SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 10-Q/A No. 1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-41226
DIANON SYSTEMS, INC.
(exact name of registrant as specified in its charter)
Delaware 06-1128081
(State of incorporation) (IRS Employer Identification No.)
200 Watson Blvd, Stratford, CT 06497
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 381-4000
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports ) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of registrant's Common Stock, $.01 par value, outstanding
on November 8, 1996 was 6,707,680 shares.
Exhibit Index is on page 15 of 69 pages.
<PAGE>
DIANON SYSTEMS, INC.
AND SUBSIDIARIES
The registrant hereby amends and restates in its entirety its Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1996. Other than a
change in the dollar amount set forth in the third paragraph of "Liquidity and
Capital Resources" under Item 2, the information contained in the registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996
as originally filed with the Securities and Exchange Commission remains
unchanged.
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 3
1996 and December 31, 1995.
Consolidated Income Statements for the three month 4
and nine month periods ended September 30, 1996
and 1995.
Consolidated Statements of Stockholders' Equity 5
for the twelve month periods ended December 31,
1995 and the nine month periods ended September
30, 1996.
Consolidated Statements of Cash Flows for the nine 6
month periods ended September 30, 1996 and 1995.
Notes to Consolidated Financial Statements 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 8-12
Part II OTHER INFORMATION
- -------------------------
Item 5. OTHER INFORMATION 13
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
Exhibit Index 15
</TABLE>
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
ASSETS ------------- ------------
CURRENT ASSETS: (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 5,961,279 $ 10,990,231
Accounts receivable, net of allowances of $786,920
for each of the periods 12,490,911 9,653,971
Prepaid expenses and employee advances 1,128,987 1,071,963
Prepaid and refundable income taxes 434,064 168,420
Inventory 633,694 554,398
Deferred income tax asset 652,328 652,328
Investment in common stock -- 135,508
------------ ------------
Total current assets 21,301,263 23,226,819
------------ ------------
PROPERTY AND EQUIPMENT, at cost
Leasehold improvements 3,631,986 1,717,606
Laboratory and office equipment 12,105,424 11,068,949
Less - accumulated depreciation (8,026,792) (6,879,799)
------------ ------------
7,710,618 5,906,756
------------ ------------
INTANGIBLE ASSET - CUSTOMER LISTS, net of
accumulated amortization of $2,731,009 and $2,606,291, respectively 614,595 739,308
INTANGIBLE ASSET - NON COMPETE AGREEMENT, net of
accumulated amortization of $162,500 and $125,000, respectively 87,500 125,000
DEFERRED INCOME TAX ASSET 178,575 178,575
OTHER ASSETS 239,419 278,948
------------ ------------
TOTAL ASSETS $ 30,131,970 $ 30,455,406
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 5,925,583 $ 4,922,514
Current portion of capitalized lease obligations 36,760 38,466
Current portion of note payable 884,514 916,150
Severance costs 101,683 209,121
Restructuring reserves 155,584 166,598
------------ ------------
Total current liabilities 7,104,124 6,252,849
------------ ------------
LONG-TERM PORTION OF CAPITALIZED LEASE
OBLIGATIONS 75,525 34,413
LONG-TERM NOTE PAYABLE -- 650,154
DEFERRED INCOME TAX LIABILITY 65,651 65,651
------------ ------------
Total Liabilities 7,245,300 7,003,067
------------ ------------
STOCKHOLDERS' EQUITY:
Commonstock, par value $.01 per share, 20,000,000 shares
authorized, 6,324,298 and 6,311,451 shares issued
and outstanding at September 30, 1996 and
December 31, 1995, respectively 63,243 63,115
Additional paid-in capital 26,668,111 26,609,657
Accumulated deficit (1,265,606) (2,724,433)
Common stock held in treasury, at cost - 421,000 shares
at September 30, 1996 and 50,000 shares at December 31, 1995 (2,283,078) (200,000)
Shareholder note receivable (296,000) (296,000)
------------ ------------
Total stockholders' equity 22,886,670 23,452,339
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,131,970 $ 30,455,406
============ ============
</TABLE>
The accompanying notes to consolidated
financial statements are an integral
part of these balance sheets.
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES $13,863,408 $11,328,790 $39,956,557 $33,195,191
COST OF SALES 6,799,712 4,949,934 19,419,522 14,587,558
----------- ----------- ----------- -----------
Gross Profit 7,063,696 6,378,856 20,537,035 18,607,633
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,222,176 4,598,822 15,891,036 15,014,253
RESEARCH AND DEVELOPMENT
EXPENSES 722,157 1,399,874 2,304,239 3,585,935
----------- ----------- ----------- -----------
Income from Operations 1,119,363 380,160 2,341,760 7,445
INTEREST INCOME 50,573 81,734 280,365 181,074
INTEREST EXPENSE 18,038 32,750 62,779 107,396
----------- ----------- ----------- -----------
Income Before Provision for
Income Taxes 1,151,898 429,144 2,559,346 81,123
PROVISION FOR INCOME TAXES 495,316 185,819 1,100,519 35,126
----------- ----------- ----------- -----------
Net Income $ 656,582 $ 243,325 $ 1,458,827 $ 45,997
=========== =========== =========== ===========
Weighted Average Shares
Outstanding 6,295,106 5,335,878 6,228,925 5,312,865
Primary and Fully Diluted
Earnings Per Share $ 0.10 $ 0.05 $ 0.23 $ 0.01
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part of
these statements.
<PAGE>
<TABLE>
<CAPTION>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
Common
Unrealized Foreign Stock
Additional Holdings Currency Held in Shareholder
Common Stock Paid-in Accumulated Gains/ Translation Treasury, Note
Shares Amount Capital Deficit (Losses) Adjustment at Cost Receivable Total
------ ------ ------- ------- -------- ---------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 5,296,879 $52,969 $21,591,942 $(2,831,529) $(90,383) $(58,938) $ -- $ -- $18,664,061
Stock options exercised 14,572 146 59,286 -- -- -- -- -- 59,432
Issuance of common stock
and warrants net of
issuance costs 1,000,000 10,000 4,976,443 -- -- -- -- -- 4,986,443
Common stock held in treasury -- -- -- -- -- -- (200,000) -- (200,000)
Shareholder note receivable -- -- -- -- -- -- -- (296,000) (296,000)
Stock compensation expense -
stock options -- -- (18,014) -- -- -- -- -- (18,014)
Write-off of unrealized
holding losses -- -- -- -- 90,383 -- -- -- 90,383
Write-off of foreign currency
translation adjustment -- -- -- -- -- 58,938 -- -- 58,938
Net Income -- -- -- 107,096 -- -- -- -- 107,096
--------- ------ ---------- ---------- --------- ------ ---------- -------- ----------
BALANCE, December 31, 1995 6,311,451 63,115 26,609,657 (2,724,433) -- -- (200,000) (296,000) 23,452,339
Stock options exercised 12,847 128 58,454 -- -- -- -- -- 58,582
Common stock held in treasury -- -- -- -- -- -- (2,083,078) -- (2,083,078)
Net Income -- -- -- 1,458,827 -- -- -- -- 1,458,827
--------- ------ ---------- ---------- --------- ------ ---------- -------- ----------
BALANCE, September 30, 1996 6,324,298 $63,243 $26,668,111 $(1,265,606) $ -- $ -- $(2,283,078) $(296,000) $22,886,670
========= ======= =========== =========== ========= ======= =========== ========== ===========
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part of
these statements.
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,458,827 $ 45,997
Adjustments to reconcile net income to net
cash provided by (used in) operations -
Non-cash charges
Depreciation and amortization 1,690,047 2,244,086
Stock compensation expense -- 2,364
Loss on the sale of fixed assets 19,337 17,919
Investment write-down 61,846 365,698
Changes in other current assets
and liabilities
(Increase) decrease in accounts receivable (2,836,940) 2,375,405
(Increase) in prepaid expenses
and employee advances (322,668) (624,312)
(Increase) in inventory (79,296) (26,509)
(Increase) in other assets (3,788) (77,703)
Increase in accounts payable and accrued liabilities 895,631 589,588
(Decrease) increase in restructuring reserves (11,014) 66,025
------------ ------------
Net cash provided by operating activities 871,982 4,978,558
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,315,215) (1,943,477)
Proceeds from the sale of stock held for investment 73,661 --
Proceeds from the sale of fixed assets 7,500 1,500
------------ ------------
Net cash (used in) investing activities (3,234,054) (1,941,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable (681,790) (641,841)
Repayments of capitalized lease obligations 39,406 (32,990)
Purchase of common stock held in treasury (2,083,078) --
Exercise of stock options 58,582 59,426
------------ ------------
Net cash (used in) financing activities (2,666,880) (615,405)
------------ ------------
Net (decrease) increase in cash and cash equivalents (5,028,952) 2,421,176
CASH AND CASH EQUIVALENTS,
beginning of year 10,990,231 3,534,093
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 5,961,279 $ 5,955,269
============ ============
Supplemental cash flow disclosures:
Cash paid during the period:
Interest $ 63,174 $ 107,250
Income Taxes 1,299,005 581,800
</TABLE>
The accompanying notes to consolidated
financial statements are an integral part of
these statements.
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company - The consolidated balance sheet as of September 30, 1996, the
related consolidated income statements for the three month and nine month
periods ended September 30, 1996 and 1995, the related consolidated
statements of stockholders' equity for the twelve month period ended
December 31, 1995 and nine month period ended September 30, 1996 and the
consolidated statements of cash flows for the nine month periods ended
September 30, 1996 and 1995, have been prepared by DIANON Systems, Inc. (the
"Company") without audit. In the opinion of management, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows for such periods have been made. During the interim periods
reported on, the accounting policies followed are in conformity with
generally accepted accounting principles and are consistent with those
applied for annual periods and described in the Company's Annual Report
filed on Form 10-K with the Securities and Exchange Commission on March 29,
1996 (the "Annual Report").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements
included in the Company's Annual Report for the year ended December 31,
1995. The results of operations for the three month and nine month periods
ended September 30, 1996 and 1995 are not necessarily indicative of the
operating results for the full year.
2. Definitions - The descriptive analysis contained herein compares the
financial results of the first nine months ended September 30 and the
current three months ended September 30 for the years 1996 and 1995. To
accommodate the comparison of pertinent financial information the following
terms will be used to describe certain aspects of the Company's business:
"First Nine Months of 1996" - nine months ended September 30, 1996
"First Nine Months of 1995" - nine months ended September 30, 1995
"Third Quarter of 1996" - three months ended September 30, 1996
"Third Quarter of 1995" - three months ended September 30, 1995
"Clinical chemistry" or "clinical laboratory" services - the Oncosite
cancer-related blood test service and the Neocyte birth-risk-related blood
test service. In general, these test services are performed by DIANON, and
the test result is interpreted by the physician who ordered the test.
"Anatomic pathology" or "pathology" services - all other testing services
performed by the Company including, but not limited to, genetic, molecular
and immunohistochemistry testing services as well as traditional histology
and morphology evaluations. In general, these tests are performed by DIANON
and are interpreted by a physician or other licensed laboratory professional
employed by DIANON. Some clinical chemistry services associated with certain
anatomic pathology services are classified by the Company as pathology
services although they may be regulated and reimbursed as clinical chemistry
services.
3. Reclassifications - Certain reclassifications have been made to the 1995
amounts to conform to the classifications used in 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
Results of Operations
- ---------------------
o Net Revenues
Net revenues were $40.0 million during the First Nine Months of 1996, an
increase of $6.8 million or 20% from the First Nine Months of 1995. Increased
revenues in the First Nine Months of 1996 over the comparable period of 1995
were attributable to increased market penetration by the Company's anatomic
pathology testing services and were offset to some extent by a decrease in
clinical chemistry and hospital-originated pathology services.
Net revenues were $13.9 million during the Third Quarter of 1996, an increase of
$2.5 million or 22% from the Third Quarter of 1995. Increased revenues were
attributable to increased market penetration by the Company's anatomic pathology
testing services.
o Cost of Sales
Cost of sales, which consists primarily of salaries and wages, laboratory
supplies, outside services, logistics (primarily shipping and handling), and
depreciation expense, was $19.4 million during the First Nine Months of 1996, an
increase of $4.8 million or 33% from the First Nine Months of 1995. Salaries and
wages were approximately $6.2 million during the First Nine Months of 1996, an
increase of $2.0 million or 48% from the First Nine Months of 1995. This
increase was principally due to increased laboratory and physician employment
incurred to support new anatomic pathology testing services. Laboratory supplies
were approximately $4.1 million during the First Nine Months of 1996, an
increase of $499,000 or 14% from the First Nine Months of 1995. This increase
was the result of increased sales volume and increased costs for reagents used
for some of the Company's testing services. Logistics were $3.0 million in the
First Nine Months of 1996, an increase of $167,000 or 6% from the First Nine
Months of 1995. As a percentage of net revenues, cost of sales increased to 49%
during the First Nine Months of 1996 from 44% during the First Nine Months of
1995.
Cost of sales was $6.8 million during the Third Quarter of 1996, an increase of
$1.8 million or 37% from the Third Quarter of 1995. As a percentage of net
revenues, cost of sales increased to 49% during the Third Quarter of 1996 from
44% during the Third Quarter of 1995.
o Gross Profit
Gross profits were $20.5 million during the First Nine Months of 1996, an
increase of $1.9 million or 10% from the First Nine Months of 1995. The
Company's gross profit margin decreased to 51% for the First Nine Months of 1996
from 56% for the First Nine Months of 1995. The decrease in gross profit margin
was due to the continued reduction of the average unit price reimbursed for
certain clinical chemistry services and the increased costs necessary to provide
an increased range of anatomic pathology testing services.
Gross profits were $7.1 million during the Third Quarter of 1996, an increase of
$685,000 or 11% from the Third Quarter of 1995. The Company's gross profit
margin decreased to 51% for the Third Quarter of 1996 from 56% for the Third
Quarter of 1995.
The clinical laboratory industry has seen steady downward pressure on prices
exerted by both government and private third-party payers. Also, payment for
services such as those provided by the Company is and likely will continue to be
affected by periodic reevaluations made by payers concerning which services to
reimburse and which to cease reimbursing. The reduction in reimbursement rates,
particularly by Medicare, has generally decreased the average unit price, and
thus the average gross profit, for many of the Company's clinical laboratory
services each year. In keeping with this trend, as part of the Omnibus Budget
Reconciliation Act of 1993 ("OBRA '93"), Congress reduced over time the national
cap on Medicare clinical laboratory fee schedules. OBRA '93 was fully
<PAGE>
implemented in 1996 and has reduced the cap on Medicare clinical laboratory fee
schedules to 76% of the national median. It also eliminated the annual updates
of such fee schedules for the years 1994 and 1995.
With respect to the Company's tissue testing services, which are not reimbursed
under the Medicare clinical laboratory fee schedules, the Medicare fees for
these services also generally declined with the implementation of the resource
based relative value scale ("RBRVS") system which went into effect on January 1,
1992. This program was also fully implemented in 1996 and has had the effect of
reducing reimbursement for pathology testing services although not to the same
extent as the Medicare reimbursement reduction for clinical laboratory services.
Any future changes in government and other third-party payer reimbursement which
may come about as a consequence of an enactment of health care reform or deficit
reduction legislation will also be likely to continue the downward pressure on
prices and make the markets for all of the Company's services more competitive.
H.R. 2491, the Balanced Budget Act of 1995, would have made substantial changes
to the Medicare program; however, it was vetoed by President Clinton in
December, 1995. Nevertheless, this bill as well as President Clinton's Medicare
counterproposal contained in his fiscal year 1997 budget offer some insight into
future Medicare reform legislation. H.R. 2491 would have further reduced the
national cap on Medicare clinical laboratory fee schedules to 65% of the
national median in 1997. It also would have eliminated annual updates in the
Medicare clinical laboratory fee schedules until fiscal year 2002. However, H.R.
2491 would have implemented a new "conversion factor" that may have favorably
affected the Company's physician pathology service reimbursements by less than
five percent.
Both H.R. 2491 and the President's Medicare proposal would have revised the
Medicare program substantially to permit beneficiaries to choose between
traditional fee-for-service Medicare and several non-traditional Medicare
options, including managed care plans and provider-sponsored organization plans.
These non-traditional Medicare plans would have considerable discretion in
determining whether and how to cover and reimburse all of the Company's services
and to limit the number of laboratories with which they deal. Although neither
proposal would have required Medicare beneficiaries to pay 20% of the fee for
each clinical laboratory service, nothing in the proposals would have prohibited
non-traditional Medicare plans from implementing such a requirement.
In addition, H.R. 2491 proposed that a fail-safe budget mechanism be used if
projected savings were not realized in Medicare laboratory service expenditures.
This fail-safe mechanism might have further reduced reimbursement for Medicare
clinical laboratory services and physician services (including the Company's
pathology services). The President's original Medicare counterproposal would
have established competitive bidding for clinical laboratory services instead.
Although these competitive bidding provisions were not included in the Medicare
section of President Clinton's fiscal year 1997 budget proposal, they could
resurface in future Medicare proposals if there is a need to generate more
savings from the Medicare program. Furthermore, the President's support for
competitive bidding has rekindled efforts within the Health Care Financing
Administration ("HCFA") to initiate a Medicare demonstration project to test the
savings potential of competitive bidding for Part B clinical laboratory
services. If ultimately adopted, either through federal legislation or through
HCFA policy, these changes would have an adverse impact on the Company's
revenues.
Medicare reform is a major unpredictable factor for the Company's business.
During any budget reconciliation process and if and when Medicare reform
legislation is considered by Congress, the reforms mentioned above or others are
likely to be considered again. Because of the uncertainties about the nature,
content and timing of legislative initiatives and the market's response to them,
the Company currently is unable to predict their ultimate impact on the clinical
laboratory or anatomic pathology markets generally or on the Company in
particular. Even without definitive federal legislative action, however, reforms
are likely to occur at the state level and/or in response to market pressures.
In the past the Company has offset a substantial portion of the impact of price
decreases and coverage changes through the achievement of economies of scale and
other strategies such as more favorable purchase contracts and the introduction
of alternative technologies. However, depending upon whether and how the price
decreases and other changes which could occur as a result of federal or state
legislation are implemented, they could have an adverse impact on gross profits
from the Company's testing services until management is able to mitigate such
impact; provided, however, that there can be no assurance that management would
be able to mitigate such impact. Furthermore, as a general trend, it should be
expected that gross profit margins will continue to decline over the long term.
<PAGE>
o Selling, General and Administrative Expenses
Selling, general and administrative expenses were $15.9 million during the First
Nine Months of 1996, an increase of $877,000 or 5.8% from the First Nine Months
of 1995. As a percentage of net revenues, selling, general and administrative
expenses decreased to 40% for the First Nine Months of 1996 from 45% for the
First Nine Months of 1995. Levels of these expenditures in 1995 were abnormally
elevated as a result of one-time charges for amortization, severance costs and
investment write-downs incurred in the First Nine Months of 1995.
Selling, general and administrative expenses were $5.2 million during the Third
Quarter of 1996, an increase of $623,000 or 14% from the Third Quarter of 1995.
As a percentage of net revenues, selling, general and administrative expenses
decreased to 38% for the Third Quarter of 1996 from 41% for the Third Quarter of
1995. Levels of these expenditures in 1995 were abnormally elevated as a result
of one-time charges for amortization and investment write-downs incurred in the
Third Quarter of 1995.
Amortization expense, severance costs, international restructuring costs and
investment write-downs of approximately $2.1 million previously reported
separately in 1995 were combined with the appropriate selling, general and
administrative and research and development expenses beginning in 1996.
Amortization expense was $206,000 in the First Nine Months of 1996, a decrease
of $954,000 or 82% from the First Nine Months of 1995. This decrease is
primarily a result of the Company recording a one-time accelerated amortization
charge of approximately $765,000 during the second quarter of 1995 based on
management's revised estimate of future benefits anticipated from a customer
list. Amortization expense was $69,000 during the Third Quarter of 1996, a
decrease of $38,000 or 35% from the Third Quarter of 1995.
Severance costs were $148,000 in the First Nine Months of 1996, a decrease of
$259,000 or 64% from the First Nine Months of 1995. The severance costs were due
primarily to the resignation of officers in 1995 and 1996. Severance costs were
$102,000 during the Third Quarter of 1996. No similar charges were recorded in
the Third Quarter of 1995.
Investment write-downs were $62,000 in the First Nine Months of 1996, a decrease
of $304,000 or 83% from the First Nine Months of 1995. This decrease is a result
of the Company recording in the First Nine Months of 1995 (and, other than as
described in the last sentence of this paragraph, not in the First Nine Months
of 1996) a write-down to market value of the investment in common stock of a
publicly traded company as the loss in value was deemed other than temporary in
accordance with the Statement of Financial Accounting Standard 115, "Accounting
for Certain Investments on Debt and Equity Securities". Investment write-downs
were $50,000 in the Third Quarter of 1996. The write-down in the Third Quarter
of 1996 represented the remaining investment in that common stock.
International restructuring costs of approximately $118,000 were recorded in the
First Nine Months of 1995 relating to anticipated severance expenses and
associated costs to close-down the Company's remaining foreign branches. No
similar charges were recorded in the First Nine Months of 1996.
o Research and Development
Research and development expenses were $2.3 million in the First Nine Months of
1996, a decrease of approximately $1.3 million or 36% from the First Nine Months
of 1995. Research and development expenses during 1995 were higher than normal
because they included the costs of developing the Company's new anatomic
pathology services, building the Company's database and reviewing, analyzing and
clinically evaluating existing as well as new technologies. The decrease in such
expenses in the First Nine Months of 1996 was principally caused by the
completion in 1995 of the major portion of such expenditures for the development
of the new anatomic pathology services. It should be expected that such research
and development expenses will decline as a percentage of sales in 1996 as
compared to 1995.
Research and development expenses were $722,000 in the Third Quarter of 1996, a
decrease of approximately $678,000 or 48% from the Third Quarter of 1995.
<PAGE>
o Interest Income
During the First Nine Months of 1996 interest income was earned on an average of
$5.5 million of cash and cash equivalents for the period. Interest income was
approximately $280,000 for the First Nine Months of 1996, an increase of
$100,000 or 56% from the First Nine Months of 1995 which was caused both by
higher interest rates and by investing over $4.6 million in net cash proceeds
from a private placement of the Company's securities completed in October 1995.
Interest income was approximately $51,000 for the Third Quarter of 1996, a
decrease of $31,000 or 38% from the Third Quarter of 1995.
o Interest Expense
Interest expense was approximately $63,000 for the First Nine Months of 1996, a
decrease of $45,000 or 42% from the First Nine Months of 1995. The decrease in
interest expense was due to the periodic monthly repayments required on the $3.5
million term loan obtained in July of 1993 which bears interest at 6% per year.
Interest expense was approximately $18,000 for the Third Quarter of 1996, a
decrease of $15,000 or 45% from the Third Quarter of 1995.
o Provision for Income Taxes
Provision for income tax expense was $1.1 million for the First Nine Months of
1996, representing an increase of approximately $1.1 million from the First Nine
Months of 1995. The effective tax rate was approximately 43% during both the
First Nine Months of 1996 and 1995.
o Net Income
As a result of the foregoing, for the First Nine Months of 1996 net income was
$1.5 million, an increase of approximately $1.4 million from the First Nine
Months of 1995. For the Third Quarter of 1996, net income was $657,000, an
increase of approximately $413,000 from the Third Quarter of 1995.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1996, the Company had total cash and cash equivalents of
approximately $6 million which were invested in U.S. Treasury money market
mutual
funds.
The Company had working capital of $14 million at September 30, 1996 and $17
million at December 31, 1995. The working capital ratio was 3.0 to 1 at
September 30, 1996 compared to 3.7 to 1 at December 31, 1995. The decrease in
working capital is primarily attributable to treasury shares acquired and to
increased capital expenditures in 1996 over 1995.
As of September 30, 1996, the Company has purchased 421,000 shares of its common
stock, for an aggregate consideration of approximately $2.3 million. The
Company's Board of Directors has authorized open market purchases for the
Employee Stock Purchase Plan requirements totaling 300,000 shares and further
additional open market purchases of up to 379,000 shares.
Capital expenditures during the First Nine Months of 1996 were approximately
$3.3 million compared to $1.9 million during the First Nine Months of 1995,
mainly for expansion of the Company's laboratory facilities as well as
replacements in the normal course of operations and automation of certain
existing laboratories.
Domestic trade receivables, net, were $12.3 million as of September 30, 1996, an
increase of $2.8 million or 30% from December 31, 1995. The increase in trade
receivables was due to the increase in revenues during the First Nine Months of
1996 over the comparable period of 1995. During the Third Quarter of 1996, the
average number of days sales in domestic trade receivables was approximately 77
days as compared to 72 days for the comparable period of 1995.
<PAGE>
In July 1993, the Company obtained a $3.5 million term loan from a bank that
bears interest at 6% per year. This term loan and accrued interest is repayable
in 47 monthly installments of approximately $82,000 which commenced in September
1993 plus one final payment in August 1997 equal to the remaining unpaid
principal and interest. During 1995, the term loan agreement was modified to
revise certain financial covenants, including those with respect to tangible net
worth and debt service coverage requirements and limitations on certain
expenditures. During the Third Quarter of 1996, there were no changes in the
Company's existing debt agreements. Under such term loan, the Company has
outstanding principal in the amount of approximately $885,000 as of September
30, 1996.
On October 5, 1995, the Company completed a $5,612,000 private placement with an
investor for 1 million shares of common stock and 800,000 two-year warrants
exercisable at $6.00 per share of common stock of the Company (except as
otherwise described below). The Company received cash of $5,316,000 and a
two-year promissory note for $296,000 bearing 7% interest. As a result of the
amendment to the warrants discussed below, some or all of the warrants can be
exercised at a price of $5.00 at any time on or before October 31, 1996. Upon
such election the Company shall extinguish as an adjustment to the purchase
price paid for such warrants, for each such warrant for which such election has
been made, $0.37 of the principal amount of the note upon payment of the
interest due on such extinguished amount for the outstanding period. If the
800,000 warrants are all exercised on or before October 31, 1996, the two year
promissory note for $296,000 will be fully extinguished. On August 20, 1996, the
Company's Board of Directors approved an amendment to the terms of the warrants
to extend from October 4, 1996 to October 31, 1996, the date through which the
warrants can be exercised at $5.00 per share. The amendment was approved in
connection with the scheduling of the Company's Annual Meeting for October 24,
1996 to enable voting at such meeting on a proposal to enable the investor to
vote shares of the Company's common stock owned by such investor and certain
affiliates representing up to 20% of the total voting power of the Company's
voting securities outstanding from time to time to be completed prior to the
expiration of the $5.00 per share exercise price. Such proposal was approved at
the Company's Annual Meeting on October 24, 1996. On October 29, 1996, the
investor exercised all 800,000 warrants and in exchange for the payment of
approximately $4.0 million in cash representing the aggregate exercise price of
such warrants and interest on the principal amount of the two-year promissory
note for the outstanding period, the Company issued to the investor 800,000
shares of its common stock and fully extinguished and cancelled the promissory
note.
The Company believes that cash flows from operations and available cash and cash
equivalents are adequate to fund the Company's operations for the foreseeable
future.
Risk Factors; Forward Looking Statements
- ----------------------------------------
The Management's Discussion and Analysis contain forward-looking statements
regarding the Company's future plans, objectives, and expected performance.
These statements are based on assumptions that the Company believes are
reasonable, but are subject to a wide range of risks and uncertainties, and a
number of factors could cause the Company's actual results to differ materially
from those expressed in the forward-looking statements referred to above. These
factors include, among others, the uncertainties in reimbursement rates and
reimbursement coverage of various tests sold by the Company to beneficiaries of
the Medicare program; the uncertainties relating to the ability of the Company
to convince physicians and/or managed care organizations to use the Company as a
provider of anatomic pathology testing services; the ability of the Company to
maintain superior quality relative to its competitors; the ability of the
Company to maintain its hospital-based business in light of the competitive
pressures and changes occurring in hospital health care delivery; the
uncertainties relating to states erecting barriers to the performance of
anatomic pathology testing by out-of-state laboratories; the ability of the
Company to find, attract and retain above average medical, management and
technical personnel; the uncertainties associated with competitive pressures
from the large national laboratories, small specialized laboratories and well
established local pathologists; and the uncertainties which would arise if
integrated delivery systems closed to outside providers emerged as the dominant
form of health care delivery.
<PAGE>
PART II OTHER INFORMATION
Item 5 Other Information
-----------------
In April 1996, the Company adopted the 1996 Stock Incentive Plan (the
"Plan"). The Plan authorizes 700,000 shares, of which 630,000 may be
issued to employees and 70,000 may be issued to outside Directors. The
Plan was approved at the Company's Annual Meeting on October 24, 1996.
The Company entered into executive employment agreements with Richard
A. Sandberg and with Dr. James B. Amberson (the "Employees") on
September 1, 1996. Each such agreement provides that in the event of a
"Change in Control of the Company", as defined in the agreements, if
the Employee's employment is terminated other than for "Cause", as
defined in the agreements, he is entitled to receive one year's salary
and bonus and all his stock options will vest completely. The
agreements expire in September 2001 and are subject to successive
automatic one-year renewals thereafter (unless certain notice is
given). The employment agreements are filed herewith as exhibits 10.38
and 10.39.
The Company has also entered into a employment agreement with Dr. James
B. Amberson on September 1, 1996. Pursuant to the agreement, Dr.
Amberson is entitled to a salary as determined by the Company and other
benefits of the Company. This agreement provides that in the event of a
termination of Dr. Amberson's employment for other than "Stated Cause"
(as defined in the agreement), he is entitled to receive six months
salary and other benefits. Subject to the foregoing, this agreement is
subject to termination at will by either party. The employment
agreement is filed herewith as exhibit 10.40.
The Company entered into an employment agreement with David R.
Schreiber on September 30, 1996 as the Chief Financial Officer and
Senior Vice President, Finance of the Company. Salary and other
compensation are disclosed in the employment agreement filed herewith
as exhibit 10.42.
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
a Exhibits
10.38 Employment Agreement, dated September 1, 1996, by the
registrant and Richard A. Sandberg.
10.39 Employment Agreement, dated September 1, 1996, by the
registrant and Dr. James B. Amberson.
10.40 Employment Agreement, dated September 1, 1996, by the
registrant and Dr. James B. Amberson.
10.41 Severance Agreement, dated September 27, 1996, by the
registrant and Carl R. Iberger.
10.42 Employment Agreement, dated September 30, 1996, by the
registrant and David R. Schreiber.
11.1 Statement regarding computation of per share earnings is not
required because the relevant computation can be determined
from the material contained in the Financial Statements
included herein.
27.1 Financial Data Schedule.
b Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1996.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIANON SYSTEMS, INC.
November 15, 1996 /s/ Kevin C. Johnson
-------------------------------
By: Kevin C. Johnson
President and
Principal Executive Officer
November 15, 1996 /s/ Richard A. Sandberg
-------------------------------
By: Richard A. Sandberg
Chairman,
Principal Financial Officer and
Principal Accounting Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.38 Employment Agreement, dated September 1, 1996, 16
by the registrant and Richard A. Sandberg
(filed herewith).
10.39 Employment Agreement, dated September 1, 1996, 23
by the registrant and Dr. James B. Amberson
(filed herewith).
10.40 Employment Agreement, dated September 1, 1996,
by the registrant and Dr. James B. Amberson
(filed herewith). 38
10.41 Severance Agreement, dated September 27, 1996,
by the registrant and Carl R. Iberger
(filed herewith). 45
10.42 Employment Agreement, dated September 30, 1996,
by the registrant and David R. Schreiber
(filed herewith). 50
27.1 Financial Data Schedule (filed herewith). 69
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENT
AGREEMENT, dated as of 9/1/96, by and between DIANON Systems,
Inc., a Delaware corporation having offices at 200 Watson Boulevard, Stratford,
Connecticut 06497 (the "Company"), and Richard A. Sandberg, whose residence is
233 Brushy Ridge Road, New Canaan, Connecticut 06840 (the "Executive").
The Company's Board of Directors (the "Board") considers the
continued services of key executives of the Company to be in the best interest
of the Company and its stockholders.
The Board desires to assure, and has determined that it is
appropriate and in the best interests of the Company and its stockholders to
reinforce and encourage, the continued attention and dedication of key
executives of the Company to their duties with-out personal distraction or
conflict of interest in circumstances arising from the possibility or occurrence
of a change in control of the Company.
In consideration of the premises and the covenants and agreements
con-tained herein, and other good and valuable consideration, the Company and
the Executive agree as follows:
1. Services During Certain Events. In the event a proposal is made to
effect a Change in Control (as defined in Section 3 hereof), the Executive
agrees that he will not voluntarily leave the employ of the Company and will
render the services contemplated in the recitals of this Agreement until such
proposal for a Change in Control is terminated or abandoned or until a Change in
Control has occurred, except as otherwise provided in Section 2 hereof.
2. Termination. For purposes of this Agreement, a "Termination" shall
be deemed to have occurred in the event that the Executive's employment by the
Company is terminated at any time from 90 days prior to a Change in Control to
two years following a Change in Control:
(a) by the Company for reasons other than "cause" (as defined in
Section 6 hereof), "disability" (as defined in Section 6 hereof), death or
attainment of age 65;
(b) by the Executive following the occurrence of any of the
following events without the Executive's consent:
(i) the assignment of the Executive to any duties or
responsibilities that are inconsistent with his position, duties,
responsibilities or status immediately preceding such Change in
Control, or a change in his reporting responsibilities or titles within
the Company in effect at such time resulting in a reduction of his
responsibilities or position at the Company;
(ii) a reduction of the Executive's annual salary;
(iii) a material reduction in any year of the ratio of
incentive compensation or fringe benefits received by the Executive
pursuant to any bonus, incentive or fringe benefit plan (the "Benefit
Plan") to his annual salary in such year, which reduction is greater
than the average reduction in the ratio of such incentive compensation
<PAGE>
or fringe benefits to annual salary received by all participants under
the Benefits Plans;
(iv) a material increase in the amount of travel normally
required of the Executive in connection with his employment by the
Company, or the transfer of the Executive to a location requiring a
change in his residence; or
(v) any failure by the Company to comply with and satisfy
Section 8 of this Agreement; or
(c) by the Executive, if he determines, in his sole discretion,
during the 60-day period commencing 180 days following a Change in Control, that
due to the Change in Control he can no longer effectively perform his duties.
For purposes of this Agreement, any determination by the Executive pursuant to
the preceding sentence shall be conclusive.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if:
(a) individuals who, as of the date hereof, constitute the entire
Board of Directors of the Company (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board, provided, however, that
any individual becoming a director subsequent to the date of this Agreement
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the then In-cumbent Directors
(other than an election or nomination of an individual whose assumption of
office is the result of an actual or threatened election contest relating to the
election of directors of the Company, as such terms are used in Rule 14a-11
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
shall be, for purposes of this Agreement, considered as though such individual
were an Incumbent Director; or
(b) the shareholders of the Company shall approve (i) any
consolidation or recapitalization of the Company (or, if the capital stock of
the Company is affected, any subsidiary of the Company) or any sale, lease, or
other transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company (each of the foregoing being an "Acquisition Transaction")
where (x) the shareholders of the Company immediately prior to such Acquisition
Transaction would not immediately after such Acquisition Transaction
beneficially own, directly or indirectly, shares representing in the aggregate
more than 65% of (A) the then outstanding common stock of the corporation
surviving or resulting from such merger, consolidation or recapitalization or
acquiring such assets of the Company, as the case may be (the "Surviving
Corporation") (or of its ultimate parent corporation, if any) and (B) the
Combined Voting Power (as defined below) of the then outstanding Voting
Securities (as defined below) of the Surviving Corporation (or of its ultimate
parent corporation, if any) or (y) the Incumbent Directors at the time of the
initial approval of such Acquisition Transaction would not immediately after
such Acquisition Transaction constitute a majority of the Board of Directors of
the Surviving Corporation (or of its ultimate parent corporation, if any) or
(ii) any plan or proposal for the liquidation or dissolution of the Company; or
(c) any Person (as defined below) shall become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Company representing in the aggregate 30% or
more of either (i) the then outstanding shares of the Company Common Stock
<PAGE>
("Common Stock"), or (ii) the Combined Voting Power of all then outstanding
Voting Securities of the Company; provided, however, that notwithstanding the
foregoing, a Change in Control of the Company shall not be deemed to have
occurred for purposes of this subsection (c) solely as the result of:
(i) the acquisition of securities by the Company which, by
reducing the number of shares of Common Stock or other Voting
Securities outstanding, increases (i) the proportionate number of
shares of Common Stock beneficially owned by any Person to 30% or more
of the shares of Common Stock then out-standing or (ii) the
proportionate voting power represented by the Voting Securities
beneficially owned by any Person to 30% or more of the Combined Voting
Power of all then outstanding Voting Securities; or
(ii) an acquisition of securities if the Incumbent Directors
at the time of the initial approval of such acquisition would not
immediately after (or otherwise as a result of) such acquisition
constitute a majority of the Board;
(A) any conversion of a security that was not acquired
directly from the Company; or
(B) any acquisition of securities if the Incumbent
Directors at the time of the initial approval of such acquisition
would not immediately after (or otherwise as a result of) such
acquisition constitute a majority of the Board;
provided, however, that if any Person referred to in subsections (i) or (ii) of
this clause (c) shall thereafter become the beneficial owner of any additional
shares of the Company Common Stock or other Voting Securities of the Company
(other than pursuant to a stock split, stock dividend or similar transaction or
an acquisition exempt under such subsection (ii)), then a Change in Control
shall be deemed to have occurred for purposes of this clause(c).
(d) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive experiences a Termination prior to a Change in
Control and the Executive reasonably demonstrates that such Termination (A) was
at the request of a Third Party (as defined below) or (B) otherwise occurred in
connection with or in anticipation of a Change in Control, then for all purposes
of the Agreement, the date of such Change in Control shall mean the date
immediately prior to the date of such Termination.
For purposes of this Agreement:
"Person" shall mean any individual, entity (including, without
limitation, any corporation, partnership, trust, joint venture, association or
governmental body and any successor to any such entity) or group (as defined in
Sections 13(d)(3) or 14(d)(2) of the Exchange Act and the rules and regulations
thereunder); provided, however, that Person shall not include the Executive, the
Company, any of its majority-owned subsidiaries, any executive benefit plan of
the Company or any of its majority-owned subsidiaries or any entity organized,
appointed or established by the Executive, the Company or any of its
majority-owned subsidiaries for or pursuant to the terms of any such plan, or
any of their affiliates;
<PAGE>
"Voting Securities" shall mean all securities of a corporation
having the right under ordinary circumstances to vote in an election of the
board of directors of such corporation;
"Combined Voting Power" shall mean the aggregate votes entitled to
be case generally in the election of directors of a corporation by holders of
then outstanding Voting Securities of such corporation; and
"Third Person" shall mean a third party who has indicated an
intention, or taken steps reasonably calculated, to effect a Change in Control.
4. Rights and Benefits upon Termination or Change in Control.
(a) Severance Payment. Subject to Section 6 and 11(a) hereof, in
the event of a Termination the Company shall pay the Executive, in twelve equal
monthly installments beginning no later than 30 days following the Executive's
Termination, (i) the greater of the Executive's annual salary as in effect
immediately prior to (x) the Termination or (y) a Change in Control plus (ii)
if a Change of Control could have been deemed to occur as a result of meeting
the conditions set forth in paragraph 3(a) hereof (whether or not such
conditions were the sole reason for a Change of Control), the most recent annual
bonus paid the Executive. In the event of the Executive's death, such payments
shall be made to Executive's estate or other legal representative.
(b) Stock Options. Immediately prior to a Change in Control, all
out-standing options to buy Company stock held by the Executive, other than
options granted pursuant to the Company's Employee Stock Purchase Plan, shall
become fully vested and immediately exercisable.
(c) Restricted Stock. Immediately prior to a Change in Control,
any (i) repurchase agreement or (ii) right of first refusal agreement between
the Executive and the Company with respect to the Company stock shall terminate
and the Executive's ownership of all shares of Company stock shall fully vest.
5. Certain Additional Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment, distribution or other action by the Company to or for the
benefit of the Executive, whether pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the
Executive, if such Executive has been employed by the Company for five years or
more, shall be entitled to receive from the Company at the time such Excise Tax
is due an additional payment (a "Gross-Up Payment") in any amount reasonably
calculated by the Company's independent auditors such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
6. Conditions to the Obligations of the Company. The rights and
benefits provided in Section 4 hereof shall not accrue to the Executive if any
of the following events shall occur:
<PAGE>
(a) The Company shall terminate the Executive's employment for
"cause." For purposes of this Agreement, termination of employment for "cause"
shall mean (i) the Executive's conviction for, or plea of nolo contendere to, a
felony, (ii) the Executive's engaging in fraud, misappropriation, embezzlement
or other act or acts of dishonesty resulting in, or intended to result in,
substantial personal enrichment of the Executive at the expense of the Company
or (iii) the Executive's intentional and continual failure substantially to
perform his duties with the Company (other than a failure resulting from the
Executive's incapacity due to physical or mental illness) which failure has
continued for a period of at least 30 days after a written notice of demand for
substantial performance has been delivered to the Executive specifying in
reasonable detail the manner in which the Executive has failed to substantially
perform. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for cause unless and until there shall have been delivered
to the Executive a copy of a resolution (x) duly adopted by three-quarters of
the entire membership of the Board, at a meeting called and held for such
purpose after reasonable notice to Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the Board,
and (y) finding that in the good faith opinion of the Board, Executive was
guilty of conduct described in the preceding sentence and specifying the
particulars of such conduct in detail.
(b) Following a Termination, the Executive shall not, upon
receiving a written request to do so, resign as a director and/or officer of the
Company and of each subsidiary and affiliate of the Company of which he is then
serving as a director and/or officer.
(c) The Company shall terminate the Executive's employment for
"disability." For purposes of this Agreement, "disability" shall mean a physical
or psychological condition of the Executive which renders him unable to perform
his duties for the Company for a period for six months or longer, as confirmed
in writing by the Executive's independent physician.
7. Arbitration and Expenses.
(a) Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration, conducted before a panel of
three arbitrators in Stamford, Connecticut, in accordance with the rules of the
American Arbitration Association then in effect. The arbitrators shall be
approved by both the Company and the Executive and their decision shall be
binding on the parties and conclusive for all purposes. Judgment may be entered
on the arbitrators' award in any court having jurisdiction. The expense of such
arbitration shall be borne by the Company.
(b) The Company shall pay or reimburse the Executive for all costs
and expenses (including, without limitation, reasonable attorneys' fees)
incurred by the Executive as a result of any claim, action or proceeding
(including, without limitation, a claim, action or proceeding by the Executive
against the Company) arising out of, or challenging the validity, advisability
or enforceability of, this Agreement or any provision hereof.
8. Successors. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the same manner
<PAGE>
and to the same extent that the Company would be required to perform it if no
such succession had taken place. As used herein, "the Company" shall include any
successor to all or substantially all of the Company's business or assets which
executes and delivers an agreement provided for in this Section 8 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
9. Notice of Termination. Any termination of the Executive's employment
by the Company shall be communicated to the Executive at the address set forth
above (or such other address as the Executive shall have notified the Company in
writing for purposes of this Agreement) in a written notice and, except for
termination for "cause," shall specify a termination date no sooner than 15 days
after the giving of such notice.
10. Term of Agreement. This Agreement shall terminate on the fifth
anniversary of the date hereof; provided, however, that this Agreement shall
automatically renew for successive one-year terms unless the Company's Board of
Directors notifies the Executive in writing at least 30 days prior to an
expiration date that it does not wish to renew the Agreement for an additional
term; and provided further that if a Change in Control occurs during the term of
an additional term of this Agreement, the Agreement shall continue in effect for
two years following such Change in Control.
11. Miscellaneous.
(a) Duty to Mitigate: Other Severance Payments. If a Termination
is deemed to occur, the Executive shall during the one-year period subsequent to
his Termination notify the Company of any employment when obtained, and the
severance payment provided under Section 4(a) hereof shall be offset by any
compensation, which he receives from such employment during the one-year period
subsequent to this Termination. Furthermore, the severance payment provided
under Section 4(a) hereof shall also be offset by any other severance payment
which the Executive receives under any employment agreement with the Company,
including damages for breach of any such agreement.
(b) Assignment. No right, benefit or interest hereunder shall be
subject to assignment, anticipation, alienation, sale, encumbrance, charge,
pledge, hypothecation or set-off in respect of any claim, debt or obligation, or
to execution, attachment, levy or similar process; provided, however, that the
Executive may assign any right, benefit or interest hereunder if such assignment
is permitted under the terms of any plan or policy of insurance or annuity
contract governing such right, benefit or interest.
(c) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of the Company. This
Agreement is not, and nothing herein shall be deemed to create, a commitment of
continued employment of the Executive by the Company.
(d) Amendment. This agreement may not be amended, modified or
canceled except by written agreement of the parties.
(e) Waiver. No provision of this Agreement may be waived except by
a writing signed by the party to be bound thereby.
(f) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall remain in full force
and effect to the fullest extent permitted by law.
<PAGE>
(g) Taxes. Any payment or delivery required under this Agreement
shall be subject to all requirements of the law with regard to withholding of
taxes, filing, making of reports and the like, and the Company shall use its
best efforts to satisfy promptly all such requirements.
(h) Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York.
(i) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby.
DIANON SYSTEMS, INC.
By: /s/ Kevin C. Johnson
-------------------------
/s/ Richard A. Sandberg
----------------------------
Richard A. Sandberg
EMPLOYMENT AGREEMENT
This AGREEMENT made effective September 1, 1996 between Dianon Systems,
Inc., a Connecticut corporation, and any successor thereto, hereinafter referred
to as the "Company," and James B. Amberson, M.D., residing in Weston,
Connecticut, hereinafter referred to as "Employee."
WITNESSETH:
WHEREAS, the Company wishes to reinforce the capacity of Employee, a
senior management official of the Company, to implement the policies and
programs established by the Company, and to provide for the protection of the
goodwill, confidential information, and proprietary rights and interests of the
Company, in each case on the terms and subject to the conditions set forth
below; and
WHEREAS, Employee's business contacts and relationships are crucial to
the financial and business success of the Company, and the services that
Employee should render hereunder to the Company are unique and valuable; and
WHEREAS, the parties desire to reduce the terms and conditions of
Employee's employment to writing;
<PAGE>
NOW, THEREFORE, in consideration of the terms and conditions and the
mutual covenants contained in this Agreement, the Company and Employee hereby
agree as follows:
1. Employment
----------
The Company hereby employs Employee and Employee hereby accepts
such employment upon the terms and conditions hereinafter set forth. The parties
acknowledge that Employee's employment with the Company is at will and
terminable by either party at any time for any reason.
2. Duties and Responsibilities
---------------------------
Employee shall perform with continuous diligence those activities
assigned to Employee by the Company including: active participation in
laboratory and market research, keeping full and complete records of all
business and/or research activities in which Employee engages and surrendering
all such records and materials on request, improving strategies for achieving
the Company's goals, motivating co-worker performance, keeping abreast of all
<PAGE>
new developments in Employee's area of expertise, participating actively in
research and business meetings, and abiding by all Company policies.
3. Term
----
This Agreement shall begin on the effective date hereof and
continue until terminated under the terms contained herein.
4. Salary
------
The Company shall compensate Employee for Employee's services
during the term of this Agreement on a salaried basis paid bi-weekly at a rate
determined by the Company from time to time.
5. Fringe Benefits
---------------
During the term of this Agreement, Company shall provide Employee
all benefits and emoluments as authorized for all other salaried employees of
the Company as they may be modified from time to time by the Company during the
<PAGE>
term of this Agreement, including health and medical insurance, disability
insurance, life insurance, sick leave, vacation, holidays and retirement plan
participation.
6. Termination
-----------
a. This Agreement shall terminate on any of the following
occurrences:
(i) Employee's death;
(ii) Employee's disability for a period of 90 days or more;
(iii) mutual agreement of the parties reduced to writing
signed by both parties;
(iv) voluntary resignation by Employee;
(v) termination by the Company without Stated Cause;
(vi) termination by the Company with Stated Cause.
b. Cause shall mean Employee's
(i) gross negligence;
(ii) insubordination;
(iii) willful misconduct.
c. "Stated Cause" shall mean Cause communicated to Employee by the
Company in a Notice of Termination.
<PAGE>
d. "Notice of Termination" shall mean written notice given by
either party to the other of an intention to terminate this Agreement pursuant
to subparagraphs (a)(iv), (v) or (vi) of this Paragraph of this Agreement.
e. Notice of Termination shall be sent by certified mail or
registered mail, return receipt requested, first class postage prepaid, to the
residence in the case of Employee, and to its principal office in the City of
Stratford, Connecticut, to the attention of the President in the case of the
Company.
7. Compensation after Termination
------------------------------
(a) The "Termination Date" shall be the date Employee ceases
providing services to the Company as an employee. In the event Employee provides
Notice of Termination to the Company less than four weeks prior to the date such
Notice identifies as the Termination Date, then the date said Notice of
Termination is received by the Company shall be the Termination Date.
(b) Employee will not receive any compensation from the Company
after the Termination Date other than accrued, unused vacation, except as
described under Paragraphs (c) and (d) of this Section 7 of this Agreement, if
<PAGE>
applicable. Employee's participation in all fringe benefits offered by the
Company to its employees will cease immediately on the Termination Date except
as described in Paragraph (c) of this Section 7 of this Agreement, if
applicable. Nothing in this Agreement, however, is intended to impair any rights
vested under law in any benefit plan of the Company.
(c) If this Agreement and Employee's employment with the Company
is terminated by the Company without stated cause, the Company will pay
Employee:
(i) For a period of six months beginning with the
Termination Date at Employee's current rate of pay as of
the day preceding the Termination Date, less amounts
equivalent to income Employee earns during said six
month period from other employment or independent
consulting.
(ii) During said six month period, Employee shall act as a
consultant to the Company as requested by the Company
for up to six days per month.
(iii)During said six month period, the Company will
contribute towards the premium cost of medical
continuation coverage for Employee and/or Employee's
dependents on the same basis as it then contributes
towards the medical coverage of active employees and/or
their dependents, for any months in said period during
which Employee and/or Employee's dependents are eligible
and elect to continue such coverage.
(iii)During said six month period, the Company will continue
to provide Employee any car allowance Employee was
receiving at the time of the Termination Date.
<PAGE>
(d) Employee's participation in all incentive plans, including
bonus and commission, stock options, restrictive stock purchase plans and other
incentive compensation programs will terminate on the Termination Date. If this
Agreement terminates (i) by Employee's voluntary resignation with at least four
weeks' notice to the Company or (ii) by termination by the Company without
Stated Cause, the Company will make its best efforts to allocate on a pro rata
basis based upon the number of days from January 1 to the Termination Date
divided by 365, a portion of each such incentive award to be paid or awarded to
Employee or his estate at the time payment or awards under any such program are
made to active employees for the year or other related time period in which the
Termination Date falls.
8. Company Property
----------------
On the Termination Date, or at any earlier point in time after a
Notice of Termination is received when a request is made by the Company for
same, Employee will turn over to the Company all notes, reports, memoranda,
books, records, chemicals, devices and documents, whether in written,
typewritten, computerized or any other form, which are in Employee's possession
or under Employee's control, whether prepared by Employee or others, related to
the Company or relating to the business of the Company. At the conclusion of the
six month period described in paragraph (c) of Section 6 of this Agreement, or
<PAGE>
at any earlier point in time when a request is made by the Company for same,
Employee shall also return to the Company any Company car, keys, parking card,
credit card, business cards or other materials related to Employee's employment
with the Company or the operation of the Company.
9. Remedy for Breach
-----------------
Employee acknowledges:
(a) that Employee may be a director and officer of the
Company and as such Employee would be conversant with,
and have access to, the business affairs, records, trade
secrets, customers and customer lists, suppliers,
supplier lists, patents, technical know-how, chemicals,
devices, sales or distribution agents and
representatives, sales or distribution agents and
representatives' lists, and other confidential and
proprietary information of the Company;
<PAGE>
(b) that Employee's compliance with the covenants and
agreements in this Agreement is necessary to protect the
goodwill and other proprietary interest of the Company;
and
(c) that a breach of Employee's covenants and agreements in
this Agreement will result in continuing and irreparable
damage to the Company for which there will be no
adequate remedy at law.
Both the parties recognize that the services to be rendered under
this Agreement by Employee are special and unique and of an extraordinary
character, and that in the event there is a breach by Employee of the terms and
conditions of this Agreement to be performed by Employee, then the Company 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, or to enforce the specific performance thereof
by Employee.
<PAGE>
10. Employee Representation
-----------------------
Employee warrants and represents that neither the execution and
delivery nor the performance of this Agreement by Employee will in any way
violate, or conflict with, any other agreement by which Employee may be bound or
any duty or obligation to which Employee may be subject and that Employee will
take all steps necessary to comply with the representation.
11. Proprietary Information
-----------------------
Employee hereby agrees to all the terms and conditions of the
Company's Employee Proprietary Information Agreement attached hereto as Exhibit
A and incorporated herein and has executed a copy thereof concurrently with this
Agreement.
12. Assignments
-----------
The rights and obligations of Employee under this Agreement shall
be assignable to and binding upon the successors and assigns of the Company
including any corporation organized by the Company to carry on the business of
the Company.
<PAGE>
13. Entire Agreement
----------------
This instrument contains the entire Agreement of the parties. It
may not be changed orally, but only by agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought. This Agreement supersedes any other agreement or
understanding existing between Employee and the Company relating to his
employment or the other matters covered herein.
14. Severability
------------
If any provision of this Agreement shall be held invalid, such
invalidity shall not affect any other provisions of this Agreement not held so
invalid, and only such provisions shall to the full extent consistent with the
law remain in full force and effect.
15. Applicable Law
--------------
This Agreement shall be governed by the laws of the State of
Connecticut.
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement as of the date first above written.
DIANON SYSTEMS INC.
BY: /s/ Richard A. Sandberg
---------------------------
/s/ James B. Amberson
---------------------------
JAMES B. AMBERSON, M.D.
<PAGE>
Exhibit A
---------
AGREEMENT
---------
THIS AGREEMENT made this 1st day of September, 1996 by and between
DIANON SYSTEMS, INC., its affiliates, subsidiaries, successors and assigns
(collectively called hereinafter "DIANON") and James B. Amberson, an individual
residing in Weston, Connecticut (hereinafter called "Employee").
In consideration of Employment Agreement of this date Employee and
DIANON acknowledge, represent and agree to the terms and conditions set forth in
this Agreement.
(1) Employee's employment with DIANON creates a relationship of trust
and confidence between the parties. Employee agrees that, during and after
his/her employment with DIANON, Employee will not use or disclose, or allow
anyone else to use or disclose, any confidential information relating to the
products, sales and/or business affairs of DIANON or of any customer or supplier
of DIANON, or any information created, discovered, or developed by or for
DIANON, or acquired by DIANON, that has commercial value in DIANON's present or
future business ("Confidential Information"), except as may be necessary in the
performance of Employee's employment with DIANON or as may be authorized in
advance by appropriate officials of DIANON. By way of illustration, but not
limitation, Confidential Information includes processes, formulas, data,
know-how, inventions, improvements, techniques, marketing plans, product plans,
strategies, forecasts, customer lists and any other information Employee has
reason to know DIANON would like to treat as confidential for any purpose.
Employee agrees to keep Confidential Information secret whether or not any
document containing such information is marked confidential.
(2) All rights, title and interest in all records, documents, files and
the business of DIANON, whether or not produced by the Employee, shall be and
remain the property of DIANON. Upon termination of employment, the Employee
shall not have the right to remove any such records frorm the office of DIANON.
In addition, Employee agrees to promptly return to DIANON all things of
whatsoever nature that belongs to DIANON, and all records (in whatsoever form,
format or medium) containing or related to Confidential Information of DIANON.
<PAGE>
(3) The Employee shall, while employed by DIANON, devote his/her best
efforts and his/her full time to the business of DIANON.
(4) In the event of a breach or threatened breach of the provisions in
this Agreement, DIANON shall be entitled to an injunction restraining such
breach, it being recognized that any injury arising from a breach would be
irreparable and would have no adequate remedy at law; but nothing herein shall
be construed as prohibiting DIANON from pursuing any other remedy available for
such breach of threatened breach. In the event that Employee breaches or
threatens a breach of this Agreement, DIANON shall be entitled to have its
reasonable legal fees and costs paid by the Employee for any legal services
relating to the breach or threatened breach.
(5) This Agreement is not intended, and should not be construed in any
way, as a contract of employment for a definite period of time or to limit or
restrain DIANON's or the Employee's right to terminate the employment
relationship at any time.
(6) In the event any provision or paragraph of this Agreement is
declared to be invalid or unenforceable, then the balance of this Agreement
shall remain in full force and effect.
(7) This Agreement shall be construed and enforced in accordance with
the laws of the State of Connecticut.
(8) The foregoing contains the entire Agreement between the parties
pertaining to confidential DIANON documents and information. No modification
thereof shall be binding upon the parties unless the same is in a writing signed
by the respective parties. This Agreement and all of the terms and conditions
contained herein shall remain in full force during the period of employment
notwithstanding any change in compensation.
<PAGE>
(9) Employee represents and warrants that he/she has no other
agreements or commitments that would hinder or prevent performance of his/her
job responsibilities with DIANON. Unless authorized to do so, Employee agrees
not to disclose to DIANON or use in his/her employment with DIANON any invention
or confidential information belonging to any former employer or to any other
person other than DIANON.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date set forth above.
Employee: DIANON SYSTEMS, INC.
/s/ James B. Amberson By: /s/ Richard A. Sandberg
- --------------------- -----------------------
Date: 9/1/96 Date: 9/1/96
-------------- -----------------------
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
AGREEMENT, dated as of 9/1/96, by and between DIANON Systems,
Inc., a Delaware corporation having offices at 200 Watson Boulevard, Stratford,
Connecticut 06497 (the "Company"), and James B. Amberson, whose residence is 18
Tubbs Spring Court, Weston, Connecticut 06883 (the "Executive").
The Company's Board of Directors (the "Board") considers the
continued services of key executives of the Company to be in the best interest
of the Company and its stockholders.
The Board desires to assure, and has determined that it is
appropriate and in the best interests of the Company and its stockholders to
reinforce and encourage, the continued attention and dedication of key
executives of the Company to their duties without personal distraction or
conflict of interest in circumstances arising from the possibility or occurrence
of a change in control of the Company.
In consideration of the premises and the covenants and agreements
contained herein, and other good and valuable consideration, the Company and the
Executive agree as follows:
1. Services During Certain Events. In the event a proposal is made to
effect a Change in Control (as defined in Section 3 hereof), the Executive
agrees that he will not voluntarily leave the employ of the Company and will
render the services contemplated in the recitals of this Agreement until such
proposal for a Change in Control is terminated or abandoned or until a Change in
Control has occurred, except as otherwise provided in Section 2 hereof.
2. Termination. For purposes of this Agreement, a "Termination" shall
be deemed to have occurred in the event that the Executive's employment by the
Company is terminated at any time from 90 days prior to a Change in Control to
two years following a Change in Control:
(a) by the Company for reasons other than "cause" (as defined in
Section 6 hereof), "disability" (as defined in Section 6 hereof), death or
attainment of age 65;
(b) by the Executive following the occurrence of any of the
following events without the Executive's consent:
(i) the assignment of the Executive to any duties or
responsibilities that are inconsistent with his position, duties,
responsibilities or status immediately preceding such Change in
Control, or a change in his reporting responsibilities or titles within
the Company in effect at such time resulting in a reduction of his
responsibilities or position at the Company;
(ii) a reduction of the Executive's annual salary;
(iii) a material reduction in any year of the ratio of
incentive compensation or fringe benefits received by the Executive
pursuant to any bonus, incentive or fringe benefit plan (the "Benefit
Plan") to his annual salary in such year, which reduction is greater
than the average reduction in the ratio of such incentive compensation
<PAGE>
or fringe benefits to annual salary received by all participants under
the Benefits Plans;
(iv) a material increase in the amount of travel normally
required of the Executive in connection with his employment by the
Company, or the transfer of the Executive to a location requiring a
change in his residence; or
(v) any failure by the Company to comply with an d satisfy
Section 8 of this Agreement; or
(c) by the Executive, if he determines, in his sole discretion,
during the 60-day period commencing 180 days following a Change in Control, that
due to the Change in Control he can no longer effectively perform his duties.
For purposes of this Agreement, any determination by the Executive pursuant to
the preceding sentence shall be conclusive.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if:
(a) individuals who, as of the date hereof, constitute the entire
Board of Directors of the Company (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board, provided, however, that
any individual becoming a director subsequent to the date of this Agreement
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the then In-cumbent Directors
(other than an election or nomination of an individual whose assumption of
office is the result of an actual or threatened election contest relating to the
election of directors of the Company, as such terms are used in Rule 14a-11
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
shall be, for purposes of this Agreement, considered as though such individual
were an Incumbent Director; or
(b) the shareholders of the Company shall approve (i) any
consolidation or recapitalization of the Company (or, if the capital stock of
the Company is affected, any subsidiary of the Company) or any sale, lease, or
other transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company (each of the foregoing being an "Acquisition Transaction")
where (x) the shareholders of the Company immediately prior to such Acquisition
Transaction would not immediately after such Acquisition Transaction
beneficially own, directly or indirectly, shares representing in the aggregate
more than 65% of (A) the then outstanding common stock of the corporation
surviving or resulting from such merger, consolidation or recapitalization or
acquiring such assets of the Company, as the case may be (the "Surviving
Corporation") (or of its ultimate parent corporation, if any) and (B) the
Combined Voting Power (as defined below) of the then outstanding Voting
Securities (as defined below) of the Surviving Corporation (or of its ultimate
parent corporation, if any) or (y) the Incumbent Directors at the time of the
initial approval of such Acquisition Transaction would not immediately after
such Acquisition Transaction constitute a majority of the Board of Directors of
the Surviving Corporation (or of its ultimate parent corporation, if any) or
(ii) any plan or proposal for the liquidation or dissolution of the Company; or
(c) any Person (as defined below) shall become the beneficial
owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Company representing in the aggregate 30% or
more of either (i) the then outstanding shares of the Company Common Stock
<PAGE>
("Common Stock"), or (ii) the Combined Voting Power of all then outstanding
Voting Securities of the Company; provided, however, that notwithstanding the
foregoing, a Change in Control of the Company shall not be deemed to have
occurred for purposes of this subsection (c) solely as the result of:
(i) the acquisition of securities by the Company which, by
reducing the number of shares of Common Stock or other Voting
Securities outstanding, increases (i) the proportionate number of
shares of Common Stock beneficially owned by any Person to 30% or more
of the shares of Common Stock then outstanding or (ii) the
proportionate voting power represented by the Voting Securities
beneficially owned by any Person to 30% or more of the Combined Voting
Power of all then outstanding Voting Securities; or
(ii) an acquisition of securities if the Incumbent Directors
at the time of the initial approval of such acquisition would not
immediately after (or otherwise as a result of) such acquisition
constitute a majority of the Board;
(A) any conversion of a security that was not acquired
directly from the Company; or
(B) any acquisition of securities if the Incumbent
Directors at the time of the initial approval of such acquisition
would not immediately after (or otherwise as a result of) such
acquisition constitute a majority of the Board;
provided, however, that if any Person referred to in subsections (i) or (ii) of
this clause (c) shall thereafter become the beneficial owner of any additional
shares of the Company Common Stock or other Voting Securities of the Company
(other than pursuant to a stock split, stock dividend or similar transaction or
an acquisition exempt under such subsection (ii)), then a Change in Control
shall be deemed to have occurred for purposes of this clause(c).
(d) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive experiences a Termination prior to a Change in
Control and the Executive reasonably demonstrates that such Termination (A) was
at the request of a Third Party (as defined below) or (B) otherwise occurred in
connection with or in anticipation of a Change in Control, then for all purposes
of the Agreement, the date of such Change in Control shall mean the date
immediately prior to the date of such Termination.
For purposes of this Agreement:
"Person" shall mean any individual, entity (including, without
limitation, any corporation, partnership, trust, joint venture, association or
governmental body and any successor to any such entity) or group (as defined in
Sections 13(d)(3) or 14(d)(2) of the Exchange Act and the rules and regulations
thereunder); provided, however, that Person shall not include the Executive, the
Company, any of its majority-owned subsidiaries, any executive benefit plan of
the Company or any of its majority-owned subsidiaries or any entity organized,
appointed or established by the Executive, the Company or any of its
majority-owned subsidiaries for or pursuant to the terms of any such plan, or
any of their affiliates;
<PAGE>
"Voting Securities" shall mean all securities of a corporation
having the right under ordinary circumstances to vote in an election of the
board of directors of such corporation;
"Combined Voting Power" shall mean the aggregate votes entitled to
be case generally in the election of directors of a corporation by holders of
then outstanding Voting Securities of such corporation; and
"Third Person" shall mean a third party who has indicated an
intention, or taken steps reasonably calculated, to effect a Change in Control.
4. Rights and Benefits upon Termination or Change in Control.
(a) Severance Payment. Subject to Section 6 and 11(a) hereof, in
the event of a Termination the Company shall pay the Executive, in twelve equal
monthly installments beginning no later than 30 days following the Executive's
Termination, (i) the greater of the Executive's annual salary as in effect
immediately prior to (x) the Termination or (y) a Change in Control plus (ii) if
a Change of Control could have been deemed to occur as a result of meeting the
conditions set forth in paragraph 3(a) hereof (whether or not such conditions
were the sole reason for a Change of Control), the most recent annual bonus paid
the Executive. In the event of the Executive's death, such payments shall be
made to Executive's estate or other legal representative.
(b) Stock Options. Immediately prior to a Change in Control, all
outstanding options to buy Company stock held by the Executive, other than
options granted pursuant to the Company's Employee Stock Purchase Plan, shall
become fully vested and immediately exercisable.
(c) Restricted Stock. Immediately prior to a Change in Control,
any (i) repurchase agreement or (ii) right of first refusal agreement between
the Executive and the Company with respect to the Company stock shall terminate
and the Executive's ownership of all shares of Company stock shall fully vest.
5. Certain Additional Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment, distribution or other action by the Company to or for the
benefit of the Executive, whether pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the
Executive, if such Executive has been employed by the Company for five years or
more, shall be entitled to receive from the Company at the time such Excise Tax
is due an additional payment (a "Gross-Up Payment") in any amount reasonably
calculated by the Company's independent auditors such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
6. Conditions to the Obligations of the Company. The rights and
benefits provided in Section 4 hereof shall not accrue to the Executive if any
of the following events shall occur:
<PAGE>
(a) The Company shall terminate the Executive's employment for
"cause." For purposes of this Agreement, termination of employment for "cause"
shall mean (i) the Executive's conviction for, or plea of nolo contendere to, a
felony, (ii) the Executive's engaging in fraud, misappropriation, embezzlement
or other act or acts of dishonesty resulting in, or intended to result in,
substantial personal enrichment of the Executive at the expense of the Company
or (iii) the Executive's intentional and continual failure substantially to
perform his duties with the Company (other than a failure resulting from the
Executive's incapacity due to physical or mental illness) which failure has
continued for a period of at least 30 days after a written notice of demand for
substantial performance has been delivered to the Executive specifying in
reasonable detail the manner in which the Executive has failed to substantially
perform. Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for cause unless and until there shall have been delivered
to the Executive a copy of a resolution (x) duly adopted by three-quarters of
the entire membership of the Board, at a meeting called and held for such
purpose after reasonable notice to Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the Board,
and (y) finding that in the good faith opinion of the Board, Executive was
guilty of conduct described in the preceding sentence and specifying the
particulars of such conduct in detail.
(b) Following a Termination, the Executive shall not, upon
receiving a written request to do so, resign as a director and/or officer of the
Company and of each subsidiary and affiliate of the Company of which he is then
serving as a director and/or officer.
(c) The Company shall terminate the Executive's employment for
"disability." For purposes of this Agreement, "disability" shall mean a physical
or psychological condition of the Executive which renders him unable to perform
his duties for the Company for a period for six months or longer, as confirmed
in writing by the Executive's independent physician.
7. Arbitration and Expenses.
(a) Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration, conducted before a panel of
three arbitrators in Stamford, Connecticut, in accordance with the rules of the
American Arbitration Association then in effect. The arbitrators shall be
approved by both the Company and the Executive and their decision shall be
binding on the parties and conclusive for all purposes. Judgment may be entered
on the arbitrators' award in any court having jurisdiction. The expense of such
arbitration shall be borne by the Company.
(b) The Company shall pay or reimburse the Executive for all costs
and expenses (including, without limitation, reasonable attorneys' fees)
incurred by the Executive as a result of any claim, action or proceeding
(including, without limitation, a claim, action or proceeding by the Executive
against the Company) arising out of, or challenging the validity, advisability
or enforceability of, this Agreement or any provision hereof.
8. Successors. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly, absolutely and
<PAGE>
unconditionally to assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if no
such succession had taken place. As used herein, "the Company" shall include any
successor to all or substantially all of the Company's business or assets which
executes and delivers an agreement provided for in this Section 8 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
9. Notice of Termination. Any termination of the Executive's employment
by the Company shall be communicated to the Executive at the address set forth
above (or such other address as the Executive shall have notified the Company in
writing for purposes of this Agreement) in a written notice and, except for
termination for "cause," shall specify a termination date no sooner than 15 days
after the giving of such notice.
10. Term of Agreement. This Agreement shall terminate on the fifth
anniversary of the date hereof; provided, however, that this Agreement shall
automatically renew for successive one-year terms unless the Company's Board of
Directors notifies the Executive in writing at least 30 days prior to an
expiration date that it does not wish to renew the Agreement for an additional
term; and provided further that if a Change in Control occurs during the term of
an additional term of this Agreement, the Agreement shall continue in effect for
two years following such Change in Control.
11. Miscellaneous.
(a) Duty to Mitigate: Other Severance Payments. If a Termination
is deemed to occur, the Executive shall during the one-year period subsequent to
his Termination notify the Company of any employment when obtained, and the
severance payment provided under Section 4(a) hereof shall be offset by any
compensation, which he receives from such employment during the one-year period
subsequent to this Termination. Furthermore, the severance payment provided
under Section 4(a) hereof shall also be offset by any other severance payment
which the Executive receives under any employment agreement with the Company,
including damages for breach of any such agreement.
(b) Assignment. No right, benefit or interest hereunder shall be
subject to assignment, anticipation, alienation, sale, encumbrance, charge,
pledge, hypothecation or set-off in respect of any claim, debt or obligation, or
to execution, attachment, levy or similar process; provided, however, that the
Executive may assign any right, benefit or interest hereunder if such assignment
is permitted under the terms of any plan or policy of insurance or annuity
contract governing such right, benefit or interest.
(c) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of the Company. This
Agreement is not, and nothing herein shall be deemed to create, a commitment of
continued employment of the Executive by the Company.
(d) Amendment. This agreement may not be amended, modified or
canceled except by written agreement of the parties.
(e) Waiver. No provision of this Agreement may be waived except by
a writing signed by the party to be bound thereby.
(f) Severability. In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, the remaining provisions of this Agreement shall remain in full force
and effect to the fullest extent permitted by law.
<PAGE>
(g) Taxes. Any payment or delivery required under this Agreement
shall be subject to all requirements of the law with regard to withholding of
taxes, filing, making of reports and the like, and the Company shall use its
best efforts to satisfy promptly all such requirements.
(h) Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York.
(i) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby.
DIANON SYSTEMS, INC.
By: /s/ Richard A. Sandberg
------------------------
/s/ James B. Amberson
------------------------------
James. B. Amberson, M.D.
SEPARATION AGREEMENT
WHEREAS, CARL IBERGER and DIANON SYSTEMS, INC. ("Company") wish to end
the employment relationship between them and wish to resolve any and all claims,
disputes or causes of action that do or may exist between them;
NOW THEREFORE, in consideration of the mutual covenants and other
valuable considerations contained herein, the Company and CARL IBERGER agree as
follows:
1. CARL IBERGER resigns his full-time employment and his officer
positions with the Company effective as of September 27, 1996.
2. The Company shall pay CARL IBERGER separation pay, subject to
applicable deductions, in the amount of twenty-six thousand, six hundred
eighty-three dollars ($26,683) representing the difference between pay at his
last rate of base salary for the period of nine months after termination (the
"Separation Period") and the gross amount of a performance bonus awarded him
during the course of his employment. This separation pay shall be paid in equal
installments on regular payroll dates of the Company throughout the Separation
Period.
3. The Company shall pay CARL IBERGER the bonus he would have received
under the Company's 1996 Management Incentive Program had his employment
continued through the date on which payments under said program are made. This
payment will be made at the same time payments to other Management Incentive
Program participants are made.
4. CARL IBERGER agrees to comply with the provisions of the Employee
Proprietary Information Agreement appended to this Agreement as Exhibit A,
subject to Paragraph 9 of this Agreement.
<PAGE>
5. CARL IBERGER agrees to cooperate with the Company and its
representatives regarding any claims or potential claims or litigation by or
against the Company involving matters about which CARL IBERGER possesses
knowledge. It is the intent of the parties to require CARL IBERGER's physical
presence at a site remote from his home or business only when necessary to the
effective delivery of such cooperation.
6. CARL IBERGER, agrees to make himself reasonably available to consult
with the Company on financial and administrative matters during the Separation
Period.
7. CARL IBERGER, on behalf of himself, his executors, administrators
and assigns, hereby releases the Company, its affiliates, and their respective
directors, officers, agents, employees, benefit plans, fiduciaries and
administrators of such benefit plans and their successors and assigns
(hereinafter "Released Company Parties") from any and all claims or causes of
action of any kind arising on or before the date he signs this Agreement, other
than vested rights under benefit plans, which CARL IBERGER has, had or may have
against any of them, whether or not now known arising from CARL IBERGER's
recruitment for employment with the Company, his employment or officer positions
with the Company, or the termination of his employment and officer positions
with the Company, including without limitation any claims under the Age
Discrimination in Employment.
8. CARL IBERGER on behalf of himself, his heirs, executors,
administrators and assigns, further agrees never directly or indirectly to
commence or prosecute, or to permit or advise to be commenced or prosecuted, any
action, proceeding, or charge against any Released Company Party, in any state
or federal court, administrative agency or arbitral forum with respect to any
matter whether or not known, for any claim based upon any act, transaction,
<PAGE>
practice, conduct, or omission that occurred prior to the date he signs this
Agreement, including but not limited to, rights under the Age Discrimination in
Employment Act or any other federal, state, or local laws prohibiting age, race,
sex, national origin, religion, or other forms of discrimination, claims for
breach of contract or promissory estoppel or tort, and claims growing out of any
legal restrictions on the Company's right to terminate its employees or officers
which he now has, or claims to have, or which at any time heretofore had, or
which at any time hereafter may have.
9. Notwithstanding the provisions of the Employment Proprietary
Information Agreement attached hereto as Exhibit A, the Company releases CARL
IBERGER from the obligation not to engage in any similar or competitive business
entity or research as of the expiration of the Separation Period. The parties
further agree that should CARL IBERGER engage in such activity or research with
any entity principally engaged in urology testing and/or pathology testing
during the Separation Period, the Company's obligation to make payments pursuant
to Paragraphs 2 and 3 of this Agreement shall terminate without affecting the
remaining provisions of this Agreement.
10. The Company hereby releases CARL IBERGER from any and all claims or
causes of action of any kind arising on or before the date it executes this
Agreement, which the Company has had or may have against him, whether or not now
known, except any claims involving improper actions by CARL IBERGER with the
intent or effect of personal gain to CARL IBERGER.
11. The parties recognize and agree that this Agreement does not and
shall not constitute an admission of liability or wrongdoing by any Released
Company Party.
<PAGE>
12. The parties agree that, except as necessary to comply and to obtain
compliance with this Agreement, or to comply with any federal, state, or local
law, they will not disclose the terms of this Agreement.
13. In the event CARL IBERGER files a claim, lawsuit or complaint
against any Released Company Party in any court or governmental agency with
respect to the claims he has released under this Agreement, CARL IBERGER shall
be liable for all costs and expenses including legal fees, incurred by any
Released Company Party in defense of that action. In the event the Company files
a claim, lawsuit or complaint against CARL IBERGER in any court or governmental
agency with respect to the claims it has released under this Agreement, the
Company shall be liable for all costs and expenses, including legal fees,
incurred by CARL IBERGER in defense of that action.
14. CARL IBERGER represents that he has carefully read and completely
understands this Agreement and that he has entered into this Agreement
voluntarily after having had an opportunity to consult with his legal advisors,
which he has been encouraged to do in writing by the Company (Exhibit B).
15. CARL IBERGER acknowledges that the commitments, waivers and
releases he gives in this agreement are in exchange for valuable consideration
to which he is not otherwise entitled, and which constitutes a full accord and
satisfaction of any claims he may have against any Released Party.
16. CARL IBERGER acknowledges that he has been given twenty-one (21)
days to review the waivers and releases contained in this Agreement prior to
signing it.
<PAGE>
17. CARL IBERGER shall have seven (7) days after the execution of this
Agreement to revoke the waivers and releases contained in this Agreement and
this Agreement shall not be effective unless and until those seven (7) days have
elapsed without CARL IBERGER so revoking.
18. This Agreement constitutes the entire Agreement of the parties on
the subject matter hereof and supersedes any and all prior agreements,
understandings or commitments, oral or written.
19. This Agreement shall be governed by applicable Federal law and the
laws of the State of Connecticut.
CARL IBERGER
Dated: 9/19/96 Signature: /s/ Carl Iberger
------- --------------------
DIANON SYSTEMS, INC.
Dated: 9/19/96 Signature: /s/ Kevin C. Johnson
------- --------------------
EMPLOYMENT AGREEMENT
This AGREEMENT made effective September 30, 1996 between DIANON
SYSTEMS, INC., a Connecticut corporation, and any successor thereto, hereinafter
referred to as the "Company", and DAVID SCHREIBER, residing at 1780 Nicholson
Drive, Hoffman Estates, Illinois 60192.
WITNESSETH:
WHEREAS, the Company wishes to employ David Schreiber and David
Schreiber wishes to accept such employment, in each case on the terms and
subject to the conditions set forth below; and
WHEREAS, the services that David Schreiber should render hereunder to
the Company are unique and valuable; and
WHEREAS, the parties desire to reduce the terms and conditions of David
Schreiber's employment to writing;
NOW, THEREFORE, in consideration of the terms and conditions and the
mutual covenants contained in this Agreement, the Company and David Schreiber
hereby agree as follows:
1. Employment
----------
The Company hereby employs David Schreiber as of the first full day
of service he provides to the Company hereunder which shall be no later than
November 1, 1996 and David Schreiber hereby accepts such employment upon the
terms and conditions hereinafter set forth. The parties acknowledge that David
Schreiber's employment with the Company is at will and terminable by either
party at any time for any reason.
2. Duties and Responsibilities
---------------------------
David Schreiber, as Chief Financial Officer and Senior Vice
President, Finance, shall perform with continuous diligence those activities
assigned to David Schreiber by the Company's President or, in the absence of a
President, its Board of Directors. Commencing with the first full day of service
he provides to the Company hereunder, David Schreiber will be elected as Chief
Financial Officer and Senior Vice President, Finance, of the Company.
<PAGE>
3. Term
----
This Agreement shall begin on the effective date hereof and
continue until terminated under the terms contained herein.
4. Salary and Incentive Compensation
---------------------------------
The Company shall compensate David Schreiber for his services
during the term of this Agreement commencing with the first full day of service
he provides to the Company hereunder on a salaried basis paid in installments at
a rate determined by the Company from time to time, provided that the initial
base salary shall be at an annualized rate of $190,000. Commencing with the
first full day of service he provides to the Company hereunder, David Schreiber
shall also participate, according to its terms, in any management incentive
compensation program maintained by the Company for salaried Grade 18 management
employees of the Company during the term of this Agreement. A copy of the
Management Incentive Plan currently in effect is attached as Exhibit A.
5. Fringe Benefits
---------------
During the term of this Agreement, commencing with the first full
day of service he provides to the Company hereunder, the Company shall provide
David Schreiber benefits and emoluments as authorized for all other salaried
Grade 18 management employees of the Company as they may be modified from time
to time by the Company during the term of this Agreement, including at the time
of execution of this Agreement, health and medical insurance, life insurance,
sick leave, vacation, holidays, retirement plan participation and stock purchase
plan participation. In addition, the Company shall provide David Schreiber with
a Company-leased automobile for his use and shall reimburse him in accordance
with Company practice for business related fuel usage, routine maintenance
expenses, and auto insurance expense.
6. Stock Options
-------------
Upon execution of this Agreement, the Company shall award David
Schreiber Incentive Stock Options to purchase 50,000 shares of common stock of
the Company at the fair market value on said date, on term, conditions, vesting
schedules and expiration dates which are substantially equivalent to the stock
option award document attached to this Agreement as Exhibit B.
7. Signing Bonus
-------------
Upon execution of this Agreement, David Schreiber shall earn,
payable upon his first day of employment, a signing bonus of $80,000 (subject to
appropriate withholding taxes) payable by the Company.
<PAGE>
8. Stock Grants
------------
Provided David Schreiber's employment with the Company continues
through the date below without notice of intent to terminate having been given
by either party, the Company shall issue to David Schreiber 7,500 shares of
common stock of the Company on April 1, 1997. David Schreiber agrees not to sell
any such stock for a period of six months from the date of such grant.
9. Relocation
----------
The Company shall pay for and reimburse expenses associated with
David Schreiber's relocation connected with his hire in accordance with the
Company's policy on Relocation and Moving Expenses, a copy of which is attached
to this Agreement as Exhibit C; provided further that, the Company shall
compensate David Schreiber if his current res-idence is sold prior to January 1,
1997, pursuant to said policy's guaranteed home sale plan or otherwise in an
arms length transaction, at a price insufficient to compensate him for his
equity in the residence at the time of sale, including the value of permanent
improvements made by him (the amount of which equity including improvements
shall be determined by the Company on the basis of appropriate documentation
satisfactory to the Company to be supplied by David Schreiber, but which in no
event shall exceed $115,000). Any such equity compensation shall be subject to a
gross up payment for tax purposes as described in Section III(I) of the
Company's policy on Relocation and Moving Expenses.
10. Termination
-----------
a) This Agreement shall terminate on any of the following
occurrences:
(i) David Schreiber's death
(ii) David Schreiber's disability for a period of 90 days or
more unless waived by the Board of Directors;
(iii) mutual agreement of the parties reduced to writing
signed by both parties;
(iv) voluntary resignation by David Schreiber
(v) termination by the Company without Stated Cause;
(vi) termination by the Company with Stated Cause.
b) Cause shall mean David Schrieber's
(i) gross negligence
(ii) insubordination;
<PAGE>
(iii) willful misconduct;
c) "Stated Cause" shall mean Cause communicated to David Schreiber
by the Company in a Notice of Termination.
d) "Notice of Termination" shall mean written notice given to by
either party to the other of an intention to terminate this Agreement pursuant
to subparagraphs (a) (iv), (v) or (vi) of this Paragraph of this Agreement.
e) Notice of Termination shall be sent by certified mail or
registered mail, return receipt requested, first class postage prepaid, to the
residence in the case of David Schreiber, and to its principal office in the
Town of Stratford, Connecticut, to the attention of the President.
f) The "Termination Date" shall be the date David Schreiber ceases
providing services to the Company as an employee.
11. Compensation after Termination
------------------------------
a) David Schreiber will not receive any compensation from the
Company after the Termination Date other than accrued, unused vacation, except
as described under Paragraph (b) of this Section of this Agreement, if
applicable. David Schreiber's participa-tion in all fringe benefits offered by
the Company to its employees will cease immediately on the Termination Date
except as described in Paragraph (b) of this section of this Agree-ment, if
applicable. Nothing in this Agreement, however, is intended to impair any rights
vested under the law in any benefit plan in the Company.
b) If this Agreement and David Schreiber's employment with the
Company is terminated by the Company without Stated Cause, then during the
applicable "Post Termination Period" described in subparagraph (v) of this
paragraph:
(i) The Company will pay David Schreiber at his rate of base
pay determined as of the day preceding the Termination
Date.
(ii) David Schreiber shall act as a consultant to the Company
as requested by the Company for up to six days per month.
(iii) The Company will contribute towards the premium cost of
medical continuation coverage for David Schreiber and/or
his dependents on the same basis as it then contributes
towards the medical coverage of active employees and/or
their dependents, for any months in said period during
which David Schreiber and/or his dependents are eligible
and elect to continue such coverage.
<PAGE>
(iv) The Company will pay up to $10,000 for outplacement
services for David Schreiber provided by an outplacement
provider of David Schreiber's choice.
(v) If termination occurs within the first year of
employment, or at a later time but within six months
after the Company's being acquired by another business
entity, the "Post Termination Period" shall be a period
of one year beginning with the Termination Date. If
termination occurs after one year of employment has been
completed and absent an acquisition of the Company, the
"Post Termination Period" shall be a period of six months
beginning with the Termination Date.
12. Company Property
----------------
On the Termination Date, or at any earlier point in time after a
Notice of Termination is received when a request is made by the Company for
same, David Schreiber will turn over to the Company all notes, reports,
memoranda, books, records, chemicals, devices and documents, whether in written,
typewritten, computerized or any other form, which are in David Schreiber's
possession or under his control, whether prepared by him or others, related to
the Company or relating to the business of the Company. At the conclusion of the
period described in paragraph (b) of Section 11 of this Agreement, or at any
earlier point in time when a request is made by the Company for same, David
Schreiber shall also return to the Company any Company car, keys, parking card,
credit card, business cards or other materials related to this employment with
the Company or the operation of the Company.
13. Proprietary Information
-----------------------
David Schreiber hereby agrees to all the terms and conditions of
the Agreement regarding confidential Company information attached hereto as
Exhibit D and incorporated herein and has executed a copy thereof concurrently
with this Agreement.
14 Non-Competition
---------------
David Schreiber agrees that, to the fullest extent permitted by
law, for the period of one (1) year after his Termination Date, David Schreiber
(a) will not solicit business on behalf of any entity in the clinical chemistry
business, which is performing or marketing anatomic pathology services other
than PAP tests ("Competing Entity"), (b) will not solicit business from
customers of the Company, (c) will not solicit the employ-ment or services of
any of the employees of the Company, and (d) will not, directly or indirectly,
participate in the ownership, management, operation or control of any Competing
Entity in the continental United States other than California, Washington and
Oregon, provided that nothing in this Paragraph shall prevent investment
ownership of less than 5% of the shares of a publicly traded Competing Entity.
<PAGE>
15. Remedy for Breach
-----------------
David Schreiber acknowledges:
a) that he may be an officer of the Company and as such he
would be conversant with, and have access to, the
business affairs, records, trade secrets, customers and
customer lists, suppliers, supplier lists, patents,
technical know-how, chemicals, devices, sales or
distribution agents and representatives, sales or
distri-bution agents and representatives' lists, and
other confidential and proprietary information of the
Company; and
b) that his compliance with the covenants and agreements in
this Agreement is necessary to protect the goodwill and
other proprietary interests of the Company; and
c) that a breach of his covenants and agreements in this
Agreement will result in continuing and irreparable
damage to the Company for which there will be no adequate
remedy at law.
Both the parties recognize that the services to be rendered under
this Agreement by David Schreiber are special and unique and of an extraordinary
character, and that in the event there is a breach by David Schreiber of the
terms and conditions of this Agreement to be performed by him, then the Company
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, or to enforce the specific performance
thereof by David Schreiber, or to enjoin David Schreiber from performing
services for any Competing Entity. The parties further recognize and agree that
breach by David Schreiber of his obligations under Sections, 12, 13 or 14 of
this Agreement shall relieve the Company of its obligations under paragraph (b)
of Section 11 of this Agreement but that such relief shall not be an adequate
remedy at law.
16. David Schreiber's Representation
--------------------------------
David Schreiber warrants and represents that neither the execution
and delivery nor the performance of this Agreement by him will in any way
violate, or conflict with, any other agreement by which he may be bound or any
duty or obligation to which he may be subject and that he will take all steps
necessary to comply with the representation.
17. Assignments
-----------
The rights and obligations of David Schreiber under this Agreement
shall be assignable to and binding upon the successors and assigns of the
Company including any corporation organized by the Company to carry on the
business of the Company.
<PAGE>
18. Entire Agreement
----------------
This instrument contains the entire Agreement of the parties. It
may not be changed orally, but only by agreement in writing signed by the party
against whom enforcement of any waiver, change, modification extension or
discharge is sought. This Agreement supersedes any verbal, written or other
agreement(s) or understanding(s) existing between David Schreiber and the
Company relating to his employment or the other matters covered herein.
19. Severability
------------
If any provision of this Agreement shall be held invalid, such
invalidity shall not affect any other provisions of this Agreement not held so
invalid, and only such provisions shall to the full extent consistent with the
law remain in full force and effect.
20. Applicable Law
--------------
This Agreement shall be governed by the laws of the State of
Connecticut.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement.
DIANON SYSTEMS, INC.
September 30, 1996 By: /s/ Kevin C. Johnson
- ----------------------- ----------------------
Date Kevin C. Johnson
10/1/96 By: /s/ David Schreiber
- ----------------------- ----------------------
Date David Schreiber
<PAGE>
Exhibit A
---------
"STRIVE FOR EXCELLENCE"
MANAGEMENT INCENTIVE PLAN
PRINCIPLES:
- ----------
A. Provides financial incentive for achieving above average results,
specific objectives and performance.
B. Relates rewards to specific goals within each individual's area of
responsibility as well as "shared" goals.
C. Disproportional rewards superior vs. average performance by including
a "Jackpot" provision.
D. Emphasizes profitability as the primary company goal by creating a
bonus "pool" based on achieving operating income.
E. Maximizes full company motivation by including all management levels.
FORMULA:
- -------
I II III
Maximum Bonus Group Individual
Salary X As % of Salary X Goal X Goal = Incentive
Achvmt. % Achvmt. % Compensation
Unless the Jackpot is achieved, a manager cannot earn more than the "maximum
bonus" per cent of his/her salary. The fact that the group goal can go above
100% allows for some offset in the event a manager does not achieve each of
his/her individual goals.
Employees are eligible for MIP and other incentive compensation or bonuses only
if they are actively employed through and including the day payment is
distributed.
Management may alter, modify or cancel this program as deemed necessary.
Maximum Bonus as % of Salary
<TABLE>
<CAPTION>
Grade Participation Timing Max. Bonus as % of Salary
- ----- -------------------- -------------------------
<S> <C> <C>
19 President From first work day 40
18 From first work day 35
17 Vice Presidents From first work day 30
16 Eligible after 90 days 25
15 Managers Eligible after 90 days 20
14 Eligible after 90 days 15
13 Eligible after 90 days 10
</TABLE>
<PAGE>
Exhibit B
---------
DIANON SYSTEMS, INC.
200 Watson Boulevard
Stratford, Connecticut 06497
SO Grant No.
STOCK OPTION GRANT
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Optionee: David R. Schreiber Date of Grant: October 1, 1996
Termination Date: September 30, 2006 Total No. of Shares: 50,000
Exercise Price Per Share $6.625
</TABLE>
We are pleased to inform you that the Compensation Committee of the Board of
Directors of DIANON Systems, Inc. (the "Company"), has today granted you an
option pursuant to the Company's 1991 Stock Incentive Plan (the "Plan") to
purchase an aggregate number of shares shown above of the Common Stock of the
Company on the following terms and conditions:
1. The purchase price per share of the shares of Common Stock subject
to this option is $6.625 per share.
2. This option shall expire at the close of business on September 30,
2006. Subject to acceleration in the event of a Change of Control (as defined in
the Plan), you must remain in the employ of the Company or a Related Company (as
defined in the Plan) for two years from the date hereof before you can exercise
any part of this option. Thereafter this option will become exercisable in
installments as follows:
Percentage of Shares Date of Earliest Exercise (Vesting)
-------------------- -----------------------------------
40% 10/1/98
20% 10/1/99
20% 10/1/00
20% 10/1/01
In the event of a Change of Control this option shall become fully
exercisable and vested.
3. This option is intended to qualify as an "Incentive Stock Option"
within the provisions of Section 422 of the Internal Revenue Code.
4. The option price shall be payable by you at the time this option is
exercised, (i) in cash or (ii) by delivering shares of Common Stock of the
Company which you have owned for at least six months prior to such exercise, or
a combination of cash and such shares, having an aggregate value equal to the
aggregate option price of the shares as to which this option is exercised
(basing the value of any such shares of Common Stock on the fair market value of
the Common Stock on the date of exercise). No shares of Common Stock shall be
issued pursuant to exercise of this option until full payment therefor has been
made.
5. This option may be exercised only by you and may not be
transferred except by will or the laws of descent and distribution. In the event
of your death, your legal representatives may exercise this option as to the
shares of Common Stock which were immediately purchasable by you at the date of
death, within ninety (90) days following the date of death (but in no event
later than September 30, 2006).
<PAGE>
6. If your employment with the Company terminates after reaching your
normal retirement date under the Company's retirement plan or for any reason
beyond your control other than your death, your option privileges shall be
limited to the shares of Common Stock which were immediately purchasable by you
at the date of such termination and such option privileges shall expire unless
exercised within ninety (90 days) days after the date of such termination and
prior to the close of business on September 30, 2006. If your employment is
terminated for reasons within your control, including without limitation, cause
and voluntary resignation, all rights under this option shall expire on the date
of such termination.
7. Your option is granted in tandem with a Limited Stock Appreciation
Right ("LSAR") which may be exercised only within the 60-day period following a
Change of Control (as defined in the Plan). This means that with respect to each
share under option, you may exercise either the option or the Limited Stock
Appreciation Right, but not both. Upon exercise of the Limited Stock
Appreciation Right, you shall receive, for each share with respect to which the
Limited Stock Appreciation Right is exercised, an amount equal in value to (I)
the fair market value of a share of Common Stock on the date of exercise over
(ii) the exercise price of the related option. The Limited Stock Appreciation
Right shall be payable solely in cash. Such amount shall be paid within 30 days
of the exercise of the Limited Stock Appreciation Right.
8. The Company has the right to delay the exercise of your option if
listing registration or qualification of the Common Stock is required under any
federal or state securities law or stock exchange or similar rule and has not
been obtained.
9. Nothing herein shall restrict the right of the Company or any
Related Company to terminate your employment at any time, with or without cause,
or to withhold required amounts upon the exercise of your option or LSAR. The
Company shall have the right to require you to pay, or make other arrangements
satisfactory to the Committee to satisfy, all tax withholding obligations in
connection with the exercise of your option or LSAR.
10. This option is subject to all of the other terms, provisions and
conditions of the Plan, a copy of which has been furnished to you and other
copies of which may be obtained by you from the Company.
Very truly yours,
DIANON Systems, Inc.
By:
------------------------------
Kevin C. Johnson
President
Date:
----------------------
- ---------------------------
(Signature)
- ---------------------------
(Address)
- ---------------------------
<PAGE>
Exhibit C
---------
RELOCATION AND MOVING EXPENSES
I. OBJECTIVE
---------
To define the conditions under, and the extent to which, the Company will
pay for and reimburse expenses associated with the relocation of newly
hired and transferred employees.
II. POLICY
------
A. The decision to relocate a newly hired or transferred employee
requires the approval of the department Director/Vice President and
the Company's President.
B. To facilitate the recruitment and reassignment of employees, the
Company may provide payment of certain relocation expenses consistent
with the following criteria only if Section II A has been fulfilled.
1. The costs associated with relocations under the policy require
careful consideration of the cost/benefit issues by management
before such a relocation is initiated.
2. Provisions of this policy do not apply if the employee or new
hire relocates less than 50 miles from his/her prior primary
residence. Furthermore, expenses associated with only the
employee's or new hire's primary residence will be considered as
eligible for coverage.
3. The coverages provided to transferred employees are more
comprehensive than those normally provided to new hires.
Extension of any transferee coverages to new hires requires
approval by the President or Chief Executive Officer.
4. Relocation benefits for employees transferred for specified time
periods with planned ending dates are not included under this
policy.
5. Exceptions to this policy must be approved by the President or
Chief Executive Officer.
6. This company will establish an expense limit on the individuals
total relocation costs.
This value will be approved in writing by the President.
III. PRACTICES
---------
Generally speaking, relocation expenses will be capped. The cap will be
directly related to the position being filled and established in
conjunction with II. A. (above) prior to extending a relocation offer.
The maximum allowance values are for company budgeting purposes of these
specific items, and do not reflect nor are they intended to suggest that
the employee is authorized to commit or incur these expenses without
satisfying Part Ia (above) for each part III section.
<PAGE>
The following items will be paid for or reimbursed as described herein.
Coverages are summarized in Exhibit "A" to this policy and are contingent
on Section II A.
A. "House-Hunting" Trips -
----------------------
The Company will reimburse the employee the expenses incurred for up to
two,three-day trips to search for and select a new residence. Included as
reimbursable expenses are travel, hotel, babysitter, and meal expenses
for the employee and spouse.
B. Physical Move -
-------------
The Company will pay the cost of moving furniture and household goods to
the new location, including insurance, packing, unpacking, and
installation of major household appliances. The carrier must be approved
by the Company.
Items paid for and not paid for under this policy are as follows:
<TABLE>
<CAPTION>
Covered Not Covered
------- -----------
<S> <C>
One Automobile (Second car Boats
may be moved by the employee Lumber
at the reimbursable rate in Trailers
effect for employee's use of Cleaning Services at either location
his/her own automobile (see Workshops outside the residence
Policy D.3.) Pets not normally
Furnishings and Clothing kept Household Pets e.g., horses
in the house
</TABLE>
C. Temporary Storage - (approval in advance)
-----------------
In cases where moves from old to new residence cannot be reasonably
coordinated to occur directly, arrangements can be made for temporary
storage of household goods for a period of no more than 60 days.
D. Movement/Relocation of Family
-----------------------------
1. Transportation - (if applicable) of the employee and his/her family
to the new residence should be by the most reasonable and direct means
available such as family automobile or economy-class scheduled
airliner. Meals in route are also expected to be reasonable in cost.
2. Temporary Living - If the new residence is not ready to receive the
family, the Company will reimburse temporary living expenses,
including medium priced hotel and meals, for a period of up to 14
days.
E. Temporary living - Employee Only at New Location -
------------------------------------------------
When the employee takes up an assignment at the new location prior to the
arrival of his/her family and/or before his/her new permanent residence
is ready for occupancy, the Company will reimburse the employee for
approved living accommodations for a period of up to 90 days, including
lodging, breakfast and evening meals.
During such time period, the Company will pay for periodic trips home by
the employee, the frequency depending on the travel costs involved.
<PAGE>
F. Duplicate Housing Expense -
-------------------------
If the employee occupies his/her new residence prior to the sale of
his/her prior residence, the Company will reimburse the monthly carrying
charge on such prior residence to the following extent:
1. Monthly reimbursable duplicate expenses including interest charges,
insurance, property taxes and reasonable maintenance costs for
utilities, grass cutting, etc.
2. The maximum period for such reimbursement is limited to 90 days.
G. Closing Costs -
-------------
1. Prior Residence (Grade 15 & Above)
---------------
The Company will pay for closing costs on the disposition of the prior
residence consistent with practices in the geographic area regarding
the type and amount of such expenses normally assigned to the seller.
Such closing costs can include, but are not limited to:
a. Lawyer's Fees (up to a maximum of 1% of the old mortgage)
b. Realtor's Fees
c. Termite Inspection
d. Points----(up to a maximum of 2)----Assigned to Seller
e. Mortgage Prepayment Penalty, Specified in the Mortgage
f. Title search
g. Recording Fees
Guaranteed home sales plan. Employees may elect to sell their homes using a
"guaranteed sale plan". Through this plan, a relocation management firm retained
by the company will provide employees important assistance in connection with
their home sales. All fees charged by the relocation firm for its services will
be assumed by the company subject to the relocation cap.
The relocation management firm will make a purchase offer valid for 60 days.
This offer is based on the appraised fair market value (FMV) of the employees
home. The FMV of the property will be based on the average of the appraisals
performed by the relocation firm. If required, the employee can request another
appraisal firm, agreeable to both the company and the employee. The company will
assume the cost of the appraisals.
During the 60 day period, if the employee is able to sell his or her house at a
higher price than appraised, he or she may assign the sale to the relocation
management firm and receive equity based on the higher price. If the employee
sells the home to the relocation firm, he or she will receive equity based on
the offer price (determined by the appraisals previously discussed).
If the employee assigns an offer to the relocation management firm, as soon as
any contingencies contained in the assigned sale contract are removed, the
employee will receive full equity based on the amended or higher sale price. The
firm will then assume all the responsibilities of the employee-homeowner,
including sale closing. If the sale subsequently falls through, the employee
retains full equity - and the property remains in the relocation firm's
inventory for resale.
If the property is purchased with an assumable mortgage, the relocation firm
will indemnify and hold harmless the employee from any claim or loss due to a
valid deficiency judgment against the employee that may arise out of the
continuing liability under such mortgage. The indemnification remains in effect
for the life of the loan, notwithstanding subsequent resales by property owners.
<PAGE>
By selling or assigning a sale to the relocation firm, the employee receives
equity when he or she needs it (to apply to a new home purchase in the new
location) and avoids paying additional income taxes on reimbursed expenses.
2. New Residence -
-------------
The Company will also directly reimburse the employee for closing
costs normally borne by the purchaser when purchasing his/her new
primary residence. Such closing costs can include, but are not limited
to:
a. Title Search
b. Lawyer's Fees (up to a maximum of 1% of the new mortgage)
c. Points (up to a maximum of 2)
d. Inspections
e. Appraisals
f. Application Fee
g. Recording fee
h. State and local transfer taxes
H. Termination of Lease at Prior Residence -
---------------------------------------
If the employee resided in a leased or rented property prior to the
transfer and must terminate or "break" the lease, the Company expects the
employee to negotiate a reasonable arrangement with the landlord
acceptable to the Company, at which point the Company will agree to pay
the cost of any lease termination/breaking.
I. Gross-up Payment for Tax Purposes -
---------------------------------
Under Federal and State tax laws in existence at the time, certain
reimbursements and payments made to the employee or on his behalf under
this policy may be considered taxable income.
Deductible and non-deductible moving expense reimbursements will be
included in an employee's taxable income under the category of "other
earnings". Deductible expenses must be deducted from an employee's income
when filing a federal tax return. Non-deductible expenses will be taxed
as normal income. Since expenses vary from employee to employee, these
payments will be handled on an individual basis.
J. General Rule - Relocation costs are generally capped by the Company.
Cumulative expenses shall not exceed this cap, regardless of the
individuals requirements and costs that may be associated with any
specific expense item.
<PAGE>
Exhibit A
-- Maximum Allowance --
<TABLE>
<CAPTION>
SUMMARY of COVERAGES TRANSFEREES NEW HIRES
-------------------- ----------- ---------
<S> <C> <C>
House-Hunting Trips $500 Expenses $500 Expenses
- Up to Two Trips $1,500 Air Fare $1,500 Air Fare
(three days each)
Move Household Goods $1,500 in State $0 In State
- (See Limits in Policy) $6,000 out of State $6,000 Out of State
Temporary Storage $500 (a)
Up to 60 Days $2,500 (b) $2,500 (b)
(Need approval in advance)
Transportation of Employee & $250 Expenses $250 Expenses
Family (See Limits in Policy) $1,500 Air Fare $1,500 Air Fare
Temporary Living $1,500 $1,500 (b)
- Up to 14 Days
Temporary Living
(Employee Only) $6,800 $6,800
- Up to 90 Days
Duplicate Housing $3,500 (a)
- Up to 90 Days $7,500 (b) $7,500 (b)
Closing Costs-Prior Residence $15,000 (a)
- (See Limits in Policy) $20,000 (b) $20,000 (b)
Closing Costs-New Residence $10,000 (a) $10,000 (a)
- (See Limits in Policy) $15,000 (b) $15,000 (b)
Terminating Lease $2,000 $2,000 (b)
- (See Limits in Policy)
Gross-Up Payments-Estimated $15,000 (a) $15,000 (a)
- (See Limits in Policy) $25,000 (b) $25,000 (b)
(a) Up to Grade 15 (b) Grade 15 & above
Probable Costs:
Up to Grade 15: $58,000 $45,000
Grade 15 and Above: $80,000 $80,000
</TABLE>
III. PRACTICES
---------
Generally speaking, relocation expenses will be capped. The cap will be
directly related to the position being filled and established in
conjunction with II. A. (above) prior to extending a relocation offer.
The maximum allowance values are for company budgeting purposes of these
specific items, and do not reflect nor are they intended to suggest that
the employee is authorized to commit or incur these expenses without
satisfying Part Ia (above) for each part III section.
<PAGE>
The following items will be paid for or reimbursed as described herein.
Coverages are summarized in Exhibit "A" to this policy and are contingent
on Section II A.
<TABLE>
<CAPTION>
SUMMARY of COVERAGES TRANSFEREES NEW HIRES
<S> <C> <C>
House-Hunting Trips
- Up to Two Trips X X
(three days each)
Move Household Goods
- (See Limits in Policy) X X
Temporary Storage
- Up to 60 Days X Grade 15 & Above
Transportation of Employee & Family
- (See Limits in Policy) X X
Temporary Living
- Up to 14 Days X X
Temporary Living (Employee Only)
- Up to 90 Days X X
Duplicate Housing
- Up to 90 Days X Grade 15 & Above
Closing Costs - Prior Residence
- (See Limits in Policy) X Grade 15 & Above
Closing Costs - New Residence
- (See Limits in Policy) X X
Terminating Lease
- (See Limits in Policy) X Grade 15 & Above
Gross-Up Payments
- (See Limits in Policy) X X
</TABLE>
<PAGE>
Exhibit D
---------
AGREEMENT
---------
THIS AGREEMENT, made this October 1, 1996 by and between DIANON
SYSTEMS, INC., its affiliates, subsidiaries, successors and assigns
(collectively called hereinafter "DIANON") and David Schreiber, an individual
residing at 1780 Nicholson Drive, Hoffman Estates, Illinois 60192 (hereinafter
called "Employee").
In consideration of the commencement of Employee's employment with
DIANON, the payment of compensation and benefits for such employment, and access
to sensitive information, Employee and DIANON acknowledge, represent and agree
to the terms and conditions set forth in this Agreement.
1. Employee's employment with DIANON creates a relationship of trust
and confidence between the parties. Employee agrees that, during and after
his/her employment with DIANON, Employee will not use or disclose, or allow
anyone else to use or disclose, any confidential information relating to the
products, sales and/or business affairs of DIANON or of any customer or supplier
of DIANON, or any information created, discovered, or developed by or for
DIANON, or acquired by DIANON, that has commercial value in DIANON's present or
future business ("Confidential Information"), except as may be necessary in the
performance of Employee's employment with DIANON or as may be authorized in
advance by appropriate officials of DIANON. By way of illustration, but not
limitation, Confidential Information includes processes, formulas, data,
know-how, inventions, improvements, techniques, marketing plans, product plan,
strategies, forecasts, customer lists and any other information Employee has
reason to know DIANON would like to treat as confidential for any purpose.
Employee agrees to keep Confidential Information secret whether or not any
document containing such information is marked confidential.
2. All rights, title and interest in all records, documents, or files
concerning the business of DIANON, including, but not limited to biomaterials,
processes, letters, trade secrets, laboratory notebooks or other written or
electronically recorded material, whether or not produced by the Employee, shall
be and remain the property of DIANON. Upon termination of employment, the
Employee shall not have the right to remove any such records from the offices of
DIANON. In addition, Employee agrees to promptly return to DIANON all things of
whatsoever nature that belong to DIANON, and all records (in whatsoever form,
format or medium) contained or related to Confidential Information of DIANON.
3. Employee agrees to assign, and does hereby assign to DIANON, all of
his/her right, title and interest in and to all inventions, improvements,
discoveries or technical developments, whether or not patentable, which he/she
solely or jointly with others, may conceive or reduce to practice during the
term of his/her employment (a) which are related in whole or in part, directly
or indirectly, to DIANON's product line, research and development, or field of
technological or industrial specialization, or (b) in the course of utilization
by DIANON of Employee's services in a technical or professional capacity in the
areas of research, development, marketing, management, engineering or
manufacturing, or (c) pursuant to any project of which Employee is or was a
<PAGE>
participant or member that is or was either financed or directed by DIANON, or
(d) at DIANON's expense, in whole or in part.
4. Employee agrees to disclose promptly to DIANON's President or his
designee, all ideas, discoveries, and improvements conceived by Employee alone
or in collaboration with others, and to cooperate fully with DIANON, both during
and after employment, with respect to the procurement of patents for the
establishment and maintenance of DIANON's or its designee's rights and interests
in said invention, improvement, discoveries or developments, and to sign all
papers which DIANON may deem necessary or desirable for the purpose of vesting
DIANON or its designees with such rights, the expenses thereof to be paid by
DIANON.
5. The Employee shall, while employed by DIANON, devote his/her best
efforts and his/her full time to the business of DIANON.
6. In the event of a breach or threatened breach of the provisions in
this Agreement, DIANON shall be entitled to an injunction restraining such
breach, it being recognized that any injury arising from a breach would be
irreparable and could have no adequate remedy at law; but nothing herein shall
be construed as prohibiting DIANON from pursuing any other remedy available for
such breach or threatened breach. In the event that Employee breaches or
threatens a breach of this Agreement, DIANON shall be entitled to have its
reasonable legal fees and costs paid by the Employee for any legal services
relating to the breach or threatened breach.
7. This Agreement is not intended, and should not be construed in any
way, as a contract of employment for a definite period of time or to limit or
restrain DIANON's or the Employee's right to terminate the employment
relationship at any time.
8. In the event any provision or paragraph of this Agreement is
declared to be invalid or unenfoceable, then the balance of this Agreement shall
remain in full force and effect.
9. This Agreement shall be construed and enforced in accordance with
the laws of the State of Connecticut.
10. The foregoing contains the entire Agreement between the parties
pertaining to confidential DIANON documents and information. No modification
thereof shall be binding upon the parties unless the same is in a writing signed
by the respective parties. This Agreement and all of the terms and conditions
contained herein shall remain in full force during the period of employment
notwithstanding any changes in compensation.
11. Employee represents and warrants that he/she has no other
agreements or commitments that would hinder or prevent performance of his/her
job responsibilities with DIANON. Unless authorized to do so, Employee agrees
not to disclose to DIANON or use in his/her employment with DIANON any invention
or confidential information belonging to any former employer or to any other
person other than DIANON.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date set forth below.
Employee: DIANON SYSTEMS, INC.
/s/ David Schreiber By: /s/ Kevin C. Johnson
- ------------------- ------------------------
David Schreiber Kevin C. Johnson
Dated: 10/1/96 Dated: September 30, 1996
------- ---------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,961
<SECURITIES> 0
<RECEIVABLES> 12,491
<ALLOWANCES> 787
<INVENTORY> 634
<CURRENT-ASSETS> 21,301
<PP&E> 15,737
<DEPRECIATION> 8,027
<TOTAL-ASSETS> 30,132
<CURRENT-LIABILITIES> 7,104
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 22,824
<TOTAL-LIABILITY-AND-EQUITY> 30,132
<SALES> 13,863
<TOTAL-REVENUES> 13,863
<CGS> 6,800
<TOTAL-COSTS> 6,800
<OTHER-EXPENSES> 5,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 1,152
<INCOME-TAX> 495
<INCOME-CONTINUING> 657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 657
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
