SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 30, 1997
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 000-19392
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 the registrant's Common Stock, $.01 par value,
outstanding on November 7, 1997 was 6,494,136 shares.
Exhibit Index on page 15 of 41 pages
<PAGE>
DIANON SYSTEMS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
- ---------------------------- --------
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996. 3
Consolidated Statements of Operations for
the three month and nine month periods ended
September 30, 1997 and 1996. 4
Consolidated Statements of Stockholders'
Equity for the nine months ended
September 30, 1997 and 1996. 5
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996. 6
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 6. EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
Exhibit Index 15
</TABLE>
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT. 30, DECEMBER 31,
1997 1996
-----------------------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 11,150,602 $ 7,488,590
Accounts receivable, net of allowances of $1,085,076 and
$1,056,920, respectively 14,506,148 15,426,221
Prepaid expenses and employee advances 1,069,257 1,189,139
Prepaid and refundable income taxes 150,233 329,371
Inventory 765,544 662,567
Deferred income tax asset 677,277 677,277
-----------------------------
Total current assets 28,319,061 25,773,165
-----------------------------
PROPERTY AND EQUIPMENT, at cost
Laboratory and office equipment 13,244,119 12,233,989
Leasehold improvements 3,832,539 3,612,198
Less - accumulated depreciation and amortization (10,364,768) (8,606,176)
-----------------------------
6,711,890 7,240,011
-----------------------------
INTANGIBLE ASSETS, net of accumulated amortization of
$3,153,499 and $2,991,286, respectively 442,100 604,131
DEFERRED INCOME TAX ASSET 458,465 458,465
OTHER ASSETS 327,443 459,696
=============================
TOTAL ASSETS $ 36,258,959 $ 34,535,650
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 808,720 $ 2,123,661
Accrued employee bonuses, commissions and payroll 2,022,468 1,504,430
Accrued employee stock purchase plan 963,309 549,540
Current portion of capitalized lease obligations 40,854 26,107
Current portion of note payable -- 650,154
Other accrued expenses 4,640,465 2,861,268
-----------------------------
Total current liabilities 8,475,816 7,715,160
-----------------------------
LONG-TERM PORTION OF CAPITALIZED LEASE OBLIGATIONS 115,876 69,611
DEFERRED INCOME TAX LIABILITY 201,951 201,951
-----------------------------
Total liabilities 8,793,643 7,986,722
-----------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share, 20,000,000 shares
authorized, 6,782,894 and 6,712,774 shares issued and
outstanding at September 30, 1997 and December 31, 1996,
respectively 67,829 67,128
Additional paid-in capital 28,270,841 27,965,560
Accumulated earnings/(deficit) 1,714,347 (554,317)
Common stock held in treasury, at cost - 310,814 and 117,196
shares at September 30, 1997 and December 31, 1996, respectively (2,587,701) (929,443)
-----------------------------
Total stockholders' equity 27,465,316 26,548,928
=============================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,258,959 $ 34,535,650
=============================
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET REVENUES $14,512,373 $13,863,408 $46,169,947 $39,956,557
COST OF GOODS 7,621,207 6,799,712 23,376,222 19,419,522
---------------------------------------------------------------------
Gross Profit 6,891,166 7,063,696 22,793,725 20,537,035
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,224,120 5,222,176 17,822,103 15,891,036
RESEARCH & DEVELOPMENT
EXPENSES 381,681 722,157 1,350,246 2,304,239
---------------------------------------------------------------------
Income from Operations 1,285,365 1,119,363 3,621,376 2,341,760
INTEREST INCOME 158,622 50,573 382,749 280,365
INTEREST EXPENSE 5,192 18,038 24,013 62,779
---------------------------------------------------------------------
Income Before Provision for Income Taxes 1,438,795 1,151,898 3,980,112 2,559,346
PROVISION FOR INCOME TAXES 618,682 495,316 1,711,448 1,100,519
---------------------------------------------------------------------
Net Income $ 820,113 $ 656,582 $ 2,268,664 $ 1,458,827
=====================================================================
Weighted Average Shares Outstanding 6,835,636 6,295,106 6,844,341 6,228,925
---------------------------------------------------------------------
Primary and Fully Diluted Earnings Per Share $0.12 $0.10 $0.33 $0.23
=====================================================================
The accompanying notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Common Stock Common Stock
Additional Acquired for Acquired for Shareholder
Common Stock Paid-In Earnings/ Treasury, Treasury, Note
Shares Amount Capital (Deficit) Shares at Cost Receivable Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 6,311,451 $63,115 $26,609,657 ($2,724,433) (50,000) ($ 200,000) ($296,000) $23,452,339
Stock options exercised 12,847 128 58,454 -- -- -- -- 58,582
Common stock acquired for
treasury -- -- -- -- (371,000) (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) (421,000) ($2,283,078) ($296,000) $22,886,670
====================================================================================================
BALANCE, December 31, 1996 6,712,774 $67,128 $27,965,560 ($ 554,317) (117,196) ($ 929,443) $ -- $26,548,928
Stock options exercised 44,503 445 212,011 -- -- -- -- 212,456
Employee stock purchase plan
options exercised -- -- (127,753) -- 33,382 277,772 -- 150,019
Stock grants 25,617 256 221,023 -- -- -- -- 221,279
Common stock acquired for
treasury -- -- -- -- (227,000) (1,936,030) -- (1,936,030)
Net Income -- -- -- 2,268,66 -- -- -- 2,268,664
====================================================================================================
BALANCE, September 30, 1997 6,782,894 $67,829 $28,270,841 $1,714,347 (310,814) ($2,587,701) $ -- $27,465,316
====================================================================================================
The accompanying notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
SEPTEMBER 30,
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
-------------------------------
<S> <C> <C>
Net income $ 2,268,664 $1,458,827
Adjustments to reconcile net income to net
cash provided by (used in) operations -
Non-cash charges
Depreciation and amortization 2,216,659 1,690,047
Stock compensation expense 221,279 --
Loss on the disposal of fixed assets 40,914 19,337
Investment write-down -- 61,846
Changes in other current assets and liabilities
Decrease (increase) in accounts receivable 920,073 (2,836,940)
Decrease (increase) in prepaid expenses and
employee advances 299,020 (322,668)
(Increase) in inventory (102,977) (79,296)
Decrease (increase) in other assets 112,361 (3,788)
Increase in accounts payable and accrued liabilities 1,433,843 884,617
-------------------------------
Net cash provided by operating activities 7,409,836 871,982
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,650,368) (3,315,215)
Proceeds from the sale of stock held for investment 9,064 73,661
Proceeds from the disposal of fixed assets -- 7,500
-------------------------------
Net cash (used in) investing activities (1,641,304) (3,234,054)
-------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable (650,154) (681,790)
Borrowings (repayments) of capitalized lease obligations, net 117,189 39,406
Purchase of common stock acquired for treasury (1,936,030) (2,083,078)
Stock options exercised 212,456 58,582
Employee stock purchase plan options exercised 150,019 --
-------------------------------
Net cash (used in) financing activities (2,106,520) (2,666,880)
-------------------------------
Net increase (decrease) in cash and cash equivalents 3,662,012 (5,028,952)
CASH AND CASH EQUIVALENTS, beginning of period 7,488,590 10,990,231
-------------------------------
CASH AND CASH EQUIVALENTS, end of period $11,150,602 $5,961,279
===============================
Supplemental cash flow disclosures:
Cash paid during the period:
Interest $24,795 $63,174
Income Taxes 1,475,089 1,299,005
The accompanying notes to consolidated financial
statements are an integral part of these statements.
</TABLE>
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY - The consolidated balance sheet as of September 30, 1997, the
related consolidated statements of operations for the three and nine month
periods ended September 30, 1997 and 1996, the related consolidated
statements of cash flow for the nine months ended September 30, 1997 and
1996, and the related consolidated statements of stockholders' equity for
the nine months ended September 30, 1997 and 1996 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 at September 30, 1997 and
1996 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 31, 1997 (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,
1996. The results of operations for the nine months ending September 30,
1997 and 1996 are not necessarily indicative of the operating results for
the full years.
2. DESCRIPTIVE ANALYSIS - The descriptive analysis contained herein compares
the financial results of the first nine months, and the three months, ended
September 30 for the years 1997 and 1996. To accommodate the comparison of
pertinent financial information the following terms will be used to denote
the respective periods:
"First Nine Months 1997" - nine months ended September 30, 1997 "First Nine
Months 1996" - nine months ended September 30, 1996
"Third Quarter 1997" - three months ended September 30, 1997 "Third Quarter
1996" - three months ended September 30, 1996
3. IMPACT OF ACCOUNTING PRONOUNCEMENTS, NOT YET ADOPTED BY THE COMPANY -
Earnings Per Share ("EPS"): In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings Per Share," which requires
public companies to present basic EPS and, if applicable, diluted EPS,
instead of primary and diluted EPS. Basic EPS is calculated by dividing the
net income by the weighted average number of shares outstanding for the
period, without consideration for common stock equivalents. Diluted EPS is
computed similarly to fully diluted EPS under the provisions of APB Opinion
No. 15. Revision of the EPS standard had two objectives - to simplify the
EPS calculation and to make the EPS standard applicable to US entities
comparable to the standard of most other countries and to the international
standard, which was also recently revised. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997. The
Company's basic and diluted EPS (which are not yet reflected in the
consolidated financial statements included herein because the Company has
not yet adopted SFAS No. 128) are stated below:
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS $0.13 $0.11 $0.35 $.25
Diluted EPS $0.12 $0.10 $0.33 $.23
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
RESULTS OF OPERATIONS
- ---------------------
O NET REVENUES
Net revenues were $46.2 million during the First Nine Months 1997, an increase
of $6.2 million or 16% from the First Nine Months 1996. Increased revenues were
attributable to increased market penetration by the Company's anatomic pathology
testing services. The increase in anatomic pathology testing services in the
First Nine Months 1997 over the comparable period of 1996 was offset to some
extent by a decline in reimbursements in clinical chemistry and esoteric testing
services.
Net revenues were $14.5 million during the Third Quarter 1997, an increase of
$649,000 or 5% from the Third Quarter 1996. Increased revenues were attributable
to increased market penetration by the Company's anatomic pathology testing
services.
O COST OF GOODS
Cost of goods, which consists primarily of salaries and wages, laboratory
supplies, outside services, logistics (primarily shipping and handling), and
depreciation expense, was $23.4 million during the First Nine Months 1997, an
increase of $4.0 million or 20% from the First Nine Months 1996. Salaries and
wages were $8.0 million in the First Nine Months 1997, an increase of $1.9
million or 30% from the First Nine Months 1996. This increase was principally
due to increased laboratory and physician employment incurred to support
increased anatomic pathology testing services. Laboratory supplies were $4.1
million for the First Nine Months ended 1997 and 1996. Laboratory supplies
decreased to 8.9% of net revenues in the First Nine Months 1997 from 10.2% in
the First Nine Months 1996. This decrease was the result of cost efficiencies.
Logistics were $4.5 million in the First Nine Months 1997, an increase of $1.5
million or 48% from the First Nine Months 1996. The increase in logistic costs
was principally due to supporting new anatomic pathology testing services. As a
percentage of net revenues, cost of goods increased to 51% during the First Nine
Months 1997 from 49% during the First Nine Months 1996.
Cost of goods was $7.6 million during the Third Quarter 1997, an increase of
$821,000 or 12% from the Third Quarter 1996. As a percentage of net revenues,
cost of goods increased to 53% in the Third Quarter 1997 from 49% in the Third
Quarter 1996.
O GROSS PROFIT
Gross profits were $22.8 million during the First Nine Months 1997, an increase
of $2.3 million or 11% from the First Nine Months 1996. The Company's gross
profit margin decreased to 49% in the First Nine Months 1997 from 51% in the
First Nine Months 1996. The decrease in gross profit margin was due to the
continued erosion of the average unit price reimbursed for certain clinical
chemistry and esoteric testing services and the higher costs associated with
providing anatomic pathology testing services.
Gross profits were $6.9 million during the Third Quarter 1997, a decrease of
$173,000 or 2% from the Third Quarter 1996. The Company's gross profit margin
decreased to 47% in the Third Quarter 1997 from 51% in the Third Quarter 1996.
The decrease in gross profit margin was partly due to the decline in
reimbursements for certain clinical chemistry and esoteric testing services and
the higher costs associated with providing anatomic pathology testing services.
<PAGE>
The clinical laboratory industry, which includes both clinical chemistry and
anatomic pathology, has seen steady downward pressure on prices exerted by both
government and private third party payors. A reduction in reimbursement rates,
particularly by Medicare, has generally decreased the average unit price for
most of the Company's clinical chemistry 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 laboratory fee
schedules. This national cap has been lowered each year and is now 76% of the
national median. Under the provisions of the Balanced Budget Act of 1997
("BBA"), the cap would be lowered further to 74% beginning in 1998. OBRA `93
also eliminated the annual updates of Medicare laboratory fee schedules for the
years 1994 and 1995. After updates of 3.2% in 1996 and approximately 2.7% in
1997, the terms of the BBA would freeze fee schedule payments for the 1998 -
2002 period.
In addition, payment for services such as those provided by the Company is and
likely will continue to be affected by periodic reevaluations made by payors
concerning which services to reimburse and which to cease reimbursing. In some
cases, government payors such as Medicare also may seek to recoup payments
previously made for services determined not to be reimbursable. Any such action
by payors would have an adverse affect on the Company's revenue and earnings.
The BBA does include the addition of coverage for a yearly screening pap smear
for Medicare beneficiaries at high risk of developing cervical or vaginal cancer
and for beneficiaries of childbearing age who had not had a negative test in
each of the preceding three years, effective January 1, 1998; as well as
coverage for annual prostate cancer screening, including a prostate-specific
antigen blood test, for beneficiaries over age 50, effective January 1, 2000.
Although most women of childbearing age and men under age 65 are not Medicare
beneficiaries, the addition of Medicare coverage for these tests could provide
additional revenues for the Company.
With respect to the Company's tissue testing services, which are reimbursed
under the physician fee schedules rather than the Medicare 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 in 1992 and was fully phased in by the end of 1996. The
Medicare RBRVS payment for each service is calculated by multiplying the total
relative value units ("RVUs") established for the services by a conversion
factor that is set by law. The number of RVUs assigned to each service is in
turn calculated by adding three separate components, including one representing
the relative work values. Although the conversion factor for non-surgical
services, including pathology, is currently $33.8454, the BBA includes a
provision that merges the three existing conversion factors into one for all
types of services provided. This single factor will be $36.69 - an increase of
8.3% over the 1997 conversion factor applicable to pathology services.
There was an overall decrease of 5.7% between 1996 and 1997 in payments per RVUs
for pathology services, plus an additional decrease in Connecticut due to the
Health Care Financing Administration's ("HCFA") reduction of the number of
different payment localities recognized for RBRVS purposes. At the beginning of
1997, HCFA published proposed regulations which recalculate a key component of
the RBRVS fee schedule. This recalculation would modify the practice expense
RVUs to reflect resource consumption, rather than the historical charge data
used to establish the original practice expense RVUs. Overall, HCFA's predicted
impact of this modification to reflect resource-based practice expense RVUs on
Medicare income of pathologists is an increase of 1%. Of course, the actual
impact on Medicare pathology revenues would depend on the mix of pathology
services furnished. Moreover, under the BBA, implementation of resource based
practice expense RVUs will not begin until 1999, and will be phased in over the
period 1999 - 2002. In addition, disclosure and evaluation of the methodology
used by HCFA to support its proposal will be required. In the past, RBRVS
program implementation and modification has had the effect of reducing prices,
and thus the gross profit, of the Company. Overall, the Company does not expect
projected future RBRVS adjustments to change this trend.
Other changes in government and other third-party payor reimbursement which may
come about as a consequence of the enactment of current and future health care
reform or deficit reduction measures are likely to continue the downward
pressure on prices and make the market for clinical laboratory services more
competitive.
<PAGE>
For example, the BBA would revise the Medicare program substantially to permit
beneficiaries to choose between traditional fee-for-service Medicare as well as
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 laboratory services and also have discretion to limit the number of
labs with which they deal.
The BBA also includes provisions to implement competitive bidding for certain
Medicare items and services, including laboratory services, on a three-site
demonstration project basis. If later adopted on a widespread basis, these
changes likely would have an adverse impact on the Company's revenues, and thus
on its gross profit.
In addition, the BBA contains measures to establish market-oriented purchasing
for Medicare, including prospective payment systems for outpatient hospital
services, home health care and nursing home care, and the use of global payments
and flexible purchasing. Although the details of these measures are yet to be
finalized, they probably would increase pressure on pricing in the laboratory
industry and may have an adverse impact on the Company's revenues.
Finally, in recent months the federal government has become more aggressive in
examining billing by laboratories, and in seeking repayments and even penalties,
based on how services were billed (e.g., the billing codes used), regardless of
whether carriers had furnished clear guidance on this subject. The primary focus
of this initiative has been on hospital laboratories, and on routine clinical
chemistry tests which provide only a small part of the Company's revenues. While
it is possible that this initiative could expand, it is not possible to predict
whether or in what direction this might occur. The Company believes its
practices differ materially from those now being examined. However, no
assurances can be given that the government will not broaden its initiative to
focus on the type of services furnished by the Company or, if this were to
happen, on how much money, if any, the Company might have to pay.
Because of the uncertainties about how the Medicare developments such as those
described above will be implemented, the Company currently is unable to predict
their ultimate impact on the laboratory industry generally or on the Company in
particular. Reforms may also occur at the state level as well as the federal
level and, in addition, changes are occurring in the marketplace as a result of
market pressures, as the number of patients covered by some form of managed care
is increasing. 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, more favorable purchase contracts and greater operational
efficiencies. However, if price decreases (for example arising from the proposed
Medicare changes discussed above) or coverage changes were to be rapidly and
fully implemented, or if the government were to seek any substantial repayments
or penalties from the Company, such developments would be likely to have an
adverse impact on gross profits from the Company's testing services unless
management had an opportunity to mitigate such impact.
O SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $17.8 million during the First
Nine Months 1997, an increase of $1.9 million or 12% from the First Nine Months
1996. As a percentage of net revenues, selling, general and administrative
expenses decreased to 39% in the First Nine Months 1997 from 40% in the First
Nine Months 1996.
Selling, general and administrative expenses were $5.2 million during the Third
Quarter 1997 and the Third Quarter 1996. As a percentage of net revenues,
selling, general and administrative expenses decreased to 36% in the Third
Quarter 1997 from 38% in the Third Quarter 1996.
Severance costs of approximately $259,000 were recorded in the First Nine Months
1997 compared with $148,000 recorded in the First Nine Months 1996. Severance
costs of approximately $100,000 were recorded in the Third Quarter 1997 compared
with $102,000 recorded in the Third Quarter 1996.
<PAGE>
Investment write-downs of $62,000 were recorded in the First Nine Months 1996 to
write-down the investment, held on the Company's balance sheet, in common stock
of a publicly traded company to market value 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". No similar charges were recorded in the First Nine Months 1997. The
Company sold its remaining shares in the first quarter of 1997.
O RESEARCH AND DEVELOPMENT
Research and development expenses were $1.4 million in the First Nine Months
1997, a decrease of $954,000 or 41% from the First Nine Months 1996. Research
and development expenses include the costs of the review, analysis and clinical
evaluation of new technologies. This decrease in 1997 is primarily due to the
completion in 1996 of the major one-time expenditures necessary for the
development of the new anatomic pathology services.
Research and development expenses were $382,000 in the Third Quarter 1997, a
decrease of $340,000 or 47% from the Third Quarter 1996.
O INTEREST INCOME
The Company's interest income was $383,000 for the First Nine Months 1997, an
increase of $102,000 or 37% from the First Nine Months 1996. Interest income for
the First Nine Months 1997 was earned on an average investment of $9.4 million
compared with $8.3 million in the First Nine Months 1996. Interest income was
$159,000 for the Third Quarter 1997, an increase of $108,000 or 214% from the
Third Quarter 1996. Interest income for the Third Quarter 1997 was earned on an
average investment of $11.0 million compared with $5.4 million in the Third
Quarter 1996.
O INTEREST EXPENSE
Interest expense was $24,000 for the First Nine Months 1997, a decrease of
$39,000 or 62% from the First Nine Months 1996. The decrease in interest expense
was due to the on-going pay-down of the $3.5 million term loan obtained in July
of 1993 which bears interest at 6% per year. Interest expense was $5,000 for the
Third Quarter 1997, a decrease of $13,000 or 71% from the Third Quarter 1996. As
of the end of the Third Quarter 1997 this term loan has been completely paid
off.
O PROVISION FOR INCOME TAXES
Provision for income tax expense was $1.7 million for the First Nine Months
1997, an increase of $611,000 or 56% from the First Nine Months 1996. The
effective tax rate was 43% during both the First Nine Months 1997 and 1996.
Provision for income tax expense was $619,000 for the Third Quarter 1997, an
increase of $123,000 or 25% from the Third Quarter 1996. The effective tax rate
was 43% during both the Third Quarter 1997 and 1996.
O NET INCOME
As a result of the foregoing, net income was $2.3 million for the First Nine
Months 1997, an increase of $810,000 or 56% from the First Nine Months 1996. Net
income was $820,000 during the Third Quarter 1997, an increase of $164,000 or
25% from the Third Quarter 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1997, the Company had total cash and cash equivalents of
approximately $11.2 million of which $10.5 million was invested in a fund
holding U. S. Treasury securities with maturities of less than three months.
The Company had working capital of $19.8 million at September 30, 1997 compared
to $18.1 million at December 31, 1996, and the working capital ratio was 3.3 to
1 at September 30, 1997 compared to 3.4 to 1 at December 31, 1996.
<PAGE>
Domestic trade receivables, net, were $14.5 million as of September 30, 1997, a
decrease of $713,000 or 5% from December 31, 1996. The average number of days
sales has decreased from 94 days for the month of December 1996 to 92 days for
the month of September 1997.
Capital expenditures during the First Nine Months 1997 were approximately $1.7
million compared to $3.3 million for the First Nine Months 1996.
As of September 30, 1997, the Company had in its treasury 310,814 shares of
Common Stock allocated for the Company's Employee Stock Purchase Plan at a total
cost of $2.6 million. The Company plans to continue to repurchase shares under
its previously authorized buyback program.
The Company believes that cash flows from operations as well as 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 possibility of being deemed to be not in compliance
with federal or state regulatory requirements; 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 national laboratories; competition from 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 6 EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
a Exhibits
<S> <C>
(3.3) Restated By-Laws of the Company, as amended through February 2, 1997
(filed herewith).
(10.42) Non-Compete Agreement dated September 3, 1997, by the Registrant and
Vernon L. Wells (filed herewith).
(10.43) Severance Agreement dated September 15, 1997, by the Registrant and
Robert C. Verfurth (filed herewith).
(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 (filed herewith).
b Report on Form 8-K. No reports on Form 8-K were filed during the quarter
ended September 30, 1997.
</TABLE>
<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 13, 1997 /S/ KEVIN C. JOHNSON
--------------------
By: Kevin C. Johnson
President and
Chief Executive Officer
(Principal Executive Officer)
November 13, 1997 /S/ DAVID R. SCHREIBER
----------------------
By: David R. Schreiber
Senior Vice President, Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
(3.3) Restated By-Laws of the Company, as amended through February 2, 1997 (filed herewith). 16
(10.42) Non-Compete Agreement dated September 3, 1997, by the Registrant and Vernon L. Wells 31
(filed herewith).
(10.43) Severance Agreement dated September 15, 1997, by the Registrant and Robert C. Verfurth (filed 34
herewith).
(27.1) Financial Data Schedule (filed herewith). 41
</TABLE>
BY-LAWS
OF
DIANON SYSTEMS, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
Section 1.01 ANNUAL MEETING. The annual meeting of the stockholders,
for the purpose of electing directors and transacting such other business as may
come before it, shall be held on such date and at such time and place, either
within or without the State of Delaware, as may be specified by the Board of
Directors.
Section 1.02 SPECIAL MEETINGS. Special meetings of the stockholders may
be called only by the Chairman of the Board, the President or by the Board of
Directors. At a special meeting of the stockholders, no business shall be
transacted which is not related to the purpose or purposes stated in the notice
of meeting.
Any special meeting of the stockholders shall be held on such date and
at such time and place, either within or without the State of Delaware, as may
be specified by the person or persons calling the meeting in the notice of the
meeting.
Section 1.03 NOTICE OF MEETINGS. Written notice of each stockholders'
meeting, stating the place, date and hour of the meeting and, the purpose or
purposes thereof, shall be given to each stockholder entitled to vote at the
meeting not less than ten nor more than sixty days before the date of the
meeting. Any previously scheduled meeting of the stockholders may be canceled by
<PAGE>
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting.
Section 1.04 QUORUM; ADJOURNMENT. Except as otherwise provided in the
Restated Certificate of Incorporation or required by law, at any meeting of the
stockholders a majority of the shares entitled to vote, present in person or
represented by proxy, shall constitute a quorum.
The Chairman of the meeting or the vote of a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum. No notice of the time and place of adjourned meetings need be
given except as required by law.
Section 1.05 CONDUCT OF MEETINGS. The chief executive officer shall
preside at any meeting of the stockholders. In such person's absence, such other
person as shall have been designated by the chief executive officer or the Board
of Directors shall preside. The order of business at any meeting shall be as
determined by such Presiding Officer.
The presiding officer shall have the power to prescribe such rules,
regulations and procedures and to do all such things as in his judgment may be
necessary or desirable for the proper conduct of the meeting, including, without
limitation, the establishment of procedures for the maintenance of order and
safety, limitations on the time allotted to questions or comments, restrictions
on entry to the meeting after the time scheduled for the commencement thereof
and the opening and closing of the voting polls.
If present, the Secretary shall act as secretary of any meeting of the
stockholders. In the Secretary's absence, such other person as the presiding
officer shall designate shall act as secretary of the meeting.
<PAGE>
It shall be the duty of the Secretary to prepare and make, at least ten
days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 1.06 VOTING. Except as otherwise provided in Restated
Certificate of Incorporation or required by law, (i) every holder of capital
stock which is entitled to vote shall be entitled to one vote for each share of
such stock registered in the name of such stockholder, (ii) directors shall be
elected by a plurality of the votes validly cast at the meeting by the holders
of shares entitled to vote for the election of directors and (iii) any other
corporate action shall be authorized if, with respect to shares entitled to vote
on the action, the votes validly cast in favor of the action exceed the votes
validly cast in opposition to the action.
Section 1.07 RECORD DATE. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
<PAGE>
a record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action.
Section 1.08. NOMINATION OF DIRECTORS. Subject to the rights of holders
of any outstanding preferred stock, only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors of the
Corporation. Nominations for election of directors may be made at an annual
meeting of stockholders either by the Board of Directors or by any stockholder
who is a stockholder on the date of the giving of the notice provided for in
this Section 1.08 and on the record date for the determination of stockholders
entitled to vote at such annual meeting. An eligible stockholder may nominate
persons for election as directors at an annual meeting of stockholders only if
such stockholder has caused proper written notice with respect thereto to be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not more than 120 days nor less than 90 days prior to the date of
the annual meeting; provided, however, that in the event that less than 100
days' notice or prior public disclosure of the date of the meeting is given to
stockholders, such written notice will also be timely if so received by the
close of business on the 10th day following the first to occur of (y) the date
on which such notice of the date of the annual meeting was mailed or (z) the
date on which public disclosure of such date was made. For such notice by an
eligible stockholder to be proper, such notice shall set forth: (i) the name and
business and residential addresses of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (ii) the class or
series and number of shares of capital stock of the Corporation that are owned
beneficially or of record by such stockholder; (iii) a representation that such
stockholder intends to appear in person or by proxy as a holder of record at the
meeting to nominate the person or persons specified in the notice; (iv) a
description of all arrangements or understandings between such stockholder and
<PAGE>
each nominee proposed by the stockholder and any other person or persons
(identifying such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (v) the principal occupation or
employment of, and the classes or series and number of shares of capital stock
of the Corporation that are owned beneficially or of record by, the person or
persons to be nominated and such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission; and (vi) the consent of each nominee to serve as a director of the
Corporation if so elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 1.08. If the facts show that a nomination was not made in accordance
with the foregoing provisions, the Presiding Officer of the meeting shall so
determine and declare to the meeting, whereupon the defective nomination shall
be disregarded. Public disclosure of the date of a forthcoming meeting may be
made by the Corporation for purposes of this Section 1.08 not only by the giving
of the formal notice of the meeting but also (i) by notice to a national
securities exchange or to the National Association of Securities Dealers, Inc.
(if the Corporation's common stock is then listed on such exchange or quoted on
NASDAQ), (ii) by filing a report under Section 13 or 15(d) of the Exchange Act
(if the Corporation is then subject thereto), (iii) by a mailing to stockholders
or (iv) by general press release.
Section 1.09 BUSINESS AT ANNUAL MEETINGS. No business may be transacted
at an annual meeting of stockholders other than business that is (i) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (ii) otherwise properly brought before the
annual meeting by or at the direction of the Board of Directors or (iii)
<PAGE>
otherwise properly brought before the annual meeting by a stockholder who (w) is
a stockholder of record on the date of the giving of the notice provided for in
this Section 1.09 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (x) complies with the notice
procedures set forth in this Section 1.09. An eligible stockholder may bring
business before an annual meeting only if such stockholder has caused proper
written notice with respect thereto to be delivered to, or mailed and received
at, the principal executive offices of the Corporation not more than 120 days
nor less than 90 days prior to the date of the annual meeting; provided,
however, that in the event that less than 100 days' notice or prior public
disclosure of the date of the meeting is given to stockholders, such written
notice will also be timely if so received by the close of business on the 10th
day following the first to occur of (y) the date on which such notice of the
date of the annual meeting was mailed or (z) the date on which public disclosure
of such date was made. For such notice by an eligible stockholder to be proper,
such notice must set forth as to each matter such stockholder proposes to bring
before the annual meeting: (1) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting; (2) the name and record address of the stockholder who intends to
propose such business; (3) the class or series and number of shares of capital
stock of the Corporation that are owned beneficially or of record by such
stockholder; (4) a description of all arrangements or understandings between
such stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of the stockholder in such business; and (5) a representation
that such stockholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting.
<PAGE>
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 1.09, provided, however, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 1.09 shall be deemed to preclude
discussion by any stockholder of any such business. If the Presiding Officer of
an annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Presiding
Officer shall declare to the meeting that the business was not properly brought
before the meeting and such business shall not be transacted.
Notwithstanding the foregoing provisions of this Section 1.09, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 1.09. Nothing in this Section 1.09 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Company's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 NUMBER. Except as otherwise provided in Restated
Certificate of Incorporation, the number of directors shall be the number fixed
from time to time by the Board.
Section 2.02 ELECTION AND TERM. At each annual meeting of the
stockholders, directors shall be elected to hold office until their successors
are elected and qualified or until their earlier resignation or removal.
<PAGE>
Section 2.03 MEETINGS OF THE BOARD. Regular meetings of the Board of
Directors shall be held at such times and places as the Board shall determine.
Special meetings of the Board shall be held whenever called by the Chairman of
the Board, the President or by a majority of the directors in office at the
time.
Section 2.04 NOTICE OF MEETINGS. No notice need be given of any regular
meeting of the Board of Directors or of any adjourned meeting of the Board. Nor
need notice be given to any director who signs a written waiver thereof or who
attends the meeting without protesting the lack of notice. Notices need not
state the purpose of the meeting.
Notice of each special meeting of the Board shall be given to each
director either by first class mail at least three days before the meeting or by
telegram, telex, cable or like transmission, telecopy, personal written delivery
or telephone at least one day before the meeting. Any notice given by telephone
shall be immediately confirmed by telegram, telex, cable or like transmission.
Notices are deemed to have been given: by mail, when deposited in the mail with
postage prepaid; by telegram, telex, cable or like transmission, at the time of
sending; and by personal delivery or telephone, at the time of delivery. Written
notices shall be sent to a director at the address designated by him for that
purpose, or, if none has been so designated, at his last known residence or
business address.
Section 2.05 QUORUM AND VOTE OF DIRECTORS. Except as otherwise provided
in the Restated Certificate of Incorporation or required by law, a majority of
the entire Board of Directors shall constitute a quorum for the transaction of
business or of any specified item of business and the vote of a majority of the
directors present at a meeting at the time of such vote, if a quorum is then
present, shall be the act of the Board.
<PAGE>
Section 2.06 CONDUCT OF MEETINGS. The Chairman of the Board or the
President, if any, shall preside at any meeting of the Board of Directors. In
the absence of the Chairman of the Board or the President, a chairman of the
meeting shall be elected from the directors present. If present, the Secretary
shall act as secretary of any meeting of the Board. In the absence of the
Secretary, the chairman of the meeting may appoint any person to act as
secretary of the meeting.
Section 2.07 RESIGNATIONS OF DIRECTORS. Any director of the Corporation
may resign at any time by giving written notice to the Board of Directors or to
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein or, if such time is not specified therein, then upon receipt
thereof; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Section 2.08 REMOVAL OF
DIRECTORS. Any director or the entire Board of Directors may be removed, with or
without cause, at any time by the affirmative vote of the holders of a majority
of the shares then entitled to vote at an election of directors.
Section 2.09. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as
otherwise provided in the Restated Certificate of Incorporation or by law, newly
created directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason, including the
removal of directors with or without cause, may be filled by the affirmative
vote of a majority of the directors then in office, although less than a quorum
exists, or by a sole remaining director.
Section 2.10 COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation.
<PAGE>
The Board may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member.
Any such committee, to the extent provided in the resolution of the
Board but subject to the limitation of Section 141(c) of the Delaware General
Corporation Law, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it.
The provisions of Section 2.04 for notice of meetings of the Board
shall apply also to meetings of committees, unless different notice procedures
shall be prescribed by the Board.
Each such committee shall serve at the pleasure of the Board. It shall
keep minutes of its meetings and report the same to the Board and shall observe
such other procedures as are prescribed by the Board.
Section 2.11 COMPENSATION OF DIRECTORS. Each director shall be entitled
to receive as compensation for his services as director or committee member or
for attendance at meetings of the Board of Directors or committees, or both,
such amounts (if any) as shall be fixed from time to time by the Board. Each
director shall be entitled to reimbursement for reasonable traveling expenses
incurred by him in attending any such meeting. No such payment shall preclude
<PAGE>
any director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 2.12 TELEPHONIC MEETINGS. Any one or more members of the Board
of Directors or any committee thereof may participate in a meeting of such Board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
Section 2.13 ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
the committee consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
Section 3.01 OFFICERS. The officers of the Corporation shall include a
Chairman of the Board, a President, a Treasurer and a Secretary and may also
include a Vice Chairman of the Board, one or more Vice Presidents (who may be
further classified by such descriptions as "executive," "senior" or "group" as
determined by the Board of Directors), a Controller, Assistant Vice Presidents,
Assistant Treasurers, Assistant Secretaries, Assistant Controllers and other
officers and agents, as the Board of Directors may deem necessary or desirable.
Each officer shall have such authority and perform such duties, in
addition to those specified in these By-Laws, as may be prescribed by the Board
from time to time. The Board may from time to time authorize any officer to
<PAGE>
appoint and remove any other officer or agent and to prescribe such person's
authority and duties. Any person may hold at one time two or more offices.
Section 3.02. TERM OF OFFICE, RESIGNATION AND REMOVAL. Each officer
shall hold office for the term for which elected or appointed by the Board of
Directors, and until the person's successor has been elected or appointed and
qualified or until his earlier resignation or removal.
Any officer may resign at any time by giving written notice to the
Board or to the Secretary of the Corporation. Such resignation shall take effect
at the time specified therein or, if such time is not specified therein, then
upon receipt thereof; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Any officer may be removed by the Board, with or without cause. The
election or appointment of an officer shall not of itself create contract
rights.
Section 3.03 CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
a member of the Board of Directors. The Chairman of the Board shall preside at
all meetings of the stockholders and the Board of Directors and, if so
designated by the Board, shall be the chief executive officer of the
Corporation.
Section 3.04 PRESIDENT. Unless there shall be a Chairman of the Board
designated by the Board of Directors as the chief executive officer of the
Corporation, the President shall be the chief executive officer of the
Corporation. Subject to the control of the Board of Directors and the Chairman
of the Board (if designated chief executive officer), the President shall be
responsible for the day-to-day management of the business and affairs of the
Corporation and shall enjoy all other powers commonly incident to the office.
<PAGE>
Section 3.05 VICE PRESIDENTS. Each of the Vice Presidents shall have
such authority and perform such duties as may be prescribed from time to time.
Section 3.06 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
have the care and custody of all funds and securities of the Corporation, keep
accounts of receipts and disbursements and of deposit or custody of moneys and
other valuables and enjoy all powers commonly incident to the office.
In the case of the absence or inability to act of the Treasurer, any
Assistant Treasurer may act in the Treasurer's place.
Section 3.07 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
keep the minutes of the meetings of the stockholders and the Board of Directors
and give notice of such meetings, have custody of the corporate seal and affix
and attest such seal to any instrument to be executed under seal and enjoy all
powers commonly incident to the office.
In the case of the absence or inability to act of the Secretary, any
Assistant Secretary may act in the Secretary's place.
Section 3.08 CONTROLLER AND ASSISTANT CONTROLLERS. The Controller shall
have control of all books of account of the Corporation (other than those to be
kept by the Treasurer), render accounts of the financial condition of the
Corporation and enjoy all powers commonly incident to the office.
In the absence or inability to act of the Controller, any Assistant
Controller may act in the Controller's place.
Section 3.09 COMPENSATION. Compensation of officers, agents and
employees of the Corporation shall be fixed from time to time by, or under the
authority of, the Board of Directors.
<PAGE>
ARTICLE IV
CAPITAL STOCK
Section 4.01 FORM OF CERTIFICATES. Unless otherwise provided by
resolution of the Board of Directors, the shares of stock of the Corporation
shall be represented by certificates which shall be in such form as is
prescribed by law and approved by the Board.
Section 4.02 TRANSFER OF SHARES. Transfers of shares of stock of the
Corporation shall be registered on its records maintained for such purpose (i)
upon surrender to the Corporation or a transfer agent of a certificate or
certificates representing the shares requested to be transferred, with proper
endorsement on the certificate or certificates or on a separate accompanying
document, together with such evidence of the payment of transfer taxes and
compliance with other provisions of law as the Corporation or its transfer agent
may require or (ii) if shares are not represented by certificates, upon
compliance with such transfer procedures as may be approved by the Board or
prescribed by applicable law.
The Corporation shall be entitled to treat the holder of record of any
share as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by law.
Section 4.03 REGULATIONS. The Board of Directors shall have authority
to make such rules and regulations as it may deem expedient concerning the
issue, transfer and registration of shares of stock of the Corporation,
including without limitation such rules and regulations as may be deemed
expedient concerning the issue of certificates in lieu of certificates claimed
to have been lost, destroyed, stolen or mutilated.
<PAGE>
ARTICLE V
GENERAL PROVISIONS
Section 5.01 CORPORATE SEAL. The Board of Directors may adopt a
corporate seal, alter such seal at its pleasure, and authorize it to be used by
causing it or a facsimile to be affixed or impressed or reproduced in any other
manner.
Section 5.02 VOTING UPON STOCKS. Unless otherwise ordered by the Board
of Directors, the chief executive officer of the Corporation, or any other
officer of the Corporation designated by the chief executive officer of the
Corporation, shall have full power and authority on behalf of the Corporation to
attend and to act and to vote in person or by proxy at any meeting of the
holders of securities of any corporation in which the Corporation may own or
hold stock or other securities, and at any such meeting shall possess and may
exercise in person or by proxy any and all rights, powers and privileges
incident to the ownership of such stock or other securities which the
Corporation, as the owner or holder thereof, might have possessed and exercised
if present. The chief executive officer of the Corporation, or any other officer
of the Corporation designated by the chief executive officer of the Corporation,
may also execute and deliver on behalf of the Corporation powers of attorney,
consents, proxies, waivers of notice and other instruments relating to the
stocks or securities owned or held by the Corporation. The Board of Directors
may, from time to time, by resolution confer like powers upon any other person
or persons.
Section 5.03 AMENDMENTS. These By-Laws and any amendments hereof may be
altered, amended, or repealed, and new By-Laws may be adopted, as provided in
the Restated Certificate of Incorporation.
Exhibit 10.42
AGREEMENT
THIS AGREEMENT, made this __3RD__ day of __SEPTEMBER, '97__ by and between
DIANON SYSTEMS, INC., its affiliates, subsidiaries, successors and assigns
(collectively called hereinafter "DIANON") and Vernon L. Wells, an individual
residing at 10973 Chase Lane #B, St. Louis, Missouri 63146 (hereinafter called
"Employee").
In consideration of the commencement of Employee's employment with DIANON
as Vice President of Sales, 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 agrees that, to the fullest extent permitted by law, for the
period of one (1) year after the date of termination of employment with DIANON
(for whatever reasons), Employee (a) will not solicit business on behalf of any
entity which is conducting any business which competes with DIANON's business
("Competing Entity"), (b) will not solicit business from customers of DIANON,
(c) will not solicit the employment or services or any of the employees of
DIANON, (d) will not, directly or indirectly, participate in the ownership,
management, operation or control of any Competing Entity in the geographic area
located within one hundred (100) miles of DIANON offices, or in any other
geographic area in which Employee may have rendered service to DIANON during the
two (2) year period prior to the termination of employment.
(2) 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.
(3) All rights, title and interest in all records, documents, or files
concerning the business of DIANON, including, but not limited to, biomaterials,
<PAGE>
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) containing or related to Confidential Information of DIANON.
(4) 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
participant or member that is or was either financed or directed by DIANON, or
(d) at DIANON's expense, in whole or in part.
(5) Employee agrees to disclose promptly to DIANON's Chief Executive
Officer 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, improvements, 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.
(6) The Employee shall, while employed by DIANON, devote his/her best
efforts and his/her full time to the business of DIANON.
(7) 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 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.
(8) 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.
<PAGE>
(9) 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.
(10) This Agreement shall be construed and enforced in accordance with the
laws of the State of Connecticut.
(11) The foregoing contains the entire Agreement between the parties
pertaining to non-competition and 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.
(12) 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/ VERNON WELLS By: /S/ KEVIN C. JOHNSON
- -------------------------- -----------------------------
Date: SEPT 3, 1997 Date: SEPTEMBER 3, 1997
--------------------- -----------------------------
Exhibit 10.43
SEPARATION AGREEMENT
WHEREAS, ROBERT C. VERFURTH 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 ROBERT C. VERFURTH agree as
follows:
1. ROBERT C. VERFURTH resigns his full-time employment and his officer
position with the COMPANY effective as of September 15, 1997.
2. The COMPANY shall pay ROBERT C. VERFURTH separation pay, at his last
rate of base salary, subject to applicable deductions, for the period six months
after his termination and for so much of the following three months as ROBERT C.
VERFURTH has not obtained other employment (the "Separation Period"). This
separation pay shall be paid in equal installments on regular payroll dates of
the COMPANY throughout the Separation Period.
<PAGE>
3. Throughout the Separation Period, the COMPANY shall contribute to
medical coverage for ROBERT C. VERFURTH and his dependents at the same rate it
contributes for active employees, provided ROBERT C. VERFURTH and his family are
eligible for and elect continuation coverage.
4. The COMPANY shall pay ROBERT C. VERFURTH any bonus he would have
received under the COMPANY's 1997 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.
5. The COMPANY shall pay for ROBERT C. VERFURTH to participate in Drake
Beam Morin Inc.'s six month Senior Executive Program of outplacement services.
6. ROBERT C. VERFURTH agrees to comply with the provisions of the Employee
Proprietary Information Agreement appended to this Agreement as Exhibit A,
subject to Paragraph 11 of this Agreement.
7. ROBERT C. VERFURTH 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 ROBERT C. VERFURTH possesses
knowledge.
<PAGE>
8. ROBERT C. VERFURTH, agrees to make himself reasonably available to
consult with the COMPANY on Sales matters during the Separation Period.
9. ROBERT C. VERFURTH, 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 ROBERT C. VERFURTH has, had or may
have against any of them, whether or not now known arising from ROBERT C.
VERFURTH's recruitment for employment with the COMPANY, his employment or
officer position with the COMPANY, or the termination of his employment and
officer position with the COMPANY, including without limitation any claims for
violation of employment discrimination statutes, breach of contract, tort or
other wrongdoing.
10. ROBERT C. VERFURTH on behalf of himself, his heirs, executors,
administrators and assigns, further agrees never directly or indirectly to
<PAGE>
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 now known, for any claim based upon any act, transaction,
practice, conduct, or omission that occurred prior to the date he signs this
Agreement, including but not limited to, rights under 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 he may have.
11. Notwithstanding the provisions of the Employment Proprietary
Information Agreement attached hereto, ROBERT C. VERFURTH undertakes and the
COMPANY shall enforce against him only the following obligation not to engage in
any competitive activity. ROBERT C. VERFURTH agrees that, to the fullest extent
permitted by law, for the period of eighteen (18) months after the date of
termination of employment with the COMPANY, he (a) will not solicit business on
behalf of any entity which is conducting any business which competes with
DIANON's business ("Competing Entity"), (b) will not solicit business from
customers of DIANON, (c) will not solicit the employment or services of any of
the employees of DIANON, (d) will not, directly or indirectly, participate in
<PAGE>
the ownership, management, operation or control of any Competing Entity in the
geographic area in which Employee may have rendered service to DIANON during the
two (2) year period prior to the termination of employment.
12. ROBERT C. VERFURTH agrees that he will not seek employment with the
COMPANY or its affiliates or successors and that any application he makes for
such employment will be rejected without explanation or recourse.
13. 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.
14. 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.
15. In the event ROBERT C. VERFURTH 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, ROBERT C. VERFURTH
shall be liable for all costs and expenses including legal fees, incurred by any
Released COMPANY Party in defense of that action.
16. ROBERT C. VERFURTH represents that he has carefully read and completely
understands this Agreement and that he has entered into this Agreement
<PAGE>
voluntarily after having had a reasonable amount of time to consider it and an
opportunity to consult with his legal advisors.
17. ROBERT C. VERFURTH 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 COMPANY Party.
18. ROBERT C. VERFURTH acknowledges that he has been given a reasonable
time to review the waivers and releases contained in this Agreement prior to
signing it.
19. 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.
<PAGE>
20. This Agreement shall be governed by applicable Federal law and the laws
of the State of Connecticut.
ROBERT C. VERFURTH
Dated: 15 SEP 97 Signature: /S/ ROBERT C. VERFURTH
-------------------- ------------------------
DIANON SYSTEMS, INC.
Dated: 29 SEPTEMBER, 1997 By: /S/ KEVIN C. JOHNSON
--------------------- ------------------------------
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<PERIOD-START> JAN-01-1997
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