SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 000-19392
DIANON Systems, Inc.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 06-1128081
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 Watson Boulevard, Stratford, Connecticut 06497
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Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 381-4000
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Number of shares of Common Stock outstanding as of March 14, 1997: 6,449,270
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 [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATIONS S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
As of March 14, 1997, the aggregate market value of the voting Common Stock held
by non-affiliates of the registrant was $54,818,795.
Documents Incorporated By Reference
None
EXHIBIT INDEX ON PAGE 55 OF 133 PAGES
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PART I
ITEM 1. BUSINESS
DIANON Systems, Inc. ("DIANON" or the "Company") is a provider of
anatomic pathology and clinical chemistry testing services to physicians,
patients and managed care organizations across the United States.
Historically, the Company has been a specialized laboratory with a
limited line of clinical chemistry and anatomic pathology testing services based
principally on new technology purchased or licensed from test developers. This
technology has been marketed directly to medical oncologists and urologists as
testing and information services rather than as products or test kits.
As a result of the Company's success in providing pathology services,
the mission of the Company has been expanded to include a full line of anatomic
pathology services and related information products to physicians, patients and
managed care organizations throughout the United States. The Company's principal
physician audience for these services includes approximately 50,000 clinicians
engaged in the fields of medical oncology, urology, dermatology, gynecology and
gastroenterology. The Company believes it can become one of the leading
specialized providers of anatomic pathology testing services in the United
States.
While the Company continues in its traditional role of assisting
developers of new technology and physicians evaluating such technology, it is
expected that this activity and the Company's clinical chemistry business will
represent a decreasing proportion of total revenue in future years as anatomic
pathology revenues grow.
The business of the Company is subject to a number of risks and
uncertainties that could adversely affect the Company's ability to achieve its
objectives. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition - Risk Factors: Forward Looking Statements" for a
description of various factors that could have an adverse effect on the
performance of the Company.
Medical Testing Markets
Medical laboratories offer a broad range of testing services to the
medical profession. These testing services are used by physicians in the
diagnosis, prognosis, monitoring and general management of diseases and other
clinical conditions. The tests they use generally detect medically significant
abnormalities and visual patterns in blood, tissue samples and other specimens.
Management divides the market for medical testing into anatomic
pathology testing and clinical chemistry testing and has set forth in very
general terms some of the major differences between them in the table below:
<TABLE>
<CAPTION>
Anatomic Pathology Testing Clinical Chemistry Testing
-------------------------- --------------------------
<S> <C> <C>
Type of Specimen Tissue or cells - usually obtained by Blood or urine - usually collected by
a physician from a biopsy, Pap smear, a nurse (blood) or by the patient (urine)
urine specimen or surgery
Technology Employed Physician interpretation of tissue Highly automated blood chemistries and
slides supplemented by special antibody immunoassays
stains, DNA probes, genetic tests
1991 DIANON Net Revenues $ 9 million $18 million
1996 DIANON Net Revenues $37 million $19 million
</TABLE>
<PAGE>
The Company offers a complete line of anatomic pathology testing
services as well as selected clinical chemistry tests for cancer and
gynecological conditions. The Company performs all testing at its main facility
in Stratford, Connecticut and provides most test results to physicians within
forty-eight hours. In 1996 the Company opened a specimen processing facility at
the hub of its airfreight provider in Ohio in order to prepare certain specimens
for more rapid processing when they arrive in Stratford and to improve overall
turnaround time to the physicians. No test accounted for more than 20% of net
revenues in 1996.
Information Services
The Company's information services are used principally to assist the
physician in the analysis of test results and to help managed care organizations
better manage patient treatment. Patient specific reports aid the physician in
analyzing multiple prognostic tests and/or correlative trends in a patient's
test results, treatment, and clinical condition. Summary reports on all patients
in a physician's practice allow the physician to compare test results on
patients with similar conditions, review multiple patient histories, and compare
his or her experience with that of physicians across the country. Similar
reports help managed care organizations capture and compare utilization and
diagnostic trends within their own organization, with other managed care
organizations and with the Company's national database. The Company's current
information services are an important part of the Company's marketing program,
and while they do not specifically generate revenue they do provide important
value-added services which help the Company differentiate itself from
competitors.
Quality Assurance
The Company's quality assurance program includes adherence by employees
to the Standard Operating Procedures, continuing education and technical
training of technologists, statistical quality control of all analytical
processes, instrument maintenance, and regular inspection by governmental
agencies and the College of American Pathologists.
The Company utilizes a unique quality control program for anatomic
pathology which provides a reduced number of equivocal results reported to
clinicians. This program is applied to all anatomic pathology specimens. By
diminishing the number of equivocal diagnoses and providing the correct
diagnosis as soon as possible, the Company enables clinicians to treat patients
sooner and more effectively and to reduce overall health care costs.
European Operations
In recent years the Company has been engaged in a diagnostic testing
business in Europe, principally in Germany and Spain. In 1995, the Company
decided to sell or close its European operations and provided a reserve of
approximately $279,000 to cover the costs of doing so. Remaining reserves for
the discontinuance of operations at December 31, 1996 are approximately
$155,000. The Company is in the process of liquidating the European based
operations and plans to complete the liquidation process by the end of the 1997
fiscal year.
Reimbursement
In 1996, 1995, and 1994 approximately 40%, 41%, and 34%, respectively,
of the Company's net revenues were derived from testing performed for
beneficiaries under the Medicare and Medicaid programs, substantially all of
which was derived from the Medicare program. Revenues from testing performed for
other patients are derived principally from other third-party payors, including
commercial insurers, health maintenance and preferred provider organizations,
patients, physicians, hospitals, and other laboratories (who in turn usually
bill non-governmental third-party payors or patients). In each of 1996, 1995 and
1994, less than 10% of the Company's revenues were derived from health
<PAGE>
maintenance organizations with whom the Company has contracts. For many of the
tests performed for Medicare or Medicaid beneficiaries (except clinical
diagnostic laboratory tests for those individuals being treated by a hospital),
laboratories are required to bill Medicare or Medicaid directly for covered
services and to accept Medicare or Medicaid reimbursement as payment in full for
such services. Management has elected, to date, to accept reimbursement rates
set by other third-party payors as payment in full (apart from any co-payment
which the payor has established) as well.
Reimbursement rates for some services of the type or similar to the
type performed by the Company have been established by Medicare, Medicaid and
other third-party payors, but have not been established for all services or by
all carriers with respect to any particular service. While most carriers,
including Medicare, do not cover services they determine to be investigational,
or otherwise not reasonable and necessary for diagnosis or treatment, a formal
coverage determination is made with respect to relatively few new procedures.
When such determinations do occur for Medicare purposes, they most commonly are
made by the local Medicare carrier which processes claims for reimbursement
within the carrier's geographic jurisdiction. The Company receives Medicare
reimbursement primarily through a single Medicare carrier. A positive coverage
determination, or reimbursement without such determination, by one or more
third-party payors, or clearance for market by the Food and Drug Administration
("FDA"), does not assure reimbursement by other third-party payors. A few
third-party payors have denied payment for services for which the Company
receives reimbursement from other payors. On occasion, Medicare or other
third-party payors have decided to cease payment for one or more of the
Company's services that historically have been reimbursed by them because such
services are performed using test kits or other products which have not received
FDA pre-market clearance or because such services may otherwise be deemed
investigational or for other reasons. Furthermore, Medicare and other
third-party payors have, on occasion, ceased reimbursement when certain tests
are ordered for patients with certain diagnoses while maintaining reimbursement
when such tests are ordered for other diagnoses deemed appropriate by the
carrier. This practice recently has become more prevalent with respect to
Medicare. Reimbursement disapprovals by the various carriers, reductions or
delays in the establishment of reimbursement rates, and crrier limitations on
the insurance coverage of the Company's services could have a material adverse
effect on the Company's future revenues.
Medicare Fee Schedule Payment for Clinical Chemistry Laboratory
Services. In 1984, Congress adopted legislation establishing a locality-specific
fee schedule reimbursement methodology with Consumer Price Index ("CPI")-related
updates for clinical diagnostic laboratory testing for non-hospital patients and
hospital out-patients under Medicare. (Payment for clinical chemistry laboratory
services performed for Medicare in-patients is included within the prospectively
determined Diagnosis Related Group rate paid to the hospital.) In addition,
state Medicaid programs are prohibited from paying more than the Medicare fee
schedule amount. Beginning with the consolidated Omnibus Budget Reconciliation
Act of 1985 ("OBRA '85"), Congress instituted a national cap on Medicare
clinical chemistry laboratory fee schedules. This national cap has been lowered
each year and now is 76% of the national median. In addition, the Omnibus Budget
Reconciliation Act of 1987 ("OBRA '87"), eliminated the CPI update for 1988 and,
in succeeding years, Congress has often either limited or eliminated the annual
CPI updates of the Medicare clinical chemistry laboratory fee schedules. Most
recently, the Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") eliminated
the update for the years 1994 and 1995. In 1996, however, the fee schedule
update was 3.2%; the Health Care Financing Administration ("HCFA") has recently
announced that the fee schedule update for 1997 will be 2.7%. However, the
corresponding expected national cap increase of 2.7% may not be fully realized
due to a recalculation of national medians necessitated by conversion in some
carrier areas to a single statewide fee schedule. The update limitations and
changes in the national cap made to date have not had, and are not expected by
the Company to have, a material adverse effect on the Company's results of
operations. Any further significant decrease in such fee schedules, however,
could have a material adverse effect on the Company.
<PAGE>
Any future changes in government and other third-party payor
reimbursement which may come about as a consequence of enactment of health care
reform or of deficit reduction legislation also likely will continue the
downward pressure on prices and make the market for clinical laboratory services
more competitive. The Medicare proposal contained in the President's fiscal year
1998 budget offers an indication of the direction future Medicare reform
legislation may take with respect to clinical laboratory services. The
President's proposed budget would not modify the national cap on Medicare
clinical chemistry laboratory fee schedules or eliminate annual updates;
however, it would establish competitive bidding for clinical chemistry
laboratory services. If the President's proposal failed to realize savings of at
least 20% for a given year through the competitive bidding process, the
Secretary of the Department of Health and Human Services ("HHS") would reduce
Medicare's fees for laboratory services to achieve this targeted savings.
Furthermore, the President's support for competitive bidding has rekindled
efforts in the HCFA to initiate a Medicare demonstration project to test the
savings potential of competitive bidding for Part B clinical laboratory
services, which include the type of services provided by the Company. If
ultimately adopted through legislation, these proposals likely would have an
adverse impact on the Company's revenues.
Moreover, the Congress has voiced concern that the President's budget
does not yield sufficient savings to balance the budget in 2002. As a result,
the Congress may propose additional savings measures, especially in the Medicare
program. H.R. 2491, the Balanced Budget Act of 1995, passed by Congress and
vetoed by President Clinton in December 1995, offers some indication of
additional savings measures that Congress may propose in the future. Although
H.R. 2491 would not have established competitive bidding for clinical chemistry
laboratory services, it instead proposed that a fail-safe budget mechanism be
used if projected savings were not realized in Medicare service expenditures.
This fail-safe mechanism might have further reduced reimbursement for Medicare
clinical chemistry laboratory services and physician services (including the
Company's anatomic pathology service). In addition, H.R. 2491 would have further
reduced the national cap on Medicare clinical chemistry laboratory fee schedules
to 65% of the national median in 1997. It also would have eliminated annual CPI
updates in the Medicare clinical chemistry laboratory fee schedules until fiscal
year 2002.
Both the Medicare proposal contained in the President's fiscal year
1998 budget and H.R. 2491 would revise 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 clinical laboratory services and to limit the number of labs with
which they deal. Although neither proposal would require Medicare beneficiaries
to pay 20% of the fee for each clinical laboratory service, nothing in the
proposals would prohibit non-traditional Medicare plans from implementing such a
requirement.
The Medicare proposal contained in the President's fiscal year 1998
budget also contains measures to establish market-oriented purchasing for
Medicare, including prospective payment systems for out-patient hospital
services, home health care, and nursing home care, and the use of global
payments and flexible purchasing. Although the details of these proposals are
yet to be developed, if implemented, they probably would increase pressure on
pricing in the clinical laboratory industry and may have an adverse impact on
the Company's revenues.
<PAGE>
Medicare changes along the lines described above are possible this
year. Because of the uncertainties about the exact nature of any changes which
may ultimately be adopted, however, the Company currently is unable to predict
their ultimate impact on the clinical laboratory industry generally or on the
Company in particular. Even apart from federal legislative action, reforms may
occur at the state level and changes are occurring in the marketplace as a
result of market pressures, including the increasing number of patients covered
by some form of managed care. In general, these changes are likely to put a
downward pressure on price, and may also act to limit access by some
laboratories to some managed care patient groups. Because of the uncertainties
about the exact nature, extent, and timing of any such changes, however, the
Company currently is unable to predict their ultimate impact on the clinical
laboratory industry generally or on the Company in particular.
Medicare Payment for Anatomic Pathology Services. In addition to
furnishing clinical chemistry laboratory testing services, the Company furnishes
a number of services which are characterized for the purposes of the Medicare
program as anatomic pathology services. Medicare reimbursement for these
services constituted approximately 30%, 26%, and 18% of the Company's net
revenues in 1996, 1995, and 1994, respectively. As of January 1, 1992, all
physician services, including anatomic pathology services, have been reimbursed
by Medicare based on a methodology known as the resource-based relative value
scale ("RBRVS"), which was fully phased in by the end of 1996. Overall, anatomic
pathology reimbursement rates declined during the fee schedule phase-in period,
despite an increase in payment rates for certain pathology services performed by
the Company.
The Medicare RBRVS payment for each service is calculated by
multiplying the total relative value units ("RVUs") established for the service
by a conversion factor that is set by statute. The number of RVUs assigned to
each service is in turn calculated by adding three separate components,
including one representing the relative work values. In 1996, HCFA completed a
five-year review of the work value component and, as a result, revised the work
value amount assigned to many physician services. In addition, based on a
default formula established by statute, the 1997 conversion factor for
nonsurgical services dropped 0.8% from 1996 to $33.8454 per conversion factor.
The changes resulting from the five-year review, combined with the conversion
factor reductions, resulted in an overall decrease in payment rates for
pathology services of approximately 5.7% beginning January 1, 1997. Also, HCFA
reduced the number of physician fee schedule payment localities from 210 to 89,
effective January 1, 1997. Connecticut was one of the states that HCFA moved to
a single payment locality. This modification resulted in a 3.2% decrease in the
RBRVS geographic adjustment factor for physicians located in Western
Connecticut, where the Company's primary operations are located.
In the past, the Company has been able to offset a substantial portion
of the impact of the reduced Medicare reimbursement rates for anatomic pathology
services through the achievement of economies of scale and the introduction of
alternative technologies that will not depend on reimbursement through the RBRVS
system. Despite these offsets, the substantial modifications to the physician
fee schedule effective January 1, 1997, may have a negative effect on the
Company's average unit price.
Furthermore, as a result of the Social Security Act amendments of 1994,
Medicare is required to revise the formula for calculating the practice expense
component of the physicians' Medicare fee schedule from the current historical
basis to a resource basis beginning January 1, 1998. In order to complete this
task, HCFA hired a consultant to survey some 5,000 practices to collect
aggregate practice expense data. Although HCFA terminated the survey due to a
low response rate, the agency maintains that it still can meet its mandate to
implement a resource-based practice expense component by January 1, 1998, by
using existing data. Some concern has been expressed by physician specialty
groups that this data is not adequate and that the methodology being used could
result in specialty practice expenses being underestimated. At this point, HCFA
is considering a variety of options for calculating practice expense revisions.
It is possible that certain changes HCFA might make would have a significant
negative affect on reimbursement for anatomic pathology services, including
services furnished by the Company.
<PAGE>
With respect to potential legislative changes, the Medicare proposals
contained in both the President's fiscal year 1998 budget and in H.R. 2491 would
implement a single conversion factor for physician services. In 1998, this
single conversion factor would likely be slightly higher than the current
conversion factor for pathologists. If enacted, this increase may favorably
affect or, more likely, offset to some degree the adverse impact of the other
developments described above on revenues from the Company's physician pathology
services. However, the Company is not able to predict the exact nature of any
legislative changes affecting anatomic pathology services reimbursement, and the
Company therefore currently is unable to predict the ultimate effect of any such
changes on the Company.
Other Developments Affecting Reimbursement. In 1996, approximately 16%
of the Company's net revenues were in the State of New York. In September 1996,
New York passed the New York Health Care Reform Act of 1996 ("NYHCRA"). The
NYHCRA requires payors to pay an 8.18% surcharge on services provided by a
variety of providers including independent laboratories for services rendered to
residents of the State of New York. If the payor neglects to pay the 8.18%
surcharge directly, providers are required to collect the surcharge plus an
additional assessment of 24% for a total surcharge of 32.18%. Under the NYHCRA,
it is possible that independent labs, such as the Company, will be placed at a
competitive disadvantage with physician office labs and other labs whose
services are not subject to the surcharge. In addition, independent labs
probably will be liable for the surcharge even if the payor fails to pay the
laboratory. Moreover, payors may reduce the fees they pay for laboratory
services in order to offset the surcharge. The New York State Clinical
Laboratory Association has brought suit against the New York State Department of
Health alleging that these provisions of NYHCRA are unconstitutional under the
United States and New York State Constitutions and should not be enforced.
Nonetheless, these changes currently are being implemented and could have a
negative impact on the portion of the Company's net revenues derived from the
State of New York.
Following a study of pricing practices in the clinical laboratory
industry, the Office of the Inspector General ("OIG") of HHS conducted a study
of, and in January 1990 issued a final report relating to, such practices. This
report addresses how these pricing practices relate to Medicare and Medicaid.
The OIG reviewed the industry's use of one fee schedule for physicians and other
professional accounts and another fee schedule for patients/third-party payors,
including Medicare, in billing for testing services.
The OIG also specifically reviewed the pricing differential when
profiles (or established groups of tests) are ordered. The OIG recommended that
HCFA seek legislation that would allow adjustments in the Medicare fee schedules
to bring the fee schedules into line with what the lower price laboratories
charge physicians. The OIG also recommended that when profiles are ordered for
Medicare beneficiaries that HCFA take necessary action specifically to ensure
that Medicare benefits from the pricing structure used by laboratories in
charging physicians for profiles. Similarly, in June 1991, the General
Accounting Office ("GAO") issued a report recommending a reduction in the
national cap on Medicare fee schedules for laboratory services to eliminate the
disparities in laboratory pricing practices. (This recommended reduction - to
76% of the national median - was in fact enacted as part of OBRA '93.) In
response to the GAO HCFA recommended that OIG initiate a legislative proposal to
enhance existing authority to penalize discriminatory pricing. Existing federal
law authorizes the Secretary of HHS to exclude providers from participation in
the Medicare and Medicaid programs if they charge state Medicaid programs or
Medicare fees "substantially in excess" of their "usual charges". On January 29,
1992, in the preamble to a Final Rule implementing program exclusion and civil
money penalty authorities established under the Medicare and Medicaid Patient
and Program Protection Act of 1987, the OIG considered but declined to provide
any standards as to when charges for a service are considered "substantially in
excess" of a provider's "usual charges". However, the OIG stated that it will
continue to evaluate the billing patterns of individuals and entities, including
clinical laboratories, on a case-by-case basis. The Medicaid laws in some states
also have prohibitions related to discriminatory pricing. The Company employs
practices similar to those examined in the 1990 OIG report discussed above in
billing for its services. Depending upon the nature of any regulatory or
<PAGE>
enforcement action taken or the content of legislation, if any, which might be
adopted to address this issue, the Company could experience a significant
decreasein revenue which could have a material adverse effect on the Company.
The legislation also provides for civil or criminal penalties or exclusion from
participation in Medicare and Medicaid. The Company is unable to predict at this
time whether any further regulatory, enforcement, or legislative action will be
taken.
In December 1992, an unrelated clinical laboratory, National Health
Laboratories, Inc., ("NHL"), pleaded guilty to submitting false medical
reimbursement claims to the United States government, and entered into a
settlement which provides for payment of over $100 million. The United States
government alleged that NHL, by marketing to physicians diagnostic test panels
which bundled, together with a routine blood chemistry series, two other tests
(ferritin and HDL cholesterol), induced physicians to order these other tests
regardless of medical necessity. While NHL's additional charge to physicians for
these two tests ordered as part of the NHL panel was nominal, NHL billed this
Medicare program for them at full price. Since 1993, several other laboratories
have reached significant financial settlements with the government in cases
involving similar issues. While it is not possible to predict how broadly the
United States government may seek to expand the theory of liability it developed
in these cases, the Company believes its practices differ materially from those
at issue and has no reason to believe that its practices are the subject of any
investigation in this regard.
In February, 1997, the OIG released a model compliance plan for
laboratories that is based largely on the corporate integrity agreements
negotiated with the laboratories which settled the government's enforcement
actions. The Company is reviewing the model compliance plan and plans to adopt,
or modify for adoption, aspects of the model plan that the Company deems
appropriate to the conduct of its business. One key aspect of the corporate
integrity agreements and the model compliance plan is an emphasis on the
responsibilities of laboratories to notify physicians that Medicare covers only
medically necessary services. Although these requirements, and their likely
effect on physician test ordering habits, focus on chemistry tests, especially
routine tests, rather than on anatomic pathology services or the non-automated
tests which make up the bulk of the Company's business, they potentially could
affect physician test ordering habits more broadly. The Company is unable to
predict whether, or to what extent, these developments may have an impact on the
utilization of the Company's services.
Competition
The Company provides services in a segment of the healthcare industry
that is extremely competitive. The Company's actual or potential competitors
include large clinical laboratories, special purpose clinical laboratories and
product companies that manufacture test kits and other diagnostic tools.
The clinical laboratory business is characterized by intense
competition. The Company estimates that there are over 11,500 clinical
laboratories in the United States which might be deemed actual or potential
competitors for the testing business of a cancer-treating or cancer-diagnosing
physician. In the U.S., anatomic pathology and clinical chemistry laboratory
services are provided through physician-owned laboratories, commercial
laboratories and hospital laboratories. In the U.S., there are several large
clinical laboratory companies which market a "full line" of such services
nationally, and which have substantially greater financial, selling, logistical
and laboratory resources than the Company. These companies typically offer
hundreds of different tests and management believes that these companies compete
in general on quality, price and the time required to report results. The
Company estimates that the three largest national clinical laboratories in the
U.S. accounted for greater than 40% of the total non-hospital clinical
laboratory market in 1996.
In addition, the Company's management has identified a number of
specialized laboratories in the U.S. established since 1987. None of those
specialized laboratories have sales greater than 5% of the anatomic pathology
market.
<PAGE>
The Company also processes specimens from a number of non-hospital
clinical laboratories. Sales to such laboratories amounted to approximately 3%
of the Company's net revenues in 1996 and 5% in 1995 and 1994.
In addition to competition for customers, there is increasing
competition for qualified personnel, particularly in the laboratory. To date,
such competition has not had an adverse impact on the Company's operations.
Significant factors that enhance the Company's ability to compete
effectively include a highly trained and knowledgeable sales force, high quality
laboratory operations, accurate and consistent test results, quality of service
to physicians, price and, to a lesser extent, speed of turnaround.
Patents and Proprietary Technology
To date, the Company has not relied heavily on patents or licensed
technology in its business. Tests or related diagnostic products purchased by
the Company may or may not be patented. There can be no assurance that such
tests or related products do not infringe patent rights of others, which could
give rise to claims against the Company. Typically the Company is not
indemnified against such risks. There can be no assurance that any issued patent
upon which the Company relies directly or indirectly will afford protection to
the Company in the face of challenges to the patent's validity.
Other private and public entities, including universities, have filed
applications for (or have been issued) patents in the Company's field and may
obtain additional patents and other proprietary rights to technology that may be
the same as or similar to that utilized by the Company. The scope and validity
of such patents, the extent to which the Company may wish or need to acquire
such rights, and the cost or availability of such rights are presently unknown.
There can be no assurance that others may not obtain access to the Company's
technology or independently develop the same or similar technology to that
utilized by the Company.
Employees
On December 31, 1996, the Company had 385 full-time and 35 part-time
employees worldwide.
Regulatory Matters
The Company's business is subject to governmental regulation at the
federal, state and local levels, some of which regulations are described under
"Laboratory", "Food and Drug Administration" and "Other" below.
Laboratory
The Company's laboratory is certified or licensed under the federal
Medicare program, the Connecticut Medicaid program and the Clinical Laboratories
Improvement Act of 1967, as amended by the Clinical Laboratory Improvement
Amendments of 1988 (collectively, "CLIA '88"). Licensure is maintained under the
clinical laboratory licensure laws of Connecticut, where the Company's clinical
laboratory is located and under the laws of several other jurisdictions. The
Company believes it has obtained all material laboratory licenses required for
its operations. In addition, the laboratory is licensed by the federal Nuclear
Regulatory Commission and is accredited by the College of American Pathology.
The federal and state certification and licensure programs establish
standards for the day-to-day operation of a medical laboratory, including, but
not limited to, personnel and quality control. Compliance with such standards is
verified by periodic inspections by inspectors employed by federal or state
regulatory agencies. In addition, federal regulatory authorities require
participation in a proficiency testing program approved by the HHS for each of
the specialties and subspecialties for which a laboratory seeks approval from
Medicare or Medicaid and licensure under CLIA '88. Proficiency testing programs
involve actual testing of specimens that have been prepared by an entity running
an approved program for testing by the laboratory.
<PAGE>
The Final Rule implementing CLIA '88, published by HHS on February 28,
1992, became effective September 1, 1992. HHS currently has under review the
comments it received in response to the Final Rule, as well as those received in
response to revisions to such rule published on January 19, 1993 and April 24,
1995. This Final Rule covers all laboratories in the United States, including
the Company's laboratory. The Company has reviewed the Final Rule (and revisions
thereto), including, among other things, such rule's requirements regarding
laboratory administration, participation in proficiency testing, patient test
management (including patient preparation, proper specimen collection,
identification, preservation, transportation, processing and result reporting),
quality control, quality assurance and personnel for the types of testing
undertaken by the Company, and believes it to be in compliance with these
requirements. However, no assurances can be given that the Company's laboratory
will pass all future inspections conducted to ensure compliance with CLIA '88 or
with any other applicable licensure or certification laws.
Existing federal laws governing Medicare and Medicaid, as well as some
state laws, also regulate certain aspects of the relationship between healthcare
providers, including clinical laboratories, and their referral sources,
including physicians, hospitals and other laboratories. One provision of these
laws, known as the "anti-kickback law," contains extremely broad proscriptions,
and relatively little regulatory guidance or judicial precedent exists
concerning its application. Violation of this provision may result in exclusion
from Medicare and Medicaid or criminal penalties. Pronouncements from the OIG
have indicated that additional enforcement resources may be focused on financial
arrangements between laboratories and physicians and other purchasers of
laboratory services, including arrangements under which laboratories supply
physicians' offices with phlebotomists (blood-drawing technicians) who perform
additional tasks that normally are the responsibility of the physician office
staff. Under another provision, known as the "Stark" law or "self-referral
prohibition", physicians who have an investment or compensation relationship
with an entity furnishing clinical laboratory services (including clinical
chemistry and anatomic pathology services) may not, subject to certain
exceptions, refer clinical laboratory testing for Medicare patients to that
entity. Similarly, laboratories may not bill Medicare or Medicaid or any other
party for services furnished pursuant to a prohibited referral. Violation of
these provisions may result in disallowance of Medicare and Medicaid claims for
the affected testing services, as well as the imposition of civil monetary
penalties. On August 14, 1995, HHS published a Final Rule implementing this
prohibition on Medicare referrals. Both H.R. 2491 and the President's Medicare
proposal contained modifications to the anti-kickback law and the Stark law. The
provisions from H.R. 2491 have been introduced again in other bills in 1996.
While these provisions in some respects ould strengthen the anti-kickback and
Stark laws, in other respects they would moderate some of the current
restrictions. The Company does not expect that these changes, if they are
enacted, would have a major effect on the Company. The Company seeks to
structure its arrangements with physicians and other providers to be in
compliance with the anti-kickback, Stark and state laws, and to keep up-to-date
on developments concerning their application by various means including
consultation with legal counsel. However, the Company is unable to predict how
these laws will be applied in the future, and no assurances can be given that
its arrangements will not become subject to scrutiny under them.
Any exclusion or suspension from participation in the Medicare and
Medicaid programs, any loss of licensure or accreditation, or any inability to
obtain any required license or permit, whether arising from any action by HHS,
any state, or any other regulatory authority, would have a material adverse
effect on the Company's business. Any significant civil or criminal penalty
resulting from such proceedings could have a material adverse effect on the
Company's business.
Food and Drug Administration
The FDA regulates certain products purchased by the Company but does
not currently regulate laboratory testing services which is the Company's
principal business. However, the Company performs some testing services using
test kits purchased from manufacturers for which final FDA pre-market clearance
for sale in the United States has not been obtained by the manufacturers
<PAGE>
("investigational test kits"). Under current FDA regulations and policies, such
investigational test kits may be sold by manufacturers for investigational use
if certain requirements are met. The manufacturers of these investigational test
kits are responsible for marketing them under conditions meeting applicable FDA
requirements. If the Company were to be substantially limited in or prevented
from purchasing investigational test kits by reason of the FDA taking a new
regulatory direction in this area, there could be adverse effects on the
Company's ability to access new technology, which could have a material adverse
effect on the Company's business.
The FDA is currently considering new guidelines with respect to the
sale of unapproved in vitro diagnostic test kits and other products that are
sold under "investigational use only" or "research use only" labeling. While it
is uncertain what the final substance of these guidelines will be, these
guidelines could place restrictions on the distribution and use of products used
by the Company to provide testing services. In addition, on March 14, 1996, the
FDA published a proposed rule regarding the classification and reclassification
of analyte specific reagents ("ASRs"). This proposal, if promulgated as
published, could also place restrictions on the sale, distribution, labeling,
and use of products used by the Company to provide testing services. The
ultimate scope of the proposed rule and how various ASRs will be classified is
still unclear, and thus the impact on the Company's testing services cannot be
determined at this time.
Other
Certain federal and state laws govern the handling and disposal of
medical specimens, infectious and hazardous wastes and radioactive materials.
Failure to comply with such laws could subject an entity covered by these laws
to fines, criminal penalties and/or other enforcement actions.
Pursuant to the Occupational Safety and Health Act, laboratories have a
general duty to provide a work place to their employees that is safe from
hazard. Over the past few years, the Occupational Safety and Health
Administration ("OSHA") has issued rules relevant to certain hazards that are
found in the laboratory. In addition, OSHA recently has promulgated final
regulations containing requirements healthcare providers must follow to protect
workers from bloodborne pathogens. Failure to comply with these regulations,
other applicable OSHA rules or with the general duty to provide a safe work
place could subject an employer, including a laboratory employer, to substantial
fines and penalties.
Recent Developments
On February 27, 1997, the Company announced that Kevin C. Johnson has
been named as the Chief Executive Officer of the Company in addition to duties
as President of the Company. In connection with this transition, the Company
also announced that Richard A. Sandberg, a co-founder of the Company, has
resigned as Chairman of the Company's Board of Directors while remaining as a
director and consultant to the Company and that John P. Davis was appointed as
non-executive Chairman of the Company's Board of Directors, for which Mr. Davis
previously acted as Vice Chairman. In addition, G.S. Beckwith Gilbert has been
elected as Chairman of the Executive Committee.
ITEM 2. PROPERTIES
The Company leases approximately 90,850 square feet of office and
laboratory space in Stratford, Connecticut and Wilmington, Ohio under leases
which will expire in December 1997 and May 2003 for the Stratford, Connecticut
facilities and March 2001 for the Wilmington, Ohio facility, each containing
renewal options (See Note 4 to the Company's consolidated financial statements
included herewith). The Company leases five regional sales offices located in
Florida, Maryland, North Carolina, Texas and Ohio. The terms of the leases range
from one to three years.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 24, 1996, the Company held its 1996 Annual Meeting of
Shareholders at which the following actions were approved: directors were
elected; the Company's agreement with G.S. Beckwith Gilbert and certain of his
affiliates that Mr. Gilbert and such affiliates be permitted to vote shares of
the Company's Common Stock purchased by them from the Company in October 1995
representing up to 20% of the total voting power of the Company's voting
securities outstanding from time to time (the"Voting Rights Proposal") was
approved; the adoption of the Company's 1996 Stock Incentive Plan was approved;
and the appointment of Arthur Andersen, LLP ("Arthur Andersen") as the Company's
independent public accountants for the calendar year ended December 31, 1996 was
ratified. At the 1996 Annual Meeting of Shareholders, Messrs. Richard A.
Sandberg, Kevin C. Johnson, John P. Davis, Walter O. Fredericks, Jeffrey L.
Sklar, G.S. Beckwith Gilbert and Dr. James B. Amberson were elected as directors
of the Company. The vote for Messrs. Sandberg, Johnson, Davis, Fredericks, and
Gilbert and Dr. Amberson's election each consisted of 5,342,400 votes for and
42,479 votes against and the vote for Dr. Sklar consisted of 5,339,982 votes for
and 44,897 votes against.
The other actions taken at the Company's 1996 Annual Meeting of Shareholders
were approved pursuant to the following votes:
<TABLE>
<CAPTION>
Broker
For Against Absentions Non-Votes
--- ------- ---------- ---------
<S> <C> <C> <C> <C>
1. Approve the Voting Rights Proposal 2,802,331 188,597 17,951 2,333,521
2. Adopt 1996 Stock Incentive Plan 2,403,912 555,980 49,158 2,333,521
3. Ratify appointment of Arthur Andersen
as the Company's independent public
accountant for the calendar year ended
December 31, 1996 5,622,438 6,403 3,408 289,849
</TABLE>
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
DIANON's Common Stock trades on The Nasdaq Stock Market under the
symbol "DIAN". The following table shows the high and low sales prices of the
Company's Common Stock quoted on the Nasdaq Stock Market, for the periods
indicated below:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1995:
First Quarter 6-1/8 3-3/4
Second Quarter 5-1/4 4-3/8
Third Quarter 5-3/4 4-7/16
Fourth Quarter 5 3-1/4
1996:
First Quarter 5-1/2 3-3/8
Second Quarter 8-5/8 4-1/8
Third Quarter 7-3/8 4-1/2
Fourth Quarter 9-5/16 6-3/8
</TABLE>
As of March 14, 1997, the Company had approximately 2,511 shareholders
of record. No dividends have been paid by DIANON and it is not anticipated that
any will be paid in the foreseeable future.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Statement of Operations: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues(1) $ 56,000 $ 45,700 $ 41,017 $ 38,250 $ 34,456
Gross profit(1) 29,101 25,310 24,300 24,311 21,832
Expenses:
Selling(1) 10,618 9,709 9,008 9,783 7,885
Marketing 3,160 1,811 1,856 1,911 1,807
Research and development 3,157 5,255 4,512 4,342 3,369
General and administrative(1) 8,666 8,100 6,641 7,123 7,204
-------- -------- -------- -------- --------
Total expenses(2) 25,601 24,875 22,017 23,159 20,265
Income from operations 3,500 435 2,283 1,152 1,567
Net interest income (expense) 307 181 (90) (36) 223
Provision for income taxes(3) 1,637 509 832 270 776
-------- -------- -------- -------- --------
Net income $ 2,170 $ 107 $ 1,361 $ 846 $ 1,014
-------- -------- -------- -------- --------
Net income per share $ .34 $ .02 $ .26 $ .16 $ .19
Weighted average shares
outstanding 6,331 5,563 5,310 5,337 5,451
Dividend per share None None None None None
Balance Sheet Data:
Working capital $ 18,058 $ 16,974 $ 11,931 $ 11,110 $ 11,518
Total assets 34,536 30,455 25,206 24,614 21,103
Long-term obligations 272 750 1,674 2,519 194
Stockholders' equity 26,549 23,452 18,664 17,147 16,373
<FN>
- ----------
(1) Since implementing the restructuring of the international operations at the
end of the third quarter of 1992, international operating results have been
consolidated with domestic operating results in the consolidated statements
of operations. Applying the same accounting principles to prior periods,
the Company's revenue, cost of goods sold, selling, general and
administrative expenses for 1992 were higher by $327,000, $217,000,
$1,028,000, respectively.
(2) During 1996, 1995, 1994, 1993 and 1992, non-recurring charges relating to
severance, restructuring, accelerated amortization and other one-time costs
of $609,000, $2,668,000, $692,000, $2,542,000 and $1,674,000, respectively,
were incurred. (See Notes 2, 7, 10 and 13 to the Company's consolidated
financial statements included herewith).
(3) The Company's provision for income taxes in 1995, 1994, and 1993 includes
the benefit received from the utilization of tax credits. (See Note 3 to
the Company's consolidated financial statements included herewith).
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Results of Operations
o Net Revenues
Net revenues were $56 million in 1996, an increase of $10.3 million or
23% from 1995. Increased sales were attributable to increased market penetration
by the Company's anatomic pathology testing services. The increase in anatomic
pathology services in 1996 over 1995 was offset to some extent by a decrease in
clinical chemistry and hospital based tissue testing services.
Net revenues were $45.7 million in 1995, an increase of $4.7 million or
11% from 1994. Increased sales were attributable to increased market penetration
by the Company's anatomic pathology testing services. The increase in sales in
1995 and 1994 was offset to some extent by a decrease in clinical chemistry and
hospital based tissue testing services.
o Cost of Sales
Cost of sales, which consists primarily of payroll, laboratory
supplies, outside services, logistics (primarily shipping and handling), and
depreciation expense, was $27 million during 1996, an increase of $6.5 million
or 32% from 1995. Salaries and wages were approximately $8.7 million in 1996, an
increase of $2.6 million or 43% from 1995. This increase was principally due to
the average number of full time equivalent laboratory employees rising from 143
in 1995 to 193 in 1996. This increase in laboratory headcount was due in part to
the growth of the Company's anatomic pathology testing services in 1996.
Laboratory supplies were approximately $5.7 million in 1996, an increase of
$865,000 or 18% from 1995. This increase was the result of higher volume and
costs for reagents used for some of the Company's testing services. Logistics
were $4.6 million in 1996, an increase of $638,000 or 16% from 1995, primarily
due to higher sales volume. Overhead expenses (primarily building rent,
utilities and depreciation) were $7.9 million during 1996 an increase of $2.1
million or 36% over 1995. This increase was due primarily to the additional
facilities oriented expenses associated with the introduction of the Company's
new anatomic pathology testing service product line, specifically in the form of
additional depreciation and building expenses incurred from the continued
expansion and equipping of the Company's facilities. As a percentage of net
revenues, cost of sales increased to 48% during 1996 from 45% during 1995.
Cost of sales was $20.4 million during 1995, an increase of $3.7
million or 22% from 1994. Salaries and wages were approximately $6.1 million in
1995, an increase of $1.7 million or 39% from 1994. This increase was
principally due to the average number of full time equivalent laboratory
employees increasing from 112 in 1994 to 143 in 1995. This increase in
laboratory headcount was incurred in part to support new anatomic pathology
testing services and in part to prepare for anticipated growth in 1996.
Laboratory supplies were approximately $4.8 million in 1995, an increase of
$544,000 or 13% from 1994. This increase was the result of rising volume and
increased costs for reagents used for some of the Company's testing services.
Logistics were $4 million in 1995, an increase of $280,000 or 8% from 1994. This
increase was due to increased sales volume. Overhead expenses (primarily
building rent, utilities and depreciation) were $5.5 million during 1995, an
increase of $1.1 million or 26% over 1994. This increase was due primarily to
the additional facilities oriented expenses associated with the introduction of
the Company's new anatomic pathology product line, specifically in the form of
additional depreciation and building expenses incurred from the initial
expansion and equipping of the Company's facilities. As a percentage of net
revenues, cost of sales increased to 45% during 1995 from 41% during 1994.
o Gross Profit
As a result of the increase in sales volume in 1996, gross profit
increased $3.8 million from 1995. The Company's gross profit margin decreased to
52% in 1996 from 55% in 1995. The gross profit margin continued to decrease from
1995 to 1996 due to the erosion of the average price reimbursed for certain
clinical chemistry testing services and the higher costs associated with
providing anatomic pathology testing services.
Gross profit was $25.3 million in 1995, an increase of $1.0 million or
4% from 1994. As a percentage of net revenues, gross profit decreased to 55% in
1995 from 59% in 1994. The gross profit margin continued to decrease from 1994
to 1995 due to the erosion of the average price reimbursed for certain clinical
chemistry 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. Also, 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. The 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 OBRA '93, Congress reduced over time the national cap on
Medicare laboratory fee schedules. This national cap has been lowered each year
and now is 76% of the national median. OBRA '93 also eliminated the annual
updates of Medicare laboratory fee schedules for the years 1994 and 1995. In
1996, however, the fee schedule update was 3.2%; the HCFA has recently announced
that the fee schedule update for 1997 will be 2.7%. However, the corresponding
expected national cap increase of 2.7% may not be fully realized due to a
recalculation of national medians necessitated by conversion in some carrier
areas to a single statewide fee schedule.
With respect to the Company's tissue testing services which are not
reimbursed under the Medicare laboratory fee schedules, the Medicare fees for
these services also generally declined with the implementation of the 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 RVU's established for the service by a conversion factor that is set
by law. The number of RVU's assigned to each service is in turn calculated by
adding three separate components, including one representing the relative work
values. In 1996, HCFA completed a five-year review of the work value component
and, as a result, revised the work value amount assigned to many physician
services. In addition, based on a default formula established in law, the 1997
conversion factor for nonsurgical services dropped 0.8% from 1996 to $33.8454
per conversion factor. The changes resulting from the five-year review, combined
with the conversion factor reductions, resulted in an overall decrease in
payments for pathology services of approximately 5.7% beginning January 1, 1997.
Also, HCFA reduced the number of physician fee schedule payment localities from
210 to 89, effective January 1, 1997. Connecticut was one of the states that
HCFA moved to a single payment locality. This modification created a 3.2%
decrease in the RBRVS geographic adjustment factor for physicians located in
Eastern Connecticut, where the Company's primary operations are located. In the
past, implementation of the RBRVS program has had the effect of reducing prices,
and thus the gross profit, of the Company. The recent substantial RBRVS
adjustments are likely to continue this trend.
Furthermore, as a result of the Social Security Act amendments of 1994,
Medicare is required to revise the formula for calculating the practice expense
component of the physicians' Medicare fee schedule from the current historical
basis to a resource basis beginning January 1, 1998. Some concern has been
expressed by physician specialty groups that this data HCFA plans to use for
these revisions is not adequate and that the agency's methodology could result
in specialty practice expenses being underestimated. At this point, HCFA is
considering a variety of options for calculating practice expense revisions. It
is possible that certain changes HCFA might make would have a significant
negative affect on reimbursement, and thus gross profit, for anatomic pathology
services. Practice expenses currently account for approximately 42% of the
physicians' Medicare fee schedule payment amount.
Any future changes in government and other third-party payor
reimbursement which may come about as a consequence of an enactment of health
care reform or of deficit reduction legislation also likely will continue the
downward pressure on prices and make the market for clinical laboratory services
more competitive. Changes in government reimbursed medicare, as previously
described in the reimbursement section are possible this year. Because of the
uncertainties about the exact nature of any changes which may ultimately be
adopted, however, the Company currently is unable to predict their ultimate
impact on the clinical laboratory industry generally or on the Company in
particular. Even apart from federal legislative action, reforms may occur at the
state level and changes are occurring in the marketplace as a result of market
pressures, including the increasing number of patients covered by some form of
managed care. 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, if price
decreases (for example arising from the proposed Medicare changes discussed
above) or coverage changes were to be rapidly and fully implemented, they would
be likely to have an adverse impact on gross profits from the Company's testing
services until management was able to mitigate such impact. Furthermore, in
recent years the Company's gross profit margin has trended down from over 60% to
about 52%, and there can be no assurances that such trends may not continue.
<PAGE>
o Selling, General and Administrative Expenses
Selling, general and administrative expenses were $22 million during
1996, an increase of $4.9 million or 29% from 1995. General and administrative
expenses were $11.6 million in 1996, an increase of $3.0 million or 35% from
1995. These increases were primarily attributed to higher sales levels resulting
in increased selling, general and administrative activities of the Company. As a
percentage of net revenues, selling, general and administrative expenses
increased to 39% in 1996 from 37% in 1995.
Selling, general and administrative expenses were $17.1 million during
1995, an increase of $249,000 or 1% from 1994. General and administrative
expenses were $8.6 million in 1995, an increase of $234,000 or 3% from 1994.
These increases were primarily attributed to higher sales levels resulting in
increased selling, general and administrative activities of the Company. As a
percentage of net revenues, selling, general and administrative expenses
decreased to 37% in 1995 from 41% in 1994.
o Research and Development
Research and development expenses include the costs of building the
Company's database and the review, analysis and clinical evaluation of existing
as well as new technologies. Research and development expenses were $3.1 million
in 1996, a decrease of approximately $2.1 million or 40% from 1995. This
decrease in 1996 is primarily due to the completion in 1996 of the major portion
of expenditures for the development of the new anatomic pathology services. As a
percentage of net revenues, research and development expenses decreased to 6%
during 1996 compared to 12% in 1995. With the completion of such development
activities, it is expected that such expenditures will represent a smaller
percentage of sales in future years.
Research and development expenses were $5.3 million in 1995, an
increase of approximately $743,000 or 16% from 1994.
o Amortization Expense
Amortization expenses were $399,000 in 1996, a decrease of
approximately $866,000 or 68% from 1995. In the fourth quarter of 1996, the
Company recorded an extraordinary accelerated amortization charge of
approximately $44,000 based on management's estimate of future benefits
anticipated from a customer list (compared to a $765,000 accelerated
amortization charge in 1995).
Amortization expenses were $1.3 million in 1995, an increase of
approximately $723,000 or 133% from 1994. In the second quarter of 1995, the
Company recorded an extraordinary accelerated amortization charge of
approximately $765,000 based on management's estimate of future benefits
anticipated from a customer list (no such charge was recorded in 1994).
Amortization expense, severance costs, investment write-down and
restructuring costs have been included in general and administrative and
research and development expenses in the consolidated statements of operations
in the Company's consolidated financial statements included herewith.
o Severance Costs
During 1996, the Company recorded a reserve of approximately $148,000
for severance costs as a result of the resignation of certain officers of the
Company. Severance costs are expected to be paid by the end of the second
quarter of 1997.
During 1995, the Company recorded a reserve of approximately $595,000
for severance costs as a result of the streamlining its operating expenses and
the resignation of certain officers of the Company. Severance costs were paid by
the end of the second quarter of 1996.
<PAGE>
Amortization expense, severance costs, investment write-down and
restructuring costs have been included in general and administrative and
research and development expenses in the consolidated statements of operations
in the Company's consolidated financial statements included herewith.
o Investment Write-down
During 1996 and 1995, the Company recorded charges of $62,000 and
$530,000, respectively, to write down the investment in common stock of a
publicly traded company to market value as the loss in value was deemed other
than temporary in accordance with Statement of Financial Accounting Standard
115, "Accounting for Certain Investments in Debt and Equity Securities". The
Company plans to sell its remaining 24,386 shares of common stock of such
company in 1997.
Amortization expense, severance costs, investment write-down and
restructuring costs have been included in general and administrative and
research and development expenses in the consolidated statements of operations
in the Company's consolidated financial statements included herewith.
o Restructuring Costs
In 1995, the Company provided a reserve of $279,000 due to management's
decision to discontinue European based operations. Remaining reserves for the
discontinuance of such operations at December 31, 1996 are approximately
$155,000. The Company is in the process of liquidating the European based
operations and plans to complete the liquidation process by the end of the 1997
fiscal year.
Amortization expense, severance costs, investment write-down and
restructuring costs have been included in general and administrative and
research and development expenses in the consolidated statements of operations
in the Company's consolidated financial statements included herewith.
o Interest Income
Cash and cash equivalents as of December 31, 1996 was approximately
$7.5 million of which approximately $6 million was invested at year end. The
Company's interest income was approximately $384,000 for 1996, an increase of
approximately $67,000 or 21% from 1995.
Cash and cash equivalents as of December 31, 1995 was approximately $11
million. Approximately $4.6 million came from a private placement in October
1995. The Company's interest income was approximately $317,000 for 1995, a
increase of approximately $214,000 or 207% from 1994 which was caused both by
higher interest rates and by investing over $4.6 million from the private
placement completed in October 1995.
o Interest Expense
Interest expense was approximately $77,000 for 1996, a decrease of
$59,000 or 43% from 1995. The decrease in interest expense during 1996 was due
to the pay-down of a portion of the $3.5 million term loan obtained in July 1993
which bears interest at 6% per year.
Interest expense was approximately $136,000 for 1995, a decrease of
$58,000 or 30% from 1994. The decrease in interest expense during 1995 was due
to the pay-down of a portion of the $3.5 million term loan obtained in July
1993.
<PAGE>
o Provision for Income Taxes
Provision for income tax expense was approximately $1,637,000 for 1996,
representing an increase of approximately $1.1 million or 222% from 1995 as a
result primarily of higher pretax income (pretax income increased 518%). The
effective tax rate was 43% during 1996 compared to 83% for 1995.
Provision for income tax expense was approximately $509,000 for 1995,
representing a decrease of approximately $323,000 from 1994 as a result of lower
pretax income. The effective tax rate was 83% during 1995 compared to 38% for
1994. The increase in the effective tax rate during 1995 was due to certain
expenses not being deductible for tax purposes including $530,000 arising from
the write-down of the investment in common stock of a publicly traded company.
o Net Income
As a result of the foregoing, 1996 net income was $2.2 million as
compared to $107,000 in 1995. Net income for 1995 decreased approximately $1.3
million or 92% from 1994. Net income for 1995 includes approximately $2.2
million in pretax extraordinary charges relating to severance, restructuring and
other extraordinary costs as compared to $254,000 for similar charges in 1996.
o Earnings Per Share
Earnings per share were $.34 in 1996, as compared to $.02 in 1995. The
extraordinary charges incurred in 1995 (described in the immediately succeeding
paragraph) represented approximately a $.23 reduction in 1995 earnings per share
(using an approximate pro forma 41% effective tax rate). Extraordinary charges
were substantially less in 1996, representing approximately a $.02 reduction in
1996 earnings per share (using an approximate pro forma 41% effective tax rate).
Earnings per share were $.02 in 1995, as compared to $.26 in 1994. The
non-recurring charges for the accelerated amortization of a customer list
recorded in the second quarter of 1995 for $765,000, the write-down of
investment for $530,000, the international restructuring reserve for $279,000
and the severance costs for $595,000 represented approximately a $.23 reduction
in 1995 earnings per share using a pro forma effective tax rate of approximately
41%.
o Liquidity and Capital Resources
As of December 31, 1996, the Company had total cash and cash
equivalents of $7.5 million which was invested in a fund holding U.S. Treasury
securities with maturities of less than three months.
As of December 31, 1996, the Company had working capital of $18.1
million compared to $17.0 million at December 31, 1995. The working capital
ratio as of December 31, 1996 was 3.4 to 1 compared to 3.7 to 1 at December 31,
1995.
Domestic trade receivables, net, were $15.2 million as of December 31,
1996, an increase of $5.7 million or 61% from December 31, 1995. During the
fourth quarter of 1996, the average number of days sales in domestic trade
receivables was approximately 79 days as compared to 65 days for the comparable
period of 1995. The increase in average number of days sales was a result of
increased volume in the growth of the Company's anatomic pathology services and
increased complexity of billing for anatomic pathology services.
Capital expenditures for 1996, 1995 and 1994 were $3.4 million, $2.3
million and $1.6 million, respectively. Capital expenditures for 1996 were
mainly for the expansion of the Company's laboratory facilities. Approximately
$1.9 million related to leasehold improvements to expand the Company's physical
plant in Stratford, CT and to develop the Company's new specimen processing
facility in Wilmington, OH.
In July 1993, the Company obtained a $3.5 million term loan from a bank
bearing interest at 6% per year and payable over a 47 month period. During 1995,
<PAGE>
the loan agreement was modified to revise certain financial covenants, including
those with respect to tangible net worth and debt service coverage requirements
and limitation on certain expenditures. The principal outstanding under such
term loan is approximately $650,000 as of December 31, 1996 (See Note 11 to the
Company's consolidated financial statements included herewith).
On October 5, 1995, the Company completed a $5,612,000 private
placement with an investor for one million shares of Common Stock and a two-year
warrant for 800,000 shares exercisable at $6.00 per share of Common Stock
(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. Some or all of
the warrants could be exercised at a price of $5.00 at any time on or before
October 31, 1996. Upon such election the Company would be required to 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 warrants for 800,000 shares were all exercised on or
before October 31, 1996, the two year promissory note for $296,000 would 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 could 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 the Company's agreement 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. The Company's agreement was approved at
the Company's Annual Meeting on October 24, 1996. On October 29, 1996, the
investor exercised warrants for all 800,000 shares 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 outstandng period, the Company issued to the
investor 800,000 shares of its Common Stock and fully extinguished and cancelled
the promissory note.
As of December 31, 1996, the Company had purchased 117,196 shares of
Common Stock as required by its Employee Stock Purchase Plan ("ESPP"). The
Company's Board of Directors has authorized additional acquisitions for ESPP
requirements for further additional share repurchases costing up to $2,000,000.
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 and the information provided
elsewhere in this 10K (including, without limitation, in the third and fourth
paragraphs of "Item 1. Business" and under "Gross Profit" and "Liquidity and
Capital Resources" above) 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 (see e.g. Item 1 - Business - "Reimbursement"); being
deemed to be not in compliance with Federal or state regulatory requirements
(see e.g. Item 1 - Business - "Regulatory"); 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 healthcare 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 qualified 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 III
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and schedule and the
reports of independent public accountants thereon appear beginning on page F-2.
See index to such consolidated financial statements and schedules and reports on
page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each director and
executive officer during the last five years has been furnished to the Company
by such director or executive officer. Except as indicated, each of the
directors and executive officers has had the same principal occupation for the
last five years.
Information Regarding Directors
Set forth below is certain information concerning each director of
Dianon Systems, Inc.
Richard A. Sandberg, age 54, is a founder of the Company, and served as
either Chief Executive Officer or Co-Chief Executive Officer and as a director
from the Company's inception until May 1996. Mr. Sandberg also served as
Chairman of the Board from 1989 to February 1997. He currently serves the
Company as a Director and consultant. Mr. Sandberg also serves as a Director of
UroMed Corporation.
Kevin C. Johnson, age 42, a Director since May 1996, has served as
President since May 1996, when he joined the Company. In February 1997, he was
given the additional title of Chief Executive Officer. Formerly, Mr. Johnson was
with Corning Inc., a manufacturer of specialty materials and a provider of
laboratory services, for eighteen years, serving most recently as Vice President
and General Manager of Corning Clinical Laboratories' largest region in
Teterboro, New Jersey.
John P. Davis, age 55, a Director since 1984, is President and Chief
Executive Officer of Calypte Biomedical Corp., a diagnostic products company.
From 1984 to January 1995, Mr. Davis was an officer of the Company. Mr. Davis
joined the Company in January 1984 as President and Chief Operating Officer, and
subsequently became co-Chief Executive Officer in 1992 and Chief Executive
Officer in 1994. In January 1995, Mr. Davis resigned as Chief Executive Officer
of the Company and became Vice Chairman of the Board. As of February 1997, Mr.
Davis was elected non-executive Chairman of the Board. Mr. Davis also serves as
a Director of PepGen Corporation.
Walter O. Fredericks, age 57, a Director since 1989, is Chairman,
President and Chief Executive Officer of Lifecodes Corporation and Chairman of
Cellmark Diagnostics, Inc., both of which are in the human identity testing and
product supply field. Mr. Fredericks is also President and Chairman of
Electronic Instruments International Corporation, a manufacturer of electronic
instrumentation.
Jeffrey L. Sklar, age 49, a Director since 1994, is director, Division
of Diagnostic Molecular Biology, Department of Pathology, Brigham and Women's
Hospital. Dr. Sklar is Professor of Pathology, Harvard Medical School, and since
1992, Dr. Sklar has also served as Director, Molecular Diagnostic Laboratory,
Dana-Farber Cancer Institute. Dr. Sklar presently serves on the Editorial Boards
of the American Journal of Pathology and Genes, Chromosomes, and Cancer. In
addition, Dr. Sklar serves on the Scientific Advisory Committee for Clinical
Science, The Fred Hutchinson Cancer Center, Seattle, Washington; the Scientific
Advisory Committee, New England Primate Research Center, Harvard University; and
the Pathology B Study Section, National Institutes of Health. Dr. Sklar holds an
M.D. and Ph.D. from Yale University and a M.A. (honorary) from Harvard
University.
<PAGE>
G. S. Beckwith Gilbert, age 55, a Director since October 1995, is
President, Chief Executive Officer and a Director of Field Point Capital
Management Company in Greenwich, Connecticut, a merchant banking firm. Mr.
Gilbert is also a partner of Wolsey & Co., a merchant banking firm. Mr. Gilbert
serves as a Director of Davidson Hubeny Brands, Inc. and TMS Technologics, Inc.
Mr. Gilbert is a graduate of Princeton University and has an M.B.A. from New
York University. In February 1997, Mr. Gilbert was elected Chairman of the
Executive Committee.
James B. Amberson, age 45, a Director since January 1995, is Senior
Vice President, Operations and Chief Medical Officer. Dr. Amberson joined DIANON
in 1989 as Director, Cytometry Business Unit, and has served as Vice President
of Pathology Services, Vice President of Medical Affairs and Senior Vice
President and General Manager of the Anatomic Pathology Unit before his present
position. Prior to joining the Company, he was Assistant Professor of Pathology,
Cornell University Medical College for six years. Dr. Amberson holds an M.D.
from Johns Hopkins University, and an M.B.A. from Columbia University School of
Business.
Compensation of Directors
Directors who are not employees of the Company are paid $1,500 for each
meeting of the Board of Directors attended in person and $500 for each meeting
attended by telephone. In addition, committee members are paid $500 for each
committee meeting attended which does not occur on the same day as a Board
meeting. Directors are also reimbursed for expenses to attend meetings of the
Board and its committees. In addition, the Company has made payments to Brigham
& Women's Hospital, Inc. for which Dr. Sklar is director, Division of Diagnostic
Molecular Biology, Department of Pathology. (See Note 6 to the Company's
consolidated financial statements included herewith.)
Pursuant to the Company's 1996 Stock Incentive Plan, Directors who are
not employees of the Company receive (i) automatic initial and quarterly grants
of stock options with tandem limited stock appreciation rights beginning July
1995, (ii) automatic quarterly grants of shares of Common Stock beginning
January 1997 and (iii) additional stock options or other equity awards to the
extent granted by the Board of Directors in its discretion.
Each initial and quarterly stock option which is automatically granted
under such plan is exercisable for that number of shares obtained by dividing
$5,000 by the closing price of the Common Stock on the date of grant and is
exercisable at that price. Each such option has a 10-year term and vests with
respect to 10% of the underlying shares on the date which is three months after
the date of grant, and an additional 10% at the end of each three-month period
thereafter. Each such option can be exercised for five years following a
director's termination of service to the extent it had vested prior to
termination. Each automatic quarterly stock grant is for the number of shares
obtained by dividing $2,000 by the closing price of the Common Stock on the date
of grant, and is fully vested at grant.
In November 1996, pursuant to authorization by the Board of Directors,
the Company granted to Dr. Sklar options to purchase 10,000 shares of Common
Stock at an exercise price of $6.375 to compensate him for his services as a
Director, which options vested 40% on grant with the remaining options vesting
20% on each of August 4, 1997, August 4, 1998 and August 4, 1999. Such grant is
a replacement of options to purchase 10,000 shares of Common Stock authorized
but not accepted by Dr. Skar in 1994 due to the conditions of his employment by
Brigham & Women's Hospital, Inc. In October 1996, pursuant to authorization by
the Board of Directors, the Company granted options to purchase 10,000 shares of
Common Stock at an exercise price of $7.125 per share to Mr. de Bruin in
replacement of options issued in June 1993 which were due to expire in June 2000
and were 60% vested as of October 1996 with the remaining options vesting 20% on
each of June 4, 1997 and June 4, 1998. These replacement options vested 100% in
October 1996 and expire ten years from the date of grant.
Messrs. Sandberg and Johnson and Dr. Amberson received no additional
compensation during 1996 for their services as directors of the Company.
<PAGE>
Information Regarding Executive Officers
David R. Schreiber, age 37, has served as Senior Vice President,
Finance, Chief Financial Officer and Corporate Secretary since November 1996
when he joined the Company. Formerly, Mr. Schreiber was with Corning Clinical
Laboratories for 10 years, serving most recently as Vice President and General
Manager of the laboratory's Midwest region. Mr. Schreiber holds an M.B.A. from
Northern Illinois University.
Robert C. Verfurth, age 37, joined the Company in February 1989 as a
Sales Representative. He subsequently served as Southeast Regional Sales
Manager, National Accounts Manager, and Director of Sales. He has served as Vice
President, Sales since December 1996. Before joining the Company, Mr. Verfurth
was a captain in the U.S. Air Force. Mr. Verfurth holds an M.S. from the
University of Southern California.
James T. Barry, age 35, joined the Company in July 1989 as Corporate
Recruiter and subsequently served as Director of Managed Care. He has served as
Vice President of Marketing & Technology since December 1996. Before joining the
Company, Mr. Barry was a major in the U.S. Marine Corps. Mr. Barry holds a B.A.
from Rhode Island College.
Steven T. Clayton, age 30, has served as Vice President, Information
Services since he joined the Company in December 1996. Prior to joining the
Company, Mr. Clayton was with Corning Clinical Laboratories for nine years
serving most recently as the Midwest Regional Director of Information Systems.
Mr. Clayton holds an A.S.M. from Thomas Edison State College.
For information with respect to Mr. Johnson and Dr. Amberson, who are
also directors, see ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - Information Regarding Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent shareholders are
required to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and representations that no other reports
were required during the fiscal year ended December 31, 1996, all Section 16(a)
reporting requirements applicable to its officers, directors and greater than
ten percent beneficial shareholders were complied with except for the following:
Messrs. Johnson, Schreiber, Clayton, Verfurth and Barry each were late in filing
their initial Form 3 when becoming subject to the Section 16 reporting
requirements. Drs. Amberson and Sklar each filed a late report with respect to
one transaction. Mr. Gilbert filed a late report with respect to five outside
director option grants that became effective upon shareholder approval of the
1996 Stock Incentive Plan at the Company's Annual Meeting of Shareholders on
October 24, 1996.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the
following named executive officers: (i) the person who served as Chief Executive
Officer ("CEO") during 1996, (ii) the four executive officers other than the CEO
serving at December 31, 1996 whose total salary and bonus for 1996 exceeded
$100,000, and (iii) two additional executive officers who terminated employment
with the Company during 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
----------------------------------- ------------
Long Term
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options (4) Compensation
------------------ ---- ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Sandberg (1) 1996 $212,500 $20,000 $ -- -- $ 3,681 (2)
Chairman of the Board and 1995 212,500 36,975 -- -- 3,681
Chief Executive Officer 1994 203,280 47,902 -- 20,000 3,681
Kevin C. Johnson (3) 1996 174,520 50,000 (4) -- 200,000 1,507 (5)
President and Director
David R. Schreiber 1996 29,231 80,000 (6) -- 50,000 1,742 (7)
Sr. Vice President Finance,
Chief Financial Officer and
Corporate Secretary
James B. Amberson, M.D. 1996 200,013 47,869 -- 15,000 2,530 (8)
Senior Vice President, 1995 185,465 36,997 -- 25,000 2,104
Operations and Chief 1994 173,764 39,230 -- 31,500 12,889
Medical Officer and
Director
Albert A. Luderer, Ph.D. (9) 1996 171,191 29,206 -- -- 9,199 (11)
Vice President, Technology 1995 163,369 41,758 4,190 (10) 10,000 8,530
1994 155,048 27,110 2,214 (10) 26,000 22,639
Carl R. Iberger(12) 1996 88,587 13,212 -- -- 71,318 (13)
Vice President, Finance and 1995 108,952 27,788 -- -- 3,144
Administration and 1994 103,981 17,847 -- 26,800 3,465
Corporate Secretary
Daniel J. Cronin (14) 1996 89,048 13,564 -- -- 6,368 (15)
Vice President, Management 1995 91,038 18,995 -- 4,000 3,092
Information Systems 1994 79,615 15,904 -- 15,800 726
<PAGE>
<FN>
- ----------
(1) Mr. Sandberg ceased serving as Chief Executive Officer of the Company in
May 1996, while continuing to serve as an employee holding the title
Chairman of the Board. As of February 1997, Mr. Sandberg resigned as
Chairman of the Board. He continues to serve as a Director and consultant
to the Company.
(2) The $3,681 indicated for Mr. Sandberg represents contributions paid by the
Company pursuant to the Company's 401(K) Retirement Plan and premiums paid
by the Company for term life insurance which for 1996 amounted to $1,500
and $2,181, respectively.
(3) Mr. Johnson joined the Company as President in May 1996 and was elected to
the position of Chief Executive Officer in February 1997.
(4) The $50,000 indicated for Mr. Johnson represents a sign-on bonus he
received when he joined the Company in May 1996.
(5) The $1,507 indicated for Mr. Johnson represents premiums paid by the
Company for term life insurance.
(6) The $80,000 indicated for Mr. Schreiber represents a sign-on bonus he
received when he joined the Company in November 1996.
(7) The $1,742 indicated for Mr. Schreiber represents relocation costs paid in
1996.
(8) The $2,530 indicated for Dr. Amberson represents contributions paid by the
Company pursuant to the Company's 401(K) Retirement Plan and premiums paid
by the Company for term life insurance which for 1996 amounted to $1,500
and $1,030, respectively.
(9) Dr. Luderer resigned as Vice President, Technology in January 1997.
(10) The amounts indicated for 1995 and 1994 for Dr. Luderer are relocation tax
gross-ups.
(11) The $9,199 indicated for Dr. Luderer includes deferred compensation under
the Company's vacation banking policy accrued for during 1996,
contributions paid by the Company pursuant to their 401(K) Retirement Plan,
and premiums paid by the Company for term life insurance which for 1996
amounted to $6,681, $1,300 and $1,218, respectively.
(12) Mr. Iberger resigned as Vice President, Finance and Administration and as
Corporate Secretary in September 1996.
(13) The $71,318 indicated for Mr. Iberger represents severance pay,
contributions paid by the Company pursuant to the Company's 401(K)
Retirement Plan and premiums paid by the Company for term life insurance
which for 1996 amounted to $69,339, $1,500 and $479, respectively.
(14) Mr. Cronin resigned as Vice President, Management Information Systems in
December 1996.
(15) The $6,368 indicated for Mr. Cronin represents severance pay, contributions
paid by the Company pursuant to the Company's 401(K) Retirement Plan and
premiums paid by the Company for term life insurance which for 1996
amounted to $5,452, $520 and $396, respectively.
</FN>
</TABLE>
<PAGE>
Employment and Severance Agreements
In January 1995, Mr. Davis resigned his full-time employment and
officer position with the Company. The Company paid approximately $257,000
during 1995 and $21,000 during 1996 for severance benefits to Mr. Davis. As part
of the severance agreement, during 1995 stock options to purchase 69,916 shares
of Common Stock at exercise prices ranging from $4.56 to $10.75 were cancelled
and stock options to purchase 116,084 shares of Common Stock with exercise
prices ranging from $8.00 to $10.75 were amended to set their exercise price at
$5.25. These amended options vested 25% in March 1995 and the remaining 75% in
January 1997.
The Company entered into an employment agreement with Mr. Johnson on
May 2, 1996 as President of the Company. The agreement provides for an initial
base salary of $275,000 per annum, the grant of options to purchase 200,000
shares of Common Stock with a 10-year term and an exercise price of $5.69, stock
grants of 15,000 shares of Common Stock on each of January 2, 1997 and January
2, 1998 provided Mr. Johnson continues to be employed by the Company, a signing
bonus of $50,000 and a loan of $150,000. The loan carries an interest rate of
5.9%, payable annually, and is repayable upon termination of Mr. Johnson's
employment by the Company. If Mr. Johnson continues to be employed by the
Company, the loan principal will be forgiven at the rate of $2,500 per complete
month of employment from January 31, 1998 through December 31, 2002. This
agreement provides that in the event of a termination of Mr. Johnson's
employment other than for "Cause", as defined in the agreement, he is entitled
to receive one year's salary and other benefits. Subject to the foregoing, this
agreement is subject to termination at will by either party.
The Company entered into executive employment agreements with Richard
A. Sandberg and 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 Company also entered into an employment agreement with Dr. James B.
Amberson on September 1, 1996. Pursuant to such 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.
During the third quarter 1996, the Company recorded a charge of
$133,933 for severance benefits relating to Messrs. Iberger and Cronin, two
officers of the Company who resigned their full-time employment and officer
positions in September 1996 and December 1996, respectively. The Company is
paying Mr. Cronin severance payments of $7,270 per month for the period of four
months after his termination and for the following two months if he has not
obtained other employment. Mr. Iberger received a lump sum payment of $60,000
and is receiving severance payments totaling approximately $27,000 for the
period of nine months after his termination.
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. The agreement provides for an initial base
salary of $190,000 per annum, the grant of options to purchase 50,000 shares of
Common Stock with a 10-year term and an exercise price of $6.625, a signing
bonus of $80,000 and stock grants of 7,500 shares of Common Stock on April 1,
1997 if Mr. Schreiber continues to be employed by the Company on such date. This
agreement provides that in the event of a termination of Mr. Schreiber's
employment other than for "Cause", as defined in the agreement, he is entitled
to receive one year's salary (and certain other benefits) if such termination
occurs within the first year of employment or six months after the Company is
acquired by another business entity or six month's salary (and certain other
benefits) if such termination occurs after the first year of employment. Subject
to the foregoing, this agreement is subject to termination at will by either
party.
<PAGE>
The Company entered into an employment agreement with Steven T. Clayton
on November 18, 1996 as Vice President, Information Services of the Company. The
agreement provides for an initial base salary of $120,000 per annum, a signing
bonus of $14,000 and the grant of options to purchase 15,000 shares of Common
Stock with a 10-year term and an exercise price of $7.875.
Richard A. Sandberg resigned as Chairman of the Board and as an officer
of the Company effective February 27, 1997. In connection with his resignation,
the Company and Mr. Sandberg entered into an agreement pursuant to which the
Company agreed to employ Mr. Sandberg, and Mr. Sandberg agreed to be employed,
as a consultant to the President until February 28, 1998 or his earlier death,
disability, resignation, or termination for cause (as defined in the agreement).
Such agreement provides for Mr. Sandberg to receive annual base compensation of
$232,000 plus all benefits provided to management employees of the Company other
than participation in management incentive programs. In addition such agreement
provides that all options to purchase Common Stock held by Mr. Sandberg as of
February 27, 1997 became fully vested on such date to the extent not previously
vested. Mr. Sandberg also has the right to sell any or all of such options to
the Company at any time on or before May 28, 1997 for an amount per share
subject to the option equal to the difference between $10.875 and the per share
exercise price of the option. If such agreement is not otherwise renewed by
mutual agreement of the Company and Mr. Sandberg, it terminates by its terms on
February 28, 1998, in which event for six months after such termination, Mr.
Sandberg will be entitled to severance pay of $19,333 per month plus medical
insurance premiums and car allowance. Under these circumstances, 20,000 shares
of Mr. Sandberg's stock options will terminate in May 1998 and 156,000 shares
will terminate in February 2000. Mr. Sandberg has agreed that he will not
compete with the Company within the United States for a period of two years
after the termination of his employment as a consultant pursuant to this
agreement.
Stock Options
The following table shows, as to the named executive officers of the
Company, information about option grants in the last fiscal year. The Company,
as of December 31, 1996, has not granted any Stock Appreciation Rights to
officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of Stock Price
Underlying Granted to Exercise or Appreciation for Option Term
Options Employees Base Price Expiration --------------------------------
Name Granted(#)(1) in 1996 ($/Share) Date 5%($) 10%($)
---- ------------- ------- --------- ---- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Sandberg -- -- -- -- -- --
Kevin C. Johnson 200,000(2) 43% 5.6875 05/02/06 715,368 1,812,882
David R. Schreiber 50,000(3) 11% 6.6250 10/01/06 208,321 527,927
James B. Amberson, M.D. 15,000(4) 3% 6.3750 11/04/06 60,138 152,402
Albert A. Luderer, Ph.D. -- -- -- -- -- --
Carl R. Iberger -- -- -- -- -- --
Daniel J. Cronin -- -- -- -- -- --
<FN>
- ----------
(1) Does not include options granted under the Company's Employee Stock
Purchase Plan, which were made available to all employees of the Company on
a non-discriminatory basis.
(2) In May 1996, the Company granted Mr. Johnson options to purchase 200,000
shares of Common Stock at $5.6875 per share pursuant to his employment
agreement. These options vest 40% in May 1998 and 20% during each year
thereafter. Upon termination of employment, all unvested options are
cancelled and all vested options expire 90 days after termination of
employment.
<PAGE>
(3) In October 1996, the Company granted Mr. Schreiber options to purchase
50,000 shares of Common Stock at $6.625 per share pursuant to his
employment agreement. These options vest 40% in October 1998 and 20% during
each year thereafter. Upon termination of employment, all unvested options
are cancelled and all vested options expire 90 days after termination of
employment.
(4) In November 1996, the Company granted certain employees and officers
options to purchase 203,000 shares of Common Stock at $6.375 per share.
These options vest 40% in November 1998 and 20% during each year
thereafter. Upon termination, all unvested options are cancelled and all
vested options expire 90 days after termination of employment.
</FN>
</TABLE>
The following table shows aggregate option exercises in the last fiscal year and
fiscal year-end option values for the named executive officers. The Company, as
of December 31, 1996, has not granted any Stock Appreciation Rights.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Value
Realized Value of Unexercised
(Market Number of In-the-Money Options
Price at Securities Underlying at FY-End (based on
Exercise Unexercised FY-End Price of
Shares less Options at FY-End(#) $8.625/share)(1)
Acquired on Exercise ---------------------------- ----------------------------
Name Exercise(#) Price)($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Sandberg -- $ -- 149,024 26,976 $101,160 $ 58,140
Kevin C. Johnson -- -- -- 200,000 -- 587,500
David R. Schreiber -- -- -- 50,000 -- 100,000
James B. Amberson, M.D -- -- 19,340 52,160 78,617 167,555
Albert A. Luderer, Ph.D. 12,800 41,632 -- -- -- --
Carl R. Iberger -- -- 15,440 -- 62,764 --
Daniel J. Cronin 7,920 26,326 -- -- -- --
<FN>
- ----------
(1) Computed based upon difference between aggregate fair market value and
aggregate exercise price.
</FN>
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Sklar served as a member of the Compensation Committee of the
Company's Board of Directors during the last completed fiscal year and is
continuing to serve as such in the 1997 fiscal year. In 1995 the Company entered
into a three-year research and development agreement with Brigham & Women's
Hospital, Inc., for which Dr. Sklar is director, Division of Diagnostic
Molecular Biology, Department of Pathology. The agreement requires the Company
to make quarterly payments of $30,000 totaling $360,000 in exchange for an
option to obtain rights in certain existing inventions as well as inventions
developed during the course of research in the areas of cancer detection and
diagnosis. The research is to be conducted by Dr. Sklar. The Company paid
$120,000 and $60,000 in 1996 and 1995, respectively. In addition, the Company
has made payments to Brigham & Women's Hospital, Inc. of $30,000 in each of 1996
and 1995 for consulting services by Dr. Sklar. As of December 31, 1996, the
Company has terminated this agreement effective June 30, 1997 and has accrued
$60,000 for future payments in 1997.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Ownership of Voting Stock by Management
The following table gives information concerning the beneficial
ownership of the Company's Common Stock as of March 14, 1997 by each director
and each of the executive officers named in the summary compensation table and
all current directors and executive officers (as of March 14, 1997) as a group.
<TABLE>
<CAPTION>
Total Shares
Beneficially Direct Right to Percent of
Beneficial Owners Owned(1)(2) Ownership Acquire(3) Class(4)
- ----------------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C>
Richard A. Sandberg 201,722 12,773 185,520 3%
Kevin C. Johnson 28,832 15,000 -- -- (5)
David R. Schreiber -- -- -- -- (5)
James B. Amberson, M.D. 58,344 15,652 28,860 -- (5)
Albert A. Luderer, Ph.D. -- -- -- -- (5)
Carl R. Iberger 17,390 17,390 -- -- (5)
Daniel J. Cronin -- -- -- -- (5)
John P. Davis 235,267 116,455 118,812 4%
Walter O. Fredericks 6,863 235 6,628 -- (5)
Jeffrey L. Sklar 6,963 235 6,728 -- (5)
G. S. Beckwith Gilbert 1,802,314 1,800,235 2,079 28%(6)
All current directors and
executive officers as a
group (11 persons) 2,316,067 1,961,637 351,001 34%
<FN>
- ----------
(1) The information as to beneficial ownership is based on statements furnished
to the Company by its executive officers and directors. Each executive
officer and director has sole voting and sole investment power with respect
to his respective shares listed above, except as follows: The shares
reported for Mr. Gilbert include 121,951 shares which are held by a trust
of which Mr. Gilbert is a trustee, as to which Mr. Gilbert shares voting
and investment powers. Amounts shown for Messrs. Sandberg and Johnson and
Dr. Amberson include 13,832 shares held in the Company's 401(K) Retirement
Plan, as to which such officers share voting power as trustees of such plan
and each individual plan participant has investment power, subject to the
terms of such plan, of the shares in his account; such amount includes
10,403 shares in Mr. Sandberg's account.
(2) Includes shares listed under the captions "Direct Ownership" and "Right to
Acquire", as well as shares held in the Company's 401(K) Retirement Plan
which are beneficially owned but as to which the named individual or group
has no economic interest.
(3) Individuals currently have the right to acquire these shares within 60 days
of March 14, 1997 by the exercise of stock options or through purchases
under the Company's Employee Stock Purchase Plan.
(4) For the purposes of this table, "Percent of Class" held by each individual
has been calculated based on a total class equal to the sum of (i)
6,449,270 shares of Common Stock issued and outstanding on March 14, 1997
plus (ii) for such individual the number of shares of Common Stock subject
to stock options or warrants presently exercisable, or exercisable within
60 days after March 14, 1997, held by that individual, and which percent is
rounded to the nearest whole number.
(5) Owns less than 1% of the outstanding Common Stock.
(6) As of March 14, 1997, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned
by him representing greater than 20% of the total voting power of the
Company's voting securities outstanding from time to time, or 1,289,854
votes as of March 14, 1997. As of March 14, 1997, any votes in excess of
1,289,854 represented by Common Stock or other voting securities of the
Company beneficially owned by Mr. Gilbert as of such date are required to
be voted in proportion to the votes cast by all other shareholders of the
Company.
</FN>
</TABLE>
<PAGE>
Ownership of Voting Stock by Certain Beneficial Owners
The following table sets forth information with respect to the only
persons who, to the best knowledge of the Company's management as derived from
schedules 13F, 13D and 13G filed by such persons, beneficially owned more than
five percent of the Common Stock of the Company as of March 14, 1997. Unless
otherwise indicated below, each person included in the table has sole voting and
investment power with respect to all shares included therein.
<TABLE>
<CAPTION>
Amount
and Nature
Name and Address of of Beneficial Percent
Title of Class Beneficial Owner Ownership of Class(1)
-------------- ---------------- --------- -----------
<S> <C> <C> <C>
DIANON Common Stock G.S. Beckwith Gilbert et al 1,802,314(2) 28%(3)
35 Vista Drive
Greenwich, CT 06830
DIANON Common Stock Oracle Management Partners, Inc. 461,328 7%
and Affiliates
712 E 5th Avenue - 45th Floor
New York, NY 10019
DIANON Common Stock John M. Bryan et al 356,412 6%
Bryan and Edwards
600 Montgomery Street - 35th Floor
San Francisco, CA 94111
<FN>
- ----------
(1) For the purposes of this table, "Percent of Class" held by each individual
has been calculated based on a total class equal to the sum of (i)
6,449,270 shares of Common Stock issued and outstanding on March 14, 1997
plus (ii) for such individual the number of shares of Common Stock subject
to stock options or warrants presently exercisable, or exercisable within
60 days after March 14, 1997, held by that individual, and which percent is
rounded to the nearest whole number.
(2) Mr. Gilbert has shared voting and investment power with respect to 121,951
shares included in the table above.
(3) As of March 14, 1997, Mr. Gilbert cannot vote, without restriction, any
Common Stock or other voting securities of the Company beneficially owned
by him representing greater than 20% of the total voting power of the
Company's voting securities outstanding from time to time, or 1,289,854
votes as of March 14, 1997. As of March 14, 1997, any votes in excess of
1,289,854 represented by Common Stock or other voting securities of the
Company beneficially owned by Mr. Gilbert as of such date are required to
be voted in proportion to the votes cast by all other shareholders of the
Company.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 11 - Executive Compensation - "Compensation Committee
Interlocks and Insider Participation" and Notes 6 and 14 of the Company's
consolidated financial statements included herewith.
As part of the process to recruit a new executive, the Company lent an
affiliate of Mr. Sandberg $75,000 in March 1995 at 8% interest. Such loan was
repaid in full with interest in March 1996.
For description of a loan from the Company to Mr. Johnson, see Item 11
- - Executive Compensation "Employment and Severance Agreements".
In January 1997, the Company purchased 89,000 shares of Common Stock
from Richard A. Sandberg at a price of $8.50 per share.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules Filed.
1) Financial Statements - See accompanying Consolidated Financial
Statements and Schedules, Pages F-1 through F-18.
2) Financial Statement Schedules - See accompanying Consolidated
Financial Statements and Schedules, Pages F-1 through F-18.
3) Exhibits - Refer to 14(c) below.
(b) The Company filed no reports on Form 8-K in the fourth quarter of 1996
with the Securities and Exchange Commission.
(c) Exhibit Index
3.1 Restated Certificate of Incorporation of the Company, as amended
through June 12, 1991 (incorporated by reference to Exhibit 3.1 of
the Registrant's Registration Statement No. 33-41226).
3.2 Restated By-Laws of the Company, as amended through October 24,
1996 (incorporated by reference to Exhibit 4.2 of the Registrant's
Registration Statement No. 333-18817).
10.1 Consulting Agreement, dated August 4, 1989, between DIANON
Systems, Inc. and Nonda Katopodis (incorporated by reference to
Exhibit 10.7 of the Registrant's Registration Statement No.
33-41226).**
10.2 Executive Vesting Agreement, dated as of June 11, 1991, between
DIANON Systems, Inc. and James B. Amberson (incorporated by
reference to Exhibit 10.13 of the Registrant's Registration
Statement No. 33-41226).**
10.3 1991 Stock Incentive Plan (incorporated by reference to Exhibit
10.17 of the Registrant's Registration Statement No. 33-41226).**
10.4 Management Incentive Plan (incorporated by reference to Exhibit
10.18 of the Registrant's Registration Statement No. 33-41226).**
10.5 Stock Option Grant to Walter O. Fredericks, dated April 27, 1990
(incorporated by reference to Exhibit 10.23 of the Registrant's
Registration Statement No. 33-41226).**
10.6 Stock Option Grant to Richard A. Sandberg, dated June 12, 1991
(incorporated by reference to Exhibit 10.24 of the Registrant's
Registration Statement No. 33-41226).**
10.7 Stock Option Grant to Richard A. Sandberg, dated June 12, 1991
(incorporated by reference to Exhibit 10.25 of the Registrant's
Registration Statement No. 33-41226).**
10.8 Lease Agreement, made as of February 14, 1989, between Watson
Boulevard Development Limited Partnership, as lessor, and DIANON
Systems, Inc., as lessee, for premises located at 200 Watson
Boulevard (incorporated by reference to Exhibit 10.29 of the
Registrant's Registration Statement No. 33-41226).
10.9 License Agreement, dated June 9, 1983, between Sloan-Kettering
Institute for Cancer Research and N-K Laboratories Limited
Partnership (incorporated by reference to Exhibit 10.30 of the
Registrant's Registration Statement No. 33-41226).
10.10 License Agreement, dated July 29, 1987, between University of
Rochester and DIANON Systems, Inc. (incorporated by reference to
Exhibit 10.32 of the Registrant's Registration Statement No.
33-41226).
10.11 Development Agreement, effective September 25, 1987, between
Connecticut Product Development Corporation and DIANON Systems,
Inc. (incorporated by reference to Exhibit 10.33 of the
Registrant's Registration Statement No. 33-41226).
<PAGE>
(c) Exhibit Index (continued)
10.12 Stock Option Grant to James B. Amberson, dated April 23, 1991
(incorporated by reference to Exhibit 28.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1991).**
10.13 Stock Option Grant to Richard A. Sandberg, dated June 12, 1991, as
amended (incorporated by reference to Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991).**
10.14 Asset Purchase Agreement, dated April 30, 1993, by and among the
Registrant and Molecular Oncology, Inc., and Oncologix, Inc.
(incorporated by reference to Exhibit 1.1 to the Registrant's Form
8-K dated April 30, 1993, filed with the Securities and Exchange
Commission on May 14, 1993).
10.15 Asset Purchase Agreement, dated June 29, 1993, by and among the
Registrant and Collaborative Research, Inc. (incorporated by
reference to Exhibit 1.2 to the Registrant's Form 8-K dated June
29, 1993, filed with the Securities and Exchange Commission on
July 13, 1993).
10.16 Term Loan Agreement, dated July 14, 1993, by and among the
Registrant and the Union Trust Company (incorporated by reference
to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K/A
Amendment 1 for the year ended December 31, 1993, filed with the
Securities and Exchange Commission on April 28, 1994).
10.17 Rights Agreement, dated April 29, 1994, by and among the
Registrant and American Stock and Trust Company, as Rights Agent
(incorporated by reference to Exhibit 1 to the Registrant's Form
8-K dated April 29, 1994, filed with the Securities and Exchange
Commission on May 9, 1994).
10.18 Severance Agreement, dated January 20, 1995, by and among the
Registrant and John P. Davis (incorporated by reference to Exhibit
10.36 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, filed with the Securities and Exchange
Commission on March 29, 1996).**
10.19 Employment Agreement, dated May 3, 1996, by the Registrant and
Kevin C. Johnson (incorporated by reference to Exhibit 10.37 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).**
10.20 Executive Employment Agreement, dated September 1, 1996, by the
Registrant and Richard A. Sandberg (incorporated by reference to
Exhibit 10.38 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996).**
10.21 Employment Agreement, dated September 1, 1996, by the Registrant
and Dr. James B. Amberson (incorporated by reference to Exhibit
10.39 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).**
10.22 Executive Employment Agreement, dated September 1, 1996, by the
Registrant and Dr. James B. Amberson (incorporated by reference to
Exhibit 10.40 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996).**
10.23 Severance Agreement, dated September 27, 1996, by the Registrant
and Carl R. Iberger (incorporated by reference to Exhibit 10.41 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).**
10.24 Employment Agreement, dated September 30,1996, by the Registrant
and David R. Schreiber (incorporated by reference to Exhibit 10.42
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).**
10.25 Employment Agreement, dated November 18, 1996, by the Registrant
and Steven T. Clayton (filed herewith).**
10.26 Separation Agreement dated November 18, 1996, by the Registrant
and Daniel J. Cronin, III (filed herewith).**
<PAGE>
(c) Exhibit Index (continued)
10.27 Amendment dated as of October 4, 1995 to Rights Agreement dated as
of April 29, 1994 between the Registrant and American Stock
Transfer and Trust Company, as Rights Agent (incorporated by
reference to Exhibit No. 1 to the Registrant's Form 8-K dated
October 30, 1996 filed with the Securities and Exchange Commission
on November 8, 1995).
10.28 1996 Stock Incentive Plan (incorporated by reference to Appendix A
to the Registrant's Statement on Schedule 14A filed with the
Securities and Exchange Commission on September 23, 1996).**
10.29 Stock and Warrant Purchase Agreement, dated as of October 4, 1995,
among the Gilbert Family Trust, the G.S. Beckwith Gilbert I.R.A.
Contributory Account, G.S. Beckwith Gilbert and the Registrant
(filed herewith).
10.30 Registration Rights Agreement, dated as of October 4, 1995, among
the Gilbert Family Trust, the G.S. Beckwith Gilbert I.R.A.
Contributory Account, G.S. Beckwith Gilbert and the Registrant
(filed herewith).
10.31 Warrant No. 1, dated as of October 4, 1995, by the Registrant in
favor of G.S. Beckwith Gilbert (filed herewith).
10.32 Promissory Note, dated October 4, 1995, by G.S. Beckwith Gilbert
in favor of the Registrant (filed herewith).
10.33 Stock Option Grant dated October 24, 1996 by the Registrant to
Andre de Bruin (filed herewith).**
10.34 Stock Option Grant dated November 4, 1996 by the Registrant to
Jeffrey M. Sklar, M.D. (filed herewith).**
10.35 Loan Agreement dated December 3, 1996 by the Registrant to Kevin
C. Johnson (filed herewith).**
10.36 Form of standard Stock Option Grant for outside directors (filed
herewith).**
10.37 Amendment to Warrant Certificate No. W-1 dated as of October 2,
1996 between the Registrant and G.S. Beckwith Gilbert (filed
herewith).
10.38 Severance Agreement, dated February 27, 1997, by the Registrant
and Richard A. Sandberg (filed herewith).**
11.1 Statement re: computation of per share earnings. *
22.1 List of Subsidiaries of the Company (incorporated by reference to
Exhibit 22.1 of the Registrant's Registration Statement No.
33-41226).
23.1 1996 Consent of Arthur Andersen LLP (incorporated by reference to
Exhibit 23.1 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995).
23.2 1997 Consent of Arthur Andersen LLP (filed herewith).
27.1 Financial Data Schedule.
- --------------
* Not applicable or contained elsewhere herein.
** A management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c) of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED: March 26, 1997
DIANON SYSTEMS, INC.
By: /s/ KEVIN C. JOHNSON
----------------------------------
Kevin C. Johnson,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/ KEVIN C. JOHNSON President and Chief March 26, 1997
---------------------------- Executive Officer
Kevin C. Johnson and a Director
(Principal Executive
Officer)
/s/ DAVID R. SCHREIBER Senior Vice President, March 26, 1997
---------------------------- Finance and Chief
David R. Schreiber Financial Officer
(Principal Financial
and Accounting Officer)
/s/ JAMES B. AMBERSON, MD Director, Chief Medical March 26, 1997
---------------------------- Officer and Senior Vice
James B. Amberson, M.D. President, Operations
/s/ JOHN P. DAVIS Chairman of the Board March 26, 1997
----------------------------
John P. Davis
/s/ G. S. BECKWITH GILBERT Director and Chairman March 26, 1997
---------------------------- of the Executive Committee
G. S. Beckwith Gilbert
/s/ RICHARD A. SANDBERG Director March 26, 1997
----------------------------
Richard A. Sandberg
/s/ WALTER O. FREDERICKS Director March 26, 1997
----------------------------
Walter O. Fredericks
/s/ JEFFREY L. SKLAR, MD PhD Director March 26, 1997
----------------------------
Jeffrey L. Sklar, M.D., Ph.D.
<PAGE>
DIANON SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of
December 31, 1996 and 1995 F-3 & F-4
Consolidated Statements of Operations for
the Years Ended December 31, 1996,
1995 and 1994 F-5
Consolidated Statements of Stockholders'
Equity for the Years Ended December 31,
1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 F-7 & F-8
Notes to Consolidated Financial Statements F-9 to F-17
Schedules:
Report of Independent Public Accountants F-18
Schedule II - Valuation and Qualifying Accounts F-19
All other schedules called for by Regulation S-X have been omitted
because they are not applicable or because the required information is included
in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIANON Systems, Inc.:
We have audited the accompanying consolidated balance sheets of DIANON
Systems, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of DIANON Systems, Inc.
and subsidiaries as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
February 27, 1997
F-2
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 7,488,590 $ 10,990,231
Accounts receivable, net of allowances of
$1,056,920 and $786,920, respectively 15,426,221 9,653,971
Prepaid expenses and employee advances 1,189,139 1,071,963
Prepaid and refundable income taxes 329,371 168,420
Inventory 662,567 554,398
Deferred income tax asset (Note 3) 677,277 652,328
Investment in common stock (Note 10) -- 135,508
------------ ------------
Total current assets 25,773,165 23,226,819
------------ ------------
PROPERTY AND EQUIPMENT, at cost (Note 4)
Laboratory and office equipment 12,233,989 11,068,949
Leasehold improvements 3,612,198 1,717,606
Less - accumulated depreciation and amortization (8,606,176) (6,879,799)
------------ ------------
7,240,011 5,906,756
------------ ------------
INTANGIBLE ASSETS, net of accumulated
amortization of $2,991,286 and
$2,731,291, respectively 604,313 864,308
DEFERRED INCOME TAX ASSET (Note 3) 458,465 178,575
OTHER ASSETS 459,696 278,948
------------ -----------
TOTAL ASSETS $34,535,650 $30,455,406
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-3
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 1,903,448 $ 2,034,277
Accrued employee bonuses and commissions 1,351,616 1,442,826
Accrued employee stock purchase plan 549,540 48,914
Current portion of capitalized lease
obligations (Note 4) 26,107 38,466
Current portion of note payable (Note 11) 650,154 916,150
Other accrued expenses 3,234,295 1,772,216
------------ ------------
Total current liabilities 7,715,160 6,252,849
------------ ------------
LONG-TERM PORTION OF CAPITALIZED LEASE OBLIGATIONS
(Note 4) 69,611 34,413
LONG-TERM NOTE PAYABLE (Note 11) -- 650,154
DEFERRED INCOME TAX LIABILITY (Note 3) 201,951 65,651
------------ ------------
Total liabilities 7,986,722 7,003,067
------------ ------------
COMMITMENTS (Notes 4 and 8)
STOCKHOLDERS' EQUITY (Notes 5 and 7):
Common stock, par value $.01 per share,
20,000,000 shares authorized,6,712,774
and 6,311,451 shares issued and
outstanding at December 31, 1996
and 1995, respectively 67,128 63,115
Additional paid-in capital 27,965,560 26,609,657
Accumulated deficit (554,317) (2,724,433)
Common stock held in treasury, at cost -
117,196 and 50,000 shares at
December 31, 1996 and 1995, respectively (929,443) (200,000)
Shareholder note receivable -- (296,000)
------------ ------------
Total stockholders' equity 26,548,928 23,452,339
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,535,650 $ 30,455,406
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-4
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
NET REVENUES $55,998,995 $45,700,321 $41,016,949
COST OF SALES 26,897,576 20,390,742 16,717,401
----------- ----------- -----------
GROSS PROFIT 29,101,419 25,309,579 24,299,548
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 22,443,192 19,619,773 17,504,722
RESEARCH AND DEVELOPMENT EXPENSES 3,157,846 5,255,032 4,511,708
----------- ----------- -----------
INCOME FROM OPERATIONS 3,500,381 434,774 2,283,118
INTEREST INCOME 384,306 317,353 103,531
INTEREST EXPENSE 77,466 136,113 193,759
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,807,221 616,014 2,192,890
PROVISION FOR INCOME TAXES (Note 3) 1,637,105 508,918 831,796
----------- ----------- -----------
NET INCOME $ 2,170,116 $ 107,096 $ 1,361,094
=========== =========== ===========
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE $ .34 $ .02 .26
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
Unrealized Foreign Common 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, 1993 5,246,448 $52,465 $21,529,478 ($4,192,623) ($242,281) $ -- $ -- $ -- $17,147,039
Stock options exercised 50,431 504 59,053 -- -- -- -- -- 59,557
Stock compensation
expense - stock options -- -- 3,411 -- -- -- -- -- 3,411
Unrealized holding gains -- -- -- -- 151,898 -- -- -- 151,898
Changes in foreign
currency translation
adjustment -- -- -- -- -- (58,938) -- -- (58,938)
Net Income -- -- -- 1,361,094 -- -- -- -- 1,361,094
--------- ------- ----------- ---------- --------- -------- -------- -------- -----------
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 compensations
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 23,621 236 107,476 -- -- -- -- -- 107,712
Exercise of warrants net
of exercise costs 800,000 3,777 1,536,540 -- -- -- 2,478,889 -- 4,019,206
Common stock held in
treasury -- -- -- -- -- -- (3,208,332) -- (3,208,332)
Extinguishment of
shareholder note
receivable -- -- (296,000) -- -- -- -- 296,000 --
Stock compensation
expense - stock
options -- -- 7,887 -- -- -- -- -- 7,887
Net Income -- -- -- 2,170,116 -- -- -- -- 2,170,116
--------- ------- ----------- ---------- --------- -------- --------- ------------ -----------
BALANCE, December 31, 1996 7,135,072 $67,128 $27,965,560 ($ 554,317) -- -- ($929,443) -- $26,548,928
========= ======= =========== ========== ========= ======== ============= ============ ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-6
</TABLE>
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 2,170,116 $ 107,096 $ 1,361,094
Adjustments to reconcile net income
to net cash provided by (used
in) operations -
Non-cash charges
Depreciation and amortization 2,463,325 2,758,611 1,951,726
Stock compensation expense 7,887 (18,014) 3,411
Loss on disposal of fixed assets 27,240 56,266 111,969
Investment write-down 61,846 529,625 --
(Increase) decrease in deferred
tax asset (304,839) (108,425) 147,785
Increase in deferred tax liability 136,300 11,214 54,437
Changes in other current assets and liabilities
(Increase) decrease in accounts receivable (5,772,250) 1,345,427 (2,178,403)
(Increase) decrease in prepaid expenses and
employee advances (278,127) (147,728) 440,951
(Increase) decrease in inventory (108,169) 158,643 213,116
(Increase) in other assets (320,176) (29,075) (102,273)
Increase in accounts payable and other
accrued liabilities 1,751,788 1,358,348 464,849
(Decrease) increase in restructuring
reserves (11,123) 66,148 (624,309)
---------- ---------- ----------
Net cash (used in) provided by operating
activities (176,182) 6,088,136 1,844,353
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,431,895) (2,290,720) (1,557,160)
Proceeds from the sale of stock
held for investment 73,661 14,867 --
Proceeds from the sale of fixed
assets 7,500 10,040 8,000
---------- ---------- ----------
Net cash (used in) investing activities ($3,350,734) ($2,265,813) ($1,549,160)
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-7
<PAGE>
DIANON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Repayments of note payable (916,150) (862,446) (810,511)
Net borrowings (repayments)
of capitalized lease
obligations 22,839 (53,614) (67,809)
Net proceeds from issuance
of common stock and
warrants -- 4,690,443 --
Net proceeds from exercise
of warrants 4,019,206 -- --
Purchase of common stock
held in treasury (3,208,332) (200,000) --
Exercise of stock options 107,712 59,432 59,557
----------- ---------- ---------
Net cash provided by (used in)
financing activities 25,275 3,633,815 (818,763)
----------- ---------- ---------
Net (decrease) increase in
cash and cash equivalents (3,501,641) 7,456,138 (523,570)
CASH AND CASH EQUIVALENTS,
beginning of year 10,990,231 3,534,093 4,057,663
CASH AND CASH EQUIVALENTS,
end of year $ 7,488,590 $ 10,990,231 $ 3,534,093
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ---------
SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Cash paid during the year:
<S> <C> <C> <C>
Interest $ 77,782 $ 135,644 $ 191,879
Income taxes 1,712,200 588,149 311,689
</TABLE>
During 1996, the Company received $4,000,000 in cash for the exercise of 800,000
warrants and extinguished a note receivable of $296,000. (See Note 14.)
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-8
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) The Company
DIANON Systems, Inc. (the "Company") is a provider of testing services
and diagnostic information primarily to physicians who treat and diagnose cancer
throughout the United States. The Company has established a national sales and
marketing organization to market a complete line of anatomic pathology testing
services as well as specialized clinical chemistry tests and information
services directly to physicians, payors and managed care organizations. A
significant portion of the services provided by the Company are paid for by
either the patients' Medicare or private medical insurance policies. The
remaining services are generally paid for by physicians or hospitals directly.
(2) Significant Accounting Policies
Principles of Consolidation -
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -
The Company considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents. At December 31, 1996
and 1995, the Company had approximately $6 million and $11 million,
respectively, invested in short-term U.S. treasury funds with maturities of less
than three months. The carrying amount of the cash equivalents approximates its
fair value due to the relatively short period to maturity of these instruments.
The Company is obligated to keep a compensating balance of $2 million in
accordance with its loan agreement. (See Note 11).
Inventory -
Inventory consists primarily of bulk reagents, specimen collection kits
and devices. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Intangible Assets -
Intangible assets are amortized on a straight line basis over the
respective economic life as follows:
YEARS
-----
Unamortized customer lists 7
Noncompete agreement 5
The Company periodically reviews the anticipated revenues related to
intangible assets to determine whether any adjustment to their carrying value is
necessary. During 1996 and 1995, the Company recorded accelerated amortization
charges of approximately $44,000 and $765,000, respectively, based on the
Company's revised estimate of future benefits from a customer list.
F-9
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition -
Revenues are recognized in the period in which services are provided.
Revenues subject to Medicare, direct physician and hospital billing are based on
fixed reimbursement fee schedules. All remaining revenues subject to third-party
reimbursement are recorded at estimated reimbursable amounts based on Uniform
Customary Charges.
Depreciation and Amortization -
Laboratory and office equipment are depreciated using the straight-line
method on a useful life of two to seven years. Leasehold improvements are
amortized over the shorter of their economic useful life or the remaining life
of the lease.
Research and Development -
Research and development costs are charged to expense as incurred.
Income Taxes -
The Company utilizes the liability method of accounting for income
taxes as set forth in Statement of Financial Accounting Standard 109,
"Accounting for Income Taxes". Under this method, deferred income taxes are
determined based on the difference between the financial statements and tax
bases of assets and liabilities using presently enacted tax rates and
regulations.
Earnings Per Share -
Primary earnings per share has been computed based on the weighted
average number of common shares and common equivalent shares outstanding during
each year (6,330,553, 5,550,615 and 5,310,174 for the years ended December 31,
1996, 1995 and 1994, respectively). Common equivalent shares outstanding include
the common equivalent shares calculated for warrants and stock options under the
treasury stock method.
Foreign Currency Translation -
In 1995, the Company charged to income the Germany currency translation
adjustment of $160,567 due to management's decision to discontinue European
based operations. During prior periods, assets and liabilities of the Company's
foreign subsidiaries were translated into U.S. dollars using the exchange rate
in effect at the balance sheet date. Results of operations were translated using
the average exchange rate prevailing for the period. The effects of exchange
rate fluctuations on translating foreign currency assets and liabilities into
U.S. dollars were included in net income for all of the Company's European
subsidiaries except Germany. (See Note 7).
Reclassifications -
Certain reclassifications have been made to prior year amounts to
conform to the classifications used in the current year presentation.
F-10
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Income Taxes
The income tax provisions for the years ended December 31, 1996, 1995,
and 1994 consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1996 1995 1994
----------- --------- --------
<S> <C> <C> <C>
Current
Federal $ 1,387,967 $ 461,361 $539,401
State 446,091 152,593 208,255
----------- --------- --------
Total Current 1,834,058 613,954 747,656
----------- --------- --------
Deferred
Federal (152,112) (33,532) 71,477
State (44,841) (71,504) 12,663
----------- --------- --------
Total Deferred (196,953) (105,036) 84,140
----------- --------- --------
Total provision for income
taxes $ 1,637,105 $ 508,918 $831,796
=========== ========= ========
</TABLE>
The reasons for the differences between the statutory and effective
rates are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1996 1995 1994
----------- --------- --------
<S> <C> <C> <C>
Statutory federal income
tax rate 34.0% 34.0% 34.0%
State taxes, net of federal
tax benefit 7.0 8.7 6.7
Utilization of research
& development credits -- (5.7) (7.4)
Utilization of foreign
net operating loss
carryforwards -- -- (1.8)
Utilization of AMT credit -- (4.6) --
Non-deductible expenses 2.9 9.6 2.7
Other (1.6) 3.1 3.7
Non-deductible write-down
of invest. in stock .7 37.5 --
==== ==== ====
43.0% 82.6% 37.9%
==== ==== ====
</TABLE>
The net deferred tax asset is a result of the following temporary
differences:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1996 1995 1994
----------- --------- --------
<S> <C> <C> <C>
Comp. not currently recognized
for tax reporting $180,126 $213,100 $208,797
Allowance for bad debts 428,761 316,090 319,834
Domestic restructuring reserve -- -- 29,922
International restructuring reserve 196,417 188,415 46,850
Tax credits benefited -- -- 98,500
Depreciation 95,067 (62,256) (54,437)
Accrued expense (4,395) 19,982 --
Inventory reserve -- 60,955 --
Amortization expense 37,264 22,441 --
Other 550 6,525 18,575
======== ======== ========
$933,790 $765,252 $668,041
======== ======== ========
</TABLE>
During 1996 and 1995, the Company recorded a capital write-down of
$61,846 and $529,625, respectively, for which a tax benefit has not been
recognized.
F-11
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Lease Obligations
Included in property and equipment at December 31, 1996 and 1995 is
laboratory and office equipment held under capitalized leases as follows: 1996
1995.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property and equipment $752,240 $731,444
Less - accumulated depreciation 660,312 665,468
-------- --------
$ 91,928 $ 65,976
======== ========
</TABLE>
The future minimum lease payments under non-cancelable operating leases
and the present value of future minimum capital lease payments at December 31,
1996 are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1997 $29,672 $989,246
1998 33,796 800,823
1999 19,630 791,114
2000 15,768 790,455
2001 9,842 730,695
Thereafter -- 1,006,931
------- ----------
Minimum Lease Payments 108,708 $5,109,264
==========
Less - Amount representing interest 12,990
-------
Present value of total minimum lease payments $95,718
=======
</TABLE>
Total rental expense relating to operating leases for the years ended
December 31, 1996, 1995, and 1994 was approximately $1,041,127, $864,549 and
$793,850, respectively.
The Company leases office and laboratory space at two facilities in
Stratford, Connecticut under a nine year lease commencing June 1994 with an
option to renew for up to three years and a ten month lease commencing March
1997 with an option to renew for an additional one-year period. The annual rent
on these leases will be increased by a pro rata portion of the increase in real
estate taxes and the increase in common area maintenance.
The Company also leases five regional sales offices located in Florida,
Maryland, North Carolina, Texas and Ohio. The terms of the leases range from one
to three years.
In March 1996, the Company executed a lease for a laboratory facility
in Wilmington, Ohio with a five year term commencing April 1, 1996 and a renewal
option for five additional terms of three years each.
(5) Stock-Based Compensation Plans
In June 1991, the Company adopted the 1991 Stock Incentive Plan which
provides for up to 400,000 shares of the Company's Common Stock, par value $.01
per share ("Common Stock"), to be reserved for potential future issuance for
stock options or awards. This plan is the successor to the Company's previous
plan which expired. As of December 31, 1996, 9,408 shares of Common Stock are
available under the 1991 Stock Incentive Plan for future issuance. The majority
of the options vest 40% on the second year and 20% each year thereafter and
expire ten years from the original grant date.
F-12
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1996, the Company's shareholders approved the Company's
adoption of the 1996 Stock Incentive Plan, which provides for up to 700,000
shares of Common Stock to be reserved for potential future issuance for stock
options or awards. This plan is the successor to the 1991 Stock Incentive Plan
for which only a limited number of shares of Common Stock remain available for
grants. As of December 31, 1996, 463,647 shares of Common Stock are available
under the 1996 Stock Incentive Plan. The majority of options issued to officers
and key employees of the Company vest at a rate of 40% in the second year and
20% per year thereafter and expire ten years from the original date of grant.
The majority of options issued to directors vest at a rate of 10% per quarter
and expire ten years from the original date of grant.
The Company accounts for these plans under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net Income: As Reported $2,170,116 $107,096
Pro Forma $1,586,169 $ 11,403
Primary and Fully Diluted EPS: As Reported $.34 $.02
Pro Forma $.25 $.00
</TABLE>
Because the Statement 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
costs may not be representative of that to be expected in future years. A
summary of the status of the Company's two fixed stock option plans as of
December 31, 1996, 1995 and 1994, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
1996 Exercise 1995 Exercise 1994 Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 397,153 $5.42 298,736 $5.89 261,484 $7.49
Granted 296,550 6.43 197,409 5.26 253,908 4.56
Exercised (23,621) 4.56 (4,688) 4.08 (31,665) 1.28
Forfeited (72,406) 5.06 (94,304) 6.78 (184,991) 7.83
-------- ----- -------- --------
Outstanding at end of year 597,676 6.00 397,153 5.42 298,736 5.89
-------- ----- -------- --------
Options exercisable at year-end 120,512 6.35 93,440 6.73 45,080 7.87
Weighted-average fair value of
options granted $5.19 $4.25
</TABLE>
279,063 of the 597,676 options outstanding at December 31, 1996 have
exercise prices between $4.13 and $6.00, with a weighted average exercise price
of $4.92 and a weighted average remaining contractual life of 8.2 years. 82,277
of these options are exercisable; their weighted average exercise price is
$4.58. 285,013 of the 597,676 options outstanding have exercise prices between
$6.01 and $8.00, with a weighted average exercise price of $6.50 and a weighted
average remaining contractual life of 9.8 years. 4,845 of the options are
exercisable; their weighted average exercise price is $6.52. The remaining
33,600 options have exercise prices between $8.01 and $10.75, with a weighted
average exercise price of $10.69 and a weighted average remaining contractual
life of 4.2 years. 33,390 of these options are exercisable; their weighted
average exercise price is $10.69.
F-13
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively,: risk-free interest
rates of 6.67 and 6.78 percent; expected lives of 8.1 years for 1996 and 1995;
expected volatility of 80 percent for 1996 and 1995.
In June 1994, the Company offered the officers and key employees
(except for the Chairman of the Board and Chief Executive Officer) of the
Company an opportunity to revise the terms of their original stock options
issued in 1991, 1992, and 1993.
In June 1994, employees who held 1991 unexercised vested non-incentive
stock options with an exercise price of $3.85 per share and termination date of
April 23, 1995 were offered the opportunity to exchange them on a one-for-one
basis for vested non-incentive stock options exercisable until April 30, 2000 at
the fair market value on June 9, 1994 of $4.56 per share. In addition, employees
who held 1991 unexercised unvested non-incentive stock options with an exercise
price of $3.85 per share were offered the opportunity to exchange them on a
one-for-one basis for incentive stock options exercisable until April 30, 2000
at the fair market value on June 9, 1994 of $4.56 per share with vesting terms
identical to the exchanged options.
In June 1994, employees who held 1991 and 1992 unexercised incentive
stock options with an exercise price of $9.88 and $9.94 respectively had two
options available. They were offered the opportunity to exchange them on a
five-for-four basis for incentive stock options exercisable until April 30, 2001
and 2002, respectively, at the fair market value on June 9, 1994 of $4.56 per
share or exchange them on a one-for-one basis for incentive stock options
exercisable until April 30, 2001 and 2002, respectively, at the original
exercise prices of $9.88 and $9.94, respectively.
In June 1994, employees who held 1993 unexercised incentive stock
options with an exercise price of $8.00 were offered the opportunity to exchange
them on a five-for-four basis for incentive stock options exercisable until
April 30, 2003 at the fair market value on June 9, 1994 of $4.56 per share.
In addition to the disclosures above related to options granted under
the Company's 1991 Stock Incentive Plan and 1996 Stock Incentive Plan, the
disclosure that follows relates to options granted pursuant to employment
agreements or otherwise not under such plans.
In June 1994, the Company granted options to purchase 20,000 and 30,000
shares of Common Stock at $4.56 per share to the Chairman of the Board and the
Chief Executive Officer of the Company, respectively. These options vest over a
five year period. In addition, the Chairman of the Board and the Chief Executive
Officer were offered the opportunity to amend certain non-qualified stock
options of 71,282 shares each for options with identical exercise prices and
vesting provisions and with expiration dates equal to ten years from the
original date of issue. The Chief Executive Officer was offered an additional
opportunity to exchange the 71,282 shares of non-qualified stock options for an
equal number of shares of incentive stock options.
In August 1994, the Company authorized and granted options to purchase
10,000 shares of Common Stock at $6.00 per share to one outside Director of the
Company, Dr. Katopodis, which option vests over a five-year period. Also in
August 1994, the Company authorized the award of options to purchase 10,000
shares of Common Stock at $6.00 per share to a second outside Director of the
Company, Dr. Sklar, but because of certain restrictions applicable to Dr. Sklar
at the time of such award he was not able to accept a grant of such options.
In January 1995, the Chief Executive Officer of the Company resigned
his employment with the Company. As part of the severance agreement, stock
options to purchase 69,916 shares of Common Stock at prices ranging from $4.56
to $10.75 were canceled and stock options to purchase 116,084 shares of Common
Stock were amended to set their exercise price at $5.25. These amended options
vested 25% in March, 1995. The remaining 75% vested in January 1997.
F-14
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 1995, the Company adopted the DIANON Systems, Inc. Employee
Stock Purchase Plan (the "ESPP" or "Plan") as described in Section 423 of the
Code. The Plan provides for the sale of not more than 300,000 shares of Common
Stock, subject to adjustments in the event of stock splits and other changes in
capitalization. The Plan provides that all shares issued pursuant to the Plan be
treasury shares acquired by the Company in open market transactions and that no
shares issued will be authorized but unissued Common Stock. Commencing on August
15, 1995, the Company offered the ESPP to eligible employees as defined by the
Plan at a purchase price equal to the lesser of 85% of the market price at the
date of grant or 85% of the market price at the date of exercise or as otherwise
defined in the grant offering.
In May 1996, the Company granted an officer options to purchase 200,000
shares of Common Stock at $5.69 per share pursuant to the terms of an employee
agreement. These options vest 40% in May 1998 and 20% over each year thereafter.
In October 1996, the Company granted options to purchase 10,000 shares
of Common Stock at $7.13 per share to an outside director of the Company, Mr. de
Bruin, in replacement of options issued in June 1993. These options vest
immediately and expire ten years from the date of grant.
(6) Related Parties
The Company pays Dr. Katopodis, a stockholder who is also Chairman
Emeritus and who was a director until January 1995, a royalty of 6% of revenue
on sales of technology covered by a license agreement, which was revised in
January 1995 and has no minimums. Pursuant to a consulting agreement revised in
March 1990, on a month-to-month basis, the Company provides Dr. Katopodis with
certain insurance benefits, the use of an automobile and the reimbursement of
expenses incident to his performance as a consultant to the Company. The Company
paid licensing and royalty fees to this stockholder of approximately $79,000,
$122,000 and $110,000 during the years ended December 31, 1996, 1995 and 1994,
respectively.
In 1995, the Company entered into a three year research and development
agreement with Brigham & Women's Hospital, Inc. The agreement requires the
Company to make quarterly payments of $30,000 totaling $360,000 in exchange for
an option to obtain rights in certain existing inventions as well as inventions
developed during the course of the research in the areas of cancer detection and
diagnosis. The research is to be conducted by Dr. Sklar, M.D., a director of the
Company. The Company paid $120,000 and $60,000 under this agreement in 1996 and
1995, respectively. As of December 31, 1996, the Company has terminated this
agreement effective as of June 30, 1997 and has accrued $60,000 for future
payments in 1997. In addition, the Company has made payments to Brigham &
Women's Hospital, Inc. of $30,000 in each of 1995 and 1996 for consulting
services by Dr. Sklar.
For description of a loan from the Company to Mr. Johnson, see Item 11
- - Executive Compensation - "Employment and Severance Agreements".
In January 1997, the Company purchased 89,000 shares of Common Stock
from Richard A. Sandberg at a price of $8.50 per share.
See also Note 14.
(7) Restructuring Costs
In 1995, the Company provided for a reserve of $279,000 due to
management's decision to discontinue European based operations. Remaining
reserves for the discontinuance of operations at December 31, 1996 are
approximately $155,000. The Company is in the process of liquidating the
European based operations and plans to complete the liquidation process by the
end of the 1997 fiscal year.
F-15
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Commitments
The Company is involved in certain legal matters which periodically
arise in the normal course of business. Management believes that the outcome of
these legal matters will not have a material adverse effect on the financial
position and results of operations of the Company.
(9) Employee Benefit Plan
The Company established a 401(k) employee benefit plan pursuant to
which participants receive certain benefits upon retirement, death or
termination of employment. The Company is required to contribute amounts equal
to 20% of the contributions made by employees up to 1% of their total annual
salary (subject to tax code limits). The Company contributed approximately
$88,000, $67,000 and $44,000 to the plan during 1996, 1995 and 1994,
respectively. The Company offers no other post-retirement benefits or
post-employment benefits to its employees.
(10) Investment in Common Stock and Warrants
During 1996, the Company recorded charges of $62,000 to write-off the
investment in common stock of a publicly traded company as the loss in value was
deemed other than temporary in accordance with Statement of Financial Accounting
Standard 115, "Accounting for Certain Investments in Debt and Equity
Securities". During 1995, a similar charge of $530,000 was recorded to
write-down the investment to market value. The Company plans to sell its
remaining 24,386 shares of common stock of such company in 1997.
(11) Note Payable
In July 1993, the Company obtained a $3,500,000 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. The term loan requires the Company to maintain a
$2 million compensating balance as well as certain financial ratios or financial
results related to tangible net worth, debt service coverage, indebtedness,
working capital and current ratio. The Company was in compliance with all
covenants as of December 31, 1996. The fair market value of this note is
determined using discounted cash flows based on the Company's estimated current
interest rate for similar types of borrowings. As of December 31, 1996, the
carrying value of the note payable approximates its fair market value.
(12) Rights Agreement
On April 29, 1994, the Board of Directors of DIANON Systems, Inc.
declared a dividend distribution of one Right for each outstanding share of
Common Stock, par value $.01 per share, of the Company to stockholders of record
on May 10, 1994. Each Right entitles the registered holder to purchase from the
Company a unit ("Unit") consisting of one one-hundredth of a share of Series A
Junior Participating Preferred Stock, par value $.01 per share, of the Company,
at a price of $20 per Unit, subject to adjustment, upon change of control in the
Company, as defined in the rights agreement`.
(13) Severance Costs
During 1996, the Company recorded a reserve of approximately $148,000
for severance costs as a result of the resignation of certain officers of the
Company, of which approximately $61,000 was paid during 1996. All remaining
severance is expected to be paid by the end of the second quarter of 1997.
During 1995, the Company recorded a reserve of approximately $595,000
for severance costs as a result of streamlining its operating expenses and with
respect to the resignation of certain officers of the Company. These severance
costs were paid by the end of the second quarter of 1996.
F-16
<PAGE>
DIANON SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Private Placement
On October 5, 1995, the Company completed a $5,612,000 private
placement with an investor for one million shares of Common Stock and a two-year
warrant for 800,000 shares exercisable at $6.00 per share of Common Stock
(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. Some or all of
the warrants could be exercised at a price of $5.00 at any time on or before
October 31, 1996. Upon such election the Company would be required to 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 warrants for 800,000 shares were all exercised on or
before October 31, 1996, the two year promissory note for $296,000 would 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 could 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 the Company's agreement 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. The Company's agreement was approved at
the Company's Annual Meeting on October 24, 1996. On October 29, 1996, the
investor exercised warrants for all 800,000 shares 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.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To DIANON Systems, Inc.:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of DIANON Systems, Inc. and
subsidiary companies included in this Form 10-K and have issued our report
thereon dated February 27, 1997. Our audits were made for the purpose of forming
an opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in the index to consolidated financial statements is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 27, 1997
F-18
<PAGE>
DIANON SYSTEMS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Provision
Beginning for Charges to Balance at
of Year Allowance Allowance End of Year
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
For the year ended December 31, 1994
Allowance for bad debts $670,230 $839,200 $774,180 $ 735,250
Domestic restructuring reserve 550,000 -- 512,252 37,748
International restructuring reserve 174,759 -- 112,057 62,702
Severance costs -- 149,631 45,231 104,400
For the year ended December 31, 1995
Allowance for bad debts 735,250 51,670 -- 786,920
Domestic restructuring reserve 37,748 -- 33,191 4,557
International restructuring reserve 62,702 118,000 18,661 162,041
Severance costs 104,400 594,708 510,935 188,173
Non-deductible write-down of investment
in stock -- 529,625 -- 529,625
For the year ended December 31, 1996
Allowance for bad debts 786,920 270,000 -- 1,056,920
Domestic restructuring reserve 4,557 -- 4,557 --
International restructuring reserve 162,041 -- 6,566 155,475
Severance costs 188,173 147,536 248,817 86,892
Non-deductible write-down of investment
in stock 529,625 -- 529,625 --
</TABLE>
F-19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT REFERENCE PAGE
- ------- ------------------ ----
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company, as amended
through June 12, 1991 (incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement No. 33-41226).
3.2 Restated By-Laws of the Company, as amended through October 24, 1996
(incorporated by reference to Exhibit 4.2 of the Registrant's
Registration Statement No. 333-18817).
10.1 Consulting Agreement, dated August 4, 1989, between DIANON Systems,
Inc. and Nonda Katopodis (incorporated by reference to Exhibit 10.7 of
the Registrant's Registration Statement No. 33-41226).**
10.2 Executive Vesting Agreement, dated as of June 11, 1991, between DIANON
Systems, Inc. and James B. Amberson (incorporated by reference to
Exhibit 10.13 of the Registrant's Registration Statement No.
33-41226).**
10.3 1991 Stock Incentive Plan (incorporated by reference to Exhibit 10.17
of the Registrant's Registration Statement No. 33-41226).**
10.4 Management Incentive Plan (incorporated by reference to Exhibit 10.18
of the Registrant's Registration Statement No. 33-41226).**
10.5 Stock Option Grant to Walter O. Fredericks, dated April 27, 1990
(incorporated by reference to Exhibit 10.23 of the Registrant's
Registration Statement No. 33-41226).**
10.6 Stock Option Grant to Richard A. Sandberg, dated June 12, 1991
(incorporated by reference to Exhibit 10.24 of the Registrant's
Registration Statement No. 33-41226).**
10.7 Stock Option Grant to Richard A. Sandberg, dated June 12, 1991
(incorporated by reference to Exhibit 10.25 of the Registrant's
Registration Statement No. 33-41226).**
10.8 Lease Agreement, made as of February 14, 1989, between Watson Boulevard
Development Limited Partnership, as lessor, and DIANON Systems, Inc.,
as lessee, for premises located at 200 Watson Boulevard (incorporated
by reference to Exhibit 10.29 of the Registrant's Registration
Statement No. 33-41226).
10.9 License Agreement, dated June 9, 1983, between Sloan-Kettering
Institute for Cancer Research and N-K Laboratories Limited Partnership
(incorporated by reference to Exhibit 10.30 of the Registrant's
Registration Statement No. 33-41226).
10.10 License Agreement, dated July 29, 1987, between University of Rochester
and DIANON Systems, Inc. (incorporated by reference to Exhibit 10.32 of
the Registrant's Registration Statement No. 33-41226).
10.11 Development Agreement, effective September 25, 1987, between
Connecticut Product Development Corporation and DIANON Systems, Inc.
(incorporated by reference to Exhibit 10.33 of the Registrant's
Registration Statement No. 33-41226).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT REFERENCE PAGE
- ------- ------------------ ----
<S> <C> <C>
10.12 Stock Option Grant to James B. Amberson, dated April 23, 1991
(incorporated by reference to Exhibit 28.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1991).**
10.13 Stock Option Grant to Richard A. Sandberg, dated June 12, 1991, as
amended (incorporated by reference to Exhibit 10.37 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).**
10.14 Asset Purchase Agreement, dated April 30, 1993, by and among the
Registrant and Molecular Oncology, Inc., and Oncologix, Inc.
(incorporated by reference to Exhibit 1.1 to the Registrant's Form 8-K
dated April 30, 1993, filed with the Securities and Exchange Commission
on May 14, 1993).
10.15 Asset Purchase Agreement, dated June 29, 1993, by and among the
Registrant and Collaborative Research, Inc. (incorporated by reference
to Exhibit 1.2 to the Registrant's Form 8-K dated June 29, 1993, filed
with the Securities and Exchange Commission on July 13, 1993).
10.16 Term Loan Agreement, dated July 14, 1993, by and among the Registrant
and the Union Trust Company (incorporated by reference to Exhibit 10.34
to the Registrant's Annual Report on Form 10-K/A Amendment 1 for the
year ended December 31, 1993, filed with the Securities and Exchange
Commission on April 28, 1994).
10.17 Rights Agreement, dated April 29, 1994, by and among the Registrant and
American Stock and Trust Company, as Rights Agent (incorporated by
reference to Exhibit 1 to the Registrant's Form 8-K dated April 29,
1994, filed with the Securities and Exchange Commission on May 9,
1994).
10.18 Severance Agreement, dated January 20, 1995, by and among the
Registrant and John P. Davis (incorporated by reference to Exhibit
10.36 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Securities and Exchange Commission on
March 29, 1996).**
10.19 Employment Agreement, dated May 3, 1996, by the Registrant and Kevin C.
Johnson (incorporated by reference to Exhibit 10.37 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).**
10.20 Executive Employment Agreement, dated September 1, 1996, by the
Registrant and Richard A. Sandberg (incorporated by reference to
Exhibit 10.38 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).**
10.21 Employment Agreement, dated September 1, 1996, by the Registrant and
Dr. James B. Amberson (incorporated by reference to Exhibit 10.39 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).**
10.22 Executive Employment Agreement, dated September 1, 1996, by the
Registrant and Dr. James B. Amberson (incorporated by reference to
Exhibit 10.40 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).**
10.23 Severance Agreement, dated September 27, 1996, by the Registrant and
Carl R. Iberger (incorporated by reference to Exhibit 10.41 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT REFERENCE PAGE
- ------- ------------------ ----
<S> <C> <C>
10.24 Employment Agreement, dated September 30,1996, by the Registrant and
David R. Schreiber (incorporated by reference to Exhibit 10.42 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).**
10.25 Employment Agreement, dated November 18, 1996, by the Registrant and
Steven T. Clayton (filed herewith).** 58
10.26 Severance Agreement dated November 18, 1996, by the Registrant and
Daniel J. Cronin, III (filed herewith).** 66
10.27 Amendment dated as of October 4, 1995 to Rights Agreement dated as of
April 29, 1994 between the Registrant and American Stock Transfer and
Trust Company, as Rights Agent (incorporated by reference to Exhibit
No. 1 to the Registrant's Form 8-K dated October 30, 1996 filed with
the Securities and Exchange Commission on November 8, 1995).
10.28 1996 Stock Incentive Plan (incorporated by reference to Appendix A to
the Registrant's Statement on Schedule 14A filed with the Securities
and Exchange Commission on September 23, 1996).**
10.29 Stock and Warrant Purchase Agreement, dated as of October 4, 1995,
among the Gilbert Family Trust, the G.S. Beckwith Gilbert I.R.A.
Contributory Account, G.S. Beckwith Gilbert and the Registrant (filed
herewith). 68
10.30 Registration Rights Agreement, dated as of October 4, 1995, among the
Gilbert Family Trust, the G.S. Beckwith Gilbert I.R.A. Contributory
Account, G.S. Beckwith Gilbert and the Registrant (filed herewith). 87
10.31 Warrant No. 1, dated as of October 4, 1995, by the Registrant in favor
of G.S. Beckwith Gilbert (filed herewith). 99
10.32 Promissory Note, dated October 4, 1995, by G.S. Beckwith Gilbert in
favor of the Registrant (filed herewith). 109
10.33 Stock Option Grant dated October 24, 1996 by the Registrant to Andre de
Bruin (filed herewith).** 111
10.34 Stock Option Grant dated November 4, 1996 by the Registrant to Jeffrey
M. Sklar, M.D. (filed herewith).** 114
10.35 Loan Agreement dated December 3, 1996 by the Registrant to Kevin C.
Johnson (filed herewith).** 117
10.36 Form of standard Stock Option Grant for outside directors (filed
herewith).** 120
10.37 Amendment to Warrant Certificate No. W-1 dated as of October 2, 1996
between the Registrant and G.S. Beckwith Gilbert (filed herewith). 123
10.38 Severance Agreement, dated February 27, 1997, by the Registrant and
Richard A. Sandberg (filed herewith).** 125
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT REFERENCE PAGE
- ------- ------------------ ----
<S> <C> <C>
11.1 Statement re: computation of per share earnings. *
22.1 List of Subsidiaries of the Company (incorporated by reference to
Exhibit 22.1 of the Registrant's Registration Statement No. 33-41226).
23.1 1996 Consent of Arthur Andersen LLP (incorporated by reference to
Exhibit 23.1 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
23.2 1997 Consent of Arthur Andersen LLP (filed herewith). 132
27.1 Financial Data Schedule.
<FN>
- --------------
* Not applicable or contained elsewhere herein.
** A management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c) of this report.
</FN>
</TABLE>
Exhibit 10.25
EMPLOYMENT AGREEMENT
This AGREEMENT made effective November 18, 1996 between DIANON SYSTEMS,
INC., a Connecticut corporation, and any successor thereto, hereinafter referred
to as the "Company," and STEVEN CLAYTON, residing in Naperville, Illinois.
WITNESSETH:
WHEREAS, the Company wishes to employ STEVEN CLAYTON as Vice President
Information Services of the Company and STEVEN CLAYTON wishes to accept such
employment, in each case on the terms and subject to the conditions set forth
below; and
WHEREAS, the services that STEVEN CLAYTON should render hereunder to
the Company are unique and valuable; and
WHEREAS, the parties desire to reduce the terms and conditions of
STEVEN CLAYTON's employment to writing;
NOW, THEREFORE, in consideration of the terms and conditions and the
mutual covenants contained in this Agreement, the Company and STEVEN CLAYTON
hereby agree as follows:
1. Employment
The Company hereby employs STEVEN CLAYTON and STEVEN CLAYTON hereby
accepts such employment upon the terms and conditions hereinafter set forth. The
parties acknowledge that STEVEN CLAYTON's employment with the Company is at will
and terminable by either party at any time for any reason.
2. Duties and Responsibilities
STEVEN CLAYTON shall perform with continuous diligence those activities
assigned to STEVEN CLAYTON by the Company's Senior Vice President Finance and
Chief Financial Officer, President and Chief Operating Officer, Chief Executive
Officer and/or Board of Directors from time to time, initially including
responsibility for Information Services; keeping full and complete records of
all business and/or research activities in which STEVEN CLAYTON 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 new developments in STEVEN CLAYTON's area of expertise; participating
actively in research and business meetings; and abiding by all Company policies.
3. Salary and Incentive Compensation
The Company shall compensate STEVEN CLAYTON for his services during the
term of this Agreement 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 $120,000. STEVEN CLAYTON shall also
participate, according to its terms, in any management incentive compensation
program maintained by the Company for salaried Grade 17 management employees of
the Company during the term of this Agreement.
4. Relocation, Travel Expenses and Temporary Housing
The Company shall provide STEVEN CLAYTON relocation expenses in
accordance with the terms of its established relocation policy for his
relocation from Illinois to Connecticut in connection with the commencement of
his employment with the Company. The Company shall pay STEVEN CLAYTON reasonable
costs associated with temporary housing, including car rental, for up to three
months in connection with such relocation. The Company shall also pay air fare
for up to twelve round-trips between Connecticut and Chicago in connection with
such relocation.
<PAGE>
5. Signing Bonus
The Company shall pay STEVEN CLAYTON a signing bonus of $14,000 less
applicable tax deductions within a reasonable time after he commences his
employment with the Company.
6. Fringe Benefits
During the term of this Agreement, the Company shall provide STEVEN
CLAYTON benefits and emoluments as authorized for all other salaried Grade 17
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..
7. Stock Options
On the first day of STEVEN CLAYTON's active employment under this
Agreement, the Company shall award him options to purchase 15,000 shares of
common stock of the Company at the fair market value on said date, subject to
the terms, conditions, vesting schedules and expiration dates described in the
incentive stock option award document attached to this Agreement as Exhibit A.
8. Company Property
At the time his employment with the Company terminates, or at any
earlier point in time when a request is made by the Company for same, STEVEN
CLAYTON 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 STEVEN CLAYTON's possession or
under his control, whether prepared by him or others, related to the Company or
relating to the business of the Company.
9. Proprietary Information
STEVEN CLAYTON hereby agrees to all the terms and conditions of the
Company's Employee Proprietary Information Agreement attached hereto as Exhibit
B and incorporated herein and has executed a copy thereof concurrently with this
Agreement.
10. Non Competition
STEVEN CLAYTON agrees that, to the fullest extent permitted by law, for
the period of one (1) year after his termination date STEVEN CLAYTON (a) will
not solicit business on behalf of any entity in the clinical chemistry business,
which is performing or marketing anatomical pathology services ("Competing
Entity"), (b) will not solicit business from customers of the Company, (c) will
not solicit the employment 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 any publicly traded Competing Entity.
11. Remedy for Breach
STEVEN CLAYTON acknowledges:
(a) that he may be a director and 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 distribution agents and
representatives' lists, and other confidential and
proprietary information of the Company;
<PAGE>
(b) that his 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 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 STEVEN CLAYTON are special and unique and of an extraordinary
character, and that in the event there is a breach by STEVEN CLAYTON 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 STEVEN CLAYTON, or to enjoin STEVEN CLAYTON from performing services
for any Competing Entity.
12. STEVEN CLAYTON'S Representation
STEVEN CLAYTON 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.
13. Assignments
The rights and obligations of STEVEN CLAYTON 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.
14. 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 STEVEN CLAYTON and the Company
relating to his employment or the other matters covered herein.
15. 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.
<PAGE>
16. 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.
12/8/96 BY: /s/David R. Schreiber
- ------------------- --------------------------------
Date David R. Schreiber
Chief Financial Officer and
Senior Vice President, Finance
12/11/96 BY: /s/Steven Clayton
- ------------------- --------------------------------
Date Steven Clayton
<PAGE>
Exhibit A
DIANON SYSTEMS, INC.
200 Watson Boulevard
Stratford, Connecticut 06497
SO Grant No.
STOCK OPTION GRANT
Optionee: Steve Clayton Date of Grant: November 18, 1996
Termination Date: November 17, 2006 Total No. of Shares: 15,000
Exercise Price Per Share $7.875
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 November 17,
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:
<TABLE>
<CAPTION>
Percentage of Shares Date of Earliest Exercise(Vesting)
-------------------- ----------------------------------
<S> <C>
40% 11/18/98
20% 11/18/99
20% 11/18/00
20% 11/18/01
</TABLE>
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
November 17, 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 November 17, 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: /s/Kevin C. Johnson
-------------------------
Kevin C. Johnson
President
Date: 12/11/96
-------------------------
/s/Steven Clayton
- ------------------------------
(Signature)
1439 Keats Ave.
- ------------------------------
(Address)
Naperville, IL 60564
- ------------------------------
<PAGE>
Exhibit B
AGREEMENT
THIS AGREEMENT, made this 12/11/96 by and between DIANON SYSTEMS, INC.,
its affiliates, subsidiaries, successors and assigns (collectively called
hereinafter "DIANON") and Steven Clayton, an individual residing at 1439 Keats
Avenue, Naperville, Illinois 60564 (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
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.
<PAGE>
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.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date set forth below.
Employee: DIANON SYSTEMS, INC.
/s/Steven Clayton By: /s/David R. Schreiber
- ------------------------ ---------------------------------
Steven Clayton David R. Schreiber
Dated: 12/11/96
------------------------
Exhibit 10.26
SEPARATION AGREEMENT
WHEREAS, DANIEL J. CRONIN III 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 DANIEL J. CRONIN III
agree as follows:
1. DANIEL J. CRONIN III resigns his full-time employment and his
officer position with the Company effective as of December 6, 1996.
2. The Company shall pay DANIEL J. CRONIN III separation pay, at his
last rate of base salary subject to applicable deductions, for the period four
months after his termination and for so much of the following two months as
DANIEL J. CRONIN III 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.
3. Throughout the Separation Period, the Company shall contribute to
medical coverage for DANIEL J. CRONIN III and his dependents at the same rate it
contributes for active employees, provided DANIEL J. CRONIN III and his family
are eligible and elect continuation coverage.
4. The Company shall pay DANIEL J. CRONIN III 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. The Company commits that not less than 70% shall be used for DANIEL J.
CRONIN's individual goals achievement in the calculation of said bonus under the
program's formula. This payment will be made at the same time payments to other
Management Incentive Program participants are made.
5. The Company shall make a contribution to DANIEL J. CRONIN III's
401(k) plan account for the year 1996.
6. The Company shall respond to inquiries about DANIEL J. CRONIN III by
prospective employers by disclosing only his salary, date of employment and
title.
7. DANIEL J. CRONIN III acknowledges his continuing obligation not to
use or divulge confidential Company documents and information to which he has
had access in the course of his employment with the Company. DANIEL J. CRONIN
III agrees that he shall return to the Company and retain no copies of, any
Company information, documents and/or equipment in his possession at the time
his employment with the Company terminates.
8. DANIEL J. CRONIN III, agrees to make himself reasonably available to
consult with the Company on Information Systems matters up to six days per month
during the Separation Period. The Company agrees to reimburse DANIEL J. CRONIN
III for any reasonable travel expenses he incurs in order to fulfill this
obligation.
9. DANIEL J. CRONIN III, 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 DANIEL J. CRONIN
III has, had or may have against any of them, whether or not now known arising
from DANIEL J. CRONIN III'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 under the Age Discrimination in Employment Act.
<PAGE>
10. DANIEL J. CRONIN III 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 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 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.
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.
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 DANIEL J. CRONIN III 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, DANIEL J.
CRONIN III shall be liable for all costs and expenses including legal fees,
incurred by any Released Company Party in defense of that action.
14. DANIEL J. CRONIN III 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.
15. DANIEL J. CRONIN III 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.
16. DANIEL J. CRONIN acknowledges that he has been given a reasonable
time to review the waivers and releases contained in this Agreement prior to
signing it.
17. 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.
18. This Agreement shall be governed by applicable Federal law and the
laws of the State of Connecticut.
DANIEL J. CRONIN III
12/24/96 /s/Daniel J. Cronin III
- ----------------- ---------------------------------
Dated Signature
DIANON SYSTEMS, INC.
12/23/96 /s/Kevin C. Johnson
- ----------------- ---------------------------------
Dated By: Kevin C. Johnson, President
Exhibit 10.29
STOCK AND WARRANT PURCHASE AGREEMENT, dated as of October 4, 1995 (the
"Agreement"), among the Gilbert Family Trust (the "Trust"), the G.S. Beckwith
Gilbert I.R.A. Contributory Account (the "IRA"), G.S. Beckwith Gilbert ("Mr.
Gilbert" and, together with the Trust and the IRA, the "Purchasers" and each a
"Purchaser") and DIANON Systems, Inc., a Delaware corporation (the "Company").
WHEREAS Purchasers wish to purchase from the Company, and the Company
wishes to sell to Purchasers, 1,000,000 shares (the "Shares") of the Company's
Common Stock, par value $0.01 per share ("Common Stock"), and 800,000 two-year
warrants (the "Warrants") entitling Purchasers to purchase up to a total of
800,000 shares of Common Stock (the "Warrant Shares");
WHEREAS Purchaser and the Company are entering into this Agreement to
provide for such purchase and sale and to establish various rights and
obligations in connection therewith. Certain terms used herein are defined in
Section 6.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties agree as follows:
1. Purchase and Sale of Shares.
1.1 Purchase and Sale. Upon the terms set forth herein and
contemporaneously with the execution of this Agreement, the Company is selling
to Purchasers, and Purchasers are purchasing from the Company, the Shares and
the Warrants for an aggregate purchase price of $5,612,000.
1.2 Manner of Payment. The total purchase price of $5,612,000 payable
at the Closing (as defined below) to the Company shall be paid as follows: (a)
$5,316,000 in cash by bank checks of Purchasers payable to the Company; and (b)
$296,000 in a two-year, 7% promissory note from Mr. Gilbert (the "Note").
1.3 Time and Place of Closing. The sale and purchase of the Shares and
the Warrants (the "Closing") shall take place at the offices of Hughes Hubbard &
Reed, One Battery Park Plaza, New York, New York, at 10:00 a.m. on the date
hereof. The date on which the Closing is to occur is hereinafter called the
"Closing Date."
1.4 Transactions to be Effected at Closing. At the Closing:
(a) the Company and Purchasers shall execute and deliver a
registration rights agreement in the form of Exhibit A (the
"Registration Rights Agreement");
(b) the Company shall deliver to Purchasers a warrant
certificate (in the form of Exhibit B), in definitive form and
registered in the name of Mr. Gilbert, representing the Warrants being
purchased by it pursuant hereto;
(c) the Company shall deliver to Purchasers stock certificates
in definitive form, registered in the name of the applicable Purchaser,
representing the Shares being purchased by it pursuant hereto;
(d) Purchasers shall concurrently pay to the Company
$5,316,000 by bank check or checks of Purchasers payable to the
Company;
(e) the Company shall deliver to Purchasers a duly executed
amendment (the "Rights Amendment"), in the form of Exhibit C, to the
Rights Agreement, dated as of April 29, 1994 (the "Rights Agreement"),
between the Company and American Stock Transfer and Trust Company;
<PAGE>
(f) Mr. Gilbert shall deliver to the Company the duly executed
Note in favor of the Company in substantially the form of Exhibit D;
and
(g) Purchasers shall have received an opinion of counsel to
the Company substantially in the form of Exhibit E.
2. Representations and Warranties of the Company. The Company
represents and warrants as of the date hereof as follows:
2.1 Organization and Qualification. Each of the Company and its
Significant Subsidiaries is a corporation duly organized and existing in good
standing under the laws of the jurisdiction in which its has incorporated and
has the corporate power to own its respective property and to carry on its
respective business as now being conducted. Each of the Company and its
Significant Subsidiaries is duly qualified as a foreign corporation to do
business and in good standing in every jurisdiction in which the nature of the
respective business conducted or property owned by it make such qualification
necessary and where the failure so to qualify would have a material adverse
effect on the business or financial possession of the Company and its
Subsidiaries taken as a whole. The Company and its Significant Subsidiaries
possess all rights, licenses and permits reasonably required for the maintenance
and operation of their respective material properties and the conduct of their
respective material businesses as now being maintained and operated and
conducted.
2.2 Due Authorization. The execution and delivery of this Agreement,
the Registration Rights Agreement, the Rights Amendment and the issuance and
sale of the Shares, the Warrants and the Warrant Shares by the Company and
compliance by the Company with all the provisions of this Agreement, the Rights
Amendment, the Registration Rights Agreement, the Warrants and the Shares (a)
are within the corporate powers and authority of the Company, (b) do not require
the approval or consent of any third party, (c) do not require the approval or
consent of any stockholders of the Company and (d) have been authorized by all
requisite corporate proceedings on the part of the Company. This Agreement, the
Rights Amendment, the Warrants and the Registration Rights Agreement have been
duly executed and delivered by the Company and constitute valid and binding
agreements of the Company enforceable in accordance with their respective terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws now or hereafter in effect
relating to creditors' rights and (ii) the remedy of specific performance and
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. The Company has
furnished to Purchasers true and correct copies of the Company's Restated
Certificate of Incorporation, as amended, and By-laws as in effect on the date
of this Agreement. The Company has taken all necessary action to amend the
Rights Agreement (as defined in Section 2.9) in order to provide that
Purchasers, upon purchase of the Shares pursuant hereto and upon purchase of the
Warrant Shares pursuant to exercise of the Warrants, will not constitute an
"Acquiring Person" for purposes of the Rights Agreement hereunder. The
acquisition by Purchasers of the Shares, the Warrants and the Warrant Shares
(upon exercise of the Warrants) has been approved and authorized by the
Company's Board of Directors, including for purposes of Section 203 of the
Delaware General Corporation Law.
2.3 SEC Reports. The Company has filed all proxy statements, reports
and other documents required to be filed by it under the Exchange Act after
December 31, 1993 (collectively, the "SEC Reports") and the Company has
furnished Purchasers copies of its Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, and all proxy statements and reports under Section
13 of the Exchange Act filed by the Company after such date, each as filed with
the Commission. Each SEC Report was in substantial compliance with the
requirements of its respective report form and did not on the date of filing
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
<PAGE>
2.4 Financial Statements. The financial statements (including any
related schedules and/or notes) included in the SEC Reports are in conformity
with the books and records of the Company, have been prepared in accordance with
generally accepted accounting principles consistently followed (except as
indicated in the notes thereto) throughout the periods involved and fairly
present the consolidated financial condition, results of operations and changes
in financial position of the Company and its subsidiaries as of the dates
thereof and for the periods ended on such dates (in each case subject, as to
interim statements, to changes resulting from year-end adjustments (none of
which are material in amount or effect)).
2.5 Actions Pending; Compliance with Law. Except as disclosed on
Schedule 2.5, there is no action, suit, investigation or proceeding pending or,
to the knowledge of the Company, threatened by any public official or
governmental authority against the Company or any of its Subsidiaries or any of
their respective properties or assets by or before any court, arbitrator or
governmental body, department, commission, board, bureau, agency or
instrumentality, which questions the validity of this Agreement, the
Registration Rights Agreement, the Rights Amendment, or the Warrants or which
are reasonably likely to result in a Material Adverse Effect, and neither the
Company nor any of its Subsidiaries is in default in any material respect with
respect to any judgment, order, writ, injunction, decree or award. Except as
disclosed on Schedule 2.5 or as otherwise previously disclosed to Purchasers,
the businesses of the Company and its Subsidiaries are in compliance in all
material respects with applicable Federal, state, local and foreign governmental
laws and regulations, including, without limitation, laws and regulations
relating to employment practices (such as practices in respect of
discrimination, health and safety), but excluding any such laws and regulations
described in Section 2.13.
2.6 Governmental Consents, etc. The Company is not required to obtain
any consent, approval or authorization of, or to make any declaration or filing
with, any governmental authority as a condition to or in connection with the
valid execution, delivery and performance of this Agreement, the Rights
Amendment, the Warrants and the Registration Rights Agreement and the valid
offer, issue, sale or delivery of the Shares and the Warrant Shares, or the
performance by the Company of its obligations in respect thereof, except (a)
with respect to the transactions contemplated by the Registration Rights
Agreement, for filings with the Commission and state securities commissions and
(b) with respect to the transactions contemplated hereby, the filing of a Form D
with the Commission and with the Department of Banking of the State of
Connecticut.
2.7 Taxes. The Company and its Subsidiaries have filed or caused to be
filed all Federal, state and local income tax returns which are required to be
filed and have paid or caused to be paid all taxes as shown on said returns and
on all assessments received by it to the extent that such taxes have become due,
except taxes the validity or amount of which is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside. No Federal income tax returns of the Company and its Subsidiaries
have been examined and reported on by the Internal Revenue Service (or closed by
applicable statutes). The Company and its Subsidiaries have paid or caused to be
paid, or have established reserves that the Company reasonably believes to be
adequate in all material respects, for all tax liabilities applicable to the
Company and its Subsidiaries for all fiscal years which have not been examined
and reported on by the taxing authorities (or closed by applicable statues).
2.8 Conflicting Agreements and Charter Provisions. Neither the
execution and delivery of this Agreement, the Rights Amendment, the Warrants and
the Registration Rights Agreement nor the issuance of the Shares and the Warrant
Shares nor fulfillment of nor compliance with the terms and provisions hereof or
thereof will conflict with or result in a breach of the terms, conditions or
provisions of, or give rise to a right of termination under, or constitute a
default under, or result in any violation of, the Restated Certificate of
Incorporation, as amended, or By-Laws of the Company or any mortgage, agreement,
instrument, order, judgment, decree, statute, law, rule or regulation to which
the Company or any of its Subsidiaries or any of their respective property is
subject. The acquisition by Purchasers of the Shares, the Warrants and the
Warrant Shares are not and will not be subject to the requirements of Article
Seventh of the Company's Restated Certificate of Incorporation.
<PAGE>
2.9 Capitalization. The authorized capital stock of the Company
consists of (a) 20,000,000 shares of Common Stock, of which, as of the date
hereof, 5,311,450 shares are issued and outstanding and no shares are held in
its treasury, and (b) 5,000,000 shares of preferred stock, par value $0.01 per
share, of the Company, no shares of which are issued and outstanding, and all of
such outstanding shares have been validly issued and are fully paid and
nonassessable. No class of capital stock of the Company is entitled to
preemptive rights. As of October 3, 1995, (i) 676,679 shares of Common Stock
were issuable upon the exercise of outstanding employee options (the "Employee
Options") pursuant to the Company's 1991 Stock Incentive Plan, Outside Director
Stock Compensation Plan (the "Directors Plan") and certain other option
agreements (collectively, the "Incentive Plans"), (ii) 154,017 shares of Common
Stock, available for any future grants of stock options under the Incentive
Plans, were contingently issuable to employees under the Incentive Plans and
(iii) 100,000 shares of Series A Junior Participating Preferred Stock, par value
$0.01 per share, of the Company ("Series A Stock") were reserved pursuant to the
Rights Agreement. Except as set forth above and pursuant to the Warrants, the
Incentive Plans and the Rights Agreement, there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, shares of any
capital stock of the Company, or contracts, commitments, understandings, or
arrangements by which the Company is or may become bound to issue additional
shares of its capital stock or options, warrants or rights to purchase or
acquire any shares of its capital stock.
2.10 Status of Shares. The Shares and the Warrants being issued on the
date hereof have been duly authorized by all necessary corporate action on the
part of the Company (no consent or approval of stockholders being required by
law, the Restated Certificate of Incorporation, as amended, or By-Laws of the
Company or otherwise), and such Shares and such Warrants, upon payment therefore
as provided herein, will be validly issued, fully paid and nonassessable, and
the issuance of such Shares and such Warrants is not and will not be subject to
preemptive rights of any other stockholder of the Company. The Warrant Shares
have been duly authorized by all necessary corporate action on the part of the
Company (no consent or approval of stockholders being required by law, the
Restated Certificate of Incorporation, as amended, or By-Laws of the Company or
otherwise), and such Warrant Shares have been validly reserved for issuance, and
upon issuance upon exercise of the Warrants and upon payment therefor as
provided in the Warrants will be validly issued and outstanding, fully paid and
nonassessable.
2.11 ERISA. No accumulated funding deficiency (as defined in Section
302 of ERISA and Section 412 of the Code), whether or not waived, exists with
respect to any Plan (as defined below) (other than a Multiemployer Plan (as
defined below)). No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company or any of its Subsidiaries which is or would be materially adverse to
the Company and its Subsidiaries taken as a whole. Neither the Company nor any
of its Subsidiaries has maintained a Plan which is subject to Title IV of ERISA
or has contributed to a Multiemployer Plan. The execution and delivery of this
Agreement and the issue and sale of the Shares and the Warrants will not involve
any transaction which is subject to the prohibitions of Section 406 of ERISA or
in connection with which a tax could be imposed pursuant to Section 4975 of the
Code. As used in this Section 2.12, the term "Plan" shall mean an "employee
pension benefit plan" (as defined in Section 3(2) of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or by any trade or business, whether or not incorporated, which,
together with the Company, is under common control or treated as a single
employer, as described in Section 414(b) or (c) of the Code; and the term
"Multiemployer Plan" shall mean any Plan which is a "multiemployer plan" (as
such term is defined in Section 4001(a)(3) of ERISA).
2.12 Possession of Franchises, Licenses, etc. The Company and its
Subsidiaries possess all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities, free from burdensome restrictions, that are necessary in any
material respect for the ownership, maintenance and operation of their
respective properties and assets, and neither the Company nor any of its
Subsidiaries is in violation of any thereof in any material respect.
2.13 Environmental Laws.
(a) The Company and its Subsidiaries are in compliance in all
material respects with all applicable federal, state or local statutes,
codes, rules or regulations relating to the environment, natural
resources and public or employee health and safety ("Environmental
Laws");
<PAGE>
(b) No judicial or administrative proceedings are pending or
threatened against the Company and its Subsidiaries alleging the
violation of any Environmental Law and no notice from any governmental
body or other person has been served upon the Company or any of its
Subsidiaries claiming any violation of any Environmental Laws; and
(c) All substances, materials or wastes which are regulated by
federal, state or local government, including, without limitation, any
substance, material or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "toxic waste" or "toxic
substance" under any provision of Environmental Law, used or generated
by the Company or any of its Subsidiaries have been stored, used,
treated and disposed of by them or on their behalf in such manner as
not to result in Environmental Costs and Liabilities, which are
reasonably likely to exceed $100,000. "Environmental Costs and
Liabilities" means any losses, liabilities, obligations, damages,
fines, penalties, judgments, actions, claims, costs and expenses
(including, without limitation, fees, disbursements and expenses of
legal counsel, experts, engineers and consultants and the costs of
investigation and feasibility studies, remedial or removal actions and
cleanup activities) arising from or under any Environmental Law or
order or contract with any federal, state or local governmental
authority or other person with respect to the enforcement of any
Environmental Law.
2.14 Election of Director. Mr. Gilbert has been duly elected by the
Board of Directors of the Company to serve as a director on that Board effective
upon the issuance of, and payment for, the Shares and the Warrants.
2.15 Subsidiaries. The Company does not have any Significant
Subsidiaries.
2.16 No Undisclosed Liabilities. As of June 30, 1995, the Company did
not have any material indebtedness or liability of any nature (whether known or
unknown and whether accrued, absolute, contingent or otherwise, and whether due
or to become due) which is not shown on the Company's June 30, 1995 balance
sheet set forth in the SEC Reports (the "Balance Sheet") or the notes thereto or
disclosed herein or in any document delivered to Purchasers hereunder upon the
execution and delivery hereof. Except as set forth in the Balance Sheet, the
Company does not have outstanding any material indebtedness or liability, nor,
to the knowledge of the Company, there is no condition or event that could
result in any material indebtedness or liability, of any kind, whether accrued,
absolute, contingent or otherwise, that may arise or be incurred other than in
the ordinary course of business, whether or not such indebtedness or liability
would have been required to be disclosed in a balance sheet prepared in
accordance with United States generally accepted accounting principles.
2.17 Default. The Company is not in default, or, to the knowledge of
the Company, alleged to be in default, with respect to any judgment, order,
writ, injunction or decree of any court or any federal, state, municipal or
other governmental authority, department, commission, board or agency or other
entity, where such default would have a material adverse effect on the financial
condition, results of operations, business, properties, assets or liabilities of
the Company and its Subsidiaries taken as a whole (a "Material Adverse Effect").
The Company is not in breach or default, or, to the knowledge of the Company,
alleged to be in breach or default, under any lease, license, contract,
agreement or instrument, where such default would have a Material Adverse Effect
and the Company does not know of any condition or event which is reasonably
likely to cause or create a default or defaults under any such lease, license,
contract, agreement or instrument, where such default would have a Material
Adverse Effect. The Company does not know of any other party to any lease,
license, contract, agreement or instrument to which the Company is a party and
which is material to the Company's business that is in default thereunder and,
to the knowledge of the Company, there exists no condition or event which, after
notice or lapse of time or both, would constitute a default of any other party
to any such material lease, license, contract, agreement or instrument.
<PAGE>
2.18 No Material Adverse Changes. Except as set forth in Schedule 2.18,
since June 30, 1995, there has not been, occurred or arisen (i) any material
adverse change in the financial condition, results of operations, business,
properties, assets or liabilities of the Company and its Subsidiaries taken as a
whole, (ii) any damage or destruction in the nature of a casualty loss, whether
covered by insurance or not, adversely affecting any property of the Company or
its Subsidiaries which damage or destruction would have a Material Adverse
Effect, (iii) any actual or, to the knowledge of the Company, threatened strike
or other labor dispute which strike or dispute would have a Material Adverse
Effect, (iv) any extraordinary loss (as defined in Opinion No. 30 of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and any amendments or interpretations thereof) suffered by the
Company or any Subsidiary, which, individually or in the aggregate, would have a
Material Adverse Effect and (v) any waiver by the Company or any Subsidiary of
any right or rights which, individually or in the aggregate, would have a
Material Adverse Effect.
2.19 Registration Rights. There are no outstanding effective rights to
demand or require registration under a registration statement of any of the
Company's securities under the Securities Act.
2.20 Patents, etc. The Company owns or has valid and enforceable right
to use all rights under any patent, trademark, trade name, copyright or other
intellectual property (or any application or registration respecting any
thereof), material to the conduct of its business as such business is currently
being conducted, and, to the knowledge of the Company, neither the Company nor
any Subsidiary is infringing or alleged to be infringing the rights of any third
party with respect to any of the foregoing, which infringement would have a
Material Adverse Effect.
2.21 Disclosures. The Company has not knowingly furnished Purchasers
with any materially false or misleading information concerning the Company, its
business or financial condition or knowingly omitted to inform Purchasers of any
facts necessary to make the information that was furnished to Purchasers not
misleading in a material manner.
3. Representations and Warranties of Purchaser. Purchasers jointly and
severally represent and warrant as of the date hereof as follows:
3.1 Due Authorization. Each Purchaser has all right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. Each Purchaser that is a trustee under a trust agreement,
trust indenture or other instrument creating the trust of which such Purchaser
is a trustee (i) is acting in his capacity as trustee, (ii) has the power under
such trust agreement, trust indenture or other instrument to purchase his
respective Shares as trustee and to enter into this Agreement on behalf of the
trust and (iii) if acting as trustee under a trust agreement, trust indenture or
other instrument other than a will, is the trustee named in such agreement,
indenture or other instrument, or has been duly appointed as successor or
substitute trustee pursuant to the provisions of such agreement, indenture or
other instrument. The execution and delivery of this Agreement by each Purchaser
and the consummation by each Purchaser of the transactions contemplated hereby
have been duly authorized by all necessary action on behalf of such Purchaser.
This Agreement has been duly executed and delivered by each Purchaser or, if any
Purchaser is a trustee acting in his capacity as trustee, by such Purchaser as
trustee of the trust in which the Shares are to be held, and constitutes a valid
and binding agreement of such Purchaser, or, if Purchaser is a trustee acting in
his capacity as trustee, constitutes the legal, valid and binding obligation of
such trust in which any Shares and any Warrant Shares are held, in each case
enforceable in accordance with its terms, except that (a) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and (b)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The Note has been duly
executed and delivered by Mr. Gilbert and constitutes a valid and binding
agreement of Mr. Gilbert enforceable in accordance with its terms, except that
(i) such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought. Mr.
Gilbert has full power and authority to execute and deliver this Agreement on
behalf of the Trust and the IRA.
<PAGE>
3.2 Conflicting Agreements and Other Matters. Neither the execution and
delivery of this Agreement or the Note nor the performance by each Purchaser of
their respective obligations hereunder or under the Note will conflict with,
result in breach of the terms, conditions or provisions of, constitute a default
under, result in the creation of any mortgage, security interest, encumbrance,
lien or charge of any kind upon any of the properties or assets of each
Purchaser, or, if any Purchaser is a trustee or trustees acting in his, her, its
or their capacity or capacities as trustee or trustees, the trust agreement,
trust indenture or other instrument creating the trust or trusts of which such
Purchaser is trustee or trustees, or require any consent, approval or other
action by or any notice to or filing with any court or administrative or
governmental body, pursuant to any agreement, instrument, order, judgment,
decree, statute, law, rule or regulation by which each Purchaser is bound,
except for filings after the Closing of a Schedule 13D pursuant to Section 13(d)
of the Exchange Act.
3.3 Acquisition for Investment; Source of Funds. Each Purchaser is
acquiring its Shares and Warrants, if any, for its own account for the purpose
of investment and not with a view to or for sale in connection with any
distribution thereof, and each Purchaser has no present intention or plan to
effect any distribution of the Shares or the Warrant Shares; provided, that the
disposition of each Purchaser's property shall at all times be and remain within
its control and subject to the provisions of this Agreement, the Warrants, the
Note and the Registration Rights Agreement. Each Purchaser represents that it is
(a) an "accredited investor" as that term is defined in Regulation D of the
Securities Act and (b) a resident of the State of Connecticut.
3.4 Ownership of Securities. At the date hereof neither any Purchaser
nor any of their respective Affiliates or Associates (collectively, the "Gilbert
Entities") Beneficially Owns directly or, to the knowledge of all Purchasers,
indirectly (or have any option or other right to acquire), any securities of the
Company other than the Shares and the Warrants, if any, being purchased by each
Purchaser hereunder and none of the Gilbert Entities has any arrangement or
understanding with any Person with respect to acquiring, holding, voting or
disposing of the Shares or any other Voting Securities.
3.5 Voting of Shares and Warrant Shares. Mr. Gilbert has the right,
individually and without the consent of any other trustee, to vote and dispose
of any Shares or Warrant Shares that will be at any time held by the IRA. Mr.
Gilbert and his wife together have the right, without the need for the consent
of any other trustee, to vote and dispose of any Shares or Warrant Shares that
will be at any time held by the Trust.
3.6 Brokers or Finders. Except for certain fees previously disclosed by
Purchasers to the Company which the Company has agreed to pay, no agent, broker,
investment banker or other firm or Person, including any of the foregoing that
is an Affiliate of any Purchaser, is or will be entitled to any broker's or
finder's fee or any other commission or similar fee from Purchasers in
connection with any of the transactions contemplated by this Agreement.
3.7 Investment Purpose. Purchasers are acquiring the Shares, the
Warrants and the Warrant Shares for purposes of investment and in order to
acquire a significant equity interest in the Company and have no current plan or
intention of seeking to acquire control of the Company, except that Mr. Gilbert,
as a director of the Company, will participate in and influence the formulation
of the business plans and strategies of the Company. The Schedule 13D filed by
Purchasers pursuant to Rule 13d-1 under the Exchange Act reporting their
acquisition of the Shares, the Warrant and the Warrant Shares shall be
consistent with the representations set forth in this Section 3.7.
4. Covenants.
4.1 Financial Statements and Other Reports. The Company covenants that
it will deliver to Mr. Gilbert so long as the Gilbert Entities Beneficially Own
Voting Securities representing 5% or more of the Total Voting Power:
(a) as soon as practicable and in any event within 45 days
after the end of each quarterly period (other than the last quarterly
<PAGE>
period) in each fiscal year, a consolidated statement of earnings and
retained earnings and a consolidated statement of changes in financial
position of the Company and its Subsidiaries for the period from the
beginning of the then current fiscal year to the end of such quarterly
period, and a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding period or
date in the preceding fiscal year, all in reasonable detail and
certified by an authorized financial officer of the Company, subject to
changes resulting from year-end adjustments; provided, however, that
delivery pursuant to clause (c) below of a copy of the Quarterly Report
on Form 10-Q of the Company for such quarterly period filed with the
Commission shall be deemed to satisfy the requirements of this clause
(a);
(b) as soon as practicable and in any event within 90 days
after the end of each fiscal year, a consolidated statement of earnings
and retained earnings and a consolidated statement of changes in
financial position of the Company and its Subsidiaries for such year,
and a consolidated balance sheet of the Company and its Subsidiaries as
of the end of such year, setting forth in each case in comparative form
the corresponding figures from the preceding fiscal year, all in
reasonable detail and examined and reported on by Arthur Andersen
L.L.P. or other independent public accountants of recognized standing
selected by the Company; provided, however, that delivery pursuant to
clause (c) below of a copy of the Annual Report on Form 10-K of the
Company for such fiscal year filed with the Commission shall be deemed
to satisfy the requirements of this clause (b);
(c) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its stockholders and copies of all such registration statements
(without exhibits), other than registration statements relating to
employee benefit or dividend reinvestment plans, and all such regular
and periodic reports as it shall file with the Commission; and
(d) with reasonable promptness, such other financial data of
the Company and its Subsidiaries as Mr. Gilbert may reasonably request.
4.2 Inspection of Property. The Company covenants that, so long as the
Gilbert Entities Beneficially Own Voting Securities representing 5% or more of
the Total Voting Power, it will permit representatives of Mr. Gilbert to visit
and inspect, at Mr. Gilbert's expense, any of the properties of the Company and
its Subsidiaries, to examine the corporate books and make copies or extracts
therefrom and to discuss the affairs, finances and accounts of the Company and
its Subsidiaries with the principal officers of the Company, all at such
reasonable times and as often as Mr. Gilbert may reasonably request; provided,
however, that the foregoing shall be subject to compliance with reasonable
safety requirements and shall not require the Company or any of its Subsidiaries
to permit any inspection which in the reasonable judgment of the Company would
result in the disclosure of any trade secrets or violate any statute or
regulation with respect to confidentiality or security. Each Purchaser agrees
not to disclose to any Person any information or data obtained by it pursuant to
this Section 4.2 or Section 4.1(a) until such information or data otherwise
becomes publicly available or except pursuant to a valid subpoena, judicial
process or its equivalent; provided, that each such Purchaser shall have used
its best efforts to give the Company advance notice of such subpoena or judicial
process so that the Company may seek an appropriate protective order.
4.3 Exchange of Stock and Warrant Certificates. The Company covenants
that it shall, at its expense, promptly upon surrender of any certificates
representing shares of Common Stock or the Warrants at the office of the Company
referred to in, or designated pursuant to, Section 7.5, execute and deliver to
each Purchaser a new certificate or certificates in denominations specified by
such Purchaser for an aggregate number of shares of Common Stock or number of
Warrants, as the case may be, equal to the number of shares of such stock or
number of Warrants, as the case may be, represented by the certificates
surrendered.
<PAGE>
4.4 Lost, Stolen, Destroyed or Mutilated Stock and Warrant
Certificates. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any certificate for shares of Common Stock
or the Warrants and, in the case of loss, theft or destruction, upon delivery of
an indemnity satisfactory to the Company or, in the case of mutilation, upon
surrender and cancellation thereof, the Company shall issue a new certificate of
like tenor of a number of shares of Common Stock or number of Warrants, as the
case may be, equal to the number of shares of such stock or number of Warrants,
as the case may be, represented by the certificate lost, stolen, destroyed or
mutilated.
4.5 Board Representation. The Company shall cause Mr. Gilbert to be
included in the slate of nominees recommended by its Board of Directors to the
Company's stockholders for election as a director at each annual meeting of the
stockholders of the Company and shall seek to cause the election of Mr. Gilbert,
including soliciting proxies in favor of the election of Mr. Gilbert; provided,
that, Mr. Gilbert shall not be entitled to be included in the slate of nominees
subsequently recommended by the Board of Directors of the Company to the
Company's stockholders for election as directors to the Board of Directors of
the Company if the Gilbert Entities Beneficially Own Voting Securities
representing less than 5% of the Total Voting Power (determined as of the record
date for each annual meeting of stockholders of the Company). For so long as Mr.
Gilbert has rights under this Section 4.5, the Company's Board of Directors
shall elect and nominate for election to such Board, as soon as possible and in
any event prior to the next annual meeting of the Company's stockholders, one
person (in addition to the Incumbent Directors as of the date hereof and Mr.
Gilbert and their successors) reasonably acceptable to all directors.
4.6 Limitation on Transactions with Affiliates. The Company
covenants that, so long as Voting Securities representing 5% or more of the
Total Voting Power are Beneficially Owned by the Gilbert Entities, unless Mr.
Gilbert otherwise consents in writing, the Company will not, and will not permit
any of its Subsidiaries to, conduct any material business or enter into any
material transaction with any Affiliate of the Company (other than Mr. Gilbert
or any of its Affiliates or any Subsidiary of the Company all the capital stock
of which except for directors qualifying and similar shares are owned by the
Company) unless the terms thereof are no less favorable to the Company or such
Subsidiary than it could obtain in a comparable arm's-length transaction with a
Person not an affiliate of the Company.
4.7 Availability of Shares. The Company covenants that, so long as
the Company has any obligations under the Warrants to issue shares of Common
Stock, the Company, in order to satisfy its obligations under the Warrants, will
keep available for issuance a number of shares of authorized but unissued Common
Stock which may be purchased thereunder.
4.8 Stockholder Meeting. At the first annual meeting of stockholders
after the date hereof, the Company shall submit a proposal to the Company's
stockholders (together with a recommendation to the Company's stockholders by
the Company and its Board to approve such proposal) to enable the Purchasers'
Voting Limit (as defined in Section 5.1(ii)) to be increased to 20% of the Total
Voting Power (which increase reflects the agreement of the parties without
giving effect to any requirements of the National Association of Securities
Dealers) and the Company and Board of Directors shall use their best efforts to
obtain such approval. If the Company's stockholders approve such proposal by a
majority of the total votes cast on the proposal, the Company shall then enter
into an appropriate amendment of this Agreement with Purchasers to increase the
Purchasers' Voting Limit to 20% of the Total Voting Power. If the Company's
stockholders do not approve such proposal, Mr. Gilbert shall have the right
within 30 days (or, if such transaction would result in liability under Section
16(b) of the Exchange Act, such longer period, up to six months from the date of
purchase of the Warrants, as may be necessary to avoid such liability) after
such stockholders' meeting to rescind some or all of the Warrants then
outstanding and upon such rescission the Company shall pay Mr. Gilbert an amount
equal to $1.52 per Warrant in cash and cancel a pro rata portion of the then
outstanding principal amount of the Note.
<PAGE>
5. Standstill Provisions.
5.1 Acquisition of Voting Securities. Until the earliest of (a) the
seventh anniversary of the date hereof, (b) such date as the Gilbert Entities
cease to Beneficially Own Voting Securities representing 5% or more of the Total
Voting Power, and (c) the occurrence of a Change in Control or a Rights Plan
Event (the earliest of such dates being referred to as the "Standstill
Termination Date") and subject to the further provisions hereof, each Purchaser
covenants and agrees that:
(i) The Gilbert Entities will not, directly or indirectly,
without the prior written consent of the Company, Beneficially Own any
Voting Securities except for (A) the Shares, (B) shares of Common Stock
issuable upon exercise of the Warrants, (C) shares of Common Stock
issuable upon exercise of options granted to Mr. Gilbert under the
Directors Plan or any other shares of Common Stock or rights to acquire
Common Stock made available to non-employee directors of the Company
pursuant to Company plans and (D) additional Voting Securities of the
Company so long as the Voting Power of all such additional Voting
Securities Beneficially Owned by the Gilbert Entities, together with
the Voting Power of the shares referred to in clauses (A), (B) and (C)
then Beneficially Owned by the Gilbert Entities (calculated without
giving effect to paragraph (ii) of this Section 5.1), does not equal or
exceed 25% of the Total Voting Power;
(ii) Subject to Section 4.8, if at any time the Gilbert
Entities Beneficially Own Voting Securities representing more than
1,056,978 votes ("Purchasers' Voting Limit"), then the Gilbert Entities
shall take such action as shall be required so that all shares of
Voting Securities Beneficially Owned by the Gilbert Entities
representing votes in excess of such number are voted in the same
proportion as the votes cast by other holders of Voting Securities on
all matters to be voted on by the holders of Voting Securities
(including, without limitation, matters relating to mergers or other
business combinations). Notwithstanding the foregoing, the Gilbert
Entities shall be free to vote all of their Voting Securities in such
manner as they determine in their sole discretion with respect to any
Low Return Transaction (as defined in Section 5.4(b)); and
(iii) The Gilbert Entities (A) shall be present, in person or
by proxy, at all stockholders' meetings of the Company so that all
outstanding Voting Securities Beneficially Owned by the Gilbert
Entities shall be counted for the purpose of determining the presence
of a quorum at such meetings and (B) subject to Section 5.1(ii), in any
election of directors of the Company, shall vote all outstanding Voting
Securities Beneficially Owned by the Gilbert Entities for the election
of the Company's nominees as directors of the Company; provided, that
the Company has complied with its obligations set forth in Section 4.5.
5.2 Restrictions on Transfer. Prior to the Standstill Termination Date,
the Gilbert Entities shall not, directly or indirectly, sell, transfer, pledge,
encumber or otherwise dispose of (collectively, "Transfer") any Voting
Securities or the Warrants or any incidents of Beneficial Ownership of any
Voting Securities or Warrants except for (i) Transfers after the second
anniversary of the date hereof of shares of Common Stock pursuant to (x) the
exercise of the registration rights set forth in the Registration Rights
Agreement or (y) a transaction that complies with the volume, time period and
manner of sale provisions contained in Rules 144(e) and (f) under the Securities
Act as in effect at the time of such transaction; provided, that, except with
respect to underwritten offerings pursuant to the Registration Rights Agreement,
the Gilbert Entities shall use their best efforts (which shall include advising
any broker of the provisions of this Section 5.2 but shall not require undue
investigation on the part of the Gilbert Entities) so that no such Transfers
under this clause (i) are made knowingly to any Person (including its Affiliates
and any Person or entities which are, to Purchasers' knowledge after inquiry of
the Company, part of any 13D Group which includes such transferee or any of its
Affiliates) that, after giving effect to such Transfer, would Beneficially Own
Voting Securities representing greater than 10% of the Total Voting Power, (ii)
<PAGE>
Transfers of shares of Common Stock pursuant to any bona fide tender or exchange
offer to acquire shares of Common Stock; provided, that, during the first two
years after the date hereof, such offer has been approved and recommended by the
Company's Board of Directors or (iii) Transfers to an Affiliate of any
Purchaser; provided, that such Affiliate becomes a signatory to, and agrees to
be bound by, this Agreement.
5.3 Other Matters. Each Purchaser covenants and agrees that until the
Standstill Termination Date, except solely by virtue of Mr. Gilbert's
representation on the Board of Directors of the Company as provided in Section
4.5 hereof:
(a) Neither any Purchaser nor any other Gilbert Entity thereof
shall deposit any Voting Securities in a voting trust or subject any
Voting Securities to any arrangement or agreement with respect to the
voting of such Voting Securities or other agreement having similar
effect (other than a voting trust, arrangement or agreement solely
among the Purchasers and their Affiliates).
(b) Neither any Purchaser nor any other Gilbert Entity shall
solicit proxies or become a "participant" in a "solicitation" (as such
terms are defined in Regulation 14A under the Exchange Act) in
opposition to the recommendation of the majority of the directors of
the Company with respect to any matter other than any charter or by-law
amendment to be voted upon by the Company's stockholders that would
adversely affect the rights of any such Purchaser, Mr. Gilbert or any
other Gilbert Entity under this Agreement or adversely affect the
rights of any such Purchaser, Mr. Gilbert or any other Gilbert Entity
as a holder of Voting Securities in a discriminatory manner.
(c) Neither any Purchaser nor any other Gilbert Entity thereof
shall form, join or otherwise participate in a 13D Group or otherwise
act in concert with any other Person who is not a Gilbert Entity for
the purpose of acquiring, holding, voting or disposing of Voting
Securities.
(d) Other than pursuant to a direct request by the Company,
neither any Purchaser nor any other Gilbert Entity thereof shall offer
or propose (i) to enter into, directly or indirectly, any merger or
other business combination involving the Company, (ii) to purchase,
directly or indirectly, a material portion of the assets of the Company
or (iii) to acquire any Voting Securities if such acquisition would be
inconsistent with Section 5.1 hereof.
(e) Neither any Purchaser nor any other Gilbert Entity thereof
shall (i) disclose any intention, plan or arrangement inconsistent with
the foregoing or (ii) advise, assist (including by knowingly providing
or arranging financing for that purpose) or knowingly encourage any
other Person in connection with any of the foregoing.
5.4 Notice of Certain Third Party Transactions. (a) Until the
Standstill Termination Date, the Company shall give Purchasers written notice
within two business days following receipt by the Company of any of the
following: (i) any written or oral notice from any Person or group couched in
such terms as to put the Company reasonably on notice of the likelihood that
such Person or groups has acquired or is proposing to acquire any shares of
Voting Securities which results in, or, if successful, would result in, such
persons or group owning or having the right to acquire more than 15% of the
Total Voting Power; (ii) any notice under the HSR Act relating to the Company;
or (iii) any statement on Schedule 13D or Schedule 14D-1 (or any successor
schedule or form to such schedules) under the Exchange Act relating to any
Voting Securities of the Company. In its written notice to Purchasers, the
Company shall disclose the material terms of such transaction, except that the
Company need not disclose the name of the inquirer, purchaser or offeror, as the
case may be. The Company may not enter into any definitive agreement relating to
any such transaction until ten (10) business days have elapsed after Purchasers'
receipt of the Company's notice under this Section 5.4(a). The Company shall
have no obligation to update the information contained in any such notice.
<PAGE>
(b) If the Company desires to enter into a merger, consolidation or
other business combination transaction in which the Company would not be the
surviving corporation or in which the Company's outstanding Voting Securities
were to be changed or exchanged for cash, stock or assets of another Person, or
50% or more of the Company's capital stock outstanding immediately after such
merger, consolidation or other business combination transaction would not be
owned by the stockholders of the Company immediately prior to such merger,
consolidation or other business combination transaction or all or substantially
all of the Company's assets or earning power would be sold, the Company shall
give Purchasers written notice of such proposed transaction (a "Proposed
Transaction") and the Company shall not enter into an agreement with respect to
such Proposed Transaction and shall negotiate in good faith with Purchasers (but
shall not be precluded from pursuing any such Proposed Transaction), in each
case for a period of fifteen (15) business days after the date of such notice
with a view towards reaching a mutually beneficial transaction with the
Purchasers. The Company shall have no obligation to update the information
contained in such notice unless the previously noticed terms are made materially
less favorable to the Company, in which case the preceding and this sentence
shall apply to such revised transaction. During such 15 business day period, the
Company and the Purchasers shall keep confidential (subject to the requirements
of applicable securities laws) the fact that such negotiations are occurring
(including the terms discussed) and shall make no direct or indirect disclosure
thereof to any other Person (other than their respective advisers). If, after
such 15 business day period, the Company enters into an agreement with respect
to such Proposed Transaction and, under the terms of such Proposed Transaction,
Purchasers would receive proceeds in an amount that is less than the amount of
their cash investment in the Shares, the Warrants and the Warrant Shares plus a
return on such investment at the compounded rate of 10% per annum from the date
of investment (which amount, in the case of a transaction involving the purchase
of or an exchange for less than all of such Shares, Warrants and Warrant Shares,
shall be computed solely on the basis of the proportion of such Shares, Warrants
and Warrant Shares that would be sold in such Proposed Transaction) (a "Low
Return Transaction"), then, notwithstanding the provisions of Section 5.1 or 5.3
hereof, Purchasers shall have the right to make and consummate one or more
offers to the Company to acquire the Company in a merger transaction or to the
stockholders to acquire all of their shares of Common Stock at a higher price
than the price being offered in such Approved Transaction (with non-cash
consideration valued at fair market value).
5.5 Restrictions on Amendments to the Rights Plan and Adoption of New
Rights Plan. Until the Standstill Termination Date, the Board of Directors of
the Company shall not (a) amend the definition of "Acquiring Person" set forth
in the Rights Plan (as amended by the Rights Amendment) so as to deprive the
Gilbert Entities of the benefits afforded by the Rights Amendment, (b) adopt any
new rights plan pursuant to which holders of rights would be entitled to
purchase securities upon the occurrence of certain "triggering events" at less
than fair market value thereof which adopts a definition of "Acquiring Person"
(or any functionally equivalent designation) which deprives the Gilbert Entities
of the benefits afforded by the Rights Amendment or (c) cause any Gilbert Entity
to become, for the purposes of any application of the Rights Plan, an "Acquiring
Person" (or any functionally equivalent designation) solely by reason of its or
his purchase of any Voting Securities in compliance with Section 5 of this
Agreement. If an event described in Section 6.10(a) occurs, the Company shall at
the same time amend the definition of "Acquiring Person" (or any functionally
equivalent designation) to permit the Gilbert Entities to acquire Voting
Securities representing such greater Total Voting Power.
5.6 Maintenance of Purchaser's Interest. From and after the date hereof
until the Standstill Termination Date, upon the issuance or sale for cash by the
Company of any Voting Securities (other than Voting Securities issued pursuant
to options or rights to acquire Voting Securities granted or to be granted to
officers, employees, consultants or directors pursuant to any stock plan, stock
bonus, stock appreciation rights, stock purchase or other benefit plan relating
to such classes or persons, hereafter adopted by those members of the Board of
Directors who (i) in the case of officer and employee awards, are not officers
or employees of the Company and (ii) in the case of all other awards, are not
entitled to participate in any plan then the subject of approval other than
automatic non-discretionary plans), the Company shall offer to Purchasers, by
<PAGE>
written notice to Purchasers given concurrently with such issuance or sale, the
opportunity to acquire such number of Voting Securities on the same terms and
conditions as such issuance or sale as shall allow the Gilbert Entities,
immediately following the issuance or sale of all such Voting Securities, to be
the Beneficial Owner, in the aggregate, of Voting Securities representing the
same Total Voting Power as that represented by the Voting Securities owned by
the Gilbert Entities immediately prior to the issuance or sale referred to in
this Section 5.6 (without giving effect to Section 5.1(ii)).
5.7 Top Up Right. From and after the date hereof until the Standstill
Termination Date, the Company covenants that, so long as the Gilbert Entities
Beneficially Own Voting Securities representing 15% or more of the Total Voting
Power, if the Company proposes to issue Voting Securities or securities
convertible or exchangeable into Voting Securities to any Person or group of
related Persons (a "Buyer") and, immediately after such issuance, such Buyer
would Beneficially Own (a) capital stock representing a greater percentage of
the total capital stock outstanding (determined on an as-converted basis) or (b)
(after giving effect to Section 5.1(ii) with respect to the Gilbert Entities and
any similar restriction with respect to such Buyer) Voting Securities
representing a greater percentage of Total Voting Power, than the percentage of
total Common Stock outstanding or Total Voting Power, respectively, Beneficially
Owned by the Gilbert Entities at such time, then, notwithstanding the provisions
of Section 5.1(i), the Company shall offer to Purchasers new Voting Securities
(on the same terms and conditions as such issuance to Buyer) and/or amend the
restrictions set forth in Section 5.1(ii) so that, after giving effect to such
issuances and/or amendment, Buyer and the Gilbert Entities would Beneficially
Own (i) the same number of shares of Common Stock and (ii) Voting Securities
representing the same percentage of Total Voting Power (giving effect to Section
5.1(ii) as so amended with respect to the Gilbert Entities and any similar
restriction with respect to Buyer).
5.8 Standstill Termination Events. Notwithstanding the provisions of
Sections 5.1 and 5.3, if, in response to any tender or exchange offer to acquire
Voting Securities made pursuant to a Schedule 14D-1 filed with the Commission (a
"Tender Offer"), the Company (i) recommends acceptance of, or responds neutrally
to, such Tender Offer (as evidenced by the Company's filing with the Commission
of a Schedule 14D-9) or (ii) redeems the Rights issued under the Rights
Agreement, the Gilbert Entities may make an offer to purchase for cash and
purchase all outstanding shares of Common Stock at a higher price than the
consideration being offered in the Tender Offer.
6. Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
6.1 "Affiliate" and "Associate" shall have the respective meanings set
forth for such terms in Rule 12b-2 under the Exchange Act, as in effect on the
date of this Agreement.
6.2 (a) The Gilbert Entities shall be deemed the "Beneficial Owner" of,
shall be deemed to "Beneficially Own" and shall be deemed to have "Beneficial
Ownership" of:
(i) any securities which any Purchaser or any other Gilbert
Entity is deemed to "beneficially own" within the meaning of Rules
13d-3 and 13d-5 under the Exchange Act, as in effect on the date of
this Agreement; and
(ii) any securities (the "underlying securities") which any
Purchaser or any other Gilbert Entity has the right to acquire (whether
such right is exercisable immediately or only after the passage of
time) pursuant to any agreement, arrangement or understanding (written
or oral), or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise (it being understood that
such Purchaser shall also be deemed to be the Beneficial Owner of the
securities convertible into or exchangeable for the underlying
securities).
<PAGE>
(b) Any Person other than any Gilbert Entity shall be deemed the
"Beneficial Owner" of, shall be deemed to "Beneficially Own" and shall be deemed
to have "Beneficial Ownership" of any securities which such Person or any of
such Person's Affiliates or Associates is deemed to "beneficially own" within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, as in effect on the
date of this Agreement.
6.3 "Change in Control" shall mean:
(a) the acquisition, other than from the Company, by any
Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of Beneficial Ownership of 50% or more of the Total
Voting Power, but excluding, for this purpose, any such acquisition by
(i) the Company or any of its subsidiaries, (ii) any employee benefit
plan (or related trust) of the Company or its subsidiaries or (iii) any
corporation with respect to which, following such acquisition, more
than 50% of the combined voting power of the then outstanding
securities of such corporation entitled to vote generally in the
election of directors is then Beneficially Owned, directly or
indirectly, by Persons who were the Beneficial Owners of Voting
Securities of the Company immediately prior to such acquisition in
substantially the same proportion as their ownership, immediately prior
to such acquisition, of the Total Voting Power of the Company; or
(b) individuals who, as of October 1, 1995, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of such Board; provided, that
any individual becoming a director subsequent to October 1, 1995 whose
election, or nomination for election, by the Company's stockholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to
the election of the directors of the Company (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) approval by the stockholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all the individuals and entities who were
the respective Beneficial Owners of the Voting Securities immediately
prior to such reorganization, merger or consolidation do not, following
such reorganization, merger or consolidation, Beneficially Own,
directly or indirectly, more than 50% of the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors of the corporation resulting from such
reorganization, merger or consolidation; or
(d) the sale or other disposition of all or substantially all
the assets of the Company in one transaction or series of related
transactions.
6.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
6.5 "Commission" shall mean the Securities and Exchange Commission.
6.6 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
6.7 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
6.8 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
6.9 "Person" shall mean any individual, partnership, joint venture,
joint stock company, association, corporation, trust, unincorporated
<PAGE>
organization, government or department or agency of a government, or other
entity.
6.10 A "Rights Plan Event" shall mean (a) any amendment of the Rights
Agreement to change the definition of, or the implementation of a successor
rights plan which uses a definition of, "Acquiring Person" (or any functionally
equivalent designation) to permit another Person to acquire Voting Securities
representing a greater percentage of Total Voting Power than the maximum
percentage of Total Voting Power that the Gilbert Entities are permitted to
Beneficially Own pursuant to Section 5.1(i) hereof as then in effect (or, if
modified, as otherwise in effect under this Agreement) or (b) during the
pendency of a Tender Offer (as defined in Section 5.8), a court of competent
jurisdiction declares the Rights Agreement to be invalid or otherwise
inapplicable to the Tender Offer.
6.11 "Securities Act" shall mean the Securities Act of 1933, as
amended.
6.12 "Significant Subsidiary" shall mean a Subsidiary of the Company
constituting a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X promulgated by the Commission.
6.13 "Subsidiary" shall mean, as to any Person, any corporation at
least a majority of the shares of stock of which having general voting power
under ordinary circumstances to elect a majority of the Board of Directors of
such corporation (irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency) is, at the time as of which the determination is
being made, owned by such Person or one or more of its Subsidiaries or by such
Person and one or more of its Subsidiaries.
6.14 "13D Group" shall mean any group of Persons deemed to be a
"person" within the meaning of Section 13(d)(3) of the Exchange Act which would
be required under Section 13(d) of the Exchange Act and the rules and
regulations thereunder (as in effect, and based on legal interpretations thereof
existing, on the date hereof) to file a statement on Schedule 13D with the
Commission if such group Beneficially Owned Voting Securities representing more
than 5% of any class of Voting Securities then outstanding.
6.15 "Total Voting Power" at any time shall mean the total combined
voting power in the general election of directors of all the Voting Securities
then outstanding. For purposes of determining the percentage of Total Voting
Power of Voting Securities Beneficially Owned:
(i) by the Gilbert Entities, any securities not outstanding
which are subject to conversion rights, exchange rights, rights,
warrants, options or similar securities held any Person shall be deemed
to be outstanding, but shall not be deemed to be outstanding for the
purpose of computing the percentage of Voting Securities beneficially
owned by any other Person, except that this paragraph (i) shall not
apply to any determination made pursuant to Section 5.1(ii).
(ii) by any Person other than the Gilbert Entities, any
securities not outstanding which are subject to conversion rights,
exchange rights, rights, warrants, options or similar rights which are
convertible, exchangeable or exercisable within sixty days shall be
deemed to be outstanding, but shall not be deemed to be outstanding for
the purpose of computing the percentage of Voting Securities
Beneficially Owned by any other Person.
6.16 "Voting Power" at any time shall mean the aggregate voting power
in a general election of directors of Voting Securities.
6.17 "Voting Securities" shall mean at any time shares of any class of
capital stock of the Company which are then entitled to vote generally in the
election of directors, including Common Stock.
7. Miscellaneous
7.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such which may be hereafter declared invalid, void or unenforceable.
<PAGE>
7.2 Specific Enforcement. Each Purchaser, on the one hand, and the
Company, on the other, acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they may be entitled at law or equity.
7.3 Entire Agreement. This Agreement (including the documents set forth
in the Exhibits hereto) contains the entire understanding of the parties with
respect to the transactions contemplated hereby.
7.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more of the counterparts have been signed by
each party and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
7.5 Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein and all legal process in regard
hereto shall be validly given, made or served, if in writing and delivered
personally, by telecopy (except for legal process) or sent by registered mail,
postage prepaid, if to:
The Company:
DIANON Systems, Inc.
200 Watson Boulevard
Stratford, Connecticut 06497
Attention: Chairman, President and
Chief Executive Officer
Telecopy No.: (203) 381-4079
With a copy to:
Hughes Hubbard & Reed
One Battery Park Plaza
New York, New York 10004
Attention: Ed Kaufmann
Telecopy No.: (212) 422-4726
Each Purchaser:
c/o Field Point Capital Management Company
104 Field Point Road
Greenwich, Connecticut 06830
Attention: G.S. Beckwith Gilbert
Telecopy No.: (203) 629-8757
With a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York
Attention: Dennis J. Block
Telecopy No.: (212) 310-8007
or to such other address or telex number as any party may, from time to time,
designate in a written notice given in a like manner. With respect to any notice
required hereunder to the Trust, the IRA or any other Gilbert Entity, notice to
Mr. Gilbert shall be deemed to be effective notice to such Person.
<PAGE>
7.6 Amendments. This Agreement may be amended as to Purchasers and
their respective successors, and the Company may take any action herein
prohibited or omit to perform any act required to be performed by it, if the
Company shall obtain the written consent of Purchasers and/or such successors.
This Agreement may not be waived, changed, modified or discharged orally, but
only by an agreement in writing signed by the party or parties against whom
enforcement of any waiver, change, modification or discharge is sought or by
parties with the right to consent to such waiver, change, modification or
discharge on behalf of such party.
7.7 Cooperation. Purchasers and the Company agree to take, or cause to
be taken, all such further or other actions as shall reasonably be necessary to
make effective and consummate the transactions contemplated by this Agreement.
7.8 Successors and Assigns. All covenants and agreements contained
herein shall bind and inure to the benefit of the parties hereto and their
respective successors.
7.9 Indemnity. (a) The Company agrees to indemnify and save harmless
each Purchaser and each Purchaser's officers, directors and employees from and
against any and all costs, expenses, damages or other liabilities resulting from
any misrepresentation or breach of a representation or warranty or
nonfulfillment of any covenant or agreement on the part of the Company under the
terms of this Agreement or any legal, administrative or other proceedings
arising out of the execution of this Agreement or the consummation of the
transactions contemplated hereby other than such costs, expenses, damages or
other liabilities resulting from the violation by any Purchaser of any legal
investment laws or other laws restricting or governing any Purchaser's
investments generally, from the violation or alleged violation by any Purchaser
of any duty such Purchaser may owe to any Person with a direct or indirect
interest in the Shares or the Warrant Shares.
(b) Each indemnified party under this Section 7.9 will, promptly after
the receipt of notice of the commencement of any action against such indemnified
party in respect of which indemnity may be sought from the Company on account of
any indemnity agreement contained in this Section 7.9, notify the Company in
writing of the commencement thereof. The omission of any indemnified party so to
notify the Company of any such action shall not relieve the Company from any
liability which it may have to such indemnified party other than pursuant to
this Section 7.9 or, unless the Company shall have been prejudiced by the
omission of such indemnified party so to notify the Company, pursuant to this
Section 7.9. In case any such action shall be brought against any indemnified
party and it shall notify the Company of the commencement thereof, the Company
shall be entitled to participate therein and, to the extent that it may wish, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the Company to such indemnified party
of its election so to assume the defense thereof, the Company will not be liable
to such indemnified party under this Section 7.9 for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof; provided, however, that (i) if the Company shall elect not to assume
the defense of such claim or action or (ii) if the indemnified party reasonably
determines (A) that there may be a conflict between the positions of the Company
and of the indemnified party in defending such claim or action or (B) that there
may be legal defenses available to such indemnified party different from or in
addition to those available to the Company, then separate counsel for the
indemnified party shall be entitled to participate in and conduct the defense,
in the case of clauses (i) and (ii)(A), or such different defenses, in the case
of clause (ii)(B), and the Company shall be liable for any reasonable legal or
other expenses incurred by the indemnified party in connection with the defense.
7.10 Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
issuance and delivery of the Shares and the Warrants, regardless of any
investigation made by or on behalf of any party. Notwithstanding the foregoing,
the representations and warranties contained in this Agreement and the indemnity
obligations related to such representations and warranties set forth in Section
7.9 shall terminate on, and no action or claim with respect thereto may be
<PAGE>
brought after, the Standstill Termination Date (except for any action or claim
which is pending on such date as evidenced by written notice thereof which has
been delivered to the appropriate party prior to such date).
7.11 Transfer of Shares. Purchasers understand and agree that neither
any Shares, the Warrants nor any Warrant Shares have been or will be registered
under the Securities Act or the securities laws of any state and that they may
be sold or otherwise disposed of only in one or more transactions registered
under the Securities Act and, where applicable, such laws or as to which an
exemption from the registration requirements of the Securities Act and, where
applicable, such laws is available. Purchasers acknowledge that, except as
provided in the Registration Rights Agreement, Purchasers have no right to
require the Company to register the Shares, the Warrants or the Warrant Shares.
Purchasers understand and agree that each certificate representing the Shares,
the Warrants or the Warrant Shares (other than, with respect to the first
legend, the Shares, the Warrants or the Warrant Shares that are no longer
subject to the provisions of Section 5 and other than, with respect to the
second legend, the Shares, the Warrants or the Warrant Shares which have been
transferred in a transaction registered under the Securities Act or exempt from
the registration requirements of the Securities Act pursuant to Rule 144
thereunder or any similar rule or regulation) shall bear the following legends:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS RESTRICTED BY AN AGREEMENT ON FILE
AT THE OFFICES OF THE CORPORATION."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT
OR SUCH LAWS."
and Purchaser agrees to transfer the Shares, the Warrants and the Warrant Shares
only in accordance with the provisions of such legends.
7.12 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware.
7.13 Expenses. The Company shall, promptly after receiving appropriate
evidence thereof, reimburse Purchasers for their costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) in connection with
the negotiation of this Agreement and the other documents referred to herein and
the consummation of the transaction contemplated hereby and thereby.
7.14 Publicity. The Company and Purchasers shall agree upon the text of
a press release announcing the transactions contemplated hereby.
7.15 Required Percentages. Various rights of Purchasers contained in
this Agreement are conditioned upon the Gilbert Entities Beneficial Owning
Voting Securities representing a specified percentage of Total Voting Power (a
"Required Percentage"). Notwithstanding such provisions, such rights of
Purchasers shall not terminate if the Voting Power represented by Voting
Securities Beneficially Owned by the Gilbert Entities is reduced to less than
the applicable Required Percentage as a result of the issuance of any Voting
Securities by the Company unless, in connection with such issuance, the Gilbert
Entities have, and do not exercise, the right to purchase their proportionate
share of such Voting Securities pursuant to Section 5.6; provided, that,
notwithstanding the immediately preceding provision, such right shall terminate
if any Gilbert Entity sells or otherwise transfers Beneficial Ownership of any
Voting Securities such that, excluding the effects of all such Voting Securities
issuances by the Company, the Voting Securities Beneficially Owned by the
Gilbert Entities represent less than the applicable Required Percentage.
<PAGE>
IN WITNESS WHEREOF, Purchaser, Mr. Gilbert and the Company have caused
this Agreement to be duly executed, all as of the day and year first above
written.
GILBERT FAMILY TRUST
By /s/G.S. Beckwith Gilbert
-----------------------------
Name: G. S. Beckwith Gilbert
Title: Trustee
/s/G.S. Beckwith Gilbert
-------------------------------
G. S. Beckwith Gilbert
G. S. BECKWITH GILBERT I.R.A.
CONTRIBUTORY ACCOUNT
By /s/G.S. Beckwith Gilbert
-----------------------------
Name: G. S. Beckwith Gilbert
Title: Trustee
DIANON SYSTEMS, INC.
By /s/Richard A. Sandberg
----------------------------
Name: Richard A. Sandberg
Title: President, Chairman and Chief
Executive Officer
Exhibit 10.30
REGISTRATION RIGHTS AGREEMENT, dated as of October 4, 1995 (this
"Agreement"), among DIANON Systems, Inc. a Delaware Corporation (the "Company'),
and the Gilbert Family Trust, the G.S. Beckwith Gilbert I.R.A. Contributory
Account and G.S. Beckwith Gilbert (collectively, the "Investors" and each an
"Investor"). Certain terms used herein are defined in Section 3 and terms used
but not defined herein shall have the meaning set forth in the Purchase
Agreement (as defined below).
1. Background. Pursuant to a Stock and Warrant Purchase Agreement,
dated as of the date hereof (the "Purchase Agreement"), among the Company and
the Investors, the Investors have purchased from the Company 1,000,000 shares of
the Company's Common Stock, par value $0.01 per share (the "Common Stock"), and
two-year warrants (the "Warrant") to purchase 800,000 shares of Common Stock
(the "Warrant Shares").
2. Registration Under Securities Act, etc.
2.1 Registration on Request. (a) Request. Subject to Section 2.9
hereof, upon the written request of one or more holders (the "Initiating
Holders') of Registrable Securities representing not less than 30% of the
Registrable Securities that the Company effect the registration under the
Securities Act of all of such Initiating Holders' Registrable Securities, the
Company will promptly give written notice of such requested registration to all
registered holders of Registrable Securities, and thereupon the Company will use
its best efforts to effect the registration under the Securities Act, including
by means of a shelf registration pursuant to Rule 415 under the Securities Act
if so requested in such request and if the Company is then eligible to use such
a registration, of
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company has
been requested to register by the holders thereof by written request
given to the Company within 30 days after the giving of such written
notice by the Company (such holders together with the Initiating
Holders are hereinafter referred to as the "Selling Holders"), all to
the extent requisite to permit the disposition of the Registrable
Securities so to be registered.
(b) Registration of Other Securities. Whenever the Company shall effect
a registration pursuant to this Section 2.1 in connection with an underwritten
offering by one or more Selling Holders of Registrable Securities, no securities
other than Registrable Securities shall be included among the securities covered
by such registration unless (i) the managing underwriter of such offering shall
have advised each Selling Holder of Registrable Securities to be covered by such
registration in writing that the inclusion of such other securities would not
adversely affect such offering or (ii) the Selling Holders of not less than
66-2/3% of all Registrable Securities to be covered by such registration shall
have consented in writing to the inclusion of such other securities.
(c) Registration Statement Form. Registrations under this Section 2.1
shall be on such appropriate form of the Commission as shall be selected by the
Company and as shall be reasonably acceptable to the Selling Holders of more
than 50% of the Registrable Securities so to be registered. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the Selling Holders of Registrable Securities so to be
registered and counsel to the Company, is required to be included.
(d) Expenses. The Company will pay the Registration Expenses in
connection with any registration requested pursuant to this Section 2.1. If the
Company, at the request of holders of 66-2/3% of the Registrable Securities to
be covered by such registration, withdraws the registration statement before
such registration statement becomes effective, the Selling Holders shall pay all
of the Registration Expenses incurred in connection with such registration
statement.
<PAGE>
(e) Effective Registration Statement. A registration requested pursuant
to this Section 2.1 shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective, (ii) if after
it has become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court for any reason not attributable to the Selling Holders and has
not thereafter become effective, or (iii) if the conditions to closing specified
in the purchase agreement or underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived, other than by
reason of a failure on the part of the Selling Holders.
(f) Selection of Underwriters. The underwriter or underwriters of each
underwritten offering of the Registrable Securities so to be registered shall be
selected by the Selling Holders of more than 50% of the Registrable Securities
so to be registered and shall be reasonably acceptable to the Company.
(g) Priority in Requested Registration. If the managing underwriter of
any underwritten offering shall advise the Company in writing (with a copy to
each Selling Holder of Registrable Securities requesting registration) that, in
its opinion, the number of securities requested to be included in such
registration by the holders of Registrable Securities exceeds the number which
can be sold in such offering within a price range acceptable to the Selling
Holders of 66-2/3% of the Registrable Securities requested to be included in
such registration, the Company will include in such registration, to the extent
of the number which the Company is so advised can be sold in such offering,
Registrable Securities requested to be included in such registration, pro rata
among the Selling Holders on the basis of the percentage of the Registrable
Securities of such Selling Holders requested so to be registered. In connection
with any such registration to which this Section 2.1(g) is applicable, no
securities other than Registrable Securities shall be covered by such
registration.
(h) Limitations on Registration on Request. Notwithstanding anything in
this Section 2.1 to the contrary, in no event will the Company be required to
effect, in the aggregate, without regard to the holder of Registrable Securities
making such request, more than two registrations pursuant to this Section 2.1.
(i) Withdrawal of Request. If holders of 66-2/3% of the Registrable
Securities to be covered by registration pursuant to this Section 2.1 request
the withdrawal of such registration after the filing thereof with the Commission
but prior to such registration becoming effective the Company shall withdraw
such registration.
2.2. Incidental Registration. (a) Right to Include Registrable
Securities. If the Company at any time after the date hereof proposes to
register any of its securities under the Securities Act by registration on Forms
S-1, S-2 or S-3 or any successor or similar form(s) (except registrations on
such Forms or similar form(s) solely for registration of securities in
connection with a stock option or other employee benefit plans, dividend
reinvestment plans, mergers, acquisitions, consolidations, exchange offers or
subscription offers), whether or not for sale for its own account, subject to
Section 2.9 hereof, it will each such time give prompt written notice to all
registered holders of Registrable Securities of its intention to do so and of
such holders' rights under this Section 2.2. Upon the written request of any
such holder (a "Requesting Holder") made as promptly as practicable and in any
event within 15 days after the receipt of such notice (7 days if the Company
states in such written notice or gives telephonic notice to all registered
holders of Registrable Securities, with written confirmation to follow promptly
thereafter, stating that (i) such registration will be on Form S-3 and (ii) such
shorter period of time is required because of a planned filing date) (which
request shall specify the Registrable Securities intended to be disposed of by
such Requesting Holder), the Company will, subject to Section 2.9 hereof, use
its best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Requesting Holders thereof; provided, that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
<PAGE>
delay registration of such securities, the Company may, at its election, give
written notice of such determination to each Requesting Holder of Registrable
Securities and the Company shall (A) in the case of a determination not to
register, be relieved of its obligation to register any Registrable Securities
in connection with such registration (but not from any obligation of the Company
to pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1, and (B) in the case of a determination to delay
registering, be permitted to delay registering any Registrable Securities for
the same period as the delay in registering such other securities. No
registration effected under this Section 2.2 shall relieve the Company of its
obligation to effect any registration upon request under Section 2.1. The
Company will pay all Registration Expenses in connection with registration of
Registrable Securities requested pursuant to this Section 2.2.
(b) Priority in Incidental Registrations. If the managing underwriter
of any underwritten offering shall inform the Company by letter of its belief
that the number or type of Registrable Securities requested to be included in
such registration would materially adversely affect such offering, then the
Company will include in such registration, to the extent of the number and type
which the Company is so advised can be sold in (or during the time of) such
offering, first, all securities proposed by the Company to be sold for its own
account, second, such Registrable Securities requested to be included in such
registration pro rata on the basis of the percentage of Registrable Securities
of such Requesting Holders requested so to be registered, and third, any other
securities of the Company requested to be included in such registration pro rata
among the holders thereof based on the percentage of such securities held by the
holders thereof and requested so to be registered.
2.3. Registration Procedures. If and whenever the Company is required
to use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 2.1 or 2.2, the Company will as
expeditiously as possible:
(a) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use
its best efforts to cause such registration statement to effect such
registration and thereafter use its best efforts to cause such
registration statement to become effective; provided, however, that the
Company may discontinue any registration of its securities under the
circumstances specified in Section 2.2(a) at any time prior to the
effective date of the registration statement relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities
covered by such registration statement for such period as shall be
required for the disposition of all of such Registrable Securities;
provided, that, except with respect to any such registration statement
filed pursuant to Rule 415 under the Securities Act, such period need
not exceed 120 days;
(c) furnish to each seller of Registrable Securities covered
by such registration statement, such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
as such seller may reasonably request;
<PAGE>
(d) use its best efforts (i) to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such States of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request, (ii) to keep such
registration or qualification in effect for so long as such
registration statement remains in effect, and (iii) to take any other
action which may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (d) be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction;
(e) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other Federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the
Company and counsel to the seller or sellers of Registrable Securities
to enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities;
(f) furnish to each seller of Registrable Securities a signed
counterpart of (i) an opinion of independent counsel for the Company
and (ii) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements
included or incorporated by reference in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein), and, in
the case of the accountants' comfort letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' comfort
letters delivered to the underwriters in underwritten public offerings
of securities (and dated the dates such opinions and comfort letters
are customarily dated) and, in the case of the accountants' comfort
letters, such other financial matters, and, in the case of the legal
opinion, such other legal matters, as the sellers of more than 50% of
the Registrable Securities covered by such registration statement or
the underwriters may reasonably request;
(g) notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of any
such seller promptly prepare and furnish to it a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
(h) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
<PAGE>
Securities Act, and promptly furnish to each such seller of Registrable
Securities a copy of any amendment or supplement to such registration
statement or prospectus;
(i) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date
not later than the effective date of such registration; and
(j) use its best efforts to list all Registrable Securities
covered by such registration statement on any national securities
exchange on which Registrable Securities of the same class and, if
applicable, series, covered by such registration statement are then
listed.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (g) of this Section
2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (g) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings. (a) Requested Underwritten Offerings. If
requested by the underwriters for any underwritten offering by holders of
Registrable Securities pursuant to a registration requested under Section 2.1,
the Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to be reasonably satisfactory in substance and
form to the Company, each such holder and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 2.7. The holders
of the Registrable Securities proposed to be distributed by such underwriters
will cooperate with the Company in the negotiation of the underwriting
agreement. Such holders of Registrable Securities shall be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement on conditions precedent to the obligations of such
holders of Registrable Securities. Any such holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company other than representations, warranties or agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or more
underwriters, the Company will, subject to Sections 2.2 and 2.9 hereof, if
requested by any Requesting Holder of Registrable Securities use its best
efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such Requesting Holder among the securities
of the Company to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters and may,
at their option, require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to and for the benefit
<PAGE>
of such underwriters shall also be made to and for the benefit of such holders
of Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
Requesting Holder of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Requesting Holder, such Requesting Holder's Registrable Securities and such
Requesting Holder's intended method of distribution or as otherwise required by
law.
2.5. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants the opportunity to participate
in the preparation of such registration statements, each prospectus included
therein or filed with the Commission, and, to the extent practicable, each
amendment thereof or supplement thereto, and give each of them such access to
its books and records (to the extent customarily given to the underwriters of
the Company's securities), such opportunities to discuss the business of the
Company with its officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of such
holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.6. Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause the Registrable Securities to be registered under the
Securities Act are subject to each of the following limitations, conditions and
qualifications:
(a) The Company shall not be obligated to file any registration
statement pursuant to Section 2.1 hereof at any time if the Company would be
required to include financial statements audited as of any date other than the
end of its fiscal year.
(b) The Company shall be entitled to postpone for a reasonable period
of time (but not exceeding 60 days) the filing of any registration statement
otherwise required to be prepared and filed by it pursuant to Section 2.1 if the
Company determines, in its reasonable judgment, that such registration and
offering would interfere with any financing, acquisition, corporate
reorganization or other material transaction involving the Company or any of its
Affiliates or would require premature disclosure thereof and promptly gives the
holders of Registrable Securities requesting registration thereof pursuant to
Section 2.1 written notice of such determination, containing a general statement
of the reasons for such postponement and an approximation of the anticipated
delay. If the Company shall so postpone the filing of a registration statement,
such holders of Registrable Securities requesting registration thereof pursuant
to Section 2.1 shall have the right to withdraw the request for registration by
giving written notice to the Company within 30 days after receipt of the notice
of postponement and, in the event of such withdrawal, such request shall not be
counted for purposes of the requests for registration to which holders of
Registrable Securities are entitled pursuant to Section 2.1 hereof.
(c) (i) Holders of Registrable Securities shall use all reasonable
efforts to effect as wide a distribution of such Registrable Securities as
reasonably practicable (and the holders of such Registrable Securities shall
secure the agreement of their underwriter or underwriters, if any, for such
offering to comply with the foregoing), and (ii) except with respect to
underwritten offerings pursuant hereto, holders of Registrable Securities shall
use their best efforts (which shall include advising any broker of the
provisions of this Section 2.6(c) but shall not require undue investigation on
the part of any such holder) so that in no event shall any sale of Registrable
Securities be made knowingly to any Person (including its Affiliates) or any
Person or entities which are to the knowledge of such holders (or to the
knowledge of any underwriter for such holders) part of any 13D Group which
<PAGE>
includes such purchaser or any of its Affiliates), that, in each case, after
giving effect to such sale, would Beneficially Own Voting Securities
representing more than 10% of the Total Voting Power.
2.7. Indemnification. (a) Indemnification by the Company. In the event
of any registration of any securities of the Company under the Securities Act,
the Company will, and hereby does, indemnify and hold harmless, in the case of
any registration statement filed pursuant to Section 2.1 or 2.2, each seller of
any Registrable Securities covered by such registration statement, its
directors, officers, partners, agents and affiliates and each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or any such director,
officer, partner, agent or affiliate or underwriter or controlling Person may
become subject under the Securities Act or otherwise insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and the Company will
reimburse such seller and each such director, officer, partner, agent or
affiliate, underwriter and controlling Person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided, that
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by or on behalf of
such seller or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and, provided, further, that the Company
shall not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expenses arises out of such Person's failure
to send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in the final prospectus. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such seller or any such director, officer, partner, agent or
affiliate or controlling person and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Sellers. As a condition to including any
Registrable Securities in any registration statement, the Company shall have
received an undertaking satisfactory to it from the prospective seller of such
Registrable Securities, to indemnify and hold harmless (in the same manner and
to the same extent as set forth in subdivision (a) of this Section 2.7) the
Company, and each director of the Company, each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such seller specifically stating that it is for use in the preparation of
<PAGE>
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect, regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling person and shall survive the
transfer of such securities by such seller.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party or notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually materially prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party the
indemnifying party shall be entitled to participate in and, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that all indemnified parties with respect to a claim shall have the right to
employ one separate counsel in connection with their participation in the
defense of such claim and the fees and expenses of such counsel shall be paid by
the indemnifying party if, but only if, in the reasonable judgment of such
indemnified parties, based upon the written advice of counsel, a conflict of
interest exists between such indemnified parties and the indemnifying party with
respect to such claim. An indemnifying party who does not elect to participate
in the defense of a claim, together with all other indemnifying parties, shall
not be obligated to pay the fees and expenses of more than one counsel for all
indemnified parties with respect to any such claim. No indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
written consent. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in this Section
2.7 shall for any reason be held by a court to be unavailable to an indemnified
party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage
or liability, or any action in respect thereof, then, in lieu of the amount paid
or payable under subparagraph (a) or (b) hereof, the indemnified party and the
indemnifying party under subparagraph (a) or (b) hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), (i) in
such proportion as is appropriate to reflect the relative fault of the Company
and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action in respect thereof, with respect to the statements or omissions which
resulted in such loss, claim, damage or liability, or action in respect thereof,
as well as any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company and such prospective sellers from the offering of the securities
covered by such registration statement. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. Such prospective sellers' obligations to
contribute as provided in this subparagraph (d) are several in proportion to the
relative value of their respective Registrable Securities covered by such
registration statement and not joint. In addition, no Person shall be obligated
<PAGE>
to contribute hereunder any amounts in payment for any settlement of any action
or claim effected without such Person's consent, which consent shall not be
unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar to
that specified in the preceding subparagraphs of this Section 2.7 (with
appropriate modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of any
governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 2.7 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.8. Adjustment Affecting Registrable Securities. The Company will not
effect or permit to occur any combination or subdivision of Registrable
Securities which would materially adversely affect the ability of the holders of
Registrable Securities to include such Registrable Securities in any
registration of its securities contemplated by this Section 2 or the
marketability of such Registrable Securities under any such registration.
2.9. Conditions and Limitations on Registrations of Registrable
Securities. (a) The Company shall not be required to effect any registration of
Registrable Securities pursuant to this Section 2 until after October 4, 1997 or
at any time that all Registrable Securities held by any holders requesting such
registration can be transferred by such holders under Rule 144 under the
Securities Act within 183 days from the date of such request for registration.
(b) The Company shall not be required to effect any registration of
Registrable Securities pursuant to Section 2.2 hereof if it shall deliver to the
holder or holders requesting such registration an opinion of counsel (which
opinion and counsel shall be reasonably satisfactory to such holder or holders)
to the effect that the Registrable Securities requested to be registered may be
sold by such holder in the manner, time period and volume intended by such
holder without registration under the Securities Act.
(c) The registration rights provided by this Section 2 shall terminate
upon the tenth anniversary of the date hereof.
2.10. Certain Rights of an Investor If Named in a Registration
Statement. If any statement contained in a registration statement under the
Securities Act refers to an Investor by name or otherwise as the holder of any
securities of the Company, then such Investor shall have the right to require
(i) the insertion therein of language, in form and substance reasonably
satisfactory to such Investor and the Company, to the effect that the holding by
such Investor of such securities does not necessarily make such Investor a
"controlling person" of the Company within the meaning of the Securities Act and
is not to be construed as a recommendation by such Investor of the investment
quality of the Company's debt or equity securities covered thereby and that such
holding does not imply that such Investor will assist in meeting any future
financial requirements of the Company or (ii) in the event that such reference
to such Investor by name or otherwise is not required by the Securities Act or
any of the rules and regulations promulgated thereunder, the deletion of the
reference to such Investor.
3. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
Federal statute.
<PAGE>
"Person" means a corporation, an association, a partnership, an
unincorporated organization, a joint venture, a joint stock company, a trust, an
individual, a government or a department or agency of a government, or other
entity.
"Registrable Securities" means (i) the Shares and the Warrant Shares
held from time to time by the Investors or any Person to whom any such
securities have been transferred in accordance with Section 5.2(c) of the
Purchase Agreement ("Permitted Holders") and (ii) any securities of the Company
(including, without limitation, the Rights) issued or issuable with respect to
any shares of Common Stock by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement, (b) they
shall have been sold as permitted by Rule 144 (or any successor provision) under
the Securities Act, (c) they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration of them under the Securities Act, or (d) they
shall have ceased to be outstanding.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and printing
expenses, messenger and delivery expenses, the fees and disbursements of counsel
for the Company and of its independent public accountants, including the
expenses of "cold comfort" letters required by or incident to such performance
and compliance, any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities and, in the case of a registration pursuant to
Sections 2.1 and 2.2, the reasonable fees and expenses of one counsel to all of
the Selling Holders (selected by Selling Holders representing at least 50% of
the Registrable Securities covered by such registration); provided, however,
that Registration Expenses shall exclude and the sellers of the Registrable
Securities shall pay the fees and disbursements of counsel and accountants to
such sellers and underwriting discounts and commissions and transfer taxes in
respect of the Registrable Securities being registered, except that in the case
of a registration pursuant to Sections 2.1 and 2.2, the Company shall pay the
reasonable fees and expenses of one counsel to the Selling Holders (selected by
Selling Holders representing at least 50% of the Registrable Securities covered
by such registration).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulation of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall include a reference to
the comparable section, if any, of any such similar Federal statute.
4. Rule 144. The Company shall take all actions reasonably necessary to
enable holders of Registrable Securities to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission including, without limiting the generality of the foregoing,
filing on a timely basis all reports required to be filed by the Exchange Act.
Upon the request of any holder of Registrable Securities, the Company will
deliver to such holder a written statement as to whether it has complied with
such requirements.
<PAGE>
5. Amendments and Waivers. This Agreement may be amended only with the
written consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such amendment,
action or omission to act, of the holder or holders of at least 66-2/3% of the
Registrable Securities. Each holder of any Registrable Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this Section
5, whether or not such Registrable Securities shall have been marked to indicate
such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares or Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
7. Notices. All communications provided for hereunder shall be sent by
postage-prepaid first-class mail, shall be deemed to be received three days
after being sent, or, if earlier, the date of actual receipt, and shall be
addressed as follows:
(a) if to any Investor, addressed to such Investor in the manner set
forth in the Purchase Agreement, or at such other address as such Investor shall
have furnished to the Company in writing;
(b) if to any other holder of Registrable Securities, at the address
that such holder shall have furnished to the Company in writing, or, until any
such other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Registrable Securities who has furnished an
address to the Company; or
(c) if to the Company, addressed to it in the manner set forth in the
Purchase Agreement, or at such other address as the Company shall have furnished
to each holder of Registrable Securities at the time outstanding.
8. Assignment; Calculation of Percentage Interests in Registrable
Securities. (a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and, with respect to the Company, its
respective successors and assigns and, with respect to the Investors, any holder
of any Registrable Securities, subject to the provisions respecting the minimum
numbers of percentages of shares of Registrable Securities required in order to
be entitled to certain rights, or take certain actions, contained herein. The
Investors named in the first paragraph of this Agreement (and not any other
holder of Registrable Securities or any other Person) shall be permitted, in
connection with a transfer or disposition of Registrable Securities permitted by
the Purchase Agreement, to impose conditions or constraints on the ability of
the transferee, as a holder of Registrable Securities, to request a registration
pursuant to Section 2.1 and shall provide the Company with copies of such
conditions or constraints and the identity of such transferees.
(b) For the purposes of this Agreement, all references to a percentage
of the Registrable Securities shall be calculated based upon the number of
shares of Registrable Securities outstanding at the time such calculation is
made assuming the issuance of all Warrant Shares.
9. Descriptive Headings. The descriptive headings of the sections and
paragraphs of this Agreement are inserted for reference only and shall not limit
or otherwise affect the meaning hereof.
10. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Delaware.
<PAGE>
11. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS THEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
/s/ G.S. Beckwith Gilbert
--------------------------
G.S. Beckwith Gilbert
GILBERT FAMILY TRUST
By /s/ G. S. Beckwith Gilbert
------------------------------
Name: G. S. Beckwith Gilbert
Title:Trustee
G.S. BECKWITH GILBERT I.R.A. CONTRIBUTORY
ACCOUNT
By /s/ G. S. Beckwith Gilbert
-----------------------------
Name: G.S. Beckwith Gilbert
Title:Trustee
DIANON SYSTEMS, INC.
By /s/ Richard A. Sandberg
---------------------------
Name: Richard A. Sandberg
Title:President, Chairman and
Chief Executive Officer
Exhibit 10.31
WARRANT NO. W-1
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY
AN AGREEMENT ON FILE AT THE OFFICES OF THE CORPORATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
WARRANT CERTIFICATE
TO PURCHASE SHARES OF COMMON STOCK,
PAR VALUE $0.01 PER SHARE, OF
DIANON SYSTEMS, INC.
Exercisable commencing October 5, 1995:
Void after 5:00 p.m., New York City time, on October 4, 1997.
THIS CERTIFIES that, for value received, G. S. Beckwith Gilbert, or
registered assigns, is the owner of 800,000 Warrants (as defined below), each of
which, upon the exercise thereof, entitles the registered holder thereof to
purchase from DIANON Systems, Inc., a Delaware corporation (the "Corporation"),
and requires the Corporation to issue, one fully paid, duly authorized and
nonassessable share (the "Number Issuable") of Common Stock, par value $0.01 per
share, of the Corporation (the "Common Stock"), at any time commencing October
5, 1995, and continuing up to 5:00 p.m., New York City time, on October 4, 1997,
at an exercise price of $6.00 (the "Exercise Price"), subject to the conditions
hereinafter set forth. The Number Issuable and the Exercise Price are subject to
adjustment from time to time pursuant to the provisions of Sections 1 and 2 of
this Warrant Certificate. The Warrants evidenced by this Certificate are the
two-year warrants to purchase up to 800,000 shares of Common Stock (the
"Warrants") issued pursuant to a Stock and Warrant Purchase Agreement dated as
of October 4, 1995 among the Gilbert Family Trust, the G.S. Beckwith Gilbert
I.R.A. Contributory Account, G.S. Beckwith Gilbert and the Corporation (the
"Purchase Agreement").
1. Subject to the last two paragraphs of this Section 1, the Warrants
evidenced hereby may be exercised by the registered holder hereof at any time on
or before 5:00 p.m., New York City time, on October 4, 1997 (the "Expiration
Date"), upon (a) surrender to the Corporation at the principal office of the
Corporation in the State of Connecticut (the "Transfer Agent") or at the office
of any agent or agents of the Corporation, as may be designated by the Board of
Directors of the Corporation, of this Warrant Certificate accompanied by a
written notice in the form attached hereto stating that such holder elects to
exercise all or a specified number of the Warrants evidenced hereby in
accordance with the provisions of this Section 1 and specifying the name or
names in which such holder wishes the certificate or certificates for shares of
Common Stock to be issued and (b) payment of the Exercise Price for the shares
of Common Stock issuable upon exercise of such Warrants. Payment of the Exercise
Price shall be made in cash by cashier's check. In case such notice shall
specify a name or names other than that of such holder, such notice shall be
accompanied by payment of all transfer taxes payable upon the issuance of shares
of Common Stock in such name or names. Other than such taxes, the Corporation
will pay any and all issue and other taxes (other than taxes based on income)
that may be payable in respect of any issue or delivery of shares of Common
Stock on exercise of the Warrants evidenced hereby. As promptly as practicable,
and in any event within five Business Days after the surrender of this Warrant
<PAGE>
Certificate, receipt of such notice relating thereto and payment of the Exercise
Price for the number of shares issuable upon exercise of the Warrants evidenced
hereby then being exercised and, if applicable, all transfer taxes (or the
demonstration to the satisfaction of the Corporation that such taxes have been
paid), the Corporation shall deliver or cause to be delivered (i) certificates
representing the number of validly issued, fully paid and nonassessable full
shares of Common Stock issuable upon the exercise of such Warrants and (ii) if
less than the full number of Warrants evidenced hereby are then being exercised,
a new Warrant Certificate or Certificates, of like tenor, for the number of
Warrants evidenced by this Warrant Certificate less the number of Warrants then
being exercised. Such exercise shall be deemed to have been made at the close of
business on the date of giving of such notice, surrender of this Warrant
Certificate and payment of the Exercise Price and transfer takes as aforesaid so
that the person entitled to receive shares of Common Stock upon such exercise
shall be treated for all purposes as having become the record holder of such
shares of Common Stock at such time. No such surrender shall be effective to
constitute the person entitled to receive such shares as the record holder
thereof while the transfer books of the Corporation for Common Stock are closed
for any purpose (but not for any period in excess of 15 days); but any such
surrender of this Warrant Certificate for exercise during any period while such
books are so closed shall become effective for exercise immediately upon the
reopening of such books as if the exercise had been made on the date this
Warrant Certificate was surrendered and for the Number Issuable and at the
Exercise Price in effect at the date of such surrender.
The registered holder hereof shall have the (a) right at any time within
one year after the date hereof to elect to forego the second year of some or all
of the Warrants evidenced hereby and (b) upon such election the right thereafter
until 5:00 p.m., New York City time, on October 4, 1996 to exercise such
Warrants at an exercise price of $5.00 (increased or decreased, as the case may
be, to reflect the effect of each adjustment made, at any time prior to such
exchange, to the Exercise Price pursuant to Section 2 as if the Exercise Price
of this Warrant had been $5.00 since the date hereof). 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 (as defined in the Note) due under the Note upon payment of
the interest due on such extinguished amount for the period from the date hereof
through the date of such election.
In connection with the exercise of any Warrants evidenced hereby, no
fractions of shares of Common Stock shall be issued, but in lieu thereof the
Corporation shall pay a cash adjustment in respect of such fractional interest
in an amount equal to such fractional interest multiplied by the Current Market
Price (as defined in Section 12) per share of Common Stock on the date on which
such Warrants are deemed to have been exercised. If more than one such Warrant
shall be exercised by the holder thereof at the same time, the number of full
shares of Common Stock issuable on such exercise shall be computed on the basis
of the total number of Warrants so exercised.
2. (a) The Number Issuable shall be subject to adjustment from time to time
as follows:
(i) In case the Corporation shall at any time or from time to time
after the Issue Date (as defined in Section 12) (A) pay a dividend or make
a distribution, on the outstanding shares of Common Stock in shares of
Common Stock, (B) subdivide the outstanding shares of Common Stock, (C)
combine the outstanding shares of Common Stock into a smaller number of
shares or (D) issue by reclassification of the shares of Common Stock any
shares of capital stock of the Corporation, then, and in each such case,
the Number Issuable in effect immediately prior to such event or the record
date therefor, whichever is earlier, shall be adjusted so that the holder
of any Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Common Stock or other securities of the
Corporation which such holder would have owned or been entitled to receive
after the occurrence of any of the events described above, had such Warrant
been exercised immediately prior to the occurrence of such event or the
record date therefor, whichever is earlier. An adjustment made pursuant to
this clause (i) shall become effective (A) in the case of any such dividend
or distribution, immediately after the close of business on the record date
for the determination of holders of shares of Common Stock entitled to
receive such dividend or distribution or (B) in the case of any such
subdivision, combination or reclassification, at the close of business on
the day upon which such corporate action becomes effective.
<PAGE>
(ii) In case the Corporation shall at any time or from time to time
after the Issue Date distribute to all holders of its shares of Common
Stock (including any distribution made in connection with a merger in which
the Corporation is the surviving corporation), evidences of its
indebtedness, securities of the Company (other than Common Stock) or assets
(excluding cash dividends or distributions referred to in paragraph (i)
above) or rights, options or warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase securities of
the Company or shares of Common Stock, then in each case the Number
Issuable thereafter upon the exercise of each Warrant shall be determined
by multiplying the Number Issuable theretofore upon the exercise of each
Warrant by a fraction, the numerator shall be the Current Market Price per
share of Common Stock on the date of such distribution; or, if established,
the record date for the determination of holders of shares of Common Stock
entitled to receive such distribution, and of which the denominator shall
be such Current Market Price per share of Common Stock less the then Fair
Market Value (as determined in good faith by the Board of Directors of the
Corporation whose determination shall be conclusive) of the portion of such
evidences of indebtedness securities or assets so distributed or of such
subscription rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date
for the determination of shareholders entitled to receive such
distribution.
(iii) For purposes of this paragraph (a), the number of shares of
Common Stock at any time outstanding shall not include any shares of Common
Stock then owned or held by or for the account of the Corporation.
(iv) The term "dividend", as used in this paragraph (a) shall mean a
dividend or other distribution upon stock of the Corporation except
pursuant to the Rights Agreement (as defined in Section 12).
Notwithstanding anything in this Section 2 to the contrary, the Number
Issuable shall not be adjusted as a result of (A) any dividend,
distribution or issuance of securities of the Corporation pursuant to the
Rights Agreement or (B) any dividend to stockholders of put rights
entitling the holder thereof to sell shares of Common Stock to the
Corporation at a specific price which may be in excess of the Current
Market Price of Common Stock at the time such put rights are distributed.
(v) Notwithstanding anything in this paragraph (a) to the contrary,
the Corporation shall not be required to give effect to any adjustment in
the Number Issuable unless and until the net effect of one or more
adjustments (each of which shall be carried forward), determined as above
provided, shall have resulted in a change in the Number Issuable by at
least one-hundredth of one share of Common Stock, and when the cumulative
net effect of more than one adjustment so determined shall be to change the
Number Issuable by at least one-hundredth of one share of Common Stock,
such change in the Number Issuable shall thereupon be given effect.
(vi) Upon the expiration of any rights, options, warrants or
convertible or exchangeable securities, if any thereof shall have been the
basis for an adjustment in the Number Issuable and the Exercise Price
pursuant to Sections 2(a)(ii) and (b), respectively, and shall not have
been exercised, the Number Issuable and the Exercise Price shall, upon such
expiration, be readjusted and shall thereafter be such as it would have
been had it been originally adjusted or had the original adjustment not
been required, as the case may be, as if (A) the only shares of Common
Stock so issued were the shares of Common Stock, if any, actually issued or
sold upon the exercise of such rights, options, warrants or convertible or
exchangeable securities and (B) such shares of Common Stock, if any, were
issued or sold for the consideration actually received by the Corporation
upon such exercise plus the aggregate consideration, if any, actually
received by the Corporation for the issuance, sale or grant of all such
rights, options, warrants or convertible or exchangeable securities,
whether or not exercised.
(vii) The certificate of any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Corporation
(which may be the firm of independent public accountants regularly employed
by the Corporation) shall be presumptively correct for any computation made
under this paragraph (a).
<PAGE>
(viii) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such
dividend or distribution, then thereafter, no adjustment in the Number
Issuable then in effect shall be required by reason of the taking of such
record.
(ix) There shall be no adjustment of the number of shares of Common
Stock issuable upon exercise of the Warrants evidenced hereby in case of
the issuance of any stock of the Corporation in a merger, reorganization,
acquisition or other similar transaction except as set forth in paragraphs
(a)(i), (a)(ii) and (c) of this Section 2.
(b) The Exercise Price shall be subject to adjustment from time to time as
follows: upon each adjustment of the Number Issuable made pursuant to paragraph
(a) of this Section 2, the Exercise Price effective immediately prior to the
making of such adjustment shall thereafter be adjusted to be the amount obtained
by dividing (i) the product of (A) the applicable Number Issuable immediately
prior to such adjustment and (B) the Exercise Price in effect immediately prior
to such adjustment by (ii) the Number Issuable immediately after such
adjustment.
(c) In case of any capital reorganization or reclassification of
outstanding shares of Common Stock (other than a reclassification covered by
paragraph (a)(i) of this Section 2), or in case of any consolidation or merger
of the Corporation with or into another corporation, or in case of any sale or
conveyance to another corporation of the property of the Corporation as an
entirety or substantially as an entirety (each of the foregoing being referred
to as a "Transaction"), at the option of the holder of any Warrant evidenced
hereby (i) each such Warrant then outstanding shall thereafter be exercisable
for, in lieu of the shares of Common Stock issuable upon such exercise
immediately prior to consummation of such Transaction, the kind and amount of
shares of capital stock and other securities and property receivable (including
cash) upon the consummation of such Transaction by a holder of that number of
shares of Common Stock issuable upon exercise of such Warrant immediately prior
to such Transaction (including, on a pro rata basis, the cash, securities or
property received by holders of Common Stock in any tender or exchange offer
that is a step in such Transaction), or (ii) each such Warrant shall entitle the
holder thereof to receive, upon exercise thereof by presentation of the Warrant
Certificate therefor and payment of the Exercise Price to the Surviving Person
(as defined in Section 12) subsequent to the consummation of such Transaction
(A) if the Surviving Person is a Qualified Person (as defined in Section 12),
that number of shares of Survivor Common Stock (as defined in Section 12) of the
Surviving Person determined by multiplying the applicable Number Issuable
immediately prior to the consummation of such Transaction by a fraction, the
numerator of which is the Current Market Price of the Common Stock immediately
prior to the consummation of such Transaction and the denominator of which is
the Current Market Price of the Survivor Common Stock of the Surviving Person
for the 20 Trading Days immediately preceding the consummation of the
Transaction giving rise to the adjustment in this paragraph (c) or (B) if the
Surviving Person is not a Qualified Person, cash equal to the Fair Market Value,
as of the consummation of such Transaction (computed without interest), of the
securities or other property to which such holder would have been entitled under
clause (i) above, as determined by an independent investment banking firm (with
an established national reputation as a valuer of equity securities). In any
such case, if necessary, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions set forth in this
Section 2 with respect to rights and interests thereafter of the holder of the
Warrants evidenced hereby to the end that the provisions set forth herein for
the protection of the purchase rights of such Warrants shall thereafter be
applicable, as nearly as reasonably may be, to any such other shares of capital
stock and other securities and property issuable upon exercise of such Warrants
remaining outstanding (with such adjustments in the Exercise Price and the
Number Issuable and such other adjustments in the provisions hereof as the Board
of Directors shall determine to be appropriate). In case securities of property
other than Common Stock shall be issuable or deliverable upon exercise of the
Warrants evidenced hereby as aforesaid, then all references in this Section 2
shall be deemed to apply, so far as appropriate and as nearly as may be, to such
other securities or property.
<PAGE>
Notwithstanding anything contained herein to the contrary, the Corporation
will not effect any Transaction unless, prior to the consummation thereof, the
Surviving Person thereof shall assume, by written instrument mailed to the
holder of the Warrants evidenced hereby, the obligation to deliver to such
holder such cash, shares of Survivor Common Stock or other securities to which
such holder is entitled in accordance with the foregoing provisions and such
Surviving Person shall have mailed to such holder an opinion of independent
counsel for such Person stating that such assumption agreement is a valid,
binding and enforceable agreement of the Surviving Person.
3. In case at any time or from time to time prior to the Expiration Date
the Corporation shall pay any dividend or make any other distribution to the
holders of its Common Stock, or shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or any
other right, or there shall be any capital reorganization or reclassification of
the Common Stock of the Corporation or consolidation or merger of the
Corporation with or into another corporation, or any sale or conveyance to
another corporation of the property of the Corporation as an entirety or
substantially as an entirety, or there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, then, in any one or
more of such cases, the Corporation shall give at least 10 days' prior written
notice (the time of mailing of such notice shall be deemed to be the time of
giving thereof) to the registered holder of the Warrants evidenced hereby at its
address as shown on the books of the Corporation maintained by the Transfer
Agent thereof of the date on which (a) the books of the Corporation shall close
or a record shall be taken for such stock dividend, distribution or subscription
rights or (b) such reorganization, reclassification, consolidation, merger, sale
or conveyance, dissolution, liquidation or winding up shall take place, as the
case may be; provided, that in the case of any Transaction to which paragraph
(c) of Section 2 applies, the Corporation shall give at least 30 days' prior
written notice as aforesaid. Such notice shall also specify the date as of which
the holders of record of Common Stock shall participate in such dividend,
distribution or subscription rights or shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale or conveyance or
participate in such dissolution, liquidation or winding up, as the case may be.
Failure to give such notice shall not invalidate any action so taken.
4. Upon any increase or decrease in the Number Issuable or any adjustment
of the Exercise Price, then, and in each such case, the Corporation shall
promptly deliver to the Transfer Agent of the Warrants and Common Stock, a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and specifying
the increased or decreased Number Issuable and the Exercise Price then in effect
following such adjustment. The Corporation shall also promptly after the making
of such adjustment give written notice to the registered holder of the Warrants
evidenced hereby at its address as shown on the books of the Corporation
maintained by the Transfer Agent thereof, which notice shall state the increased
or decreased Number Issuable and the Exercise Price then in effect following
such adjustment and shall set forth in reasonable detail the method of
calculation of each and a brief statement of the facts requiring such
adjustment. Where appropriate, such notice to the holder of the Warrants
evidenced hereby may be given in advance and included as part of the notice
required under the provisions of Section 3.
5. The Corporation covenants and agrees that all shares of capital stock of
the Corporation which may be issued upon the exercise of the Warrants evidenced
hereby will be duly authorized, validly issued and fully paid and nonassessable.
The Corporation further covenants and agrees that, until the Expiration Date,
the Corporation will at all times reserve such number of shares of its capital
stock as may be sufficient to permit the exercise in full of such Warrants.
6. The person in whose name this Warrant Certificate is registered shall be
deemed the owner hereof and of the Warrants evidenced hereby for all purposes.
The registered holder of this Warrant Certificate shall not be entitled to any
rights whatsoever as a stockholder of the Corporation except as herein provided.
<PAGE>
7. The rights represented by this Warrant Certificate (including, but not
limited to, the Warrants evidenced hereby) shall not be transferred, sold,
assigned or hypothecated, except as permitted by the Purchase Agreement. Any
transfer shall be effected by the surrender of this Warrant Certificate, along
with the form of assignment attached hereto, properly completed and executed by
the registered holder hereof, at the principal executive office of the
Corporation. Thereupon, the Corporation shall issue in the name or names
specified by the registered holder hereof and, in the event of a partial
transfer, in the name of the registered holder hereof, a new Warrant Certificate
or Certificates evidencing the right to purchase such number of shares of Common
Stock as shall be equal to the number of shares of Common Stock then purchasable
hereunder.
8. The Corporation covenants that it shall, at its expense, promptly upon
surrender of this Warrant Certificate at the principal executive office of the
Corporation, execute and deliver to the registered holder hereof a new Warrant
Certificate or Certificates in denominations specified by such holder for an
aggregate number of Warrants equal to the number of Warrants evidenced by this
Warrant Certificate.
9. Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of this Warrant Certificate and, in the case of
loss, theft or destruction, upon delivery of an indemnity satisfactory to the
Corporation, or, in the case of mutilation, upon surrender and cancellation
thereof, the Corporation will issue a new Warrant Certificate of like tenor for
a number of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
10. This Warrant Certificate shall be construed and enforced in accordance
with the laws of the State of Delaware.
11. Nothing in this Warrant Certificate shall be construed to give to any
Person other than the Corporation and the registered holder hereof any legal or
equitable right, remedy or claim under this Warrant Certificate, and this
Warrant Certificate shall be for the sole and exclusive benefit of the
Corporation and such registered holder.
12. For the purposes of this Warrant Certificate, the following terms shall
be defined as follows:
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the State of New York are authorized or obligated
by law to close.
"Current Market Price", when used with reference to shares of Common Stock
or other securities on any date, shall mean the closing price per share of
Common Stock or such other securities on such date and, when used with reference
to shares of Common Stock or other securities for any period, shall mean the
average of the daily closing prices per share of Common Stock or such other
securities for such period. The closing price for each day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in each case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if Common Stock or such other securities are not listed or admitted to trading
on the New York Stock Exchange, in each case, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which Common Stock or such other
securities are listed or admitted to trading or, if Common Stock or such other
securities are not listed or admitted to trading on any national securities
exchange, in each case, the last quoted price or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc. Automated Quotation
System or such other system then in use, or, if on any such date Common Stock or
such other securities are not quoted by any such organization, in each case, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in Common Stock or other such securities selected
by the Board of Directors of the Corporation. If Common Stock or such other
<PAGE>
securities are not publicly held or so listed or publicly traded, "Current
Market Price" shall mean the Fair Market Value per share of Common Stock or of
such other securities as determined in good faith by the Board of Directors of
the Corporation based on an opinion of an independent investment banking firm
with an established reputation as a valuer of securities, which opinion may be
based on such assumptions as such firm shall deem necessary and appropriate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the amount which a willing buyer would pay a
willing seller in an arm's-length transaction.
"Issue Date" shall mean the first date on which Warrants are issued.
"Person" shall mean any individual, partnership, joint venture, joint stock
company, association, corporation, trust, unincorporated organization,
government or department or agency of government, or other entity.
"Qualified Person" shall mean any Person that, immediately after giving
effect to the applicable Transaction, (i) is a solvent corporation or other
entity organized under the laws of any State of the United States of America
having its common stock or, in the case of an entity other than a corporation,
equivalent equity securities, listed on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market System or any successor
thereto or other comparable system, and such common stock or equivalent equity
security continues to meet the requirements for such listing and (ii) is
required to file, and in each of its three fiscal years immediately preceding
the consummation of the applicable Transaction (or since its inception) has
filed, reports with the Securities and Exchange Commission pursuant to Section
13 or 15(d) of the Exchange Act.
"Rights" shall mean any rights to purchase securities of the Corporation
issued pursuant to any Rights Agreement.
"Rights Agreement" shall mean the Rights Agreement dated as of April 24,
1994 between the Corporation and American Stock Transfer and Trust Company, as
amended and as it may be further amended from time to time, and any similar
rights agreement that may hereafter be adopted by the Corporation, as it may be
amended from time to time.
"Subsidiary" of any Person means any corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by such Person.
"Surviving Person" shall mean the continuing or surviving Person of a
merger, consolidation or other corporate combination, the Person receiving a
transfer of all or a substantial part of the properties and assets of the
Corporation, or the Person consolidating with or merging into the Corporation in
a merger, consolidation or other corporate combination in which the Corporation
is the continuing or surviving Person, but in connection with which the Common
Stock of the Corporation is exchanged, converted or reinstated into the
securities of any other Person or cash or any other property; provided, however,
that, if such Surviving Person is a direct or indirect Subsidiary of a Qualified
Person, the parent entity that is a Qualified Person shall be the Surviving
Person.
"Survivor Common Stock" with respect to any Person shall mean any shares of
any class or series of capital stock of such Person which has no preference or
priority in the payment of dividends or in the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or winding up of such Person
and which is not subject to redemption by such Person; provided, however, that,
if at any time there shall be more than one such class or series, the shares of
each such class and series issuable upon exercise of the Warrants then being
exercised shall be substantially in the proportion to the total number of shares
of each such class and series.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, a Business Day.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant Certificate to
be duly executed, all as of the day and year first above written.
DIANON SYSTEMS, INC.
By: /s/Richard A. Sandberg
------------------------------------
Name: Richard A. Sandberg
Title:President, Chairman and Chief
Executive Officer
<PAGE>
DIANON SYSTEMS, INC.
ELECTION TO PURCHASE
DIANON SYSTEMS, INC.
200 Watson Boulevard
Stratford, Connecticut 06497
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the Warrant surrendered herewith for, and to purchase thereunder,
- --------------------------------- shares of Common Stock (the "Shares") provided
for therein, and requests that certificates for the Shares be issued in the name
of:*
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Please Print Name, Address and Social Security Number)
and, if said number of Shares shall not be all of the shares of Common Stock
purchasable under the Warrant, that a new Warrant certificate for the balance of
the shares of Common Stock purchasable under the Warrant surrendered herewith be
registered in the name of the undersigned Warrantholder or the Assignee* thereof
as indicated below and delivered to the address stated below:
Dated: ------------------------------, 19---
Name of Warrantholder or
Assignee (Please Print):-------------------------------
Address:--------------------------------------------------
Signature:------------------------------------------------**
Signature Guaranteed:----------------------------------------
Signature of Guarantor
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer
the Warrant Certificate.)
FOR VALUE RECEIVED -------------------------------- hereby sells, assigns
and transfers unto --------------------------------------- the Warrant
Certificate surrendered herewith, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
- ----------------------------- Attorney, to transfer the Warrant Certificate on
the books of the Corporation named therein, with full power of substitution.
- ----------
* The Warrant and the Stock and Warrant Purchase Agreement contain
restrictions on sale, assignment or transfer of this Warrant.
** Note: The above signature must correspond with the name as written upon
the face of this Warrant certificate in every particular, without
alteration or enlargement or any change whatsoever, unless this Warrant
has been assigned.
<PAGE>
Dated: ------------------------------ --------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
If said number of shares of Common Stock is less than all of the shares of
Common Stock purchasable under the Warrant Certificate surrendered herewith, the
undersigned requests that a new Warrant Certificate representing the remaining
balance of the shares of Common Stock be registered in the name of whose address
is and that such Warrant Certificate be delivered to whose address is .
Signature Guaranteed:
- ------------------------------
Exhibit 10.32
PROMISSORY NOTE
$296,000 Stratford, Connecticut
October 4, 1995
FOR VALUE RECEIVED, the undersigned, G.S. BECKWITH GILBERT ("Mr. Gilbert"),
hereby promises to pay to the order of DIANON SYSTEMS, INC., a Delaware
corporation or its successors (the "Holder"), the principal sum of Two Hundred
Ninety-Six Thousand DOLLARS ($296,000) or such lesser amount as may then be the
unpaid principal balance hereof (the "Principal Amount"), together with interest
thereon, payable on October 4, 1997 by certified or official bank check or wire
transfer of immediately available funds to an account designated by the Holder.
Mr. Gilbert promises to pay interest on the Principal Amount of this
promissory note (this "Note") from the date hereof until such Principal Amount
is paid in full at the fixed rate of 7% per annum, such interest payable in
arrears on October 4, 1997; provided, however, that any Principal Amount hereof
not paid when due and, to the fullest extent permitted by applicable law, any
overdue interest shall bear interest at a rate per annum equal to 10% (after, as
well as before, any judgment), payable on demand. Interest shall be calculated
on the basis of a 360-day year for the actual number of days elapsed.
This Note is issued in connection with the transactions contemplated by the
Stock and Warrant Purchase Agreement, dated as of October 4, 1995 (the
"Agreement") among the Gilbert Family Trust (the "Trust"), the G.S. Beckwith
Gilbert I.R.A. Contributory Account (the "IRA"), Mr. Gilbert and the Holder, and
the Warrants issued by the Holder in connection therewith and represented by
Warrant Certificate No. W-1 (the "W-1 Warrants"). Except as otherwise indicated
herein capitalized terms used in this Note are defined in the Agreement.
This Principal Amount due under this Note and the date on which interest
payments are due are subject to adjustment in accordance with the terms of the
second paragraph of Section 1 of the W-1 Warrants.
This Note shall be binding upon Mr. Gilbert and his successors and shall
inure to the benefit of Mr. Gilbert and his successors.
Mr. Gilbert hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance or enforcement of this Note.
The provisions of this Note may be amended, modified, changed or terminated
only be an agreement in writing signed by Mr. Gilbert and the Holder.
If at any time the indebtedness evidenced by this Note is collected through
legal proceedings or this Note is placed in the hands of attorneys for
collection, Mr. Gilbert and each endorser of this Note hereby jointly and
severally agree to pay all costs and expenses (including attorneys' fees)
incurred by the Holder in collecting or attempting to collect such indebtedness.
If any payment on this Note becomes due and payable on a day other than a
Business Day (as hereinafter defined), the maturity thereof shall be extended to
the immediately following Business Day and interest shall continue to accrue
during such extension. "Business Day" means any day other than a Saturday or
Sunday or any other day on which commercial banks in New York, New York are
authorized or obligated by law to close.
This Note is non-transferrable.
<PAGE>
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT HE MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO
THIS NOTE AND AGREES THAT ANY SUCH DISPUTES SHALL BE TRIED BEFORE A JUDGE
SITTING WITHOUT A JURY.
THIS NOTE IS GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
THE LAWS OF CONNECTICUT WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.
/s/ G. S. Beckwith Gilbert
--------------------------
G. S. Beckwith Gilbert
Exhibit 10.33
DIANON SYSTEMS, INC.
Grant No.
STOCK OPTION GRANT
Optionee: Andre deBruin Total No. of Shares 10,000
Date of Grant: 10/24/1996 Exercise Price Per Share $7.125
Termination Date: 10/23/2006 $71,250.00
DIANON SYSTEMS, INC. (the "Company") has this day granted to you, the
optionee named above, an option to purchase shares of common stock of the
Company ("Common Stock"). This option is granted in replacement of the option
which was previously granted to you on June 4, 1993.
The details of your option are as follows:
1. The total number of shares subject to this option is as set forth above.
Subject to the limitations contained herein, this option shall be exercisable on
or after the date of the vesting of such option as follows:
<TABLE>
<CAPTION>
Percentage of Shares Date of Earliest Exercise (Vesting)
-------------------- -----------------------------------
<S> <C>
100% 10/24/96
</TABLE>
2. (a) The per share exercise price of this option is as set forth on the
face of this option grant, and is the same as the exercise price of the option
granted to you on June 4, 1993 which this option replaces.
(b) Payment of the exercise price is due in full in cash upon exercise
when the aggregate option exercise price for the shares being purchased is
$2,500 or less; but when the aggregate exercise price for the shares being
purchased exceeds $2,500, you may elect to make payment of the exercise price
under one of the following alternatives:
(i) Payment of the exercise price in cash at the time of the
exercise;
(ii) (a) Payment of not less than 10% of the aggregate exercise
price due at the time of exercise in cash, (b) not less than 10% of
said exercise price, plus simple interest at the lowest rate which, at
the time of exercise, will prevent any imputation of higher interest
under Section 483 of the Internal Revenue Code, per year after the
time of exercise, with (c) final payment of the remainder of the
exercise price, plus interest, due five (5) years from date of
exercise, provided that as a part of your written notice of exercise
you give notice of the election of this deferred payment arrangement,
and to secure the payment of the deferred purchase price to the
Company hereunder, which such election you tender to the Company a
security agreement satisfactory to the Company covering the purchased
shares;
(iii) Provided that at the time of exercise the Company's common
stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of shares of common stock of the Company
which you have owned for at least six moths and which at the time of
exercise are owned by you free and clear of any liens, claims,
encumbrances or security interests, which common stock shall be valued
(i) if listed on a national securities exchange or the Nasdaq national
market, at the average closing price for the ten (10) trading days
<PAGE>
immediately preceding the date of exercise or (ii) otherwise at the
average of the closing bid and ask quotations published in the Wall
Street Journal for the ten (10) trading days immediately preceding the
date of exercise; or
(iv) Payment in the form of any other legal consideration that
may be acceptable to the Board of Directors of the Company in its sole
discretion at the time of exercise.
3. The minimum number of shares with respect to which this option may be
exercised at any one time is one hundred (100), however, if the number of shares
subject to exercise is less than one hundred, the option must be exercised as to
all of such shares.
4. Notwithstanding anything to the contrary contained herein, this option
may not be exercised unless the shares issuable upon exercise of this option are
then registered under the Securities Act of 1933, as amended (the "Act"), or if
such shares are not then registered, the Company has determined in its sole
discretion that such exercise and issuance would be exempt from registration
under the Act. Your right to exercise this option is also conditioned on the
Company's listing of the shares subject to this option on the Nasdaq national
market or any securities exchange on which the Common Stock is then traded and
compliance with any applicable securities registration or other securities law
requirements.
5. The term of this option commences on the date hereof and terminates on
the date set forth on the face of this option grant.
6. This option may be exercised, to the extent specified above by
delivering a notice of exercise together with the exercise price to the
Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the
Company may then require.
7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
8. Any notices provided for in this option shall be given in writing and
shall be deemed effectively given upon receipt or, in the case of notices
delivered by the Company to you, five (5) days after deposit in the United
States mail, postage prepaid, addressed to the optionee at the address specified
below or at such other address as the optionee hereafter designates by written
notice delivered to the Company.
9. Whenever shares are to be issued in satisfaction of this option you
shall remit to the Company an amount sufficient to satisfy federal, state, local
or other withholding tax requirements if and to the extent required by law
(whether so required to secure for the Company an otherwise available tax
deduction or otherwise) prior to the delivery of any certificate or
certifi-cates for such shares.
10. In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, stock dividend, stock split,
spin-off, split-off, distribution of assets or other change in corporate
structure affecting the Common Stock, a substitution of adjustment, as may be
determined to be appropriate by the Board of Directors or the Compensation
Committee of the Board ("the Compensation Committee") shall be made in the
number, option price and kind of shares covered by this Option; provided however
that no such adjustment shall increase or decrease the aggregate value of any
outstanding portion of this Option.
11. The Board of Directors and the Compensation Committee reserve the right
to interpret the provisions of this Option, make any necessary factual
determinations, and adopt, amend, and rescind administrative rules and
procedures in connection with the exercise of this Option. Any interpretation or
determination by the Board or the Compensation Committee shall be final and
binding.
<PAGE>
The undersigned:
Dated This 24th day of (a) Acknowledges receipt of the fore-
October , 1996 . going option and understands that all
- ------------------- ---
rights and liabilities connected with
this option are set forth in the Option,
(b) Acknowledges that as of the date
Very truly yours, of grant of this option, it sets
DIANON SYSTEMS, INC.
forth the entire understanding
Duly authorized on
behalf of the between the undersigned optionee and
Board of Directors
the Company regarding the acquisition of
stock from the
Company and supersedes all prior oral and written agreements on that
subject with the
exception of the following agreements only: (if none, so state)
/s/ Andre deBruin
----------------------------------------
Address: 2545 Central Ave.
----------------------------------------
Boulder, CO 80301
----------------------------------------
Exhibit 10.34
DIANON SYSTEMS, INC.
Grant No.
STOCK OPTION GRANT
Optionee: Jeffrey L. Sklar Total No. of Shares 10,000
Date of Grant: 11/04/1996 Exercise Price Per Share $6.375
Termination Date: 08/04/1999 $63,750.00
DIANON SYSTEMS, INC. (the "Company") has this day granted to you, the
optionee named above, an option to purchase shares of common stock of the
Company ("Common Stock") This option is granted in replacement of the option
which was previously granted to you on August 3, 1994 and is issued pursuant to
the 1996 Stock Incentive Plan ("the Plan").
The details of your option are as follows:
1. The total number of shares subject to this option is as set forth above.
Subject to the limitations contained herein, this option shall be exercisable on
or after the date of the vesting of such option as follows:
<TABLE>
<CAPTION>
Percentage of Shares Date of Earliest Exercise (Vesting)
-------------------- -----------------------------------
<S> <C>
40% 11/04/96
20% 08/04/97
20% 08/04/98
20% 08/04/99
</TABLE>
2. (a) The per share exercise price of this option is as set forth on the
face of this option grant.
(b) Payment of the exercise price is due in full in cash upon exercise when
the aggregate option exercise price for the shares being purchased is $2,500 or
less; but when the aggregate exercise price for the shares being purchased
exceeds $2,500, you may elect to make payment of the exercise price under one of
the following alternatives:
(i) Payment of the exercise price in cash at the time of the
exercise;
(ii) (a) Payment of not less than 10% of the aggregate exercise
price due at the time of exercise in cash, (b) not less than 10% of
said exercise price, plus simple interest at the lowest rate which, at
the time of exercise, will prevent any imputation of higher interest
under Section 483 of the Internal Revenue Code, per year after the
time of exercise, with (c) final payment of the remainder of the
exercise price, plus interest, due five (5) years from date of
exercise, provided that as a part of your written notice of exercise
you give notice of the election of this deferred payment arrangement,
and to secure the payment of the deferred purchase price to the
Company hereunder, which such election you tender to the Company a
security agreement satisfactory to the Company covering the purchased
shares;
(iii) Provided that at the time of exercise the Company's common
stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of shares of common stock of the Company
which you have owned for at least six moths and which at the time of
<PAGE>
exercise are owned by you free and clear of any liens, claims,
encumbrances or security interests, which common stock shall be valued
(i) if listed on a national securities exchange or the Nasdaq national
market, at the average closing price for the ten (10) trading days
immediately preceding the date of exercise or (ii) otherwise at the
average of the closing bid and ask quotations published in the Wall
Street Journal for the ten (10) trading days immediately preceding the
date of exercise; or
(iv) Payment in the form of any other legal consideration that
may be acceptable to the Board of Directors of the Company in its sole
discretion at the time of exercise.
3. The minimum number of shares with respect to which this option may be
exercised at any one time is one hundred (100), however, if the number of shares
subject to exercise is less than one hundred, the option must be exercised as to
all of such shares.
4. Notwithstanding anything to the contrary contained herein, this option
may not be exercised unless the shares issuable upon exercise of this option are
then registered under the Securities Act of 1933, as amended (the "Act"), or if
such shares are not then registered, the Company has determined in its sole
discretion that such exercise and issuance would be exempt from registration
under the Act. Your right to exercise this option is also conditioned on the
Company's listing of the shares subject to this option on the Nasdaq national
market or any securities exchange on which the Common Stock is then traded and
compliance with any applicable securities registration or other securities law
requirements.
5. The term of this option commences on the date hereof and terminates on
the date set forth on the face of this option grant.
6. This option may be exercised, to the extent specified above by
delivering a notice of exercise together with the exercise price to the
Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the
Company may then require.
7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
8. Any notices provided for in this option shall be given in writing and
shall be deemed effectively given upon receipt or, in the case of notices
delivered by the Company to you, five (5) days after deposit in the United
States mail, postage prepaid, addressed to the optionee at the address specified
below or at such other address as the optionee hereafter designates by written
notice delivered to the Company.
9. Whenever shares are to be issued in satisfaction of this option you
shall remit to the Company an amount sufficient to satisfy federal, state, local
or other withholding tax requirements if and to the extent required by law
(whether so required to secure for the Company an otherwise available tax
deduction or otherwise) prior to the delivery of any certificate or
certifi-cates for such shares.
10. In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, stock dividend, stock split,
spin-off, split-off, distribution of assets or other change in corporate
structure affecting the Common Stock, a substitution of adjustment, as may be
determined to be appropriate by the Board of Directors or the Compensation
Committee of the Board ("the Compensation Committee") shall be made in the
number, option price and kind of shares covered by this Option; provided however
that no such adjustment shall increase or decrease the aggregate value of any
outstanding portion of this Option.
11. The Board of Directors and the Compensation Committee reserve the right
to interpret the provisions of this Option, make any necessary factual
determinations, and adopt, amend, and rescind administrative rules and
procedures in connection with the exercise of this Option. Any interpretation or
determination by the Board or the Compensation Committee shall be final and
binding.
<PAGE>
The undersigned:
Dated This 4th day of (a) Acknowledges receipt of the fore-
November , 19 96 . going option and understands that all
- ---------------------- -----
rights and liabilities connected with
this option are set forth in the Option
and the Plan, (b) Acknowledges that as
Very truly yours, of the date of grant of this option, it
DIANON SYSTEMS, INC.
sets forth the entire understanding
Duly authorized on
behalf of the between the undersigned optionee and
Board of Directors
the Company regarding the acquisition of
stock from the
Company and supersedes all prior oral and written agreements on that
subject with the
exception of the following agreements only: (if none, so state)
/s/ Jeffrey L. Sklar
------------------------------------
Address: 75 Francis St
------------------------------------
Boston, MA 02115
------------------------------------
Exhibit 10.35
THIS AGREEMENT, effective this 3rd day of December, 1996, by and
between DIANON SYSTEMS, INC. (the "COMPANY") and KEVIN JOHNSON (the
"EXECUTIVE").
WITNESSETH THAT:
WHEREAS, the EXECUTIVE is employed by the COMPANY as President and is
an integral part of its management team and a key participant in the decision
making process relative to short-term and long-term planning and policy for the
COMPANY.
WHEREAS, as an inducement to commence his employment with the COMPANY,
the EXECUTIVE requested the COMPANY to make a personal loan to him;
WHEREAS, the COMPANY wishes to encourage the EXECUTIVE to begin and
continue in his employment with the COMPANY and the EXECUTIVE wishes to remain
an employee of the COMPANY; and
NOW, THEREFORE, it is hereby agreed by and between the parties hereto
as follows:
1. Term of Loan Agreement
This Agreement shall be effective as of the date above written and
shall continue thereafter until the first to occur of (i) the EXECUTIVE's
termination of employment with the COMPANY, or (ii) December 31, 2002.
2. Loan Agreement
(a) The COMPANY will advance to EXECUTIVE one hundred fifty thousand
dollars ($150,000) on December 3, 1996
(b) EXECUTIVE will pay interest on the loan annually at the rate of
6.6% per annum or the Internal Revenue Service standard, whichever is less, and
the COMPANY will pay EXECUTIVE, in addition to salary, amounts equal to the
interest paid by EXECUTIVE during his employment with the COMPANY.
(c) EXECUTIVE may repay all or any portion of the advance at any time.
If at any time during this Agreement the EXECUTIVE's employment with the COMPANY
is terminated, any unrepaid portions of the advance will become immediately
repayable on the date the EXECUTIVE's employment is terminated, unless
termination is by the COMPANY without stated cause as described in Paragraph 10
of the Employment Agreement entered by the parties on May 3, 1996, in which
case, unrepaid portions of the advance will become payable one year after the
termination date. At the end of each full month in the period commencing in
January, 1996 and ending December, 2002 in which EXECUTIVE's employment with the
COMPANY continues without notice of intent to terminate having been given by
EXECUTIVE or the COMPANY, the COMPANY shall forgive $2,500 of the advance.
3. Income Tax Withholding and Reporting
The COMPANY shall withhold all Federal, State or other taxes as may be
required pursuant to any law or governmental regulation or ruling. The COMPANY
shall report as income to EXECUTIVE all imputed income amounts as may be
required pursuant to any Federal, State or other law or governmental regulation
or ruling.
<PAGE>
4. Wage Deduction Authorization
EXECUTIVE agrees to execute any authorization necessary for the COMPANY
to achieve repayment through payroll deduction.
5. No Right to Continue Employment; Employment at Will
Nothing contained in the Agreement will confer upon the EXECUTIVE any
right to continued employment with the COMPANY, nor shall limit the COMPANY's
right to terminate the EXECUTIVE's employment at will.
6. Entire Understanding
This Agreement contains the entire understanding between the COMPANY
and the EXECUTIVE with respect to the loan described herein and supersedes any
prior agreement between the COMPANY and the EXECUTIVE.
7. Severability
If for any reason, any one or more of the provisions or part of a
provision contained in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or enforceability
shall not affect any other provision or part of a provision of this Agreement
not held so invalid, illegal or unenforceable, and each other provision or part
of a provision shall to the full extent consistent with law continue in full
force and effect.
8. Binding Agreement
This Agreement shall be binding upon, and shall inure to the benefit
of, the EXECUTIVE and the COMPANY and their respective permitted successors and
assigns.
9. Modification
This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
10. Headings of No Effect
The paragraph headings contained in this Agreement are included solely
for convenience of reference and shall not in any way affect the meaning or
interpolation of any provisions of this Agreement.
11. Governing Law
This Agreement and its validity, interpretation, performance, and
enforcement shall be governed by the laws of the State of Connecticut without
giving effect to the choice of law provisions in effect in such State.
<PAGE>
IN WITNESS WHEREOF, the COMPANY has caused this Agreement to be
executed by its officer thereunto duly authorized, and the EXECUTIVE has signed
this Agreement, all effective as of the date first above written.
DIANON SYSTEMS, INC.
By: /s/Richard A. Sandberg
----------------------------
Chairman
KEVIN JOHNSON
/s/Kevin Johnson
---------------------------------
Exhibit 10.36
DIANON SYSTEMS, INC.
Grant No.
DIRECTOR STOCK OPTION GRANT
Optionee: _____________ Total No. of Shares
Date of Grant: Exercise Price Per Share
Termination Date:
DIANON SYSTEMS, INC. (the "Company") has this day granted to you, the
optionee named above, an option to purchase shares of common stock of the
Company ("Common Stock")pursuant to the 1996 Stock Incentive Plan ("the Plan").
The details of your option are as follows:
1. The total number of shares subject to this option is as set forth above.
Subject to the limitations contained herein, this option shall be exercisable on
or after the date of the vesting of such option as follows:
<TABLE>
<CAPTION>
Percentage of Shares Date of Earliest Exercise (Vesting)
-------------------- -----------------------------------
<S> <C>
10% 91 days after Date of Grant
10% 182 days after Date of Grant
10% 273 days after Date of Grant
10% 364 days after Date of Grant
10% 455 days after Date of Grant
10% 546 days after Date of Grant
10% 637 days after Date of Grant
10% 728 days after Date of Grant
10% 819 days after Date of Grant
10% 910 days after Date of Grant
</TABLE>
2. (a) The per share exercise price of this option is as set forth on the
face of this option grant
(b) Payment of the exercise price is due in full in cash upon exercise
when the aggregate option exercise price for the shares being purchased is
$2,500 or less; but when the aggregate exercise price for the shares being
purchased exceeds $2,500, you may elect to make payment of the exercise price
under one of the following alternatives:
(i) Payment of the exercise price in cash at the time of the
exercise;
(ii) (a) Payment of not less than 10% of the aggregate exercise
price due at the time of exercise in cash, (b) not less than 10% of
said exercise price, plus simple interest at the lowest rate which, at
the time of exercise, will prevent any imputation of higher interest
under Section 483 of the Internal Revenue Code, per year after the
time of exercise, with (c) final payment of the remainder of the
exercise price, plus interest, due five (5) years from date of
exercise, provided that as a part of your written notice of exercise
you give notice of the election of this deferred payment arrangement,
and to secure the payment of the deferred purchase price to the
Company hereunder, which such election you tender to the Company a
security agreement satisfactory to the Company covering the purchased
shares;
<PAGE>
(iii) Provided that at the time of exercise the Company's common
stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of shares of common stock of the Company
which you have owned for at least six moths and which at the time of
exercise are owned by you free and clear of any liens, claims,
encumbrances or security interests, which common stock shall be valued
(i) if listed on a national securities exchange or the Nasdaq national
market, at the average closing price for the ten (10) trading days
immediately preceding the date of exercise or (ii) otherwise at the
average of the closing bid and ask quotations published in the Wall
Street Journal for the ten (10) trading days immediately preceding the
date of exercise; or
(iv) Payment in the form of any other legal consideration that
may be acceptable to the Board of Directors of the Company in its sole
discretion at the time of exercise.
3. The minimum number of shares with respect to which this option may be
exercised at any one time is one hundred (100), however, if the number of shares
subject to exercise is less than one hundred, the option must be exercised as to
all of such shares.
4. The term of this option commences on the date hereof and terminates on
the date set forth on the face of this option grant. Unless you resign as a
director in which case the option will expire on the earlier of five years from
the date of your resignation or the Termination Date on page 1 hereto.
5. This option may be exercised, to the extent specified above by
delivering a notice of exercise together with the exercise price to the
Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the
Company may then require.
6. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.
7. Any notices provided for in this option shall be given in writing and
shall be deemed effectively given upon receipt or, in the case of notices
delivered by the Company to you, five (5) days after deposit in the United
States mail, postage prepaid, addressed to you at the address specified below or
at such other address as you hereafter designates by written notice delivered to
the Company.
8. Whenever shares are to be issued in satisfaction of this option you
shall remit to the Company an amount sufficient to satisfy federal, state, local
or other withholding tax requirements if and to the extent required by law
(whether so required to secure for the Company an otherwise available tax
deduction or otherwise) prior to the delivery of any certificate or
certifi-cates for such shares.
9. In the event of any merger, reorganization, consolidation, sale of
substantially all assets, recapitalization, stock dividend, stock split,
spin-off, split-off, distribution of assets or other change in corporate
structure affecting the Common Stock, a substitution of adjustment, as may be
determined to be appropriate by the Board of Directors or the Compensation
Committee of the Board ("the Compensation Committee") shall be made in the
number, option price and kind of shares covered by this Option; provided however
that no such adjustment shall increase or decrease the aggregate value of any
outstanding portion of this Option.
10. This option is governed by the terms and conditions of the Company's
1996 Stock Incentive Plan, a copy of which is attached hereto. The Board of
Directors and the Compensation Committee reserve the right to interpret the
provisions of this Option, make any necessary factual determinations, and adopt,
amend, and rescind administrative rules and procedures in connection with the
exercise of this Option. Any interpretation or determination by the Board or the
Compensation Committee shall be final and binding.
<PAGE>
The undersigned:
Dated This day of (a) Acknowledges receipt of the fore-
, 19 . going option and understands that all
- -------------- ---
rights and liabilities connected with
this option are set forth in the Option
and the Plan, (b) Acknowledges that as
Very truly yours, of the date of grant of this option, it
DIANON SYSTEMS, INC.
sets forth the entire understanding
Duly authorized on
behalf of the between the undersigned optionee and
Board of Directors
the Company regarding the acquisition of
stock from the
Company and supersedes all prior oral and written agreements on that
subject with the
exception of the following
agreements only: (if none, so state)
Attachment: ---------------------------------
1996 Stock Incentive Plan
Address: ---------------------------------
---------------------------------
Exhibit 10.37
AMENDMENT TO WARRANT CERTIFICATE NO. W-1
AMENDMENT, dated as of October 2, 1996 (the "Amendment"), to Warrant
Certificate No. W-1 dated as of October 5, 1995 (the "Warrant Certificate"),
between DIANON Systems, Inc., a Delaware corporation (the "Company"), and G.S.
Beckwith Gilbert, or registered assigns ("Mr. Gilbert").
WHEREAS, pursuant to a Stock and Warrant Purchase Agreement dated as of
October 4, 1995 among the Gilbert Family Trust, the G.S. Beckwith Gilbert I.R.A.
Contributory Account, G.S. Beckwith Gilbert and the Company (the "Purchase
Agreement"), the Company issued to the Purchasers (as defined therein) 1,000,000
shares of the Company's Common Stock and the Warrants (as defined therein)
evidenced by the Warrant Certificate.
WHEREAS, the Warrant Certificate specifies the terms upon which the
Warrants may be exercised.
WHEREAS, the Company and Mr. Gilbert desire to amend the Warrant
Certificate to change the last date on which Warrants can be exercised at an
exercise price of $5.00 to a date subsequent to the vote of the Company's
shareholders on approval of a proposed increase in the voting power of the
Purchasers (as defined in the Purchase Agreement) to 20% of the total voting
power of the Company's voting securities.
WHEREAS, such amendment reflects the parties' intentions at the time of
issuance of the Warrant Certificate that Mr. Gilbert would have the benefit of
the knowledge of the outcome of such vote prior to the aforesaid exercise date.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth in the Purchase Agreement and this Amendment, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. The second paragraph of Section 1 of the Warrant Certificate is
amended to read in its entirety as follows:
<PAGE>
"The registered holder hereof shall have (a) the right at any
time prior to November 1, 1996 to elect that the Expiration Date of
some or all of the Warrants evidenced hereby shall be November 1, 1996
rather than October 4, 1997 and (b) upon such election, the right
thereafter until 5:00 p.m., New York City time, on October 31, 1996 to
exercise such Warrants at an exercise price of $5.00 (increased or
decreased, as the case may be, to reflect the effect of each adjustment
made, at any time prior to such exchange, to the Exercise Price
pursuant to Section 2 as if the Exercise Price of this Warrant had been
$5.00 since the date hereof). 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 (as defined in the Note) due under the
Note upon payment of the interest due on such extinguished amount for
the period from the date of this Warrant Certificate through and
including the earlier of the date of such election and October 4,
1996."
2. This Amendment may be executed in counterparts, each ofwhich shall
be an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
DIANON SYSTEMS, INC.
By: /s/Richard A. Sandberg
----------------------------------
Name: Richard A. Sandberg
Title: President, Chairman and Chief
Executive Officer
G.S. Beckwith Gilbert
/s/ G. S. Beckwith Gilbert
--------------------------
Exhibit 10.38
AGREEMENT
This Agreement made effective February 27, 1997 between DIANON SYSTEMS,
INC., a Connecticut corporation; and any successor thereto, hereinafter referred
to as the "Company," and RICHARD A. SANDBERG, residing at 233 Brushy Ridge, New
Canaan, Connecticut 06840.
WITNESSETH
WHEREAS, Richard A. Sandberg wishes to resign his position as Chairman
of the Board of Directors of the Company; and
WHEREAS, the Company wishes to continue to employ Richard A. Sandberg
and Richard A. Sandberg wishes to accept such continued employment, in each case
for the purposes, on the terms, for the period and subject to the conditions set
forth below; and
WHEREAS, the services that Richard A. Sandberg should render under this
Agreement to the Company are unique and valuable; and
WHEREAS, the parties desire to reduce the terms and conditions of
Richard A. Sandberg's employment to writing; and
WHEREAS, the Compensation Committee has approved and recommended that
the Company enter into this Agreement; and
WHEREAS, based on the recommendation of the Compensation Committee, the
Board of Directors has ratified and approved this Agreement and, in particular,
(i) has ratified, approved and confirmed the original grant to Richard A.
Sandberg of all options to purchase Company stock held by him as of the date
hereof, (ii) has approved the vesting in full of all options held by Richard A.
Sandberg as of the date hereof to the extent not previously vested as set forth
in Section 2 hereof, and (iii) has approved the purchase of all options held by
Richard A. Sandberg on terms set forth in Section 2 hereof.
NOW, THEREFORE, in consideration of the terms and conditions and the
mutual covenants contained in this Agreement, the Company and Richard A.
Sandberg hereby agree as follows:
1. Resignation As Chairman
Richard A. Sandberg resigns as Chairman of the Board and as an officer
of the Company effective as of February 27, 1997.
2. Stock Options
All options to buy Company stock held by Richard A. Sandberg as of
February 27, 1997, (Options") to the extent not previously vested will vest in
full effective February 27, 1997, provided that Richard A. Sandberg does not
revoke this Agreement pursuant to Section 24 of this Agreement. A revocation by
Mr. Sandberg of this Agreement pursuant to Section 24 of This Agreement shall
not affect (i) any Option (or portion thereof) that was not vested pursuant to
this Section 2 and (ii) any Option that was exercised or sold by Richard A.
Sandberg prior to the date of such revocation. Richard A. Sandberg may sell any
or all of the options to the Company on or before May 28, 1997 for cash at a
price equal to (i) the number of shares of Company stock covered by such Option
times (ii) the amount by which 10 7/8 exceeds the exercise price of such Option.
The options will otherwise be exercisable according to the terms of their
initial grant(s).
3. Employment As Consultant To The President
The Company hereby employs Richard A. Sandberg as Consultant to the
President as of February 28, 1997 and Richard A. Sandberg hereby accepts such
employment upon the terms and conditions set forth in this Agreement. The
position of Consultant to the President is not an officer position in the
Company.
<PAGE>
4. Duties and Responsibilities
Richard A. Sandberg will perform with continuous diligence those
activities assigned to Richard A. Sandberg by the Company's President in
connection with special projects as the President may from time to time
identify. The parties acknowledge that the President has full discretion to
determine the nature of all such projects and location or locations at which
Richard A. Sandberg shall perform assigned activities under this Agreement,
provided that Richard A. Sandberg shall not be required to relocate from his
residence in New Canaan, Connecticut.
5. Term
Richard A. Sandberg's employment as Consultant to the President of the
Company will commence on February 28, 1997 and terminate according to the terms
of Section 8 of this Agreement.
6. Compensation
The Company will compensate Richard A. Sandberg for his services during
the term of his employment as Consultant to the President under this Agreement
on a salaried basis paid in installments at an annualized rate of $232,000.
Richard A. Sandberg will not participate in any management incentive
compensation program maintained by the Company during the term of his employment
as Consultant to the President under this Agreement.
7. Fringe Benefits
During the term of his employment as Consultant to the President under
this Agreement, the Company will provide Richard A. Sandberg benefits and
emoluments as authorized for all other salaried Grade 19 management employees of
the Company as they may be modified from time to time by the Company, including
at the time of the execution of this Agreement, health and medical insurance,
life insurance, sick leave, vacation, holidays, car allowance, retirement plan
participation and stock purchase plan participation.
8. Termination
Richard A. Sandberg's employment as Special Consultant to the President
under this Agreement will terminate on the first of any of the following
occurrences:
(a) Richard A. Sandberg's death;
(b) Richard A, Sandberg's disability for a period of 90 days or
more unless waived by the Board of Directors;
(c) mutual agreement of the parties reduced to writing signed by
both parties;
(d) voluntary resignation by Richard A. Sandberg;
(e) February 27, 1998, absent renewal of this Agreement by mutual
agree-ment of the parties memorialized in a writing signed by
both parties;
(f) termination by the Company for Cause, i.e., gross negligence,
insub-ordination, or willful misconduct.
9. Compensation After Termination
(a) Richard A. Sandberg will not receive compensation from the Company
after the termination of his employment as Consultant to the President under
this Agree-ment, other than unused vacation, except as described under paragraph
(b) of this Section of this Agreement, if applicable. Nothing in this Agreement,
however, is intended to impair any rights vested under the law in any benefit
plan of the Company.
(b) If Richard A. Sandberg's employment as Consultant to the President
of the Company terminates because of the occurrence of the event described in
paragraph (e) of Section 8 of this Agreement:
<PAGE>
(i) For a period of six months beginning with February 28, 1998,
the Company will pay Richard A. Sandberg severance pay at his
rate of base pay on that date;
(ii) During said six month period, the Company will pay the full
premium cost of medical continuation coverage for Richard A.
Sandberg and/or his dependents for any months in said period
during which Richard A. Sandberg and/or his dependents are
eligible and elect to continue such coverage;
(iii) During said six month period, the Company will provide Richard
A. Sandberg any Company car allowance Richard A. Sandberg was
receiving on February 28, 1998; and
(iv) For purposes of stock option exercise, a termination of
Richard A. Sandberg's employment pursuant to paragraph (e) of
Section 8 of this Agreement shall be a termination by the
Company.
10. Return of Property
On the date Richard A. Sandberg's employment as Consultant to the
President terminates pursuant to Section 8 of this Agreement, or at any earlier
point in time when a request is made by the Company for same, Richard A.
Sandberg 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 Richard A. Sandberg's possession or
under his control, whether prepared by him or others related to the Company or
relating to the business of the Company. Richard A. Sandberg will also return to
the Company at the time his employment terminates, or on an earlier Company
request, any Company keys, parking card, credit card, business cards or other
materials related to this employment with the Company or the operation of the
Company. Richard A. Sandberg will return to the Company any car this Agreement
permits him to use for six months after the termination of his employment with
the Company at the conclusion of said six month period.
11. Confidential Information
Richard A. Sandberg acknowledges his pre-existing and continuing
obligation not to use or disclose, other than as authorized by the Company, any
trade secrets or other confidential information he has acquired through his
association with the Company.
12. Activity Against Company's Interest
For the period of the employment of Richard A. Sandberg as Consultant
to the President of the Company and for a period of two years after the
termination of that employment, Richard A. Sandberg will not engage or otherwise
be involved, either directly or indirectly, in the recruitment of the Company's
employees or take any other action ad-verse to the management of the Company.
Notwithstanding the foregoing, the parties agree that Richard A. Sandberg will
not violate his obligations under this paragraph by voting his shares in the
Company, by voting on matters before the Board of Directors of the Company so
long as he continues to be a Director of the Company; or by engaging in any
non-Company business activity other than those he commits to avoid in this
Agreement.
13. Non Competition
Richard A. Sandberg will not compete with any business activity of the
Company during his employment with the Company and for a period of two years
after the termination of that employment. Competition includes ownership,
management (including serving as an officer or director), operation, control,
employment or consultation of, by or to any business organization or entity
which directly or indirectly offers the same or similar services as those
offered or actively being developed by the Company on the date Richard A.
Sandberg's employment with the Company terminates. The obligation in this
paragraph shall not be violated by Richard A. Sandberg's ownership of shares of
stock in a corporation involved in such activities provided such shares are
publicly traded, Richard A. Sandberg owns less than two percent of the total
number of issued and outstanding shares and Richard A. Sandberg is not otherwise
connected with or active in, the business of such corporation. The parties
recognize that the Company's business is carried on by telephone and from time
to time in person in each of the 50 States of the United States of America and
therefore that Richard A. Sandberg's Agreement not to compete must apply in all
such 50 States.
<PAGE>
14. Remedies For Breach Of Certain Covenants
The parties acknowledge that because Richard A. Sandberg has been an
officer and director of the Company and as such was and remains conversant with
and had 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 con-fidential and
proprietary information of the Company, his compliance with Sections 10, 11, 12
and 13 of this Agreement is necessary to protect the goodwill and other
proprietary interests of the Company and a breach of said 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. Therefore, the
parties acknowledge that in the event of a breach of Richard A. Sandberg's
commitments in Sections 10, 11, 12 or 13 of this Agreement, 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 and/or to enforce the specific performance thereof by
Richard A. Sandberg and/or to enjoin Richard A. Sandberg from retaining Company
property, using confidential Company information, competing with the Company or
soliciting or recruiting its employees or otherwise acting against the Company's
interests.
15. Release And Waiver
Richard A. Sandberg, 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 Parties") from any and all claims or causes of
action of any kind, other than vested rights under benefit plans or claims to
enforce this Agreement, arising on or before the effective date of this
Agreement, which Richard A. Sandberg has, had or may have against any of them,
whether or not now known, including but not limited to, any claims arising from
Richard A. Sandberg's employment or officership with the Company, or the
termination thereof, including without limitation any claims under the Age
Discrimination In Employment Act.
16. Covenant Not To Sue
Richard A. Sandberg 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 Party, in any state or
federal court, administrative agency or arbitral forum with respect to any
matter other than to enforce this Agreement, whether or not now known, for any
claim whatsoever (including but not limited to, any claim arising from Richard
A. Sandberg's employment or officership with the Company, or the termination
thereof) based upon any act, transaction, practice, conduct, or omission that
occurred prior to the effective date of this Agreement, which he now has, or
claims to have, or which at any time heretofore had, or which at any time
hereafter may have. This covenant includes but is 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.
17. Non Admission
The parties recognize and agree that this Agreement does not and shall
not constitute an admission of liability or wrongdoing by Richard A. Sandberg or
the Company or its present or former affiliates, directors, officers, agents,
employees.
18. No Abridgment of Indemnification
Nothing in this Agreement is intended to limit or abridge any
indemnification the Company would otherwise provide Richard A. Sandberg of and
from any claims based on his actions as an officer or director of the Company.
<PAGE>
19. Intent To Be Enforced As Fully As Possible
In the event that any of the terms or provisions of this Agreement
shall violate any statutory provision or may be otherwise unlawful or
inoperative, it is the intent of the parties that this Agreement operate and be
of full force and effect insofar as it does not violate said statutory
provisions or is otherwise lawful and that this Agreement be carried out as far
as possible in a manner consistent with its intent.
20. Litigation Costs
In the event Richard A. Sandberg does not exercise his rights to revoke
this Agreement in accordance with Section 24 and files a claim, lawsuit or
complaint against the Company in any court or governmental agency with respect
to the claims released under this Agreement, Richard A. Sandberg shall be liable
for all costs and expenses including legal fees, incurred by any Released Party
in defense of that action.
21. Voluntariness
Richard A. Sandberg 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.
(Attachment A)
22. Time To Review
Richard A. Sandberg acknowledges that he has been advised he has 21
days to review the waivers and releases contained in this Agreement if he so
chooses.
23. Adequacy Of Consideration
Richard A. Sandberg 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.
24. Revocation Option
Richard A. Sandberg shall have seven (7) days after the execution of
this Agreement to revoke the waivers and releases in this Agreement and the
Agreement shall not be effective unless and until those seven (7) days have
lapsed without Richard A. Sandberg so revoking.
25. Entire Agreement
This Agreement constitutes the entire Agreement of the parties on the
subject matter hereof and supersedes any and all prior agreements,
understandings or commit-ments, oral or written, including without limitation,
the Executive Severance Agreement between the Company and Richard A. Sandberg
dated March 9, 1989.
<PAGE>
26. Governing Law
This Agreement shall be governed by the laws of the State of
Connecticut.
RICHARD A. SANDBERG
2/27/97 /s/Richard A. Sandberg
- -------------------------- -------------------------------------
Dated Signature
DIANON SYSTEMS, INC.
2/27/97 /s/Kevin C. Johnson
- -------------------------- -------------------------------------
Dated Signature
/29203
<PAGE>
Attachment A
Mr. Richard A. Sandberg
Dear Richard:
The law requires us to inform you in writing that you should consult a lawyer
before executing the Agreement we have proposed to become effective between you
and the Company on February 27, 1997, because it includes releases and waivers
of potential rights.
Sincerely,
/s/Kevin C. Johnson
Kevin Johnson
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of (i) our report dated February 27, 1997, incorporated by reference
in DIANON Systems, Inc.'s Form 10-K for the year ended December 31, 1996, into
the previously filed Registration Statements Nos. 33-41226, 33-94176, 33-94178,
33-43673 and 333-18817 and (ii) our report dated March 15, 1996, incorporated by
reference in DIANON Systems, Inc. Form 10-K for the year ended December 31,
1995, into the previously filed Registration Statements Nos. 33-41226, 33-94176,
33-94178 and 33-43673.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 27, 1997
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