon
agreement of the Purchaser and the Sellers, Operating Earnings will be
calculated without including (i) the income generated by, or expenses
incurred in connection with, the AmeriPath Acquisition, and (ii) any
selling, general or administrative expenses which do not relate to the
Company or its Business; PROVIDED, HOWEVER, with respect to an
AmeriPath Acquisition whose income the Purchaser and the Sellers have
agreed to include in the Operating Earnings or Cumulative Operating
Earnings, as the case may be, of the Business, interest, amortization
and depreciation with respect to such AmeriPath Acquisition shall be
deducted from the Operating Earnings or Cumulative Operating Earnings,
as the case may be, of the Business.
(e) INTEREST. Each Contingent Note 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.
Simple interest shall accrue and 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 all Contingent Notes
for such year shall be canceled and voided.
(f) MATURITY, REDEMPTION AND PREPAYMENTS. For each year for
which Operating Earnings or Cumulative Operating Earnings, as the case
may be, 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 advice of counsel), 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 discretion (as recommended by counsel to Ameripath),
upon written notice to Sellers, the Contingent Notes may be canceled
and voided and the parties hereto agree to endeavor in good faith to
arrive at 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, for all
Contingent Notes) $1,496,700 for each year remaining under the
Contingent Notes, such amount to be divided among the Sellers pro rata
according to the maximum principal amounts of the Contingent Notes.
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
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of the Contingent Notes specified in such notice, together with accrued
interest thereon, shall become due and payable on the prepayment date;
PROVIDED, HOWEVER, that if the prepayment is to be made during the
month of December in any year, then the written notice shall be given
not less than two (2) weeks prior to 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.
(g) GENERAL TERMS OF CONTINGENT NOTES.
(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 5:00
P.M. Indianapolis, Indiana 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.
(2) SUBORDINATION; SUBORDINATION AGREEMENT. The
Contingent Notes shall be subordinate and
junior in right of payment to certain senior
indebtedness pursuant to a subordination
agreement, to be dated as of the Closing
Date (the "SUBORDINATION AGREEMENT"), by and
among AmeriPath, its Subsidiaries, senior
lenders and 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 senior indebtedness of
AmeriPath.
(3) NOTES NON-NEGOTIABLE. The Contingent Notes
shall be non-transferable and
non-negotiable.
(4) RIGHT OF SET-OFF ON SELLERS' CONTINGENT
NOTES. With respect to all Contingent Notes
issued to the Sellers, AmeriPath shall have
the right, following prior written notice to
the holder, to set-off against principal or
interest payable to such Seller under a
Contingent Note held by such Seller the
amount of any indemnification payment owed
by such Seller 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
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<PAGE> 16
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
against whom AmeriPath intends to assert
such right of set-off contests in writing
(sent to AmeriPath) AmeriPath's claim that
the Seller is obligated to pay such amount
as 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.
(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.
(6) CONFLICT. To the extent there is any
conflict or inconsistency between the terms
of this Agreement and the terms specified in
any Contingent Note the terms specified in
the Contingent Note shall govern and
prevail.
1.3 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"), the AmeriPath Stock (to be
divided among the Sellers as set forth on SCHEDULE 1.1 hereof).
(a) RESTRICTIONS ON TRANSFER; VESTING.
(1) Except as is specifically permitted by the
provisions of this SECTION 1.3, the sale, assignment,
transfer, conveyance, pledge, margin, hypothecation, gift,
bequest, devise, levy, execution or other disposition
(hereinafter, each, a "transfer") of the AmeriPath Stock,
either directly or indirectly, by operation of law or
otherwise, to any person (including any individual, trust,
corporation, partnership,
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<PAGE> 17
company, association, syndicate, venture, special purpose
vehicle or other entity) is strictly prohibited.
(2) In furtherance and not in limitation of the
foregoing, no Seller shall transfer any shares of the
AmeriPath Stock 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 AmeriPath Stock under any such Securities
Laws, or a breach of any undertaking or agreement of such
Seller entered into with AmeriPath pursuant to such Securities
Laws or in connection with obtaining an exemption thereunder,
and AmeriPath shall not transfer upon its books any shares of
AmeriPath Stock unless prior thereto AmeriPath shall have
received an opinion, in form and substance satisfactory to
AmeriPath, of counsel, reasonably satisfactory to AmeriPath,
that such transfer is in compliance with this SECTION 1.3.
(3) For purposes of this Agreement (and the
restrictions set forth in this SECTION 1.3), the term
"AmeriPath Stock" shall mean and include (i) the shares of
AmeriPath Stock issued, granted, conveyed and delivered to
each Seller 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").
(4) VESTING. Notwithstanding the provisions of
SECTION 1.3(A)(1), commencing on September 1, 1998, and on
each of the four one-year anniversaries of such date, 20% of
the shares of AmeriPath Stock (including both the Primary
Shares and any Additional Shares issued with respect to such
Primary Shares) owned by each Seller shall be free of the
restrictions set forth in SECTION 1.3(A)(1), such restrictions
at such time having lapsed and no longer being applicable to
such percentage of the AmeriPath Stock, so that after five (5)
years none of the shares of AmeriPath Stock (including Primary
Shares and Additional Shares) shall be subject to the
restrictions set forth in SECTION 1.3(A)(1) hereof.
(b) PERMITTED CONDITIONAL TRANSFER UPON DEATH. Notwithstanding
the provisions of this SECTION 1.3, upon a Seller's death, the
AmeriPath Stock owned by such Seller shall be transferable solely
pursuant to the Seller's will or in accordance with the laws of descent
and distribution, if, and only if, the descendants or devisees, as
applicable, of the AmeriPath Stock execute and deliver to AmeriPath an
agreement, in form and substance satisfactory to AmeriPath, evidencing
their agreement to the restrictions contained in this SECTION 1.3.
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<PAGE> 18
(c) TRANSFERABILITY; SHAREHOLDERS' AGREEMENT. Any shares of
AmeriPath Stock issued pursuant to the Stock Rights shall be subject to
the Purchaser's Shareholders' Agreement (as defined in SECTION 7.10)
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 "call" or
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), 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. In addition, each Seller agrees that, upon the
request of the managing underwriter in connection with an underwritten
public offering of any of the Purchaser's securities, each Seller will
execute and deliver to such managing underwriter a lock-up agreement,
in form and substance acceptable to such underwriter and in a form that
is substantially the same as the lock-up agreements to be executed by
the other stockholders of the Purchaser, whereby the Seller agrees to
refrain from selling, transferring, pledging or otherwise conveying its
securities for a certain period.
(d) LEGEND(S) ON STOCK CERTIFICATES. Each Seller understands
and agrees that any and all stock certificates evidencing the AmeriPath
Stock shall contain appropriate restrictive legends indicating, in form
satisfactory to AmeriPath, the restrictions to which the AmeriPath
Stock is subject, as provided under this Agreement, including, but not
limited to, the following:
"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 7289 Garden Road, Suite 200,
Riviera Beach, Florida 33404."
(e) REPRESENTATIONS. Each Seller understands that, in
connection with the issuance of the AmeriPath Stock, AmeriPath is
relying upon the representations and warranties being made by Sellers
to AmeriPath in SECTION 2.25 hereof.
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<PAGE> 19
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND THE COMPANIES
Each of the Sellers, Colab, APS and Micro, 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):
2.1 ORGANIZATION, QUALIFICATION, ETC.
(a) Each of Colab, APS and Micro are corporations duly
organized, validly existing under the laws of the State of Indiana 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. Colab's articles of incorporation
have not been amended or supplemented since November 28, 1994, and are
in full force and effect as of the date hereof. APS's articles of
incorporation have not been amended or supplemented since May 25, 1994,
and are in full force and effect as of the date hereof. Micro's
articles of incorporation have not been amended or supplemented since
April 27, 1995, and are in full force and effect as of the date hereof.
True, complete and correct copies of the articles of incorporation and
by-laws, as presently in effect, of Colab, APS and Micro are
collectively attached hereto as EXHIBIT 2.1.
(b) Each of Colab, APS and Micro is duly qualified or licensed
to do business and is in good standing in the jurisdictions set forth
on SCHEDULE 2.1 attached hereto, those being every jurisdiction in
which the conduct of the Company's business, the ownership or lease of
its properties, the proposed conduct of the Company's business, the
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).
2.2 SUBSIDIARIES. Except as set forth on SCHEDULE 2.2, none of the
Companies has any 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
(as defined in SECTION 12.3), including any officer, director or shareholder.
2.3 CAPITAL STOCK. The authorized capital stock, as of the date hereof,
of each of Colab, APS and Micro is set forth on SCHEDULE 2.3. The stock record
books of each of the Companies have been delivered to the Purchaser for
inspection prior to the date hereof and are complete and correct, and all
requisite Federal and State documentary stamps have been affixed thereon and
canceled. The Company Shares constitute all of the issued and outstanding shares
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of capital stock of the Companies; and all of the Company Shares are owned
beneficially and of record by the Sellers.
2.4 RECORD BOOKS. The corporate minute books of the Companies have been
made available to the Purchaser, are complete and correct and contain all of the
proceedings of the shareholders and directors of the Companies.
2.5 TITLE TO COMPANY STOCK. All of the issued and outstanding shares of
the capital stock of the Companies are and at the Closing will be owned by the
Sellers (in the amounts and as set forth in SCHEDULE 1.1 hereto), are duly
authorized, validly issued and fully paid, 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 Company Shares immediately prior to the
Closing owned by such Seller, 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 any of the Companies 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 any of the Companies and any other Person (as defined in
SECTION 12.3) regarding the Company Shares (or the transfer, disposition,
holding or voting thereof).
2.7 AUTHORIZATION, ETC. Each of the Companies has full power and
authority and each of the Sellers has full power, authority or capacity, as the
case may be, 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
on behalf of the Companies by the appropriate parties and no other proceedings
on the part of the Companies 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 the Companies 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 the Companies 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 the Companies 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 the Companies pursuant
to, (d) give any third party the right to accelerate any obligation under, (e)
result in a violation of, or (f) require any material authorization, consent,
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<PAGE> 21
approval, exemption or other action by or notice to any court or Authority (as
defined in SECTION 12.3) pursuant to, the organizational documents of the
Companies or 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 any of the
Companies or any Seller is subject. The Companies 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 each of the Companies: (i) balance sheets
(prepared on a cash basis) for the fiscal years ended December 31, 1995 and
December 31, 1996 (the "BALANCE SHEETS"), (ii) statements of revenues and
expenses and related schedules thereto (prepared on a cash basis) for the fiscal
years ended December 31, 1993, December 31, 1994, December 31, 1995 and December
31, 1996 (the "STATEMENTS OF REVENUES AND EXPENSES"), and (iii) balance sheet,
statement of revenues and expenses and related schedules thereto (prepared on a
cash basis) for the six months ended June 30, 1997 (collectively, together with
the Balance Sheets and the Statements of Revenues and Expenses, the "FINANCIAL
STATEMENTS"). The balance sheets (and the schedules thereto) included in the
Financial Statements fairly present the financial position of the Companies on a
cash basis as at the respective dates thereof, and the statements of revenues
and expenses (and the schedules thereto) 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 the Companies at the respective date of on a cash basis, and for
the period covered by, such statements. Except as set forth on SCHEDULE 2.9(A)
attached hereto, the Companies have 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 (as defined in SECTION 12.3), other
than (i) liabilities which have been reflected or reserved against in the
Financial Statements, (ii) liabilities incurred since December 31, 1996, and
(iii) liabilities covered by insurance or reinsurance (a complete and detailed
description of which is provided in SCHEDULE 2.9(B)). SCHEDULE 2.9(C) sets forth
a complete list of the Companies' accounts payable.
2.10 EMPLOYEES. As of the date hereof, the Companies have an aggregate
of approximately 20 employees. The Companies have 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 the Companies
(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, 1996, 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 the Companies; (b) any damage,
destruction or loss, whether covered by insurance or not, having a Material
Adverse Effect, with regard to the Companies' properties and business; (c) any
payment by the Companies to, or any notice to or acknowledgment by the Companies
of any amount due or owing to, the Companies' self-insured carrier, if any, in
connection with any self-insured
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<PAGE> 22
amounts or liabilities under health insurance covering employees of the
Companies, in each case, in excess of a reserve therefor on the balance sheet
for the fiscal year ended December 31, 1996 included in the Financial
Statements; (d) any declaration, setting aside or payment of any dividend or
distribution (whether in cash, stock or property) in respect of the Companies'
capital stock, or any redemption or other acquisition of such capital stock by
the Companies; (e) any increase in the rate of compensation or in the benefits
payable or to become payable by the Companies to their respective 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 the Companies; (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 the
Companies of any asset; or (i) any change by the Companies in their respective
accounting methods or principles.
2.12 CONTRACTS.
(a) Except as set forth in SCHEDULE 2.12 hereto, none of the
Companies is either a party to or 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 the Company
without penalty or other financial obligation (and, except as
set forth on SCHEDULE 2.12, no officer or employee of a
Company receives total salary, bonus and other compensation
from such Company of $35,000.00 or more per annum).
(iii) Contract containing covenants or agreements
limiting the freedom of a Company or any of its employees to
compete in any line of business presently conducted by the
Companies 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);
(v) Contract relating to or providing for loans to
officers, directors, employees or Affiliates;
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<PAGE> 23
(vi) Contract under which a Company 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 the Companies;
(viii) guarantee or endorsement of any obligation;
(ix) Contract under which a Company 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
$10,000.00;
(x) Contract pursuant to which a Company is lessor of
or permits any third party to hold or operate any property,
real or personal, owned or controlled by any of the Companies;
(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 the
Companies;
(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 $10,000.00;
(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, any Seller also has a Contract;
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<PAGE> 24
(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 Sellers, the
Companies or such provider; or
(xxi) any other Contract which is material to the
Companies' 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 the respective
Company without penalty or other financial obligation, and (z)
in each case, involve aggregate payments by or to a Company of
$10,000.00 or less.
(b) Except as set forth on SCHEDULE 2.8, 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) the Companies have 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 the a Company 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
a Company is subject (including without limitation all performance
bonds, warranty obligations or otherwise); the Companies do not have
any present expectation or intention of not fully performing all such
obligations; the Companies do 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 the Companies are and
will be true and complete copies of such agreements, contracts and documents.
2.14 TITLE AND RELATED MATTERS.
(a) The Companies have good and marketable title to all of the
properties and assets reflected in the balance sheet for the fiscal
year ended December 31, 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 December 31, 1996 included in Financial
Statements or the notes thereto.
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<PAGE> 25
(b) The Companies own, 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 the Companies 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 the
Companies 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, 1996, and will not
be prior to the Closing Date, any sale, lease, or any other disposition
or distribution by the Companies of any 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, the Companies, as wholly-owned
subsidiaries 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 the Companies.
2.15 LITIGATION. There is no Claim (as defined in SECTION 12.3) pending
or, to the best knowledge of each Seller and the Companies, threatened against
any of the Sellers or the Companies which, if adversely determined, would have a
Material Adverse Effect on the Companies. Nor is there any Order outstanding
against any of the Sellers or the Companies having, or which, insofar as can
reasonably be foreseen, in the future may have, a Material Adverse Effect on the
Companies.
2.16 TAX MATTERS.
(a) The Companies have 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 a Company may be a party.
All Taxes on the Tax Returns required or anticipated to be paid for all
periods prior to and including the Closing Date have been paid, and all
of the Companies' Taxes that may be due or claimed to be due as a
result of the consummation of the transactions contemplated by this
Agreement will be paid. All Taxes which are required to be withheld or
collected by the Companies have
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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 the Companies except for liens for Taxes not yet
due and payable. Neither the Sellers nor the Companies 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) No audit of the Companies or the Companies' 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 the Companies 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 the Companies on the Tax Returns filed by
or on behalf of the Companies 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 the Companies and such information was
derived from the books and records of the Companies.
(c) The Companies have 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 the Companies 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 the Companies shall pay all Taxes due in
respect of such Pre-closing Tax Returns to the appropriate Taxing
Authority; and the Companies shall pay all costs associated with the
preparation thereof.
2.17 COMPLIANCE WITH LAW AND APPLICABLE GOVERNMENT REGULATIONS. The
Companies are presently complying in respect of their 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 the Companies are there any
Claims threatened,
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nor have the Sellers received any written notice, regarding any violations of
any Regulations and Orders enforced by any Authority claiming jurisdiction over
the Companies, including any requirement of OSHA or any pollution and
environmental control agency (including air and water).
(a) SCHEDULE 2.17 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 the Companies. The Permits
listed on SCHEDULE 2.17 are the only Permits that are required for the
Companies 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 the Companies. Each such Permit is in full force and
effect and, to the best of the knowledge of the Companies, 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) The Companies have licenses to provide health care
services in the jurisdictions set forth in (or in the Permits set forth
in) SCHEDULE 2.17 hereto, which such licenses are all those necessary
to conduct the business of the Companies in the jurisdictions in which
the Companies presently operate. SCHEDULE 2.17 also sets forth a true
and complete description of the status of each such license. Except as
set forth on SCHEDULE 2.17, neither the Sellers nor the Companies 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 the Companies, nor any ERISA
Affiliate of the Companies, 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
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(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 the Companies 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 the Companies, 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, the Companies,
to their knowledge, are 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. To the knowledge of the Companies
and the Sellers, 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 the Companies nor any ERISA
Affiliate of the Companies 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 the
Companies' balance sheets for the fiscal year ended December 31, 1996
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.
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<PAGE> 29
2.19 INTELLECTUAL PROPERTY.
(a) Except as set forth on SCHEDULE 2.19(A), none of the
Companies has any trade name, service mark, patent, copyright or
trademark related to its business.
(b) The Companies have the right to use each Proprietary Right
(as defined in SECTION 12.3) listed in SCHEDULE 2.19(A), 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 its use of any of the
Proprietary Rights listed on SCHEDULE 2.19(A) infringes the rights of
any Person. The Sellers has no knowledge of any conflicting use of any
of such Proprietary Rights.
(c) None of the Companies is 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 the Companies 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 the Companies' management information or development staff
or by consultants on the Companies' behalf, is original and
capable of copyright protection in the United States, and the
Companies have 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. The Companies
have 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 the Companies
legitimately and is fully transferable to the Purchaser
without any third party consent. All of the Companies'
computer hardware has legitimately-licensed software installed
therein.
(iii) NO ERRORS; NONCONFORMITY. The Companies warrant
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.
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<PAGE> 30
2.20 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 2.20: (a)
to the knowledge of the Companies and the Sellers, neither the Companies'
business nor the operation thereof violates any applicable Environmental Law (as
defined in SECTION 12.3) 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 a Company or the Purchaser
or creates or could create a liability or loss for such Company 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 the Companies and
the Sellers, the Companies are in possession of all Environmental Permits (as
defined in SECTION 12.3) required under any applicable Environmental Law for the
conduct or operation of the Companies' business (or any part thereof), and the
Companies are in full compliance with all of the requirements and limitations
included in such Environmental Permits; (c) the Companies have not stored or
used any pollutants, contaminants or hazardous or toxic wastes, substances or
materials on or at any property or facility now or previously owned, leased or
operated by the Companies except for inventories of chemicals which are used or
to be used in the ordinary course of the Companies' 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)
the Companies have not received any notice from any Authority or any private
Person that the Companies' 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 property or facility now or previously owned, leased or operated by
the Companies, or at, on or beneath any land adjacent thereto or in connection
with any waste or contamination site; (e) the Companies are 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 the Companies; (f) the Companies have not buried, dumped, disposed,
spilled or released any pollutants, contaminants or hazardous or wastes,
substances or materials on, beneath or adjacent to any property or facility now
or previously owned, leased or operated by the Companies or any property
adjacent thereto; (g) no by-products of any manufacturing or mining process
employed in the operation of the Companies' 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
the Companies' property; (h) no property or facility now or previously owned,
leased or operated by the Companies, 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 or facility now or previously owned,
leased or operated by the Companies; (j) the Companies have 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 the Companies for
any remedial work, damage to natural resources or personal injury, including
claims under CERCLA; and (k)
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there are no polychlorinated biphenyls, radioactive materials or friable
asbestos present at any property or facility now or previously owned or leased
by the Companies. The Companies have 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 any of the Companies is, will be or has been a party, at
any time from January 1, 1992 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 any of the Companies 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. The Companies have no
liability or obligation relating to funds or money borrowed by or loaned to the
Companies (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 the
Companies as of the date hereof, as well as a schedule of Claims filed with each
Company's current insurance carrier, including a history of such Claims and a
description and estimated dollar amount of any unresolved Claims. Such policies
are valid, outstanding and enforceable policies, as to which premiums have been
paid currently. Neither the Companies nor 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 the Companies 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 the
Companies.
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 the Companies
and the Sellers to enable the Companies 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. Each Seller hereby represents and
warrants to AmeriPath as follows:
(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
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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 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.
(c) Each Seller is an "accredited investor", as such term is
defined in Rule 501 of Regulation D promulgated under the Securities
Act.
(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 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.
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<PAGE> 33
(f) 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 the
Companies reflected on SCHEDULE 2.26 attached hereto on the date hereof are good
and collectible in the ordinary course of business consistent with past
practices of the Companies regarding the collection of accounts receivable. 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 (except
those in the ordinary course of business consistent with past practices). The
inventories reflected on the balance sheets included in the Financial
Statements, and the inventories held by the Companies on the date hereof, (i) do
not include any items which are not usable or saleable in the ordinary course of
business of the Companies, 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 December 31, 1996,
inventories of raw materials and supplies have been purchased by the Companies
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. The Companies are not aware of any material
adverse conditions affecting the supply of materials available to the Companies,
and, to the best knowledge of the Companies, the consummation of the
transactions contemplated hereby will not adversely affect any such supply.
2.27 BROKERAGE. Neither any Seller nor the Companies 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 any Seller
or the Companies, 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. Neither the Companies nor the Sellers
nor, to the Companies' knowledge, any director, officer, employee, agent or
representative of the Companies nor any Person acting on behalf of any of them,
has (a) made, paid or received any unlawful bribes, kickbacks or other similar
payments to or from any Person or Authority, (b) made, directly or indirectly,
any contributions to a domestic or foreign political party or candidate, nor (c)
made any improper foreign payment (as defined in the Foreign Corrupt Practices
Act). The internal accounting controls of the Companies are believed by the
Companies' 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, the
Companies have 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 the
Companies and the Sellers there is no basis for any Recoupment Claims
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<PAGE> 34
based upon cost reports, claims or bills submitted or to be submitted in
connection with services rendered by the Companies. 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 the Companies and the
Sellers, threatened by any third-party payor or governmental authority having
jurisdiction over the Companies for amounts arising from or related to payments
to the Companies 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 the Companies' knowledge, the
Companies 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 the Companies in the ordinary course of business.
The Companies 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 the Companies (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), the Companies are
in compliance with each third-party payor's Contract, and the Companies
have 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. The
Companies have timely and accurately filed all requisite claims and
other reports required to be filed in
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connection with all state and federal Medicare and Medicaid programs in
which the Companies participate 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 the Companies, either
individually or as a whole. Except as set forth on SCHEDULE 2.30(C)
hereto, there are no Claims pending or, to the Companies' knowledge,
threatened or scheduled before any Authority, including without
limitation, any intermediary, carrier, the Administrator of the Health
Care Financing Administration, [the Indiana 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 the Companies on or before the Closing Date, or
program compliance matters, which would have a Material Adverse Effect
on the Companies, either individually or as a whole, or their assets,
operations or utility thereof, or the consummation of the transactions
contemplated hereby. The Companies have 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
the Companies' Medicare and Medicaid Contracts, no valid review or
program integrity review related to the Companies has been conducted by
any Authority in connection with the Medicare or Medicaid programs and
no such review is scheduled, or to the Companies' knowledge, pending or
threatened against or affecting the Companies, their business, assets,
or the consummation of the transactions contemplated hereby.
(d) RATE LIMITATIONS AND RATES. Each facility currently
operated by the Companies charges rates and accordingly bills for
services which are legal and proper, and the Companies' 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. Each of the Companies 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 the any of the Companies, 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 the Companies, other than referrals which
comply with (or are exempt from) the requirements of 42 U.S.C. Section
1395nn and the regulations promulgated pursuant thereto.
2.31 FINANCIAL CONDITION. At and as of Closing, the Companies shall
have, in the aggregate, net working capital (consisting of cash, cash
equivalents and accounts receivable (net of contractual and bad debt
allowances), less current liabilities, all calculated on an accrual basis in
accordance with GAAP, "NET WORKING CAPITAL") of not less than $1,000,000. The
Purchaser will notify the Sellers of the actual collections made during the
three month period following the Closing Date with respect to the accounts
receivable of the Companies on the Closing Date. In
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the event that the Net Working Capital of the Companies, based on such actual
collections, is determined to be in excess of $1,000,000, such excess amount
will be paid to the Sellers in accordance with SECTION 1.1(C); in the event of a
deficiency in the Net Working Capital, calculated on the same basis, the Sellers
shall pay the amount of such deficiency to the Purchaser.
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 the Companies
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, 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,
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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 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 AmeriPath Stock issued 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 audited financial statements for the year
ended December 31, 1996, and unaudited financial statements for the six (6)
months ended June 30, 1997 (collectively, the "PURCHASER FINANCIAL STATEMENTS")
are attached hereto as EXHIBIT 3.7. 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, 1997.
3.8 LITIGATION. There is no Claim (as defined in SECTION 12.3) pending
or, to the best knowledge of the Purchaser, threatened against the Purchaser
which, if adversely determined, would have a material adverse effect on
Purchaser. Nor is there any Order outstanding against the Purchaser having, or
which, insofar as can reasonably be foreseen, in the future may have, a material
adverse effect on Purchaser.
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3.9 DISCLOSURE. Neither this Agreement nor any of the exhibits,
attachments, written statements, documents, certificates or other items prepared
for or supplied to the Sellers by or on behalf of the Purchaser 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.
3.10 CONSENTS. There are no consents of governmental or other
regulatory agencies or authorities, foreign or domestic, required to be received
by or on the part of the Purchaser to enable the Purchaser to enter into and
carry out this Agreement in all material respects.
3.11 SENIOR CREDIT FACILITY. The Purchaser is not currently in default,
and will not be in default upon the consummation of this Agreement, under the
terms of the Amended and Restated Credit Agreement, originally dated May 29,
1996 and amended and restated June 27, 1997, among the Purchaser, its
subsidiaries, BankBoston, N.A., as agent, and the lenders named therein.
ARTICLE IV
COVENANTS OF THE SELLERS AND THE COMPANIES
From the date hereof until the Closing, except as otherwise consented
to or approved by the Purchaser in writing, the Sellers and the Companies
covenant and agree that they shall act, and the Sellers shall cause the
Companies so to act or refrain from acting where required hereinafter, to comply
with the following:
4.1 REGULAR COURSE OF BUSINESS. The Companies shall operate their
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 the Companies and the conduct of their
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; and shall preserve the business of the Companies intact, and use
its best efforts to keep available for the Companies and the Purchaser the
services of the officers and employees of the Companies, and to preserve the
good will of clients, patients, suppliers and others having business relations
with the Companies.
4.2 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Except as set forth below
and as contemplated by this Agreement, no change or amendment shall be made in
the organizational documents of the Companies, nor shall the Companies 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. Prior to the Closing, the Sellers shall cause the articles of
incorporation
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of each of the Companies to be amended to provide that the Companies shall be
business corporations, and not professional service corporations, to delete any
inconsistent references and to provide that the Companies may operate for any
lawful purpose which will allow Persons other than those licensed to practice
pathology in the State of Indiana to own shares of capital stock of such
companies. Immediately following the Closing, Purchaser may determine to merge
APS and Micro into Colab, each of the Companies being, at such time,
wholly-owned subsidiaries of AmeriPath, Inc., and to amend the articles of
incorporation of Colab to change the company's name to AmeriPath Indiana, Inc.
All of such amendments (together, the "COMPANY CHARTER AMENDMENTS") shall be in
form and substance satisfactory to AmeriPath.
4.3 CAPITAL CHANGES; PLEDGES. Except as contemplated under this
Agreement, the Companies 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 the Companies shall not pledge or otherwise encumber any shares of its
capital stock.
4.4 DIVIDENDS. The Companies shall not declare, pay or set aside for
payment any dividend or other distribution in respect of its capital stock, nor
shall the Companies, directly or indirectly, redeem, purchase or otherwise
acquire any shares of its capital stock.
4.5 CAPITAL AND OTHER EXPENDITURES. The Companies 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. At
and as of the Closing, the Companies shall have, in the aggregate, cash, cash
equivalents and accounts receivable (net of contractual and bad debt allowances)
which satisfies the requirements of SECTION 2.31 hereof. No distributions of
cash or cash equivalents shall be made by the Companies to the Sellers
subsequent to the Closing.
4.7 BORROWING. The Companies 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, the Companies shall not enter into any transaction or make any
commitment or incur any obligation (including entering into any real property
leases).
4.9 INTERIM FINANCIAL INFORMATION. To the extent prepared in the
ordinary course of business, the Companies shall supply the Purchaser with
unaudited financial statements (including, without limitation, balance sheets
and statements of revenues and expenses) and information for
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each calendar month, promptly following the conclusion of such month, and as the
Companies may otherwise reasonably request.
4.10 FULL ACCESS AND DISCLOSURE.
(a) The Companies shall afford to the Purchaser and its
counsel, accountants and other authorized representatives reasonable
access during business hours to the Companies' 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 the Companies; and the Sellers shall cause the
Companies' 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 the
Companies made by the Companies' independent auditors in connection
with any examination of the Companies' Financial Statements and books
and records.
(b) From time to time prior to the Closing Date, the Companies
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 the
Companies, the Sellers shall fully cooperate and the results of such
"due diligence" examination shall be satisfactory to the Purchaser.
4.11 CONFIDENTIALITY. Each Seller and the Companies 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 any Seller nor the Companies 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. The Companies 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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4.14 BANKING ARRANGEMENTS. The Companies shall open bank accounts at
such banks as directed by AmeriPath, and shall transfer all funds to such
accounts, all in accordance with the terms and conditions of AmeriPath's credit
facility.
4.15 TERMINATION OF ERISA PLANS. Prior to the Closing, the Companies
shall terminate the ERISA plans set forth on SCHEDULE 2.18 hereto. The Sellers
shall direct the termination of such plans, including any and all decisions with
respect to the transfer of the assets held in such plans and seeking any
necessary approvals from the Internal Revenue Service. AmeriPath shall have no
duties, responsibilities, rights or obligations with respect to such plans.
ARTICLE V
COVENANTS OF THE PURCHASER
The Purchaser hereby covenants and agrees with the Companies 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's prior
consent, all information received by it from the Sellers or the Companies'
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 the Companies 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
the Companies 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 the Companies or the Sellers
with respect to the business of
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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:
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 September 1,
1997. 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 the Companies, 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 the Companies 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 the Sellers nor the Companies 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, the Companies, 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
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heretofore with respect to any of the foregoing. Should the Companies or any
Seller be contacted with respect to any offer, inquiry or proposal, the
Companies 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. 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.
6.6 EMPLOYMENT AGREEMENTS. The Companies and the Sellers shall,
immediately prior to the Closing, terminate any existing employment agreements
between the Companies and each Seller and the Sellers set forth on SCHEDULE 6.6
hereto shall each enter into an Employment Agreement with AmeriPath Indianapolis
in the form of EXHIBIT 6.6 attached hereto (the "EMPLOYMENT AGREEMENT").
6.7 PUBLIC ANNOUNCEMENTS. Neither any Seller nor the Companies 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 such 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 the Companies and without further
consideration from the Purchaser or the Companies, 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, unless otherwise permitted by AmeriPath in writing, that he or
she shall not, as a shareholder, principal, agent, consultant, manager,
advisor, director, officer, control person, operator, or in any other
capacity or manner whatsoever:
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(i) directly or indirectly engage in the practice of
pathology, or engage in any business or perform any service,
directly or indirectly, in competition with the business of
the Companies, the Companies' successors and assigns, or have
any interest whatsoever in any enterprise that shall so engage
in such activities, which is located in, provides services in
or does any business whatsoever in, the area which is within
twenty-five (25) miles of any County in the State of Indiana
in which the Companies, or any Affiliate of the Companies, is
then doing business or providing services or has done business
or provided service within the preceding twelve (12) month
period (the "Restricted Territory"), or
(ii) from any facility or location, whether within or
without the Restricted Territory, knowingly (x) perform
pathology services for any patient, medical facility,
hospital, laboratory or health care provider located in the
Restricted Territory or (y) perform pathology services for any
patient, medical facility, hospital, laboratory or health care
provider who was or is a customer, client or patient of the
Companies, or any Affiliate of the Companies; except that it
shall not be a violation of this SECTION 6.9 for a Seller to
perform pathology services in the Restricted Territory during
the Restricted Period (i) as an employee of a local, federal
or state government or agency; (ii) in performing the
Employee's duties as a member of the United States military
services or the National Guard; or (iii) 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 seven (7) years,
from the Closing to the seventh (7th) anniversary of the Closing, and
(y) during such time as the Seller is employed by an AmeriPath Entity
and for a period of two (2) years following the effective date of any
termination of such Seller's employment with any such AmeriPath Entity
(regardless of the cause, reason or justification of any such
termination.
(c) Each Seller further agrees that during the Restricted
Period which follows any termination of the Restricted Party's
employment with any AmeriPath Entity, the Seller 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 Seller'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 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 each Seller's
strict compliance with, and the enforceability by the Purchaser of,
these restrictions.
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(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 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 Entity, each
Seller may obtain confidential or proprietary information developed, or
to be developed, by an AmeriPath Entity. "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 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 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 Seller or
becomes public thereafter, provided such information is not in the
public domain as a consequence of disclosure by the 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.
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(b) NON-DISCLOSURE. Each Seller agrees that, except as
directed by such Seller's AmeriPath Entity employer, as required or
otherwise contemplated under this Agreement or such Seller's Employment
Agreement or as otherwise required by law, he 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 or, if necessary, to such Seller's
attorney, 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.
6.11 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
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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.
6.12 338(H)(10) ELECTION. The parties hereto agree that (i) the
acquisition of the Company Shares that constitute shares of capital stock of APS
and Micro 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, valuations will be made in accordance with the applicable provisions
of the Code and Federal income tax regulations as determined by AmeriPath and
its independent appraisers, whose determinations shall be binding on all
parties; PROVIDED, HOWEVER, that the valuations will not be materially different
than the value of such Companies on an accrual basis. The Sellers shall
indemnify AmeriPath (and its Affiliates) and hold AmeriPath (and its Affiliates)
harmless from any loss, charge or expense resulting from the Election and the
payment of the taxes due in connection therewith and herewith.
6.13 ASSIGNMENT OF CONTRACTS. The parties hereto agree to use their
best efforts to obtain the necessary or desirable consents in order to assign
each of the contracts listed on SCHEDULE 6.13 hereto to AmeriPath Indianapolis
prior to October 31, 1997.
6.14 ACQUISITIONS. The parties acknowledge and agree that it is in
their mutual interest to expand AmeriPath's business in Indiana and surrounding
areas and, accordingly, the parties covenant and agree to cooperate in
connection with such expansion and, if appropriate, the review and consider
operational changes that may be necessary or desirable.
6.15 PRESERVATION OF EXISTENCE. The Purchaser covenants and agrees that
it will, for so long as at least a majority of the Employment Agreements are in
effect, it will cause AmeriPath Indianapolis to remain in existence; PROVIDED,
HOWEVER, that Purchaser may cause a change in the ownership structure of the
Business or the existence of AmeriPath Indianapolis so long as (i) such change
is not inconsistent with Applicable Laws and (ii) the Employment Agreements then
in effect are assumed or guaranteed by an AmeriPath Affiliate in a manner not
inconsistent with Applicable Laws.
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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 the Companies 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 the Companies 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 Sellers and the president of the Companies 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. Except as set forth on SCHEDULE 7.3 hereto,
the Purchaser, the Sellers and the Companies 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 addressed to the Purchaser), dated the
Closing Date, of the president and chief financial officer of the Companies,
certifying to the foregoing.
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7.6 OPINION OF SELLER'S COUNSEL. The Purchaser shall have received an
opinion of counsel to the Sellers and the Companies (which will be addressed to
the Purchaser), 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 the Companies and shall have executed and
delivered to the Purchaser Employment Agreements in the form of EXHIBIT 6.6
attached hereto.
7.8 DELIVERY OF COMPANY SHARE CERTIFICATES. All of the Sellers shall
have executed and delivered this Agreement, or a counterpart hereof, and
together shall have delivered at the Closing stock certificates representing all
of the Company Shares, duly endorsed for transfer to the Purchaser, together
with stock powers duly executed in blank.
7.9 SUBORDINATION AGREEMENT. At the Closing, each of the Sellers shall
have executed and delivered the Subordination Agreement, in the form attached
hereto as EXHIBIT 7.9.
7.10 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"),
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.
7.11 CREDITOR CONSENTS. The creditors set forth on SCHEDULE 7.11 hereto
shall have agreed in writing with the Companies 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. The Companies shall have obtained from the creditors set
forth on SCHEDULE 7.11 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.
7.12 COMPANY CHARTER AMENDMENTS. The Companies 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 Indiana in form
acceptable for filing, the Company Charter Amendments.
7.13 TRUST AGREEMENT; MANAGEMENT AGREEMENT. Jeffrey A. Mossler, M.D.
(the "TRUSTEE") shall have executed and delivered a Trust Agreement,
substantially in the form attached hereto as EXHIBIT 7.13(A), pursuant to which
AmeriPath shall be the beneficiary of the Trust and Trustee shall be the trustee
(the "TRUST AGREEMENT"). AmeriPath Indianapolis and AmeriPath Indiana shall have
executed and delivered a Management Agreement, substantially in the form
attached hereto as EXHIBIT 7.13(B), pursuant to which AmeriPath Indiana shall
provide certain management services to AmeriPath Indianapolis and AmeriPath
Indianapolis shall provide certain physician services to AmeriPath Indiana (the
"MANAGEMENT AGREEMENT").
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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, 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 Financial 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 such Seller is entitled
pursuant to SECTION 1.1 hereof.
8.4 EMPLOYMENT AGREEMENTS. AmeriPath Indianapolis shall have executed
and delivered to each of the Sellers an Employment Agreement between AmeriPath
Indianapolis and such Seller in the form of EXHIBIT 6.6 attached hereto.
8.5 TRUST AGREEMENT; MANAGEMENT AGREEMENT. AmeriPath shall have
executed and delivered the Trust Agreement. AmeriPath Indianapolis and AmeriPath
Indiana shall have executed and delivered the Management Agreement.
8.6 OPINION OF PURCHASER'S COUNSEL. The Sellers shall have received an
opinion of counsel to the Purchaser (which will be addressed to the Sellers),
dated the Closing Date, in the form of EXHIBIT 8.6 hereto.
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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
August 29, 1997, 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"). The Effective Date of
the Closing shall be deemed to be September 1, 1997 (the "EFFECTIVE DATE").
9.2 CLOSING DELIVERIES. At the Closing,
(a) the Sellers and the Companies shall deliver or cause to be
delivered to the Purchaser:
(i) a certificate or certificates or assignment
evidencing all of the Company Shares, duly endorsed for
transfer with all necessary transfer stamps affixed;
(ii) copies of all consents and approvals required by
SECTIONS 7.3, 7.4 and 7.12 (including UCC termination
statements, releases of mortgages or other releases of Liens);
(iii) the Opinion of Counsel required by SECTION 7.6;
(iv) the Officers' Certificates required by SECTIONS
7.1 and 7.5;
(v) the Employment Agreements required by SECTION
7.7;
(vi) the Subordination Agreement required by SECTION
7.9;
(vii) the counterpart signature pages to the
Shareholders' Agreement required by SECTION 7.10;
(viii) the Trust Agreement and Management Agreement
required by SECTION 7.13;
(ix) a certificate, signed by the secretaries of the
Companies, as to the organizational documents of the
Companies, the resolutions adopted by the board of directors
and shareholders of the Companies in connection with this
Agreement, the incumbency of certain officers of the Companies
and the jurisdictions in which the Companies are qualified to
conduct business, in form acceptable to the Purchaser;
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(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 the Companies 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 Indiana 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 any Seller or
the Companies 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 such Seller at Closing in accordance with SECTION 1.1;
(ii) the Officers' Certificate required by SECTION
8.1;
(iii) the Employment Agreements required by SECTION
8.4;
(iv) the Opinion of Counsel required by SECTION 8.6;
and
(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 the
Companies;
(b) by the Purchaser or both of the Sellers and the Companies
if this Agreement is not consummated on or before September 1, 1997;
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
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(c) by the Purchaser if as of the Closing Date (including any
extensions) any of the conditions specified in ARTICLE VI hereof shall
not have been satisfied or if the Companies 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;
(b) all information received by any party hereto with respect
to the business of any other party or the Companies (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;
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(2) with respect to the representations and
warranties in SECTIONS 2.3 (capitalization), 2.4 (title to the
Company 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, 2000 (the "2000
AUDIT DATE"), except for representations, warranties and
indemnities for which an indemnification Claim shall be
pending as of the 2000 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 the Sellers, jointly and
severally, 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 any Seller or the
Companies 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 the Companies hereunder;
(b) Any and all liabilities of the Companies 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 balance sheet for the six months ended June
30, 1997 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 the Companies, together
with any interest or penalties thereon or related thereto,
through the Closing Date and any Tax liability of the
Companies arising in connection with the transactions
contemplated hereby. Any Taxes, penalties or interest
attributable to the operations of the Companies 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
the Companies' 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
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balance sheet for the six months ended June 30, 1997 included
in the Financial Statements;
(iii) All claims by Medicare, Medicaid, or any other
third party payor relating to reimbursement for services
provided by the Companies 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 the Companies; 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.
(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
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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 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; MAXIMUM LIABILITY. Notwithstanding the foregoing
provisions of this ARTICLE XI, except as set forth in 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 $100,000 (the "DEDUCTIBLE").
In the event that such threshold amount is exceeded with respect to a claim by
Purchaser against the Companies, then the threshold shall be deemed to also be
met with respect to each Seller. The maximum liability under this Agreement for
each Seller with respect to such Seller's personal obligations shall be equal to
the cash portion of the Purchase Price received by such Seller pursuant to
SECTION 1.1(B)(I). 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 the Shares), 2.6
(options and rights on capital stock), 2.16 (tax matters), 2.30 (healthcare laws
and regulations) or 2.31 (selected financial amounts as of Closing) shall be
subject to the Deductible or any limitation with respect to the maximum
indemnification provided hereunder.
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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 the Companies, 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.
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.
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"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 laws governing home health agencies; The Health
Maintenance Organization Act; [the Indiana Pharmacy Act; the Indiana
Drug and Cosmetic Act; the Indiana Comprehensive Drug Abuse Prevention
and Control Act]; the Patient Self-Referral Act; the Employee Health
Care Access Act; 21 U.S.C. ss.301-392, the Federal Food Drug and
Cosmetic Act; 21 U.S.C. ss.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. ss.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. ss.1857(h) et seq., Section
508 of the Clean Water Act; 33 U.S.C. ss.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. ss.2000 d et seq.,
Section 504 of the Rehabilitation Act of 1933; 29 U.S.C. ss.7940; Title
IX of the Education Amendments of 1972, 20 U.S.C. ss.1681 et seq., the
Age Discrimination Act of 1975; 42 U.S.C. ss.6101 et seq., Section 654
of OBRA '81; 42 U.S.C. ss.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.
- 50 -
<PAGE> 59
"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 the Companies' 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.
"SUBSIDIARY" means any Person which the Purchaser or the
Companies, 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 the Companies, to:
Community Hospital
1500 North Ritter
Indianapolis, IN 46219
Attn: Jeffrey A. Mossler, M.D.
- 51 -
<PAGE> 60
with a copy to:
Alan J. Dansker, Esq.
Bingham, Summers, Welsh & Spillman
2700 Market Tower
10 West Market Street
Indianapolis, IN 46204-2982
or to such other person or address as the Sellers or
the Companies shall furnish by notice to the Purchaser in writing.
(b) If to the Purchaser to:
AmeriPath, Inc.
7289 Garden Road, Suite 200
Riviera Beach, Florida 33404
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,
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.
- 52 -
<PAGE> 61
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. The Companies 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.
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.
- 53 -
<PAGE> 62
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. Without limiting
the generality of the foregoing, the Sellers will bear the costs of audits of
the financial statements of the Companies; PROVIDED, HOWEVER, that the Sellers
shall not be responsible for any costs in excess of $3,000, which excess shall
be borne by the Purchaser.
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 with respect to trials, appeals and
collection.
- 54 -
<PAGE> 63
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement the date first hereinabove set forth.
PURCHASER:
AMERIPATH, INC.
By: /s/ James C. New
--------------------------------------
Name: James C. New
Title: President and Chief Executive Officer
SELLERS:
/s/ ANDREW C. CHESTER
---------------------------------
ANDREW C. CHESTER, M.D.
/s/ TERENCE J. CUDAHY
---------------------------------
TERENCE J. CUDAHY, M.D.
/s/ THOMAS W. DRAPER
---------------------------------
THOMAS W. DRAPER, M.D.
/s/ J. MICHAEL IRONS
---------------------------------
J. MICHAEL IRONS, M.D.
/s/ MARTIAL R. KNIESER
---------------------------------
MARTIAL R. KNIESER, M.D.
/s/ MARVIN E. MELTON
---------------------------------
MARVIN E. MELTON, M.D.
/s/ JEFFREY A. MOSSLER
---------------------------------
JEFFREY A. MOSSLER, M.D.
- 55 -
<PAGE> 64
/s/ SCOTT M. PARKER
---------------------------------
SCOTT M. PARKER, M.D.
/s/ ROBERT J. PENNY
---------------------------------
ROBERT J. PENNY, M.D., PH.D.
/s/ DAVID L. POWERS
---------------------------------
DAVID L. POWERS, M.D.
/s/ LLOYD S. ROTHOUSE
---------------------------------
LLOYD S. ROTHOUSE, M.D.
/s/ ALAN J. STRANSKY
---------------------------------
ALAN J. STRANSKY, M.D.
/s/ RAPHAEL L. WARKEL
---------------------------------
RAPHAEL L. WARKEL, M.D.
/s/ LISA M. WIERSEMA
---------------------------------
LISA M. WIERSEMA, M.D.
- 56 -
<PAGE> 65
COMPANIES:
COLAB INCORPORATED PROFESSIONAL
CORPORATION
By: /s/ Jeffrey A. Mossler, M.D.
--------------------------------------
Name: Jeffrey A. Mossler, M.D.
Title: President
ANATOMICAL PATHOLOGY SERVICES, P.C.
By: /s/ Jeffrey A. Mossler, M.D.
--------------------------------------
Name: Jeffrey A. Mossler, M.D.
Title: President
MICRODIAGNOSTICS, P.C.
By: /s/ Jeffrey A. Mossler, M.D.
--------------------------------------
Name: Jeffrey A. Mossler, M.D.
Title: President
- 57 -
<PAGE> 1
EXHIBIT 10.36
GREATER DALLAS ASSOCIATION OF REALTORS, INC.
[REALTOR (R) LOGO] [EQUAL HOUSING OPPORTUNITY LOGO]
NET COMMERCIAL LEASE AGREEMENT
STATE OF TEXAS
COUNTY OF DALLAS
------
THIS LEASE AGREEMENT made and entered into by and between
DALLAS PATHOLOGY LEASING
hereinafter referred to as "Landlord," and
UNIPATH, LTD.
hereinafter referred to as "Tenant."
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby takes from Landlord the
following described premises (hereinafter referred to as the "desired premises"
or "premises") situated within the County of Dallas State of Texas
4350 Alpha Road, Dallas, Texas
together with all rights, privileges, easements and appurtenances belonging to
or in any way pertaining to the desired premises and together with the building
and other improvements now situated or to be erected upon the demised premises.
TO HAVE AND TO HOLD the same for a term of sixty (60) months
beginning on June 1, 1995 , upon the following
terms, conditions and covenants:
I. RENT: Tenant agrees to pay the Principal Broker named herein, without offset
or deduction, for the account of Landlord rent for the demised premises at the
rate of Eight Thousand Six Hundred Fifty-Five Dollars and 84/100 _________
Dollars $ 8,655.84 ) per month in advance. One such monthly
installment shall be due and payable on or before
the beginning date of this lease, and a like monthly installment shall be due
and payable on or before the first day of each succeeding calendar month during
the term hereof; provided that in the event the lease hereof shall commence or
end during a calendar month, the rent for any financial calendar month
following the commencement or preceding the end of the term of this lease shall
be pro rated by days. (If percentage rent is to be payable to Landlord, refer
to Exhibit A attached to this lease. In such case Exhibit A shall be
incorporated into and become a part of this lease where physically attached
hereto.)
Tenant has deposited with Landlord, upon delivery of this lease.
Dollars ($ 8,655.84 ) to be applied as follows:
(a) $ 8,655.84 for rent for June 1995.
<PAGE> 2
2. ACCEPTANCE OF PREMISES:
Tenant acknowledges that it has fully inspected the demised premises and
accepts the demised premises, and any buildings and improvements situated
thereon, as suitable for the purpose for which the same are leased in their
present condition, except
(If this lease provides for a building to be constructed for Tenant, refer to
Exhibit B attached to this lease. In such case this paragraph shall become
inapplicable, and Exhibit B shall be incorporated into and become a part of
this lease when physically attached herein.)
3. USE OF PREMISES:
The demised premises shall be used and occupied only for the purpose of
and not otherwise. Tenant shall at its own expense obtain any and all
governmental licenses and permits necessary for such use.
4. COMPLIANCE WITH LAW:
Tenant shall comply with all governmental laws, ordinances and
regulations applicable to the use of demised premises, and shall promptly
comply with all governmental orders and directives for the correction,
prevention and abatement on or upon, or connected with the demised premises,
all at Tenant's sole expense.
5. REAL ESTATE TAXES:
(a) Tenant agrees to pay before they become delinquent all taxes (both
general and special), assessments or governmental of any kind and nature
whatsoever (hereinafter referred to as the "taxes"), levied or assessed against
the appropriate taxing authority or other evidence satisfactory to landlord
evidencing payment thereof. If Tenant shall fail to pay any taxes,
assessments, or governmental charges required to be paid by Tenant hereunder,
in addition to any other remedies provided herein, Landlord may if it so
elects pay such taxes, assessments, and governmental charges. Any sums so paid
by Landlord shall be decreed to do so much additional rental owing by Tenant to
Landlord and due and payable on written demand by Landlord together with
interest thereon at the rate of temper exit (10%) per annum from date paid by
Landlord to date of repayment by Tenant.
(b) All real estate taxes and assessments on the demised premises owned by
Landlord shall be promised between landlord and Tenant with respect to the tax
years in which this lease commences or terminates. Tenant shall pay that part
of the real estate taxes attributable to the portion of the tax year covered by
this lease.
(c) In the event the premises constitute a portion of multiple occupancy
building, in lieu of Tenant paying the "taxes" as above provided. Landlord
agrees to pay before they become all delinquent all "taxes" lawfully levied or
assessed against such building and the grounds, parking areas, driveways and
alleys around the said building, and Tenant agrees to pay to Landlord upon
written demand the amounts of Tenant's "proportional share" of all such "taxes"
paid by Landlord. Tenant's "proportionate share," as used throughout this
lease, shall mean a fraction, the numerator of which is a space occupied by
Tenant and the denominator of which is the entire gross space contained in the
building.
(d) Tenant may, alone or along with any other tenants of said building, at
its or their sole cost and expense, in its or their own name(s) and/or in the
name of the Landlord dispute and contest any "taxes" by appropriate proceedings
diligently conducted in good faith, but only after Tenant and all other
tenants, if any, joining with Tenant in such contest have deposited with
landlord the amount of so contested and unpaid, or their proportionate shares
thereof as the case may be, which shall be held by Landlord without obligations
for intent until the termination of the proceedings), and Tenant's share of any
excess shall be returned to Tenant. Tenant further agrees to pay to Landlord
upon demand Tenant's share (as among all Tenants who participated in the
context) and Tenant's share of any excess shall be returned to Tenant. Tenant
further agrees to pay to landlord upon demand Tenant's share (as among all
tenants who participated in the contest) of all court costs, interest,
penalties and other liabilities relating to such proceedings. Tenant hereby
indemnifies and agrees to hold harmless the landlord from and against any cost,
damages or expense, including attorney's fees in connection with any such
proceedings.
(e) If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of the
taxes, acceptances, levies or charges levied, assessed or imposed Landlord a
capital levy or other tax directly on the rents received therefrom and/or a
franchise, assessment, levy or charge measured by or based, in whole or in
part, upon such rests or the present or any future building or buildings on the
premises, then all such taxes, assessments, levies or charges, or the part
thereof so measured or based, shall be deemed to be included within the term
"taxes" for the purpose thereof.
6. REPAIRS AND MAINTENANCE
(a) Tenant shall at its own cost and expense keep, maintain and take good
care of the premises and make all necessary thereto, interior and exterior,
structural and not-structural, ordinary and extraordinary, and shall suffer no
waste or nuisance provided, however, that the cost of maintenance and
repair of any company pantry wall (any wall, divider, partition or any other
structure repairing the premises from any adjacent premises occupied by other
tenants) shall be shared equally by Tenant and the Tenant occupying adjacent
premises. Tenant shall not damage any party wall or disturb the integrity and
support provided by any part wall and shall, at its costs and expense, promptly
repair any damage or injury to any party wall caused by Tenant or its
employees, agents or invitees. At the end of the term of other termination of
this lease, Tenant shall deliver the premises with all improvements thereon in
good repair and conditions, reasonable wear and tear only excepted.
(b) Tenant shall as its own cost and expense care for the grounds around
the buildings on the premises, including the regular mowing of grass, care of
shrubs and general landscaping, and maintenance of the parking areas,
driveways, alleys and shall maintain the whole of the premises in a clean and
sanitary condition.
(c) In the event the premises constitute a portion of multiple occupancy
building. Tenant and its employees, customers, and licenses shall have the
nonexclusive right to use in common with the other parties occupying said
building, the parking areas, driveways and alley in concurrence with the other
parties, the parking areas, driveways and alleys adjacent to said building,
subject to such reasonable rules and regulations as Landlord may from
time to time prescribe and Tenant shall in lieu of the obligations set forth
under subparagraph (b) above, be liable for its proportional share of the costs
and expense of the care for the grounds around the said building, including but
not limited to the mowing of grass, care of shrubs, general landscaping, and
maintenance of parking ares, driveways and alleys. Tenant shall as Landlord's
option either (i) pay when dues is proportionate share of such costs and
expenses along with the other tenants of the building directly to the persons
performing such work, or (ii) reimburse Landlord upon demand for the amount of
its proportionate share of such costs and expenses in the event Landlord elects
to perform or cause to be performed such work.
(d) In the event the premises constitute a portion of multiple occupancy
building, Landlord shall be responsible for coordinating any repairs and other
maintenance of any rail tracks serving or to serve the building, and Tenant
shall reimburse Landlord for Tenant's proportionate share of the costs of such
repairs and maintenance and any other sums specified in any agreement to
which Landlord is a party respecting such tracks.
(e) In the event Tenant shall fail to maintain the demised premises or
any paving, landscaping or railroad siding in accordance with this paragraph 6.
Landlord shall have the right (but not the obligation) to cause all repairs or
other maintenance to be made and the reasonable costs therefor expended by
Landlord shall be paid by Tenant on written demand.
7. ALTERATIONS, ADDITIONS AND IMPROVEMENTS.
Tenant shall not create any openings in the roof or exterior walls, or may
all alterations, additions or improvements to the demise premises without prior
written
<PAGE> 3
consent of Landlord. Consent for non-structural alterations, additions or
improvements shall not be unreasonably withheld by Landlord. Tenant shall have
the right to erect or install shelves, bins, machinery, air conditioning or
heating equipment and trade fixtures, provided that Tenant complies with all
applicable governmental laws, endurances and regulations. At the expiration or
termination of this lease, Tenant shall have the right to remove such items as
installed, provided Tenant is not in default at the time of such removal and
provided further that Tenant shall, at time of removal of such items, repair in
a good and workmanlike manner any damages caused by installation or removal
thereof.
Tenant shall pay for all costs incurred or arising out of alterations,
additions or improvements in or to the demised premises and shall not permit a
mechanic's or materialman's lien to be asserted against the demised premises.
Upon request by Landlord, Tenant shall deliver to Landlord proof of payment
reasonably satisfactory of Landlord of all costs incurred or arising out of any
such alterations, additions or improvements.
All alterations, additions or improvements in or to the demised
premises shall become the property of Landlord as the expiration or termination
of this lease, however, Landlord may direct the removal of alterations,
additions or improvements by giving written notice to Tenant prior to the
expiration or termination of this lease. At the direction of Landlord, Tenant
shall promptly remove all alterations, additions, and improvements and any other
property placed in the demised premises by Tenant, and Tenant shall repair in a
good and workmanlike manner any damage caused by such removal.
8. SIGNS
Tenants shall not place or affix any signs or other objects upon or to
the roof or exterior walls of the demised premises or paint or otherwise deface
the exterior walls of the demised premises without the prior written consent of
Landlord. Any signs installed by Tenant shall conform with applicable laws and
deed and other restrictions. Tenant shall remove all signs at the termination of
this lease and shall repair any damage and close any holes caused or revealed by
such removal.
9. INSURANCE, FIRE AND CASUALTY DAMAGE:
(A) Landlord agrees to maintain insurance covering the building of
which the demised premises are a part in an amount not less than 90% (or such
greater percentage as may be necessary to comply with the provisions of any
co-insurance clauses of the policy) of the "replacement cost" thereof as such
terms is defined in the Replacement Cost Endorsement to be attached thereto,
insuring against the perils of Fire, Lightning, Extended Coverage, Vandalism and
Meticulous Mischief, extended by Special Extended Coverage Endorsement to insure
against all other Risks Of Direct Physical Loss, such coverages and endorsements
to be as defined, provided and limited in the standard bureau forms prescribed
by the insurance regulatory authority for the State in which the demised
premises are doomed for use by Insurance companies admitted in such state for
the writing of such insurance on risks located within such state. Subject to the
provisions of subparagraphs 9(b) and 9(e) below, such insurance shall be for
the sole benefit of Landlord and under its sole control. Tenant agrees to pay
Landlord's cost of maintaining such insurance on said building (or, in the event
the premises constitute a portion of a multiple occupancy building. Tenant's
full proportionate share of such costs). Said payments shall be made to landlord
within ten days after presentation to Tenant of Landlord's statement setting
forth the amount due. Any payment to be made permanent to this subparagraph (a)
with respect to the year in which this lease commences or terminates shall bear
the same ratio to the payment which would be required to be made for the full
year, as that part of such year covered by the terms of this lease bears to a
full year.
(B) If the building situated upon the premises should be damaged or
destroyed by any peril covered by the insurance to be provided by Landlord under
subparagraphs 9(a) above. Tenant shall give immediate notice there to Landlord,
and Landlord shall an its sole costs and expertise thereupon proceed with
reasonable diligence to rebuild and repair such buildings to substantially the
condition in which they existed prior to much damage or direction, except that
Landlord shall not be required to rebuild, repair or replace any part of the
partitions, fixtures, additions or other improvements which may have been placed
in, on or about the premises by Tenant and except that Tenant shall pay to
Landlord upon demand any applicable deductible amounts specified under
Landlord's insurance. The rent payable hereunder shall in no event abate by
reason of any damage or destruction.
(C) If the buildings situated upon the premises should be damaged or
destroyed by a casualty other than a peril covered by the insurance to be
provided by Landlord under subparagraph 9(a) above, or if any other improvements
situated on the demised premises should be in any manager damaged or destroyed,
Tenant shall at its sole costs and expense thereupon proceed with reasonable
diligence to rebuild and repair such buildings and/or improvements to
substantially the condition in which they existed prior to such damage or
destruction, subject to Landlord's approval of the plans and specifications for
such rebuilding and repairing, which approval shall not be unreasonably
withheld. Tenant's obligation hereunder shall now include destruction of the
premises by war, riot, civil disobedience, or flood.
(D) Tenant covenants and agrees to maintain insurance on all
alterations, additions, partitions and improvements erected by, or on behalf of,
Tenant in, on or about the demised premises in an amount not less than 90% for
such greater percentage as may be necessary to comply with the provisions of any
co-insurance clause of the policy) of the "replacement cost" thereof as such
term is defined in the Replacement Cost Endorsement to be attached thereto. Such
insurance shall insure against the perils and be in form, including stipulated
endorsements, as provided in subparagraph 9(b) hereof. Such insurance shall be
for the sole benefit of Tenant and under its sole control. All such policies
shall be prepared by Tenant from responsible insurance companies satisfactory to
Landlord. Certified copies of policies of such insurance, together with receipt
evidencing payment of premiums therefore shall be delivered to Landlord prior
the commencement date of this lease. Not less than fifteen (15) days prior to
the expiration date of any such policies, certified copies of renewals thereof
(bearing, nutations evidencing the payment of renewal premiums) shall be
delivered to Landlord. Such polices shall further provide that not less than
thirty (30) days written notice shall be given to Landlord before such policy
may be canceled or changed to reduce insurance provided thereby.
(E) Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
premises required that the insurance proceeds be applied to such indebtedness
then the Landlord shall have the right to terminate this lease by delivering
written notice of termination to Tenant within fifteen (15) days after such
requirement is made by any such holder, whereupon all rights and obligations
hereunder shall cease and terminate.
10. WAIVER OF SUBROGATION:
Each party hereto waives any and every claim which arises or may arise
in its favor against the other party hereto during the term of this lease or any
renewal or extension thereof for any and all hereof, or damage, to any of its
property located within or upon, or consulting a part, the demised premises,
which loss or damage is covered by valid and collectible fine and extended
coverage insurance policies, to the extent that such loss or damage is
recoverable under such insurance policies. Such mutual waivers shall be in
addition to, and not in limitations or derogation of, any other waiver or
release contained in this lease with respect to any loss of, or damage, to
property of the parties hereto. Inasmuch as such mutual waivers will preclude
the assignment of any aforesaid claim by way of subrogation or otherwise to an
insurance company (or any other person), each party hereby agrees immediately to
give to each insurance, company which has issued to is polices of fire and
extended coverage insurance written notice of the terms of such mutual waivers,
and to cause such insurance policies to be properly endorsed, if necessary, to
prevent the invalidation of such insurance coverages by reason of such waivers.
Landlord and its authorized agents shall have the right, during normal
business hours to enter the demised premises (i) to inspect or the general
condition and state of repair thereof, (ii) to make repairs required or
permitted under this lease, (iii) to show the premises to any prospective tenant
or purchaser or (iv) for any other reasonable purpose.
During the final 150 days of the lease term, Landlord and its
authorized agents shall have the rights to erect and maintain on or about the
demised premises customary signs advertising the property for lease or for sale.
11. UTILITY SERVICES.
Tenant shall pay the (?) of all utility services, including but not
limited to initial connection charges, all charges for gas, water and
electricity used on the demised premises, and for all electric lights, lamps and
(?)
12. ASSIGNMENT AND SUBLEASING:
Tenant shall not, without the prior written consent of Landlord, assign
this lease or sublet premises or any portion thereof. Any assignment or
subletting shall be expressly subject to all terms and provisions of this lease,
including the provisions of paragraphs pertaining to the use of the demised
premises. In the event of any assignment or subletting. Tenant shall remain
fully liable for the full performance of all Tenant's obligations under this
lease. Tenant shall not assign his rights hereunder or sublet the premises
without first obtaining a written agreement from assignee or subleases whereby
assignee or sublessee agrees to be bound by the terms of this lease. No such
assignment or subletting shall constitute a novation. In the event of the
occurrence of an event of default while the demised premises are assigned or
sublet, Landlord, in addition to any other remedies provided herein or by law,
may at landlord's opinion, collect directly form such assignee or subtenant all
rents becoming due under such assignment of subletting and supply such rent
against any sums due to Landlord hereunder. No direct collection by Landlord
from any such assignee or subtenant shall release Tenant from the performance of
its obligations hereunder.
<PAGE> 4
13. INDEMNITY AND PUBLIC LIABILITY INSURANCE:
(a) Landlord shall not be liable to Tenant or Tenant's employees, agents,
patrons or visitors, or to any other person whatsoever, for any injury to
person or damage to property on or about the premises, caused by negligence or
misconduct of Tenant, its agents, servants or employees, or any other person
entering upon the premises under express or implied invitation of Tenant, or
caused by the buildings and improvements located on the premises becoming out
of repair, or caused by leakage of gas, oil, water or steam or by electricity
emanating from the premises, or due to any cause whatsoever, and Tenant agrees
to indemnify Landlord and hold it harmless from any loss, expenses or losses
including attorneys' fees, arising out of any such damage or injury; except
injury to persons or damage to property the sole cause of which is the
negligence of the Landlord.
(b) Tenant shall procure and maintain throughout the term of this lease a
policy or policies of insurance, at its sole cost and expense, insuring both
Landlord and Tenant against all claims, demands, or actions arising out of or
in connection with: (i) the premises; (ii) the condition of the premises, the
limits of such policy or policies to be in the amount of not less than
$300,000 per person and $1,000,000 per occurrence in respect of injury to
persons (excluding death), and in the amount of not less than $50,000 per
occurrence in respect to property damage or destruction, including loss of use
thereof. All such policies shall be procured by Tenant from responsible
insurance companies satisfactory to Landlord. Certified copies of such
policies, together with receipt evidencing of premiums therefor, shall be
delivered to Landlord prior to the commencement date of this lease. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certified copies of the renewals thereof (bearing notations evidencing the
payment of renewal premiums) shall be delivered to Landlord. Such policies
shall further provide that not less than thirty (30) days written notice shall
be given to Landlord before such policy may be cancelled or changed to reduce
insurance provided thereby.
(c) If Tenant should last to comply with the foregoing requirements
relating to insurances, Landlord may obtain such insurance, and Tenant shall
pay to Landlord on demand, an additional rental hereunder, the premium cost
thereof plus interest at the rate of ten per cent (10%) per annum from the
date of payment by Landlord until repaid by Tenant.
14. CONDEMNATION
(a) If, during the term of this lease or any extension or renewal
thereof, all or a substantial part of the demised premises should be taken for
any public or quasi-public use under any governmental law, ordinance
regulations or by rights of eminent domain, or should be sold to the
condemning authority under threat of condemnation, this lease shall terminate
and the rent shall be abated during the unexpired portion of this lease,
effective from the date of taking of the demised premises by the condemning
authority.
(b) If less than a substantial part of the demised premises is taken for
public or quasi-public use under any governmental law, ordinance or regulation,
or by rights of eminent domain, or is sold to the condemnity authority under
threat of condemnation. Landlord, as its option, may be written notice
terminate this lease or shall forthwith as its sole expense restore and
reconstruct the buildings and improvements (other than leasehold improvements
made by Tenant or any assignee, subtenant or other occupant of the demised
premises) situated on the demised premises in order to make the same reasonably
tenantable and suitable for the uses for which the demised premises are leased
as defined in paragraph 3. The rent payable hereunder during the unexpired
portion of this lease shall be adjusted equitably.
(c) Landlord and Tenant shall be entitled to receive and retain such
separate awards and portions of lump sum awards as may be allocated to their
respective interests in any condemnation proceedings. The termination of this
lease shall not affect the rights of the respective parties to such awards.
15. HOLDING OVER:
Should Tenant, or any of its successors in interest fail to surrender the
demised premises, or any part thereof, on the expiration of the term of this
lease, such holding over shall constitute a tenancy from month to month, at a
monthly rental equal to 150% of the rent paid for the last month of the term of
this lease unless otherwise agreed in writing.
16. DEFAULT BY TENANT:
The following events shall be deemed to be events of default under this
lease:
(a) Failure of Tenant to pay any installment of the rent or other sum
payable to Landlord hereunder on the date that same is due and such failure
shall continue for a period of 10 days.
(b) Failure of Tenant to comply with any term, condition or covenant of
this lease, other than the payment of rent or other sum of money, and such
failure shall not be cured within 30 days after written notice thereof to
Tenant.
(c) Insolvency, the making of a transfer in fraud of creditors, or the
making of an assignment for the benefit of creditors by Tenant or any guarantor
of Tenant's obligations.
(d) Filing of a petition under any section or chapter of the United
States Bankruptcy Code, as amended, or under any similar law or statute of the
United States or any State thereof by Tenant or any guarantor of Tenant's
obligations or adjudication as a bankrupt or insolvent in proceedings filed
against Tenant or such guarantor.
(e) Appointment of a receiver or trustee for all or substantially all of
the assets of Tenant or any guarantor of Tenant's obligation hereunder.
(f) Abandonment by Tenant of any substantial portion of the demised
premises or cessation of the use of the use of the demised premises for the
purpose leased.
17. REMEDIES OF LANDLORD:
Upon the occurrence of any of the events of default listed in Section
18.1 Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever:
(a) Terminate this lease, in which event Tenant shall immediately
surrender the demised premises to Landlord. If Tenant fails to so surrender
such premises. Landlord may, without prejudice to any other remedy which it may
have for possession of the demised premises or arrearage in rent, enter upon
and take possession of the demised premises and expel or remove Tenant and any
other person who may be occupying such premises or any part thereof, by force
if necessary, without being liable for prosecution of any claim for damages
therefor. Tenant shall pay to Landlord on demand the amounts of all loss and
damage which Landlord may suffer by reason of such termination, whether through
inability to relet the demised premises on satisfactory terms or otherwise.
(b) Enter upon and take possession of the demised premises, by force if
necessary, without terminating this lease and without being liable for
prosecution or for any claim for damage therefor, and expel or remove Tenant
and any other person who may be occupying such premises or any part thereof.
Landlord may relet the demised premises and receive rent therefor. Tenant
agrees to pay to Landlord monthly or on demand from time to time any deficiency
that may arise by reason of any such reletting. In determining the amount of
such deficiency, the brokerage commission, attorneys' fees, remodeling expenses
and other costs of reletting shall be substracted from the amount of rent
received under such reletting.
(c) Enter upon the demised premises, by force, if necessary, without
terminating this lease and without being liable for any prosecution or for any
claim for damages therefor, and do whatever Tenant is obligated to do under
the terms of this lease. Tenant agrees to pay Landlord on demand for expenses
which Landlord may incur in this effecting compliance with Tenant's obligations
under this lease, together with interest thereon at the rate of 10% per annum
from the date expended until paid. Landlord shall not be liable for any
damages resulting to the Tenant from such action, whether caused by negligence
of Landlord or otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law,
nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, conditions and
covenants herein contained.
18. LANDLORD'S LIEN:
In addition to the statutory Landlord's lien, Tenant hereby grants to
Landlord a security interest to secure payment of all rent and other sums of
money becoming due hereunder from Tenant, upon all goods, wages, equipment,
fixtures, furniture and other personal property of Tenant situated in or upon
the demised premises, together with the proceeds from the sale or lease
thereof. Such property shall not be removed without the consent of Landlord
until all arrangements in rent and other sums of money then due to Landlord
hereunder shall first have been paid and discharged. Upon the occurrence of
any event of default, Landlord may, in addition to any other remedies
provided.
<PAGE> 5
herein or by law, enter upon the demised premises and take possession of any
and all goods, wares, equipments, fixtures, finances and other personal
property of Tenant situated on the premises without liability for trespass or
conversion, and sell the same or public or private sale, with or without having
such property at the sale, after giving Tenant reasonable notice of the time
and place of any such sale. Unless otherwise required by law, notice to Tenant
of such sale shall be deemed sufficient if given in the manner prescribed in
this lease at least 10 days before the time of the sale. Any public sale made
under this paragraph shall be deemed to have been conducted in a commercially
reasonable manner if held in the demised premises or where the property is
located, after the time, place and method of sale and a general description of
the types of property to be sold have been advertised in a daily newspaper
published in Dallas County, Texas, for five consecutive days before the date of
the sale. Landlord or its assigns may purchase at a public sale and, unless
prohibited by law, at a private sale. The proceeds from any dispusido deals
with in this paragraph, less any and all expenses connected with the making of
possession, holding and selling of the property (including reasonable
attorneys' fees and legal expenses), shall be applied as a credit against the
indebtedness secured by the security interest and granted herein. Any surplus
shall be paid to Tenant or as otherwise required by law: Tenant shall pay any
deficiencies forthwith. Upon request by Landlord, Tenant agrees to execute and
deliver to Landlord a financing statement in form efficient to perfect the
security interest of Landlord in the aforementioned property and proceeds the
rent under the provisions of the Business and Commerce Code in force in the
State of Texas. The valutory lien for rent is expressly reserved; the security
interest herein granted is in addition and supplementary thereto.
19. ATTORNEYS' FEES
If, an account or any breach of default by landlord or Tenant of their
respective obligations under this lease, it shall become necessary for the other
to employ an attorney to enforce or defend any of its rights or remedies
hereunder and should such part prevail, it shall be entitled to any reasonable
attorneys' fees incurred in such commission.
20. QUIET ENJOYMENT.
Landlord warrants that it has full right and power to execute and
perform this lease and to grant the estate demised herein and that Texas, on
payment of rent and performing the covenants herein contained, shall peaceably
and quietly have, hold and enjoy the demised premises during the full term of
this lease and any extension or renewal hereof; provided, however, that Tenant
accepts this lease subject and subordinate to any surrendered mortgage, deed of
trust or other presently existing upon the demised premises. Landlord is hereby
irrevocably vested with full power and authority to subordinate Tenant's
interest hereunder to any mortgage, deed of trust or other lien hereafter
placed on the demised premises, and Tenant agrees upon demand to execute such
further instruments subordinating this lease as Landlord may request, provided
such farther subordination shall be upon the express condition that this lease,
shall be recognized by the mortgage and that the rights of Tenant shall remain
in full force and effect during the term of this lease so long as Tenant shall
continue to perform all of the covenant of this lease.
21. WAIVER OF DEFAULT
No waiver by the parties hereto of any default or breach of any term,
conditions or covenant of this lease shall be deemed to be waiver of any
subsequent default or breach of the same or any other term, condition or
covenant contained herein.
22. PROFESSIONAL SERVICE FEES:
23. CERTIFICATE OF OCCUPANCY:
Tenant may, prior to the commencement of the term of this lease apply
for a Certificate of Occupancy to be issued by the municipality in which the
demised premises are located. Nothing herein contained shall obligate Landlord
to install any additional electrical wiring, plumbing or plumbing fixtures where
are not presently existing in the demised premises, or which have not been
expressly agreed upon by Landlord in writing.
24. FORCE MAJEURE:
In the event performance by Landlord of any term, condition or covenant
in this lease is delayed or prevented by any Act of God, strike, lookout,
shortage of material or labor reaction by any governmental authority, civil
riot, flood, and any other cause not within the control of Landlord, the period
for performance of such term, condition or covenants shall be extended for a
period equal to this period Landlord is to delayed or hindered.
25. EXHIBITS
All exhibits, attachments, annexed instruments and addenda referred to
herein shall be considered a part hereof for all purpose with the same force and
effect as if copied as full length herein.
<PAGE> 6
26. USE OF LANGUAGE:
Words of any gender used in this lease shall be held and construed to
include any other gender, and words in the singular shall be held to include
the plural unless the context otherwise requires.
27. CAPTIONS:
The captions or headings of paragraphs in this lease are inserted for
convenience only and shall not be considered in construing the provisions
hereof if any question of intent should arise.
28. SUCCESSORS:
The terms, conditions and covenants contained in this lease shall apply
to, inure to the benefit of, and be binding upon the parties hereto and their
respective successors in interest and legal representatives except as otherwise
herein expressly provided. All rights, powers, privileges, immunities and
duties of Landlord under this lease, including, but not limited to, any notices
required or permitted to be delivered by Landlord to Tenant hereunder, may, at
Landlord's option, be exercised or performed by Landlord's agent or attorney.
29. SUBLEASE:
If this lease is in fact a sublease, Tenant accepts this lease subject to
all of the terms and conditions of the lease under which Landlord holds the
demised premises as lessee. Tenant covenants that it will do no act or thing
which would constitute a violation by Landlord of its obligation under such
lease.
30. SEVERABILITY:
If any provision in this lease should be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this lease shall not be affected thereby.
31. NOTICES:
Any notice or document required or permitted to be delivered hereunder may
be delivered in person or shall be deemed to be delivered, whether actually
received or not, when deposited in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, addressed to the
parties at the addresses indicated below, or at such other addresses as may
have theretofore been specified by written notice delivered in accordance
herewith.
LANDLORD: DALLAS PATHOLOGY LEASING TENANT: UNIPATH, LTD.
------------------------ -------------
4350 Alpha Road 4350 Alpha Road
--------------- ---------------
Dallas, TX 75244 Dallas, TX 75244
----------------- -----------------
PRINCIPAL BROKER: None
-------------------
-------------------
-------------------
32. SPECIAL CONDITIONS: None
EXECUTED the _________ day of May, 1995 __________________,19__,
ATTEST:
LANDLORD: DALLAS PATHOLOGY LEASING
- ------------------------------------- ----------------------------
By J. Sloan Leonard
----------------------------
- ------------------------------------- Title President
ATTEST:
- ------------------------------------- TENANT: UNIPATH, LTD.
----------------------------
----------------------------
By
- ------------------------------------- ----------------------------
By Title
- ------------------------------------- ----------------------------
Title By
----------------------------
Title
- ------------------------------------ ---------------------------------------
By By
<PAGE> 7
EXHIBIT "A"
"RENEWAL OPTION: Provided that at the end of the primary term of this
lease Tenant not be in default of any term, condition or covenant contained in
this lease. Tenant (but not any assignee of subtenant) shall have the right
and option to renew this lease, by written notice delivered to Landlord with a
copy of the Principal Broker no later than 180 days prior to the expiration of
the primary term, for the additional term of five (5) years, under the same
terms, conditions, and covenants contained herein, except:
A. The rental rate for the renewal term shall be $7.15 per square foot,
just do or $9,521.42 per month.
INITIALED:
LANDLORD -----------------------
TENANT --------------------------
<PAGE> 1
Exhibit 21.1
AMERIPATH, INC. SUBSIDIARIES(1)
-------------------------------
AmeriPath Alabama, Inc. (Alabama) d/b/a SkinPath
AmeriPath Florida, Inc. (Florida) d/b/a D&P Pathology
Derrick and Associates Pathology
Gulf Coast Pathology Associates
Drs. Seidenstein, Levine and Associates
Volusia Pathology Group
American Laboratory Associates
Florida Pathology Associates
AmeriPath Kentucky, Inc. (Kentucky) d/b/a Pathology Associates
AmeriPath Ohio, Inc. (Delaware)
AmeriPath Texas, Inc. (Texas) d/b/a Freeman-Cockerell Laboratories
- ----------
(1) Other affiliated entities include AmeriPath Cleveland, Inc. (Ohio) d/b/a
CPI, Cutaneous Pathology and Immunofluorescence Laboratory; AmeriPath
Cincinnati, Inc. (Ohio) d/b/a Richfield Laboratory of Dermatopathology;
and Clay J. Cockerell, M.D., P.A. (Texas); AmeriPath Texas
Dermatopathology 5.01(a) Corporation (Texas); DFW 5.01(a) Corporation
(Texas)
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' 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 March 6, 1997, 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 of E.G. Poulos, M.D., M.J. Demaray, M.D. and A.P.
Kowalczyk, M.D., P.A. (the "Predecessor") as of December 31, 1992 and 1993, and
the related statements of income, stockholders' equity, and cash flows for the
years ended December 31, 1992 and 1993, and the balance sheet of American
Laboratory Associates, Inc. as of December 31, 1994 (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, 1993 and
1994 and for the years ended December 31, 1992 and 1993, 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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
August 22, 1997
<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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
August 22, 1997
<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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Orlando, Florida
August 22, 1997
<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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
August 22, 1997
<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 reports appearing in this Prospectus, which is part of this
Registration Statement, as follows: dated November 12, 1996 on the combined
financial statements of Clay J. Cockerell, M.D., P.A. and Freeman-Cockerell
Laboratories, Inc.; and dated August 22, 1997 on the combined financial
statements of Unipath Ltd. and Affiliates. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Dallas, Texas
August 22, 1997
<PAGE> 1
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AmeriPath, Inc. on Form
S-1 of our report dated August 15, 1997 on the combined financial statements of
CoLab Incorporated Professional Corporation, MicroDiagnostics, P.C. and
Anatomical Pathology Services, P.C. 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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
August 22, 1997
<PAGE> 1
EXHIBIT 23.8
LEGAL EXPERT'S CONSENT
We consent to the reference to our firm under the heading "Business--
Government Regulation" in the Registration Statement of AmeriPath, Inc. on
Form S-1.
/s/ Jenkens & Gilchrist
JENKENS & GILCHRIST, A PROFESSIONAL CORPORATION
Dallas, Texas
August 19, 1997
<PAGE> 1
EXHIBIT 23.9
LEGAL EXPERT'S CONSENT
We consent to the reference to our firm under the heading "Business--
Government Regulation" in the Registration Statement of AmeriPath, Inc. on
Form S-1.
/s/ Bricker & Eckler LLP
BRICKER & ECKLER LLP
Columbus, Ohio
August 19, 1997
<PAGE> 1
EXHIBIT 23.10
LEGAL EXPERT'S CONSENT
We consent to the reference to our firm under the heading "Business--Government
Regulation" in the Registration Statement of AmeriPath, Inc. on Form S-1.
/s/ Wyatt, Tarrant & Combs
WYATT, TARRANT & COMBS
Louisville, Kentucky
August 21, 1997
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