As filed with the Securities and Exchange Commission on November 25, 1996
Registration No. 333-15867
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(Exact name of registrant as specified in its charter)
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Delaware 8071 16-1387862
(State of other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
One Malcolm Avenue
Teterboro, New Jersey 07608
(201) 393-5000
(Address, including zip code, and telephone number, including area code, of
each registrant's principal executive offices)
Raymond C. Marier
General Counsel
Corning Clinical Laboratories Inc.
One Malcolm Avenue
Teterboro, New Jersey 07608
(201) 393-5000
(Address, including zip code, and telephone number, including area code, of
agent for service)
See Table of Subsidiary Guarantor Registrants
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Stephen T. Giove with copies to: Robert W. Reeder, III
Shearman & Sterling Sullivan & Cromwell
599 Lexington Avenue 125 Broad Street
New York, New York 10022 New York, New York 10004
(212) 848-4000 (212) 558-4000
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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Proposed maximum
Amount Proposed maximum aggregate
Title of to be offering price offering Amount of
securities to be registered registered per note(2) price(2) registration fee
-------------------------------------------------------- ---------------- ---------------- -----------------
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% Senior Subordinated Notes due 2006(1) $150,000,000 100% $150,000,000 $45,455(3)
</TABLE>
(1) The Guarantees of the payment of the principal and interest on the Notes
are also being registered hereby. Pursuant to Rule 457(n), no
registration fee is required with respect to the Guarantees.
(2) Estimated pursuant to Rule 457(a), solely for the purpose of computing
the registration fee.
(3) Fee of $45,455 previously paid on November 8, 1996.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
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Primary Standard
State or Other Industrial
Jurisdiction of Classification I.R.S. Employer
Incorporation Code Identification
Name or Organization Number Number
- ------------------------------------------------------------- ---------------- ---------------- --------------------
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Corning Clinical Laboratories Inc. (MI) Michigan 8071 38-1882750
Corning Nichols Institute Inc. California 8071 95-2701802
Damon Clinical Laboratories Inc. Massachusetts 8071 04-2449994
Corning Clinical Laboratories Inc. (CT) Connecticut 8071 06-1460613
Corning Clinical Laboratories Inc. (MA) Massachusetts 8071 04-3248020
Corning Clinical Laboratories of Pennsylvania Inc. Delaware 8071 22-3137283
Deyor CPF/Metpath, Inc. Ohio 8071 34-1464777
Southgate Medical Services, Inc. Ohio 8071 34-0944454
Corning MRL Inc. Delaware 8071 81-0496712
DPD Holdings Inc. Delaware 8071 93-0988106
Metwest Inc. Delaware 8071 33-0363316
Corning Clinical Laboratories Inc. (MD) Maryland 8071 52-0890739
Nichols Institute Diagnostics California 8071 95-2955451
Nomad-Massachusetts, Inc. Massachussets 8071 04-2704542
Quest Diagnostics Incorporated (MI) Michigan 8071 22-3471689
Quest Diagnostics Incorporated (MD) Maryland 8071 22-3471687
CLMP Inc. Delaware 8071 51-031423
Diagnostic Reference Services, Inc. Maryland 8071 Application pending
Pathology Building Partnership Maryland 8071 Application pending
</TABLE>
The principal executive office and telephone number of each of the above
registrants is One Malcolm Avenue, Teterboro, New Jersey 07608, (201)
393-5000.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold and
offers to buy may not be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy and there shall not be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such State.
[end red herring]
Subject to Completion Dated November 25, 1996
Prospectus
[LOGO] Quest Diagnostics Incorporated
$150,000,000
% Senior Subordinated Notes due 2006
Interest payable June 15 and December 15
Issue Price: %
Interest on the Notes is payable on June 15 and December 15 of each year,
commencing June 15, 1997. The Notes are subject to redemption on or after
December 15, 2001, in whole or in part, at the option of the Company, at the
redemption prices set forth herein. As discussed below, the Notes are also
subject to redemption at a premium, at the option of the Company, in case the
Distributions do not occur prior to March 31, 1997. Upon a Change of Control
(as defined), holders of the Notes may require the Company to purchase all or
a portion of the Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest (if any) to the date of
purchase. In addition, in the event of certain asset sales, the Company may
be required to make an offer to purchase Notes at a price equal to 100% of
the principal amount thereof, plus accrued and unpaid interest (if any) to
the date of purchase, with the net proceeds of such asset sales. See
"Description of the Notes--Optional Redemption" and "--Repurchase at the
Option of Holders."
The Notes will be unsecured senior subordinated obligations of the Company
and will be fully and unconditionally guaranteed (the "Senior Subordinated
Guarantees") on a senior subordinated basis by all of the Restricted
Subsidiaries of the Company (collectively, "the Guarantors"). The Notes and
the Senior Subordinated Guarantees will be subordinated in right of payment
to all existing and future Senior Debt and Senior Guarantees of the Company
and the Guarantors, respectively, will rank pari passu in right of payment
with all unsecured senior subordinated indebtedness and all unsecured senior
subordinated guarantees of the Company and the Guarantors, respectively, and
will rank senior in right of payment to any future indebtedness and
guarantees of the Company and the Guarantors, respectively, that may be
subordinated thereto. The Notes are effectively subordinated to all existing
and future indebtedness and other liabilities of the Company's Subsidiaries
that are Unrestricted Subsidiaries, and thus not Guarantors, and would be so
subordinated to all existing and future indebtedness of the Guarantors if the
Senior Subordinated Guarantees were avoided or subordinated in favor of the
Guarantors' other creditors.
The Notes will be issued only in registered form in denominations of $1,000
and integral multiples thereof. See "Description of the Notes."
The Notes are being offered in connection with the Distributions of the
Company's Common Stock and the Covance Common Stock to holders of Corning
Common Stock. The net proceeds of the Notes offering will be used to repay,
prior to the Distributions, certain indebtedness owed by the Company to
Corning. The closing of the offering of the Notes is anticipated to occur
prior to the Distributions. If as a result of an event outside the control of
Corning, the Company and Covance, the Distributions do not occur prior to
March 31 , 1997, the Notes will be subject to redemption, as a whole and not
in part, at the option of the Company, prior to June 30, 1997, at a
redemption price equal to 101% of the principal amount of the Notes plus
accrued and unpaid interest, if any, to the date fixed for redemption. See
"The Distributions" and "Descriptionof the Notes--Optional Redemption."
See "Risk Factors" beginning on page 15 for certain considerations relevant
to an investment in the Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Underwriting
Discount and Proceeds to
Price to Public (1) Commissions (2) Company (1)(3)
Per Note % % %
Total $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1996.
(2) The Company and Corning have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933.
(3) Before deducting expenses payable by the Company estimated at $ .
The Notes are being offered by the Underwriters, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters. The Underwriters
withhold the right to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of the Notes will be
made in New York, New York, against payment therefor in immediately available
funds on or about December , 1996.
J.P. Morgan & Co.
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
December , 1996.
<PAGE>
Map of the United States and Mexico indicating the locations of Quest
Diagnostics Regional Labs, Headquarters, Branch labs and Esoteric lab.
Map heading - Quest Diagnostics' Geographic Coverage.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus, and if given or
made, such information or representation must not be relied upon as having
been authorized by the Company or by any of the Underwriters. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy,
the Notes in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since the date
hereof.
Table of Contents
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Page
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Available Information 4
Prospectus Summary 5
Risk Factors 15
The Distributions 21
Use of Proceeds 25
Capitalization 26
Selected Historical Financial Data 27
Pro Forma Financial Information 31
Management's Discussion and Analysis of Financial Condition and
Results of Operations 38
Business 46
Management 66
Security Ownership by Certain Beneficial Owners and Management 76
Description of the Credit Facility 77
Description of the Notes 79
Underwriting 99
Validity of the Notes and Guarantees 100
Experts 100
Index to Financial Statements F-1
</TABLE>
Until , 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Notes, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligations of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
Available Information
The Company has filed a Registration Statement on Form 10 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), registering
its common stock, and will as of the effective date of the Form 10 become
subject to the informational requirements of the Exchange Act, and in
accordance therewith will file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by the Company with the
Commission can be inspected and copies made at the public reference
facilities of the Commission, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the Commission's Regional Offices: 7 World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611. Copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 at the prescribed rates. In
addition, the Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants that
file electronically, such as the Company. The address of the Commission's Web
site is http://www.sec.gov. The Company has applied for listing of its common
stock on the New York Stock Exchange ("NYSE") and, with such listing, such
reports, proxy statements and other information regarding the Company may
also be inspected and copied at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
The Company and the Guarantors have filed with the Commission a joint
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Notes and the Guarantees offered hereby. This Prospectus omits
information contained in the Registration Statement in accordance with the
rules and regulations of the Commission. Reference is hereby made to the
Registration Statement and related exhibits for further information with
respect to the Company the Guarantors, the Notes and the Guarantees offered
hereby. Statements contained herein concerning the provisions of any document
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference. Copies of the Registration Statement and the
exhibits thereto may be inspected, without charge, at the offices of the
Commission, or obtained at prescribed rates from the Public Reference Section
of the Commission, at the addresses set forth above.
The Company has agreed to furnish holders of Notes its annual reports
containing financial statements audited by independent auditors and quarterly
reports containing unaudited financial information for the first three
quarters of each year for as long as the Notes remain outstanding.
4
<PAGE>
Prospectus Summary
This Summary is qualified by the more detailed information (including the
financial statements and related notes) set forth elsewhere in this
Prospectus which should be read in its entirety. Unless the context
indicates, or it is specifically indicated otherwise, all references to (i)
"Corning" include Corning Incorporated, a New York corporation, and its
consolidated subsidiaries, (ii) "Quest Diagnostics" or the "Company" include
Corning Clinical Laboratories Inc. (to be renamed Quest Diagnostics
Incorporated prior to the Distributions), a Delaware corporation, and its
direct and indirect subsidiaries (other than Covance) and assume that the
Distributions have occurred, and (iii) "Covance" include Covance Inc.
(formerly Corning Pharmaceutical Services Inc.), a Delaware corporation, and
its direct and indirect subsidiaries and assume that the Distributions have
occurred. Capitalized terms used but not defined in this Summary are defined
elsewhere in this Prospectus.
The Company
Quest Diagnostics is one of the largest independent clinical laboratory
testing companies in the United States. Quest Diagnostics offers a broad
range of routine and specialty ("esoteric") testing services used by the
medical profession in the diagnosis, monitoring and treatment of disease and
other medical conditions. Quest Diagnostics' network, which processes
approximately 60 million requisitions for diagnostic tests annually, consists
of 17 regional laboratories across the United States and the Corning Nichols
Institute ("Nichols") esoteric testing laboratory in San Juan Capistrano,
California. In addition, Quest Diagnostics has 14 branch laboratories in the
United States as well as one branch laboratory in Mexico City (branch
laboratories are smaller than regional laboratories), approximately 200
"STAT" laboratories and approximately 850 patient service centers located
throughout the United States. For the year ended December 31, 1995 and the
nine months ended September 30, 1996, Quest Diagnostics had net revenues of
$1,629 million and $1,231 million, respectively, and Adjusted EBITDA (income
(loss) before income taxes plus net interest expense, depreciation and
amortization and restructuring and other special charges) of $177 million and
$135 million, respectively.
Quest Diagnostics operates 24 hours a day, 365 days a year, utilizing a fully
integrated collection and processing system. Quest Diagnostics generally
performs and reports most routine procedures within 24 hours, employing a
variety of sophisticated and computerized laboratory testing instruments.
Quest Diagnostics provides daily pickup of specimens from most customers
principally through an in-house courier system. The specimens are sent to one
of the Company's laboratories where one or more tests are performed.
Each patient specimen is accompanied by a test requisition form, which is
completed by the customer, that indicates the tests to be performed and
provides the necessary billing information. Each specimen and related
requisition form is checked for completeness and then given a unique
bar-coded identification number. Once the appropriate information is entered
into the computer system, the tests are performed and the results are
delivered to the doctor, primarily through computer interface or manually.
Corning entered the clinical laboratory business in 1982 with the acquisition
of MetPath Inc. ("MetPath"), which was founded in 1967 and was one of the
first laboratories to expand beyond a regional market. Since January 1993,
Quest Diagnostics has acquired over thirty laboratories, including Damon
Corporation ("Damon"), Bioran Medical Laboratory ("Bioran") and Maryland
Medical Laboratory, Inc. ("MML"). In 1994, Quest Diagnostics enhanced its
presence in the esoteric testing market through the acquisition of Nichols, a
preeminent clinical laboratory with a leading reputation for esoteric testing
and test innovations.
While Corning's ownership provided the Company with the capital to grow
through acquisitions and to become one of the nation's largest independent
clinical laboratory testing companies, the management of both Corning and
Quest Diagnostics believe that Quest Diagnostics will be more competitive and
operate more successfully in the future as an independent company, with a
strong, focused and experienced management team to concentrate on customer
needs. Independence will also enable Quest Diagnostics to motivate its
employees by offering equity-based incentives tied directly to the
performance of the Company and individual performance. Quest Diagnostics'
management team has implemented a new business strategy, which focuses the
business around three key strategic areas: clinical operations, customer
focus and technological leadership and excellence.
The Clinical Laboratory Testing Industry
Clinical testing is a critical component in the delivery of quality health
care service to patients. Currently, clinical laboratory testing is the first
step in determining how a significant amount of all health care dollars are
spent.
Quest Diagnostics believes that in 1995 the entire United States clinical
laboratory industry had revenues exceeding $30 billion. The clinical
laboratory industry consists primarily of three types of providers:
hospital-affiliated laboratories, independent
5
<PAGE>
clinical laboratories, such as Quest Diagnostics, and physician-office
laboratories. The Company believes that in 1995 approximately 56% of the
clinical testing revenues in the United States were attributable to
hospital-affiliated laboratories, approximately 36% were attributable to
independent clinical laboratories and approximately 8% were attributable to
physicians in their offices and laboratories.
Quest Diagnostics believes that consolidation will continue in the clinical
laboratory testing business. In addition, Quest Diagnostics believes that it
and the other large independent clinical laboratory testing companies may
have the opportunity to increase their share of the overall clinical
laboratories testing market due to a number of external factors, including
cost efficiencies afforded by large-scale automated testing, Medicare
reimbursement reductions and the growth of managed health care entities which
require low-cost testing services and large service networks. In addition,
legal restrictions on physician referrals and the ownership of laboratories
as well as increased regulation of laboratories are expected to contribute to
the continuing consolidation of the industry.
Quest Diagnostics believes that a number of factors are likely to positively
influence the volume of clinical laboratory testing performed in the United
States in the future, including (1) the general aging of the population in
the United States; (2) an expanded base of scientific knowledge which has led
to the development of more sophisticated specialized tests and an increase in
the awareness of physicians of the value of clinical laboratory testing as a
cost-effective means of early detection of disease and monitoring of
treatment; (3) an increase in the number and types of tests which are, due to
advances in technology and increased cost efficiencies, readily available on
a more affordable basis to physicians; (4) expanded substance-abuse testing
by corporations and governmental agencies; and (5) increased testing for
sexually transmitted diseases such as AIDS. The impact of these factors is
expected to be offset in part by increased controls over the utilization of
clinical laboratory tests by both Medicare and the private sector,
particularly managed care organizations.
Business Strategy
Quest Diagnostics' overall goal is to be recognized by its customers,
employees and competitors as the best provider of comprehensive and
innovative clinical testing, information and services. To achieve this, Quest
Diagnostics' management team has focused the business around three key
strategic areas: clinical operations, customer focus and technological
leadership and excellence.
(bullet) Best Supplier. Quest Diagnostics seeks to be the best supplier of
the highest quality and the lowest-cost testing services. Health
care providers and patients expect accurate, timely and consistent
laboratory test results at a fair price.
(bullet) Lowest-cost provider. Quest Diagnostics' average cost per
requisition varies significantly among its regional laboratories;
there is an approximately $7.00 difference in cost per requisition
between the most efficient regional laboratory and the average,
and an approximately $13.00 difference in cost per requisition
between the most and the least efficient regional laboratories. In
many cases, these variations do not relate to testing volumes or
mixes, space costs, service requirements or regional labor cost
differences. To reduce costs, Quest Diagnostics has begun to
replicate the best practices from each region throughout its
national network. Management expects to achieve significant cost
savings within the next three years as these programs are fully
implemented. *
(bullet) Highest Quality Provider. Quest Diagnostics is dedicated to
providing accurate and timely test results and to being viewed by
its customers as the highest quality provider of clinical testing
services. Quest Diagnostics believes that implementation of best
practices already developed in certain regions will permit the
Company to be viewed by its customers as the highest quality
provider of clinical testing services.
(bullet) Preferred Provider. Quest Diagnostics seeks to be the preferred
provider of laboratory testing services to existing and new health
care networks on a selective basis determined by profitability of
accounts. Quest Diagnostics believes that it will become the
preferred provider to these networks as (1) large networks typically
prefer to utilize large independent clinical laboratories that can
service them on a national or regional basis and (2) the Company
continues to pursue its primary strategy of becoming the highest
quality, lowest-cost provider. To achieve this, Quest Diagnostics
will employ a rigorous national and regional process to both select
and pursue customers and allocate resources to support these
efforts.
(bullet) Account Profitability. Quest Diagnostics intends to refocus its
sales efforts on pursuing and keeping profitable accounts. Quest
Diagnostics is actively reviewing the profitability of its current
accounts, including those with managed care organizations, and
will either increase pricing or eliminate accounts that cannot be
serviced profitably.
*This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See "Business-
Important Factors Regarding Forward Looking Statements." In particular, see
factors (a), (d) and (j).
6
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(bullet) Regional Profitability. Quest Diagnostics presently believes that
it has the leading market share among independent clinical
laboratories in most routine testing markets of the northeast,
mid-Atlantic and midwest regions. Approximately 65% of Quest
Diagnostics' revenues and almost all of its EBITDA is generated
from markets in which the Company believes that it has the leading
market share. In most of these markets, Quest Diagnostics believes
that it also is the lowest cost provider. Quest Diagnostics is
evaluating its strategic alternatives relative to units whose
profitability does not meet its internal goals. These alternatives
may include joint ventures, alliances, or dispositions. Quest
Diagnostics believes that, while the clinical laboratory industry
is becoming national in scope, the Company can subcontract with
other clinical laboratories to perform testing for national
accounts in any markets in which the Company chooses not to
compete.
(bullet) Leading Innovator. Quest Diagnostics intends to remain a leading
innovator in the clinical laboratory industry by continuing to
introduce new tests, technology and services. Through its
relationship with the academic community and pharmaceutical and
biotechnology firms and a research and development budget exceeding
$15 million per year, Quest Diagnostics believes it is one of the
leaders in transferring innovation from academic biotechnology
laboratories to the market.
Recent developments
By a plea agreement and civil agreement and release dated October 9, 1996,
between the Department of Justice ("DOJ") and Damon, all federal criminal
matters within the scope of the various federal investigations against Damon,
and all claims including the civil qui tam cases underlying the civil
investigations were settled for an aggregate of $119 million, which sum was
reimbursed to Quest Diagnostics by Corning. The Damon settlement does not
exclude Quest Diagnostics from future participation in any federal health
care programs on account of Damon's practices.
Quest Diagnostics' aggregate reserve with respect to all governmental and
private claims was $215 million at September 30, 1996 and is estimated to be
reduced to $85 million as of the Distribution Date as a result of the payment
of settled claims, primarily the Damon settlement of $119 million. Based on
information available to management and Quest Diagnostics' experience with
past settlements (including the fact that the aggregate amount of the Damon
settlement was significantly in excess of established reserves) management
has reassessed its reserve levels and believes that its current level of
reserves is adequate. However, it is possible that additional information may
become available which may cause the final resolution of these matters to be
in excess of established reserves by an amount which could be material to
Quest Diagnostics' results of operations and, for non-indemnified claims,
Quest Diagnostics' cash flows in the period in which such claims are settled.
While none of the governmental or nongovernmental investigations or claims is
covered by insurance, Quest Diagnostics does not believe that these matters
will have a material adverse effect on Quest Diagnostics' overall financial
condition.
Corning Indemnity
In connection with the Distributions, Corning will agree to indemnify Quest
Diagnostics against all monetary penalties, fines or settlements arising out
of any governmental claims arising out of alleged violations of applicable
federal fraud and health care statutes and relating to billing practices of
Quest Diagnostics and its predecessors that have been settled or are pending
on the Distribution Date. Corning will also indemnify Quest Diagnostics for
50% of the aggregate of all judgment or settlement payments made by Quest
Diagnostics that are in excess of $42.0 million in respect of claims by
private parties (i.e., nongovernmental parties such as private insurers) that
relate to indemnified or previously settled governmental claims and that
allege overbillings by Quest Diagnostics or any existing subsidiaries of
Quest Diagnostics, for services provided prior to the Distribution Date;
provided, however, such indemnification for nongovernmental claims will not
exceed $25.0 million in the aggregate and all amounts indemnified against by
Corning for the benefit of Quest Diagnostics will be calculated on a net
after-tax basis. Such indemnification will not cover (i) any governmental
claims that arise after the Distribution Date pursuant to service of subpoena
or other notice of such investigation after the Distribution Date, (ii) any
nongovernmental claims unrelated to the indemnified governmental claims or
investigations, (iii) any nongovernmental claims not settled prior to five
years after the Distribution Date, (iv) any consequential or incidental
damages relating to the billing claims, including losses of revenues and
profits as a consequence of exclusion for participation in federal or state
health care programs or (v) the fees and expenses of litigation.
7
<PAGE>
The Distributions
On May 13, 1996, the board of directors of Corning approved a plan to
distribute to Corning shareholders the clinical laboratory testing business
being conducted by Quest Diagnostics and the contract research business being
conducted by Quest Diagnostics' wholly owned subsidiary, Covance (together,
the "Distributions").
The Distributions will be effected by distributing all of the outstanding
shares of Quest Diagnostics common stock (the "Quest Diagnostics Common
Stock") to holders of Corning common stock (the "Corning Common Stock"),
followed immediately by the distribution of all of the common stock of
Covance (the "Covance Common Stock") to those same holders, as holders of
Quest Diagnostics Common Stock. It is expected that the Distributions will be
made on or before December 31, 1996 (the date on which the Distributions are
to be made, the "Distribution Date").
Prior to the consummation of the offering of the Notes contemplated hereby
(the "Offering"), the Company will enter into a $450 million senior, secured
credit facility (the "Credit Facility"), among the Company, the lenders
listed therein, NationsBank, N.A., as Issuing Bank, Wachovia Bank of Georgia,
N.A., as Swingline Bank, and Morgan Guaranty Trust Company of New York, as
Administrative Agent. The Credit Facility will be comprised of a $300 million
six-year amortizing term loan ("Tranche A Loan"), a $50 million seven-year
term loan ("Tranche B Loan" and together with the Tranche A Loan, the "Term
Loans") and a $100 million six-year revolving working capital facility (the
"Working Capital Facility").
Corning currently has approximately $1.2 billion of Quest Diagnostics
intercompany debt. Approximately $ million of net proceeds from the
Offering, together with the $350 million of borrowings under the Term Loans,
will be paid to Corning in satisfaction of a portion of the outstanding
intercompany debt. Corning will contribute the remaining intercompany debt to
Quest Diagnostics' capital. Borrowings under the Working Capital Facility,
substantially all of which is expected to be available as of the Distribution
Date, will provide for future working capital needs and other general
corporate purposes.
8
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The Offering
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Securities Offered $150,000,000 aggregate principal amount of % Senior Subordinated
Notes due December 15, 2006 (the "Notes").
Maturity Date December 15, 2006.
Interest Payment Date June 15 and December 15, commencing June 15, 1997.
Optional Redemption by the Company The Notes will be redeemable, in whole or in part, at the option of the
Company at any time on or after December 15, 2001, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to
but excluding the date fixed for redemption. In addition, if as a
result of an event outside the control of Corning, Quest Diagnostics
and Covance, the Distributions do not occur prior to March 31, 1997,
the Notes will be subject to redemption, as a whole and not in part, at
the option of Quest Diagnostics, prior to June 30, 1997, at a
redemption price equal to 101% of the principal amount of the Notes,
plus accrued and unpaid interest, if any, to but excluding the date
fixed for redemption. See "Description of the Notes--Optional
Redemption."
Change of Control Offer Upon a Change of Control, the Company has the obligation to offer to
purchase all the outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to
but excluding the date of purchase. See "Description of the Notes--
Repurchase at the Option of Holders--Change of Control" for a
discussion of the circumstances in which the Company may not be
required to make an offer to purchase upon a Change of Control.
Offers to Purchase In the event of certain asset sales, the Company will be required to
offer to repurchase the Notes at 100% of their principal amount, plus
accrued and unpaid interest, if any, to but excluding the date of
purchase with the net proceeds of such asset sales.
Subordination The Notes will be general unsecured obligations of the Company and will
be subordinated in right of payment to all existing and future Senior
Debt of the Company, including all indebtedness of the Company under
the Credit Facility. The Notes will rank Pari Passu in right of payment
with any other senior subordinated indebtedness of the Company.
9
<PAGE>
Subsidiary Guarantees The Notes will be guaranteed, jointly and severally, and fully and
unconditionally, on a senior subordinated basis by the Guarantors (the
"Senior Subordinated Guarantees"). The obligations of any Guarantor
with respect to its Senior Subordinated Guarantee will be subordinated
in right of payment, to the same extent as the obligations of the
Company in respect of the Notes, to all existing and future Senior
Guarantees, which will include the guarantees of the Credit Facility.
The Senior Subordinated Guarantees would also be subordinated to all
existing and future indebtedness of the Guarantors if the Senior
Subordinated Guarantees were avoided or subordinated in favor of the
Guarantors' other creditors. See "Risk Factors--Fraudulent Conveyance."
The obligations of a Guarantor under its Senior Subordinated Guarantee
will be released in certain circumstances, including if the Guarantor
ceases to guarantee the Credit Facility. See "Description of the
Notes--Senior Subordinated Guarantees."
Principal Covenants The indenture under which the Notes are issued (the "Indenture") will
impose certain limitations on the ability of the Company and its
subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments, consummate certain
asset sales, enter into certain transactions with affiliates, incur
indebtedness that is subordinate in right of payment to any Senior Debt
and senior in right of payment to the Notes, enter into leases, incur
liens, merge or consolidate with any other person, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially
all of the assets of the Company.
Use of Proceeds The Company intends to use the proceeds from the sale of the Notes,
together with the proceeds of borrowings under the Credit Facility, to
repay certain intercompany indebtedness owed to Corning. See "Use of
Proceeds."
The Distributions The Notes are being offered in connection with the Distributions of the
Quest Diagnostics Common Stock and the Covance Common Stock to holders
of Corning Common Stock. The closing of the offering of the Notes is
anticipated to occur prior to the Distributions.
Risk Factors See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Notes.
</TABLE>
10
<PAGE>
Summary Financial Data
The following table summarizes certain historical and pro forma financial
data of Quest Diagnostics at the dates and for each of the periods indicated.
The selected financial data as of and for each of the years ended December
31, 1995, 1994 and 1993 have been derived from the audited combined financial
statements of (the "Audited Financial Statements") and the notes thereto
included elsewhere herein. The selected financial data as of and for the
three and nine months ended September 30, 1996 and 1995 have been derived
from the unaudited interim combined financial statements of Quest Diagnostics
(the "Interim Financial Statements" and, together with the Audited Financial
Statements, the "Financial Statements") and the notes thereto included
elsewhere herein. In the opinion of Quest Diagnostics management, the
unaudited interim combined financial statements include all adjustments,
consisting of only normal recurring adjustments, that are necessary for a
fair presentation of the financial position and results of operations for
these periods. The unaudited interim results of operations for the three and
nine months ended September 30, 1996 are not necessarily indicative of the
results for the entire year ending December 31, 1996.
The selected pro forma financial data have been derived from the unaudited
pro forma combined financial information of Quest Diagnostics for the year
ended December 31, 1995 and for the three and nine months ended September 30,
1996 (the "Pro Forma Financial Information") and the notes thereto included
elsewhere herein. The pro forma statement of operations data gives effect to
the Distributions and the Accounting Policy Change (as defined below) as if
they had occurred on January 1, 1995 and the pro forma balance sheet data
gives effect to the Distributions and the Accounting Policy Change as if they
had occurred on September 30, 1996. The pro forma financial data does not
purport to represent what Quest Diagnostics' results of operations would have
been if the Distributions and the Accounting Policy Change had in fact
occurred on such dates, nor does it purport to indicate the future financial
position or results of future operations of Quest Diagnostics. The pro forma
adjustments are based upon currently available information and certain
assumptions that Quest Diagnostics management believes to be reasonable. The
summary historical and pro forma financial data set forth below should be
read in conjunction with "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
the Financial Statements and the notes thereto and the Pro Forma Financial
Information and the notes thereto.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------------------------------------------------------
Pro Forma Historical Pro Forma Historical
------------------------------- -------------------------------
1996(a) 1996 1995 1996(a) 1996 1995
--------------- --------------- --------------- ---------------- ---------------- --------------
(in thousands, except share, per share and percentage data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues $ 405,352 $ 405,352 $ 399,959 $ 1,231,290 $1,231,290 $1,239,474
Costs and expenses:
Cost of services 255,390 255,390 240,868 768,809 768,809 735,984
Selling, general and
administrative 125,190 125,190 181,346(c) 371,439 371,439 399,635(c)
Provision for
restructuring and other
special charges(d) 155,730 155,730 201,730 201,730 45,885
Interest expense, net 12,189 19,866 20,927 36,938 59,887 61,529
Amortization of
intangible assets 7,672 10,328 11,293 23,803 31,772 33,678
Other, net 1,837 1,837 1,930 (198) (198) 4,429
--------------- --------------- --------------- ---------------- ---------------- --------------
Total 558,008 568,341 456,364 1,402,521 1,433,439 1,281,140
--------------- --------------- --------------- ---------------- ---------------- --------------
Income (loss) before taxes (152,656) (162,989) (56,405) (171,231) (202,149) (41,666)
Income tax expense
(benefit) (40,521) (43,553) (17,810) (34,215) (43,280) (3,642)
--------------- --------------- --------------- ---------------- ---------------- --------------
Income (loss) before
cumulative effect of
change in accounting
principle (112,135) (119,436) (38,595) (137,016) (158,869) (38,024)
Cumulative effect of
change in accounting
principle
--------------- --------------- --------------- ---------------- ---------------- --------------
Net income (loss) $ (112,135) $ (119,436) $ (38,595) $ (137,016) $ (158,869) $ (38,024)
=============== =============== =============== ================ ================ ==============
Pro forma shares
outstanding(e) 28,901,735 28,901,735
Pro forma net loss per
share $ (3.88) $ (4.74)
Balance Sheet Data (at end
of period):
Cash $ 40,000 $ 48,319 $ 46,908 $ 40,000 $ 48,319 $ 46,908
Working capital 306,741 114,718 129,319 306,741 114,718 129,319
Total assets 1,612,459 1,886,378 1,896,058 1,612,459 1,886,378 1,896,058
Long-term debt 515,494 1,219,900 1,114,367 515,494 1,219,900 1,114,367
Total debt 517,379 1,231,785 1,226,211 517,379 1,231,785 1,226,211
Stockholder's equity 604,099 132,670 320,576 604,099 132,670 320,576
Ratio of earnings to fixed
charges -- (f) -- (f) -- (f) -- (f) -- (f) -- (f)
Supplemental Data:
Net cash provided by
operating activities $ 25,236 $ 25,236 $ 38,202 $ 41,937 $ 41,937 $ 53,789
Net cash used in investing
activities (7,904) (7,904) (17,044) (53,097) (53,097) (77,911)
Net cash provided by (used
in) financing activities (6,618) (6,618) (18,006) 23,033 23,033 32,311
Bad debt expense $ 30,539 $ 30,539 $ 85,831(c) $ 81,891 $ 81,891 $ 127,297(c)
Bad debt expense as a % of
net revenues 7.5% 7.5% 21.5% 6.7% 6.7% 10.3%
Rent expense $ 12,515 $ 12,515 $ 11,860 $ 37,315 $ 37,315 $ 35,060
Capital expenditures 11,912 11,912 16,441 58,802 58,802 56,062
Depreciation expense $ 14,672 $ 14,672 $ 14,275 $ 43,460 $ 43,460 $ 42,358
EBITDA(g) $ (118,123)(h) $ (118,123)(h) $ (9,910)(c) $ (67,030)(h) $ (67,030)(h) $ 95,899(c)
EBITDA as a % of net
revenues (29.1%) (29.1%) (2.5%) (5.4%) (5.4%) 7.7%
Adjusted EBITDA(i) $ 37,607 $ 37,607 $ (9,910)(c) $ 134,700 $ 134,700 $ 141,784(c)
Adjusted EBITDA as a % of
net revenues 9.3% 9.3% (2.5%) 10.9% 10.9% 11.4%
Supplemental Ratio Data:
Adjusted EBITDA/interest
expense, net 3.1x 3.6x
(Adjusted EBITDA-capital
expenditures)/interest
expense, net 2.1x 2.1x
(Total debt--cash)/annualized
adjusted EBITDA 3.2x 2.7x
</TABLE>
(Footnotes on page 14)
12
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
Pro Forma Historical
-------------------------------------------
1995(a) 1995 1994(b) 1993
--------------- --------------- ------------- -------------
(in thousands, except share, per share and percentage data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $ 1,629,388 $1,629,388 $1,633,699 $1,416,338
Costs and expenses:
Cost of services 980,232 980,232 969,844 805,729
Selling, general and administrative 523,271(c) 523,271(c) 411,939 363,579
Provision for restructuring and other
special charges(d) 50,560 50,560 79,814 99,600
Interest expense, net 50,748 82,016 63,295 41,898
Amortization of intangible assets 34,031 44,656 42,588 28,421
Other, net 6,221 6,221 3,464 6,423
--------------- --------------- ------------- -------------
Total 1,645,063 1,686,956 1,570,944 1,345,650
--------------- --------------- ------------- -------------
Income (loss) before taxes (15,675) (57,568) 62,755 70,688
Income tax expense (benefit) 6,835 (5,516) 34,410 25,929
--------------- --------------- ------------- -------------
Income (loss) before cumulative effect of
change in accounting principle (22,510) (52,052) 28,345 44,759
Cumulative effect of change in accounting
principle (10,562)
--------------- --------------- ------------- -------------
Net income (loss) $ (22,510) $ (52,052) $ 28,345 $ 34,197
=============== =============== ============= =============
Pro forma shares outstanding(e) 28,901,735
Pro forma net loss per share $ (0.78)
Balance Sheet Data (at end of period):
Cash $ 36,446 $ 38,719 $ 39,410
Working capital 200,740 214,358 139,771
Total assets 1,853,385 1,882,663 1,861,162
Long-term debt 1,195,566 1,153,054 1,025,787
Total debt 1,207,714 1,165,626 1,123,307
Stockholder's equity 295,801 386,812 395,509
Ratio of earnings to fixed charges -- (f) -- (f) 1.77(f) 2.20(f)
Supplemental Data:
Net cash provided by operating activities $ 85,828 $ 85,828 $ 37,963 $ 99,614
Net cash used in investing activities (93,087) (93,087) (46,186) (473,687)
Net cash provided by (used in) financing
activities 4,986 4,986 7,532 392,956
Bad debt expense $ 152,590(c) $ 152,590(c) $ 59,480 $ 47,240
Bad debt expense as a % of net revenues 9.4% 9.4% 3.6% 3.3%
Rent expense $ 46,900 $ 46,900 $ 49,400 $ 46,900
Capital expenditures 74,045 74,045 93,354 65,317
Depreciation expense $ 56,857 $ 56,857 $ 46,929 $ 38,058
EBITDA(g) $ 125,961(c) $ 125,961(c) $ 215,567 $ 179,065
EBITDA as a % of net revenues 7.7% 7.7% 13.2% 12.6%
Adjusted EBITDA(i) $ 176,521(c) $ 176,521(c) $ 295,381 $ 278,665
Adjusted EBITDA as a % of net revenues 10.8% 10.8% 18.1% 19.7%
Supplemental Ratio Data:
Adjusted EBITDA/interest expense, net 3.5x
(Adjusted EBITDA-capital expenditures)/
interest expense, net 2.0x
</TABLE>
(Footnotes on page 14)
13
<PAGE>
(Footnotes for preceding pages)
(a) Adjusted to reflect the pro forma effects of the Distributions and the
Accounting Policy Change. See "Selected Historical Financial Data" and
"Pro Forma Financial Information."
(b) In August 1993, Quest Diagnostics acquired Damon, a national clinical
testing laboratory with approximately $280 million in annualized revenue,
excluding Damon's California-based laboratories which were sold in April
1994. In November 1993, Quest Diagnostics acquired certain
clinical-testing laboratories of Unilab Corporation ("Unilab"), with
approximately $90 million in annualized revenue. The Damon and Unilab
acquisitions were accounted for as purchases. Quest Diagnostics acquired
MML, Nichols Institute and Bioran in June, August and October 1994,
respectively, and accounted for these acquisitions as poolings of
interest. Results presented include the results of Quest Diagnostics,
MML, Nichols Institute and Bioran on a pooled basis. The increase in 1994
net revenues compared to 1993 net revenues was primarily due to the Damon
and Unilab acquisitions.
(c) Includes a third quarter 1995 charge of $62.0 million to increase the
reserve for doubtful accounts and allowances resulting from billing
systems implementation and integration problems at certain laboratories
and increased regulatory requirements.
(d) Provision for restructuring and other special charges includes charges
for restructurings primarily for workforce reduction programs, the
write-off of fixed assets and the costs of exiting a number of leased
facilities. Other special charges is primarily comprised of settlement
reserves for claims related to billing practices. See Note 5 to the
Audited Financial Statements and Notes 2 and 3 to the Interim Financial
Statements.
(e) Includes the issuance of approximately 28.0 million shares of Quest
Diagnostics Common Stock in the Quest Diagnostics Spin-Off Distribution
and the issuance of an estimated 900,000 shares into the Quest
Diagnostics employee stock ownership plan.
(f) For purposes of this calculation, earnings consist of pretax income from
continuing operations plus fixed charges. Fixed charges consist of
interest expense and one-third of rental expense, representing that
portion of rental expense deemed representative of the interest factor.
Earnings were insufficient to cover fixed charges by the following
amounts (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30, Year Ended December 31,
----------------------------------- ---------------------------------- --------------------------
Pro Forma Historical Pro Forma Historical Pro Forma Historical
------------ --------------------------------- --------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1996 1995 1996 1996 1995 1995 1995
$152,656 $162,989 $56,405 $171,231 $202,149 $41,666 $15,675 $57,568
</TABLE>
(g) EBITDA represents income (loss) before income taxes plus net interest
expense and depreciation and amortization. EBITDA is presented because
management believes it is an accepted financial indicator of a company's
ability to service and incur debt. EBITDA does not represent net income
or cash flows from operations as those terms are defined by generally
accepted accounting principles and does not necessarily indicate whether
cash flows will be sufficient to fund cash needs or service debt.
(h) 1996 EBITDA includes charges of $142 million and $188 million for the
three months and nine months ended September 30, 1996, respectively,
related to charges to establish additional reserves for the Damon and
other related claims. In October 1996, Corning contributed $119 million
to Quest Diagnostics' capital to fund the settlement of billing issues
related to Damon and has agreed to indemnify Quest Diagnostics against
certain related and similar claims pending at the Distribution Date.
(i) Adjusted EBITDA represents income (loss) before income taxes plus net
interest expense, depreciation and amortization and restructuring and
other special charges. EBITDA and Adjusted EBITDA include bad debt
expense. Adjusted EBITDA is presented because management believes it is
an accepted financial indicator of a company's ability to service and
incur debt. Adjusted EBITDA does not represent net income or cash flows
from operations as those terms are defined by generally accepted
accounting principles and does not necessarily indicate whether cash
flows will be sufficient to fund cash needs or service debt.
14
<PAGE>
Risk Factors
Prospective purchasers of the Notes should consider carefully the following
factors, as well as the other information set forth or incorporated in this
Prospectus, in deciding whether to purchase the Notes.
Subordination; Ranking of the Notes as Unsecured Obligations.The Notes will
be unsecured senior subordinated obligations of Quest Diagnostics and will be
unconditionally guaranteed on a senior subordinated basis by all of the
Restricted Subsidiaries of Quest Diagnostics. The Notes and the Senior
Subordinated Guarantees will be subordinated in right of payment to all
existing and future Senior Debt (as defined under "Description of the
Notes--Certain Definitions") and Senior Guarantees (as defined under
"Description of the Notes--Certain Definitions"), respectively, of the
Company and the Guarantors, will rank Pari Passu (as defined under
"Description of the Notes--Certain Definitions") in right of payment with all
unsecured senior subordinated indebtedness and all unsecured senior
subordinated guarantees of Quest Diagnostics and the Guarantors,
respectively, and will rank senior in right of payment to any future
indebtedness or guarantees of Quest Diagnostics and the Guarantors,
respectively, that may be subordinated thereto. Upon any payment or
distribution of assets of Quest Diagnostics to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshalling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings of Quest Diagnostics, the
holders of Senior Debt will be entitled to receive payment in full of the
principal of (and premium, if any) and interest on such Senior Debt,
including all amounts due or to become due on all Senior Debt, or provision
will be made for payment in cash or cash equivalents or otherwise, before the
Holders of Notes are entitled to receive any payments, subject to certain
exceptions. See "Description of the Notes--Subordination."
The Notes and the Senior Subordinated Guarantees will be effectively
subordinated in right of payment to all existing and future secured
indebtedness of Quest Diagnostics and the Guarantors, respectively, to the
extent of the collateral securing such indebtedness.
On a pro forma basis, as of September 30, 1996, after giving effect to the
Distributions, the sale of the Notes and the application of the proceeds
thereof and $350.0 million of borrowings under the Term Loans, there was $367
million of Senior Debt of Quest Diagnostics outstanding. All of the
borrowings under the Credit Facility have been guaranteed by the Guarantors
on a senior basis. While the Indenture will limit, subject to the certain
financial tests, the amount of additional Debt that Quest Diagnostics and its
Restricted Subsidiaries can incur, there is no other limitation on the amount
of Senior Debt that may be incurred. In addition, Quest Diagnostics may from
time to time hereafter incur additional Debt constituting Senior Debt,
including $100.0 million under the Working Capital Facility, substantially
all of which is anticipated to be available at the Distribution Date.
Substantial Operations at Subsidiary Level; Structural Subordination.Quest
Diagnostics holds substantial assets and conducts substantial operations
through its Subsidiaries. Quest Diagnostics thus derives a substantial
portion of its operating income and cash flow from its Subsidiaries and must
rely substantially upon distributions from its Subsidiaries to generate the
funds necessary to meet its obligations, including the payment of principal
of and interest on the Notes. Although the Indenture generally prohibits
Quest Diagnostics from permitting its Restricted Subsidiaries to allow
restrictions on their ability to pay dividends and other amounts to Quest
Diagnostics, any such restrictions could materially and adversely affect
Quest Diagnostics' ability to service and repay its debts, including the
Notes.
The Notes are effectively subordinated to all existing and future indebtedness
and other liabilities of Quest Diagnostics' Subsidiaries (if any) that are
Unrestricted Subsidiaries, and thus not Guarantors, and would be so subordinated
to all existing and future indebtedness of the Guarantors if the Senior
Subordinated Guarantees were avoided or subordinated in favor of the Guarantors'
other creditors. See "--Fraudulent Conveyance." The aggregate net revenues and
net loss from the Unrestricted Subsidiaries for the year ended December 31, 1995
were $21.7 million and $0.5 million, respectively. The Unrestricted Subsidiaries
had an aggregate book value of $0.1 million at December 31, 1995. The aggregate
net revenues and net income for the Unrestricted Subsidiaries was less than 3%
of the Company's net revenues and net income for the nine months ended September
30, 1996. The Unrestricted Subsidiaries had an aggregate net book value of less
than 3% of the Company's net book value at September 30, 1996.
The obligation of a Guarantor under its Senior Subordinated Guarantee will be
released if (i) such Guarantor ceases to be a Restricted Subsidiary, (ii)
such Guarantor ceases to guarantee the Credit Facility, (iii) the Notes are
defeased and discharged or (iv) all or substantially all of the assets of
such Guarantor or all of the Capital Stock of such Guarantor is sold
(including by issuance, merger, consolidation or otherwise) by the Company or
any of its Subsidiaries in a transaction complying with the provisions
described under "Certain Covenants--Repurchase at the Option of
Holders--Asset Dispositions."
Fraudulent Conveyance.The Senior Subordinated Guarantees may be subject to
review under federal or state fraudulent transfer law. To the extent that a
court were to find that (x) the Senior Subordinated Guarantees were incurred
by any Guarantor with intent to hinder, delay or defraud any present or
future creditor, or a Guarantor contemplated insolvency with a design to
15
<PAGE>
prefer one or more creditors to the exclusion in whole or in part of others,
or (y) any Guarantor did not receive fair consideration or reasonably
equivalent value for issuing its Senior Subordinated Guarantees and any
Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the
issuance of the Senior Subordinated Guarantees, (iii) was engaged or about to
engage in a business or transaction for which the remaining assets of a
Guarantor constituted unreasonably small capital to carry on its business or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, a court could avoid or subordinate
the Senior Subordinated Guarantees in favor of a Guarantor's creditors. If
the Senior Subordinated Guarantees are subordinated, payments of principal
and interest on the Notes generally would be subject to the prior payment in
full of all indebtedness of the Guarantors. Among other things, a legal
challenge of the Senior Subordinated Guarantees on fraudulent conveyance
grounds may focus on the benefits, if any, realized by a Guarantor as a
result of the issuance by Quest Diagnostics of the Notes. The extent (if any)
to which a particular Guarantor may be deemed to have received such benefits
may depend on Quest Diagnostics' use of the Offering proceeds, including the
extent (if any) to which such proceeds or benefits therefrom benefit the
Guarantor. None of the proceeds from the Offering will be contributed to the
Restricted Subsidiaries. See "Use of Proceeds." The measure of insolvency for
purposes of the foregoing will vary depending on the law of the applicable
jurisdiction. Generally, however, an entity would be considered insolvent if
the sum of its debts (including contingent or unliquidated debts) is greater
than all of its property at a fair valuation or if the present fair saleable
value of its assets is less than the amount that will be required to pay its
probable liability under its existing debts as such debts become absolute and
matured. Based upon financial and other information currently available to
it, Quest Diagnostics presently believes that the Senior Subordinated
Guarantees are being incurred for proper purposes and in good faith, and that
the Guarantors (i) are solvent and will continue to be solvent after issuing
the Senior Subordinated Guarantees, (ii) will have sufficient capital for
carrying on their business after such issuance and (iii) will be able to pay
their debts as they mature. There can be no assurance, however, that a court
would necessarily agree with these conclusions, or determine that any
particular Guarantor received fair consideration or reasonably equivalent
value for issuing its Senior Subordinated Guarantee.
Financial Impact of the Distributions. While Quest Diagnostics has a
substantial operating history, it has not operated as an independent company
since 1982. As a Corning subsidiary, Quest Diagnostics' working capital
requirements have been financed by Corning and Quest Diagnostics' major
acquisitions have been financed through the issuance of Corning Common Stock
and borrowings from Corning. Subsequent to the Distributions, Quest
Diagnostics' activities will no longer be financed by Corning. In addition,
it is anticipated that the rating of Quest Diagnostics' long-term debt will
be non-investment grade. This may impact, among other things, Quest
Diagnostics' ability to raise capital, fund working capital requirements or
expand, through acquisitions or otherwise, and could thereby have an adverse
effect on Quest Diagnostics' operating earnings and cash flow.
Substantial Leverage and Debt Service Requirements. After the Distributions
and as a result of the incurrence of debt under the Credit Facility and the
issuance of Notes, Quest Diagnostics will have substantial debt. At September
30, 1996, after giving effect to the transactions and adjustments described
in "Pro Forma Financial Information," Quest Diagnostics would have had $517
million of total debt and total capitalization of $1,120 million, on a pro
forma basis, and Quest Diagnostics' total debt as a percentage of total
capitalization would have been approximately 46%. In addition to creating
significant debt service obligations for Quest Diagnostics, the terms of the
Credit Facility will contain customary affirmative and negative covenants
that will, among other things, require Quest Diagnostics to maintain certain
financial tests and ratios and will restrict Quest Diagnostics' ability to
make asset dispositions, incur additional indebtedness, make certain payments
and investments, transact with affiliates or enter into mergers or
consolidate. See "Description of the Credit Facility."
The degree to which Quest Diagnostics is leveraged could have important
consequences to holders of the Notes, including the following: (1) Quest
Diagnostics' ability to obtain additional financing in the future for working
capital, capital expenditures, product development, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial
portion of Quest Diagnostics' and its subsidiaries' cash flow from operations
must be dedicated to the payment of the principal of and interest on its
indebtedness; (iii) the Credit Facility will contain certain restrictive
financial and operating covenants, including, among others, requirements that
Quest Diagnostics satisfy certain financial ratios; (iv) a significant
portion of borrowings will be at floating rates of interest, causing Quest
Diagnostics to be vulnerable to increases in interest rates; (v) Quest
Diagnostics' degree of leverage may make it more vulnerable in a downturn in
general economic conditions; and (vi) Quest Diagnostics' financial position
may limit its flexibility in responding to changing business and economic
conditions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description
of the Credit Facility."
Recent Losses. Quest Diagnostics incurred net losses of $52 million for the
year ended December 31, 1995 and $158.9 million for the nine months ended
September 30, 1996. The 1995 net loss includes the provision of $33 million
for restructuring charges (primarily relating to workforce reduction programs
and the cost of exiting a number of leased facilities) and $17.6 million of
special charges related to settlements of governmental billing claims. The
net loss for the 1996 period reflects the
16
<PAGE>
provision of $188 million for additional reserves primarily relating to the
investigation of pre-acquisition billing practices of Damon and Nichols and
$13.7 million to write off capitalized software as a result of its decision
to abandon the billing system which had been intended as a new company-wide
billing system. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." There can be no assurance that Quest
Diagnostics' operations will be profitable in the future.
Intense Competition. The independent clinical laboratory industry in the
United States is intensely competitive. Quest Diagnostics believes that in
1995 approximately 56% of the revenues of the clinical laboratory testing
industry was generated by hospital-affiliated laboratories, approximately 36%
by independent clinical laboratories and 8% by thousands of individual
physicians in their offices and laboratories. Independent clinical
laboratories fall into two separate categories: (1) smaller, generally local,
laboratories that generally offer fewer tests and services and have less
capital than the larger laboratories, and (2) larger laboratories such as
Quest Diagnostics that provide a broader range of tests and services. Quest
Diagnostics has two major competitors that operate in the national
market--SmithKline Beecham Clinical Laboratories, Inc. ("SmithKline") and
Laboratory Corporation of America Holdings, Inc. ("LabCorp"). Both SmithKline
and LabCorp are affiliated with larger corporations that have greater
financial resources than Quest Diagnostics. There are also many independent
clinical laboratories that operate regionally and that compete with Quest
Diagnostics in these regions. In addition, hospitals are in general both
competitors and customers of independent clinical laboratories. The
independent clinical laboratory testing industry has experienced intense
price competition over the past several years, which has negatively impacted
Quest Diagnostics' profitability. The following factors, among others, are
often used by health care providers in selecting a laboratory: (i) pricing of
the laboratory's testing services; (ii) accuracy, timeliness and consistency
in reporting test results; (iii) number and type of tests performed; (iv)
service capability and convenience offered by the laboratory; and (v) its
reputation in the medical community. See "Business--The Clinical Laboratory
Testing Industry" and "Business--Competition."
Role of Managed Care. Managed care organizations play a significant role in
the health care industry and their role is expected to increase over the next
several years. Managed care organizations typically negotiate capitated
payment contracts, whereby a clinical laboratory receives a fixed monthly fee
per covered individual, regardless of the number or cost of tests performed
during the month (excluding certain tests, such as esoteric tests and
anatomic pathology services). Laboratory services agreements with managed
care organizations have historically been priced aggressively due to
competitive pressure and the expectation that a laboratory would capture not
only the volume of testing to be covered under the contract, but also the
additional fee-for-service business from patients of participating physicians
who are not covered under the managed care plan. However, as the number of
patients covered under managed care plans continues to increase, there is
less such fee-for-service business and, accordingly, less high margin
business to offset the low margin (and often unprofitable) managed care
business. Furthermore, increasingly, physicians are affiliated with more than
one managed care organization and as a result may be required to refer
clinical laboratory tests to different clinical laboratories, depending on
the coverage of their patients. As a result, a clinical laboratory might not
receive any fee-for-service testing from such physicians. See
"Business--Customers and Payors" and "Business--Effect of the Growth of the
Managed Care Sector on the Clinical Laboratory Business." During the nine
months ended September 30, 1996, services to managed care organizations under
capitated rate agreements accounted for approximately 6% of Quest
Diagnostics' net revenues from clinical laboratory testing and approximately
15% of the tests performed by Quest Diagnostics. Quest Diagnostics is
currently reviewing its pricing structures for agreements with managed care
organizations and intends to insure that all of its future agreements with
managed care organizations are profitably priced. However, there can be no
assurance that Quest Diagnostics will be able to increase the prices charged
to managed care organizations or that Quest Diagnostics will not lose market
share in the managed care market to other clinical laboratories who continue
to aggressively price laboratory services agreements with managed care
organizations. Quest Diagnostics may experience declines in per-test revenue
as managed care organizations continue to increase their share of the health
care insurance market.
Reliance on Medicare/Medicaid Reimbursements. Approximately 23% and 22% of
Quest Diagnostics' net revenues for the year ended December 31, 1995 and the
nine months ended September 30, 1996, respectively, were attributable to
tests performed for Medicare and Medicaid beneficiaries. Quest Diagnostics'
business and financial results depend substantially on reimbursements paid to
Quest Diagnostics under these programs. Quest Diagnostics is legally required
to accept the government's reimbursement for most Medicare and Medicaid
testing as payment in full. Such reimbursements are generally made pursuant
to fee schedules, which are subject to certain limitations the levels of
which have declined steadily since late 1984. Congress enacted a phased-in
set of reductions in the reimbursement limitations as part of its 1993 budget
legislation that reduced the Medicare national limitations in 1994 to 84% of
the 1984 national median, in 1995 to 80% of the 1984 national median and in
1996 to 76% of the 1984 national median. In 1995, both houses of Congress
passed a bill (the Medicare Preservation Act) that would have reduced the fee
cap schedule from 75% to 65% of the 1984 national median, but the bill was
vetoed by the President. Effective January 1, 1996, the Health Care Financing
Administration ("HCFA") adopted a new policy on reimbursement for chemistry
panel tests. As of January 1, 1996, 22 automated tests (rather than 19 tests)
became reimbursable by Medicare as part of an automated chemistry profile. An
additional allowance of $0.50 per test is authorized when more than 19 tests
are billed in a panel. HCFA retains the authority to expand in the future the
list of tests included in a panel.
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Effective as of March 1, 1996, HCFA eliminated its prior policy of permitting
payment for all tests contained in an automated chemistry panel when at least
one of the tests in the panel is medically necessary. Under the new policy,
Medicare payment will not exceed the amount that would be payable if only the
tests that are "medically necessary" had been ordered. In addition, since
1995 most Medicare carriers have begun to require clinical laboratories to
submit documentation supporting the medical necessity, as judged by ordering
physicians, for many commonly ordered tests. Quest Diagnostics expects to
incur additional reimbursement reductions and additional costs associated
with the implementation of these requirements of HCFA and Medicare carriers.
The amount of the reductions in reimbursements and additional costs cannot be
determined at this time. These and other proposed changes affecting the
reimbursement policy of Medicare and Medicaid programs could have a material
adverse effect on the business, financial condition, results of operations or
prospects of Quest Diagnostics. See "Business--Regulation and
Reimbursement--Regulation of Reimbursement for Clinical Laboratory Services."
A failure of Quest Diagnostics to properly and promptly process its bills to
Medicare may result in an increase in Quest Diagnostics' bad debt expense.
See "Business--Billing" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
Billing. Quest Diagnostics' billings have been hampered by both the
industry-wide phenomenon of frequently missing or incorrect billing
information and increasingly stringent payor requirements, as well as the
existence of multiple billing information systems which have resulted in
large part from Quest Diagnostics' growth through acquisitions. Quest
Diagnostics' standard billing system has been implemented in seven of its 22
billing sites, which seven sites account for 35% of the Company's net
revenues. Quest Diagnostics is beginning to convert the remaining
non-standard billing systems to the standard SYS system. See
"Business--Information Systems" and "--Billing." Standardizing its billing
systems presents conversion risk to Quest Diagnostics as key databases and
masterfiles are transferred to the SYS system and because the billing
workflow is interrupted during the conversion, which may cause backlogs.
Government Investigations and Related Claims. As discussed under
"Business--Government Investigations and Related Claims," Quest Diagnostics
has settled various government and private claims (i.e., nongovernmental
claims such as those by private insurers) totalling approximately $195
million relating primarily to industry-wide billing and marketing practices
that had been substantially discontinued by late 1992. Specifically, Quest
Diagnostics has entered into, (i) for an aggregate of approximately $180
million, five settlements with the Office of the Inspector General ("OIG") of
the Department of Health and Human Services ("HHS") and the DOJ and two
settlements with state governments with respect to Medicare and Medicaid
marketing and billing practices of Quest Diagnostics and certain companies
acquired by Quest Diagnostics prior to their acquisition and (ii) thirteen
settlements relating to private claims totalling approximately $15 million.
In addition, there are pending investigations by the OIG and DOJ into billing
and marketing practices at three regional laboratories operated by Nichols
prior to its acquisition by Quest Diagnostics. There are no private claims
presently pending. By issuance of civil subpoenas in August 1993, the
government began a formal investigation of Nichols. The investigation of
Nichols remains open. Remedies available to the government include exclusion
from participation in the Medicare and Medicaid programs, criminal fines,
civil recoveries plus civil penalties and asset forfeitures. Although
application of such remedies and penalties could materially and adversely
affect Quest Diagnostics' business, financial condition, results of
operations and prospects, management believes that the possibility of this
happening is remote. Quest Diagnostics derived approximately 23% and 22% of
its net revenues for the year ended December 31, 1995 and the nine months
ended September 30, 1996, respectively, from Medicare and Medicaid programs.
In connection with the Distributions, Corning will agree to indemnify Quest
Diagnostics against all monetary penalties, fines or settlements for any
governmental claims arising out of alleged violations of applicable federal
fraud and health care statutes and relating to billing practices of Quest
Diagnostics and its predecessors that have been settled or are pending on the
Distribution Date. Corning will also agree to indemnify Quest Diagnostics for
50% of the aggregate of all judgment or settlement payments made by Quest
Diagnostics that are in excess of $42.0 million in respect of claims by
private parties (i.e., nongovernmental parties such as private insurers) that
relate to indemnified or previously settled governmental claims and that
allege overbillings by Quest Diagnostics or any existing subsidiaries of
Quest Diagnostics, for services provided prior to the Distribution Date;
provided, however, such indemnification will not exceed $25.0 million in the
aggregate and all amounts indemnified against by Corning for the benefit of
Quest Diagnostics will be calculated on a net after-tax basis. However, such
indemnification will not cover (i) any governmental claims that arise after
the Distribution Date, (ii) any nongovernmental claims unrelated to the
indemnified governmental claims or investigations, (iii) any nongovernmental
claims not settled prior to five years after the Distribution Date, (iv) any
consequential or incidental damages relating to the billing claims, including
losses of revenues and profits as a consequence of exclusion for
participation in federal or state health care programs or (v) the fees and
expenses of litigation. Quest Diagnostics will control the defense of any
governmental claim or investigation unless Corning elects to assume such
defense. However, in the case of all nongovernmental claims related to
indemnified governmental claims related to alleged overbillings, Quest
Diagnostics will control the defense. All disputes under the Transaction
Agreement are subject to binding arbitration. See "The
Distributions--Transaction Agreement."
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Quest Diagnostics' aggregate reserve with respect to all governmental and
private claims, including litigation costs of approximately $6.6 million, was
$215 million at September 30, 1996 and is estimated to be reduced to $85
million as of the Distribution Date as a result of the payment of settled
claims, primarily the Damon settlement of $119 million. Based on information
available to management and Quest Diagnostics' experience with past
settlements (including the fact that the aggregate amount of the Damon
settlement was significantly in excess of established reserves) management
has reassessed its reserve levels and believes that its current level of
reserves is adequate. However, it is possible that additional information
(such as the indication by the government of criminal activity, additional
tests being questioned or other changes in the government theories of
wrongdoing) may become available which may cause the final resolution of
these matters to be in excess of established reserves by an amount which
could be material to Quest Diagnostics' results of operation and, for
non-indemnified claims, Quest Diagnostics' cash flows in the period in which
such claims are settled. While none of the governmental or nongovernmental
investigations or claims is covered by insurance Quest Diagnostics does not
believe that these matters will have a material adverse effect on the
Company's overall financial condition.
Government Regulation. The clinical laboratory industry is subject to
extensive governmental regulations at the federal, state and local levels.
See "Business--Regulation and Reimbursement."
At the federal level, Quest Diagnostics' laboratories are required to be
certified under the Clinical Laboratory Improvement Amendments of 1988
("CLIA") and approved to participate in the Medicare/Medicaid programs.
Currently, all clinical laboratories, including most physician-office
laboratories ("POLs"), are required to comply with CLIA. However, the
Medicare Preservation Act, passed in 1995 by both Houses of Congress, would
have largely exempted POLs from having to comply with CLIA (except with
respect to pap smear tests). Although this provision was not maintained by
the House-Senate conference and was not included in the subsequent
legislation, it could be reintroduced at any time. The exemption of POLs from
CLIA would significantly reduce their costs, making them more financially
viable and a greater competitive challenge to Quest Diagnostics and would
more likely encourage physicians to establish laboratories in their offices.
A wide array of Medicare/Medicaid fraud and abuse provisions apply to
clinical laboratories participating in such programs. Penalties for
violations of these federal laws include exclusion from participation in the
Medicare/Medicaid programs, asset forfeitures, civil and criminal penalties.
Civil penalties for a wide range of offenses may be up to $2,000 per item and
twice the amount claimed. These penalties will be increased effective January
1, 1997 to up to $10,000 per item plus three times the amount claimed. In the
case of certain offenses, exclusion from participation in Medicare and
Medicaid is a mandatory administrative penalty. The OIG interprets these
fraud and abuse administrative provisions liberally and enforces them
aggressively. Provisions in a bill enacted in August 1996 are likely to
expand the federal government's involvement in curtailing fraud and abuse due
to the establishment of (i) an anti-fraud and abuse trust fund funded through
the collection of penalties and fines for violations of such laws and (ii) a
health care anti-fraud and abuse task force. See "Business--Regulation and
Reimbursement."
Potential Liability under the Spin-Off Tax Indemnification Agreements. Quest
Diagnostics will enter into the Corning/Quest Diagnostics Spin-Off Tax
Indemnification Agreement (as defined under "The Distributions--Spin-Off Tax
Indemnification Agreements") that will prohibit Quest Diagnostics for a
period of two years after the Distribution Date from taking certain actions,
including a sale of 50% or more of the assets of Quest Diagnostics or
engaging in certain equity or financing transactions, that might jeopardize
the favorable tax treatment of the Distributions under section 355 of the
Internal Revenue Code, as amended (the "Code"), and will provide Corning with
certain rights of indemnification against Quest Diagnostics. Quest
Diagnostics may also have indemnification obligations under the Corning/Quest
Diagnostics Spin-Off Tax Indemnification Agreement in the case of the
acquisition of, or tender or purchase offer by another person for, 20% or
more of the outstanding Quest Diagnostics Common Stock. The Corning/Quest
Diagnostics Spin-Off Tax Indemnification Agreement will also require Quest
Diagnostics to take such actions as Corning may reasonably request to
preserve the favorable tax treatment provided for in any rulings obtained
from the Internal Revenue Service ("IRS") in respect of the Distributions.
Quest Diagnostics and Covance will enter into the Covance/Quest Diagnostics
Spin-Off Tax Indemnification Agreement (as defined under "the
Distributions--Spin-Off Tax Indemnification Agreements") that will be
essentially the same as the Corning/Quest Diagnostics Spin-Off Tax
Indemnification except that Quest Diagnostics will make representations to
and indemnify Covance as opposed to Corning. If obligations of Quest
Diagnostics under either agreement were breached and primarily as a result
thereof the Distributions do not receive favorable tax treatment under Code
section 355, Quest Diagnostics would be required to indemnify Corning or
Covance, as the case may be, for Taxes imposed and such indemnification
obligations could exceed the net asset value of Quest Diagnostics at such
time. See "The Distributions--Spin-Off Tax Indemnification Agreements."
Professional Liability Litigation. As a general matter, providers of
clinical laboratory testing services may be subject to lawsuits alleging
negligence or other similar legal claims, which suits could involve claims
for substantial damages. Damages assessed in connection with, and the costs
of defending any such actions could be substantial. Litigation could also
have an adverse impact on Quest Diagnostics' client base. Quest Diagnostics
maintains liability insurance (subject to maximum limits and self-insured
retentions) for professional liability claims. This insurance does not cover
liability for any of the investigations described under "--Government
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Investigations and Related Claims" and "Business--Government Investigations
and Related Claims." While there can be no assurance, Quest Diagnostics
management believes that the levels of coverage are adequate to cover
currently estimated exposures. Although Quest Diagnostics believes that it
will be able to obtain adequate insurance coverage in the future at
acceptable costs, there can be no assurance that Quest Diagnostics will be
able to obtain such coverage or will be able to do so at an acceptable cost
or that Quest Diagnostics will not incur significant liabilities in excess of
policy limits.
Absence of a Prior Public Market. The Notes are a new issue of securities
with no established trading market. Quest Diagnostics does not intend to list
the Notes on any national securities exchange. While the Underwriters have
informed Quest Diagnostics that they intend to make a market in the Notes,
they are not obligated to do so and may discontinue such market making at any
time without notice. Accordingly, there can be no assurance as to the
liquidity of any markets that may develop for the Notes.
Dependence on Key Employees. Quest Diagnostics' affairs are managed by a
small number of key management personnel, the loss of any of whom could have
an adverse impact on Quest Diagnostics. There can be no assurance that Quest
Diagnostics can retain its key managerial and technical employees or that it
can attract, assimilate or retain other skilled technical personnel in the
future. See "Business--Recent Organizational Changes" and "Management."
Certain Antitakeover Effects. Quest Diagnostics' amended and restated
certificate of incorporation (the "Certificate") and by-laws (the "By-Laws"),
and the Delaware General Corporation Law ("DGCL"), contain several provisions
that could have the effect of delaying, deferring or preventing a change in
control of Quest Diagnostics in a transaction not approved by the board of
directors of Quest Diagnostics (the "Board"), or, in certain circumstances,
by the disinterested members of the Board. In addition, an acquisition of
certain securities or assets of Quest Diagnostics within two years after the
Distribution Date might jeopardize the tax treatment of the Distributions and
could result in Quest Diagnostics being required to indemnify Corning and
Covance. See "--Potential Liability under the Spin-Off Tax Indemnification
Agreements."
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The Distributions
Overview of and Reasons for the Distributions
The Notes are being offered prior to but in connection with the distributions
to holders of common stock with attached preferred share purchase rights (the
"Corning Common Stock") of Corning of all of the outstanding common stock
with attached preferred stock purchase rights, of (i) Quest Diagnostics,
which will be, at the time of such distributions, a direct wholly owned
subsidiary of Corning, and (ii) Covance, which currently is and, at the time
of such distributions, will be a direct wholly owned subsidiary of Quest
Diagnostics. The distribution (the "Quest Diagnostics Spin-Off Distribution")
of all the outstanding common stock with attached preferred stock purchase
rights of Quest Diagnostics (the "Quest Diagnostics Common Stock") to the
holders of Corning Common Stock will be immediately followed by the
distribution (the "Covance Spin-Off Distribution" and, together with the
Quest Diagnostics Spin-Off Distribution, the "Distributions") of all of the
outstanding common stock with attached preferred stock purchase rights of
Covance (the "Covance Common Stock") to the holders of Quest Diagnostics
Common Stock. Since the Covance Spin-Off Distribution will be immediately
after (but on the same day as) the Quest Diagnostics Spin-Off Distribution,
each holder of Corning Common Stock will, immediately after the
Distributions, not only hold shares of Corning Common Stock but also shares
of Quest Diagnostics Common Stock and Covance Common Stock. The Distributions
will occur at 11:59 p.m. on December 31, 1996 (the "Distribution Date").
Application will be made to list the shares of Quest Diagnostics Common Stock
and Covance Common Stock on the New York Stock Exchange ("NYSE") under the
symbols "DGX" and "CVD," respectively, subject to official notice of the
Distributions.
The Distributions are subject to the satisfaction of several conditions
including the receipt of a favorable IRS ruling (as defined below). Prior to
the closing of the Offering, Quest Diagnostics transferred to Corning
approximately $350 million of initial borrowings under the Credit Facility in
partial repayment of certain intercompany indebtedness owed by Quest
Diagnostics to Corning (the "Intercompany Debt"). On the closing date of the
Offering, Quest Diagnostics will transfer the approximately $___ million net
proceeds from the Offering to Corning in repayment of additional Intercompany
Debt. Corning will cancel the Intercompany Debt as a contribution to the
capital of Quest Diagnostics. See "Use of Proceeds."
Closing Document Escrow Arrangements
It is currently anticipated that the Offering will close prior to the
Distributions. At the time of the closing of the Offering, all of the
conditions to the consummation of the Distributions under the Transaction
Agreement (as described below under "--Transaction Agreement") will have been
satisfied or waived, and all of the operative agreements necessary to effect
the Distributions will have been executed and placed in escrow with
, as Escrow Agent (the "Escrow Agent"), pursuant to the terms of
an Escrow Agreement, dated the closing date of the Offering (the "Escrow
Agreement"), among Quest Diagnostics, Corning, Covance and the Escrow Agent.
The Escrow Agreement will require the Escrow Agent to release the documents
placed in escrow on the Distribution Date.
If as a result of an event outside the control of Corning, Quest Diagnostics
or Covance, the Distributions do not occur prior to March 31, 1997, the Notes
will be subject to redemption, as a whole and not in part, at the option of
Quest Diagnostics, prior to June 30, 1997, at a redemption price equal to
101% of the principal amount of the Notes plus accrued and unpaid interest at
the date fixed for redemption.
Transaction Agreement
Corning, Quest Diagnostics and Covance will enter into the Transaction
Agreement (the "Transaction Agreement") providing for, among other things,
certain conditions precedent to the Distributions, certain corporate
transactions required to effect the Distributions and other arrangements
between Corning, Quest Diagnostics and Covance subsequent to the
Distributions.
The Transaction Agreement will provide for, among other things, assumptions
of liabilities and cross-indemnities designed to allocate generally,
effective as of the Distribution Date, financial responsibility for the
liabilities arising out of or in connection with (i) the clinical laboratory
business to Quest Diagnostics and its subsidiaries, (ii) the contract
research business to Covance and its subsidiaries and (iii) all other
business conducted by Corning prior to the Distribution Date to Corning and
its subsidiaries other than Quest Diagnostics and Covance.
The Transaction Agreement will provide that Corning, Quest Diagnostics and
Covance will use their respective commercially reasonable efforts to achieve
an allocation of consolidated indebtedness of Corning and an agreed upon
capital structure after the Distributions of Corning, Quest Diagnostics and
Covance. In addition to the specific indemnity described below, Corning,
Quest Diagnostics and Covance are obligated under the Transaction Agreement
to indemnify and hold harmless each other in respect of Indemnifiable Losses
(as defined therein) arising out of or otherwise relating to the management
or conduct of their respective businesses or the breach of any provision of
the Transaction Agreement; provided, however, that Quest Diagnostics
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will have no obligation to indemnify or hold harmless Corning in respect of
Indemnifiable Losses arising out of any governmental claims or investigations
described in the next paragraph.
As discussed under "Business--Government Investigations and Related Claims,"
Quest Diagnostics is subject to several governmental investigations. Any
amounts paid by Quest Diagnostics to settle these investigations, or as a
result of a judgment relating to these investigations, will be indemnified by
Corning under the Transaction Agreement. Under the Transaction Agreement
Corning will agree to indemnify Quest Diagnostics against all monetary
penalties, fines or settlements arising out of any governmental criminal,
civil or administrative investigations or claims that have been settled prior
to or are pending as of the Distribution Date, pursuant to service of
subpoena or other notice of such investigation to Quest Diagnostics, as well
as any qui tam proceeding for which a complaint was filed prior to the
Distribution Date whether or not Quest Diagnostics has been served with such
complaint or otherwise been notified of the pendency of such action, to the
extent that such investigations or claims arise out of or are related to
alleged violations of federal fraud and health care statutes identified in
the Transaction Agreement by reason of Quest Diagnostics or any company
acquired by Quest Diagnostics billing any federal program or agency for
services rendered to beneficiaries of such program or agency. Corning will
also indemnify Quest Diagnostics for 50% of the aggregate of all judgment or
settlement payments made by Quest Diagnostics that are in excess of $42.0
million in respect of claims by private parties (i.e., nongovernmental
parties such as private insurers) that relate to indemnified or previously
settled governmental claims and that allege overbillings by Quest Diagnostics
or any existing subsidiaries of Quest Diagnostics for services provided prior
to the Distribution Date; provided, however, such indemnification for private
claims will terminate five years after the Distribution Date (whether or not
settled) and will not exceed $25.0 million in the aggregate (reduced by
certain tax benefits as described below). Quest Diagnostics' aggregate
reserve with respect to all governmental and private claims, including
litigation costs, was $215 million at September 30, 1996 and is estimated to
be reduced to $85 million at the Distribution Date and as a result of the
payment of settled claims, primarily the Damon settlement of $119 million.
Corning will not indemnify Quest Diagnostics against any governmental claims
that arise after the Distribution Date, even though relating to events prior
to the Distribution Date, or to any private claims that do not relate to the
indemnified or previously settled governmental claims or investigations that
relate to post-Distribution Date billings. Corning will not indemnify Quest
Diagnostics against consequential or incidental damages relating to the
billing claims, including losses of revenues and profits as a consequence of
any exclusion from participation in federal or state health care programs or
the fees and expenses of the litigation, including attorneys' fees and
expenses. All amounts indemnified against by Corning for the benefit of Quest
Diagnostics will be calculated on a net after-tax basis by taking into
account any deductions and other tax benefits realized by Quest Diagnostics
(or a consolidated group of which Quest Diagnostics is a member after the
Distributions (the "Quest Diagnostics Group")) in respect of the underlying
settlement, judgment payment, or other loss (or portion thereof) indemnified
against by Corning generally at the time and to the extent such deductions or
tax benefits are deemed to reduce the tax liability of Quest Diagnostics or
the Quest Diagnostics Group under the Transaction Agreement.
The Transaction Agreement provides that, in the case of any claims for which
Corning, Quest Diagnostics or Covance are entitled to indemnification, the
indemnified party will control the defense of any claim unless the
indemnifying party elects to assume such defense. However, in the case of all
private claims related to indemnified governmental claims related to alleged
overbillings, Quest Diagnostics will control the defense. Disputes under the
Transaction Agreement are subject to binding arbitration.
The Transaction Agreement will also provide that, except as otherwise set
forth therein or in any other agreement, all costs or expenses incurred on or
prior to the Distribution Date in connection with the Distributions will be
allocated among the parties. Except as set forth in the Transaction Agreement
or any related agreement, each party shall bear its own costs and expenses
incurred after the Distribution Date.
Spin-Off Tax Indemnification Agreements
Corning and Quest Diagnostics will enter into a tax indemnification agreement
(the "Corning/Quest Diagnostics Spin-Off Tax Indemnification Agreement")
pursuant to which (1) Quest Diagnostics will represent to Corning that, to
the best of its knowledge, the materials relating to Quest Diagnostics
submitted to the IRS in connection with the request for ruling submitted to
the IRS are complete and accurate in all material respects, (2) Quest
Diagnostics will represent that it has no present intention to undertake the
transactions described in part (3)(iii) hereafter or cease to engage in the
active conduct of providing clinical laboratory testing services, (3) Quest
Diagnostics will covenant and agree that for a period of two years following
the Distribution Date (the "Restricted Period"), (i) Quest Diagnostics will
continue to engage in the clinical laboratory testing business, (ii) Quest
Diagnostics will continue to manage and own at least 50% of the assets which
it owns directly and indirectly immediately after the Distribution Date and
(iii) neither Quest Diagnostics, nor any related corporation nor any of their
respective directors, officers or other representatives will undertake,
authorize, approve, recommend, permit, facilitate, or enter into any
contract, or consummate any transaction with respect to: (A) the issuance of
Quest Diagnostics Common Stock (including options and other
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instruments convertible into Quest Diagnostics Common Stock) which would
exceed fifty percent (50%) of the outstanding shares of Quest Diagnostics
Common Stock immediately after the Distribution Date; (B) the issuance of any
other instrument that would constitute equity for federal tax purposes
("Disqualified Quest Diagnostics Stock"); (C) the issuance of options and
other instruments convertible into Disqualified Quest Diagnostics Stock; (D)
any repurchases of Quest Diagnostics Common Stock, unless such repurchases
satisfy certain requirements; (E) the dissolution, merger, or complete or
partial liquidation of Quest Diagnostics or any announcement of such action;
or (F) the waiver, amendment, termination or modification of any provision of
the Quest Diagnostics Rights Plan (as defined therein) in connection with, or
in order to permit or facilitate, any acquisition of Quest Diagnostics Common
Stock or other equity interest in Quest Diagnostics, and (4) Quest
Diagnostics will agree to indemnify Corning for Taxes (as defined below)
arising from violations of (1), (2) or (3) above and for Taxes arising as a
result of (A) an acquisition of 20% or more of the stock of Quest Diagnostics
by a person or related persons during the Restricted Period or (B) the
commencement of a tender or purchase offer by a third party for 20% or more
of Quest Diagnostics stock. If obligations of Quest Diagnostics under this
agreement were breached and as a result thereof one or both of the
Distributions do not qualify for the treatment stated in the ruling Corning
requested from the IRS (the "IRS Ruling"), Quest Diagnostics would be
required to indemnify Corning for Taxes imposed and such indemnification
obligations could exceed the net asset value of Quest Diagnostics at such
time.
Corning and Covance will enter into a tax indemnification agreement (the
"Corning/Covance Spin-Off Tax Indemnification Agreement") pursuant to which
(1) Covance will represent to Corning that to the best of its knowledge, the
materials relating to Covance submitted to the IRS in connection with the
request for ruling submitted to the IRS are complete and accurate in all
material respects, (2) Covance will represent that it has no present
intention to undertake the transactions described in part (3)(iii) hereafter
or to cease to engage in the active conduct of providing contract research
services, (3) Covance will covenant and agree that during the Restricted
Period, (i) Covance will continue to engage in the contract research
business, (ii) Covance will continue to manage and own at least 50% of the
assets which it owns directly and indirectly immediately after the
Distribution Date and (iii) neither Covance, nor any related corporations nor
any of their respective directors, officers or other representatives will
undertake, authorize, approve, recommend, permit, facilitate, or enter into
any contract, or consummate any transaction with respect to: (A) the issuance
of Covance Common Stock (including options and other instruments convertible
into Covance Common Stock) which would exceed fifty percent (50%) of the
outstanding shares of Covance Common Stock immediately after the Distribution
Date; (B) the issuance of any other instrument that would constitute equity
for federal tax purposes ("Disqualified Covance Stock"); (C) the issuance of
options and other instruments convertible into Disqualified Covance Stock;
(D) any repurchases of Covance Common Stock, unless such repurchases satisfy
certain requirements; (E) the dissolution, merger, or complete or partial
liquidation of Covance or any announcement of such action; or (F) the waiver,
amendment, termination or modification of any provision of the Covance Rights
Plan (as defined therein) in connection with, or in order to permit or
facilitate, any acquisition of Covance Common Stock or other equity interest
in Covance and (4) Covance will agree to indemnify Corning for Taxes arising
from violations of (1), (2) or (3) above and for Taxes arising as a result of
(A) an acquisition of 20% or more of the stock of Covance by a person or
related persons during the Restricted Period or (B) the commencement of a
tender or purchase offer by a third party for 20% or more of Quest
Diagnostics stock. If obligations of Covance under this agreement were
breached and as a result thereof one or both of the Distributions do not
qualify for the treatment stated in the IRS Ruling, Covance would be required
to indemnify Corning for Taxes imposed and such indemnification obligations
could exceed the net asset value of Covance at such time.
Quest Diagnostics and Covance will enter into a second tax indemnification
agreement (the "Covance/Quest Diagnostics Spin-Off Tax Indemnification
Agreement") which will be essentially the same as the Corning/Quest
Diagnostics Spin-Off Tax Indemnification Agreement except that Quest
Diagnostics will make representations to and indemnify Covance as opposed to
Corning. If obligations of Quest Diagnostics under this agreement were
breached and as a result thereof one or both of the Distributions do not
qualify for the treatment stated in the IRS Ruling, Quest Diagnostics would
be required to indemnify Covance for Taxes imposed and such indemnification
obligations could exceed the net asset value of Quest Diagnostics at such
time. Quest Diagnostics and Covance will enter into a tax indemnification
agreement (the "Quest Diagnostics/Covance Spin-Off Tax Indemnification
Agreement") which will be essentially the same as the Corning/Covance
Spin-Off Tax Indemnification Agreement except that Covance will make
representations to and indemnify Quest Diagnostics as opposed to Corning. If
obligations of Covance under this agreement were breached and as a result
thereof one or both of the Distributions do not qualify for the treatment
stated in the IRS Ruling, Covance would be required to indemnify Quest
Diagnostics for Taxes imposed and such indemnification obligations could
exceed the net asset value of Covance at such time.
The Spin-Off Tax Indemnification Agreements will also require (i) Quest
Diagnostics to take such actions as Corning may reasonably request and (ii)
Covance to take such actions as Corning and Quest Diagnostics may reasonably
request to preserve the favorable tax treatment provided for in any rulings
obtained from the IRS in respect of the Distributions.
23
<PAGE>
Tax Sharing Agreement
Corning, Quest Diagnostics and Covance will enter into a tax sharing
agreement (the "Tax Sharing Agreement") which will allocate responsibility
for federal income and various other taxes ("Taxes") among the three
companies. The Tax Sharing Agreement provides that, except for Taxes arising
as a result of the failure of either or both of the Distributions to qualify
for the treatment stated in the IRS Ruling (which Taxes are allocated either
pursuant to the Spin-Off Tax Indemnification Agreements or as described
below), Corning is liable for and will pay the federal income taxes of the
consolidated group that includes Quest Diagnostics and Covance and their
subsidiaries, provided, however, that Quest Diagnostics and Covance are
required to reimburse Corning for taxes for periods beginning after December
31, 1995 in which they are members of the Corning consolidated group and for
which tax returns have not been filed as of the Distribution Date. This
reimbursement obligation is based on the hypothetical separate federal tax
liability of Quest Diagnostics and Covance, including their respective
subsidiaries, calculated on a separate consolidated basis, subject to certain
adjustments. Under the Tax Sharing Agreement, in the case of adjustments by a
taxing authority of a consolidated federal income tax or certain other tax
returns prepared by Corning which includes Quest Diagnostics or Covance,
then, subject to certain exceptions, Corning is liable for and will pay any
tax assessments, and is entitled to any tax refunds, resulting from such
audit.
The Tax Sharing Agreement further provides that, if either of the
Distributions fails to qualify for the tax treatment stated in the IRS Ruling
(for reasons other than those indemnified against under one or more of the
Spin-Off Tax Indemnification Agreements), Taxes imposed upon or incurred by
Corning, Quest Diagnostics or Covance as a result of such failure are to be
allocated among Corning, Quest Diagnostics and Covance in such a manner as
will take into account the extent to which the actions or inactions of each
may have contributed to such failure, and Corning, Quest Diagnostics and
Covance each will indemnify and hold harmless the other from and against the
taxes so allocated. If it is determined that none of the companies
contributed to the failure of such distribution to qualify for the tax
treatment stated in the IRS Ruling, the liability for taxes will be borne by
each in proportion to its relative average market capitalization as
determined by the average closing price for the common stock of each during
the 20 trading-day period immediately following the Distribution Date. In the
event that either of the Distributions fails to qualify for the tax treatment
stated in the IRS Ruling and the liability for taxes as a result of such
failure is allocated among Corning, Quest Diagnostics and Covance, the
liability so allocated to Quest Diagnostics or Covance could exceed the net
asset value of Quest Diagnostics or Covance, respectively.
24
<PAGE>
Use of Proceeds
The net proceeds to Quest Diagnostics from the Offering are estimated to be
approximately $ . The net proceeds from the Offering, together with
approximately $350 million of borrowings under the Term Loans of the Credit
Facility, will be used to repay approximately $ million of Intercompany
Debt owed to Corning. Corning will contribute to the equity capital of Quest
Diagnostics any Intercompany Debt owed in excess of the approximately $
million of Intercompany Debt being repaid. After completion of the foregoing
transactions, Quest Diagnostics will not owe any Intercompany Debt to
Corning. The Intercompany Debt currently bears interest at a weighted average
interest rate of approximately 7% per annum and matures at various dates
through 2013.
25
<PAGE>
Capitalization
The following table sets forth Quest Diagnostics' capitalization as of
September 30, 1996 giving effect to (i) the consummation of the Offering and
the estimated initial borrowings under the Credit Facility, (ii) the
Distributions and (iii) the Accounting Policy Change (as defined below), as
if such transactions occurred on such date. This table should be read in
conjunction with the Financial Statements and notes thereto and the Pro Forma
Financial Information (as defined below) and notes thereto included elsewhere
herein. Historical combined and pro forma combined financial information may
not be indicative of Quest Diagnostics' future capitalization as an
independent company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------- --------------- --------------
(in thousands)
<S> <C> <C> <C>
Cash $ 48,319 $ (8,319)(a) $ 40,000
============= =============== ==============
Short-term Debt:
Current portion of long-term debt $ 11,885 $ (10,000)(b) $ 1,885(h)
Revolving credit facility (c)
------------- --------------- --------------
Total Short-term Debt $ 11,885 $ (10,000) $ 1,885
============= =============== ==============
Long-term Debt:
Term loans $ 15,494 $ 350,000 (b) $ 365,494(h)
Notes 150,000 (b) 150,000
Payable to Corning 1,204,406 (8,319)(a)
(447,669)(b)
(748,418)(d)
------------- --------------- --------------
Total Long-term Debt 1,219,900 (704,406) 515,494
------------- --------------- --------------
Stockholder's Equity:
Contributed capital 297,823 748,418 (d)
11,250 (e)
150,000 (f) 1,207,491
Accumulated deficit (163,158) (13,239)(e)
(425,000)(g) (601,397)
Cumulative translation adjustment 1,801 1,801
Market valuation adjustment (3,796) (3,796)
------------- --------------- --------------
Total Stockholder's Equity 132,670 471,429 604,099
------------- --------------- --------------
Total Capitalization $1,352,570 $ (232,977) $1,119,593
============= =============== ==============
</TABLE>
(a) Historically, Quest Diagnostics has participated in Corning's centralized
treasury and cash management processes. Cash received from operations was
generally transferred to Corning on a daily basis. Cash disbursements for
operations and investments were funded as needed from Corning. The cash
balance at the Distribution Date will range from $30 million to $40
million. The pro forma adjustment to cash and payable to Corning
represents the reduction to bring cash to the Distribution Date range.
(b) The pro forma adjustment to current portion of long-term debt, term
loans, Notes, and payable to Corning reflects borrowings by Quest
Diagnostics, immediately prior to the Quest Diagnostics Spin-Off
Distribution, to repay Corning for certain income tax liabilities and
intercompany borrowings. The assumed interest rates on these borrowings
are 7.50% and 11.50% for the Credit Facility and the Notes, respectively.
(c) The Credit Facility will include a revolving credit facility of $100
million which can be used to fund working capital and investment
activities. Quest Diagnostics management believes that the entire
revolving credit facility will be available at the Distribution Date.
(d) The pro forma adjustment to payable to Corning and contributed capital of
$748.4 million reflects Corning's capital contribution to Quest
Diagnostics of the estimated remaining intercompany borrowings.
(e) The pro forma adjustment to contributed capital and accumulated deficit
represents costs directly related to the Quest Diagnostics Spin-Off
Distribution that Quest Diagnostics expects to record coincident with the
Quest Diagnostics Spin-Off Distribution. These costs, which are estimated
at $20.2 million ($13.2 million after tax), include approximately $9.0
million related to professional advisory and financing commitment fees
and $11.2 million related to the establishment of an employee stock
ownership plan. This amount is subject to change based on the market
price of the Quest Diagnostics Common Stock on the Distribution Date.
(f) The pro forma adjustment to contributed capital represents the estimated
capital contribution related to Corning's indemnification under the
Transaction Agreement. See "The Distributions--Transaction Agreement." As
a result of funding settled claims, primarily the Damon settlement of
$119 million, the receivable from Corning is estimated to approximate $25
million at the Distribution Date.
(g) Coincident with the Quest Diagnostics Spin-Off Distribution, Quest
Diagnostics will adopt a new accounting policy for evaluating and
measuring the recoverability of intangible assets based on a fair value
approach (the "Accounting Policy Change"). The pro forma adjustment to
accumulated deficit represents the estimated impact of the Accounting
Policy Change. Quest Diagnostics management estimates the charge to
reduce the carrying value of intangible assets to fair value will be in
the range of $400 million to $450 million. The midpoint of the range has
been utilized for the preparation of the Unaudited Pro Forma Combined
Balance Sheet.
(h) The current portion of long-term debt and the term loans, exclusive of
the pro forma adjustment, consists primarily of a mortgage note payable
and capital lease obligations.
26
<PAGE>
Selected Historical Financial Data
The following table presents selected historical financial data of Quest
Diagnostics at the dates and for each of the periods indicated. The selected
financial data as of and for each of the years ended December 31, 1995, 1994
and 1993 have been derived from the Audited Financial Statements and the
notes thereto included elsewhere herein. The selected financial data as of
and for the three and nine months ended September 30, 1996 and 1995 (the
"Interim Financial Statements" and, together with the Audited Financial
Statements, the "Financial Statements") and the years ended December 31, 1992
and 1991 have been derived from the unaudited combined financial statements
of Quest Diagnostics. In the opinion of management, the unaudited combined
financial statements include all adjustments, consisting only of normal
recurring adjustments, that are necessary for a fair presentation of the
financial position and results of operations for these periods. The unaudited
interim results of operations for the three and nine months ended September
30, 1996 are not necessarily indicative of the results for the entire year
ending December 31, 1996.
The selected financial data should be read in conjunction with the Financial
Statements and notes thereto, and the Pro Forma Financial Information and
notes thereto included elsewhere herein. Historical combined financial data
may not be indicative of Quest Diagnostics' future performance as an
independent company. See the Financial Statements and notes thereto and Pro
Forma Financial Information. See also "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
27
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
1996 1995 1996 1995
---------------- -------------- --------------- --------------
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $ 405,352 $ 399,959 $1,231,290 $1,239,474
Costs and expenses:
Cost of services 255,390 240,868 768,809 735,984
Selling, general and administrative 125,190 181,346(b) 371,439 399,635 (b)
Provision for restructuring and other
special charges(c) 155,730 201,730 45,885
Interest expense, net 19,866 20,927 59,887 61,529
Amortization of intangible assets 10,328 11,293 31,772 33,678
Other, net 1,837 1,930 (198) 4,429
---------------- -------------- --------------- --------------
Total 568,341 456,364 1,433,439 1,281,140
---------------- -------------- --------------- --------------
Income (loss) before taxes (162,989) (56,405) (202,149) (41,666)
Income tax expense (benefit) (43,553) (17,810) (43,280) (3,642)
---------------- -------------- --------------- --------------
Income (loss) before cumulative effect of
change in accounting principle (119,436) (38,595) (158,869) (38,024)
Cumulative effect of change in accounting
principle
---------------- -------------- --------------- --------------
Net income (loss) $ (119,436) $ (38,595) $ (158,869) $ (38,024)
================ ============== =============== ==============
Balance Sheet Data (at end of period):
Cash $ 48,319 $ 46,908 $ 48,319 $ 46,908
Working capital 114,718 129,319 114,718 129,319
Total assets 1,886,378 1,896,058 1,886,378 1,896,058
Long-term debt 1,219,900 1,114,367 1,219,900 1,114,367
Total debt 1,231,785 1,226,211 1,231,785 1,226,211
Stockholder's equity 132,670 320,576 132,670 320,576
Ratio of earnings to fixed charges -- (d) -- (d) -- (d) -- (d)
Supplemental Data:
Net cash provided by operating activities $ 25,236 $ 38,202 $ 41,937 $ 53,789
Net cash used in investing activities (7,904) (17,044) (53,097) (77,911)
Net cash provided by (used in) financing
activities (6,618) (18,006) 23,033 32,311
EBITDA(e) $ (118,123)(f) $ (9,910)(b) $ (67,030)(f) $ 95,899 (b)
EBITDA as a % of net revenues (29.1)% (2.5)% (5.4)% 7.7%
Adjusted EBITDA(g) $ 37,607 $ (9,910)(b) $ 134,700 $ 141,784 (b)
Adjusted EBITDA as a % of net revenues 9.3% (2.5)% 10.9% 11.4%
</TABLE>
(Footnotes on page 30)
28
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1995 1994(a) 1993 1992 1991
-------------- ------------- -------------------------- -----------
(in thousands, except percentage data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues $1,629,388 $1,633,699 $1,416,338 $1,228,964 $941,116
Costs and expenses:
Cost of services 980,232 969,844 805,729 657,354 553,810
Selling, general and administrative 523,271(b) 411,939 363,579 334,665 193,934
Provision for restructuring and other
special charges(c) 50,560 79,814 99,600 13,000
Interest expense, net 82,016 63,295 41,898 31,775 14,205
Amortization of intangible assets 44,656 42,588 28,421 21,359 16,556
Other, net 6,221 3,464 6,423 16,300 6,636
-------------- ------------- -------------------------- -----------
Total 1,686,956 1,570,944 1,345,650 1,074,453 785,141
-------------- ------------- -------------------------- -----------
Income (loss) before taxes (57,568) 62,755 70,688 154,511 155,975
Income tax expense (benefit) (5,516) 34,410 25,929 52,115 52,128
-------------- ------------- -------------------------- -----------
Income (loss) before cumulative effect of
change in accounting principle (52,052) 28,345 44,759 102,396 103,847
Cumulative effect of change in accounting
principle (10,562)
-------------- ------------- -------------------------- -----------
Net income (loss) $ (52,052) $ 28,345 $ 34,197 $ 102,396 $103,847
============== ============= ========================== ===========
Balance Sheet Data (at end of period):
Cash $ 36,446 $ 38,719 $ 39,410 $ 20,528 $ 24,068
Working capital 200,740 214,358 139,771 161,759 126,406
Total assets 1,853,385 1,882,663 1,861,162 1,024,806 764,087
Long-term debt 1,195,566 1,153,054 1,025,787 431,624 270,682
Total debt 1,207,714 1,165,626 1,123,307 474,175 287,973
Stockholder's equity 295,801 386,812 395,509 408,149 291,973
Ratio of earnings to fixed charges --(d) 1.77(d) 2.20(d) 4.44(d) 5.83(d)
Supplemental Data:
Net cash provided by operating
activities $ 85,828 $ 37,963 $ 99,614 $ 101,077 $ -- (h)
Net cash used in investing activities (93,087) (46,186) (473,687) (203,884) -- (h)
Net cash provided by (used in) financing
activities 4,986 7,532 392,956 99,267 -- (h)
EBITDA(e) $ 125,961(b) $ 215,567 $ 179,065 $ 242,527 $213,593
EBITDA as a % of net revenues 7.7% 13.2% 12.6% 19.7% 22.7%
Adjusted EBITDA(g) $ 176,521(b) $ 295,381 $ 278,665 $ 255,527 $213,593
Adjusted EBITDA as a % of net revenues 10.8% 18.1% 19.7% 20.8% 22.7%
</TABLE>
(Footnotes on page 30)
29
<PAGE>
(Footnotes for preceding pages)
(a) In August 1993, Quest Diagnostics acquired Damon, a national
clinical-testing laboratory with approximately $280 million in annualized
revenues, excluding Damon's California-based laboratories, which were
sold in April 1994. In November 1993, Quest Diagnostics acquired certain
clinical-testing laboratories of Unilab, with approximately $90 million
in annualized revenues. The Damon and Unilab acquisitions were accounted
for as purchases. Quest Diagnostics acquired MML, Nichols and Bioran
Medical Laboratory ("Bioran") in June, August and October 1994,
respectively, and accounted for these acquisitions as poolings of
interest. Results presented include the results of Quest Diagnostics,
MML, Nichols and Bioran on a pooled basis. The increase in 1994 net
revenues compared to 1993 net revenues was primarily due to the Damon and
Unilab acquisitions.
(b) Includes a third quarter 1995 charge of $62.0 million to increase the
reserve for doubtful accounts and allowances resulting from billing
systems implementation and integration problems at certain laboratories
and increased regulatory requirements.
(c) Provision for restructuring and other special charges includes charges
for restructurings primarily for work force reduction programs, the
write-off of fixed assets and the costs of exiting a number of leased
facilities. Other special charges is primarily comprised of settlement
reserves for claims related to billing practices. See Note 5 to the
Audited Financial Statements and Notes 2 and 3 to the Interim Financial
Statements.
(d) For purposes of this calculation, earnings consist of pretax income from
continuing operations plus fixed charges. Fixed charges consist of
interest expense and one-third of rental expense, representing that
portion of rental expense deemed representative of the interest factor.
Earnings were insufficient to cover fixed charges by the following
amounts (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Three months Ended September 30, Nine months Ended September 30, Year Ended December 31,
----------------------------------------------- ----------------------------------------------- -----------------------
1996 1995 1996 1995 1995
$162,989 $56,405 $202,149 $41,666 $57,568
</TABLE>
(e) EBITDA represents income (loss) before income taxes plus net interest
expense, depreciation and amortization. EBITDA is presented because
management believes it is a widely accepted financial indicator of a
company's ability to service and incur debt. EBITDA does not represent
net income or cash flows from operations as those terms are defined by
generally accepted accounting principles and does not necessarily
indicate whether cash flows will be sufficient to fund cash needs or
service debt.
(f) 1996 EBITDA includes charges of $142 million and $188 million for the
three months and nine months ended September 30, 1996, respectively,
related to charges to establish additional reserves for settlement
issues. In October 1996, Corning contributed $119 million to Quest
Diagnostics' capital to fund the settlement of billing issues related to
Damon and has agreed to indemnify Quest Diagnostics against certain
related and similar claims pending at the Distribution Date.
(g) Adjusted EBITDA represents income (loss) before income taxes plus net
interest expense, depreciation and amortization and restructuring and
other special charges. EBITDA and Adjusted EBITDA include bad debt
expense. Adjusted EBITDA is presented because management believes it is
an accepted financial indicator of a company's ability to service and
incur debt. Adjusted EBITDA does not represent net income or cash flows
from operations as those terms are defined by generally accepted
accounting principles and does not necessarily indicate whether cash
flows will be sufficient to fund cash needs or service debt.
(h) 1991 cash flow data, on a basis restated for poolings, is not available.
30
<PAGE>
Pro Forma Financial Information
The unaudited pro forma combined statements of operations for the three and
nine months ended September 30, 1996 and for the year ended December 31, 1995
present the results of operations of Quest Diagnostics assuming that the
Distributions and the Accounting Policy Change had been completed as of
January 1, 1995. The unaudited pro forma combined balance sheet as of
September 30, 1996 presents the combined financial position of Quest
Diagnostics assuming that the Distributions and the Accounting Policy Change
had been completed on that date. In the opinion of Quest Diagnostics
management, the unaudited pro forma combined financial information for the
year ended December 31, 1995 and the three and nine months ended September
30, 1996 (the "Pro Forma Financial Information") includes all material
adjustments necessary to restate Quest Diagnostics' historical results. The
adjustments required to reflect such assumptions are described in the Notes
to the Pro Forma Financial Information and are set forth in the "Pro Forma
Adjustments" column.
The Pro Forma Financial Information should be read in conjunction with the
Financial Statements and notes thereto included elsewhere herein. The Pro
Forma Financial Information presented is for informational purposes only and
may not necessarily reflect the future results of operations or financial
position or what the results of operations or financial position would have
been had the Distributions and the Accounting Policy Change occurred as
assumed herein, or had Quest Diagnostics been operated as an independent
company during the periods shown.
31
<PAGE>
Quest Diagnostics Incorporated
Unaudited Pro Forma Combined Statement of Operations
Three Months Ended September 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------------- ------------------- -------------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Net revenues $ 405,352 $ $ 405,352
Costs and expenses
Cost of services 255,390 255,390
Selling, general and administrative 125,190 0 (a) 125,190
Provision for restructuring and other special charges 155,730 155,730
Interest expense, net 19,866 (7,677)(b) 12,189
Amortization of intangible assets 10,328 (2,656)(c) 7,672
Other, net 1,837 1,837
------------------- ------------------- -------------------
Loss before taxes (162,989) 10,333 (152,656)
Income tax (benefit) provision (43,553) 3,032 (d) (40,521)
------------------- ------------------- -------------------
Net loss $(119,436) $ 7,301 $ (112,135)
=================== =================== ===================
Pro forma shares outstanding 28,901,735 (e)
===================
Pro forma net loss per share $ (3.88)(f)
===================
</TABLE>
The accompanying notes to unaudited pro forma combined financial information
are an integral part hereof.
32
<PAGE>
Quest Diagnostics Incorporated
Unaudited Pro Forma Combined Statement of Operations
Nine Months Ended September 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------------- ------------------- -------------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Net revenues $1,231,290 $ $ 1,231,290
Costs and expenses
Cost of services 768,809 768,809
Selling, general and administrative 371,439 0 (a) 371,439
Provision for restructuring and other special
charges 201,730 201,730
Interest expense, net 59,887 (22,949)(b) 36,938
Amortization of intangible assets 31,772 (7,969)(c) 23,803
Other, net (198) (198)
------------------- ------------------- -------------------
Loss before taxes (202,149) 30,918 (171,231)
Income tax (benefit) provision (43,280) 9,065 (d) (34,215)
------------------- ------------------- -------------------
Net loss $ (158,869) $ 21,853 $ (137,016)
=================== =================== ===================
Pro forma shares outstanding 28,901,735 (e)
===================
Pro forma net loss per share $ (4.74)(f)
===================
</TABLE>
The accompanying notes to unaudited pro forma combined financial information
are an integral part hereof.
33
<PAGE>
Quest Diagnostics Incorporated
Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
--------------- -------------- ----------------
(in thousands, except share and per share data)
<S> <C> <C> <C>
Net revenues $1,629,388 $ $ 1,629,388
Costs and expenses
Cost of services 980,232 980,232
Selling, general and administrative 523,271 0 (a) 523,271
Provision for restructuring and other special
charges 50,560 50,560
Interest expense, net 82,016 (31,268)(b) 50,748
Amortization of intangible assets 44,656 (10,625)(c) 34,031
Other, net 6,221 6,221
--------------- -------------- ----------------
Loss before taxes (57,568) 41,893 (15,675)
Income tax (benefit) provision (5,516) 12,351 (d) 6,835
--------------- -------------- ----------------
Net loss $ (52,052) $ 29,542 $ (22,510)
=============== ============== ================
Pro forma shares outstanding 28,901,735 (e)
================
Pro forma net loss per share $ (0.78)(f)
================
</TABLE>
The accompanying notes to unaudited pro forma combined financial information
are an integral part hereof.
34
<PAGE>
Quest Diagnostics Incorporated
Unaudited Pro Forma Combined Balance Sheet
September 30, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
------------- --------------- -------------
(in thousands)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 48,319 $ (8,319)(g) $ 40,000
Accounts receivable 323,171 323,171
Inventories 25,559 25,559
Deferred taxes on income 126,906 9,400 (h) 136,306
Due from Corning Incorporated 150,000 (i) 150,000
Prepaid expenses and other assets 25,217 25,217
------------- --------------- -------------
Total current assets 549,172 151,081 700,253
Property, plant and equipment, net 293,490 293,490
Intangible assets, net 1,001,500 (425,000)(j) 576,500
Other assets 42,216 42,216
------------- --------------- -------------
Total Assets $1,886,378 $ (273,919) $1,612,459
============= =============== =============
Liabilities and Stockholder's Equity
Current Liabilities:
Accounts payable and accrued expenses $ 374,058 $ 9,000 (k) $ 383,058
Current portion of long-term debt 11,885 (10,000)(h) 1,885
Income taxes payable 34,212 (18,632)(h)
(7,011)(k) 8,569
Due to Corning Incorporated and affiliates 14,299 (14,299)(h)
------------- --------------- -------------
Total current liabilities 434,454 (40,942) 393,512
Long-term debt, third-party 15,494 500,000 (h) 515,494
Payable to Corning 1,204,406 (8,319)(g)
(447,669)(h)
(748,418)(l)
Other liabilities 99,354 99,354
------------- --------------- -------------
Total liabilities 1,753,708 (745,348) 1,008,360
------------- --------------- -------------
Stockholder's Equity:
Contributed capital 297,823 150,000 (i)
11,250 (k)
748,418 (l) 1,207,491
Accumulated deficit (163,158) (425,000)(j)
(13,239)(k) (601,397)
Cumulative translation adjustment 1,801 1,801
Market valuation adjustment (3,796) (3,796)
------------- --------------- -------------
Total stockholder's equity 132,670 471,429 604,099
------------- --------------- -------------
Total Liabilities and Stockholder's Equity $1,886,378 $ (273,919) $1,612,459
============= =============== =============
</TABLE>
The accompanying notes to unaudited pro forma combined financial information
are an integral part hereof.
35
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Quest Diagnostics Incorporated
Notes to Unaudited Pro Forma Combined Financial Information
Statements of Operations
(a) The historical financial statements include substantially all of the
costs incurred by Corning on Quest Diagnostics' behalf and reflect all of
its costs of doing business. Quest Diagnostics management does not expect
administrative costs to increase as a result of being an independent,
public company.
(b) The pro forma adjustment to interest expense, net represents the
difference between historical intercompany interest expense and interest
expense on the third party debt to be incurred in connection with the
Quest Diagnostics Spin-Off Distribution. Quest Diagnostics will borrow,
immediately prior to the Quest Diagnostics Spin-Off Distribution,
approximately $500 million in long-term debt to repay Corning for certain
intercompany borrowings. The debt is assumed to consist of $350 million
of borrowings under the Credit Facility and $150 million of Notes. The
assumed interest rates on these new borrowings are 7.50% and 11.50% for
the Credit Facility and the Notes, respectively. If the interest rate on
the Credit Facility fluctuates by 1/8%, interest expense fluctuates by
approximately $440,000 annually. Depending on market conditions at the
time of the Offering and the consummation of the Credit Facility, the
total combined debt amount, the interest rates, and the amounts of each
of the Credit Facility and the Notes may vary from that indicated herein.
(c) The pro forma adjustment to amortization of intangible assets represents
the estimated reduction of amortization expense due to the Accounting
Policy Change. Most of Quest Diagnostics' intangible assets resulted from
business combinations in 1993 accounted for as purchases. Significant
changes in the clinical laboratory and health care industries subsequent
to 1993 have caused the fair value of Quest Diagnostics' intangible
assets to be significantly less than their carrying value. Quest
Diagnostics management believes that a valuation of intangible assets
based on the amount for which each regional laboratory could be sold in
an arms-length transaction is preferable to using projected undiscounted
pre-tax cash flows. Quest Diagnostics believes fair value is a better
indicator of the extent to which the intangible assets may be recoverable
and therefore may be impaired. Quest Diagnostics management estimates
that the reduction of amortization expense will approximate between $10.0
million and $11.3 million annually and $2.5 million and $2.8 million
quarterly. The midpoint of the range has been utilized for the
preparation of the Unaudited Pro Forma Combined Statements of Operations.
(d) The pro forma adjustment to income tax (benefit) provision represents the
estimated income tax impact of the pro forma reduction in interest
expense at the incremental tax rate of 39.5%. The pro forma amortization
expense reduction will not impact income taxes as the amortization is not
deductible for tax purposes.
(e) The pro forma common shares outstanding represents Quest Diagnostics
management's current estimate of the number of shares to be outstanding
after the Quest Diagnostics Spin-Off Distribution. Management's estimate
includes (a) the issuance of approximately 28.0 million shares of Quest
Diagnostics Common Stock at an exchange ratio of one share of Quest
Diagnostics Common Stock issued for every eight shares of Corning Common
Stock outstanding at September 30, 1996 and (b) the issuance of an
estimated 900,000 shares into the employee stock ownership plan. Quest
Diagnostics management's estimate of shares outstanding is subject to
change as the result of normal issuances and repurchases of Corning
Common Stock prior to the date of the Quest Diagnostics Spin-Off
Distribution and finalization of the proposed structure of the employee
stock ownership plan.
(f) Pro forma net loss per share is computed by dividing net loss by the pro
forma shares outstanding during each period. Common stock equivalents are
not included in the loss per share computation because they do not result
in material dilution. Historical net loss per share data is not presented
as Quest Diagnostics' historical capital structure is not comparable to
periods subsequent to the Quest Diagnostics Spin-Off Distribution.
Balance Sheet
(g) Historically, Quest Diagnostics has participated in Corning's centralized
treasury and cash management processes. Cash received from operations was
generally transferred to Corning on a daily basis. Cash disbursements for
operations and investments were funded as needed from Corning. The cash
balance at the Distribution Date will range from $30 million to $40
million. The pro forma adjustment to cash and payable to Corning
represents the reduction to bring cash to the Distribution Date range.
(h) The pro forma adjustment to deferred taxes on income, current portion of
long-term debt, income taxes payable, due to Corning Incorporated and
affiliates, long-term debt third party and payable to Corning reflects
borrowings by Quest Diagnostics, immediately prior to the Quest
Diagnostics Spin-Off Distribution, to repay Corning for certain income
tax liabilities and intercompany borrowings. The debt is assumed to
consist of $350 million of bank borrowings under the Credit Facility and
$150 million of Notes.
(i) The pro forma adjustment to due from Corning Incorporated and contributed
capital represents the estimated receivable from Corning and capital
contribution related to Corning's indemnification obligations relating to
governmental claims under the Transaction Agreement. The receivable from
Corning is estimated to approximate $25 million at the Distribution Date.
The reduction from $150 million at September 30, 1996 to $25 million at
the Distribution Date is due to the fund-
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ing by Corning of indemnified claims, primarily the Damon settlement of
$119 million, subsequent to September 30, 1996 and before the
Distribution Date. The remaining receivable will be paid by Corning upon
the settlement of the underlying, indemnified claims which is expected to
occur within the next twelve months.
(j) The pro forma adjustment to intangible assets, net and accumulated
deficit represents the estimated impact of the Accounting Policy Change.
Quest Diagnostics management estimates the charge to reduce the carrying
value of intangible assets to fair value will be in the range of $400
million to $450 million. The midpoint of the range has been utilized for
the preparation of the Unaudited Pro Forma Combined Balance Sheet. This
charge has not been reflected in the Unaudited Pro Forma Combined
Statements of Operations because it is non-recurring. See additional
discussion on Quest Diagnostics' planned change in accounting policy in
note (c) above.
(k) The pro forma adjustment to accounts payable and accrued expenses, income
taxes payable, contributed capital and accumulated deficit represents
costs directly related to the Quest Diagnostics Spin-Off Distribution
that Quest Diagnostics expects to record coincident with the Quest
Diagnostics Spin-Off Distribution. These costs, which are estimated at
$20.2 million ($13.2 million after tax), include approximately $9 million
related to professional advisory and financing commitment fees and $11.2
million related to the establishment of an employee stock ownership plan.
This amount is subject to change based on the market price of the Quest
Diagnostics Common Stock on the Distribution Date. This charge has not
been reflected in the Unaudited Pro Forma Statements of Operations
because it is nonrecurring.
(l) The pro forma adjustment to payable to Corning and contributed capital of
$748.4 million reflects Corning's capital contribution to Quest
Diagnostics of the estimated remaining intercompany borrowings.
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
In the last several years, Quest Diagnostics' business has been affected by
significant government regulation, price competition and rapid change
resulting from payors' efforts to control cost, utilization and delivery of
health care services. As a result of these factors, Quest Diagnostics'
profitability has been impacted by changes in the volume of testing, the
prices and costs of its services, the mix of payors and the level of bad debt
expense.
Payments for clinical laboratory services are made by government, managed
care organizations, insurance companies, physicians and patients. Increased
government regulation focusing on health care cost containment has reduced
prices and added costs for the clinical laboratory industry by increasing
complexity and adding new regulatory requirements. Also, in recent years
there has been a significant shift away from traditional fee-for-service
health care to managed health care, as employers and other payors of health
care costs aggressively move the populations they control into lower cost
plans. Managed care organizations typically negotiate capitated payment
contracts whereby Quest Diagnostics receives a fixed monthly fee per covered
individual for all services included under the contract. Capitated contract
arrangements shift the risks of additional routine testing beyond that
covered by the capitated payment to the clinical laboratory. The managed care
industry is growing as well as undergoing rapid consolidation which has
created large managed care companies that control the delivery of health care
services for millions of people, and have significant bargaining power in
negotiating fees with providers, including clinical laboratories. These
market factors have had a significant adverse impact on prices in the
clinical laboratory industry, and are major contributors to Quest
Diagnostics' decline in profitability over the last two years. This growth of
managed care and use of capitated agreements are expected to continue for the
foreseeable future. See "Risk Factors--Role of Managed Care" and
"Business--Effect of the Growth of the Managed Care Sector on the Clinical
Laboratory Business."
A substantial portion of Quest Diagnostics' growth has come from acquisitions
in the last four years. The largest of these acquisitions were the purchases
of Damon and certain operations of Unilab in 1993 and the acquisitions of
MML, Nichols Institute and Bioran in 1994. As a result of these acquisitions,
Quest Diagnostics has recorded a number of special charges for restructuring
and integration costs since 1993. See Note 5 to the Audited Financial
Statements and Notes 2 and 3 to the Interim Financial Statements.
The MML, Nichols Institute and Bioran transactions were accounted for as
poolings of interests. The accompanying financial statements of Quest
Diagnostics have been restated to include the results of operations of these
pooled entities on a combined basis for all periods presented. The results of
operations for Damon and Unilab, as well as all other acquisitions accounted
for as purchases, have been included since their respective dates of
acquisition. Acquisitions accounted for as purchases have generated large
amounts of goodwill which are not deductible for tax purposes, giving rise to
a high effective income tax rate and increased sensitivity of the income tax
rate to changes in pre-tax income. See Note 4 to the Audited Financial
Statements.
The clinical laboratory industry is subject to seasonal fluctuations in
operating results. Quest Diagnostics' cash flows are influenced by seasonal
factors. During the summer months, year-end holiday periods and other major
holidays, volume of testing declines, reducing net revenues and resulting
cash flows below annual averages during the third and fourth quarters of the
year. Winter months are also subject to declines in testing volume due to
inclement weather, which varies in severity from year to year.
The clinical laboratory industry is labor intensive. Approximately half of
Quest Diagnostics' total costs and expenses are associated with employee
compensation and benefits. Cost of services, which have approximated sixty
percent of net revenues over the past several years, consists principally of
costs for obtaining, transporting and testing specimens. Selling, general and
administrative expenses consist principally of the cost of the sales force,
billing operations (including bad debt expense), and general management and
administrative support.
Results of Operations
Three Months Ended September 30, 1996 Compared with Three Months Ended
September 30, 1995. Earnings for the third quarter of 1996 were significantly
below those for the prior year due principally to the impact of special
charges. Before special charges, earnings were significantly above the prior
year level, which included a $62 million charge to operations to increase
accounts receivable reserves.
Net Revenues
Net revenues increased by $5.4 million, or 1.3%, over the three months ended
September 30, 1995 due to increased revenues from Quest Diagnostics'
nonclinical testing businesses. Volume of clinical testing increased by 1.8%
but was offset by average price declines of 1.7%. The majority of the price
decline resulted from changes in reimbursement policies of various
third-party payors, shifts in volume to lower-priced managed care business
and intense price competition in the industry. Also contributing to the price
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decline was a reduction in Medicare fee schedules effective January 1, 1996,
which accounted for approximately a 1% decrease in net revenues.
Costs and Expenses
Cost of services increased by $14.5 million from the prior period and as a
percentage of net revenues increased to 63.0% in 1996 from 60.2% in 1995.
These increases were due principally to the effects of declining prices and
increases in salaries and wages associated with improving customer service
levels, and wage adjustments.
Selling, general and administrative expense decreased by $56.2 million from
the prior period and as a percentage of revenues decreased to 30.9% in 1996
from 45.3% in 1995. These decreases were due principally to a reduction in
bad debt expense, which decreased by $55.3 million, from $85.8 million to
$30.5 million, and as a percentage of net revenues decreased from 21.5% to
7.5%. The reduction in bad debt expense results primarily from the unusually
high level of bad debt expense in the prior year, which included a charge of
$62.0 million to increase receivables reserves. Quest Diagnostics has
established, and maintains, rigorous programs to improve the effectiveness of
Quest Diagnostics' billing and collection operations. The established
programs include standard policies and procedures, employee training programs
and regular reporting and tracking of key measures by senior management. The
implementation of these programs during the fourth quarter of 1995 has aided
in reducing bad debt expense. However, additional requirements to provide
documentation of the "medical necessity" of testing have added to the backlog
of unbilled receivables and caused third quarter 1996 bad debt expense as a
percentage of revenues to increase above the rate Quest Diagnostics had
experienced during the first two quarters of 1996. Additional efforts to
collect medical necessity documentation are currently being made and are
expected to lower bad debt expense below the 1996 third quarter rate during
1997.*
During the third quarter of 1996, Quest Diagnostics recorded a $142.0 million
charge to establish additional reserves associated with government and other
claims primarily related to billing practices at certain laboratories of
Damon and Nichols prior to their acquisition by Quest Diagnostics. Subsequent
to the third quarter, Quest Diagnostics entered into an agreement with the
DOJ to pay $119.0 million to settle all federal and Medicaid claims related
to the billing by Damon of certain blood test series for federally sponsored
health care programs. This payment was fully reserved as part of the third
quarter charge. Quest Diagnostics' aggregate reserve with respect to all
governmental and nongovernmental claims, including litigation costs, was $215
million at September 30, 1996, and is estimated to be reduced to $85 million
at the Distribution Date as a result of the payment of settled claims,
primarily the Damon settlement of $119.0 million. Although management
believes that established reserves for both indemnified and non-indemnified
claims are sufficient, it is possible that the final resolution of these
matters could be in excess of established reserves by an amount which could
be material to Quest Diagnostics' results of operation and, for
non-indemnified claims, Quest Diagnostics' cash flows in the periods in which
such claims are settled. Quest Diagnostics does not believe that these
matters will have a material adverse effect on Quest Diagnostics' overall
financial condition. See "Risk Factors--Government Investigations and Related
Claims" and "Business--Government Investigations and Related Claims."
Additionally, in the third quarter Quest Diagnostics recorded a charge of
$13.7 million to write off capitalized software as a result of its decision
to abandon the billing system which had been intended as its company-wide
billing system. Management now plans to standardize billing systems using a
system already implemented in seven of its sites. See "Risk
Factors--Billing," "Business--Information Systems" and "Business--Billing"
and Note 3 to the Interim Financial Statements.
Net interest expense declined from the prior year's level due to lower
average borrowings during 1996. Amortization of intangible assets decreased
below the prior year's level due to certain intangible assets having been
fully amortized.
Quest Diagnostics' effective tax rate is significantly impacted by goodwill
amortization which is not deductible for tax purposes and which had the
effect of decreasing the tax benefit rate for the third quarter of 1996.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended
September 30, 1995. Earnings were substantially below those for the prior
year due principally to special charges, price declines, increases in
salaries and wages, higher bad debt expense, and unusually severe winter
weather experienced during the first quarter of 1996.
Net Revenues
Net revenues decreased by $8.2 million, or .7%, from the prior period,
principally due to average price declines of approximately 3.4%, partially
offset by an increase in clinical testing of 1.2% and increased revenues from
Quest Diagnostics' nonclinical testing businesses. Adversely affecting the
volume growth was unusually severe winter weather in the northeastern and
central parts of the United States during the first quarter of 1996. The
majority of the price declines resulted from changes in reimbursement
policies of various third-party payors, shifts in volume to lower-priced
managed care business, and intense price competition in the industry. Also
contributing to the price declines was a reduction in Medicare fee schedules
effective January 1, 1996, which accounted for approximately a 1% decrease in
net revenues.
* This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See
"Business--Important Factors Regarding Forward Looking Statements." In
particular see factors (c), (d), (j) and (k).
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Costs and Expenses
Cost of services increased by $32.8 million from the prior period and as a
percentage of net revenues increased to 62.4% in 1996 from 59.4% in 1995.
These increases were due principally to the effects of declining prices and
increases in salaries and wages associated with improving customer service
levels, and wage adjustments.
Selling, general and administrative expense decreased by $28.2 million from
the prior period and as a percentage of net revenues decreased to 30.2% in
1996 from 32.2% in 1995. These decreases were due principally to a reduction
in bad debt expense, which decreased, by $45.4 million, from $127.3 million
to $81.9 million, and as a percentage of net revenues decreased from 10.3% to
6.7%, partially offset by costs associated with developing and implementing
strategic action plans and operating improvement plans. The reduction in bad
debt expense results primarily from the unusually high level of bad debt
expense in the prior year, which included a charge of $62.0 million to
increase receivables reserves. Quest Diagnostics has established, and
maintains, rigorous programs to improve the effectiveness of Quest
Diagnostics' billing and collection operations. The established programs
include standard policies and procedures, employee training programs and
regular reporting and tracking of key measures by senior management. The
implementation of these programs during the fourth quarter of 1995 has aided
in reducing bad debt expense. However, additional requirements to provide
documentation of the "medical necessity" of testing have added to the backlog
of unbilled receivables and caused third quarter 1996 bad debt expense as a
percentage of revenues to increase above the rate Quest Diagnostics had
experienced during the first two quarters of 1996. Additional efforts to
collect medical necessity documentation are currently being made and are
expected to lower bad debt expense below the 1996 third quarter rate during
1997.*
In the second quarter of 1996, as a consequence of an investigation begun in
1993, the DOJ notified Quest Diagnostics that it has taken issue with
payments related to certain tests received by Damon from federally funded
health care programs prior to the acquisition of Damon by Quest Diagnostics.
Quest Diagnostics management met with the DOJ several times to evaluate the
substance of the government's allegations. A special charge of $46.0 million
was recorded in the second quarter of 1996 to establish additional reserves
equal to management's estimate, at that time, of the low end of the range of
potential amounts which could be required to satisfy the government's claims.
During the third quarter of 1996 Quest Diagnostics recorded a $142.0 million
charge to establish additional reserves associated with government and other
claims primarily related to billing practices at certain laboratories of
Damon and Nichols prior to their acquisition by Quest Diagnostics. Subsequent
to the third quarter, Quest Diagnostics entered into an agreement with the
DOJ to pay $119.0 million to settle all federal and Medicaid claims related
to the billing by Damon of certain blood test series for federally sponsored
health care programs. This payment was fully reserved as part of the third
quarter charge. Quest Diagnostics' aggregate reserve with respect to all
governmental and nongovernmental claims, including litigation costs, was $215
million at September 30, 1996, and is estimated to be reduced to $85 million
at the Distribution Date as a result of the payment of settled claims,
primarily the Damon settlement of $119.0 million. Although management
believes that established reserves for both indemnified and non-indemnified
claims are sufficient, it is possible that the final resolution of these
matters could be in excess of established reserves by an amount which could
be material to Quest Diagnostics' results of operations and, for
non-indemnified claims, Quest Diagnostics' cash flows in the periods in which
such claims are settled. Quest Diagnostics does not believe that these
matters will have a material adverse effect on Quest Diagnostics' overall
financial condition. See "Risk Factors--Government Investigations and Related
Claims" and "Business--Government Investigations and Related Claims."
In the third quarter Quest Diagnostics recorded a charge of $13.7 million to
write off capitalized software as a result of its decision to abandon the
billing system which had been intended as its company-wide billing system.
Management now plans to standardize billing systems using a system already
implemented in seven of its sites. See "Risk Factors--Billing,"
"Business--Information Systems" and "Business--Billing" and Notes 3 to the
Interim Financial Statements.
In the second quarter of 1995, Quest Diagnostics recorded a provision for
restructuring totalling $33 million primarily for work force reduction
programs and the costs of exiting a number of leased facilities.
Additionally, in the first quarter of 1995 Quest Diagnostics recorded a
special charge of $12.8 million for the settlement of claims related to the
inadvertent billing errors of certain laboratory tests that were not
completely and/or successfully performed or reported due to insufficient
samples and/or invalid results.
Net interest expense remained relatively unchanged from the prior year level.
Amortization of intangible assets decreased below the prior year level due to
certain intangible assets having been fully amortized. A gain on the sale of
several small investments and the favorable settlement of a contractual
obligation, both of which occurred in 1996, accounted for the majority of the
change in "other, net" compared to the prior year.
* This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See
"Business--Important Factors Regarding Forward Looking Statements." In
particular see factors (c), (d), (j) and (k).
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Quest Diagnostics' effective tax rate is significantly impacted by goodwill
amortization which is not deductible for tax purposes. This had the effect of
reducing the tax benefit rate of Quest Diagnostics in both 1996 and 1995. The
effect of this non-deductibility is particularly apparent when amortization
increases in proportion to pre-tax earnings, as was the case in 1995.
Year Ended December 31, 1995 Compared with Year Ended December 31,
1994. Earnings for 1995 were significantly below those for the prior year as
a result of price declines, higher bad debt expense, and the impact of
restructuring and other special charges. The 1995 bad debt expense included a
$62.0 million charge to increase accounts receivable reserves in the third
quarter.
Net Revenues
Net revenues of $1.6 billion in fiscal 1995 remained essentially unchanged
from the prior year. Average price declines, estimated to be 3.7%, were
offset by estimated growth of approximately 4% in requisition volume. The
majority of the price declines resulted from changes in reimbursement
policies of various third-party payors, an accelerated shift in volume to
lower-priced managed care business, and intense price competition in the
industry. Also contributing to the price declines was a reduction in Medicare
fee schedules effective January 1, 1995 which accounted for approximately a
1% decrease in net revenues.
Costs and Expenses
Cost of services increased $10.4 million from 1994 and as a percentage of net
revenues increased to 60.2% in 1995 from 59.4% in 1994. These increases were
due principally to the impact of price declines and the added cost of doing
business in an increasingly complex environment. Partially offsetting these
factors were synergies associated with the elimination of duplicate
facilities, personnel and administrative functions of acquired entities,
including Damon, MML and Nichols.
Selling, general and administrative expense increased $111.3 million from
1994 and as a percentage of net revenues increased to 32.1% in 1995 from
25.2% in 1994. These increases resulted primarily from a higher level of bad
debt expense during 1995. Excluding bad debt expense, selling, general and
administrative expenses as a percentage of net revenues were approximately
22.7% as compared to 21.6% in 1994.
Bad debt expense increased to $152.6 million or 9.4% of net revenues in 1995
from $59.5 million or 3.6% of net revenues in 1994. This increase resulted
from an increase in ongoing bad debt expense of $31.0 million throughout 1995
and a $62.0 million charge to increase bad debt reserves in the third quarter
of 1995.
During 1995, ongoing bad debt expense increased from 4.4% of net revenues in
the first quarter to 6.4% of net revenues in the fourth quarter. This
increase is due principally to four developments that have complicated the
billing process: (1) increased complexity in the health care system; (2)
increased requirements in complying with fraud and abuse regulations; (3)
deterioration in reimbursement as the payor mix shifts; and (4) changes in
Medicare reimbursement policies. These four factors have placed additional
requirements on the billing process, including the need for specific test
coding, additional research on processing rejected claims that comply with
prior practices, increased audits for compliance, and management of a large
number of contracts which have very different information requirements for
pricing and reimbursement.
In addition to the changes in the billing process, in mid-1995, Quest
Diagnostics experienced problems integrating billing operations from recent
acquisitions into existing billing operations and experienced significant
problems implementing a new billing system at its largest facility in
Teterboro, New Jersey. These factors, along with the significant changes in
the billing process discussed in the preceding paragraph, contributed to a
significant increase in the backlog of unbilled receivables and a significant
deterioration in the collection of receivables during the third quarter of
1995. As a result, Quest Diagnostics recorded a charge of $62 million in the
third quarter to increase accounts receivable reserves. Quest Diagnostics has
put in place a rigorous program to improve the effectiveness of its billing
and collection operations and has stabilized the current billing system in
Teterboro. See "Risk Factors--Billing" and "Business--Information Systems"
and "Business--Billing."
In the second quarter of 1995, Quest Diagnostics recorded a provision for
restructuring totalling $33.0 million, consisting primarily of costs for work
force reduction programs and exiting a number of leased facilities. In the
first quarter of 1995, Quest Diagnostics recorded a special charge of $12.8
million for the settlement of claims related to inadvertent billing errors of
certain laboratory tests that were not completely and/or successfully
performed or reported due to insufficient samples and/or invalid results. In
the third quarter of 1994, Quest Diagnostics recorded a provision for
restructuring and other special charges totalling $79.8 million which
included $48.2 million of integration costs, $21.6 million of transaction
expenses, and $10.0 million of other reserves primarily related to the
Nichols Institute, MML and Bioran acquisitions. See Note 5 to the Audited
Financial Statements.
Net interest expense increased by $18.7 million over the 1994 level due to an
increase in average debt levels, resulting principally from funding investing
activities and cash requirements associated with restructuring and other
special charges.
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Amortization expense increased principally due to additional intangible
assets arising from acquisitions completed in 1994 and 1995. Quest
Diagnostics' effective tax rate is significantly impacted by goodwill
amortization which is not deductible for tax purposes. This had the effect of
reducing the tax benefit rate to Quest Diagnostics in 1995 while increasing
the overall tax rate in 1994. See Note 4 to the Audited Financial Statements.
Year Ended December 31, 1994 Compared with Year Ended December 31,
1993. Earnings for 1994 were below those for the prior year due principally
to price declines, which outpaced the cost efficiencies realized from the
integration of acquisitions and other activities to reduce costs.
Net Revenues
Net revenues increased by $217.4 million, or 15.3%, over the prior year, due
principally to the net impact of acquisitions and dispositions which
increased net revenues by approximately $240 million. The net effect of
average price declines, estimated at 4%, offset by an increase in requisition
volume, estimated at 3%, accounted for the remaining change in net revenues.
The majority of the price declines resulted from a shift in volume to
lower-priced managed care business, changes in reimbursement policies of
various third-party payors, and intense price competition. Also contributing
to the price declines was a reduction in Medicare fee schedules effective
January 1, 1994 which accounted for approximately a 1% decrease in net
revenues.
Costs and Expenses
Cost of services increased $164.1 million over 1993 and as a percentage of
net revenues increased to 59.4% in 1994 from 56.9% in 1993. These increases
were due principally to the impact of price declines and the added cost of
doing business in an increasingly complex environment. Partially offsetting
these factors were synergies realized from integration of acquisitions.
Selling, general and administrative expense increased $48.4 million over 1993
and as a percentage of net revenues decreased slightly from 25.7% in the
prior year to 25.2%. Synergies associated with the elimination of duplicate
facilities, personnel and administrative functions of acquired entities,
primarily Damon, MML and Nichols, with those of Quest Diagnostics were
partially offset by an increase in bad debt expense, which increased by $12.3
million, from $47.2 million to $59.5 million, and increased from 3.3% of net
revenues in 1993 to 3.6% in 1994.
In the third quarter of 1994, Quest Diagnostics recorded a provision for
restructuring and other special charges totalling $79.8 million, which
included $48.2 million of integration costs, $21.6 million of transaction
expenses, and $10.0 million of other reserves primarily related to the
Nichols Institute, MML and Bioran acquisitions. Integration costs represented
the expected costs for closing clinical laboratories in certain markets where
duplicate Quest Diagnostics and Nichols Institute, MML or Bioran facilities
existed at the time of the acquisitions. In the third quarter of 1993, Quest
Diagnostics recorded a provision for restructuring costs and other special
charges totalling $99.6 million. The restructuring component of this special
charge aggregated $56.6 million related principally to the integration of
Quest Diagnostics' operations with those acquired in the Damon acquisition.
The special charge consisted primarily of a $36.5 million charge to reflect
the settlement and related legal expenses associated with a compromise
agreement with the DOJ to settle claims brought on behalf of the OIG. In
making the settlement, Quest Diagnostics did not admit any wrongdoing in
connection with its marketing or business practices. See "Risk
Factors--Government Investigations and Related Claims," "Business--Government
Investigations and Related Claims" and Note 5 to the Audited Financial
Statements.
Net interest expense increased by $21.4 million over the prior year, due
principally to increased borrowings associated with financing acquisitions
and, to a lesser degree, increased borrowing rates. Amortization of
intangibles increased due to additional intangible assets arising from
acquisitions completed in 1993 and 1994.
Quest Diagnostics' effective tax rate is significantly impacted by goodwill
amortization which is not deductible for tax purposes, and has the effect of
increasing the overall tax rate, particularly when amortization increases in
proportion to pre-tax earnings. This situation was the principal contributor
to the increase in the 1994 effective tax rate over the prior year. See Note
4 to the Audited Financial Statements.
Liquidity and Capital Resources
After the Distributions
Concurrently with the Quest Diagnostics Spin-Off Distribution, Quest
Diagnostics' debt will be restructured and equity recapitalized. Quest
Diagnostics plans to complete the Offering and incur approximately $350
million of borrowings under the Credit Facility. The proceeds from these
borrowings will be used to repay amounts owed to Corning. Amounts owed to
Corning in excess of the proceeds from these borrowings will be contributed
by Corning to Quest Diagnostics' capital. As a result of these
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actions, management estimates that Quest Diagnostics' long-term debt will be
reduced by approximately $720 million to approximately $515 million, and
annual interest expense will be reduced by approximately $31 million. The
Credit Facility will include a revolving credit facility of $100 million,
substantially all of which is expected to be available for borrowing at the
time of the Distributions.
Quest Diagnostics estimates that it will invest approximately $20 million
during the fourth quarter of 1996 for capital expenditures, principally
related to facility upgrades and investments in information technology.
Capital expenditures in 1997 are estimated to be approximately $95 million,
of which approximately $10 to $15 million relates to the conversion of
billing and laboratory systems to Quest Diagnostics' standard systems (see
"Business--Information Systems"). Quest Diagnostics expects to expand its
operations principally through internal growth and accelerated growth in
strategic markets and related lines of business. Quest Diagnostics expects
such activities will be funded from existing cash and cash equivalents, cash
flow from operations, and borrowings under the revolving credit facility.
Quest Diagnostics believes that the revolving credit facility will be
sufficient to meet both its short-term and its long-term financing needs. As
a result, Quest Diagnostics believes it has sufficient financial flexibility
and sufficient access to funds to meet seasonal working capital requirements,
capital expenditures and growth opportunities.
Quest Diagnostics does not anticipate paying dividends on the Quest
Diagnostics Common Stock in the foreseeable future. In addition, the Credit
Facility prohibits Quest Diagnostics from paying cash dividends on the Quest
Diagnostics Common Stock. Further, the Indenture under which the Notes will
be issued will restrict Quest Diagnostics' ability to pay cash dividends on
the Quest Diagnostics Common Stock based on a percentage of Quest
Diagnostics' cash flow.
Coincident with the Distributions, Quest Diagnostics plans to record a
non-recurring charge of approximately $20 million associated with the
Distributions. The largest component of the charge will be the cost of
establishing an employee stock ownership plan. The remainder of the charge
will consist principally of the costs for advisors and other fees associated
with establishing Quest Diagnostics as a separate publicly traded entity. The
amount of the charge is subject to change based on the price of the Quest
Diagnostics Common Stock on the Distribution Date.
Although Quest Diagnostics has no present acquisition agreements or
arrangements, there may be acquisitions or other growth opportunities which
will require additional external financing, and Quest Diagnostics may from
time to time seek to obtain funds from public or private issuances of equity
or debt securities. There can be no assurance that such financing will be
available on terms acceptable to Quest Diagnostics. See "Risk
Factors--Potential Liability under the Spin-Off Tax Indemnification
Agreements" and "The Distributions--Spin-Off Tax Indemnification Agreements."
Quest Diagnostics management believes that the recapitalization of Quest
Diagnostics and the indemnification by Corning against monetary fines,
penalties or losses from outstanding government claims, together with the
successful implementation of its business strategy, will generate more
predictable and improved cash flows.* Additionally, Quest Diagnostics
management believes that these actions, together with Quest Diagnostics'
leading market position or low cost provider status in a number of geographic
regions accounting for the majority of its net revenues, will aid Quest
Diagnostics in meeting the ongoing challenges in the clinical laboratory
industry brought on by growth in managed care and increased regulatory
complexity.*
Prior to the Distributions
Historically, Quest Diagnostics has financed its operations and growth with
cash flow from operations, borrowings from Corning, and stock issued by
Corning to finance certain acquisitions on behalf of Quest Diagnostics.
Investing activities have included business acquisitions and capital
expenditures for facility expansions and upgrades and information systems
improvements. Replacement of laboratory equipment has typically been financed
through operating leases.
Net cash provided by operating activities for the nine months ended September
30, 1996 was below the level for the comparable period of the prior year, as
a result of reduced earnings, partially offset by an improved collection rate
of accounts receivable and a reduction in restructuring spending. This
improvement in accounts receivable is a direct result of specific programs
initiated in the fourth quarter of 1995 to improve billing operations.
Although these programs are continuing, additional requirements of customers
to provide documentation of the "medical necessity" of testing are expected
to increase receivable levels in the future. The number of days sales
outstanding in accounts receivable ("DSOs") for the clinical testing business
is one measure used by Quest Diagnostics to monitor the effectiveness of its
billing operations. DSOs were 74 days at September 30, 1996 and December 31,
1995, 81 days at December 31, 1994, and 90 days at December 31, 1993.
* This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See
"Business--Important Factors Regarding Forward Looking Statements." In
particular see factors (a), (b), (c), (d), (e) and (j).
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Net cash provided by operating activities during 1995 increased above the
prior year despite reduced earnings, due primarily to changes in accounts
payable and accrued expenses and reduced spending for restructuring
integration and other special charges. Net cash provided by operating
activities in 1994 declined from the 1993 level principally due to larger
increases in accounts receivables and higher levels of spending for
restructuring, integration and other special charges during 1994.
Cash used for investing activities for the nine months ended September 30,
1996 was below the prior year level due to reduced acquisition activity and
the sale of several small investments during 1996. Investing activities
during 1995, 1994 and 1993 were funded principally by cash flow from
operations and borrowings from Corning, and were principally for capital
expenditures and acquisitions. Cash used in investing activities in 1995
exceeded the prior year level due principally to cash proceeds generated from
the sale of certain California operations in 1994. See Note 3 to the Audited
Financial Statements.
Net cash provided by financing activities for the nine months ended September
30, 1996 was below the prior year level due primarily to reduced acquisition
activity during 1996. Financing activities in 1995, 1994 and 1993 consisted
principally of dividend payments to and net borrowing activities with
Corning.
Adjusted EBITDA
Adjusted EBITDA represents income (loss) before income taxes plus net
interest expense, depreciation and amortization and restructuring and other
special charges. EBITDA and Adjusted EBITDA include bad debt expense.
Adjusted EBITDA is presented because management believes it is an accepted
financial indicator of a company's ability to service and incur debt.
Adjusted EBITDA does not represent net income or cash flows from operations
as those terms are defined by generally accepted accounting principles and
does not necessarily indicate whether cash flows will be sufficient to fund
cash needs or service debt.
Adjusted EBITDA for the third quarter of 1996 was $37.6 million, or 9.3% of
net revenues. Adjusted EBITDA in the prior year period was ($9.9) million.
The improvement in Adjusted EBITDA was principally due to a decrease in
selling, general and administrative expense (which decreased $56.2 million)
and an increase in net revenues of $5.4 million, partially offset by an
increase in cost of services (which increased $14.5 million).
Adjusted EBITDA for the nine months ended September 30, 1996 was $134.7
million, or 10.9% of net revenues. Adjusted EBITDA in the prior year period
was $141.8 million, or 11.4% of net revenues. The decline in Adjusted EBITDA
was princi-pally due to a decrease in net revenues of $8.2 million and an
increase in cost of services (which increased $32.8 million), partially
offset by a decrease in selling, general and administrative expense (which
decreased $28.2 million).
Adjusted EBITDA for 1995 was $176.5 million, or 10.8% of net revenues.
Adjusted EBITDA for the prior year period was $295.4 million, or 18.1% of net
revenues. The decline in Adjusted EBITDA was principally due to an increase
in cost of services (which increased $10.4 million) and an increase in
selling, general and administrative expense (which increased $111.3 million).
Adjusted EBITDA for 1994 was $295.4 million, or 18.1% of net revenues.
Adusted EBITDA in the prior year period was $278.7 million, or 19.7% of net
revenues. The increase in Adjusted EBITDA was principally due to an increase
in revenues (which increased $217.4 million), partially offset by an increase
in cost of services (which increased $164.1 million) and an increase in
selling, general and administrative expenses (which increased $48.4 million).
Changes in Accounting Policies
Coincident with the Quest Diagnostics Spin-Off Distribution, Quest
Diagnostics management will adopt a new accounting policy for evaluating the
recoverability of intangible assets and measuring possible impairment under
Statement of the Accounting Principles Board No. 17. Most of Quest
Diagnostics' intangible assets resulted from purchase business combinations
in 1993. Significant changes in the clinical laboratory and health care
industries subsequent to 1993, including increased government regulation and
movement from traditional fee-for-service care to managed cost health care,
have caused the fair value of Quest Diagnostics' intangible assets to be
significantly less than carrying value. Quest Diagnostics management believes
that a valuation of intangible assets based on the amount for which each
regional laboratory could be sold in an arms-length transaction is preferable
to using projected undiscounted pre-tax cash flows. Quest Diagnostics
believes fair value is a better indicator of the extent to which the
intangible assets may be recoverable and therefore, may be impaired. This
change in method of evaluating the recoverability of intangible assets will
result in Quest Diagnostics recording a charge of between $400 million and
$450 million coincident with the Quest Diagnostics Spin-Off Distribution to
reflect the other than temporary impairment of intangible assets. This will
result in a reduction of amortization expense of approximately $10 million to
$11.3 million annually and $2.5 million to $2.8 million quarterly. See Note
15 to the Audited Financial Statements.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This
statement defines a fair value-based method of accounting for employee stock
options and similar
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equity investments and encourages adoption of that method of accounting for
employee stock compensation plans. However, it also allows entities to
continue to measure compensation cost for employee stock compensation plans
using the intrinsic value-based method of accounting prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Entities which elect to continue accounting for stock compensation plans
utilizing APB 25 are required to disclose pro forma net income and earnings
per share, as if the fair value-based method of accounting under SFAS 123 had
been applied. Quest Diagnostics intends to account for stock compensation
plans pursuant to APB 25 and, as such, will include the pro forma disclosures
required by SFAS 123 in the financial statements beginning in 1996.
Inflation
Quest Diagnostics believes that inflation generally does not have a material
adverse effect on its operations or financial condition because substantially
all of its contracts are short-term.
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Business
Overview
Quest Diagnostics is one of the largest clinical laboratory testing companies
in the United States, offering a broad range of routine and esoteric testing
services used by the medical profession in the diagnosis, monitoring and
treatment of disease and other medical conditions. Quest Diagnostics
currently processes approximately 60 million requisitions each year.
Quest Diagnostics is the successor by merger to MetPath, a New York
corporation organized in 1967. Corning acquired MetPath in 1982 and in 1992
merged MetPath into Quest Diagnostics, which had been organized in 1990 as a
holding company for the clinical laboratory testing business and contract
research business. In 1994, Quest Diagnostics expanded its presence in the
esoteric testing market through the acquisition of Nichols Institute, now
known as Corning Nichols Institute ("Nichols"), which is one of the leading
esoteric clinical laboratories in the world. Upon the consummation of the
Distributions, Corning Clinical Laboratories Inc. will adopt the name Quest
Diagnostics Incorporated.
Since its founding in 1967, Quest Diagnostics' clinical laboratory testing
business has grown into a network of 17 regional laboratories across the
United States, the Nichols esoteric testing laboratory in San Juan
Capistrano, California and one branch laboratory in Mexico City. In addition,
Quest Diagnostics has 14 smaller branch laboratories, approximately 200
"STAT" laboratories and approximately 850 patient service centers located
throughout the United States. A substantial portion of this growth has
resulted from acquisitions. See "--Acquisitions and Dispositions."
The principal executive offices of Quest Diagnostics are located at One
Malcolm Avenue, Teterboro, New Jersey 07608, telephone number: (201)
393-5000.
Recent Organizational Changes
Between 1990 and 1995, Corning tripled the size of its clinical laboratory
testing business, principally through acquisitions. Historically, prior
management pursued a strategy of growth through acquisitions, including
diversification outside of the clinical laboratory testing business. As a
result of difficult integrations and increased pricing pressures and
regulatory complexity in the clinical testing industry, a new strategy was
needed. In May 1995, Corning responded by appointing Kenneth Freeman, then an
Executive Vice President of Corning, as President and Chief Executive Officer
of Quest Diagnostics, who was charged with the responsibility to formulate a
new strategy. Mr. Freeman has over 24 years of key financial and managerial
experiences at Corning, including serving as the general manager of Corning's
science products division and the President and Chief Executive Officer of
Corning Asahi Video Products Company. Under Mr. Freeman's leadership,
profitability of these operations increased.
Mr. Freeman immediately suspended Quest Diagnostics' acquisition program.
Under his direction, Quest Diagnostics began to refocus on its core clinical
laboratory testing business and reorganize its senior management team. As a
result, Quest Diagnostics is implementing the best practices in each region
throughout Quest Diagnostics; standardizing processes and systems; analyzing
the cost of serving various customers; intensifying efforts to correct
persistent billing errors to both enhance customer satisfaction and reduce
the cost of billing operations; enhancing its compliance program to audit and
correct system defaults and to better train employees in the laws and rules
governing the industry; and improving communications with employees by
improving systems and the kind and amount of current information available to
employees.
Mr. Freeman revamped the senior management team by appointing four new senior
executives and changing the responsibilities of five other senior executives.
Additionally, approximately one-half of the existing laboratory facility
general managers were replaced.
Mr. Freeman also changed the management structure, appointing three of the
senior executives to newly created key positions--Douglas VanOort, who will
focus exclusively on laboratory operations, Don Hardison, who will focus on
commercial activities, and Dr. Gregory Critchfield, who will lead the efforts
in the science and medical areas and pursue innovations. All three report
directly to Mr. Freeman. See "Management--Executive Officers." Quest
Diagnostics believes that this new management structure will greatly enhance
Quest Diagnostics' ability to pursue its business strategy. Mr. VanOort and
the regional and facility operations leaders who report to him will focus
their primary attention on laboratory operations, efficiencies and
standardization. Mr. Hardison and the regional and local commercial leaders
who report to him will develop and coordinate national, regional and local
sales and marketing efforts, and will cultivate national and regional client
relationships and provider alliances. Dr. Critchfield will pursue scientific
excellence in the laboratory as well as seek out, develop and assimilate
those new tests and technologies that will differentiate Quest Diagnostics
and propel its growth in the future.
This three-prong management structure is designed to implement Quest
Diagnostics' business strategy to make Quest Diagnostics the best supplier
(i.e., lowest-cost, highest quality) of quality testing services; the
preferred provider of fairly priced and useful health care services and
information; and the industry's leading innovator of new clinical tests,
methodologies and services.
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Business Strategy
Quest Diagnostics' overall goal is to be recognized by its customers,
employees and competitors as the best provider of comprehensive and
innovative clinical testing, information and services. To achieve this, Quest
Diagnostics has set several strategic goals and put in place organizational
structures to implement them.
Best Supplier. Quest Diagnostics seeks to be the best supplier of the highest
quality and the lowest-cost testing services. Health care providers and
patients expect accurate, timely and consistent laboratory test results at a
fair price.
(bullet) Lowest Cost Provider. Currently, approximately 28% of Quest
Diagnostics' net revenues are from laboratories that Quest
Diagnostics believes are the lowest-cost providers in their
respective markets. Management believes that these laboratories are
the lowest cost providers in their respective markets based on its
knowledge of such markets and information obtained in acquiring
other laboratories. Quest Diagnostics currently receives
approximately 60 million requisitions for testing each year.
Currently, Quest Diagnostics' average cost per requisition varies
significantly among its regional laboratories: an approximately
$7.00 difference in cost per requisition between the most efficient
regional laboratory and the average and an approximately $13.00
difference in cost per requisition between the most and the least
efficient regional laboratories. In many cases, these variations do
not relate to testing volumes or mixes, space costs, service
requirements or regional labor cost differences. To reduce costs,
Quest Diagnostics has begun to replicate the best practices from
each region throughout its national network. Standardization of
equipment and supplies, as well as leveraging of Quest Diagnostics'
purchasing power, is also part of this strategy. While Quest
Diagnostics' overall program of standardization is in a preliminary
stage, Quest Diagnostics has already selected its standard clinical
instruments and has selected its national vendors for laboratory
supplies, temporary services and personal computers. Management
expects to achieve significant cost savings within the next three
years as these programs are fully implemented, the majority of which
are expected to be achieved by the end of 1998.*
(bullet) Highest Quality Provider. Quest Diagnostics is dedicated to
providing accurate and timely testing results and to being viewed by
its customers as the highest quality provider of clinical testing
services. Quest Diagnostics believes that implementation of best
practices already developed in certain regions will permit Quest
Diagnostics to be viewed by its customers as the highest quality
provider of clinical testing services. For example, as part of its
best practices policy, Quest Diagnostics is identifying the most
common service failures in each regional laboratory and establishing
procedures to substantially reduce these service failures.
Management believes that implementing these best practices will
increase the level of quality while lowering costs.** Historically,
Quest Diagnostics' experience has been that the regions with the
highest quality of services have also had the lowest costs.
Preferred Provider. Quest Diagnostics seeks to be the preferred provider of
laboratory testing services to existing and new health care networks on a
selective basis determined by profitability of accounts. Quest Diagnostics
believes that it will become the preferred provider to these networks as (1)
large networks typically prefer to utilize large independent clinical
laboratories that can service them on a national or regional basis and (2)
Quest Diagnostics continues to pursue its primary strategy of becoming the
highest quality, lowest cost provider. To achieve this, Quest Diagnostics
will employ a rigorous national and regional process to identify prospective
customers and to efficiently allocate resources to support these efforts.
Quest Diagnostics will also pursue innovative alliances and seek to assist
its partners in achieving their business objectives.
(bullet) Account Profitability. Quest Diagnostics intends to refocus its
sales efforts on pursuing and keeping profitable accounts. Quest
Diagnostics is engaging in an active program with current accounts,
including those with managed care organizations, to evaluate their
profitability and either increase pricing or eliminate accounts that
cannot be serviced profitably. Throughout the independent clinical
laboratory industry, there are substantial differences in pricing
among, as well as the cost of serving, various categories of payors
and health care providers. Quest Diagnostics is beginning to provide
clear pricing guidelines to its sales force and changing its
commission structure so that compensation is tied to the
profitability of (rather than revenues from) new business.
Management expects to achieve significant benefits from these
programs within the next three years, the majority of which are
expected to be achieved by the end of 1998.***
* This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See "--Important
Factors Regarding Forward Looking Statements." In particular see factors
(c), (d), (g) and (j).
** This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See "--Important
Factors Regarding Forward Looking Statements." In particular see factors
(b), (c), (d), (f) and (j).
*** This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See "--Important
Factors Regarding Forward Looking Statements." In particular see factors
(a), (b), (c), (d), (f) and (i).
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(bullet) Regional Profitability. Quest Diagnostics presently believes that it
has the leading market share among independent clinical laboratories
in most routine testing markets of the northeast, mid-Atlantic and
midwest regions. Approximately 65% of Quest Diagnostics' revenues
and almost all of its EBITDA is generated from markets in which
Quest Diagnostics believes that it has the leading market share. In
most of these markets, Quest Diagnostics believes that it also is
the lowest cost provider. Quest Diagnostics is evaluating its
strategic alternatives relative to units whose profitability does
not meet its internal goals. These alternatives may include joint
ventures, alliances, or dispositions. Quest Diagnostics believes
that, while the clinical laboratory industry is becoming national in
scope, Quest Diagnostics can subcontract with other clinical
laboratories to perform testing for national accounts in any markets
in which Quest Diagnostics chooses not to compete. Quest Diagnostics
may also make selected local acquisitions where appropriate.
Leading Innovator. Quest Diagnostics intends to remain a leading innovator in
the clinical laboratory industry by continuing to introduce new tests,
technology and services. Through its relationship with the academic community
and pharmaceutical and biotechnology firms and a research and development
budget exceeding $15 million per year, Quest Diagnostics believes it is one
of the leaders in transferring innovation from academic biotechnology
laboratories to the market. For example, Quest Diagnostics (through its
subsidiary Nichols) has been informed by its licensors that it is currently
the only independent clinical laboratory that is using both molecular signal
amplification (branched DNA) and polymerase chain reaction (PCR) technologies
for HIV testing. These technologies permit the detection of lower levels of
HIV than can be achieved using other technologies, which in turn permits
health care providers to better tailor drug therapies for HIV-infected
patients. Nichols continues to be one of the leading esoteric testing
laboratories in the world. Nichols serves approximately 2,000 of the
country's estimated 6,400 hospitals and counts among its largest customers
both LabCorp and SmithKline. Quest Diagnostics hopes to leverage Nichols'
existing relationships with hospitals into increased routine testing to
hospitals, which continue to perform over half of the clinical laboratory
testing in the United States.
The Clinical Laboratory Testing Industry
Clinical testing is a critical component in the delivery of quality health
care service to patients. Currently, clinical laboratory testing is the first
step in determining how a significant amount of all health care dollars are
spent. Laboratory tests and procedures are used generally by physicians and
other health care providers to assist in the diagnosis, evaluation,
monitoring and treatment of diseases and other medical conditions through the
measurement and analysis of chemical and cellular components in blood,
tissues and other specimens. Clinical laboratory testing is generally
categorized as either clinical testing, which is performed on body fluids
such as blood and urine, or anatomical pathology testing, which is performed
on tissue and other samples, including human cells. Clinical and anatomical
pathology procedures are frequently ordered as part of regular physician
office visits and hospital admissions. Most clinical laboratory tests ordered
by health care providers are considered "routine" and can be performed by
most independent clinical laboratories, while "esoteric" tests (which
generally require more sophisticated equipment, materials and personnel) are
generally referred to laboratories, such as the Nichols facility in San Juan
Capistrano, that specialize in such tests.
Quest Diagnostics believes that in 1995 the entire United States clinical
laboratory industry had revenues exceeding $30 billion. The clinical
laboratory industry consists primarily of three types of providers:
hospital-affiliated laboratories, independent clinical laboratories, such as
those owned by Quest Diagnostics, and physician-office laboratories. Quest
Diagnostics believes that in 1995 approximately 56% of the clinical testing
revenues in the United States were attributable to hospital-affiliated
laboratories, approximately 36% were attributable to independent clinical
laboratories and approximately 8% were attributable to physicians in their
offices and laboratories.
Quest Diagnostics believes that consolidation will continue in the clinical
laboratory testing business. In addition, Quest Diagnostics believes that it
and the other large independent clinical laboratory testing companies may
have the opportunity to increase their share of the overall clinical
laboratories testing market due to a number of external factors including
cost efficiencies afforded by large-scale automated testing, Medicare
reimbursement reductions and the growth of managed health care entities which
require low-cost testing services and large service networks. In addition,
legal restrictions on physician referrals and the ownership of laboratories
as well as increased regulation of laboratories are expected to contribute to
the continuing consolidation of the industry.
Quest Diagnostics believes that a number of factors are likely to positively
influence the volume of clinical laboratory testing performed in the United
States in the future, including (1) the general aging of the population in
the United States; (2) an expanded base of scientific knowledge which has led
to the development of more sophisticated specialized tests and an increase in
the awareness of physicians of the value of clinical laboratory testing as a
cost-effective means of early detection of disease and monitoring of
treatment; (3) an increase in the number and types of tests which are, due to
advances in technology and increased cost efficiencies, readily available on
a more affordable basis to physicians; (4) expanded substance-abuse testing
by corporations and governmental agencies; and (5) increased testing for
sexually transmitted diseases such as AIDS. The impact of these factors is
expected to be offset in part by increased controls over the utilization of
clinical laboratory tests by both Medicare and the private sector,
particularly managed care organizations.
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Quest Diagnostics believes that the clinical laboratory industry will
continue to be subject to pricing pressures as a result of (1) continued
growth of the managed care sector; (2) a shift toward capitated payment
contracts within the managed care sector; and (3) decreases in Medicare
reimbursement rates. In addition, increased regulatory requirements in the
billing of Medicare are expected to result in reimbursement reductions and
additional costs to clinical laboratory testing companies in the United
States. Quest Diagnostics has formulated strategies to address these
challenges. See "--Business Strategy."
Services
Quest Diagnostics' laboratory business is comprised of routine testing, which
Quest Diagnostics management estimates currently generates approximately 88%
of Quest Diagnostics' net revenues; and esoteric testing, which is performed
at the Nichols facility in San Juan Capistrano and which Quest Diagnostics
management estimates generates approximately 10% of Quest Diagnostics' net
revenues. The balance of Quest Diagnostics' net revenues is derived
principally from the manufacture of clinical laboratory test kits.
Routine Testing Services and Operations. Routine tests, which are performed
at Quest Diagnostics' regional laboratories, include procedures in the area
of blood chemistry, hematology, urine chemistry, virology, tissue pathology
and cytology. Commonly ordered individual tests include red and white blood
cell counts, Pap smears, blood cholesterol level tests, AIDS-related tests,
urinalyses, pregnancy tests, and alcohol and other substance-abuse tests.
Routine test groups include tests to determine the function of the kidney,
heart, liver and thyroid, as well as other organs, and several health screens
that measure various important bodily health parameters.
Quest Diagnostics provides services through 17 regional laboratories located
in major metropolitan areas throughout the United States, as well as 14
branch laboratories, approximately 200 STAT laboratories and 850 patient
service centers. Quest Diagnostics also operates a branch laboratory in
Mexico. Regional laboratories offer a full line of routine clinical testing
procedures. "STAT" laboratories are local laboratory facilities where Quest
Diagnostics can quickly perform and report results of certain routine tests
for customers that require such emergency testing services. "Branch
laboratories" have a test menu that is smaller than that of regional
laboratories but larger than that of STAT laboratories. A "patient service
center" is a facility maintained by Quest Diagnostics, typically in or near a
medical professional building, to which patients can be referred by
physicians for specimen collection.
Quest Diagnostics operates 24 hours a day, 365 days a year, utilizing a fully
integrated collection and processing system. Quest Diagnostics generally
performs and reports most routine procedures within 24 hours, employing a
variety of sophisticated and computerized laboratory testing instruments. On
an average work day, Quest Diagnostics processes approximately 220,000
requisitions. Quest Diagnostics provides daily pickup of specimens from most
customers principally through an in-house courier system. The specimens are
sent to one of Quest Diagnostics' laboratories (generally a regional or
branch laboratory) where one or more tests are performed.
Each patient specimen is accompanied by a test requisition form, which is
completed by the customer, that indicates the tests to be performed and
provides the necessary billing information. Each specimen and related
requisition form is checked for completeness and then given a unique
bar-coded identification number. The unique identification number assigned to
each specimen helps to assure that the results are attributed to the correct
patient. The requisition form is sent to a data entry department where a file
is established for each patient and the necessary testing and billing
information is entered. Once this information is entered into the computer
system, the tests are performed and the results are entered, primarily
through computer interface or manually, depending upon the type of testing
equipment involved. Most of Quest Diagnostics' computerized testing equipment
is directly linked with Quest Diagnostics' information systems. Most routine
testing is performed and completed during the evening following receipt of
the specimens to be tested, and test results are readied for distribution the
following morning either electronically or by service representatives. Many
customers have local printer capability enabling laboratory medical reports
to be printed in their offices. Customers who request that they be called
with a result are so notified in the morning. It is Quest Diagnostics' policy
to notify the customer immediately if a life-threatening result is found at
any point during the course of the testing process.
Esoteric Testing Services and Operations. Through Nichols, Quest Diagnostics
operates one of the leading esoteric clinical testing laboratories in the
world. Esoteric tests are performed in cases where the information provided
by routine tests is not specific enough or is inconclusive as to the
existence or absence of disease or when a physician requires more
information. Typically, unlike routine testing, only one test is performed
per requisition. The logistics for esoteric testing are similar to that for
routine testing except that, due to the complexity of the testing,
approximately 60% of the tests are performed within 24 hours, with almost all
of the rest being performed within one week. During 1995 Nichols performed
approximately 3.9 million esoteric tests, of which 77% were referred by
sources other than Quest Diagnostics regional laboratories.
Esoteric tests generally require more sophisticated equipment and materials
as well as more highly skilled personnel to perform test procedures and
analyze results than what is required for routine testing. Consequently,
esoteric tests are generally priced substantially higher than routine tests.
New medical discoveries lead to the development of new esoteric tests.
However, over time esoteric tests may become routine tests as a result of
improved technology or increased volume. The volume of esoteric
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tests required by most health care providers, including hospitals, is
relatively low compared to the volume of routine tests. Because it is
generally not cost effective for such health care providers to perform the
low volume of esoteric tests in-house, a significant portion of esoteric
tests are referred to clinical laboratories like Nichols that specialize in
such tests. Some examples of esoteric testing procedures include capillary
electrophoresis, cell culture technology, chemiluminescent immunoassays,
certain enzyme immunoassays, flow cytometry, fluorescent in situ
hybridization (FISH), inductively coupled plasma mass spectroscopy (ICPMS),
molecular tissue pathology, molecular signal amplification (branched DNA),
and polymerase chain reaction (PCR) technologies.
Nichols's laboratory is comprised of 18 individual laboratory departments,
which in the aggregate offer approximately 1,400 individual tests or "assays"
in such fields as endocrinology, genetics, immunology, microbiology,
molecular biology, oncology, serology, special chemistry and toxicology.
Nichols believes that it has been one of the leaders in transferring
technological innovation from academic biotechnology laboratories to the
marketplace. Nichols was the first to introduce a number of esoteric tests,
including immunoassay methods for measurement of circulating hormone levels
and sensitive tests to predict breast cancer prognosis. Among more recent
developments have been tests to detect a variety of tumor types, a common
form of mental retardation, leukemia, cystic fibrosis, osteoporosis,
hepatitis and neurological disorder and to monitor success of therapy in
cancer and AIDS. The branched DNA and PCR technologies can be applied to a
variety of infectious agents and permit the detection of lower levels of HIV
than can be achieved under other technologies. The ability to measure the
amount of HIV permits health care providers to better tailor drug therapies
for HIV-infected patients. As part of its research and development efforts,
Nichols maintains a relationship with the academic community through its
Academic Associates program, under which approximately sixty scientists from
academia and biotechnology firms work directly with Nichols's staff
scientists to monitor and consult on existing test procedures and develop new
esoteric test methods. In addition, Nichols relies on internal resources for
the development of new tests as well as on license arrangements and co-
development agreements with biotechnology companies and academic medical
centers.
Nichols also provides clinical laboratory testing in connection with
pre-marketing clinical trials of pharmaceutical drugs. This testing is
competitive with the testing performed by a subsidiary of Covance and is
expected to continue in the future. Quest Diagnostics management estimates
that net revenues from such testing accounted for less than 1% of Quest
Diagnostics' net revenues in 1995.
Diagnostics. Through its Nichols Institute Diagnostics ("NID") subsidiaries,
which were acquired as a result of the acquisition of Nichols Institute in
August 1994, Quest Diagnostics manufactures and markets clinical laboratory
kits primarily for esoteric testing. Test kits are sold principally to
hospital and clinical laboratories.
Customers and Payors
Quest Diagnostics provides testing services to a broad range of health care
providers. The primary types of customers served by Quest Diagnostics are as
follows:
Independent Physicians and Physician Groups. Physicians requesting testing
for their patients who are unaffiliated with a managed care plan remain the
principal source of Quest Diagnostics' clinical laboratory business. Fees for
clinical laboratory testing services rendered for these physicians are billed
either to the physician, to the patient, or to the patient's third-party
payor such as insurance companies, Medicare and Medicaid. In four states,
including New York and Michigan, Quest Diagnostics is required to bill
patients directly. The clinical laboratory industry is supporting legislative
efforts to expand direct patient billing. Billings are typically on a
fee-for-service basis. If the billings are to the physician, they are based
on the laboratory's wholesale or customer fee schedule and are typically
subject to negotiation. Otherwise, the billings are based on the laboratory's
retail or patient fee schedule, subject to limitations on fees imposed by
third parties and to negotiation by physicians on behalf of their patients.
Medicare and Medicaid billings are based on fee schedules set by governmental
authorities. See "--Regulation and Reimbursement."
HMOs and Other Managed Care Groups. HMOs and other managed care organizations
typically contract with a limited number of clinical laboratories and then
designate the laboratory or laboratories to be used for tests ordered by
their participating physicians. In an effort to control costs, the managed
care groups generally negotiate discounts to the fees usually charged by such
laboratories. Most testing for managed care organizations is being performed
on a capitated basis. Under a capitated payment contract, the clinical
laboratory and the managed care organization agree to a monthly payment per
covered individual to cover all laboratory tests during the month, regardless
of the number or cost of tests actually performed. Such contracts shift the
risks of additional routine testing beyond that covered by the capitated
payment to the clinical laboratory. In certain cases, however, the monthly
payment may be subject to prospective or retroactive adjustment if the number
of tests performed exceeds (or is less than) certain thresholds. The types of
tests covered by capitated contracts are negotiated for each contract, with
esoteric tests and anatomic pathology services generally not being covered
under the capitation rate. Large regional and national HMOs and preferred
provider organization networks typically prefer to utilize large independent
clinical laboratories such as Quest Diagnostics that can service the managed
care groups on a national or regional basis. See "--Effect of the Growth of
the Managed Care Sector on the Clinical Laboratory Business."
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Hospitals. Quest Diagnostics serves approximately 3,000 hospitals with
services that vary from providing esoteric testing to management contracts,
where Quest Diagnostics manages the hospital's laboratory for a fee.
Hospitals generally maintain an on-site laboratory to perform testing on
patients receiving care and refer less frequently needed procedures to
outside laboratories. Hospitals are typically charged for such tests a
negotiated fee-for-service which is based on the laboratory's customer fee
schedule. Some hospitals actively encourage community physicians to send
their testing to the hospital's laboratory. In addition, some hospitals have
been purchasing physician practices and requiring that the
physicians/employees send their testing to the hospital's affiliated
laboratory. As a result, hospital-affiliated laboratories can be both a
customer and a competitor for independent clinical laboratories such as Quest
Diagnostics.
Other Institutions. Quest Diagnostics also serves other institutions,
including governmental agencies, such as the Department of Defense and prison
systems, large employers and independent clinical laboratories that do not
have the full range of Quest Diagnostics' testing capabilities. These
institutions are typically charged on a negotiated or bid fee-for-service
basis. Quest Diagnostics' services to employers principally involve the
provision of substance abuse testing services.
In 1995, no single customer or affiliated group of customers accounted for
more than 2% of Quest Diagnostics' net revenues. Quest Diagnostics believes
that the loss of any one of its customers would not have a material adverse
effect on Quest Diagnostics' results of operations or cash flows.
Payors. Most clinical laboratory testing is billed to a party other than the
"customer" that ordered the test. Tests performed for various patients of a
single physician may be billed to different payors besides the ordering
physician, including third-party payors (generally an insurance company or
managed care organization), Medicare, Medicaid or the patient.
The following table sets forth current estimates of the breakdown by payor of
Quest Diagnostics' total volume of requisitions and average approximate
revenues per requisition:
<TABLE>
<CAPTION>
Requisition Volume as
% of Total Revenue Per Requisition
--------------------- -------------------------
<S> <C> <C>
Patient 5%-10% $60-$80
Medicare & Medicaid 20%-25% $20-$25
Monthly Bill
(Physician, Hospital, Employer, Other) 35%-40% $15-$35
Third Party Fee-For-Service 15%-20% $30-$40
Managed Care--Capitated 15%-20% $ 5-$15
</TABLE>
For a discussion of the mix shift and the impact of the managed care sector
on volume and price trends, see "--Effect of the Growth of the Managed Care
Sector on the Clinical Laboratory Business."
Average Revenue per Requisition Trends. Since the fourth quarter of 1995,
declines in Quest Diagnostics' average revenue per requisition have
moderated. Average revenue per requisition for the quarter ended September
30, 1996 was approximately 1.7% below the comparable period in 1995. This
decline in revenue per requisition was smaller than the approximate 4.8% and
3.6% decline experienced in the first and second quarters of 1996,
respectively. Since August of 1995, the company-wide average revenue per
requisition has remained relatively stable and is effectively unchanged
during the first three quarters of 1996. This trend is illustrated by the
following chart:
Average Revenue per Requisition as a Percentage
of December 1994 Revenue per Requisition.
[REPRESENTATION OF A LINE CHART GRAPHIC]
Average Revenue per Requisition as a Percentage
of December 1994 Revenue per Requisition
Q1/95 98.6
Q2/95 97.6
Q3/95 95.8
Q4/95 95.1
Q1/96 93.9
Q2/96 94.1
Q3/96 94.2
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Sales and Marketing
Quest Diagnostics markets and services its customers through its direct sales
force of approximately 430 sales representatives, 300 account representatives
and 2,200 couriers.
Most sales representatives market the mainstream or traditional routine
laboratory services primarily to physicians, while others concentrate on
individual market segments, such as hospitals or managed care organizations,
or on testing niches, such as substance abuse testing. Quest Diagnostics'
sales representatives are compensated through a combination of salaries,
commissions and bonuses, at levels commensurate with each individual's
qualifications and responsibilities. Commissions are based primarily upon the
individual's results in generating new business for Quest Diagnostics. Quest
Diagnostics is currently changing its commission structure so that
compensation is tied to the profitability of (rather than revenues from) new
business. See "--Business Strategy--Preferred Provider."
Quest Diagnostics' account representatives interact with customers on an
ongoing basis. Account representatives monitor the status of services being
provided to customers, act as problem-solvers, provide information on new
testing developments and serve as the customer's regular point of contact
with Quest Diagnostics. Account representatives are compensated with a
combination of salaries and bonuses commensurate with each individual's
qualifications and responsibilities.
Quest Diagnostics believes that the clinical laboratory service business is
shifting away from the traditional direct sales structure and into one in
which the purchasing decisions for laboratory services are increasingly made
by managed care organizations, integrated health delivery systems, insurance
plans, employers and by patients themselves. In view of these changes, Quest
Diagnostics has completed a rigorous regional market strategy process and has
reorganized its sales and marketing organization structure to support these
strategies and emerging customers.
Quest Diagnostics believes that, given the increasing regulation and
complexity of the clinical laboratory marketplace, training of its sales
force is of paramount importance. With this goal in mind, during 1995 Quest
Diagnostics enhanced its comprehensive sales training program and compliance
training. See "--Compliance Program."
Effect of the Growth of the Managed Care Sector on the
Clinical Laboratory Business
The managed care industry is growing as well as undergoing rapid
consolidation which has created large managed care companies that control the
delivery of health care services for millions of people, and have significant
bargaining power in negotiating fees with health care providers, including
clinical laboratories. Quest Diagnostics believes that there are potential
opportunities for large, low-cost, clinical laboratories such as Quest
Diagnostics to capture additional testing volume from managed care
organizations. The larger regional and national managed care organizations
typically prefer to utilize large independent clinical laboratories, like
Quest Diagnostics, that can service their organizations on a national or a
regional basis. In addition, smaller laboratories are unlikely to be able to
achieve the low cost structures necessary to profitably service managed care
organizations.
The growth of the managed care sector presents various challenges to
independent clinical laboratories, including Quest Diagnostics. Managed care
organizations typically negotiate capitated payment contracts, whereby the
clinical laboratory receives a monthly fee per covered individual. The fixed
monthly payment generally covers all laboratory tests (excluding certain
tests, such as esoteric tests and anatomic pathology services) performed
during the month, regardless of the number or cost of the tests performed.
Unlike fee-for-service indemnity insurance, such contracts shift the risks of
additional routine testing beyond that covered by the capitated payment to
the clinical laboratory. In certain cases, however, the monthly payment may
be subject to prospective or retroactive adjustment if the number of tests
performed exceeds (or is less than) certain thresholds. Quest Diagnostics
expects the amount of clinical laboratory testing performed for managed care
organizations under capitated rate agreements to continue to grow.
Laboratory services agreements with managed care organizations have
historically been priced aggressively due to competitive pressures and the
expectation that a laboratory would capture not only the volume of testing to
be covered under the contract, but also the additional fee-for-service
business from patients of participating physicians who are not covered under
the managed care plan. However, as the number of patients covered under
managed care plans continues to increase, there is less such fee-for-service
business and, accordingly, less high margin business to offset the low margin
(and often unprofitable) managed care business. Furthermore, increasingly,
physicians are affiliated with more than one managed care organization and as
a result may be required to refer clinical laboratory tests to different
clinical laboratories, depending on the coverage of their patients. As a
result, a clinical laboratory might not receive any fee-for-service testing
from such physicians. The level of pricing charged to managed care
organizations, including under capitated payment contracts, if continued, may
adversely affect the pricing of the clinical laboratory industry.
During the nine months ended September 30, 1996, services to managed care
organizations under capitated rate agreements accounted for approximately 6%
of Quest Diagnostics' net revenues from clinical laboratory testing and
approximately 15% of
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the number of tests performed by Quest Diagnostics. Quest Diagnostics
believes that the prices charged by the independent clinical laboratory
testing companies to managed care organizations can and must be increased.
Quest Diagnostics is currently reviewing its pricing structures for
agreements with managed care organizations and intends to insure that all
such agreements are profitably priced. However, there can be no assurance
that Quest Diagnostics will be able to increase the prices charged to managed
care organizations or that Quest Diagnostics will not lose market share in
the managed care market to other clinical laboratories who continue to
aggressively price laboratory services agreements with managed care
organizations. Quest Diagnostics believes that the growth of the managed care
sector presents both challenges and opportunities. Quest Diagnostics, as part
of its preferred provider strategy, will seek to capitalize on the
opportunity and meet the challenge by seeking to secure large-volume,
profitable managed care contracts through providing low cost, high quality
testing services at rational prices.
Expansion Opportunities
Quest Diagnostics believes that there are several expansion opportunities.
Quest Diagnostics believes that it can take advantage of these opportunities
without incurring significant capital expenditures or deploying significant
resources.
Hospital Alliances. In response to the growth of the managed care sector and
the developments described under "--Effect of the Growth of the Managed Care
Sector on the Clinical Laboratory Business," many health care providers have
established new alliances. Hospital-physician networks are emerging in many
markets in order to offer comprehensive, integrated service capabilities,
either to managed care plans or directly to employers.
Since Quest Diagnostics has traditionally derived a substantial portion of
its esoteric testing revenues from referrals from hospitals, which perform
approximately half of all clinical laboratory tests in the United States,
Quest Diagnostics established a hospital business venture group whose primary
goal is to develop additional nontraditional hospital arrangements, including
management and consulting agreements, shared service arrangements and joint
ventures.
Under federal cost containment legislation enacted in 1985, treatment
provided to hospital inpatients covered by Medicare is classified into
diagnosis-related groups ("DRGs") which prescribe the maximum reimbursable
payments for all services, including laboratory testing services, provided on
behalf of an inpatient under each DRG. As a result of this payment structure,
and similar price constraints from managed care organizations and other
third-party payors, hospitals have an economic incentive to seek the most
cost-effective laboratory testing services for their patients. Quest
Diagnostics believes that in many cases, by managing a hospital laboratory or
entering into a joint venture with a hospital, Quest Diagnostics can improve
a hospital laboratory's economic structure and preserve hospital capital that
would be required for needed laboratory improvements while providing accurate
and timely testing services due to greater economies of scale, increased
utilization of expensive testing and data processing equipment through
optimization of the mix between on-site and off-site testing and more
efficient use of laboratory employees. Quest Diagnostics has several such
arrangements with hospitals, including a joint venture with two hospitals in
Erie, Pennsylvania that performs outreach testing and a management agreement
with a group of approximately 25 hospitals in eastern Nebraska and Sioux
City, Iowa. These two laboratory arrangements, which provide testing for both
the hospitals and the commercial outreach markets in their geographical
areas, serve as two of Quest Diagnostics' laboratory facilities. Quest
Diagnostics also manages the laboratories at several hospitals in the eastern
United States. However, despite the potential cost savings and additional
revenues available to hospitals through such arrangements, Quest Diagnostics
believes that only a small percentage of the hospitals in the United States
have entered into such arrangements with independent clinical laboratories.
Nonetheless, Quest Diagnostics expects to enter into alliances with various
hospitals in the future and believes that this market has potential. As an
alternative service for hospitals that are entering into integrated delivery
systems, Quest Diagnostics is beginning to market consulting support and
technical solutions for integrating diverse laboratory infrastructures,
systems and data.
Employer Market. Quest Diagnostics is considering expanding its business in
the employer market to include the provision of laboratory services to large
employers on a basis comparable to that offered to managed care
organizations, whereby laboratory services paid under self-insured indemnity
plans may be relatively fixed (rather than on a fee-for-service basis). These
services could be offered in alliance with other service providers, including
pharmaceutical benefits and diagnostic imaging services. Quest Diagnostics
recently organized National Imaging Associates Inc. ("NIA"), a company
offering diagnostic imaging benefit management services to employers, payors
and managed care organizations. NIA seeks to carve out the imaging component
of a health care plan service offering and manage it at lower cost through
utilization controls and provider price concessions.
Medical Information. The market need for medical information, particularly
disease-specific information about provider practices and patient care, is
growing rapidly. Large customers of clinical laboratories are increasingly
interested in using information from clinical laboratory data on their
covered population to answer financial, marketing and quality related
questions. Integrated data from clinical laboratories and other health
encounters provides additional insights to these questions. To meet these
emerging needs, Quest Diagnostics created the Medical Informatics ("Medical
Informatics") division which focuses solely on the medical information needs
of managed care organizations, integrated healthcare delivery networks and
other large cus-
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<PAGE>
tomers. Through internal development, Quest Diagnostics now has a portfolio
of information products based primarily upon its extensive database. A
combination of advanced information technology and experienced analytical and
data integration skills provides the platform for delivery of these products.
As market interest has increased, the Medical Informatics division has
devoted experienced account executives to work with customers to meet their
information needs. Current information products include provider profiles and
benchmarks, high-risk patient registries based on customer disease management
initiatives, normative comparisons with other populations, and quantitative
clinical outcomes based on laboratory measures. Quest Diagnostics believes
that health care customers will increasingly see value in the information
obtained from clinical laboratory results.
Information Systems
The need for information systems to support laboratory, billing, customer
service, logistics, medical data, and other business requirements is
significant and will continue to place high demands on Quest Diagnostics'
information systems staff. Quest Diagnostics has historically not
standardized the billing, laboratory and other information systems at
laboratories that it has acquired. As a result, Quest Diagnostics has
numerous different information systems to handle billing, test result
reporting and financial data and transactions. Quest Diagnostics believes
that the efficient handling of information involving customers, patients,
payors, and other parties will be critical to Quest Diagnostics' future
success.
To this end, Quest Diagnostics has chosen standard billing and laboratory
systems. During the third quarter of 1996, Quest Diagnostics recorded a
charge of $13.7 million to write off capitalized software as a result of its
decision to abandon the billing system which had been intended as its
company-wide billing system. Management now plans to standardize using a SYS
billing system which has already been implemented in seven of its 22 billing
sites, which seven sites account for 35% of Quest Diagnostics' net revenues.
The standard laboratory system is already operational in nine of its 22
billing sites, which account for 30% of Quest Diagnostics' net revenues. Such
sites are not necessarily the same sites as those with standard billing
systems. Quest Diagnostics is beginning to convert the remaining nonstandard
billing and laboratory systems to the standard systems, prioritized on an
impact basis. The most critical conversions will be completed within three
years. The New York/New Jersey (Teterboro) laboratory is the first priority
and is expected to be converted by 1998. The conversion costs are expected to
average approximately $3 million per billing system and $1 million to $3
million per laboratory system. As more billing sites are converted to the
standard billing system, consolidation of billing sites is expected to occur,
which will reduce overall conversion costs and improve billing efficiencies.
Quest Diagnostics anticipates that the cost of converting all billing and
laboratory systems to the standard systems over the next several years will
cost between approximately $55 million and $85 million, depending on the
number of billing consolidations that occur.* Quest Diagnostics does not
anticipate that the conversion costs will result in a significant increase in
capital expenditures over the levels spent during the last several years.
Quest Diagnostics is developing systems that will permit managed care
organizations and other providers to have electronic access to test orders
and results for participating physicians, which will permit managed care
organizations to better monitor and control the utilization of testing
services.
Billing
Billing for laboratory services is a complicated process. Laboratories must
bill different payors such as doctors, patients, insurance companies,
Medicare, Medicaid and employer groups, all of whom have different billing
requirements. Quest Diagnostics believes that less than 30% of its bad debt
expense is attributable to specific credit or payment issues of its
customers. The remainder of the bad debt expense is the result of many
non-credit related issues which slow the billing process, create backlogs of
unbilled requisitions and generally increase the aging of accounts
receivable. A primary cause of bad debt expense is missing or incorrect
billing information on requisitions. Typically approximately one-third of the
requisitions that Quest Diagnostics receives either do not provide all the
necessary data or provide incorrect data. Quest Diagnostics believes that
this experience is similar to that of its primary competitors. Quest
Diagnostics performs the requested tests and reports back the test results
regardless of whether billing information has been provided at all or has
been provided incorrectly. Quest Diagnostics subsequently attempts to obtain
any missing information or rectify any incorrect billing information received
from the health care provider. Among the many other factors complicating the
billing process are pricing differences between the fee schedules of Quest
Diagnostics and the payor, disputes between payors as to the party
responsible for payment of the bill and auditing for specific compliance
issues. Ultimately, if all issues are not resolved in a timely manner, the
related receivables are written off to bad debt expense.
* This is a forward looking statement and is based on current expectations.
Actual results may vary materially from those projected. See "--Important
Factors Regarding Forward Looking Statements." In particular see factors
(d), (j) and (k).
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<PAGE>
Quest Diagnostics' bad debt expense has increased each year since 1993 due
principally to four developments that have further complicated the billing
process: (1) increased complexity in the health care system; (2) increased
requirements in complying with fraud and abuse regulations; (3) deterioration
in reimbursement as the payor mix shifts; and (4) changes in Medicare
reimbursement policies. These four factors have placed additional
requirements on the billing process, including the need for specific test
coding, additional research on processing rejected claims that comply with
prior practices, increased audits for compliance, and management of a large
number of contracts which have very different information requirements for
pricing and reimbursement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Quest Diagnostics' billing
has also been hampered by the existence of multiple billing information
systems. In 1995 Quest Diagnostics had severe billing problems at its largest
laboratory site in Teterboro, New Jersey. A new billing information system
developed with outside consultants experienced significant implementation
problems, including excessive downtime, which severely impacted Quest
Diagnostics' ability to efficiently bill for its services from the Teterboro
location. The problem was compounded by a lack of experienced staff as the
result of work force reductions made to meet cost reduction initiatives
undertaken in anticipation of greater efficiencies from the new billing
information system. As a result of all of these factors, Quest Diagnostics
recorded a charge to bad debt of $62 million in the third quarter of 1995. Of
this amount, approximately $34 million was attributable to the Teterboro
location. At the time of charge, the backlog of unbilled requisitions was
estimated at over 2 million requisitions and DSOs for the clinical testing
business were 90 days. In addition, significant backlogs existed in (1)
reconciling cash received to payment of specific bills, (2) rejected claims
that needed to be researched and (3) correspondence from customers attempting
to resolve billing problems.
Integration of a standardized billing system is a priority of Quest
Diagnostics and Quest Diagnostics is in the process of integrating a billing
system with proven reliability throughout its network. The SYS system is in
use at seven of Quest Diagnostics' laboratories. Its reliability is evidenced
by both the improvement in the laboratories' bad debt experience after SYS
was implemented and the improved capability to handle new billing
requirements as compared with non-SYS laboratories, such as Teterboro. For
example, bad debt expense for the nine months ended September 30, 1996 for
the combined SYS laboratories is 6.4% of sales, versus 7.1% for all other
laboratories combined. The use of a standard system will also provide for
operational efficiencies as redundant programming efforts are eliminated and
the ability to consolidate billing sites will become more feasible. See
"--Information Systems." Standardizing billing systems presents conversion
risk to Quest Diagnostics as key databases and masterfiles are transferred to
the SYS system and because the billing workflow is interrupted during the
conversion, which may cause backlogs. Quest Diagnostics, however, has already
completed seven conversions to this system and has retained key people who
have been involved in those conversions.
Quest Diagnostics has focused on improving its billing operations in the last
year. Over the last twelve months, the backlog of unbilled requisitions has
been reduced by approximately 30%, DSOs for the clinical testing business
have been reduced to 74 days, bad debt expense as a percentage of net
revenues has decreased, the percentage of requisitions received with missing
billing information has been reduced by approximately 30% and backlogs in
rejected claims, unapplied cash and customer correspondence have been
significantly reduced. These improvements were achieved in spite of a higher
level of information requirements necessary for correct billing, especially
those bills relating to Medicare. However, additional requirements to provide
documentation of the "medical necessity" of testing have added to the backlog
of unbilled receivables and caused third quarter 1996 bad debt expense as a
percentage of revenues to increase above the rate Quest Diagnostics had
experienced during the first two quarters of 1996. See "--Regulation and
Reimbursement--Regulation of Reimbursement for Clinical Laboratory Services."
Acquisitions and Dispositions
MetPath, Quest Diagnostics' predecessor, originally commenced operations in
1967 with laboratories only in the New York metropolitan area. Most of Quest
Diagnostics' other regional laboratories have been added through
acquisitions. Principally as the result of the acquisitions discussed below
that were completed in 1993 and 1994, Quest Diagnostics' revenues have almost
tripled since 1991. However, this increase in revenues is not reflected in
the Financial Statements because several of the major acquisitions are
accounted for as a pooling of interests. Acquisition activity has diminished
significantly since May 1995, in part so that Quest Diagnostics could
concentrate on the integration of the laboratory networks that had been
acquired in 1993 and 1994. Quest Diagnostics may resume making acquisitions
in the future, most likely focusing on acquisitions of smaller laboratories
that can be folded into existing laboratories where Quest Diagnostics can
expect to achieve significant cost savings and other benefits resulting from
the elimination of redundant facilities and equipment and reductions in
staffing or personnel. Quest Diagnostics is evaluating its strategic
alternatives relative to units whose profitability does not meet its internal
goals. These alternatives may include joint ventures, alliances or
dispositions. However, there are no negotiations or definitive plans with
respect to any such dispositions.
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During 1994 Corning acquired three large clinical laboratory testing
companies, each of which was accounted for as a pooling of interests. In June
1994, Corning acquired Maryland Medical Laboratory, Inc. ("MML"), a regional
laboratory based in Baltimore, Maryland with approximately $90 million in
annual revenues. In August 1994, Corning acquired the stock of Nichols
Institute, a national esoteric clinical laboratory with approximately $280
million in annual revenues. In October 1994, Corning acquired Bioran, a
regional laboratory based in Cambridge, Massachusetts with approximately $65
million in annual revenues.
In August 1993, Corning acquired Damon, a national clinical testing
laboratory with approximately $330 million in annualized revenue. The
acquisition was accounted for as a purchase. The assets of Damon's
California-based laboratories were sold in April 1994 to Physicians Clinical
Laboratory Inc. In November 1993, Quest Diagnostics acquired the clinical
testing laboratories of Unilab in Dallas, Denver and Phoenix, in exchange for
Quest Diagnostics' then 43% ownership of Unilab and the assumption of
approximately $70 million of indebtedness of Unilab. In a separate
transaction, Quest Diagnostics transferred to Unilab Quest Diagnostics'
investment in J.S. Pathology PLC, a clinical testing laboratory based in the
United Kingdom, in exchange for a small equity interest in Unilab. Quest
Diagnostics currently owns approximately 4% of Unilab's outstanding common
stock. In May 1993, Corning acquired and contributed to Quest Diagnostics
DeYor Laboratory Inc., a regional laboratory based in Ohio, Pennsylvania and
Tennessee with approximately $20 million of annual revenues. This transaction
was accounted for under the pooling of interests method, although Quest
Diagnostics' consolidated financial statements for prior periods have not
been restated since this acquisition is not material. See Note 3 to the
Audited Financial Statements. In addition to the acquisitions discussed
above, since January 1993 Quest Diagnostics has acquired approximately 25
other smaller clinical laboratories and customer lists, principally in assets
acquisitions. Only one such acquisition has been completed since May 1995.
Competition
The clinical laboratory testing business is intensely competitive. Quest
Diagnostics believes that in 1995 the entire United States clinical
laboratory testing industry had revenues exceeding $30 billion; approximately
56% of such revenues were attributable to hospital-affiliated laboratories,
approximately 36% were attributable to independent clinical laboratories and
approximately 8% were attributable to physicians in their offices and
laboratories. As recently as 1993, there were seven laboratories that
provided clinical laboratory testing services on a national basis: Quest
Diagnostics, SmithKline, National Health Laboratories Inc. ("NHL"), Roche
Biomedical Laboratories Inc. ("Roche"), Damon, Allied Clinical Laboratories
Inc. ("Allied") and Nichols Institute. In April 1995 Roche merged into NHL
(under the name LabCorp), which had acquired Allied in June 1994. Quest
Diagnostics acquired Nichols Institute in August 1994 and Damon in August
1993. In addition, in the last several years a number of large regional
laboratories have been acquired by national clinical laboratories. There are
presently three national independent clinical laboratories: Quest
Diagnostics, which had approximately $1.63 billion in revenues from clinical
laboratory testing in 1995; LabCorp, which had approximately $1.68 billion in
revenues from clinical laboratory testing in 1995 on a pro forma basis, after
giving effect to the April 1995 merger of Roche into NHL; and SmithKline,
which had approximately $1.29 billion in revenues from clinical laboratory
testing in 1995. Both LabCorp and SmithKline are affiliated with large
corporations that have greater financial resources than Quest Diagnostics.
SmithKline is wholly owned by SmithKline Beecham Ltd. and R. Hoffman La Roche
S.A. beneficially owns approximately 49.9% of the outstanding capital stock
of LabCorp.
In addition to the three national clinical laboratories, Quest Diagnostics
competes on a regional basis with many smaller regional independent clinical
laboratories as well as laboratories owned by hospitals and physicians. Quest
Diagnostics has the leading market share in most of the northeast,
mid-Atlantic and midwest routine testing markets, while its market share is
much lower in the routine testing market in the rest of the country.
Approximately 65% of Quest Diagnostics' net revenues and almost all of its
EBITDA currently is generated from markets in which Quest Diagnostics
believes that it has the largest market share. In most of these markets Quest
Diagnostics believes that it also is the lowest cost provider. Quest
Diagnostics does not generally compete in the California routine testing
market other than in the San Diego metropolitan area.
Quest Diagnostics believes that the following factors, among others, are
often used by health care providers in selecting a laboratory: (i) pricing of
the laboratory's testing services; (ii) accuracy, timeliness and consistency
in reporting test results; (iii) number and type of tests performed; (iv)
service capability and convenience offered by the laboratory; and (v) its
reputation in the medical community. Quest Diagnostics believes that it
competes favorably with its principal competitors in each of these areas and
is currently implementing strategies to improve its competitive position. See
"--Business Strategy."
Quest Diagnostics believes that consolidation will continue in the clinical
laboratory testing business. In addition, Quest Diagnostics believes that it
and the other large independent clinical laboratory testing companies will be
able to increase their share of the overall clinical laboratories testing
market due to a number of external factors including cost efficiencies
afforded by large-scale automated testing, Medicare reimbursement reductions
and the growth of managed health care entities which require low-cost testing
services and large service networks. In addition, legal restrictions on
physician referrals and the ownership of laboratories as well as increased
regulation of laboratories are expected to contribute to the continuing
consolidation of the industry.
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Quality Assurance
Quest Diagnostics maintains a comprehensive quality assurance program for all
of its laboratories and patient service centers. The goal is to ensure
optimal patient care by continually improving the processes used for
collection, storage and transportation of patient specimens, as well as the
precision and accuracy of analysis and result reporting.
The Quest Diagnostics quality assurance efforts focus on: proficiency
testing, process audits, statistical process control, credentialing and
personnel training.
Internal Quality Control and Audits. Quality control samples are processed in
parallel with the analysis of patient specimens. The results of tests on such
samples are then monitored to identify drift, shift or imprecision in the
analytical processes. In addition, Quest Diagnostics administers an extensive
internal program of "blind" proficiency testing. These samples are processed
through the Quest Diagnostics system as routine patient samples, unknown to
the laboratory as quality control samples. Samples are then handled,
processed and reported with patient specimens. This provides a system to
assure accuracy of the entire pre-and post-analytical testing process.
Another element of the Quest Diagnostics comprehensive quality assurance
program includes performance of internal process audits.
External Proficiency Testing and Accreditation. All Quest Diagnostics
laboratories participate in numerous externally conducted, blind sample
quality surveillance programs. These include proficiency testing programs
administered by the College of American Pathologists ("CAP"), as well as many
state agencies. These programs supplement all other quality assurance
procedures.
All Quest Diagnostics laboratories are accredited by CAP. Accreditation
includes on-site inspections and participation in the CAP Proficiency Test
Program. CAP is an independent nongovernmental organization of board
certified pathologists that offers an accreditation program to which
laboratories may voluntarily subscribe. CAP is approved by HCFA to inspect
clinical laboratories to determine compliance with the standards required by
the Clinical Laboratory Improvement Amendments of 1988 ("CLIA").
Regulation and Reimbursement
Overview. The clinical laboratory industry is subject to significant
governmental regulation at the federal and state levels. All Quest
Diagnostics laboratories and patient service centers are appropriately
licensed and accredited by various state and federal agencies.
The health care industry is undergoing significant change as third-party
payors, such as Medicare (which principally serves patients 65 and older),
Medicaid (which principally serves indigent patients), private insurers and
large employers increase their efforts to control the cost, utilization and
delivery of health care services. In an effort to address the problem of
increasing health care costs, legislation has been proposed or enacted at
both the federal and state levels to regulate health care delivery in general
and clinical laboratories in particular. Some of the proposals include
managed competition, global budgeting and price controls. Although the
Clinton Administration's health care reform proposal, initially advanced in
1994, was not enacted, such proposal or other proposals may be considered in
the future. In particular, Quest Diagnostics believes that reductions in
reimbursement for Medicare services will continue to be implemented from time
to time. Reductions in the reimbursement rates of other third-party payors
are likely to occur as well. Quest Diagnostics cannot predict the effect
health care reform, if enacted, would have on its business, and there can be
no assurance that such reforms, if enacted, would not have a material adverse
effect on Quest Diagnostics' business and operations.
Regulation of Clinical Laboratory Operations. The CLIA standards were
designed to ensure that all clinical laboratory testing services are
uniformly accurate and of high quality by using a single set of requirements.
On February 28, 1992, the final rules implementing CLIA were published in the
Federal Register. These regulations extended federal oversight, with few
exceptions, to virtually all clinical laboratories regardless of size, type,
location or ownership of the laboratory. The regulations generally became
effective in 1992. However, certain quality control and proficiency testing
requirements are still being phased in. The standards for laboratory
personnel, quality control, quality assurance and patient test management are
based on complexity and risk factors. Laboratories categorized as "high"
complexity are required to meet more stringent requirements than either
"moderate" or "waived" (tests regarded as having a low potential for error
and requiring little or no oversight) laboratories.
Most of the Quest Diagnostics laboratories are categorized as high complexity
and these laboratories are in compliance with the more stringent standards
for personnel, quality control, quality assurance and patient test
management. A few Quest Diagnostics laboratories are categorized as moderate
complexity (some STAT laboratories) or waived (only patient service centers).
The sanction for failure to comply with these regulations may be suspension,
revocation or limitation of a laboratory's CLIA certificate necessary to
conduct business, significant fines or criminal penalties. The loss of a
license, imposition of a fine or future changes in such federal, state and
local laws and regulations (or in the interpretation of current laws and
regulations) could have a material adverse effect on Quest Diagnostics.
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Quest Diagnostics is also subject to state regulation. CLIA permits states to
adopt regulations that are more stringent than federal law. For example,
state law may require that laboratory personnel meet certain more stringent
qualifications, specify certain quality control standards, maintain certain
records and undergo additional proficiency testing. For example, certain of
Quest Diagnostics' laboratories are subject to the State of New York's
clinical laboratory regulations, which contain provisions that are
significantly more stringent than federal law.
Quest Diagnostics believes it is in material compliance with the foregoing
standards. See "--Compliance Program."
Drug Testing. Drug testing for public sector employees is regulated by the
Substance Abuse and Mental Health Services Administration ("SAMHSA")
(formerly the National Institute on Drug Abuse), which has established
detailed performance and quality standards that laboratories must meet in
order to be approved to perform drug testing on employees of federal
government contractors and certain other entities. To the extent that Quest
Diagnostics' laboratories perform such testing, each must be certified by HHS
as meeting SAMHSA standards. Seven of Quest Diagnostics' laboratories are
SAMHSA certified.
Controlled Substances. The use of controlled substances in testing for drug
abuse is regulated by the federal Drug Enforcement Administration ("DEA").
All Quest Diagnostics laboratories using controlled substances for testing
purposes are licensed by the DEA.
Medical Wastes and Radioactive Materials. Quest Diagnostics is subject to
licensing and regulation under federal, state and local laws relating to the
handling and disposal of medical specimens and hazardous waste and
radioactive materials as well as to the safety and health of laboratory
employees. All Quest Diagnostics laboratories are operated in material
compliance with applicable federal and state laws and regulations relating to
disposal of all laboratory specimens. Quest Diagnostics utilizes outside
vendors for disposal of specimens. Although Quest Diagnostics believes that
it is currently in compliance in all material respects with such federal,
state and local laws, failure to comply could subject Quest Diagnostics to
denial of the right to conduct business, fines, criminal penalties and other
enforcement actions.
Occupational Safety. In addition to its comprehensive regulation of safety in
the workplace, the federal Occupational Safety and Health Administration
("OSHA") has established extensive requirements relating to workplace safety
for health care employers, including clinical laboratories, whose workers may
be exposed to blood-borne pathogens such as HIV and the hepatitis B virus.
These regulations, among other things, require work practice controls,
protective clothing and equipment, training, medical follow-up, vaccinations
and other measures designed to minimize exposure to chemicals and
transmission of blood-borne and airborne pathogens.
Specimen Transportation. Regulations of the Department of Transportation, the
Public Health Service and the Postal Service apply to the surface and air
transportation of clinical laboratory specimens.
Regulation of Reimbursement for Clinical Laboratory Services. Containment of
health care costs, including reimbursement for clinical laboratory services,
has been a focus of ongoing governmental activity. In 1984, Congress
established a Medicare fee schedule for clinical laboratory services
performed for patients covered under Part B of the Medicare program.
Subsequently, Congress imposed a national ceiling on the amount that would be
paid under the Medicare fee schedule. Laboratories must bill the program
directly and must accept the scheduled amount as payment in full for most
tests performed on behalf of Medicare beneficiaries. In addition, state
Medicaid programs are prohibited from paying more (and in most instances, pay
significantly less) than the Medicare fee schedule for clinical laboratory
testing services furnished to Medicaid recipients. In 1995, Quest Diagnostics
derived approximately 20% and 3% of its net revenues from tests performed for
beneficiaries of Medicare and Medicaid programs, respectively. Since 1984,
Congress has periodically reduced the ceilings on Medicare reimbursement to
clinical laboratories from previously authorized levels. In 1993, pursuant to
the Omnibus Budget and Reconciliation Act of 1993 ("OBRA '93"), Congress
reduced, effective January 1, 1994, the Medicare national fee schedule
limitations from 88% of the 1984 national median to 76% of the 1984 national
median, which reductions were phased in from 1994 through 1996 (to 84% in
1994, 80% in 1995 and 76% in 1996, in each case as a percentage of the 1984
national median). The 1996 reduction to 76% was implemented as scheduled on
January 1, 1996. OBRA '93 also eliminated the provision for annual fee
schedule increases based upon the consumer price index for 1994 and 1995.
Medicare reimbursement reductions have a direct adverse effect on Quest
Diagnostics' net earnings and cash flows. Quest Diagnostics cannot predict if
additional Medicare reductions will be implemented. The Senate and House
Medicare proposal (the Medicare Preservation Act of 1995) passed in October
1995 would have reduced the national limitation to 65% beginning in 1997 and
would have eliminated all annual consumer price index adjustments through
2002. This reduction in laboratory reimbursement rates was retained in the
House-Senate conference report agreed upon in November 1995. The President
vetoed this bill in December 1995.
Effective January 1, 1996, HCFA adopted a new policy on reimbursement for
chemistry panel tests. As of January 1, 1996, 22 automated tests (rather than
19 tests) became reimbursable by Medicare as part of an automated chemistry
profile. An additional allowance of $0.50 per test is authorized when more
than 19 tests are billed in a panel. HCFA retains the authority to expand in
the future the list of tests included in a panel. Effective as of March 1,
1996, HCFA eliminated its prior policy of
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permitting payment for all tests contained in an automated chemistry panel
when at least one of the tests in the panel is medically necessary. Under the
new policy, Medicare payment will not exceed the amount that would be payable
if only the tests that are "medically necessary" had been ordered. In
addition, since 1995 most Medicare carriers have begun to require clinical
laboratories to submit documentation supporting the medical necessity, as
judged by ordering physicians, for many commonly ordered tests. Quest
Diagnostics expects to incur additional reimbursement reductions and
additional costs associated with the implementation of these requirements of
HCFA and Medicare carriers. The amount of the reductions in reimbursements
and additional costs cannot be determined at this time. See "--Billing."
Major clinical laboratories, including Quest Diagnostics, use dual fee
schedules: "client" fees charged to physicians, hospitals, and institutions
with which a laboratory deals on a bulk basis and "patient" fees charged to
individual patients and third-party payors, including Medicare and Medicaid,
who generally require separate bills or claims for each requisition. Medicare
and other third party payors also set maximum fees that they will pay which
are substantially lower than the patient fees otherwise charged by Quest
Diagnostics, but are generally higher than Quest Diagnostics' client fees,
which may be subject to negotiation or discount. Federal and some state
regulatory programs prohibit clinical laboratories from charging government
programs more than certain charges to other customers. During 1992, in
issuing final regulations implementing the federal statutory prohibition
against charging Medicare substantially in excess of a provider's usual
charge, the OIG declined to provide any guidance concerning the
interpretation of this legislation, including whether or not discounting or
the dual fee structure employed by clinical laboratories might raise issues
under the provision.
Medicare budget proposals developed by the Clinton Administration in 1993 and
1994, along with proposals incorporated in many major health reform bills
considered by Congress in 1994, called for the reinstatement of 20% Medicare
clinical laboratory co-insurance (which was last in effect in 1984). While
co-insurance was in effect, clinical laboratories received from Medicare
carriers only 80% of their Medicare reimbursement rates and were required to
bill Medicare beneficiaries for the balance of the charges. A co-insurance
proposal was not included in any of the Congressional Medicare reform
packages considered to date in the 1995 and 1996 legislative sessions.
However, it is still possible a co-insurance provision will be proposed in
the future and, if enacted, such a proposal could materially adversely affect
the revenues and costs of the clinical laboratory industry, including Quest
Diagnostics, by exposing the testing laboratory to the credit of individuals
and by increasing the number of bills. In addition, a laboratory could be
subject to potential fraud and abuse violations if adequate procedures to
bill and collect the co-insurance payments are not established and followed.
Proposals have also been developed to procure Medicare and Medicaid
laboratory testing services through competitive bidding mechanisms. To date,
none of the Congressional Medicare reform packages introduced in the 1995 and
1996 legislative sessions have included a competitive bidding provision for
clinical laboratory tests. However, President Clinton's Medicare reform
proposal would have established competitive bidding for clinical laboratory
services. If competitive bidding were implemented, such action could
materially adversely affect the revenues of the clinical laboratory industry,
including Quest Diagnostics. HCFA is currently developing a demonstration
project to determine whether competitive bidding can be used to provide
quality laboratory services at prices below current Medicare reimbursement
rates. The demonstration is expected to be conducted in Kentucky and to
commence in 1997.
Future changes in federal, state and local regulations (or in the
interpretation of current regulations) affecting governmental reimbursement
for clinical laboratory testing could have a material adverse effect on Quest
Diagnostics. Quest Diagnostics is unable to predict, however, whether and
what type of legislation will be enacted into law.
Fraud and Abuse Regulations. The Medicare and Medicaid anti-kickback laws
prohibit clinical laboratories from, among other things, making payments or
furnishing other benefits to influence the referral of tests billed to
Medicare, Medicaid or other federal programs. Penalties for violations of
these federal laws include exclusion from participation in the Medicare/
Medicaid programs, assets forfeitures, and civil and criminal penalties.
Civil administrative penalties for a wide range of offenses may be up to
$2,000 per item and twice the amount claimed. Under the Health Insurance
Portability and Accountability Act of 1996 (the "Health Insurance Act"), the
penalties will be increased, effective January 1, 1997 to up to $10,000 per
item plus three times the amount claimed. In the case of certain offenses,
exclusion from participation in Medicare and Medicaid is a mandatory penalty.
The fraud and abuse provisions are interpreted liberally and enforced
aggressively by various enforcing agencies of the federal government,
including the Federal Bureau of Investigation ("FBI") and the OIG. According
to public statements by the DOJ, health care fraud has been elevated to the
second-highest priority of the DOJ, and FBI agents have been transferred from
investigating counterintelligence activities to health care provider fraud.
The OIG also is involved in such investigations and has, according to recent
workplans, targeted certain laboratory practices for study, investigation and
prosecution. The federal government's involvement in curtailing fraud and
abuse is likely to increase as a result of the enactment in August 1996 of
the Health Insurance Act which will require, by January 1, 1997, the U.S.
Attorney General and the OIG to jointly establish a program to (a) coordinate
federal, state and local enforcement programs to control fraud and abuse with
respect to health care, (b) conduct
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investigations, audits, evaluations and inspections relating to the delivery
and payment for health care, (c) facilitate the enforcement of the health
care fraud and abuse laws, (d) provide for the modification and establishment
of safe harbors and to issue advisory opinions and Special Fraud Alerts and
(e) provide for a data collection system for the reporting and disclosure of
adverse actions taken against health care providers. The Health Insurance Act
also authorizes the establishment of an anti-fraud and abuse trust fund
funded through the collection of penalties and fines for violations of the
health care anti-fraud laws as well as amounts authorized therefor by
Congress. The Health Insurance Act also requires HHS to establish a program
to encourage Medicare beneficiaries and others to report violations of the
health care anti-fraud laws, including by paying to the reporting person a
portion of any fines and penalties collected.
In October 1994, the OIG issued a Special Fraud Alert, which set forth a
number of practices allegedly engaged in by clinical laboratories and health
care providers that the OIG believes violate the anti-kickback laws. These
practices include providing employees to collect patient samples at physician
offices if the employees perform additional services for physicians that are
typically the responsibility of the physicians' staff; selling laboratory
services to renal dialysis centers at prices that are below fair market value
in return for referrals of Medicare tests which are billed to Medicare at
higher rates; providing free testing to a physician's HMO patients in
situations where the referring physicians benefit from lower utilization;
providing free pickup and disposal of bio-hazardous waste for physicians for
items unrelated to a laboratory's testing services; providing facsimile
machines or computers to physicians that are not exclusively used in
connection with the laboratory services performed; and providing free testing
for health care providers, their families and their employees (professional
courtesy testing). The OIG stressed in the Special Fraud Alert that when one
purpose of the arrangements is to induce referral of program-reimbursed
laboratory testing, both the clinical laboratory and the health care provider
or physician may be liable under the anti-kickback laws and may be subject to
criminal prosecution and exclusion from participation in the Medicare and
Medicaid programs. The Special Fraud Alert was issued in part at the request
of the American Clinical Laboratory Association, which requested
clarification of certain of these rules. Quest Diagnostics does not believe
that it has been negatively affected by the issuance of the Special Fraud
Alert.
Many of these statutes and regulations, including those relating to joint
ventures and alliances, are vague or indefinite and have not been interpreted
by the courts. In addition, regulators have generally offered little guidance
to the clinical laboratory industry. Despite requests from the American
Clinical Laboratory Association for clarification of the anti-fraud and abuse
rules, since 1992, OIG has issued only two fraud alerts specifically with
regard to clinical laboratory practices and has insisted that it lacked
statutory authority to issue advisory opinions. Legislation requiring OIG to
issue fraud alerts and advisory opinions was enacted in August 1996, and as a
result Quest Diagnostics is hopeful that additional regulatory guidance will
be given to the clinical laboratory industry.
According to the 1995 work plan of the OIG, its recently established Office
of Civil Fraud and Administrative Adjudication ("OCFAA") will be responsible
for protecting the government-funded health care programs and deterring
fraudulent conduct by health care providers through the negotiation and
imposition of civil monetary penalties, assessments and program exclusions.
The OCFAA works very closely with the DOJ, the Office of General Counsel of
HHS and the OIG investigative and audit offices in combating fraud and abuse.
In addition, the OIG stated in its 1995 work plan that it will determine the
extent to which laboratories supply physicians' offices with phlebotomists
(blood-drawing technicians), offer management services or medical waste
pick-up to physicians, provide training to physicians or engage in other
financial arrangements with purchasers of laboratories' services. The OIG
will assess the potential benefits of such arrangements as well as the extent
to which such arrangements might be unlawful.
A federal "self-referral" law commonly known as the "Stark" law has, since
1992, generally prohibited (with certain exceptions) Medicare payments for
laboratory tests referred by physicians who have (personally or through a
family member) an investment interest in, or a compensation arrangement with,
the testing laboratory. Since January 1995, these restrictions apply to
Medicaid-covered services as well. Physicians may, however, be reimbursed by
Medicare and Medicaid for testing performed by or under the supervision of
the physician or the group practice to which the physician belongs. In
addition, a physician may refer specimens to a laboratory owned by a company,
such as Quest Diagnostics, whose stock is traded on a public exchange and
which has stockholders' equity exceeding $75 million even if the physician
owns stock of that company. An amendment to the Stark law in August 1993
makes it clear that ordinary day-to-day transactions between laboratories and
their customers, including, but not limited to, discounts granted by
laboratories to their customers, are not covered by the compensation
arrangement provisions of the Medicare statute. Sanctions for laboratory
violations of the prohibition include denial of Medicare payments, refunds,
civil money penalties of up to $15,000 for each service billed in violation
of the prohibition and exclusion from the Medicare and Medicaid programs.
The 1995 House Medicare reform proposal contained, and the House-Senate
report adopted, provisions that would significantly narrow the scope of the
Stark anti-referral laws. That proposal would, among other changes, have
ended the ban on physician
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referrals to laboratories based on any "compensation arrangements" between
the laboratory and the physician. The President vetoed this bill on December
6, 1995.
Government Investigations and Related Claims
Quest Diagnostics has settled various government and private claims (i.e.,
nongovernmental claims such as those by private insurers) totalling
approximately $195 million relating primarily to industry-wide billing and
marketing practices that had been substantially discontinued by late 1992.
Specifically, Quest Diagnostics has entered into, (i) for an aggregate of
approximately $180 million, five settlements with the OIG and the DOJ
(including, the MetPath and the Damon settlements discussed below) and two
settlements with state governments with respect to Medicare and Medicaid
marketing and billing practices of Quest Diagnostics and certain companies
acquired by Quest Diagnostics prior to their acquisition and (ii) thirteen
settlements relating to private claims totalling approximately $15 million.
In addition, there are pending investigations by the OIG and DOJ into billing
and marketing practices at three regional laboratories operated by Nichols
prior to its acquisition by Quest Diagnostics. There are no private claims
presently pending.
Government Settlements
The MetPath Settlement. In September 1993, Quest Diagnostics (under the name
MetPath Inc.) entered into an agreement with the DOJ and the OIG pursuant to
which Quest Diagnostics paid a total of approximately $36 million in
settlement of civil claims by the United States that the company had
wrongfully induced physicians to order certain laboratory tests without their
realizing that such tests would be billed to Medicare at rates higher than
those the physicians believed were applicable.
The Damon Settlement. By issuance of a civil subpoena in August 1993, the
government began a formal investigation of Damon, a company acquired by
Corning in August 1993. Subsequent to September 1993, several additional
subpoenas were issued. By a plea agreement and civil settlement agreement and
release dated October 9, 1996, between DOJ and Damon, all federal criminal
matters within the scope of the various federal investigations against Damon,
and all claims included in the civil qui tam cases underlying the civil
investigations, were settled for an aggregate of $119 million, which sum was
reimbursed to Quest Diagnostics by Corning. The settlement included base
recoupments of approximately $40 million (which did not differ materially
from management's estimate at June 30, 1996) and total criminal and civil
payments in excess of base recoupments of approximately $80 million. At the
time Quest Diagnostics began its settlement negotiations with DOJ in April
1996, it believed it had meritorious defenses to a number of charges and
claims made by the government. Reserves established for such settlements in
the second quarter of 1996 were based on Quest Diagnostics' and its counsel's
belief that the merits of its factual and legal arguments would be given more
weight by the government. Certain of these positions were ultimately rejected
by criminal and civil prosecutors in the final rounds of negotiations which
occurred in late September 1996, resulting in a total settlement
substantially in excess of what had earlier been anticipated. The Damon
settlement does not exclude Quest Diagnostics from future participation in
any federal health care programs on account of Damon's practices.
Other Governmental Settlements. In addition to the MetPath settlement and the
Damon settlement, since 1992 Quest Diagnostics has settled five other federal
and state billing-related claims for a total of approximately $25 million.
Ongoing Government Investigations
The Nichols Investigation. By issuance of a civil subpoena in August 1993,
the government began a formal investigation of Nichols, a company acquired by
Corning in August 1994. The investigation of Nichols remains open. While
Quest Diagnostics has established reserves in respect of the Nichols
investigations, at present there are no settlement discussions pending
between DOJ and Quest Diagnostics regarding Nichols, and it is too early to
predict the outcome of this investigation. Remedies available to the
government include exclusion from participation in the Medicare and Medicaid
programs, criminal fines, civil recoveries plus civil penalties and asset
forfeitures. Although application of such remedies and penalties could
materially and adversely affect Quest Diagnostics' business, financial
condition, results of operations and prospects, management believes that the
possibility of this happening is remote. Quest Diagnostics derived
approximately 23% and 22% of its net revenues for the year ended December 31,
1995 and the nine months ended September 30, 1996, respectively, from
Medicare and Medicaid programs. However, in light of the Corporate Integrity
Agreement referred to below entered into between Quest Diagnostics and the
OIG in connection with the Damon settlement, the fact that the matters being
investigated were corrected with or before Quest Diagnostics' acquisition of
Nichols and Quest Diagnostics' cooperation in this investigation, Quest
Diagnostics believes the prospect of such exclusion on account of the
investigation is remote. As discussed below, Corning has agreed to indemnify
Quest Diagnostics against any monetary penalties, fines or settlements for
any governmental claims that may arise as a result of the Nichols
investigations.
The Damon Officer Investigations. Quest Diagnostics understands that the
Boston United States Attorney's Office has designated several former officers
and employees of Damon as targets of its criminal investigation, and will
seek indictments against them. Under the agreement and plan of merger under
which Damon was acquired by Corning, Quest Diagnostics is obligated to
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indemnify former officers and directors of Damon to the fullest extent
permitted by Delaware law with respect to this investigation. These
obligations will remain those of Quest Diagnostics and will not be
indemnified by Corning. In addition, as part of the Damon settlement, Corning
agreed to cooperate with DOJ in its continuing investigation of individuals
formerly associated with Damon and, in connection therewith, Quest
Diagnostics is providing additional information pursuant to several
subpoenas.
Other Government Investigations. In December 1995, Quest Diagnostics received
a subpoena from the OIG seeking information as to Quest Diagnostics' policies
in instances in which specimens were received and tested by a laboratory
without first receiving or verifying specific test requisitions. While
compliance with the subpoena is ongoing, Quest Diagnostics has concluded the
occurrence of this practice was relatively rare and was engaged in primarily
to preserve the integrity of test results from specimens subject to rapid
deterioration. During 1996, Quest Diagnostics voluntarily self-reported to
the government a few isolated events, involving billings of approximately $16
million, that may have resulted in overpayment by Medicare and Medicaid to
Quest Diagnostics. It is Quest Diagnostics' policy to internally investigate
all such incidents and to self-report and reimburse payors as appropriate.
Although Quest Diagnostics has commenced internal investigations to quantify
the amounts that may be recouped by the government and corrective action has
been taken as to each such event, it is too early to predict the outcome of
these disclosures to the government. As discussed below, Corning has agreed
to indemnify Quest Diagnostics against any monetary penalties, fines or
settlements for any governmental claims that may arise as a result of the
investigations described in this paragraph.
Outlook for Future Government Investigations
The Damon settlement involved, and a settlement regarding Nichols is expected
to involve, only matters predating Corning's acquisition of both such
companies, and turned on, or will turn on, facts unique to those companies
and other factors individual government enforcement personnel may take into
account. However, recent experience in Quest Diagnostics' settlement of the
Damon case and public announcements by various government officials indicate
that the government's position on health care fraud is still hardening and
collections of amounts greatly in excess of mere recoupment of overcharges
from laboratories and other providers will be more prevalent. In addition,
the newly adopted Health Insurance Act includes provisions to combat health
care fraud and abuse will give federal enforcement personnel substantially
increased funding, powers and remedies to pursue suspected fraud and abuse.
In connection with the Damon settlement, Quest Diagnostics signed a Corporate
Integrity Agreement pursuant to which Quest Diagnostics will maintain its
corporate compliance program, modify certain of its marketing materials, make
periodic reports to the OIG and take certain other steps to demonstrate Quest
Diagnostics' integrity as a provider of services to federally sponsored
health care programs. This agreement also includes an obligation to
self-report instances of noncompliance that are uncovered by Quest
Diagnostics, but also gives Quest Diagnostics the opportunity to obtain
clearer guidance on matters of compliance and to resolve compliance issues
directly with OIG. Importantly, the agreement gives Quest Diagnostics the
opportunity to cure any asserted breaches and to otherwise initiate
corrective actions, which Quest Diagnostics believes should help to avoid
enforcement actions outside of the process provided in the agreement. See
"--Compliance Program."
Private Settlements and Claims
Since 1992 Quest Diagnostics has settled thirteen private actions relating to
the governmental settlements described above for an aggregate of
approximately $15 million. There are no private claims presently pending.
Corning Indemnity
In connection with the Distributions, Corning will agree to indemnify Quest
Diagnostics against all monetary penalties, fines or settlements for any
governmental claims arising out of alleged violations of applicable federal
fraud and health care statutes and relating to billing practices of Quest
Diagnostics and its predecessors that have been settled or are pending on the
Distribution Date. This includes the settlements described under
"--Government Settlements" above and the claims described under "--Ongoing
Government Investigations--The Nichols Investigation" and "--Other Government
Investigations." Corning will also agree to indemnify Quest Diagnostics for
50% of the aggregate of all judgment or settlement payments made by Quest
Diagnostics that are in excess of $42.0 million in respect of claims by
private parties (i.e., nongovernmental parties such as private insurers) that
relate to indemnified or previously settled governmental claims (such as the
Damon settlement) and that allege overbillings by Quest Diagnostics or any
existing subsidiaries of Quest Diagnostics, for services provided prior to
the Distribution Date; provided, however, such indemnification will not
exceed $25.0 million in the aggregate and that all amounts indemnified
against by Corning for the benefit of Quest Diagnostics will be calculated on
a net after-tax basis by taking into account any deductions and other tax
benefits realized by Quest Diagnostics (or a consolidated group of which
Quest Diagnostics is a member after the Distributions (the "Quest Diagnostics
Group")) in respect of the underlying settlement, judgment payment, or other
loss (or portion thereof) indemnified against by Corning generally at the
time and to the extent such deductions or tax benefits are deemed to reduce
the tax liability of Quest Diagnostics or the Quest Diagnostics Group.
Corning will not indemnify Quest Diagnostics against (i) any governmental
claims that arise after the Distribution Date pursuant to service of subpoena
or other notice of such investigation after the Distribution Date, (ii) any
nongovernmental claims unre-
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lated to the indemnified governmental claims or investigations, (iii) any
nongovernmental claims not settled prior to five years after the Distribution
Date, (iv) any consequential or incidental damages relating to the billing
claims, including losses of revenues and profits as a consequence of
exclusion for participation in federal or state health care programs or (v)
the fees and expenses of litigation. Quest Diagnostics will control the
defense of any governmental claim or investigation unless Corning elects to
assume such defense. However, in the case of all nongovernmental claims
related to indemnified governmental claims related to alleged overbillings,
Quest Diagnostics will control the defense. All disputes under the
Transaction Agreement are subject to binding arbitration. See "The
Distributions--Transaction Agreement."
Quest Diagnostics' Reserves
Quest Diagnostics' aggregate reserve with respect to all governmental and
private claims, including litigation costs of approximately $6.6 million, was
$215 million at September 30, 1996 and is estimated to be $85 million at the
Distribution Date. The approximately $130 million reduction in the reserve is
due to the subsequent payment of the Damon settlement ($119 million), the
settlement of an investigation into billing of certain hematology indices
(reserved at $7 million) and the settlement of a private claim (reserved at
$6 million). These settlements have been or will be funded by contributions
to Quest Diagnostics' capital by Corning. The $85 million reserve represents
amounts for future government and private settlements of matters which are
either presently pending or anticipated as a consequence of the government
and private settlements and self-reported matters described above. Based on
information available to management and Quest Diagnostics' experience with
past settlements, especially the Damon settlement, and the fact that the
aggregate amount of such settlement was significantly in excess of
established reserves, management has reassessed its reserve levels and
believes that its current level of reserves is adequate. However, it is
possible that the additional information may become available (such as the
indication by the government of criminal activity, additional tests being
questioned or other changes in the government's theories of wrongdoing) which
may cause the final resolution of these matters to be in excess of
established reserves by an amount which could be material to Quest
Diagnostics' results of operations and, for non-indemnified claims, Quest
Diagnostics' cash flows in the period in which such claims are settled. While
none of the governmental or nongovernmental investigations or claims is
covered by insurance, Quest Diagnostics does not believe that these matters
will have a material adverse effect on Quest Diagnostics' overall financial
condition.
Compliance Program
Because of evolving interpretations of regulations and the national debate
over health care, compliance with all Medicare, Medicaid and other
government-established rules and regulations has become a significant concern
throughout the clinical laboratory industry. Quest Diagnostics began the
implementation of a compliance program early in 1993. The objective of the
program is to develop aggressive and reliable compliance safeguards. Emphasis
is placed on developing training programs for personnel intended to assure
the strict implementation and observance of all applicable rules and
regulations. Further, in-depth reviews of procedures, personnel and
facilities are conducted to assure regulatory compliance throughout Quest
Diagnostics. Quest Diagnostics' current compliance plan establishes a
Compliance Committee of the Board and requires periodic reporting of
compliance operations by management to the Compliance Committee. Such
sharpened focus on regulatory standards and procedures will continue to be a
priority for Quest Diagnostics in the future.
Quest Diagnostics has established a comprehensive program designed to ensure
that it is in compliance in all material respects with all statutes,
regulations and other requirements applicable to its clinical laboratory
operations. This program was publicly cited with approval by government
officials at the time the Damon settlement was announced and characterized as
a "model" for the industry. In addition, the government advised Quest
Diagnostics representatives that Quest Diagnostics' compliance program,
coupled with corrective action taken by Quest Diagnostics after its
acquisition of Damon, greatly reduced the amounts of fines and penalties, and
was influential in causing the OIG not to seek exclusion of Quest Diagnostics
from future participation in governmental health care programs. Pursuant to
the Damon settlement, Quest Diagnostics signed a five year Corporate
Integrity Agreement with the OIG pursuant to which Quest Diagnostics will,
among other things, maintain its corporate compliance program, make certain
changes to its test order forms, provide certain additional notices to
ordering physicians, provide to the OIG data on certain test ordering
patterns, adopt certain pricing guidelines, audit laboratory operations,
deliver annual reports on compliance activities, and investigate and report
instances of noncompliance, including any corrective actions and disciplinary
steps. Importantly, the agreement gives Quest Diagnostics the opportunity to
cure any asserted breaches and to otherwise initiate corrective actions,
which Quest Diagnostics believes should help to avoid enforcement actions
outside of the process provided in the agreement. The agreement gives Quest
Diagnostics the opportunity to obtain clearer guidance on matters of
compliance and to resolve compliance issues directly with the OIG. Quest
Diagnostics has been advised that its principal competitors will be obliged
to execute similar agreements at the conclusion of investigations pending
against them and that the OIG will likely publish to the clinical laboratory
testing industry a guideline on the essential elements of a satisfactory
compliance program. This latter step may help create a fairer competitive
environment for Quest Diagnostics. None of the undertakings included in the
agreement is expected to have any material adverse affect on Quest
Diagnostics' business, financial condition, results of operations and
prospects. The clinical laboratory testing industry is, however, subject to
extensive regulation. Quest Diagnostics believes that it is in all material
respects in compliance with all applicable statutes and regula-
63
<PAGE>
tions. However, there can be no assurance that any statutes or regulations
might not be interpreted or applied by a prosecutorial, regulatory or
judicial authority in a manner that would adversely affect Quest Diagnostics.
Potential sanctions for violation of these statutes and regulations include
significant fines and the loss of various licenses, certificates and
authorizations.
Insurance
Quest Diagnostics maintains liability insurance (subject to maximum limits
and self-insured retentions) for claims, which may be substantial, that could
result from providing or failing to provide clinical laboratory testing
services, including inaccurate testing results. While there can be no
assurance that coverage will be adequate to cover all future exposure,
management believes that the present levels of coverage are adequate to cover
currently estimated exposures. Although Quest Diagnostics believes that it
will be able to obtain adequate insurance coverage in the future at
acceptable costs, there can be no assurance that Quest Diagnostics will be
able to obtain such coverage or will be able to do so at an acceptable cost
or that Quest Diagnostics will not incur significant liabilities in excess of
policy limits.
Employees
At September 30, 1996, Quest Diagnostics employed approximately 18,700
people. These include approximately 16,500 full-time employees and
approximately 2,200 part-time employees. Quest Diagnostics has no collective
bargaining agreements with any unions and believes that its overall relations
with its employees are good.
Seasonality
During the summer months, year-end holiday periods and other major holidays,
volume of testing declines, reducing net revenues and resulting cash flows
below annual averages during the third and fourth quarters each year. Winter
months are also subject to declines in testing volume due to inclement
weather. As a result, comparisons of the results of successive quarters may
not accurately reflect trends or results for the full year. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
Properties
Quest Diagnostics' principal laboratories (listed alphabetically by state)
are located in the following metropolitan areas:
<TABLE>
<CAPTION>
Location Type of Laboratory Leased or Owned
- -------- ------------------ ---------------
<S> <C> <C>
Phoenix, Arizona Regional Leased
San Diego, California Regional Leased
San Juan Capistrano, California Esoteric Owned
Denver, Colorado Regional Leased
New Haven, Connecticut Regional Owned
Miami, Florida Branch Leased
Tampa, Florida Regional Leased
Atlanta, Georgia Regional Leased
Chicago, Illinois Regional Leased
Indianapolis, Indiana Branch Leased
Baltimore, Maryland Regional Owned
Boston, Massachusetts Regional Owned subject to put/call
with option to lease
Detroit, Michigan Regional Leased
Grand Rapids, Michigan Branch Leased
Kansas City, Missouri Branch Leased
St. Louis, Missouri Regional Leased
Billings, Montana Branch Leased
Lincoln, Nebraska Regional Managed (hospital)
Teterboro, New Jersey/New York, New York Regional Owned
Albuquerque, New Mexico Branch Leased
Buffalo, New York Branch Owned
Long Island, New York Branch Leased
Cleveland, Ohio Branch Owned
Columbus, Ohio Branch Leased
Portland, Oregon Regional Leased
Erie, Pennsylvania Branch Leased by joint venture
Philadelphia, Pennsylvania Regional Leased
Pittsburgh, Pennsylvania Regional Leased
Nashville, Tennessee Branch Owned
Dallas, Texas Regional Leased
El Paso, Texas Branch Leased
Salt Lake City, Utah Branch Leased
</TABLE>
64
<PAGE>
Quest Diagnostics executive offices are located in Teterboro, New Jersey in
the building that serves as Quest Diagnostics' regional laboratory in the New
York City metropolitan area. Quest Diagnostics owns its branch laboratory
facility in Mexico City. Quest Diagnostics believes that, in general, its
laboratory facilities are suitable and adequate for its current and
anticipated future levels of operation. Quest Diagnostics believes that if it
were unable to renew the lease on any of its testing facilities, it could
find alternative space at competitive market rates and relocate its
operations to such new locations.
Legal Proceedings
In addition to the investigations described in "--Government Investigations
and Related Claims," Quest Diagnostics is involved in various legal
proceedings arising in the ordinary course of business. Some of the
proceedings against Quest Diagnostics involve claims that are substantial in
amount. Although it is not feasible to predict the outcome of such
proceedings or any claims made against Quest Diagnostics, it does not
anticipate that the ultimate liability of such proceedings or claims will
have a material adverse effect on Quest Diagnostics' financial position or
results of operations as they primarily relate to professional liability for
which Quest Diagnostics believes it has adequate insurance coverage. Quest
Diagnostics maintains professional liability insurance for its professional
liability claims. See "--Insurance."
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
Quest Diagnostics wishes to caution investors that the following factors
are hereby identified as important factors that could cause Quest
Diagnostics' actual financial results to differ materially from those
projected, forecast, estimated, or budgeted by Quest Diagnostics in
forward-looking statements.
(a) Heightened competition, including the intensification of price
competition. See "Risk Factors--Intense Competition."
(b) Impact of changes in payor mix, including the shift from traditional,
fee-for-service medicine to managed-cost health care. See "Risk
Factors--Role of Managed Care."
(c) Adverse actions by governmental or other third-party payors, including
unilateral reduction of fee schedules payable to Quest Diagnostics.
(d) The impact upon Quest Diagnostics' collection rates or general or
administrative expenses resulting from compliance with Medicare
administrative policies, including specifically the recent
requirements of Medicare carriers to provide diagnosis codes for
commonly ordered tests and the policy of HCFA to limit Medicare
reimbursement for tests contained in automated chemistry panels to the
amount that would have been paid if only the covered tests, determined
on the basis of demonstrable "medical necessity," had been ordered.
See "Risk Factors--Reliance on Medicare/Medicaid Reimbursements" and
"Risk Factors--Government Regulation."
(e) Adverse results from pending governmental investigations, including in
particular significant monetary damages and/or exclusion from the
Medicare and Medicaid programs and/or other significant litigation
matters. Also, the absence of indemnification from Corning for private
claims unrelated to the indemnified governmental claims or
investigations and for private claims that are not settled within five
years of the Distribution Date. See "Risk Factors--Government
Investigations and Related Claims."
(f) Failure to obtain new customers, retain existing customers or
reduction in tests ordered or specimens submitted by existing
customers.
(g) Inability to obtain professional liability insurance coverage or a
material increase in premiums for such coverage.
(h) Denial of CLIA certification or other licensure of any of Quest
Diagnostics' clinical laboratories under CLIA, by HCFA for Medicare
and Medicaid programs or other federal, state and local agencies. See
"Risk Factors--Government Regulation."
(i) Adverse publicity and news coverage about Quest Diagnostics or the
clinical laboratory industry.
(j) Computer or other system failures that affect the ability of Quest
Diagnostics to perform tests, report test results or properly bill
customers. See "Risk Factors--Billing."
(k) Development of technologies that substantially alter the practice of
laboratory medicine.
65
<PAGE>
Management
Management
Directors. Certain information with respect to the persons who will serve as
directors of Quest Diagnostics following the Distributions is set forth
below. Prior to the closing of the Offering and the Quest Diagnostics
Spin-Off Distribution, one of the current directors will resign and the
prospective directors listed below will be elected. As provided in the
certificate of incorporation (the "Certificate"), the board of directors (the
"Board") will be divided into three classes effective upon the Distributions
and one class of the Board will be elected for a three-year term at each
annual meeting of stockholders. Included in the information set forth below
are the names of the directors of each class. The term for which each
director will initially be elected has not yet been determined. Quest
Diagnostics is contemplating the selection of additional independent
directors, which selection may occur prior to the Distributions. Quest
Diagnostics does not intend to hold an annual meeting of stockholders until
the Spring of 1998.
Name Age
Kenneth W. Freeman 46
Van C. Campbell 58
David A. Duke 61
Gail R. Wilensky 53
Kenneth W. Freeman was elected President and Chief Executive Officer of Quest
Diagnostics in May 1995 and has been a director of Quest Diagnostics since
July 1995. Prior to 1995, he served in a variety of key financial and
managerial positions at Corning, which he joined in 1972. He was elected
controller and a vice president of Corning in 1985, senior vice president in
1987, and general manager of the Science Products Division in 1989. He was
appointed president and chief operating officer of Corning Asahi Video
Products Company in 1990. In 1993, he was elected executive vice president.
Van C. Campbell is the Vice Chairman of Corning, which he joined in 1964. He
was elected assistant treasurer in 1971, treasurer in 1972, a vice president
in 1973, financial vice president in 1975 and senior vice president for
finance in 1980. He became general manager of the Consumer Products Division
in 1981. Mr. Campbell was elected vice chairman and a director in 1983 and
during 1995 was appointed to the additional position of chairman of Corning
Life Sciences, Inc. He is a director of Armstrong World Industries, Inc. and
General Signal Corporation. Mr. Campbell has been a director of Quest
Diagnostics since January 1991.
David A. Duke is a Retired Vice Chairman of Corning. Dr. Duke joined Corning
in 1962 and served in a succession of research and management positions. He
was elected vice president--Telecommunications Products in 1980, elected a
senior vice president in 1984 and named director of Research and Development
in 1985. He became responsible for Engineering in March 1987 and was elected
as a director and Vice Chairman of Corning in 1988. He resigned as a director
of Corning in April 1996 and retired in June 1996. Dr. Duke is a director of
Armco, Inc. Dr. Duke was a director of Quest Diagnostics from October 1994 to
July 1996 and was re-elected a director of Quest Diagnostics in October 1996.
Gail R. Wilensky is the John M. Olin Senior Fellow at Project HOPE, an
international non-profit health foundation, which she joined in 1993. She is
currently the chair of the Physician Payment Review Commission which advises
Congress on physician payment and other Medicare issues. In 1992 and 1993,
Dr. Wilensky served as a deputy assistant to the President for policy
development relating to health and welfare issues. From 1990 to 1992, she was
the administrator of the Health Care Financing Administration where she
directed the Medicare and Medicaid programs. Dr. Wilensky is a director of
Advance Tissue Sciences Inc., Capstone Pharmacy Inc., Coram Healthcare Corp.,
Neopath Inc., St. Jude Medical Corp., SMS Corporation, Syncor Corporation and
United Healthcare Corporation.
Directors' Compensation. Each director of Quest Diagnostics, other than a
director who is an employee of Quest Diagnostics, will receive $18,000
annually for service as a director and will also be paid $1,000 for each
meeting of the Board and $500 for each meeting of any committee thereof which
he or she attends. In addition, directors serving as committee chairs would
receive an additional annual retainer of $1500.
Quest Diagnostics has adopted, effective the Distribution Date, a deferred
compensation plan for directors pursuant to which each director may elect to
defer until a date specified by him receipt of all or a portion of his
compensation. Such plan provides that amounts deferred may be allocated to
(i) a cash account upon which amounts deferred may earn interest, compounded
quarterly, at the base rate of Citibank, N.A. in effect on certain specified
dates, (ii) a market value account, the value of which will be based upon the
market value of Quest Diagnostics Common Stock from time to time, or (iii) a
combination of such accounts. All non-employee directors will be eligible to
participate in the plan.
66
<PAGE>
Quest Diagnostics has adopted, effective the Distribution Date, a restricted
stock plan for non-employee directors, pursuant to which Quest Diagnostics
will issue to each non-employee director elected 750 shares of Quest
Diagnostics Common Stock for each year specified in the term of service for
which such director was elected, subject to forfeiture and restrictions on
transfer, and 5,000 shares upon such director's election, subject to
forfeiture and restrictions on transfer.
Committees of the Board of Directors. Prior to the Distributions, the Board
is expected to establish and designate specific functions and areas of
oversight to an Audit and Finance Committee, a Compensation Committee
("Compensation Committee") and a Compliance Committee. The Audit and Finance
Committee will examine and consider matters relating to the financial affairs
of Quest Diagnostics, including reviewing Quest Diagnostics' annual financial
statements, the scope of the independent and internal audits and the
independent auditor's letter to management concerning the effectiveness of
Quest Diagnostics' internal financial and accounting controls. The
Compensation Committee will make recommendations to the Board with respect to
programs for human resource development and management organization and
succession, determine senior executive compensation, make recommendations to
the Board with respect to compensation matters and policies and employee
benefit and incentive plans, administer such plans, and administer Quest
Diagnostics' stock option and equity based plans and grant stock options and
other rights under such plans. The Compliance Committee will oversee Quest
Diagnostics' compliance program, which is administered by management's
compliance council. The council will prepare for review and action by the
Compliance Committee reports on such matters as audits and investigations.
See "Business--Compliance Program."
Executive Officers. In addition to Mr. Freeman, the following persons will
serve as executive officers of Quest Diagnostics after the Distributions:
Robert A. Carothers (60) will become Vice President and Chief Financial
Officer at the Distribution Date. Mr. Carothers joined Corning in 1959 and
has served in a number of key financial positions in the United States and
Japan. He was elected Assistant Controller in 1991. In January 1996 he was
appointed Assistant to the President of Quest Diagnostics.
James D. Chambers (40) is Vice President-Billing. Mr. Chambers joined Corning
in 1986 and has served in a variety of managerial and financial positions for
Corning and its subsidiaries, becoming Assistant Treasurer in 1991. Mr.
Chambers joined Quest Diagnostics in 1992 as Treasurer and served as Chief
Financial Officer from 1994 through 1995. In 1995 Mr. Chambers assumed his
current responsibilities overseeing Quest Diagnostics' billing process. At
the Distribution Date, Mr. Chambers will also assume responsibility for
investor relations.
Gregory C. Critchfield, M.D. (45) is Senior Vice President, and Chief Medical
and Science Officer. Dr. Critchfield joined Quest Diagnostics in 1995 as
Chief Laboratory Officer and assumed his current responsibilities in May
1996. Dr. Critchfield has served as a consultant to the National Institutes
of Health in the capacity of a reviewer for more than ten years and was
selected as Study Section Chair of several Multidisciplinary Review Teams
during the last two years. Prior to joining Quest Diagnostics, Dr.
Critchfield was a clinical pathologist with Intermountain Health Care ("IHC")
for eight years and served in various director positions with IHC Laboratory
Services, including Director of Clinical Pathology. Dr. Critchfield also
served as Chairman of the Department of Pathology at Utah Valley Regional
Medical Center from 1994 through 1995.
Kurt R. Fischer (41) is Vice President-Human Resources. Mr. Fischer joined
Corning in 1976 and has served in a variety of Human Resources positions. He
was appointed Human Resource Manager for the Research, Development and
Engineering Group in 1986 and Director-Quality and Performance Management for
the Specialty Materials Group in 1991. Mr. Fischer assumed his present
responsibilities with Quest Diagnostics in December 1995.
Delbert A. Fisher, M.D. (68) is Vice President of Corning Nichols Institute
and currently serves as President of its Academic Associates, a select group
of eminent physicians and scientists who advise the company on new medical
and scientific developments. Dr. Fisher joined Nichols Institute in 1991 as
President of its esoteric laboratory facility and assumed his present
responsibilities in 1993. Prior to joining Nichols, he was a professor of
pediatrics and the Associate Chairman of the Department of Pediatrics of the
UCLA School of Medicine for 23 years.
Raymond Gambino, M.D. (70) is Chief Medical Officer Emeritus. Dr. Gambino
joined Quest Diagnostics in 1983 as President of the Eastern Region. From
1984 to 1994, Dr. Gambino served as Chief Medical Officer and Executive Vice
President, at which time his appointment was changed to emeritus. He
continues to serve Quest Diagnostics as a senior medical advisor.
Don M. Hardison, Jr. (45) is Senior Vice President-Sales and Marketing, with
overall responsibility for all commercial activities. Mr. Hardison joined
Quest Diagnostics in January 1996. Prior to joining Quest Diagnostics, Mr.
Hardison had 18 years experience in health care with subsidiaries of
SmithKline Beecham and its predecessor entities, including seven years with
the clinical laboratory division of SmithKline, where he held a succession of
positions including Director of Marketing; Vice President of Sales-Northern;
Vice President-General Manager of the Atlanta Operation; and Vice President
of Sales and Marketing.
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<PAGE>
Paul A. Krieger, M.D. (50) is Vice President-Anatomic Pathology. Dr. Krieger
joined Quest Diagnostics in 1975 and served as Vice President, Director of
Anatomic Pathology at Quest Diagnostics' regional laboratory in Teterboro,
New Jersey until 1995, when he was appointed to his present position.
Concurrent with his employment with Quest Diagnostics, Dr. Krieger has served
as an Adjunct Assistant Professor at the College of Physicians and Surgeons
of Columbia University.
Raymond C. Marier (51) is Vice President, Secretary and General Counsel. Mr.
Marier joined Corning's Legal Department in 1973 as an Assistant Counsel,
where he worked with a number of Corning's operating units, including its
Medical and Science Products Divisions. He has held his present position
since 1992.
C. Kim McCarthy (41) is Vice President-Compliance and Government Affairs. Ms.
McCarthy joined Quest Diagnostics in 1987 as Director of Federal Government
Affairs and Legislative Counsel. She became Vice President of Public Affairs
of Quest Diagnostics in 1992 and Senior Vice President of Corporate Affairs
in 1994. Ms. McCarthy assumed her present responsibilities in June 1996.
Alister W. Reynolds (39) is Vice President-Information Technology. Mr.
Reynolds joined Quest Diagnostics in 1982 and has served in a variety of
staff, executive and general management positions. Mr. Reynolds assumed his
current responsibilities in 1995.
Douglas M. VanOort (40) will become Senior Vice President-Operations at the
Distribution Date. Mr. VanOort joined Corning in 1982 and has served in
various finance, analysis and control positions. He became Vice President and
Chief Financial Officer of Corning's Life Sciences division in 1990, Senior
Vice President-Finance and New Business Development of Corning's Life
Sciences division in 1993 and Executive Vice President and Chief Financial
Officer of Quest Diagnostics in 1995.
Executive Compensation
Historical Compensation. The following table sets forth information with
respect to annual and long-term compensation expected to be paid by Quest
Diagnostics and its subsidiaries to each of the chief executive officer and
the four other most highly compensated executive officers (the "named
executive officers") of Quest Diagnostics for services to be rendered in all
capacities in fiscal year 1996 and such compensation paid or accrued during
the years ended December 31, 1995 and December 31, 1994 for services rendered
by each of the named executive officers. All references in the following
tables to stock and stock options relate to awards of, and options to
purchase, Corning Common Stock.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------
Name and Other Annual
Principal Position Year Salary(1) Bonus(2) Compensation(3)
- ------------------------- --------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Kenneth W. Freeman, 1996 385,000 211,750 10,440
President and Chief 1995 316,667 249,918 7,200
Executive Officer 1994 240,000 244,634 6,900
Robert A. Carothers, 1996 250,000 136,714 1,800
Vice President and 1995 173,000 68,337 --
Chief Financial Officer 1994 165,250 84,180 --
Gregory C. Critchfield, 1996 310,000 182,900 40,909
Senior Vice President 1995(6) 70,000 122,920 --
and Chief Medical and
Science Officer
Don M. Hardison, Jr., 1996 260,000 159,467 2,880
Senior Vice President-
Sales and Manufacturing
Douglas M. VanOort, 1996 325,000 178,750 2,880
Senior Vice President- 1995 251,912 56,754 7,200
Operations 1994 228,333 165,969 6,900
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------------
Awards Payouts
------------------------- -----------
Restricted Securities Incentive
Name and Stock Underlying Plan All Other
Principal Position Awards(4) Options Payouts Compensation(5)
- ------------------------- ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
Kenneth W. Freeman, -- -- -- 16,690
President and Chief 326,926 87,000 -- 14,057
Executive Officer 406,766 20,000 162,679 13,376
Robert A. Carothers, -- -- -- 8,254
Vice President and -- 16,500 -- 8,561
Chief Financial Officer -- 6,092 -- 7,557
Gregory C. Critchfield, -- 2,000 -- 65,690
Senior Vice President -- 3,000 -- 2,370
and Chief Medical and
Science Officer
Don M. Hardison, Jr., -- 24,000 -- 17,123
Senior Vice President-
Sales and Manufacturing
Douglas M. VanOort, -- -- -- 4,750
Senior Vice President- 98,626 60,000 -- 4,620
Operations 109,652 20,000 -- 4,178
</TABLE>
(1) Reflects for 1996 current salaries on an annualized basis, including
amounts deferred.
(2) Reflects for 1996 projected performance-based annual cash compensation
awards at target levels.
(3) Includes dividends on shares of restricted stock granted but not earned
within one year from date of grant and tax gross-up payments.
(4) Messrs. Freeman, Carothers, Hardison and VanOort held an aggregate of
97,930, 2,500, 4,000 and 43,627 shares of restricted stock of Corning,
respectively, having an aggregate value on September 30, 1996 of
$3,819,270, $97,500, $156,000 and $1,701,453, respectively. Certain of
such shares, net of forfeitures, were subject to performance-based
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<PAGE>
are subject to forfeiture conditions and transfer restrictions, except
for 50% of such shares held by Mr. Freeman, will be forfeited, and in
lieu thereof restricted shares and/or options to purchase shares of Quest
Diagnostics Common Stock will thereafter be granted pursuant to the terms
of the Quest Diagnostics Employee Equity Participation Plan (as defined
below). Dividends are paid to such individuals on all shares of
restricted Corning Common Stock held by them.
(5) Includes the following amounts to be contributed by Quest Diagnostics to
the Quest Diagnostics Profit Sharing Plan (as defined below) for 1996:
$3,850 for Mr. Freeman, $4,283 for Mr. Hardison and $4,750 for Mr.
VanOort. Also includes $12,840 automobile allowance received by each of
Messrs. Freeman and Hardison and $9,480 for Dr. Critchfield. Also
includes 50% of a $100,000 interest-free loan made by Quest Diagnostics
to Dr. Critchfield together with imputed interest thereon, which loan is
to be forgiven over a two-year period provided Dr. Critchfield continues
to be employed by Quest Diagnostics and was made to assist Dr.
Critchfield in relocating to the New Jersey area.
(6) Dr. Critchfield commenced employment with Quest Diagnostics in October
1995.
Option Grants. The following table sets forth certain information regarding
options granted in 1995 (except for Mr. Hardison whose options were granted
on February 7, 1996) to the named executive officers pursuant to Corning
stock option plans. No other options were granted to the named executive
officers in 1996. Employees of Quest Diagnostics who hold at the Distribution
Date Corning stock options other than those granted on December 6, 1995 and
February 7, 1996 will continue to hold Corning stock options following the
Quest Diagnostics Spin-Off Distribution. It is anticipated that appropriate
adjustments to the number of shares subject to options and to the exercise
prices will be made to reflect the Quest Diagnostics Spin-Off Distribution. A
portion of the options granted on December 6, 1995 and February 7, 1996 will
be converted into options to purchase shares of Quest Diagnostics Common
Stock ("New Options") under the Quest Diagnostics Stock Option Plan (as
defined below). The remainder of the options granted on December 6, 1995 and
February 7, 1996 will be cancelled. It is anticipated that such cancelled
options will be replaced by options to be granted under the Quest Diagnostics
Stock Option Plan.
The exercise prices and the number of shares of Quest Diagnostics Common
Stock subject to New Options will be determined as of the time of the
Distributions so as to preserve the investment basis and intrinsic gain
associated with the Corning options surrendered as of the date of the Quest
Diagnostics Spin-Off Distribution. Generally, the expiration dates and the
dates on which New Options are exercisable will be identical to those under
the corresponding Corning options at the time of the Distributions. Certain
New Options will provide that upon exercise of such option through the
surrender of previously owned shares of Quest Diagnostics Common Stock, the
participant will be entitled to receive options covering the same number of
shares so surrendered, with an exercise price equal to the fair market value
of the shares at the time of the exercise of the New Option.
Option/SAR Grants in Fiscal Year 1995 (1)
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted
Options to Employees Exercise Expiration
Name Granted(2) in Fiscal Year Price Date
------------------------------ --------------------------- --------- ------------
<S> <C> <C> <C> <C>
Kenneth W. Freeman 87,000 2.6% 31.25 12/5/2005
Robert A. Carothers 1,500 0.0% 31.75 6/7/2005
15,000 0.4% 31.25 12/5/2005
Gregory C. Critchfield 3,000 0.1% 27.50 10/3/2005
Don M. Hardison, Jr. 24,000 0.7% 33.69 2/6/2006
Douglas M. VanOort 60,000 1.8% 31.25 12/5/2005
All Optionees as a Group (4) 3,389,100 100.0% 31.34 2005
</TABLE>
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for
Option Term (3)
-------------------------------------
Gain at Gain at Gain at
Name 0% (4) 5% 10%
------------------------------ --------------------- -------------
<S> <C> <C> <C>
Kenneth W. Freeman 0 1,709,807 4,332,987
Robert A. Carothers 0 29,951 75,902
0 294,794 747,067
Gregory C. Critchfield 0 51,884 131,484
Don M. Hardison, Jr. 0 508,499 1,288,636
Douglas M. VanOort 0 1,179,177 2,988,267
All Optionees as a Group (4) 0 66,797,662 169,278,390
</TABLE>
(1) No SARs were granted.
(2) The stock option agreements with Messrs. Freeman, Carothers (with respect
to the 15,000 share grant), Hardison and VanOort provide that one-half of
the options will become exercisable on February 1, 1999 and all options
will become exercisable on February 1, 2000. The stock option agreement
with Dr. Critchfield provides that one-half of the options will become
exercisable on October 4, 1996 and all of the options will become
exercisable on October 4, 1997. The stock option agreement with Mr.
Carothers with respect to the 1,500 share grant provides that one-half of
the options became exercisable on June 6, 1996 and all of the options
will become exercisable on June 6, 1997. All such agreements also provide
that an additional option may be granted when the optionee uses shares of
Corning Common Stock to pay the purchase price of an option. The
additional option will be exercisable for the number of shares tendered
in payment of the
69
<PAGE>
option price, will be exercisable at the then fair market value of the
Corning Common Stock, will become exercisable only after the lapse of
twelve months and will expire on the expiration date of the original
option.
(3) The dollar amounts set forth under these columns are the result of
calculations at 0% and at the 5% and 10% rates established by the
Commission and therefore are not intended to forecast future appreciation
of Corning Common Stock.
(4) No gain to the optionees is possible without an appreciation in stock
price, an event which will also benefit all stockholders. If the stock
price does not appreciate, the optionees will realize no benefit.
Option Exercises and Fiscal Year-End Values. The following table sets forth
the number of shares of Corning Common Stock covered by both exercisable and
unexercisable stock options as of December 31, 1995, for the named executive
officers. The named executive officers exercised no options in 1996.
Aggregated Option/SAR Exercises in Fiscal
Year 1995 and 1995 Fiscal Year-End Option/SAR Values (1)
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year End At Fiscal Year End
------------------------------- -------------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ --------------- ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth W. Freeman 0 0 103,500 127,000 827,784 107,500
Robert A. Carothers 0 0 12,483 15,749 0 0
Gregory C. Critchfield 0 0 0 5,000 0 10,688
Don M. Hardison, Jr. -- -- -- -- -- --
Douglas M. VanOort 0 0 11,500 88,000 19,729 55,750
</TABLE>
(1) There are no SARs outstanding.
Corporate Performance Plan Activity. Awards of performance-based shares of
Corning Common Stock have been granted to Quest Diagnostics' executive
officers pursuant to a series of performance-based plans (the "Corporate
Performance Plan"). The Corporate Performance Plan provides the mechanisms to
reward improvement in corporate performance as measured by net income,
earnings per share and/or return on equity. Each year minimum, target and
maximum goals are set and shares awarded (at target levels) which are subject
to forfeiture in whole or in part if performance goals are not met. The
percentage of awards that may be earned ranges from 0% to 150% of target.
Shares earned remain subject to forfeiture and restrictions on transfer for
two years following the end of the performance period.
The following table sets forth the number of performance-based shares awarded
under the Corporate Performance Plan. The dollar value of shares earned for
1995 is reflected in the "Restricted Stock Awards" column of the Summary
Compensation Table.
In late 1996, the Compensation Committee of the board of directors of Corning
(the "Corning Board") will assess performance against goals, determine the
number of shares earned of those granted on December 6, 1995 and February 7,
1996 and remove all possibility of forfeiture and restrictions on transfer
from such shares.
Corporate Performance Plan Activity Table
<TABLE>
<CAPTION>
Number Number Number
Grant of Shares Performance of Shares of Shares Vesting Date of
Name Year Date Granted Period Forfeited Earned Earned Shares
- ------------------------ ------ ------------------ ------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kenneth W. Freeman 1996 12/95 14,500 1996 2/99
1995 12/94 10,000 1995 10,740 2/98
1994 12/93 10,000 1994 14,690 2/97
Robert A. Carothers 1996 12/95 2,500 1996 2/99
1995 0
1994 0
Gregory C. Critchfield 1996 0
1995 0
Don M. Hardison, Jr. 1996 2/96 4,000 1996 2/99
Douglas M. VanOort 1996 12/95 10,000 1996 2/99
1995 12/94 10,000 1995 6,760 3,240 2/98
1994 12/93 4,000 1994 40 3,960 2/97
</TABLE>
70
<PAGE>
Variable Compensation. Quest Diagnostics has adopted, effective upon the
Distributions, a variable compensation plan (the "Plan"), an annual incentive
cash compensation plan for approximately 950 supervisory, management and
executive employees similar to an annual performance plan currently
maintained by Quest Diagnostics. The terms of the Plan are as follows.
The performance-based annual cash incentive awards payable under the Plan
will be grounded in financial goals such as net income, cash flow, operating
margin, return on equity, or earnings per share, or a combination thereof,
and quantifiable non-financial goals. Each participant will be assigned a
target award, as a percentage of base salary in effect at the end of the
performance year for which the target is set, payable if the target is
achieved. Actual results will be compared to the scale of targets with each
gradation of desired result corresponding to a percentage, which will be
multiplied by the employee's assigned target award. If the actual result is
below target, awards will be less than target, down to a point below which no
awards are earned. If the desired result is above target, awards will be
greater than target, up to a stated maximum award. The maximum award assigned
to the chief executive officer may not exceed 200% of base salary in effect
on the date the Compensation Committee sets the target for the performance
year. The Compensation Committee retains the right to reduce any award if it
believes individual performance does not warrant the award calculated by
reference to the result.
Employee Equity Participation Program. Quest Diagnostics has adopted,
effective upon the Distributions, the Employee Equity Participation Program
(the "Program") consisting of two plans: (a) a stock option plan (the "Quest
Diagnostics Stock Option Plan") and (b) an incentive stock plan (the "Quest
Diagnostics Incentive Stock Plan"). The Program is designed to provide a
flexible mechanism to permit key employees of Quest Diagnostics and of any
subsidiary to obtain significant equity ownership in Quest Diagnostics,
thereby increasing their proprietary interest in the growth and success of
Quest Diagnostics.
The Program, which will be administered by the Compensation Committee,
provides for the grant to eligible employees of either non-qualified or
"incentive stock" options, or both, to purchase shares of Quest Diagnostics
Common Stock at no less than fair market value on the date of grant. The
Compensation Committee may also provide that options may not be exercised in
whole or in part for any period or periods of time; provided, however, that
no option will be exercisable until at least twelve months from the date of
grant. All options shall expire not more than ten years from the date of
grant. Options will not be assignable or transferable except for limited
circumstances on death. During the lifetime of the employee an option may be
exercised only by him. The option price is payable upon exercise. The
optionee may pay the option price in cash or with shares of Quest Diagnostics
Common Stock owned by him. The optionee will have no rights as a stockholder
with respect to the shares subject to option until shares are issued upon
exercise of the option. The Compensation Committee may grant options pursuant
to which an optionee who uses shares of Quest Diagnostics Common Stock to pay
the purchase price of an option will receive automatically on the date of
exercise an additional option to purchase shares of Quest Diagnostics Common
Stock. Such additional option will cover the number of shares tendered in
payment of the option price, will be exercisable at the then fair market
value of Quest Diagnostics Common Stock, will become exercisable only after
the lapse of twelve months and will expire no later than the expiration date
of the original option.
The Program also authorizes the Compensation Committee to award to eligible
employees shares, or the right to receive shares, of Quest Diagnostics Common
Stock, the equivalent value in cash or a combination thereof (as determined
by the Compensation Committee). The Compensation Committee shall determine
the number of shares which are to be awarded to individual employees and the
number of rights covering shares to be issued upon attainment of
predetermined performance objectives for specified periods. The shares
awarded directly to individual employees may be made subject to certain
restrictions prohibiting sale or other disposition and may be made subject to
forfeiture in certain events. Shares may be issued to recognize past
performance either generally or upon attainment of specific objectives.
Shares issuable for performance (based upon specific predetermined
objectives) will be payable only to the extent that the Compensation
Committee determines that an eligible employee has met such objectives and
will be valued as of the date of such determination. Upon issuance, such
shares may (but need not) be made subject to the possibility of forfeiture or
certain restrictions on transfer.
Key executive, managerial and technical employees (including officers and
employees who are directors) of Quest Diagnostics and of any subsidiary will
be eligible to participate in the Program and the plans thereunder. The
selection of employees eligible to participate in any plan under the Program
is within the discretion of the Compensation Committee. Approximately 150
employees would have been eligible to participate in the plans under the
Program had the Program been in effect in 1996.
Under the Program, the maximum number of shares of Quest Diagnostics Common
Stock which may be optioned or granted to eligible employees will be
3,000,000. Shares from expired or terminated options under the Quest
Diagnostics Stock Option Plan will be available again for option grant under
the Program. Shares which are issued but not earned, or which are forfeited
under the Quest Diagnostics Incentive Stock Plan, will be available again for
issuance under the Program. The Program provides for appropriate adjustments
in the aggregate number of shares subject to the Program and in the number of
shares and the price per share, or either, of outstanding options in the case
of changes in the capital stock of Quest Diagnostics resulting from any
recapitalization, stock or unusual cash dividend, stock distribution, stock
split or any other increase or decrease effected without receipt of
consideration by Quest Diagnostics, or a merger or consolidation in which
Quest Diagnostics is the surviving corporation.
71
<PAGE>
The Program has a term of five years and no shares may be optioned or awarded
and no rights to receive shares may be granted after the expiration of the
Program. The Board is authorized to terminate or amend the Program, except
that it may not increase the number of shares available thereunder, decrease
the price at which options may be granted, change the class of employees
eligible to participate, or extend the term of the Program or options granted
thereunder without the approval of the holders of a majority of the
outstanding shares of Quest Diagnostics Common Stock.
Quest Diagnostics believes that the federal income tax consequences of the
Program are as follows. An optionee who exercises a non-qualified option
granted under the Quest Diagnostics Stock Option Plan will recognize
compensation taxable as ordinary income (subject to withholding) in an amount
equal to the difference between the option price and the fair market value of
the shares on the date of exercise and Quest Diagnostics or the subsidiary
employing the optionee will be entitled to a deduction from income in the
same amount. The optionee's basis in such shares will be increased by the
amount taxable as compensation, and his capital gain or loss when he disposes
of the shares will be calculated using such increased basis.
If all applicable requirements of the Code with respect to incentive stock
options are met, no income to the optionee will be recognized and no
deduction will be allowable to Quest Diagnostics at the time of the grant or
exercise of an incentive stock option. The excess of the fair market value of
the shares at the time of exercise of an incentive stock option over the
amount paid is an item of tax preference which may be subject to the
alternative minimum tax. In general, if an incentive stock option is
exercised three months after termination of employment, the optionee will
recognize ordinary income in an amount equal to the difference between the
option price and the fair market value of the shares on the date of exercise
and Quest Diagnostics or the subsidiary employing the optionee will be
entitled to a deduction in the same amount. If the shares acquired subject to
the option are sold within one year of the date of exercise or two years from
the date of grant, the optionee will recognize ordinary income in an amount
equal to the difference between the option price and the lesser of the fair
market value of the shares on the date of exercise or the sale price and
Quest Diagnostics or the employing subsidiary will be entitled to a deduction
from income in the same amount. Any excess of the sale price over the fair
market value on the date of exercise will be taxed as a capital gain.
Shares of Quest Diagnostics Common Stock which are not subject to
restrictions and possibility of forfeiture and which are awarded to an
employee under the Quest Diagnostics Incentive Stock Plan will be treated as
ordinary income, subject to withholding, to an employee at the time of the
transfer of the shares to him and the value of such awards will be deductible
by Quest Diagnostics or by the subsidiary employing the employee at the same
time in the same amount. Shares granted subject to restrictions and
possibility of forfeiture will not be subject to tax nor will such grant
result in a tax deduction for Quest Diagnostics at the time of award.
However, when such shares become free of restrictions and possibility of
forfeiture, the fair market value of such shares at that time (i) will be
treated as ordinary income to the employee and (ii) will be deductible by
Quest Diagnostics or by the subsidiary employing the employee.
The tax treatment upon disposition of shares acquired under the Program will
depend upon how long the shares have been held and on whether or not the
shares were acquired by exercising an incentive stock option. There are no
tax consequences to Quest Diagnostics upon a participant's disposition of
shares acquired under the Program, except that Quest Diagnostics may take a
deduction equal to the amount the participant must recognize as ordinary
income in the case of the disposition of shares acquired under incentive
stock options before the applicable holding period has been satisfied.
Pension Plans. None of the executive officers of Quest Diagnostics is
currently an active participant in a qualified defined benefit plan of Quest
Diagnostics.
Prior to June 1, 1995, December 1, 1996 and January 1, 1995, respectively,
Messrs. Freeman, Carothers and VanOort were eligible to participate in, and
accrue benefits under, Corning's Salaried Pension Plan (the "Corning Salaried
Pension Plan"), a defined benefit plan, contributions to which are determined
by Corning's actuaries and are not made on an individual basis. Benefits paid
under this plan are based upon career earnings (regular salary and cash
awards paid under Corning's variable compensation plans) and years of
credited service. The Corning Salaried Pension Plan provides that salaried
employees of Corning who retire on or after December 31, 1993 will receive
pension benefits equal to the greater of (a) benefits provided by a formula
pursuant to which they shall receive for each year of credited service an
amount equal to 1.5% of annual earnings up to the social security wage base
and 2% of annual earnings in excess of such base or (b) benefits calculated
pursuant to a formula which provides that retirees will receive for each year
of credited service prior to January 1, 1994 an amount equal to 1% of the
first $24,000 of average earnings for the highest five consecutive years of
annual earnings in the ten years of credited service immediately prior to
1994 and 1.5% of such average earnings in excess of $24,000. Effective upon
commencement of employment, salaried employees may contribute to the Corning
Salaried Pension Plan 2% of their annual earnings up to the social security
wage base. Such employees will receive for each year of credited service
after December 31, 1990, in lieu of the amount described in (a) above, an
amount equal to 2% of annual earnings. The benefit formula is reviewed and
adjusted periodically for inflationary and other factors.
72
<PAGE>
Corning maintains a non-qualified Executive Supplemental Pension Plan (the
"Executive Supplemental Plan") pursuant to which it will pay to certain
executives amounts approximately equal to the difference between the benefits
provided for under the Corning Salaried Pension Plan and benefits which would
have been payable thereunder but for the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
It is anticipated that, prior to the Distribution Date, the Compensation
Committee of the Corning Board will adopt a transferee supplemental pension
plan (the "Transferee Supplemental Plan"), a nonqualified, unfunded defined
benefit plan for the benefit of key employees and executive officers of Quest
Diagnostics who are former employees of Corning, including Messrs. Freeman
and VanOort, effective immediately after the Distribution Date. The
Transferee Supplemental Plan will provide benefits approximately equal to the
difference between the benefits provided for under the Corning Salaried
Pension Plan and the Executive Supplemental Plan and benefits which would
have been payable thereunder but for the termination of employment with
Corning of such employees.
Maximum annual benefits calculated under the straight life annuity option
form of pension payable to participants at age 65, the normal retirement age
specified in the Corning Salaried Pension Plan, are illustrated in the table
set forth below. The table below does not reflect any limitations on benefits
imposed by ERISA. It is estimated that Messrs. Freeman and VanOort, who have
25 and 15 years of credited service, respectively, would receive each year if
they worked to age 65, the normal retirement age specified in the Corning
Salaried Pension Plan, $256,170 and $165,332, respectively, under the Corning
Salaried Pension Plan, the Executive Supplemental Plan and the Transferee
Supplemental Plan.
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------------------------
Remuneration 15 20 25 30 35 40
- ------------ --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 20,500 27,300 34,100 41,000 47,800 55,300
200,000 43,000 57,300 71,600 86,000 100,300 115,300
300,000 65,500 87,300 109,100 131,000 152,800 175,300
400,000 88,000 117,300 146,600 176,000 205,300 235,300
500,000 110,500 147,300 184,100 221,000 257,800 295,300
600,000 133,000 177,300 221,600 266,000 310,300 355,300
700,000 155,500 207,300 259,100 311,000 362,800 415,300
800,000 178,000 237,300 296,600 356,000 415,300 475,300
900,000 200,500 267,300 334,100 401,000 467,800 535,300
1,000,000 223,000 297,300 371,600 446,000 520,300 595,300
1,100,000 245,500 327,300 409,100 491,000 572,800 655,300
1,200,000 268,000 357,300 446,600 536,000 625,300 715,300
</TABLE>
Quest Diagnostics Profit Sharing Plan. Most of the employees of Quest
Diagnostics and its subsidiaries have been eligible to participate in a
tax-qualified, defined contribution plan known as the Quest Diagnostics
Profit Sharing Plan (the "Quest Diagnostics Profit Sharing Plan"), which
provides for investment of employee contributions, including tax-deferred
contributions under Section 401(k) of the Code, and matching contributions
made by their employers, in several investment funds, including Corning
Common Stock, at the employees' discretion. Effective as of the Distribution
Date, Quest Diagnostics Common Stock will be added as an investment fund and
a portion of the employer matching contributions will automatically be
invested in Quest Diagnostics Common Stock. Corning Common Stock will no
longer be available as an investment fund except with respect to amounts
already so invested under the Quest Diagnostics Profit Sharing Plan.
Effective as of the Distribution Date, the Quest Diagnostics Profit Sharing
Plan will be amended to permit participating employees' employers to make
discretionary contributions, other than matching contributions, to the Quest
Diagnostics Profit Sharing Plan for the benefit of such employees, which
contributions may be invested in Quest Diagnostics Common Stock.
Quest Diagnostics Employee Stock Ownership Plan. Quest Diagnostics has
adopted, effective upon the Distributions, an employee stock ownership plan,
as defined in Section 4975(e)(7) of the Code and related regulations and
intended to qualify as a retirement plan under Section 401(a) of the Code, to
be known as the Quest Diagnostics Employee Stock Ownership Plan (the "Quest
Diagnostics ESOP").
Most employees of Quest Diagnostics and its subsidiaries will become
participants in the Quest Diagnostics ESOP after accruing six months of
service. To the extent permitted under the Quest Diagnostics ESOP, Quest
Diagnostics will contribute as of the Distribution Date an amount equal to a
portion of each participating employee's annual compensation. Quest
Diagnostics may in its discretion from time to time make additional
contributions to the Quest Diagnostics ESOP for the benefit of participating
employees. The assets of the Quest Diagnostics ESOP will be invested
primarily in shares of Quest Diagnostics Common Stock.
73
<PAGE>
Amounts contributed to the Quest Diagnostics ESOP for the benefit of
participating employees will be 100% vested at age 65, the normal retirement
age specified in the Quest Diagnostics ESOP, or at death, disability or
termination of employment following completion of two years of credited
service. Contributions to the Quest Diagnostics ESOP will not currently be
taxable income to the participating employees and will not generally be
available to them until termination of employment.
Employee Stock Purchase Plan. Quest Diagnostics has adopted, as of the
Distribution Date, the Employee Stock Purchase Plan (the "Quest Diagnostics
Stock Purchase Plan"), pursuant to which Quest Diagnostics may make available
for sale to employees shares of its Common Stock at a price equal to 85% of
the market value on the first or last day of each calendar quarter, whichever
is lower.
The Quest Diagnostics Stock Purchase Plan, which will be administered by the
Compensation Committee, is designed to give eligible employees (generally,
employees of Quest Diagnostics and its subsidiaries) the opportunity to
purchase shares of Quest Diagnostics Common Stock through payroll deductions
up to 10% of compensation in a series of quarterly offerings commencing
January 1, 1997, and ending no later than December 31, 2001.
Any eligible employee may elect to participate in the Quest Diagnostics Stock
Purchase Plan on a quarterly basis and may terminate his payroll deduction at
any time or increase or reduce prospectively the amount of his deduction at
the beginning of any calendar quarter. At the end of each calendar quarter, a
participating employee will purchase shares of Quest Diagnostics Common Stock
with the funds deducted. The number of shares purchased will be a number
determined by dividing the amount withheld by the lower of 85% of the closing
price of a share of Quest Diagnostics Common Stock as reported in The Wall
Street Journal on the first or last business day of the particular calendar
quarter. An employee will have no interest in any shares of Quest Diagnostics
Common Stock until such shares are actually purchased by him.
Under the Quest Diagnostics Stock Purchase Plan, the maximum number of shares
of Quest Diagnostics Common Stock which may be purchased by eligible
employees will be 2,000,000 shares, subject to adjustment in the case of
changes in the capital stock of Quest Diagnostics resulting from any
recapitalization, stock dividend, stock split or any other increase or
decrease effected without receipt of consideration by Quest Diagnostics.
The Quest Diagnostics Stock Purchase Plan has a term of five years and no
shares of Quest Diagnostics Common Stock may be offered for sale or sold
under the Quest Diagnostics Stock Purchase Plan after the fifth anniversary
of the effective date. The Board is authorized to terminate or amend the
Quest Diagnostics Stock Purchase Plan, except that it may not increase the
number of shares of Quest Diagnostics Common Stock available thereunder,
decrease the price at which such shares may be offered for sale or change the
designation of subsidiaries eligible to participate in the plan without the
approval of the holders of a majority of the shares of the capital stock of
Quest Diagnostics cast at a meeting at which such matter is considered.
Employment Agreements; Severance Arrangements. It is anticipated that Mr.
Freeman will enter into an employment agreement with Quest Diagnostics. The
agreement will expire on or before December 31, 1999. The agreement will
include provisions for an annual salary of no less than $500,000, with
increases subject to the discretion of the Quest Diagnostics Board; annual
target participation in the Variable Compensation Plan of Quest Diagnostics
in amounts no less than 65% of annual salary in effect at the time
performance goals are established; and severance payments following a
termination by Mr. Freeman for "Good Reason" or by Quest Diagnostics, without
cause in accordance with the severance policy described below, except that
Mr. Freeman will receive three times his base annual salary and three times
his annual award of variable compensation. "Good Reason" is defined as
assignment of Mr. Freeman without his consent to mutually inconsistent duties
or responsibilities, a failure to re-elect Mr. Freeman to the position of
President and Chief Executive Officer, a greater than 75 mile office
relocation without his consent and a Change of Control (as detailed in the
next paragraph). The agreement will also include provision for reimbursement
of up to $10,000 per month until the earlier of Mr. Freeman's obtaining
suitable housing in the New York metropolitan area or June 30, 1998;
eligibility for a $400,000 interest-free relocation loan to be forgiven over
a five-year period; and, in the event the agreement is not renewed upon its
expiration, a payment equal to two times the highest annual cash compensation
paid to Mr. Freeman during the term of the agreement and health benefits for
eighteen months following expiration of the agreement. Mr. Freeman will also
be entitled under the agreement to a retirement pension benefit equivalent to
benefits under the Corning Salaried Pension Plan and the Executive
Supplemental Plan based on not less than 34 years of credited service in the
event of termination for reasons other than cause. Mr. Freeman's pension
benefits will be initially secured by a $5.4 million letter of credit (such
amount based on initial assumptions for pricing pension benefits) issued
under the Credit Facility.
74
<PAGE>
On or before the Distribution Date, Quest Diagnostics will adopt a severance
policy pursuant to which it will provide to each executive officer other than
Mr. Freeman and Drs. Fisher and Gambino upon the termination of employment by
Quest Diagnostics, other than for cause upon a determination that the business
needs of Quest Diagnostics require the replacement of such executive officer and
other than in connection with a change of control, compensation equal to two
times the executive officer's base annual salary at the annual rate in effect on
the date of termination and two times the annual award of variable compensation
at the most recent target level. Such executive officer will also be entitled to
participate in Quest Diagnostics' health and benefits plans (to the extent
permitted by the administrative provisions of such plans and applicable federal
and state law) for a period of up to two years or until such officer is covered
by a successor employer's benefit plans, whichever first occurs. Pursuant to
such policy, upon a change of control Quest Diagnostics will provide to each
such executive officer upon the termination of employment by Quest Diagnostics,
other than for cause during the twelve months following a change in control,
compensation equal to three times annual base salary and three times the award
of annual variable compensation at the most recent target level and such officer
will be entitled to participate in Quest Diagnostics' health and benefit plans
for a period of up to three years or until such officer is covered by a
successor employer's benefits plans, whichever first occurs (to the extent
permitted by the administrative provisions of such plans and applicable federal
and state law). A "Change in Control" is defined in the policy to include the
following: the acquisition by a person of 20% or more of the voting stock of
Quest Diagnostics; the membership of the Board changes as a result of a
contested election such that a majority of the Board members at any particular
time were initially placed on the Board as a result of such contested election;
or approval by Quest Diagnostics' stockholders of a merger or consolidation in
which Quest Diagnostics is not the survivor thereof, or a sale or disposition of
all or substantially all of Quest Diagnostics' assets or a plan of partial or
complete liquidation.
75
<PAGE>
Security Ownership by Certain Beneficial
Owners and Management
All of the outstanding shares of Quest Diagnostics Common Stock are currently
held by Corning Life Sciences Inc., which is wholly owned by Corning. The
following table sets forth the number of shares of Quest Diagnostics Common
Stock that are projected to be beneficially owned after the Quest Diagnostics
Spin-Off Distribution by the directors, by the named executive officers and
by all directors and executive officers of Quest Diagnostics as a group. The
projections are based on the number of shares of Corning Common Stock held by
such persons and such group as of October 31, 1996 (including certain
restricted shares that may be forfeited prior to the Distribution Date but
excluding Career Shares that will not receive the Distributions and Corning
Common Stock held in the Quest Diagnostics Profit Sharing Plan and the
Corning Investment Plans) and on the number of options to acquire Corning
Common Stock held as of such date and exercisable within 60 days thereof.
With respect to the shares of Quest Diagnostics Common Stock, the number
reflects the distribution ratio of one share of Quest Diagnostics Common
Stock for every eight shares of Corning Common Stock and with respect to
options the number reflects the actual number of shares of Corning Common
Stock subject to options. The stock options held by the directors and
executive officers of Quest Diagnostics will not affect the security
ownership of Quest Diagnostics unless (i) such options are exercised prior to
the Record Date and the underlying shares of Corning Common Stock are held on
the Record Date or (ii) such options are converted into options to purchase
shares of Quest Diagnostics Common Stock.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Number of
Name Owned(1) Exercisable Options
---------------------------- -------------------- ---------------------
<S> <C> <C>
Van C. Campbell 17,850 (2) 127,457
Robert A. Carothers 316 12,483
Gregory C. Critchfield 0 1,500
David A. Duke 10,878 (2) 82,000
Kenneth W. Freeman 14,461 103,500
Don M. Hardison, Jr. 500 0
Douglas M. VanOort 5,965 11,500
Gail R. Wilensky 5,000 (2) 0
All Directors and Executive
Officers as a Group 66,280 398,562
</TABLE>
(1) Does not include 3,954 shares owned by the spouses and minor children of
certain executive officers and directors as to which such officers and
directors (or trusts of which families of such executive officers are
beneficiaries) disclaim beneficial ownership.
(2) Includes 5,000 shares of Quest Diagnostics Common Stock which each
non-employee director will receive in connection with their election but
does not include 750 shares of Quest Diagnostics Common Stock for each
year specified in the term of service as a director. See
"Management--Management--Directors' Compensation."
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<PAGE>
Description of the Credit Facility
In order to pay approximately $350 million of the Intercompany Debt owed by
Quest Diagnostics in connection with the Quest Diagnostics Spin-Off
Distribution, and to meet its future capital requirements including the
funding of operating activities and further acquisitions, Quest Diagnostics
is negotiating with several banks for a credit agreement (the "Credit
Agreement") providing for a $450 million credit facility (the "Credit
Facility"). Morgan Guaranty Trust Company of New York ("Morgan"),
NationsBank, N.A. ("NationsBank") and Wachovia Bank of Georgia, N.A.
("Wachovia") are arranging the Credit Facility. A copy of the proposed form
of the Credit Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. This summary of the material
terms and conditions of the Credit Facility and the Credit Agreement does not
purport to be complete, and is qualified in its entirety by references to
such proposed form, including the definitions therein.
The $450 million commitment under the Credit Facility will be comprised of
three sub-facilities: (i) a $300 million six-year amortizing term loan (the
"Tranche A Loan"), (ii) a seven-year $50 million term loan with minimal
amortization until the seventh year (the "Tranche B Loan") and (iii) a $100
million six-year revolving working capital credit facility (the "Working
Capital Facility"). Under the Working Capital Facility, up to $20 million may
be used for Letters of Credit to be issued by one or more Issuing Banks
(initially NationsBank), and up to $10 million may be used to borrow from
Wachovia, as the Swingline Bank, under a Swingline Facility. All Working
Capital Banks are required to ratably share the exposure of the Issuing Banks
under the Letters of Credit and, at the request of the Swingline Bank, must
purchase ratable participations in the Swingline Loans. With the exception of
Swingline borrowings and Letters of Credit, borrowings under the Working
Capital Facility must be at least $10 million for LIBOR based borrowings and
$5 million for Base Rate based borrowings. Under the Swingline Facility,
borrowings must be at least $1 million. The Credit Facility will be secured
by substantially all accounts receivable of Quest Diagnostics and by a
guaranty from, and a pledge of all capital stock and accounts receivable
(including intercompany loans) of, substantially all of Quest Diagnostics'
present and future material U.S. Subsidiaries, excluding certain Joint
Ventures, Covance and Covance's Subsidiaries. The borrowings under the Credit
Facility will rank senior in priority of repayment to any Permitted
Subordinated Debt, including the Senior Subordinated Notes and any of Quest
Diagnostics' remaining debt to Corning. At the time of the Distributions,
Quest Diagnostics' debt to Corning must be extinguished except to the extent
it is included in the $150 million of Permitted Subordinated Debt.
Interest Rate Calculations. Interest will be payable on each sub-facility
quarterly, or at the end of the relevant interest period, if earlier, at a
per annum rate equal to the Base Rate or (except for Swingline Loans) the
Eurodollar Rate plus the relevant Applicable Margin. The Base Rate is a
fluctuating rate calculated on a daily basis as the higher of (a) the rate of
interest publicly announced by Morgan for the day in question and (b) 0.5%
over the weighted average of the rates, rounded up to the nearest basis
point, on overnight Federal Funds transactions with members of the Federal
Reserve System as arranged by Federal Funds brokers on the day in question.
The Eurodollar Rate is the average of the annual rate at which deposits in
U.S. dollars are offered to each of the Reference Banks in the London
interbank market, adjusted for reserve requirements ("Adjusted LIBOR"). The
initial Applicable Margin payable for Adjusted LIBOR borrowings will be 1.75%
per annum for the Tranche A Loan and the Working Capital Loan and 2.25% per
annum for the Tranche B Loan. The initial Applicable Margin payable for Base
Rate borrowings will be 0.75% per annum for the Tranche A Loan and the
Working Capital Loan and 1.25% per annum for the Tranche B Loan. After
December 31, 1996, the Applicable Margin will be determined by a pricing
formula based on Quest Diagnostics' Debt Coverage Ratio. The Applicable
Margin range for the Tranche A Loan and the Working Capital Loan may vary,
depending on the Debt Coverage Ratio, from 0% to 1% for Base Rate Advances,
and from 0.5% to 2% per annum for Eurodollar Rate Advances. The Swingline
Loans will accrue interest at a rate equal to the Base Rate plus the relevant
Applicable Margin for the Tranche A and Working Capital Base Rate Loans. The
Applicable Margin for the Tranche B Loan will remain fixed throughout the
life of the loan at the initial Applicable Margin levels. Any overdue
principal or interest payable on any Eurodollar loan will incur interest at
the greater of Adjusted LIBOR or LIBOR plus the Applicable Margin plus 2% per
annum. Any overdue principal or interest payable on a Base Rate loan will
incur interest at the Base Rate plus the Applicable Margin plus 2% per annum.
The Credit Agreement also requires the payment of a quarterly Commitment Fee
on the average daily unused portion of the Banks' aggregate commitments under
the Working Capital Facility. The initial Commitment Fee Rate will be 0.375%
per annum. After December 31, 1996, the Commitment Fee Rate will be
determined based on Quest Diagnostics' Debt Coverage Ratio, and will range
from 0.175% to 0.5% per annum.
Quest Diagnostics shall also pay the Issuing Banks in proportion to their
Letter of Credit Exposure a fee of 0.125% per annum on any amounts
outstanding on undrawn Letters of Credit. Additionally, Quest Diagnostics
shall pay directly to the Issuing Bank all customary fees connected with the
issuing of a Letter of Credit.
Quest Diagnostics will also pay Morgan a negotiated fee for its services as
Administrative Agent under the Credit Facility.
Covenants and Conditions. The Credit Agreement includes covenants which,
subject to certain specific exceptions and limitations, require Quest
Diagnostics and its Subsidiaries to: (i) provide certain financial
information to the Banks including, Quest Diagnostics' consolidated audited
financial reports, financial ratio data, annual business plans and
projections and certification that no defaults have occurred; (ii) pay or
discharge all material obligations and liabilities; (iii) keep property in
good working order and maintain sufficient insurance coverage on all
property; (iv) maintain corporate existence; (v) pursue the same or
substantially similar lines of business to the ones in which they
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are currently engaged; (vi) comply with all laws, including ERISA and
environmental regulations; (vii) allow any Bank to inspect accounting
records; (viii) not permit modification to or waiver of any Transaction
Documents including any documents connected with the Permitted Subordinated
Debt or the Permitted Preferred Stock; (ix) not hold or acquire any
investments other than those allowed by the Credit Agreement; (x) not create
or allow to be created any liens other than those permitted by the Credit
Agreement; (xi) refrain from engaging in a consolidation, acquisition, merger
or sale of assets except as allowed in the Credit Agreement; (xii) not engage
in any transaction with or for the benefit of any Affiliate other than
certain arm's-length transactions; (xiii) prevent the existence of any
agreement that prevents Quest Diagnostics' Subsidiaries from paying dividends
or other distributions on capital stock; (xiv) refrain from making certain
Restricted Payments as detailed below; (xv) not incur Debt other than Debt
allowed under the Credit Agreement; (xvi) maintain certain financial ratios
as detailed below; and (xvii) not make Consolidated Capital Expenditures in
excess of $95,000,000 (less the consideration paid for certain acquisitions)
in any fiscal year.
Quest Diagnostics may, subject to certain limitations and exceptions
contained in the Credit Agreement, make certain Restricted Payments so long
as there are no current or continuing Defaults, and the otherwise Restricted
Payment would not cause a Default. Allowed payments include: (i) the
repayment of Permitted Subordinated Debt from the proceeds of any newly
issued Senior Subordinated Notes, (ii) interest and fees on the Senior
Subordinated Notes and certain other Permitted Subordinated Debt, (iii)
dividends paid on any Permitted Preferred Stock, (iv) repurchases of shares
pursuant to certain employee benefit and compensation plans and (v) certain
payments to Corning required to be made pursuant to the Spin-Off
Transactions. Restricted Payments include: (i) and other dividends or
distributions on any of the shares of capital stock of Quest Diagnostics
except dividends or distributions paid solely in shares of Quest Diagnostics
capital stock, (ii) any other payment on Subordinated Debt and (iii) any
payment, including those to sinking funds, made to redeem, repurchase,
acquire or retire any of the Subordinated Debt or the shares of capital
stock, or the rights to acquire shares, of Quest Diagnostics or its
Subsidiaries.
Quest Diagnostics will be required to maintain: (i) a ratio (the "Leverage
Ratio") of (A) Consolidated Total Debt to (B) Consolidated Total Capitalization
equal to or below between 0.55 to 1.0 at the outset, decreasing over time to
0.45 to 1.0; (ii) a ratio (the "Debt Coverage Ratio") of (A) Consolidated Total
Debt to (B) Consolidated EBITDA equal to or below between 3.8 to 1.0 at the
outset, increasing over time to 2.0 to 1.0; and (iii) a ratio (the "Coverage
Ratio") of (A) the sum of (1) Consolidated EBITDA and (2) Consolidated Rental
Expense to (B) the sum of (1) Consolidated Interest Expense and (2) Consolidated
Rental Expense equal to or above 1.8 to 1.0 at the outset, increasing over time
to 3.0 to 1.0. Quest Diagnostics is required to have a Leverage Ratio no greater
than 0.55 to 1.0 through December 31, 1997, a Debt Coverage Ratio of less than
3.8 to 1.0 through June 30, 1997 and a Coverage Ratio of at least 1.8 to 1.0
from January 1, 1997 through June 30, 1997. After giving pro forma effect to the
Distributions, $350 million of borrowings under the Credit Facility and to the
Permitted Subordinated Debt, Quest Diagnostics would have had a Leverage Ratio
of 0.47 to 1.0 at September 30, 1996, a Debt Coverage Ratio of 3.2 to 1.0 for
the quarter ended September 30, 1996 and a Coverage Ratio of 2.2 to 1.0 for the
quarter ended September 30, 1996.
Events of Default. Events of Default include: (i) the failure to make payment
under the Credit Agreement of any principal when due or any interest, fees or
other amounts within three business days after becoming due; (ii) any
representation, warranty, certification or statement made by Quest
Diagnostics proving to have been incorrect in any material respect when made;
(iii) the failure by Quest Diagnostics or its Subsidiaries to perform or
observe any term, covenant or agreement under the Credit Agreement (subject
to certain cure periods); (iv) the failure of Quest Diagnostics to make
payment on any Material Financial Obligation (totalling in aggregate more
than $10 million) within the applicable grace period; (v) the occurrence of
an event that causes the acceleration of, or enables another of Quest
Diagnostics' creditors to accelerate, any of Quest Diagnostics' other
Material Debt (totalling in aggregate more than $10 million); (vi) the
commencement of a voluntary or involuntary bankruptcy proceeding by or
against Quest Diagnostics; (vii) the failure to pay when due ERISA
obligations in excess of $10 million; (viii) the rendering of a judgment or
judgments against Quest Diagnostics the aggregate amounts of which are in
excess of $10 million and remain unsatisfied or unstayed for more than 30
days, or the placing by a judgment creditor of a levy on the assets of Quest
Diagnostics or its Subsidiaries; (ix) at any time after the Spin-Off, a
person or group obtains beneficial ownership of 20% or more of the common
stock of Quest Diagnostics, or, during any period of 12 calendar months, the
individuals who constituted the members of the board of directors of Quest
Diagnostics on the first day of that period no longer constitute a majority
of the board; or (x) any security interest that was purported to be created
by the related security documents ceases to exist or be valid.
If an Event of Default occurs and continues beyond the allowed time period
for curing the default in question, the Banks, by a vote of more than 50% of
the aggregate Commitments, may terminate their Commitments to lend to Quest
Diagnostics. The Banks may further choose, by a separate vote representing
more than 50% of the aggregate principal amount of all of the Loans, to
accelerate the outstanding principal and interest. Additionally, during an
Event of Default the Letter of Credit Participants, by a more than 50% vote
of the amount of the total outstanding of the Letter of Credit Exposure, may
require that Quest Diagnostics fully cash collateralize the outstanding
Letter of Credit Exposure. In the case of a voluntary or involuntary
bankruptcy proceeding, all credit facilities shall terminate and all
outstanding amounts shall become immediately due and payable without any
action by the Banks.
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Description of the Notes
The Notes will be issued by the Company pursuant to an Indenture, to be dated
as of the Closing Date, 1996 (the "Indenture"), between the Company and The
Bank of New York, as trustee (the "Trustee").
The Indenture is subject to and governed by the Trust Indenture Act of 1939,
as amended. The statements under this caption relating to the Notes and the
Indenture are summaries and do not purport to be complete, and are subject
to, and are qualified in their entirety by reference to, all the provisions
of the Indenture, including the definitions therein of certain terms.
Wherever defined terms or particular sections of the Indenture are referred
to, such defined terms and sections are incorporated herein by reference. A
copy of the Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part. All references in this
section to the "Company" refer solely to Quest Diagnostics Incorporated, a
Delaware corporation, and not to its subsidiaries.
General
The Notes will to the extent described herein be fully and unconditionally
guaranteed by the existing Restricted Subsidiaries of the Company, and the
Company will covenant to cause any future Restricted Subsidiaries to fully
and unconditionally guarantee the Notes, in each case jointly and severally
on a senior subordinated basis (such guarantees, the "Senior Subordinated
Guarantees" and such guarantors, the "Guarantors"). The Senior Subordinated
Guarantees will be unsecured senior subordinated obligations of the
Guarantors, will be subordinate in right of payment to the prior payment in
full of all Senior Guarantees (as defined under "Senior Subordinated
Guarantees") to substantially the same extent as the Notes are subordinated
to Senior Debt and will automatically terminate if and to the extent the
related guarantees of the Credit Facility are terminated.
The Notes are effectively subordinated to all existing and future
indebtedness and other liabilities (including trade payables and capital
lease obligations) of the Company's Subsidiaries that are Unrestricted
Subsidiaries, and thus not Guarantors, and would be so subordinated to all
existing and future indebtedness of the Guarantors if the Senior Subordinated
Guarantees were avoided or subordinated in favor of the Guarantors' other
creditors. See "Risk Factors--Subordination; Ranking of the Notes as
Unsecured Obligations" and "--Fraudulent Conveyance."
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Sections 203 and 305).
Principal, Stated Maturity and Interest
The Notes will be unsecured senior subordinated obligations of the Company,
will be limited to $150.0 million aggregate principal amount and will mature
on December 15, 2006. The Notes will bear interest at the rate per annum
shown on the front cover of this Prospectus from the Closing Date or from the
most recent Interest Payment Date to which interest has been paid or provided
for, payable semi-annually on June 15 and December 15 of each year,
commencing June 15, 1997, until the principal thereof is paid or made
available for payment, to the Person in whose name the Note (or any
Predecessor Note) is registered at the close of business on the preceding
June 1 or December 1, as the case may be. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months. The
principal of (and premium, if any,) and interest on the Notes will be
payable, and the transfer of Notes will be registrable, at the office or
agency of the Company in The Borough of Manhattan, The City of New York. In
addition, payment of interest may, at the option of the Company, be made by
check mailed to the address of the Person entitled thereto as it appears in
the Security Register; provided, however, that all payments of the principal
(and premium, if any) and interest on Notes the Holders of which have given
wire transfer instructions to the Company or its agent at least 10 Business
Days prior to the applicable payment date will be required to be made by wire
transfer of immediately available funds to the accounts specified by such
Holders in such instructions. (Section 301).
Optional Redemption
Except as set forth below, the Notes are not redeemable at the option of the
Company prior to December 15, 2001. On or after such date, the Notes will be
subject to redemption, in whole or in part, at the option of the Company at
any time prior to maturity, upon not less than 30 nor more than 60 days'
notice mailed to each Holder of Notes to be redeemed at his address appearing
in the Security Register, in amounts of $1,000 or an integral multiple of
$1,000, at the following Redemption Prices (expressed as percentages of
principal amount) plus accrued interest to but excluding the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record
Date to receive interest due on an Interest Payment Date that is on or prior
to the Redemption Date), if redeemed during the twelve-month period beginning
on December 15 of each of the years indicated below:
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Redemption
Year Price
- ---- ----------
2001 %
2002
2003
2004 and thereafter 100.000%
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions (equal to
$1,000 or any integral multiple thereof) of the principal amount of Notes of
a denomination larger than $1,000. (Sections 1101, 1103, 1104 and 1105).
If as a result of an event outside the control of Corning, Quest Diagnostics
and Covance, the Distributions do not occur on or prior to March 31, 1997,
the Notes will be subject to redemption, as a whole and not in part, at the
option of Quest Diagnostics, on or prior to June 30, 1997, at a redemption
price equal to 101% of the principal amount of the Notes plus accrued and
unpaid interest to but excluding the Redemption Date. Notice of such
redemption will be given by notice, mailed and published, not more than 30
and not less than 15 days prior to the Redemption Date. (Section 1101).
Mandatory Redemption
Except as described below under "Repurchase at the Option of Holders--Asset
Dispositions" and "--Change of Control," the Notes will not have the benefit
of any mandatory redemption or sinking fund obligations of the Company.
Repurchase at the Option of Holders
Asset Dispositions
The Company may not make, and may not permit any Restricted Subsidiary to
make, any Asset Disposition in one or more transactions in any fiscal year
unless: (i) the Company (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such disposition at least equal to the
fair market value of the shares or the assets disposed of, as determined in
good faith by the Board of Directors; and (ii) 100% of the Net Available
Proceeds from such disposition (including from the sale of any Cash
Equivalents received therein) are applied by the Company (or such Restricted
Subsidiary, as the case may be) (A) first, either (I) within 270 days of such
disposition, to repayment of Senior Debt then outstanding under any
agreements or instruments which would require such application or which would
prohibit payments pursuant to Clause (B) following or (II) within 60 days
before or 270 days after such disposition, to reinvest in assets that will be
used in a Permitted Business (provided, however, that such application will
not be required to be made pursuant to this Clause (A) until the cumulative
Net Available Proceeds (less any Net Available Proceeds applied pursuant to
this covenant) (such difference being the "Excess Proceeds") exceed $5.0
million); (B) second, to the extent the Excess Proceeds exceeds $5.0 million,
to purchases of Outstanding Notes pursuant to an Offer to Purchase (to the
extent such an offer is not prohibited by the terms of any Senior Debt then
outstanding) at a purchase price equal to 100% of their principal amount plus
accrued interest to the date of purchase (provided, however, that
installments of interest whose Stated Maturity is on or prior to the Purchase
Date will be payable to the Holders of such Notes, or one or more Predecessor
Notes, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions in the Indenture; (C)
third, if and only if an Offer to Purchase has been made as described in
Clause (B) above, and to the extent of any remaining Excess Proceeds
following completion of such Offer to Purchase and after giving effect to
Clauses (A) and (B) above, to general corporate purposes. (Section 1015).
Any Offer to Purchase required by the provisions described above will be
effected by the sending of the written terms and conditions thereof (the
"Offer Document"), by first class mail, to Holders of the Notes within 270
days after the relevant disposition is completed. The contents of the Offer
to Purchase and the requirements that a Holder must satisfy to tender any
Note pursuant to such Offer to Purchase are substantially the same as those
described below under "--Change of Control."
Change of Control
Within 30 days following the date of the consummation of a transaction that
results in a Change of Control (as defined below), the Company will commence
an Offer to Purchase all Outstanding Notes, at a purchase price equal to 101%
of their aggregate principal amount plus accrued interest to the date of
purchase. Such obligation will not continue after a defeasance or covenant
defeasance of the Notes as described under "Defeasance."
A "Change of Control" means the occurrence of any of the following events
after the date of the Indenture: (i) any Person, or any Persons acting
together that would constitute a "group" (a "Group" ) for purposes of Section
13(d) of the Securities
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Exchange Act of 1934, as amended (the "Exchange Act"), beneficially owns 35%
or more of the total voting power of all classes of Voting Stock of the
Company, (ii) any Person or Group succeeds in having sufficient of its
nominees elected to the Board of Directors such that such nominees, when
added to any existing director remaining on the Board of Directors after such
election who is an Affiliate or Related Person of such Person or Group, will
constitute a majority of the Board of Directors or (iii) the occurrence of
any transaction or series of related transactions (excluding the Spin-Off
Distributions), in which the beneficial owners of the Voting Stock of the
Company immediately prior to such transaction (or series) do not, immediately
after such transaction (or series), beneficially own Voting Stock
representing more than 35% of the voting power of all classes of Voting Stock
of the Company (or in the case of a transaction (or series) in which another
entity becomes a successor to the Company, of the successor entity). (Section
1016).
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes resulting from a Change of Control.
Within 30 days of a Change of Control, an Offer Document will be sent, by
first class mail, to Holders of the Notes, accompanied by such information
regarding the Company and its Subsidiaries as the Company in good faith
believes will enable such Holders to make an informed decision with respect
to the Offer to Purchase, which at a minimum will include (a) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the provisions
described under "Certain Covenants--Provision of Financial Information" below
(which requirements may be satisfied by delivery of such documents together
with the Offer to Purchase), (b) a description of the events requiring the
Company to make the Offer to Purchase), (c) if applicable, appropriate pro
forma financial information concerning the Offer to Purchase and the events
requiring the Company to make the Offer to Purchase and (d) any other
information required by applicable law to be included therein. The Offer
Document will contain all instructions and materials necessary to enable
Holders of the Notes to tender Notes pursuant to the Offer to Purchase. The
Offer Document will also state (i) that a Change of Control has occurred (or,
if the offer to purchase is delivered in connection with an Asset
Disposition, that an Asset Disposition has occurred) and that the Company
will Offer to purchase the Holder's Notes, (ii) the Expiration Date of the
Offer Document, which will be, subject to any contrary requirements of
applicable law, not less than 30 days or more than 60 days after the date of
such Offer Document, (iii) the Purchase Date for the purchase of Notes which
will be within three Business Days after the Expiration Date, (iv) the
aggregate principal amount of Notes to be purchased (including, if less than
100%, the manner by which such purchase has been determined pursuant to the
Indenture) and the purchase price, and (v) a description of the procedure
which a Holder must follow to tender all or any portion of the Notes.
(Sections 101 and 1016).
Prior to the mailing of an Offer Document, but in any event within 30 days
following any Change of Control, the Company will to the extent required
either (i) repay all outstanding Senior Debt or (ii) obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the making of the Offer to Purchase and the purchase of Notes required
by this covenant. The failure to repay any such Senior Debt or to obtain any
such consents will not relieve the Company of its obligation to make the
Offer to Purchase or to purchase Notes pursuant to the Offer to Purchase
required by this covenant and the failure of the Company to make an Offer to
Purchase, or to purchase the Notes pursuant to an Offer to Purchase, will
constitute an Event of Default under the Indenture. See "--Events of
Default." The terms of the Credit Facility prohibit any repurchase of Notes
by the Company in the event of a Change of Control, unless all indebtedness
then outstanding under the Credit Facility is first repaid. In order to repay
such indebtedness (and any other outstanding Senior Debt with a similar
restriction) and repurchase the Notes, it may be necessary for the Company to
recapitalize and/or refinance some or all of its outstanding indebtedness.
There can be no assurance that such recapitalization or refinancing, if
required, would be accomplished on favorable terms, in a timely manner or at
all. Were any obligation of the Company to repurchase Notes upon a Change of
Control to result in a default under the Credit Facility or any other Senior
Debt, payments owing on the Notes could be blocked pursuant to the
subordination provisions of the Notes. See "Subordination."
To tender any Note, a Holder must surrender such Note at the place or places
specified in the Offer Document prior to the close of business on the
Expiration Date (such Note being, if the Company or the Trustee so requires,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing). Holders will be entitled
to withdraw all or any portion of Notes tendered if the Company (or its
Paying Agent) receives, not later than the close of business on the
Expiration Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Note the Holder
tendered, the certificate number of the Note the Holder tendered and a
statement that such Holder is withdrawing all or a portion of his tender. Any
portion of a Note tendered must be tendered in an integral multiple of $1,000
principal amount. (Section 101).
The Indenture does not contain any other change of control provisions.
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Subordination
The payment of the principal of (and premium, if any) and interest on the
Notes will, in certain circumstances as set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Debt. Upon any payment or distribution of assets of the Company to creditors
upon any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors, marshalling of assets and liabilities or any
bankruptcy, insolvency or similar proceedings of the Company, the holders of
Senior Debt will be entitled to receive payment in full of the principal of
(and premium, if any) and interest on such Senior Debt, including all amounts
due or to become due on all Senior Debt, or provision will be made for
payment in cash or cash equivalents or otherwise in a manner satisfactory to
the holders of such Senior Debt, before the Holders of Notes are entitled to
receive any Securities Payments. "Securities Payment" means any payment or
distribution of any kind, whether in cash, property or securities (including
any payment or distribution deliverable by reason of the payment of any other
Debt subordinated to the Notes but excluding any payment or distribution made
with shares of stock or securities of the Company that are subordinate in
right of payment to all Senior Debt to substantially the same extent as the
Notes are so subordinated) on account of the principal of (and premium, if
any) or interest on the Notes or on account of the purchase or redemption or
other acquisition of Notes by the Company or any Subsidiary of the Company.
In the event that, notwithstanding the foregoing, upon any payment or
distribution of assets of the Company to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets and liabilities or any bankruptcy,
insolvency or similar proceedings of the Company, the Trustee or the Holder
of any Note receives any Securities Payment before all Senior Debt is paid in
full or payment thereof is provided for in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of such Senior Debt, then
and in such event such Securities Payment will be required to be paid over or
delivered forthwith for application to the payment of all Senior Debt
remaining unpaid, to the extent necessary to pay the Senior Debt in full.
(Sections 1201 and 1202).
The Company may not make any Securities Payments if there has occurred and is
continuing a default in the payment of the principal of (or premium, if any)
or interest on Senior Debt (a "Senior Payment Default"). In addition, if any
default (other than a Senior Payment Default), with respect to any Senior
Debt permitting after notice or lapse of time (or both) the holders thereof
(or a trustee on behalf thereof) to accelerate the maturity thereof (a
"Senior Nonmonetary Default") has occurred and is continuing and the Company
and the Trustee have received written notice thereof from the Administrative
Agent under the Credit Facility (or if the Credit Facility has been
terminated, from any holder of Senior Debt with a principal amount in excess
of $15.0 million), then the Company may not make any Securities Payments for
a period (a "blockage period") commencing on the date the Company and the
Trustee receive such written notice and ending on the earlier of (x) 179 days
after such date and (y) the date, if any, on which the Senior Debt to which
such default relates is discharged or such default is waived or otherwise
cured. (Section 1203).
In any event, not more than one blockage period may be commenced during any
period of 360 consecutive days, and there must be a period of at least 181
consecutive days in each period of 360 consecutive days when no blockage
period is in effect. No Senior Nonmonetary Default that existed or was
continuing on the date of commencement of any blockage period with respect to
the Senior Debt will be, or can be, made the basis for the commencement of a
subsequent blockage period, unless such default has been cured or waived for
a period of not less than 90 consecutive days. In the event that,
notwithstanding the foregoing, the Company makes any Securities Payment to
the Trustee or any Holder of a Note prohibited by the subordination
provisions, then and in such event such Securities Payment will be required
to be paid over and delivered forthwith. (Section 1203).
By reason of such subordination, in the event of insolvency, creditors of the
Company who are not holders of Senior Debt or of the Notes may recover less,
ratably, than holders of Senior Debt and may recover more, ratably, than the
Holders of the Notes.
The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance or covenant defeasance of the Notes as
described under "Defeasance."
On a pro forma basis, as of September 30, 1996, after giving effect to the
Spin-Off Distributions, the sale of the Notes and the application of the
proceeds thereof and $350.0 million of borrowings under the Term Loans, there
was $367 million of Senior Debt of the Company outstanding, of which $350
million would have been guaranteed by the Guarantors on a senior basis. While
the Indenture will limit, subject to certain financial tests, the amount of
additional Debt that the Company and its Restricted Subsidiaries can Incur,
the Company may from time to time hereafter Incur additional Debt
constituting Senior Debt, including up to $100.0 million under the Working
Capital Facility, substantially all of which is anticipated to be available
at the Closing Date. See "--Certain Covenants--Limitation on Incurrence of
Debt."
Senior Subordinated Guarantees
The Guarantors will, jointly and severally, on a senior subordinated basis,
fully and unconditionally guarantee the due and punctual payment of principal
of (and premium, if any) and interest on the Notes, when and as the same
shall become due and
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payable, whether at the maturity date, by declaration of acceleration, call
for redemption or otherwise. As described below, the Senior Subordinated
Guarantees will automatically terminate if the related guarantees of the
Credit Facility are terminated.
The Senior Subordinated Guarantees will be subordinate in right of payment to
the prior payment in full of all Senior Guarantees to substantially the same
extent as the Notes are subordinated to Senior Debt. The term "Senior
Guarantees" means all obligations of the Guarantors under guarantees of
Senior Debt of the Company. No payment will be made by the Guarantors under
the Senior Subordinated Guarantees in respect of the Notes during any period
that payments by the Company on the Notes are suspended by the subordination
provisions of the Indenture as described above under "Subordination." By
reason of these provisions, in the event of insolvency, Holders of the Notes
and the related Senior Subordinated Guarantees may recover less, ratably,
than other creditors of the Company, including holders of Senior Guarantees.
(Section ).
The Senior Subordinated Guarantees will remain in effect with respect to each
Guarantor until the entire principal of, premium, if any, and interest on the
Notes shall have been paid in full or otherwise discharged in accordance with
the provisions of the Indenture; provided, however, that if (i) such
Guarantor ceases to be a Restricted Subsidiary, (ii) such Guarantor ceases to
guarantee the Credit Facility, (iii) the Notes are defeased and discharged as
described under Clause (A) under "Defeasance" or (iv) all or substantially
all of the assets of such Guarantor or all of the Capital Stock of such
Guarantor is sold (including by issuance, merger, consolidation or otherwise)
by the Company or any of its Subsidiaries in a transaction constituting an
Asset Disposition and the Net Available Proceeds from such Asset Disposition
are used in accordance with the provisions described under "Repurchase at the
Option of Holders--Asset Dispositions," then in each case of (i), (ii), (iii)
and (iv) above, such Guarantor or the corporation acquiring such assets (in
the event of a sale or other disposition of all or substantially all of the
assets of such Guarantor) shall be released and discharged of its Senior
Subordinated Guarantee obligations.
Subject to payment in full of all Senior Guarantees, the rights of the
Holders of the Notes under the related Senior Subordinated Guarantees will be
subrogated to the rights of the holders of Senior Guarantees to receive
payments or distributions of cash, property or securities of the Guarantors
applicable to Senior Guarantees.
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Debt
The Company may not, and may not permit any Restricted Subsidiary to, Incur
any Debt unless, immediately after giving effect to the Incurrence of such
Debt and the receipt and application of the proceeds thereof, the
Consolidated EBITDA Coverage Ratio of the Company for the four full fiscal
quarters for which internal financial statements are available immediately
preceding the Incurrence of such Debt, calculated on a pro forma basis as if
such Debt had been Incurred and the proceeds thereof had been received and so
applied at the beginning of the four full fiscal quarters, would be greater
than 2.50 to 1.0 if such date is on or prior to December 31, 1998, 2.75 to
1.0 if such date is on or prior to December 31, 1999 and 3.0 to 1.0 if
thereafter. (Section 1008).
Without regard to the foregoing limitations, the Company or any Restricted
Subsidiary of the Company may Incur the following Debt:
(i) Debt under the Credit Facility in an aggregate principal amount at
any one time outstanding not to exceed $450.0 million less (A) principal
payments on any term loan facility under such Credit Facility required to
be made by the terms of the Credit Facility as in effect on the date of the
Indenture and actually made and (B) any amounts by which the Working
Capital Facility commitments are permanently reduced by the terms of the
Credit Facility as in effect on the date of the Indenture; provided, that
Clause (B) shall not apply to a refinancing or refunding of the Working
Capital Facility so long as such refinancing or refunding complies with
Clause (vii) below
(ii) Debt evidenced by the Notes;
(iii) Debt of the Company or any Restricted Subsidiary (other than Debt
referred to in Clauses (i) and (ii) above) outstanding on the date of the
Indenture;
(iv) Debt owed by the Company to any Wholly Owned Restricted Subsidiary
or Debt owed by a Wholly Owned Restricted Subsidiary to the Company;
provided, however, that (a) any such Debt owing by the Company to a Wholly
Owned Restricted Subsidiary shall be Subordinated Debt and (b) upon either
(1) the transfer or other disposition by such Wholly Owned Restricted
Subsidiary or the Company of any Debt so permitted to a Person other than
the Company or another Wholly Owned Restricted Subsidiary or (2) the
issuance (other than directors' qualifying shares), sale, lease, transfer
or other disposition of shares of Capital Stock (including by consolidation
or merger) of such Wholly Owned Restricted Subsidiary to a Person other
than the Company or another such Wholly Owned Restricted Subsidiary, the
provisions of this Clause (iv) shall no longer be applicable to such Debt
and such Debt shall be deemed to have been Incurred at the time of such
transfer or other disposition;
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(v) Obligations under Interest Rate Agreements in respect of Debt
permitted to be incurred by the Company pursuant to the Indenture to the
extent the notional principal amount of such Interest Rate Agreements does
not exceed the aggregate principal amount of the Debt to which such
Interest Rate Agreements relate; provided, however, that (A) such Interest
Rate Agreements are used solely to hedge the related Debt and (B) the
profits and losses with respect to the Interest Rate Agreements are
included as interest expense under generally accepted accounting
principles;
(vi) Debt Incurred by the Company or any Restricted Subsidiary in respect
of (x) bid or performance bonds entered into in favor of governmental
entities or (y) surety or appeal bonds, which, in each case are entered
into in the ordinary course of business;
(vii) Debt Incurred to renew, extend, refinance or refund any outstanding
Debt permitted by Clauses (i), (ii) and (iii) above or this Clause (vii);
provided, however, that such Debt does not exceed the principal amount of
Debt (or, in the case of Debt issued at a discount from its principal
amount, the amount then payable upon an acceleration thereof) so renewed,
extended, refinanced or refunded (plus accrued interest, fees, expenses,
premiums and other amounts payable in connection therewith in an amount not
in excess of 1% of the principal amount (or, in the case of Debt issued at
a discount, the amount payable upon acceleration) of the Debt being
renewed, extended, refinanced or refunded); and provided further, that (A)
Debt the proceeds of which are used to refinance or refund Debt which is
Pari Passu to the Notes or Debt which is subordinate in right of payment to
the Notes shall only be permitted if in the case of any refinancing or
refunding of Debt which is Pari Passu to the Notes, the refinancing or
refunding Debt is made Pari Passu to the Notes or subordinated to the
Notes, and, in the case of any refinancing or refunding of Debt which is
subordinated to the Notes, the refinancing or refunding Debt is made
subordinate to the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Debt being
refinanced or refunded and (B) such refinancing or refunding Debt (x) does
not have a final scheduled maturity earlier than the final scheduled
maturity of the refinanced or refunded Debt or permit redemption or other
retirement of such Debt (including pursuant to an offer to purchase by the
Company) at the option of the holder thereof prior to the final stated
maturity of the Debt being refinanced or refunded, other than a redemption
or other retirement at the option of the holder of such Debt on terms at
least as favorable to the Holders of the Notes as those contained in the
Debt being refinanced or refunded and (y) does not have a Weighted Average
Life less than the Weighted Average Life of the Debt being refinanced or
refunded; and
(viii) Debt in addition to that otherwise permitted to be Incurred
pursuant to Clauses (i) through (vii) above, which, together with any other
outstanding Debt Incurred pursuant to this Clause (viii), has an aggregate
principal amount not in excess of $20.0 million at any one time
outstanding. (Section 1008).
Limitation on Layered and Junior Debt
The Company may not (i) Incur or suffer to exist any Debt that is by its
terms subordinate in right of payment to any other Debt of the Company unless
such Debt is also Pari Passu with or subordinate by its terms in right of
payment to the Notes or (ii) permit any Guarantor to Incur or suffer to exist
any Debt that is by its terms subordinate in right of payment to any other
Debt of the Guarantor unless such Debt is also Pari Passu with or subordinate
by its terms in right of payment to the Senior Subordinated Guarantees.
(Section 1009).
Limitation on Restricted Payments
The Company may not directly or indirectly, (i) declare or pay any dividend,
or make any distribution, of any kind or character (whether in cash, property
or securities) in respect of its Capital Stock or to the holders thereof in
their capacity as such (excluding the Spin-Off Payments and any dividends or
distributions payable solely in shares of its Capital Stock (other than
Redeemable Interests) or in options, warrants or other rights to acquire its
Capital Stock (other than Redeemable Interests)), (ii) purchase, redeem or
otherwise acquire or retire for value, or permit any Restricted Subsidiary to
purchase, redeem or otherwise acquire or retire for value (a) any Capital
Stock of the Company or any Capital Stock of or other ownership interests in
any Subsidiary or any Affiliate or Related Person of the Company (other than
any such acquisition which results in such Subsidiary, Affiliate or Related
Person becoming a Restricted Subsidiary) or (b) any options, warrants or
rights to purchase or acquire shares of Capital Stock of the Company or any
Capital Stock of or other ownership interests in any Subsidiary or any
Affiliate or Related Person of the Company (excluding the redemption or
repurchase by any Restricted Subsidiary of any of its Capital Stock, other
ownership interests or options, warrants or rights to purchase such Capital
Stock or other ownership interests, in each case, owned by the Company or a
Wholly Owned Restricted Subsidiary and any such acquisition that results in
such Subsidiary, Affiliate or Related Person becoming a Restricted
Subsidiary), (iii) permit any Restricted Subsidiary to declare or pay any
dividend, or make any distribution, of any kind or character (whether in
cash, property or securities) in respect of the Capital Stock of or other
ownership interests in such Restricted Subsidiary or to the holders of such
Restricted Subsidiary's Capital
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Stock or other ownership interests (excluding any dividends or distributions
payable solely in shares of Capital Stock of or other ownership interests in
such Restricted Subsidiary (other than Redeemable Interests) or in options,
warrants or other rights to acquire Capital Stock of or other ownership
interests in such Restricted Subsidiary (other than Redeemable Interests))
other than (A) the payment by any Restricted Subsidiary of dividends or other
distributions to the Company or a Wholly Owned Restricted Subsidiary, or (B)
the payment of pro rata dividends to holders of both minority and majority
interests in the Capital Stock or other ownership interests of any such
Restricted Subsidiary, (iv) make, or permit any Restricted Subsidiary to
make, any Investment in any Person that is not a Permitted Investment or (v)
redeem, defease, repurchase, retire or otherwise acquire or retire for value
prior to any scheduled maturity, repayment or sinking fund payment, Debt of
the Company (other than the Notes) that is Pari Passu with or subordinate in
right of payment to the Notes (each of the transactions described in Clauses
(i) through (v) being a "Restricted Payment"), if:
(1) an Event of Default, or an event that with the lapse of time or the
giving of notice, or both, would constitute an Event of Default, shall have
occurred and be continuing;
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four full fiscal quarter period
for which internal financial statements are available immediately preceding
the date of such Restricted Payment, not have been permitted to Incur at
least $1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage
Ratio test set forth in the first paragraph under "Limitation on Incurrence
of Debt" above; or
(3) upon giving effect to such Restricted Payment, the aggregate of all
Restricted Payments (excluding Restricted Payments permitted by Clauses (i)
through (vii) of the next succeeding paragraph) from the date of the
Indenture (the amount so expended, if other than in cash, determined in
good faith by the Board of Directors) exceeds the sum, without duplication,
of: (a) 50% of the cumulative Consolidated Net Income of the Company (or,
in the case such Consolidated Net Income shall be negative, less 100% of
such deficit) for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date of the
Indenture to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment; provided that for purposes of this clause (a),
Consolidated Net Income of the Company will be calculated excluding
extraordinary losses resulting from the Spin-Off Distributions; plus (b)
100% of the aggregate net cash proceeds from the issuance and sale (other
than to a Restricted Subsidiary of the Company) of Capital Stock (other
than Redeemable Interests) of the Company and options, warrants or other
rights on Capital Stock (other than Redeemable Interests and Debt
convertible into Capital Stock) of the Company and the principal amount of
Debt and Redeemable Interests of the Company that has been converted into
Capital Stock (other than Redeemable Interests) of the Company after the
date of the Indenture, provided that any such net proceeds received by the
Company from an employee stock ownership plan financed by loans from the
Company or a Subsidiary of the Company shall be included only to the extent
such loans have been repaid with cash on or prior to the date of
determination; plus (c) 50% of any dividends received by the Company or a
Wholly Owned Restricted Subsidiary after the date of the Indenture from an
Unrestricted Subsidiary of the Company; plus (d) to the extent not
otherwise taken into account in this subsection (3), any return of a
capital investment made by the Company in another Person and treated as a
Restricted Payment under Clause (ii) or (iv) to the extent received in cash
or Cash Equivalents and in an amount not in excess of such Restricted
Payment plus (e) $10.0 million. (Section 1010).
The foregoing covenant will not be violated by reason of:
(i) the payment of any dividend within 60 days after declaration thereof
if at the declaration date such payment would have complied with the
foregoing covenant and the amount of such dividend was included in the
aggregate amount of Restricted Payments pursuant to Clause (3) above;
(ii) any renewal, extension, refinancing or refunding of Debt permitted
pursuant to Clause (vii) in the second paragraph under "Limitation on
Incurrence of Debt" above;
(iii) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any options, warrants or
rights to purchase or acquire shares of Capital Stock of the Company in
exchange for, or out of the net cash proceeds of, the substantially
concurrent issuance or sale (other than to a Restricted Subsidiary of the
Company) of Capital Stock (other than Redeemable Interests) of the Company;
provided that the amount of any such net cash proceeds that are utilized
for any such purchase, redemption or other acquisition or retirement for
value shall be excluded from Clause (3)(b) in the foregoing paragraph;
(iv) any purchase or other acquisition of Common Stock of the Company
that is contributed to any employee plan qualified under Section 401(a) of
the Internal Revenue Code or an employee stock purchase plan, in either
case that was either funded by employee contributions or deducted as an
expense in determining Consolidated Net Income of the Company;
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(v) the sale, lease or other disposition of any Non-Core Asset; provided
that the Board of Directors determines that such sale, lease or other
disposition is in the best interests of the Company;
(vi) any Permitted Joint Venture Investment made after the date of the
Indenture; provided that the Consolidated EBITDA of the Company
attributable to such Investment for the four full fiscal quarters for which
internal financial statements are available immediately preceding the date
of such Investment, together with the Consolidated EBITDA of the Company
attributable to any other Permitted Joint Venture Investment made pursuant
to this Clause (vi), shall not exceed 10% of the Consolidated EBITDA of the
Company for the four full fiscal quarters for which internal financial
statements are available immediately preceding the making of such Permitted
Joint Venture Investment; provided, further, that the Company would, at the
time the Company makes a Permitted Joint Venture Investment pursuant to
this Clause (vi) and after giving pro forma effect thereto as it such
Permitted Joint Venture Investment had occurred at the beginning of the
most recently ended four full fiscal quarter period for which internal
financial statements are available immediately preceding the date of such
Permitted Joint Venture Investment, have been permitted to Incur at least
$1.00 of additional Debt pursuant to the Consolidated EBITDA Coverage Ratio
test set forth in the first paragraph under "--Limitation on Incurrence of
Debt;" or
(vii) the redemption of Quest Diagnostics Rights pursuant to the Quest
Diagnostics Rights Agreement (or any successor agreement) in an amount not
to exceed $.01 per Quest Diagnostics Right.
Upon the designation of any Restricted Subsidiary as an Unrestricted
Subsidiary (other than pursuant to Clauses (v) and (vi) above), an amount
equal to the fair market value of all of the assets of such Restricted
Subsidiary prior to such change will be deemed to be a Restricted Payment for
purposes of calculating the aggregate amount of Restricted Payments pursuant
to Clause (3) above. (Section 1010)
Limitation on Leases
The Company may not, and may not permit any Restricted Subsidiary to, Incur
any Operating Lease except:
(i) any Operating Lease in effect on the date of the Indenture;
(ii) any Operating Lease relating to personal property used in the
Company's or a Restricted Subsidiary's ordinary course of business;
(iii) any Operating Lease of real property having an annualized Rental
Expense of less than $0.625 million;
(iv) any Operating Lease (A) Incurred by a Person prior to the time such
Person became a Restricted Subsidiary, (B) acquired by the Company or any
Restricted Subsidiary through a purchase or other acquisition of assets or
(C) Incurred by a Restricted Subsidiary in connection with a merger or
consolidation with or into another Person (other than a Restricted
Subsidiary) in a transaction in which such Person becomes a Restricted
Subsidiary of the Company; provided, that, in the case of any Operating
Lease Incurred pursuant to Clause (A) or (C) of this Clause (iv), such
Operating Lease was not Incurred in anticipation of such transaction and
was outstanding prior to such transaction; and provided further, that the
difference, if any, (but not less than zero) of (A) the annualized Rental
Expense of such Operating Lease and (B) the annualized Rental Expense of
any equivalent or similar Operating Lease relating to assets or properties
disposed of in connection with such transaction and as to which the Company
or such Restricted Subsidiary is no longer, directly or indirectly, liable
or obligated under or as to which another Person with a Credit Rating equal
to or greater than the Company shall have agreed to indemnify and hold
harmless the Company or such Restricted Subsidiary with respect to all of
its liabilities and obligations under such Operating Lease, together with
the annualized Rental Expense of any other Operating Lease Incurred
pursuant to this Clause (iv), shall not exceed $3.0 million in any fiscal
year;
(v) any Operating Lease in addition to those described in Clauses (i)
through (iv) above and Clauses (vi) through (viii) below Incurred after the
date of the Indenture the annualized Rental Expense of which, together with
the annualized Rental Expense of any other Operating Lease Incurred pursuant
to this internal Clause (v), shall not exceed the 3% of the Consolidated
EBITDA of the Company for the four full fiscal quarters for which internal
financial statements are available immediately preceding the Incurrence of
such Operating Lease;
(vi) any Operating Lease between the Company and a Wholly Owned
Restricted Subsidiary or between a Wholly Owned Restricted Subsidiary and
the Company or another Wholly Owned Restricted Subsidiary; provided,
however, that in the case of the issuance (other than directors' qualifying
shares), sale, lease, transfer or other disposition of shares of Capital
Stock (including by a consolidation or merger) of such Wholly Owned
Restricted Subsidiary to a Person other than the Company or another Wholly
Owned Restricted Subsidiary, the provisions of this Clause (vi) shall no
longer be applicable to such Operating Lease and such Operating Lease shall
be deemed to have been Incurred at that time;
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(vii) at the election of the Company, any Operating Lease in addition to
that permitted to be Incurred pursuant to Clauses (i) through (vi) above
and Clause (viii) below if (a) the Company treats the Attributable Value of
such Operating Lease as Debt for all purposes under the Indenture,
including for purposes of the pro forma calculation required by this Clause
(vii), (b) the portion of Rental Expense in respect of such Operating Lease
that would have been allocable to interest expense in accordance with
generally accepted accounting principles if such Operating Lease was
treated as a Capitalized Lease Obligation is treated as Consolidated
Interest Expense of the Company for all purposes of the Indenture,
including for purposes of the pro forma calculation required by this Clause
(vii), and (c) the Company would, at the time of such Incurrence and after
giving pro forma effect thereto as if such Incurrence had occurred at the
beginning of the most recently ended four full fiscal quarter period for
which internal financial statements are available immediately preceding the
date of such Incurrence, have been permitted to Incur at least $1.00 of
additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set
forth in the first paragraph under "--Limitation on Incurrence of Debt";
and
(viii) any renewal, extension or replacement (each a "replacement") of
any Operating Lease permitted by Clause (i), (iv), (v), (vi) or (vii) or
this Clause (viii); provided, that the Incurrence of an Operating Lease
shall be deemed to be the replacement of another Operating Lease so long as
the obligation to pay rent or other amounts does not begin earlier than one
year prior to the end of the term of the Operating Lease being replaced;
Limitations Concerning Distributions by Subsidiaries, Etc.
The Company may not, and may not permit any Restricted Subsidiary to, suffer
to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make
any other distributions in respect of its Capital Stock or other ownership
interests or pay any Debt or other obligation owed to the Company or any
other Restricted Subsidiary; (ii) to make loans or advances to the Company or
any Restricted Subsidiary; or (iii) to sell, lease or transfer any of its
property or assets to the Company or any Wholly Owned Restricted Subsidiary,
except, in any such case, any encumbrance or restriction: (a) pursuant to the
Notes, the Indenture, the Credit Facility and any other agreement in effect
on the date of the Indenture, (b) pursuant to an agreement relating to any
Debt Incurred by a Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company and outstanding on such
date and not Incurred in anticipation of becoming a Restricted Subsidiary,
(c) pursuant to an agreement which has been entered into for the pending sale
or disposition of all or substantially all of the assets of such Restricted
Subsidiary or all or substantially all of the Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted
Subsidiary, provided that such restriction terminates upon consummation of
such disposition, (d) pursuant to customary provisions restricting
assignments of contracts or subleases of leases, in each case, entered into
in the ordinary course of business, (e) pursuant to purchase money
obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in Clause (iii) above on the
property so acquired, (f) pursuant to an agreement effecting a renewal,
extension, refinancing or refunding of Debt Incurred pursuant to an agreement
referred to in Clause (a) or (b) above (provided that the provisions relating
to such encumbrance or restriction contained in such renewal, extension,
refinancing or refunding are no more restrictive in any material respect than
the provisions contained in the agreement it replaces) or (g) pursuant to or
by reason of applicable law. (Section 1012).
Limitation on Liens
The Company may not, and may not permit any Restricted Subsidiary to, Incur
any Lien on property or assets of the Company or such Restricted Subsidiary
to secure Debt that is Pari Passu or subordinate in right of payment to the
Notes without making, or causing such Restricted Subsidiary to make,
effective provision for securing the Notes (and, if the Company may so
determine, any other Debt of the Company or of such Restricted Subsidiary
that is not Pari Passu or subordinate to the Notes) (i) in the case of Debt
that is Pari Passu with the Notes, Pari Passu with such Debt and (ii) in the
case of Debt that is subordinated in right of payment to the Notes prior to
such Debt, in each case, as to such property for so long as such Debt will be
so secured. (Section 1013).
The Company may not, and may not permit any Restricted Subsidiary to, Incur
any Lien (other than Permitted Liens) on property or assets of the Company or
such Restricted Subsidiary to secure Debt that is not Pari Passu or
subordinate in right of payment to the Notes without making, or causing such
Restricted Subsidiary to make, effective provision for securing the Notes
(and, if the Company may so determine, any other Debt of the Company or of
such Restricted Subsidiary that is not subordinate to the Notes) equally and
ratably with (or prior to) such Debt as to such property for so long as such
Debt will be so secured. (Section 1013).
Limitation on Transactions with Affiliates and Related Persons
The Company may not, and may not permit any Restricted Subsidiary of the
Company to, directly or indirectly, enter into any transaction after the date
of the Indenture with any Affiliate or Related Person of the Company unless
(i) such Affiliate or Related Person is (both before and after such
transaction) (a) a Wholly Owned Subsidiary of the Company or (b) another Sub-
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sidiary of the Company the minority interests in which are not held by any
Affiliate or Related Person of the Company; (ii) such transaction is the
payment of directors' fees; (iii) such transaction is the entering into of a
laboratory services agreement in the ordinary course of the Company's or a
Restricted Subsidiary's business on terms that are no less favorable to the
Company or such Restricted Subsidiary as those that could be obtained in a
comparable arm's length transaction; (iv) such transaction is the entering
into a compensation arrangement between the Company or a Restricted
Subsidiary and one of its employees, which transaction is approved by the
compensation committee of the Board of Directors; (v) the transaction
contemplated by Clause (ix) of the definition of Permitted Investments; or
(vi) the following action is taken: (a) if the total consideration paid by
the Company or such Restricted Subsidiary in such transaction (or series of
transactions) of which it is a part (including cash, the fair value of
non-cash property and the principal amount of any Debt assumed) (the
"Consideration") is less than $5 million, then a duly authorized executive
officer of the Company will deliver an officer's certificate to the Trustee
within 10 days of such transaction (or series of transactions) wherein such
officer certifies on behalf of the Company that in his or her good faith
judgment the terms of the transaction (or series of transactions) are in the
best interests of the Company and are no less favorable to the Company than
those that could be obtained in a comparable arm's length transaction (or
series of transactions) with an entity that is not a Affiliate or a Related
Person; (b) if the Consideration is between $5 million and $15 million, then
the determinations referred to in Clause (a) above must be made by a majority
of the disinterested members of the Board of Directors; and (c) if the
Consideration is greater than $15 million, then the determinations referred
to in Clause (a) above, in addition to the action required by Clause (b)
above, must also be confirmed by a nationally recognized investment banking
firm (which may not be an Affiliate or Related Person of the Company), in a
written opinion delivered to the Board of Directors prior to consummation of
such transaction (or series of transactions); provided, however, that the
foregoing restriction will not apply to the Intercompany Agreements as in
effect on the date of the Indenture or the transactions contemplated thereby.
(Section 1014).
Limitation on Sale of Capital Stock of Restricted Subsidiaries
The Company may not, and may not permit any Restricted Subsidiary to, issue,
transfer, convey or otherwise dispose of any shares of Capital Stock (other
than Preferred Stock that is not required or permitted to be redeemed or
otherwise repaid, at the option of such Restricted Subsidiary or the holders
thereof, prior to the final Stated Maturity of the Notes) of a Restricted
Subsidiary or securities convertible or exchangeable into, or options,
warrants, rights or any other interest with respect to, Capital Stock of a
Restricted Subsidiary to any Person other than the Company or a Wholly Owned
Restricted Subsidiary except in a transaction consisting of a sale of all of
the Capital Stock of such Restricted Subsidiary owned by the Company and any
Subsidiary of the Company and that complies with the provisions described
under "Repurchase at the Option of Holders--Asset Dispositions" above to the
extent such provisions apply. (Section 1015).
Provision of Financial Information
Whether or not the Company is subject to the reporting requirements of
Section 13(a) or 15(d) of the Exchange Act, the Company will file with the
Commission the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to
Section 13(a) or 15(d) if the Company were subject to such Section and will
also provide to all Holders and file with the Trustee copies of such reports.
(Section 1017).
Unrestricted Subsidiaries
The Company may at any time designate any Person that after the date of the
Indenture becomes a Subsidiary of the Company as an "Unrestricted
Subsidiary," whereupon (and until such Person ceases to be an Unrestricted
Subsidiary) such Person and each other Person that is then or thereafter
becomes a Subsidiary of such Person will be deemed to be an Unrestricted
Subsidiary. In addition, the Company may at any time terminate the status of
any Subsidiary of the Company as an Unrestricted Subsidiary, whereupon such
Subsidiary and each other Subsidiary of the Company (if any) of which such
Subsidiary is a Subsidiary will cease to be an Unrestricted Subsidiary.
(Section 1018).
Notwithstanding the foregoing, no change in the status of a Subsidiary of the
Company from a Restricted Subsidiary to an Unrestricted Subsidiary or an
Unrestricted Subsidiary to a Restricted Subsidiary (other than the change in
status of a Non-Core Asset from a Restricted Subsidiary holding only Non-Core
Assets to an Unrestricted Subsidiary) will be effective, unless (i) the
Company would, at the time of such designation and after giving pro forma
effect thereto as if such designation had occurred at the beginning of the
most recently ended four full fiscal quarter period for which internal
financial statements are available immediately preceding the date of such
designation, have been permitted to Incur at least $1.00 of additional Debt
pursuant to the Consolidated EBITDA Coverage Ratio test set forth in the
first paragraph under "--Limitation on Incurrence of Debt"; (ii) in the case
of any change in status of such a Subsidiary from a Restricted Subsidiary to
an Unrestricted Subsidiary (other than pursuant to Clause (vi) of "Limitation
on Restricted Payments" covenant), the fair market value of all assets of
such Restricted Subsidiary prior to such change will be deemed a Restricted
Payment for purposes of calculating the aggregate amount of
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Restricted Payments pursuant to the provisions described in the first paragraph
under "Limitation on Restricted Payments" above, and the incurrence of such
Restricted Payment would be permitted by such covenant and (iii) such change
would not otherwise result (after the giving of notice or the lapse of time, or
both) in an Event of Default. In addition and notwithstanding the foregoing, no
change in the status of a Subsidiary of the Company from a Restricted Subsidiary
to an Unrestricted Subsidiary, and the status of any Subsidiary of the Company
as an Unrestricted Subsidiary will be deemed to have been immediately terminated
(with the effect described in the preceding paragraph) at any time when, (i)
such Subsidiary (A) has outstanding Debt that is Unpermitted Debt or (B) owns or
holds any Capital Stock of or other ownership interests in, or a Lien on any
property or other assets of, the Company or any of its Restricted Subsidiaries,
(ii) the Company or any Restricted Subsidiary (A) provides credit support for,
or a Guaranty of, any Debt of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Debt) or (B) is directly or indirectly
liable for any Debt of such Subsidiary or (iii) if and only if such Subsidiary
does business under the name "Quest" or "Quest Diagnostics", such Subsidiary
fails to notify in writing the holders of its Debt that such Debt is without
recourse to the property and assets of the Company and its Restricted
Subsidiaries. Any such termination otherwise prohibited by the restrictions
described in the first sentence of this paragraph will be deemed to result in a
default under the Indenture. "Unpermitted Debt" means any Debt of a Subsidiary
of the Company if (x) a default thereunder (or under any instrument or agreement
pursuant to or by which such Debt is issued, secured or evidenced), or any right
that the holders thereof may have to take enforcement action against such
Subsidiary or its property or other assets, would permit (whether or not after
the giving of notice or the lapse of time or both) the holders of any Debt of
the Company or any Restricted Subsidiary to declare the same due and payable
prior to the date on which it otherwise would have become due and payable or
otherwise to take any enforcement action against the Company or any such
Restricted Subsidiary or (y) such Debt is secured by a Lien on any property or
other assets of the Company and any of its Restricted Subsidiaries. (Section
1018).
Mergers, Consolidations and Certain Sales of Assets
The Company (i) may not consolidate with or merge into any Person (other than
a Wholly Owned Restricted Subsidiary) or permit any Person (other than a
Wholly Owned Restricted Subsidiary) to consolidate with or merge into the
Company; and (ii) may not, directly or indirectly, in one or a series of
transactions, transfer, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets; unless, in each case: (1)
immediately before and after giving effect to such transaction (or series)
and treating any Debt Incurred by the Company or a Restricted Subsidiary as a
result of such transaction (or series) as having been Incurred by the Company
or such Restricted Subsidiary at the time of the transaction (or series), no
Event of Default or event that with the passing of time or the giving of
notice, or both, will constitute an Event of Default shall have occurred and
be continuing; (2) in a transaction (or series) in which the Company does not
survive or in which the Company transfers, conveys, sells, leases or
otherwise disposes of all or substantially all of its properties and assets,
the successor entity is a corporation, partnership, limited liability company
or trust and is organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and
expressly assumes, by a supplemental indenture executed and delivered to the
Trustee in form satisfactory to the Trustee, all the Company's obligations
under the Indenture; (3) immediately after giving effect to such transaction
(or series), the Company or the successor entity would have a Consolidated
Net Worth not less than 95% of the Consolidated Net Worth of the Company
immediately prior to such transaction (or series); (4) the Company would, at
the time of such transaction (or series) and after giving pro forma effect
thereto as if such transaction (or series) had occurred at the beginning of
the most recently ended four full fiscal quarter period for which internal
financial statements are available immediately preceding the date of such
transaction (or series), have been permitted to Incur at least $1.00 of
additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set
forth in the first paragraph under "Certain Covenants--Limitation on
Incurrence of Debt" above; (5) if, as a result of any such transaction,
property or assets of the Company or any Restricted Subsidiary would become
subject to a Lien prohibited by the "Certain Covenants--Limitation on Liens"
covenant, the Company or the successor entity will have secured the Notes as
required by such covenant; and (6) the Company has delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel as specified in the
Indenture. (Section 801).
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (Section 101).
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer, conveyance, sale, lease
or other disposition by such Person (including a consolidation or merger or
other sale of any Restricted Subsidiary with, into or to another Person in a
transaction in which such
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Restricted Subsidiary ceases to be a Subsidiary of such Person) of (i) shares
of Capital Stock (other than directors' qualifying shares) or other ownership
interests of a Restricted Subsidiary or (ii) the property or assets of such
Person or any Restricted Subsidiary representing a division or line of
business or (iii) other assets or rights of such Person or any Restricted
Subsidiary outside of the ordinary course of business: but excluding (i) one
or more Asset Dispositions that in any fiscal year result in aggregate net
proceeds of less than $1.0 million, (ii) the disposition of all or
substantially all of the assets of the Company in a manner permitted pursuant
to the provisions described above under "Mergers, Consolidations and Certain
Sales of Assets," (iii) any disposition that constitutes a Restricted Payment
or Permitted Investment that is permitted pursuant to the provisions
described under "Certain Covenants--Limitation on Restricted Payments" and
(iv) any transfer, conveyance, lease, sale or other disposition of the
Company's laboratory facility in Boston, Massachusetts.
"Attributable Value" means, as to any Operating Lease of any Person, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such Person under such lease during the
initial term thereof as determined in accordance with generally accepted
accounting principles, discounted from the last date of such initial term to
the date of determination at a rate per annum equal to the discount rate
which would be applicable to a Capital Lease Obligation with like term in
accordance with generally accepted accounting principles. The net amount of
rent required to be paid under any such lease for any such period shall be
the aggregate amount of rent payable by the lessee with respect to such
period excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the
case of any lease which is terminable by the lessee upon the payment of
penalty, such net amount shall also include the lesser of the amount of such
penalty (in which case no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated) or the rent which would otherwise be required to be paid if such
lease is not so terminated.
"Board of Directors" means the Board of Directors of the Company or a duly
authorized committee thereof.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other arrangements conveying the
right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation shall be the
date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of equity interests
of such Person.
"Cash Equivalents" means, at any time, (i) any Debt (other than any Debt
issued at a discount) fully guaranteed as to principal and interest by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof); (ii) certificates of deposit of any financial institution that has
combined capital and surplus and undivided profits of not less than
$50,000,000 (or the equivalent thereof in another currency) and has a
long-term debt rating of at least "AA" by Standard & Poor's Ratings Group
("S&P") or at least "Aa3" by Moody's Investors Service, Inc. ("Moody's"),
(iii) repurchase obligations for underlying securities of the type described
in Clause (i) above entered into with any financial institution meeting the
qualifications specified in Clause (ii) above or (iv) commercial paper issued
by a corporation (other than Corning) organized under the laws of any State
of the United States and rated at least A-1 by S&P or at least P-1 by Moody's
or (v) readily marketable securities (other than securities issued at a
discount) issued or fully and unconditionally guaranteed by any state of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least A-1 by S&P or at least P-1 by Moody's.
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated EBITDA" of any Person means for any period the Consolidated Net
Income of such Person for such period increased by the sum of (i)
Consolidated Interest Expense of such Person for such period, plus (ii)
Consolidated Income Tax Expense of such Person for such period, plus (iii)
the consolidated depreciation and amortization expense deducted in
determining the Consolidated Net Income of such Person for such period;
provided, however, that the Consolidated Interest Expense, Consolidated
Income Tax Expense and consolidated depreciation and amortization expense of
a Consolidated Subsidiary of such Person shall be added to the Consolidated
Net Income pursuant to the foregoing only (x) to the extent and, in the case
of a Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary,
in the same proportion that the Consolidated Net Income of such Consolidated
Subsidiary was included in calculating the Consolidated Net Income of such
Person and (y) only to the extent that the amount specified in Clause (x) is
not subject to restrictions that prevent the payment of dividends or the
making of distributions to such Person.
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"Consolidated EBITDA Coverage Ratio" of any Person means for any period (the
"Reference Perod") with respect to any date of computation (the "Transaction
Date") the ratio of (i) Consolidated EBITDA of such Person for such period to
(ii) Consolidated Interest Expense of such Person for such period. In making
the foregoing calculation, (A) pro forma effect shall be given to any Debt
Incurred during such Reference Period or subsequent to the end of such
Reference Period and on or prior to the Transaction Date to the extent such
Debt is outstanding at the Transaction Date, in each case as if such Debt had
been Incurred on the first day of such Reference Period and after giving pro
forma effect to the application of the proceeds thereof as if such
application had occurred on such first day; (B) Consolidated Interest Expense
attributable to interest on any Debt (whether existing or being Incurred)
computed on a pro forma basis and bearing a floating interest rate shall be
computed as if the rate in effect on the Transaction Date (taking into
account any Interest Rate Agreement applicable to such Debt if such Interest
Rate Agreement has a remaining term in excess of 12 months or at least equal
to the remaining term of such Debt) had been the applicable rate for the
entire period; (C) there shall be excluded from Consolidated Interest Expense
any Consolidated Interest Expense related to any amount of Debt that was
outstanding during such Reference Period or thereafter but that is not
outstanding or is to be repaid on the Transaction Date; and (D) pro forma
effect shall be given to asset dispositions and asset acquisitions by such
Person (including giving pro forma effect to the application of proceeds of
any asset disposition) that occur during such Reference Period or thereafter
and prior to the Transaction Date as if they had occurred and such proceeds
had been applied on the first day of such Reference Period.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles.
"Consolidated Interest Expense" of any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to
the extent not so included, with the addition of), (i) the portion of any
rental obligation in respect of any Capital Lease Obligation allocable to
interest expense in accordance with generally accepted accounting principles;
(ii) the amortization of Debt discounts; (iii) any payments or fees with
respect to letters of credit, bankers' acceptances or similar facilities;
(iv) fees with respect to Interest Rate Agreements or foreign currency hedge,
exchange or similar agreements; (v) an amount calculated by dividing the
Preferred Stock dividends declared and paid or payable in cash by a number
equal to (a) one minus (b) the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal; (vi) the portion
of the rental obligation in respect of any Sale and Leaseback Transaction
allocable to interest expense (determined as if such obligation were a
Capital Lease Obligation); (vii) any interest capitalized in accordance with
generally accepted accounting principles and (viii) the portion of any Rental
Expense in respect of any Specified Operating Lease which would have been
allocable to interest expense in accordance with generally accepted
accounting principles if such Specified Operating Lease were treated as a
Capitalized Lease Obligation.
"Consolidated Net Income" of any Person means for any period the consolidated
net income (or loss) of such Person and its Consolidated Subsidiaries for
such period determined in accordance with generally accepted accounting
principles; provided that there shall be excluded therefrom to the extent
included therein, without duplication, (a) the net income (or loss) of any
Person acquired by such Person or a Restricted Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (but not net loss) of any Consolidated
Subsidiary of such Person that is subject to restrictions that prevent the
payment of dividends or the making of distributions to such Person to the
extent of such restrictions, (c) the net income (or loss) of any Person that
is not a Consolidated Subsidiary of such Person except to the extent of the
amount of dividends or other distributions actually paid to such Person by
such other Person during such period, (d) net gains or losses on asset
dispositions by such Person or its Consolidated Subsidiaries, (e) any net
income (loss) of a Consolidated Subsidiary that is attributable to a minority
interest in such Consolidated Subsidiary, (f) all extraordinary gains and
extraordinary losses except to the extent such gain or loss involves a
present or future cash payment, (g) all write-offs of goodwill and other
items and non-cash adjustments, including charges associated with grants or
awards of restricted stock, (h) $46.0 million and $155.7 million of charges
taken in the second and third quarters, respectively, of fiscal 1996 and up
to a $25.0 million charge to be taken in the fourth fiscal quarter of 1996 in
connection with the Spin-Off Distributions (provided that, except to the
extent provided by Clause (i) below, any cash payments made with respect to
such charges on or after January 1, 1997, shall be subtracted from
Consolidated Net Income in the period actually paid) and (i) any charge taken
by the Company after the date of the Indenture to the extent the Company is
reimbursed in cash for such charge pursuant to, and in accordance with, the
Transaction Agreement.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its Consolidated Subsidiaries, as determined on a
consolidated basis in accordance with generally accepted accounting
principles, less amounts attributable to Redeemable Interests of such Person;
provided, however, that, with respect to the Company and its Consolidated
Subsidiaries, adjustments following the date of the Indenture to the
accounting books and records of the Company and its Consolidated Subsidiaries
(other than the change in accounting policy for intangible assets as
described in the first paragraph under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Changes in Accounting
Policies")
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in accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or
successor opinions thereto) or otherwise resulting from the acquisition of
control of the Company by another Person shall not be given effect to.
"Consolidated Subsidiaries" of any Person means all other Persons that would
be accounted for as consolidated Persons in such Person's financial
statements in accordance with generally accepted accounting principles;
provided, however, that, for any particular period during which any
Subsidiary was an Unrestricted Subsidiary, "Consolidated Subsidiaries" will
exclude such Subsidiary for such period (or portion thereof) during which it
was an Unrestricted Subsidiary.
"Credit Facility" means the Credit Agreement, dated as of December ___, 1996,
among the Company, the banks named therein, NationsBank, N.A., as Issuing
Bank, Wachovia Bank of Georgia, N.A., as Swingline Bank, and Morgan Guaranty
Trust Company of New York, as Administrative Agent (and any related guarantee
agreements), as amended from time to time, and including any and all
renewals, refinancings, refundings or replacements thereof and successive
renewals, refinancings, refundings and replacement thereof.
"Credit Rating" means the long-term unsecured debt rating provided by either
S&P or Moody's, or any successor to either thereof; provided, however, that
if there is a difference in such ratings the lower rating shall be used.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of
property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person, (iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business),
(v) every Capital Lease Obligation of such Person, (vi) the Attributable
Value in respect of any Specified Operating Lease, (vii) the maximum fixed
redemption or repurchase price of Redeemable Interests of such Person at the
time of determination, (viii) every payment obligation of such Person under
Interest Rate Agreements or foreign currency hedge, exchange or similar
agreements at the time of determination and (ix) every obligation of the type
referred to in Clauses (i) through (viii) of another Person and all dividends
of another Person the payment of which, in either case, such Person has
Guaranteed or for which such Person is responsible or liable, directly or
indirectly, jointly or severally, as obligor, Guarantor or otherwise.
"Guaranty" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing any Debt, or dividends or distributions on any
equity security, of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, and including, without limitation, any
obligation of such Person (i) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt,
(ii) to purchase property, securities or services for the purpose of assuring
the holder of such Debt of the payment of such Debt, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay
such Debt (and "Guaranteed," "Guaranteeing" and "Guarantor" shall have
meanings correlative to the foregoing); provided, however, that the Guaranty
by any Person shall not include endorsements by such Person for collection or
deposit, in either case, in the ordinary course of business.
"Incur" means, with respect to any Debt, Operating Lease, or other obligation
of any Person, to create, issue, incur (by conversion, exchange or
otherwise), assume, Guarantee or otherwise become liable in respect of such
Debt or other obligation or the recording, as required pursuant to generally
accepted accounting principles or otherwise, of any such Debt or other
obligation on the balance sheet of such Person (and "Incurrence," "Incurred,"
"Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such
time becoming Debt shall not be deemed an incurrence of such Debt.
"Intercompany Agreement" means the Transaction Agreement, the Corning/Quest
Diagnostics Spin-Off Tax Indemnification Agreement, the Quest
Diagnostics/Covance Spin-Off Tax Indemnification Agreement, the Tax Sharing
Agreement and any other agreements contemplated by the foregoing.
"Interest Rate Agreement" means, with respect to any Person, any interest
rate swap agreement, interest rate cap agreement or other similar agreement
designed to protect such Person or its Subsidiaries (or in the case of the
Company, the Company and its Restricted Subsidiaries) against fluctuations in
interest rates.
"Investment" by any Person in any other Person means (i) any direct or
indirect loan, advance or other extension of credit or capital contribution
to or for the account of such other Person (by means of any transfer of cash
or other property to any Person or any payment for property or services for
the account or use of any Person, or otherwise), (ii) any direct or indirect
purchase
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or other acquisition, including by way of merger or consolidation, of any
Capital Stock, bond, note, debenture or other debt or equity security or
evidence of Debt, or any other ownership interest, issued by such other
Person, whether or not such acquisition is from such or any other Person,
(iii) any direct or indirect payment by such Person on a Guaranty of any
obligation of or for the account of such other Person or any direct or
indirect issuance by such Person of such a Guaranty or (iv) any other
investment of cash or other property by such Person in or for the account of
such other Person.
"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement or title exception, encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind
or nature whatsoever on or with respect to such property or assets (including
any conditional sale or other title retention agreement having substantially
the same economic effect as any of the foregoing).
"Net Available Proceeds" from any Asset Disposition by any Person means cash
or Cash Equivalents received (including by way of sale or discounting of a
note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption by the acquiree of Debt or
other obligations relating to such properties or assets or received in any
other noncash form) therefrom by such Person, net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses Incurred and
all federal, state, provincial, foreign and local taxes required to be
accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Restricted Subsidiaries on any Debt that
is secured by such assets in accordance with the terms of any Lien upon or
with respect to such assets or that must, by the terms of such Lien, or in
order to obtain a necessary consent to such Asset Disposition, or by
applicable law, be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments made to minority interest holders
in Restricted Subsidiaries of such Person or joint ventures as a result of
such Asset Disposition and (iv) any amounts required to be escrowed or
reserved by such Person or its Restricted Subsidiaries with respect to
liabilities retained by such Person or its Restricted Subsidiaries, including
any indemnification or purchase price adjustments (provided that when such
amounts are released from escrow or such reserve, such amounts will be
treated as Net Available Proceeds and applied as required by the Indenture).
"Non-Core Assets" means (i) the Company's domestic diagnostic kits business and
(ii) those of the Company's domestic regional laboratories (and the assets and
liabilities related thereto, including branch laboratories and patient service
centers) (each hereinafter, a "Specified Laboratory") which had Operating Margin
(as defined below) less than 3% for the nine month period ended September 30,
1996 as reflected in the internal financial statements of the Company for such
period; provided, however, that, in the case of Clause (ii), a Specified
Laboratory shall cease to be a Non-Core Asset if the Operating Margin of such
Specified Laboratory for any four full fiscal quarters commencing with the four
fiscal quarters ended December 31, 1996 exceeds 5% as reflected in the internal
financial statements of the Company for such period. "Operating Margin" means
with respect to a Specified Laboratory, the quotient of (x) the Consolidated
EBITDA of the Company attributable to such Specified Laboratory (assuming for
this purpose that corporate ovehead is allocated to the Specified Laboratory in
an amount equal to 5% of the revenues of such Specified Laboratory) and (y) the
Company's net revenues attributable to such Specified Laboratory, in each case,
as reflected in the internal financial statements of the Company. Five of the
Company's regional laboratories are Specified laboratories. The aggregate net
revenues and EBITDA of the Company related to the Non-Core Assets for the year
ended December 31, 1995 were $312.8 million and $18.6 million, respectively, and
for the nine months ended September 30, 1996 were $233.6 million and $5.2
million, respectively. The Non-Core Assets had a tangible asset value of $116.7
million at September 30, 1996.
"Operating Lease" of any Person means the obligation of such Person to pay
rent or other payment amounts under a lease of (or other Debt arrangements
conveying the right to use) real or personal property, other than a Capital
Lease Obligation or a Sale and Leaseback Transaction; but excluding the
Company's laboratory facility in Cambridge, Massachusetts..
"Pari Passu", when used with respect to the ranking of any Debt of any Person
in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is
not subordinate in right of payment to the other or to any Debt of such
Person as to which the other is not so subordinate.
"Permitted Business" of the Company or any Restricted Subsidiary means a
business carried on by the Company or any Restricted Subsidiary at the date
of the Indenture and any business related, ancillary or complementary to any
such business.
"Permitted Investment" means (i) any Investment in a Wholly Owned Subsidiary
of such Person, (ii) securities either issued directly or fully guaranteed or
insured by the government of the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more
than one year, (iii) time deposits and certificates of deposit, having
maturities of not more than one year from the date of deposit, of any
domestic commercial bank having capital and surplus in excess of $500.0
million and having peer group rating of B or better (or the equivalent
thereof) by Thompson BankWatch, Inc. or outstanding long-term debt rated BBB
or better (or
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the equivalent thereof) by S&P or Baa or better (or the equivalent thereof)
by Moody's, (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in Clauses (ii) and
(iii) above entered into with any bank meeting the qualifications specified
in Clause (iii) above, (v) commercial paper (other than commercial paper
issued by an Affiliate or Related Person) rated A-1 or the equivalent thereof
by S&P or P-1 or the equivalent thereof by Moody's, and in each case maturing
within 90 days, (vi) any Investment in a Person that, as a consequence of
such Investment, becomes a Restricted Subsidiary and that is engaged in a
Permitted Business if (A) the Company would, at the time of such Investment
and after giving pro forma effect thereto as if such Investment had been made
at the beginning of the most recently ended four full fiscal quarter period
for which internal financial statements are available immediately preceding
the date of such Investment, have been permitted to Incur at least $1.00 of
additional Debt pursuant to the Consolidated EBITDA Coverage Ratio test set
forth in the first paragraph under "Certain Covenants--Limitation on
Incurrence of Debt" above and (B) immediately after giving effect to such
Investment, the Company would have a Consolidated Net Worth not less than 95%
of the Consolidated Net Worth of the Company immediately prior to such
Investment, (vii) receivables owing to the Company or a Subsidiary of the
Company if created or acquired in the ordinary course of business and payable
or dischargeable in accordance with customary trade terms, (viii) extensions
of trade credit made in the ordinary course of business and on customary
terms, (ix) the letter of credit issued pursuant to the Credit Facility in
favor of Kenneth W. Freeman to secure his pension benefits in an amount not
to exceed $10.0 million and (x) any Investment in addition to Investments
permitted to be made by Clauses (i) through (ix) above if the aggregate
amount (including cash and the fair value of property other than cash, as
determined by the Board of Directors) of such Investment, together with all
other investments made pursuant to this Clause (x) and then held by the
Company and its Restricted Subsidiaries (determined as of the time made),
does not exceed $5.0 million.
"Permitted Joint Venture" means any Person which is engaged in the
acquisition, ownership, operation or management of assets in a Permitted
Business.
"Permitted Joint Venture Investment" means an Investment in a Permitted Joint
Venture.
"Permitted Liens" means (i) Liens existing at the date of the Indenture; (ii)
Liens securing only Senior Debt; (iii) Liens securing only the Notes; (iv)
Liens in favor of only the Company; (v) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company (provided that such Lein was not Incurred in anticipation of such
transaction and was in existence prior to such transaction); (vi) Liens on
property existing immediately prior to the acquisition thereof (provided that
such Lien was not Incurred in anticipation of such transaction and was in
existence prior to such transaction); (vii) Liens to secure Debt Incurred for
the purpose of financing all or any part of the purchase price or the cost of
construction or improvement of the property subject to such Liens; provided
that (a) the principal amount of any Debt secured by such Lien does not
exceed 100% of such purchase price or cost, (b) such Lien does not extend to
or cover any other property other than such item of property and any
improvements on such item, (c) such Lien is incurred prior to or within 270
days after the acquisition of such property or the completion of the relevant
improvements and (d) the Incurrence of such Debt is permitted pursuant to the
covenants described under "Certain Covenants--Limitation on Incurrence of
Debt" and "--Limitation on Layered and Junior Debt"; (viii) Liens on property
of the Company or any of its Subsidiaries in favor of the United States of
America or any state thereof, or any instrumentality of either, to secure
certain payments pursuant to any contract or statute; (ix) Liens for taxes or
assessments or other governmental charges or levies which are being contested
in good faith and for which adequate reserves are being maintained, to the
extent required by generally accepted accounting principles; (x) title
exceptions, easements and other similar Liens that are not consensual and
that do not materially impair the use of the property subject thereto; (xi)
Liens to secure obligations under workmen's compensation laws, unemployment
compensation, old-age pensions and other social security benefits or similar
legislation, including Liens with respect to judgments which are not
currently dischargeable; (xii) warehousemen's, materialmen's and other
similar Liens for sums being contested in good faith and with respect to
which adequate reserves are being maintained, to the extent required by
generally accepted accounting principles; (xiii) Liens Incurred to secure the
performance of statutory obligations, surety or appeal bonds, performance or
return-of-money bonds or other obligations of a like nature incurred in the
ordinary course of business; (xiv) Liens to secure payment of the Company's
sinking fund obligations in respect of certain Debt of the Company
outstanding at the date of the Indenture in the amount of (pound)5 million in
connection with the Company's acquisition of J.S. Pathology PLC in 1993; and
(xv) Liens to secure any extension, renewal, refinancing or refunding (or
successive extensions, renewals, refinancings or refundings), in whole or in
part, of any Debt secured by Liens referred to in the foregoing Clauses (i)
to (xiv) so long as such Lien does not extend to any other property and the
Debt so secured is not increased.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated)
that ranks prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Redeemable Interest" of any Person means any equity security of or other
ownership interest in such Person that by its terms or otherwise is required
to be redeemed or repaid prior to the Stated Maturity of the Notes or is
redeemable or repayable at the option of the holder thereof at any time prior
to the Stated Maturity of the Notes.
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"Related Person" of any Person means any other Person owning (a) 5% or more
of the outstanding Common Stock of such Person or (b) 5% or more of the
Voting Stock of such Person.
"Rental Expense" in respect of an Operating Lease means the total rental
expense under such Operating Lease determined in accordance with generally
accepted accounting principles.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means an arrangement with any lender or
investor or to which such lender or investor is a party (excluding the
Company's laboratory facility in Cambridge, Massachusetts and the real
property leased by the Company in Des Plaines, Illinois) providing for the
leasing by a Person of any property or asset of such Person which has been or
is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be
terminated by the lessee without payment of a penalty.
"Senior Debt" means (i) Debt of the Company created pursuant to the Credit
Facility including all reborrowings by the Company, (ii) all other Debt of
the Company referred to in clauses (i), (ii), (iii) or (vii) of the
definition of Debt, whether Incurred on or prior to the date of the Indenture
or thereafter Incurred and (iii) amendments, modifications, renewals,
extensions, refinancings and refundings by the Company of any such Debt;
provided, however, the following shall not constitute Senior Debt: (A) any
Debt owed to a Person when such Person is a Subsidiary of the Company, (B)
any Debt which by the terms of the instrument creating or evidencing the same
is not superior in right of payment to the Notes, (C) any Debt Incurred in
violation of the Indenture or (D) any Debt which is subordinated in right of
payment in any respect to any other Debt of the Company. For purposes of this
definition, "Debt" includes any obligation to pay principal, premium (if
any), interest, penalties, reimbursement or indemnity amounts, fees and
expenses (including interest accruing on or after the filing of any petition
in bankruptcy or for reorganization relating to the Company whether or not a
claim for post-petition interest is allowed in such proceeding).
"Specified Operating Lease" means any Operating Lease that the Company elects
to Incur pursuant to Clause (vii) of the provisions of the Indenture
described under "Certain Covenants--Limitation on Leases."
"Spin-Off Distributions" means, collectively, (i) the distribution to holders
of common stock of Corning of all of the outstanding shares of common stock
of the Company and (ii) the distribution to holders of common stock of the
Company of all of the outstanding shares of common stock of Covance.
"Spin-Off Payments" means: (i) the distribution to holders of Company Common
Stock of all of the outstanding shares of Covance Common Stock, (ii) the
repayment of $500 million (A) intercompany obligations owed to Corning by the
Company and (B) payments under the Tax Sharing Agreement; (iii) the issuance by
the Company of up to $1.0 million liquidation preference preferred stock to
Corning and the payment of cash dividends thereon; provided, however, that the
aggregate amount of all such dividends following the date of the Indenture shall
not exceed $150,000 per year; (iv) the transfer of $140 million from Covance to
the Company and subsequent transfer from the Company to Corning of such $140
million in repayment of intercompany debt owed by Covance to Corning and the
Company and in repayment of certain tax liabilities of Covance and in
satisfaction of a dividend from Covance to the Company and (v) the payment of
any amount of cash by the Company to Corning that may be necessary so that the
Company will not have more than $40 million of cash at the time of the
Distribution Date plus the Net Available Proceeds from any asset dispositions
made prior to the Distribution Date.
"Subordinated Debt" means Debt of the Company as to which the payment of
principal of (and premium, if any) and interest and other payment obligations
in respect of such Debt shall be subordinate to the prior payment in full of
the Notes to at least the following extent: (i) no payments of principal of
(or premium, if any) or interest on or otherwise due in respect of such Debt
may be permitted for so long as any default in the payment of principal (or
premium, if any) or interest on the Notes exists; (ii) in the event that any
other default that with the passing of time or the giving of notice, or both,
would constitute an event of default exists with respect to the Notes, upon
notice by 25% or more in principal amount of the Notes to the Trustee, the
Trustee shall have the right to give notice to the Company and the holders of
such Debt (or trustees or agents therefor) of a payment blockage, and
thereafter no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be made for a period of 179 days
from the date of such notice; and (iii) such Debt may not (x) provide for
payments of principal of such Debt at the stated maturity thereof or by way
of a sinking fund applicable thereto or by way of any mandatory redemption,
defeasance, retirement or repurchase thereof by the Company (including any
redemption, retirement or repurchase which is contingent upon events or
circumstances, but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the Notes or (y) permit redemption or
other retirement (including pursuant to an offer to purchase made by the
Company) of such other Debt at the
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option of the holder thereof prior to the final Stated Maturity of the Notes,
other than a redemption or other retirement at the option of the holder of
such Debt (including pursuant to an offer to purchase made by the Company)
which is conditioned upon a change of control of the Company pursuant to
provisions substantially similar to those described under "Repurchase at the
Option of Holders--Change of Control" (and which shall provide that such Debt
will not be repurchased pursuant to such provisions prior to the Company's
repurchase of the Notes required to be repurchased by the Company pursuant to
the provisions described under "Repurchase at the Option of Holders--Change
of Control").
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof, (ii) a partnership of which such
Person, or one or more other Subsidiaries of such Person or such Person and
one or more other Subsidiaries thereof, directly or indirectly, is the
general partner and has the power to direct the policies, management and
affairs or (iii) any other Person (other than a corporation or partnership)
in which such Person, or one or more other Subsidiaries of such Person or
such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership interest and power to direct
the policies, management and affairs thereof.
"Transaction Agreement" means the Transaction Agreement among Corning, the
Company and Covance dated December __, 1996.
"Unrestricted Subsidiary" means Associated Clinical Laboratories L.P., Damon
Investment Holdings, Inc., Corning Laboratorios Clinicos, S.A. de C.V.,
Laboratorios Clinicos de Mexico, S.A. de C.V., Servicios de Laboratorio, S.A. de
C.V., Laboratorios de Frontera Polanco, S.A. de C.V., Laboratorios de Analisis
Biomedicus, S.A., Metpath Europe Limited, National Imaging Associates Inc.,
Nichols Institute International Holding B.V., Nichols Institute Sales
Corporation, Nichols Institute Diagnostics Limited, Nichols Institute
Diagnostics Trading S.A.; Nichols Institute Diagnostics GMBH, Nichols Institute
Diagnostics B.V. Analisis, D.A., Trans United Casualty and Indemnity Insurance
Company, and each other Subsidiary of the Company that is deemed to be an
Unrestricted Subsidiary in accordance with the provisions in the Indenture
described under the caption "Certain Covenants--Unrestricted Subsidiaries." The
aggregate net revenues, and net loss from the Unrestricted Subsidiaries for the
year ended December 31, 1995 were $21.7 million, and $0.5 million, respectively.
The Unrestricted Subsidiaries had an aggregate book value of $0.1 million, at
December 31, 1995. The aggregate net revenues and net income for the
Unrestricted Subsidiaries was less than 3% of the Company's net revenues and net
income for the nine months ended September 30, 1996. The Unrestricted
Subsidiaries had an aggregate net book value of less than 3% of the Company's
net book value at September 30, 1996.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof, and shall
also include a depository receipt issued by a bank (as defined in Section 3
(a) (2) of the Securities Act of 1933, as amended) as custodian with respect
to any such U.S. Government Obligation or a specific payment of principal of
or interest on any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt, provided that (except
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from any
amount received by the custodian in respect of the U.S. Government Obligation
or the specific payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.
"Voting Stock" of any Person means Capital Stock of such Person that
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life" means, as of the date of determination, with respect
to any Debt, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled principal payment of such Debt and the amount of such
principal by (ii) the sum of all such principal payments.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock or other ownership
interests of such Subsidiary (other than directors' qualifying shares or
Investments by foreign nationals mandated by applicable law) by such Person
or one or more Wholly Owned Subsidiaries of such Person or any combination of
the foregoing.
Events of Default
The following will be Events of Default under the Indenture: (a) failure to
pay any interest on any Note when due (whether or not prohibited by the
subordination provisions described under "Subordination" above), continued
for 30 days; (b) failure to pay principal of (or premium, if any, on) any
Note when due (whether or not prohibited by the subordination provisions
described
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under "Subordination" above); (c) failure to perform or comply with the
provisions described under "Mergers, Consolidations and Certain Sales of
Assets" or the provisions described under "Repurchase at the Option of
Holders--Asset Dispositions" and "--Change of Control"; (d) failure to
perform any other covenant or warranty of the Company in the Indenture,
continued for 60 days after written notice to the Company as provided in the
Indenture; (e) a default or defaults under any bonds, debentures, notes or
other evidences of, or obligations constituting, Debt by the Company or any
Restricted Subsidiary or under any mortgages, indentures, instruments or
agreements under which there may be issued or existing or by which there may
be secured or evidenced any Debt of the Company or any such Restricted
Subsidiary with a principal or similar amount then outstanding, individually
or in the aggregate, in excess of $15.0 million, whether such Debt now exists
or is hereafter created, which default or defaults constitute a failure to
pay any portion of the principal of such Debt at final stated maturity when
due and payable after the expiration of any applicable grace period with
respect thereto or will have resulted in such Debt becoming or being declared
due and payable prior to the date on which it would otherwise have become due
and payable; (f) the rendering of a final judgment or judgments (not subject
to appeal) against the Company or any of its Restricted Subsidiaries in an
aggregate amount in excess of $15.0 million which remains unstayed,
undischarged or unbonded for a period of 60 days thereafter; and (g) certain
events of bankruptcy, insolvency or reorganization affecting the Company or
any Restricted Subsidiary of the Company. (Section 501).
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. (Section 603).
Subject to such provisions for the indemnification of the Trustee, the
Holders of a majority in aggregate principal amount of the Outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. (Section 512).
If an Event of Default (other than an Event of Default of the type described
in Clause (g) above insofar as the Company is concerned) occurs and is
continuing, either the Trustee or the Holders of at least 25% in aggregate
principal amount of the Outstanding Notes may accelerate the maturity of all
Notes, and if an Event of Default of the type described in Clause (g) above
occurs insofar as the Company is concerned, the principal of and any accrued
interest on the Notes then outstanding will become immediately due and
payable; provided, however, that after such acceleration, but before a
judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture. (Section 502). For information as to
waiver of defaults, see "Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder has
previously given to the Trustee written notice of a continuing Event of
Default and unless also the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee,
and the Trustee has not received from the Holders of a majority in aggregate
principal amount of the Outstanding Notes a direction inconsistent with such
request and has failed to institute such proceeding within 60 days. However,
such limitations do not apply to a suit instituted by a Holder of a Note for
enforcement of payment of the principal of (and premium, if any) or interest
on such Note on or after the respective due dates expressed in such Note.
(Section 507).
In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
provisions described in the first paragraph above under "Optional
Redemption," an equivalent premium will also become and be immediately due
and payable upon the acceleration of the Notes.
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. The Company will be
required to deliver to the Trustee, as soon as possible and in any event
within 10 days after the Company becomes aware of the occurrence of an Event
of Default or an event which, with notice or the lapse of time or both, would
constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default, and the action which the Company
proposes to take with respect thereto. (Section 1019).
Defeasance
The Indenture will provide that (A) if applicable, the Company will be
discharged from any and all obligations in respect of the Outstanding Notes
(including the provisions described under "Subordination") or (B) if
applicable, the Company may omit to comply with certain restrictive
covenants, and that such omission will not be deemed to be an Event of
Default under the
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Indenture and the Notes and the provisions described under "Subordination"
shall cease to apply, in either case (A) or (B) upon irrevocable deposit with
the Trustee, in trust, of money and/or U.S. Government Obligations that will
provide money in an amount sufficient in the opinion of a nationally
recognized firm of independent certified public accountants to pay the
principal of, and premium, if any, and each installment of interest, if any,
on the Outstanding Notes. With respect to clause (B), the obligations under
the Indenture other than with respect to such covenants and the Events of
Default other than the Event of Default relating to such covenants above will
remain in full force and effect. Such trust may only be established if, among
other things (i) with respect to clause (A), the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or
there has been a change in law, which in the Opinion of Counsel provides that
Holders of the Notes will not recognize gain or loss for Federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to Federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred; or, with respect to clause (B), the Company has
delivered to the Trustee an Opinion of Counsel to the effect that the Holders
of the Notes will not recognize gain or loss for Federal income tax purposes
as a result of such deposit and defeasance and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred;
(ii) no Event of Default (or event that with the passing of time or the
giving of notice, or both, will constitute an Event of Default) shall have
occurred or be continuing; (iii) the Company has delivered to the Trustee an
Opinion of Counsel to the effect that such deposit shall not cause the
Trustee or the trust so created to be subject to the Investment Company Act
of 1940; (iv) no default on any Senior Debt shall have occurred and be
continuing; and (v) certain other customary conditions precedent are
satisfied. (Sections 1301, 1302, 1303 and 1304).
In the event the Company omits to comply with its remaining obligations under
the Indenture and the Notes after a defeasance of the Indenture with respect
to the Notes as described under Clause (B) above and the Notes are declared
due and payable because of the occurrence of any Event of Default, the amount
of money and U.S. Government Obligations on deposit with the Trustee may be
insufficient to pay amounts due on the Notes at the time of the acceleration
resulting from such Event of Default. However, the Company will remain liable
in respect of such payments.
Modification and Waiver
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of, (or the premium, if any) or interest on, any Note, (c)
change the place or currency of payment of principal of, (or premium, if any)
or interest on, any Note, (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note, (e) reduce the
above-stated percentage of Outstanding Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
Outstanding Notes necessary for waiver of compliance with certain provisions
of the Indenture or for waiver of certain defaults, (g) modify any provisions
of the Indenture relating to the modification and amendment of the Indenture
or the waiver of past defaults or covenants, except as otherwise specified,
(h) modify any of the provisions of the Indenture relating to the
subordination of the Notes in a manner adverse to the Holders or (i) modify
the provisions described under "Repurchase at the Option of Holders--Asset
Dispositions" and under "--Change of Control" in a manner adverse to the
Holders thereof. (Section 902).
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions
of the Indenture. (Section 1020). The Holders of a majority in aggregate
principal amount of the Outstanding Notes may waive any past default under
the Indenture, except a default in the payment of principal (or premium, if
any) or interest. (Section 513).
Notices
Notices to Holders of Notes will be given by mail to the addresses of such
Holders as they may appear in the Security Register. (Sections 101 and 106).
Title
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name a Note is registered as the absolute owner
thereof (whether or not such Note may be overdue) for the purpose of making
payment and for all other purposes. (Section 308).
Governing Law
The Indenture and the Notes will be governed by, and construed in accordance
with, the law of the State of New York. (Section 112).
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Underwriting
Under the terms and subject to the conditions in an Underwriting Agreement,
dated December , 1996 (the "Underwriting Agreement"), each of the
Underwriters named below (the "Underwriters") has severally agreed to
purchase, and Quest Diagnostics has agreed to sell to it, the principal
amount of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
Principal
Amount
Underwriter of Notes
- ----------- ---------
<S> <C>
J.P. Morgan Securities Inc. $
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
TOTAL $150,000,000
==============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Notes, if any are
taken. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased as provided in the Underwriting Agreement.
The Underwriters propose to offer the Notes in part directly to the public at
the initial public offering price set forth on the cover page of this
Prospectus and in part to certain securities dealers at such price less a
concession of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession not to exceed % of the
principal amount of the Notes to certain brokers and dealers. After the Notes
are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Underwriters.
The Notes will be issued prior to the consummation of the Distributions. See
"The Distributions."
The Notes are a new issue of securities with no established trading market.
Quest Diagnostics has been advised by the Underwriters that the Underwriters
intend to make a market in the Notes but they are not obligated to do so and
may discontinue any such market making at any time without notice. No
assurance can be given as to the liquidity of the trading market for the
Notes. See "Risk Factors--Absence of a Prior Public Market."
Corning has engaged Goldman, Sachs & Co., Lazard Freres & Co. LLC and J.P.
Morgan Securities Inc. as its financial advisors in connection with the
Distributions and has agreed to pay Goldman, Sachs & Co., Lazard Freres & Co.
LLC and J.P. Morgan Securities Inc. a customary fee for their services and to
indemnify Goldman, Sachs & Co., Lazard Freres & Co. LLC and J.P. Morgan
Securities Inc. against certain liabilities. J.P. Morgan Securities Inc. is
the Administration Agent under the Credit Facility and is entitled to certain
fees and indemnification in that capacity. See "Description of the Credit
Facility." The Underwriters also perform other investment banking and
financial advisory services for Corning from time to time.
Quest Diagnostics and Corning have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
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Validity of the Notes and Guarantees
The validity of the Notes and Guarantees offered hereby will be passed upon
for Quest Diagnostics by Shearman & Sterling, New York, New York and for the
Underwriters by Sullivan & Cromwell, New York, New York. In rendering their
opinions on the validity of the Guarantees, Shearman & Sterling and Sullivan
& Cromwell will express no opinion as to Federal or state laws relating to
fraudulent transfers. See "Risk Factors--Fraudulent Conveyance."
Experts
The combined financial statements of Corning Clinical Laboratories Inc. at
December 31, 1995 and 1994 and for the years then ended, included in this
Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting. The combined financial statements of
Corning Clinical Laboratories Inc. for the year ended December 31, 1993
included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, which is based in part on
(i) the report of Deloitte & Touche LLP, independent auditors, in respect of
the consolidated financial statements of Nichols Institute for the year ended
December 31, 1993 (not presented separately in this Prospectus) which report
includes explanatory paragraphs related to uncertainties as to an
investigation by the Office of the Inspector General of the Department of
Health and Human Services and substantial doubt as to the Company's ability
to continue as a going concern, (ii) the report of Ernst and Young LLP,
independent auditors, in respect of the combined financial statements of
Maryland Medical Laboratory, Inc. and affiliates as of and for the year ended
March 31, 1994 (not presented separately in this Prospectus), and (iii) the
report of Leverone & Company, independent accountants, in respect of the
financial statements of Moran Research Labs (d/b/a Bioran Medical Laboratory,
a Massachusetts Business Trust) as of and for the year ended December 31,
1993 (not presented separately in this Prospectus). The combined financial
statements of Corning Clinical Laboratories Inc. for the year ended December
31, 1993, included in this Prospectus have been so included in reliance on
the reports of said firms, given on the authority of such firms as experts in
accounting and auditing.
100
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
FINANCIAL STATEMENTS OF Corning Clinical Laboratories Inc.
(to be renamed Quest Diagnostics Incorporated)
Report of Price Waterhouse LLP--Independent Accountants F-2
Report of Deloitte and Touch LLP--Independent Auditors F-3
Report of Ernst & Young LLP--Independent Auditors F-4
Report of Leverone and Company--Independent Accountants F-5
Combined Financial Statements:
Combined Balance Sheets--December 31, 1995 and 1994 F-6
Combined Statements of Operations--Years ended December 31, 1995, 1994 and 1993 F-7
Combined Statements of Cash Flows--Years ended December 31, 1995, 1994 and 1993 F-8
Combined Statements of Stockholder's Equity--Years ended December 31, 1995, 1994 and 1993 F-9
Notes to Combined Financial Statements F-10
Quarterly Operating Results (unaudited) F-22
Interim Combined Financial Statements (unaudited):
Combined Balance Sheets--September 30, 1996 and December 31, 1995 F-23
Combined Statements of Operations--Three and Nine Months ended September 30, 1996
and 1995 F-24
Combined Statements of Cash Flows--Nine Months ended September 30, 1996 and 1995 F-25
Notes to Interim Combined Financial Statements F-26
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Boards of Directors and Stockholders
of Corning Incorporated and Corning Clinical Laboratories Inc.
In our opinion, based upon our audits and the reports of other auditors,
the accompanying combined balance sheets and the related combined statements
of operations and of cash flows and of stockholder's equity appearing on
pages F-6 through F-21 present fairly, in all material respects, the
financial position of Corning Clinical Laboratories Inc. (to be renamed Quest
Diagnostics Incorporated) and the combined companies as discussed in Note 1
(collectively, the "Company"), a wholly-owned business of Corning
Incorporated, at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. 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 did not audit the 1993 financial
statements of Maryland Medical Laboratory, Inc., Nichols Institute and Bioran
Medical Laboratory, which were acquired by the Company in 1994 in separate
transactions accounted for as poolings of interests and which collectively
reflect total revenues of $438 million for the year ended December 31, 1993.
Those statements were audited by other auditors whose reports thereon have
been furnished to us, and our opinion expressed herein, insofar as it relates
to the amounts included for Maryland Medical Laboratory, Inc., Nichols
Institute and Bioran Medical Laboratory, is based solely on the reports of
the other auditors. We conducted our audits of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports
of other auditors provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the combined financial statements, in 1993 the
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
September 20, 1996, except for Note 13
as to which the date is November 4, 1996
F-2
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of
Nichols Institute:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1993 of Nichols
Institute and its subsidiaries (the Company) (not presented separately
herein). These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Nichols
Institute and its subsidiaries for the year ended December 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, the
Company has received a subpoena from the Office of the Inspector General of
the Department of Health and Human Services (OIG) requesting documents in
connection with an investigation and internal review concerning the possible
submission of false or improper claims to the Medicare and Medicaid programs.
No claim or charges have been made against the Company relating to this
investigation. The ultimate outcome of this investigation cannot presently be
determined. Accordingly, no provision for any loss that may result from this
investigation has been made in the accompanying consolidated financial
statements.
As discussed in Notes 1 and 3 to the consolidated financial statements, at
December 31, 1993, the Company was not in compliance with certain covenants
of its senior note agreements and the senior lenders have not waived those
covenants. The senior note agreements provide that, as a result of failure to
comply with the covenants, the note holders have the right to declare the
entire unpaid balance immediately due and payable, and if that were to occur,
the Company would not have the funds required to retire the debt unless
alternative financing is obtained. Management's plans in regard to these
matters are described in Notes 1 and 3. The note holders' right to declare
the entire unpaid balance under the note agreements immediately due and
payable raises substantial doubt about the Company's ability to continue as a
going concern. The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty, except for the classification of amounts due
under the senior note agreements as current.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Costa Mesa, California
February 28, 1994
F-3
<PAGE>
Report of Independent Auditors
Board of Directors
Maryland Medical Laboratory, Inc.
We have audited the combined balance sheet of Maryland Medical Laboratory,
Inc. and affiliates as of March 31, 1994, and the related combined statements
of income, changes in equity and cash flows for the year then ended (not
presented separately herein). 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Maryland Medical
Laboratory, Inc. and affiliates at March 31, 1994, and the combined results
of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Baltimore, Maryland
May 19, 1994
F-4
<PAGE>
Report of Independent Accountants
To the Board of Directors
Moran Research Labs
415 Massachusetts Avenue
Cambridge, MA 02139
We have audited the accompanying balance sheet of Moran Research Labs
(d/b/a Bioran Medical Laboratory, a Massachusetts Business Trust) as of
December 31, 1993, and the related statements of income, retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 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 audit provides 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 Moran Research Labs
(d/b/a Bioran Medical Laboratory, a Massachusetts Business Trust) at December
31, 1993 and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Leverone & Company
Leverone & Company
Billerica, Massachusetts
November 10, 1994
F-5
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
Combined Balance Sheets
December 31, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 36,446 $ 38,719
Accounts receivable, net of allowance of $147,947 and
$74,829 for 1995 and 1994, respectively 318,252 360,410
Inventories 26,601 28,248
Deferred taxes on income 98,845 53,696
Prepaid expenses and other assets 22,014 19,241
------------- -------------
Total current assets 502,158 500,314
Property, plant and equipment, net 296,116 287,562
Intangible assets, net 1,030,633 1,053,194
Deferred taxes on income 6,062 19,593
Other assets 18,416 22,000
------------- -------------
TOTAL ASSETS $1,853,385 $1,882,663
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 240,525 $ 236,887
Current portion of long-term debt 12,148 12,572
Income taxes payable 39,766 30,454
Due to Corning Incorporated and affiliates 8,979 6,043
------------- -------------
Total current liabilities 301,418 285,956
Long-term debt (principally due to Corning Incorporated) 1,195,566 1,153,054
Other liabilities 60,600 56,841
------------- -------------
Total liabilities 1,557,584 1,495,851
------------- -------------
Commitments and Contingencies
Stockholder's Equity:
Contributed capital 297,823 297,823
Retained earnings (accumulated deficit) (3,118) 85,893
Cumulative translation adjustment 2,325 3,096
Market valuation adjustment (1,229) --
------------- -------------
Total stockholder's equity 295,801 386,812
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,853,385 $1,882,663
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
Combined Statements of Operations
For the Years Ended December 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues $1,629,388 $1,633,699 $1,416,338
Costs and expenses:
Cost of services 980,232 969,844 805,729
Selling, general and administrative 523,271 411,939 363,579
Provision for restructuring and other special charges 50,560 79,814 99,600
Interest expense, net 82,016 63,295 41,898
Amortization of intangible assets 44,656 42,588 28,421
Other, net 6,221 3,464 6,423
------------- ------------- -------------
Total 1,686,956 1,570,944 1,345,650
------------- ------------- -------------
Income (loss) before taxes (57,568) 62,755 70,688
Income tax expense (benefit) (5,516) 34,410 25,929
------------- ------------- -------------
Income (loss) before cumulative effect of change in
accounting principle (52,052) 28,345 44,759
Cumulative effect of change in accounting principle -- -- (10,562)
------------- ------------- -------------
Net income (loss) $ (52,052) $ 28,345 $ 34,197
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
Combined Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (52,052) $ 28,345 $ 34,197
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 101,513 89,517 66,479
Provision for doubtful accounts 152,590 59,480 47,240
Provision for restructuring and other special charges 50,560 79,814 99,600
Deferred income tax provision (32,384) (4,742) (23,841)
Cumulative effect of change in accounting principle -- -- 10,562
Other, net 8,303 14,600 1,765
Changes in operating assets and liabilities:
Accounts receivable (109,500) (103,402) (61,828)
Accounts payable and accrued expenses 14,604 (32,756) (33,903)
Restructuring, integration and other special charges (57,768) (88,093) (46,917)
Due from/to Corning Incorporated and affiliates 2,934 14,783 (2,581)
Other assets and liabilities, net 7,028 (19,583) 8,841
------------- ------------ ------------
Net cash provided by operating activities 85,828 37,963 99,614
------------- ------------ ------------
Cash flows from investing activities:
Capital expenditures (74,045) (93,354) (65,317)
Proceeds from disposition of assets 2,880 55,762 --
Acquisition of businesses, net of cash acquired (22,907) (12,154) (401,428)
Decrease (increase) in investments 985 3,560 (6,942)
------------- ------------ ------------
Net cash used in investing activities (93,087) (46,186) (473,687)
------------- ------------ ------------
Cash flows from financing activities:
Proceeds from borrowings, primarily with Corning Incorporated 55,729 186,046 709,630
Repayment of long-term debt (13,784) (118,046) (265,196)
Dividends paid (36,959) (60,468) (51,478)
------------- ------------ ------------
Net cash provided by financing activities 4,986 7,532 392,956
------------- ------------ ------------
Net change in cash and cash equivalents (2,273) (691) 18,883
Cash and cash equivalents, beginning of year 38,719 39,410 20,527
------------- ------------ ------------
Cash and cash equivalents, end of year $ 36,446 $ 38,719 $ 39,410
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
Combined Statements of Stockholder's Equity For the Years Ended December 31,
1995, 1994 and 1993
(in thousands)
<TABLE>
<CAPTION>
Cumulative Market Total
Retained Translation Valuation Stockholder's
Contributed Capital Earnings Adjustment Adjustment Equity
------------------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $261,499 $146,938 $ (288) $ $ 408,149
Net income 34,197 34,197
Dividends to CLSI (28,088) (28,088)
Dividends to S-Corporation
shareholders (23,390) (23,390)
Equity of pooled entity 4,150 (4,096) 54
Translation adjustment 4,587 4,587
-------------------------------- ------------- ------------- ---------------
Balance, December 31, 1993 265,649 125,561 4,299 395,509
Net income 28,345 28,345
Dividends to CLSI (33,275) (33,275)
Dividends to S-Corporation
shareholders (27,193) (27,193)
Dividends in-kind to S-Corporation
shareholders (7,545) (7,545)
Capital contribution 32,174 32,174
Translation adjustment (1,203) (1,203)
-------------------------------- ------------- ------------- ---------------
Balance, December 31, 1994 297,823 85,893 3,096 386,812
Net loss (52,052) (52,052)
Dividends to CLSI (36,959) (36,959)
Translation adjustment (771) (771)
Market valuation adjustment (1,229) (1,229)
-------------------------------- ------------- ------------- ---------------
Balance, December 31, 1995 $297,823 $ (3,118) $2,325 $(1,229) $ 295,801
================================ ============= ============= ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise indicated)
1. BASIS OF PRESENTATION
Corning Clinical Laboratories Inc. and Corning Nichols Institute Inc.
(collectively referred to as "CCL" or the "Company") are wholly-owned
subsidiaries of Corning Life Sciences Inc. ("CLSI") which in turn is a
wholly-owned subsidiary of Corning Incorporated ("Corning"). The Company is
one of the largest clinical laboratory testing businesses in the United
States. The accompanying financial statements present the carved-out results
of operations, cash flows and financial position of Corning's clinical
laboratory testing business. Covance Inc. (formerly Corning Pharmaceutical
Services Inc.), a subsidiary of CCL, and its related entities ("Covance") as
well as environmental testing services formerly provided by CCL are excluded.
In 1994, Corning acquired three clinical laboratory testing businesses on the
behalf of CCL in separate transactions accounted for as poolings of interests
(see Note 3). Results presented for 1994 and 1993 include the results of CCL
and the pooled entities on a combined basis.Corning Clinical Laboratories
Inc.
In May 1996, Corning's Board of Directors approved a plan to distribute to
its shareholders on a pro rata basis all of the shares of CCL and Covance
(the "CCL and Covance Spin-Off Distributions"). The result of the plan will
be the creation of two independent, publicly-owned companies. As a result of
the Spin-Off Distributions, CCL will operate Corning's clinical laboratory
testing business as an independent public company and Covance will own and
operate Corning's contract research business as an independent public
company. The Spin-Off Distributions will be effected by the distribution of a
dividend to holders of Corning Common Stock of all of the outstanding CCL
Common Stock, followed immediately by the distribution of a dividend to the
holders of CCL Common Stock of all of the Covance Common Stock. Corning has
submitted to the Internal Revenue Service a request for a ruling that the
Spin-Off Distributions qualify as tax-free distributions under the Internal
Revenue Code of 1986. Coincident with the Spin-Off Distributions, the Company
will be renamed Quest Diagnostics Incorporated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The combined financial statements include the accounts of all laboratory
entities controlled by the Company. The equity method of accounting is used
for investments in affiliates which are not Company controlled and in which
the Company's interest is generally between 20 and 50 percent. All
significant intercompany accounts and transactions are eliminated.
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.
Revenue Recognition
The Company generally recognizes revenue as services are rendered upon
completion of the testing process. Billings for services under third-party
payor programs, including Medicare and Medicaid, are recorded as revenues net
of allowances for differences between amounts billed and the estimated
receipts under such programs. Adjustments to the estimated receipts, based on
final settlement with the third-party payors, are recorded upon settlement.
In 1995, 1994 and 1993, approximately 23%, 28% and 25%, respectively, of net
revenues were generated by Medicare and Medicaid programs.
Concentrations of Credit Risk
Concentrations of credit risk with respect to accounts receivable are
limited due to the diversity of the Company's clients as well as their
dispersion across many different geographic regions.
Taxes on Income
The Company uses the asset and liability approach to account for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the expected future tax consequences of differences between the carrying
amounts of assets and liabilities and their respective tax bases using
enacted tax rates in effect for the year in which the differences are
expected to reverse. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period when the change is
enacted. In 1993 the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The adoption of
SFAS 109 resulted in a charge to net income of $10.6 million, principally
representing a reduction in the Company's deferred tax assets to reflect the
then enacted statutory tax rate.
F-10
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments with
original maturities at the time acquired by the Company of three months or
less, and consist principally of amounts temporarily invested in a U.S.
government money market fund.
Inventories
Inventories, which consist principally of supplies, are valued at the
lower of cost (first in, first out method) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided on the straight-line method at rates adequate to
allocate the cost of the applicable assets over their expected useful lives,
which range from three to forty years.
Intangible Assets
Acquisition costs in excess of the fair value of net tangible assets
acquired are capitalized and amortized over appropriate periods not exceeding
forty years. Other intangible assets are recorded at cost and amortized over
periods not exceeding fifteen years.
Investments
The Company accounts for investments in equity securities, which are
included in other assets, in conformity with Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments
in Debt and Equity Securities." SFAS 115 requires the use of fair value
accounting for trading or available-for-sale securities. Unrealized losses
for available-for-sale securities are recorded as a separate component within
stockholder's equity. Investments in equity securities are not material to
the Company.
Impairment Accounting
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (SFAS 121) in 1995. The Company reviews the recoverability
of its long-lived assets, including related goodwill and intangible assets,
when events or changes in circumstances occur that indicate that the carrying
value of the asset may not be recoverable. Evaluation of possible impairment
is based on the Company's ability to recover the asset from the expected
future pre-tax cash flows (undiscounted and without interest charges) of the
related operations. If the expected undiscounted pre-tax cash flows are less
than the carrying value of such asset, an impairment loss is recognized for
the difference between estimated fair value and carrying value. This
assessment of impairment requires management to make estimates of expected
future cash flows. It is at least reasonably possible that future events or
circumstances could cause these estimates to change.
In addition, the carrying value of intangible assets has historically been
subject to a separate evaluation based on estimating expected future
undiscounted cash flows from operating activities. If these estimated cash
flows are less than the carrying amount of the intangible assets, the Company
would recognize an impairment loss in an amount necessary to write down the
intangible assets to fair value.
Earnings Per Share
Earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding. Historical earnings per share
data is not meaningful as the Company's historical capital structure is not
comparable to periods subsequent to the CCL Spin-Off Distribution.
F-11
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
3. BUSINESS COMBINATIONS AND DIVESTITURES
Acquisitions
During 1995, the Company acquired several laboratories in separate
transactions accounted for under the purchase method. The total cost of the
acquired businesses aggregated approximately $23 million and was financed
through borrowings from Corning. Intangible assets of approximately $21.6
million resulted from the transactions and are being amortized over periods
not to exceed forty years.
During 1994, Corning acquired three clinical laboratory testing companies
on behalf of the Company in separate transactions accounted for as poolings
of interests. In June 1994, Corning acquired the stock of Maryland Medical
Laboratory, Inc. ("MML") in exchange for approximately 4.5 million shares of
Corning common stock; in August 1994, Corning acquired the stock of Nichols
Institute ("Nichols") in exchange for approximately 7.5 million shares of
Corning common stock and reserved an additional 1.1 million shares for future
issuance upon the exercise of stock options; and, in October 1994, Corning
acquired the stock of Bioran Medical Laboratory ("Bioran") in exchange for
approximately 6.0 million shares of Corning common stock. Results presented
for 1994 and 1993 include the results of the Company, MML, Nichols and Bioran
on a combined basis.
In 1994, the Company also acquired several other laboratories in separate
transactions accounted for under the purchase method. The total cost of the
acquired businesses aggregated approximately $26 million and was financed
through the issuance of Corning stock and borrowings from Corning. Intangible
assets of approximately $24 million resulted from these transactions and are
being amortized over periods not to exceed forty years.
In the third quarter of 1993, Corning acquired on behalf of the Company
the outstanding shares of common stock of Damon Corporation ("Damon"), a
clinical-testing business, for $405 million, including acquisition costs,
financed through borrowings from Corning. In addition, approximately $167
million of Damon's indebtedness was refinanced. Goodwill of approximately
$600 million resulted from the transaction and is being amortized over forty
years. Reserves aggregating $79 million were established for the costs of
closing Damon facilities as a result of the integration of Damon operations.
In the fourth quarter of 1993, the Company acquired the clinical-testing
laboratories of Unilab Corporation ("Unilab") in Denver, Dallas and Phoenix
in exchange for its ownership interest in Unilab operations, the assumption
of approximately $70 million of Unilab debt, and the Company's investment in
J.S. Pathology PLC. Goodwill of approximately $200 million resulted from this
transaction and is being amortized over forty years. As a result of this
transaction, the Company received a small equity investment in Unilab. The
Company previously owned 43% of Unilab.
The operations of the businesses, subsequent to the dates they were
acquired, are included in the combined financial statements. The pro forma
effect of the 1995 acquisitions on periods prior to the acquisitions is not
material.
In 1993, Corning also acquired and contributed to the Company DeYor
Laboratory, Inc., in a transaction accounted for as a pooling of interests,
by issuing 840,000 shares of Corning common stock. The Company's combined
financial statements for periods prior to this acquisition have not been
restated, since this acquisition was not material to the Company's financial
position or the results of its operations for such periods.
Divestitures
In the second quarter of 1994, the Company sold the California clinical
laboratory testing operations acquired in the Damon transaction to Physicians
Clinical Laboratory, Inc. for cash proceeds of $51 million.
4. TAXES ON INCOME
The Company is included in the consolidated Federal income tax return
filed by Corning. CLSI and its subsidiaries, including the Company, have a
tax sharing agreement with Corning, pursuant to which they are required to
compute their provision for income taxes on a separate return basis and pay
to Corning the separate Federal income tax return liability so computed.
F-12
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
The components of the provision (benefit) for income taxes for 1995, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
Current:
Federal $ 22,786 $31,598 $ 46,215
State and local 3,556 7,019 2,815
Foreign 526 535 740
Deferred (benefit):
Federal (28,109) (1,339) (23,818)
State and local (4,275) (3,403) (23)
----------- -------- -------
Income tax expense (benefit) $ (5,516) $34,410 $ 25,929
=========== ======== =======
</TABLE>
Prior to acquisition by Corning, Bioran and certain MML operations were
S-Corporations; accordingly, no federal provision for income taxes has been
reflected relative to these operations.
A reconciliation of the Federal statutory rate to the Company's effective
tax rate for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ----------
<S> <C> <C> <C>
Taxes at statutory rate (35.0%) 35.0% 35.0%
State and local income taxes, net of federal tax benefit (0.8%) 3.8% 2.6%
Income from partnership and S-Corporations not subject to
federal and state income tax 1.7% (10.3%) (11.1%)
Goodwill 17.6% 14.3% 4.8%
Non-deductible items 6.0% 8.6% 3.4%
Other, net 0.9% 3.4% 2.0%
--------- --------- ----------
Effective tax rate (9.6%) 54.8% 36.7%
========= ========= ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
----------------------
<S> <C> <C>
Current deferred tax asset:
Accounts receivable reserve $ 48,584 $ 16,692
Liabilities not currently deductible 49,222 34,422
Other 1,039 2,582
----------------------
Current deferred tax asset $ 98,845 $ 53,696
======================
Non-current deferred tax asset (liability):
Liabilities not currently deductible $ 21,152 $ 33,572
Depreciation and amortization (15,090) (13,979)
----------------------
Non-current deferred tax asset $ 6,062 $ 19,593
======================
</TABLE>
F-13
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
Income taxes payable at December 31, 1995 and 1994 consist of Federal
income taxes payable of $34.2 million and $28.7 million, respectively, state
income taxes payable of $5.0 million and $1.5 million, respectively, and
foreign income taxes payable of $0.6 million and $0.3 million, respectively.
The Company paid income taxes of $21.7 million, $58.5 million and $52.0
million during 1995, 1994 and 1993, respectively.
5. PROVISION FOR RESTRUCTURING AND OTHER SPECIAL CHARGES
In the second quarter of 1995, the Company recorded a provision for
restructuring totaling $33.0 million primarily for workforce reduction
programs and the costs of exiting a number of leased facilities.
Additionally, in the first quarter of 1995, the Company recorded a special
charge of $12.8 million for the settlement of claims related to inadvertent
billing errors of certain laboratory tests that were not completely and/or
successfully performed or reported due to insufficient samples and/or invalid
results. Additionally, in the fourth quarter of 1995, the Company recorded a
charge of $4.8 million related to claims by the Civil Division of the U.S.
Department of Justice ("DOJ") of alleged billing errors related to a
laboratory test performed by Bioran prior to its acquisition by the Company.
In the third quarter of 1994, the Company recorded a provision for
restructuring and other special charges totaling $79.8 million which included
$48.2 million of integration costs, $21.6 million of transaction expenses
related to the Nichols, MML and Bioran acquisitions, and $10 million of
settlement reserves primarily related to government investigations of billing
practices by Nichols prior to its acquisition by the Company. The integration
costs represent the expected costs for closing clinical laboratories in
certain markets where duplicate Company, Nichols, MML or Bioran facilities
existed at the time of the acquisitions.
In the third quarter of 1993, the Company recorded a provision for
restructuring costs and other special charges totaling $99.6 million. The
restructuring component of this special charge aggregated $56.6 million and
consisted primarily of asset write-offs, facility related costs and costs for
workforce reduction programs related principally to the integration of the
Company's operations with those acquired in the Damon acquisition.
The special charge of $43 million consists of a $36.5 million charge to
reflect the settlement and related legal expenses associated with a
compromise agreement with the DOJ to settle claims brought on behalf of the
Inspector General, U.S. Department of Health and Human Services and a $6.5
million charge for related asserted and unasserted claims. The DOJ claims
related to the marketing, sale, pricing and billing of certain blood-test
series provided to Medicare patients. The DOJ settlement does not constitute
an admission with respect to any issue arising from subsequent civil actions.
The following summarizes the Company's restructuring activity (in
millions):
<TABLE>
<CAPTION>
1993 and 1994 Amounts Balance at 1995 Amounts Balance at
Restructuring Utilized December 31, Restructuring Utilized December 31,
Provisions Through 1994 1994 Provision in 1995 1995
--------------- --------------- -------------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Employee
termination costs $ 32.5 $14.8 $17.7 $23.4 $27.0 $14.1
Write-off of fixed
assets 35.6 19.1 16.5 3.7 9.2 11.0
Costs of exiting
leased facilities 21.7 9.3 12.4 3.1 6.8 8.7
Other 15.0 13.4 1.6 2.8 .5 3.9
--------------- --------------- -------------- --------------- --------- --------------
Total $104.8 $56.6 $48.2 $33.0 $43.5 $37.7
=============== =============== ============== =============== ========= ==============
</TABLE>
F-14
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
The substantial portion of the balance at December 31, 1995 is expected to
be expended in 1996.
Employee termination costs included severance benefits related to
approximately 3,300 employees (700, 2,000 and 600 in 1995, 1994 and 1993,
respectively). The estimated number of employees to be terminated has been
reduced to 2,355, all of which have been terminated or notified of their
termination at December 31, 1995. Management expects that approximately 300
terminations and the remaining business or facility exits will occur by the
end of 1996. The decrease in the number of actual versus anticipated employee
terminations is primarily attributable to higher than expected attrition. As
a result of higher than expected average termination costs, management's
estimate of total employee termination costs is unchanged. Certain severance
and facility exit costs have payment terms extending beyond 1997.
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land $ 18,568 $ 18,969
Buildings and improvements 186,192 173,546
Laboratory equipment, furniture and fixtures 286,326 247,200
Leasehold improvements 39,078 30,050
Construction-in-progress 19,490 33,508
------------ ------------
Property and equipment, at cost 549,654 503,273
Less: accumulated depreciation and amortization (253,538) (215,711)
------------ ------------
Property and equipment, net $ 296,116 $ 287,562
============ ============
</TABLE>
Depreciation and amortization expense aggregated $56.8 million, $46.9
million and $38.1 million for 1995, 1994 and 1993, respectively.
7. INTANGIBLE ASSETS
Intangible assets at December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Goodwill $1,056,073 $1,043,089
Customer lists 84,558 100,428
Other (principally non-compete covenants) 50,626 61,401
------------- -------------
Intangible assets, at cost 1,191,257 1,204,918
Less: accumulated amortization (160,624) (151,724)
------------- -------------
Intangible assets, net $1,030,633 $1,053,194
============= =============
</TABLE>
Amortization expense aggregated $44.7 million, $42.6 million and $28.4
million for 1995, 1994 and 1993, respectively.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Accrued wages and benefits $ 81,985 $ 74,519
Restructuring, integration and other special charges 61,878 69,812
Accrued expenses 57,338 34,851
Trade accounts payable 31,129 36,169
Accrued acquisition commitments 8,195 21,536
----------- -----------
Accounts payable and accrued expenses $240,525 $236,887
=========== ===========
</TABLE>
F-15
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
9. LONG-TERM DEBT
Long-term debt, exclusive of current maturities, at December 31, 1995 and
1994, respectively, consists of the following:
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Notes payable to Corning:
Revolving credit notes--interest at the London Interbank
offered rate ("LIBOR") plus 1/8% to 1/4%, maturing 1997 $ 605,636 $ 551,982
Installment note with interest at 9%, maturing 2001 90,000 100,000
Term note with interest at 6.24%, maturing 2003 100,000 100,000
Term note with interest at 6.93%, maturing 2013 100,000 100,000
Term note with interest at 7.17%, maturing 2004 150,000 150,000
Term note with interest at 7.77%, maturing 2024 100,000 100,000
Note payable denominated in pounds Sterling, interest at the
London Interbank Sterling Rate minus 1%, due 2002 8,049 8,516
Mortgage note payable through 2011, interest at 9.25% 6,138 6,355
Capital lease obligations expiring through 2031 32,518 32,538
Other 3,225 3,663
------------- ------------
Total $1,195,566 $1,153,054
============= ============
</TABLE>
Current maturities on long-term debt totaled $12.1 million and $12.6
million at December 31, 1995 and 1994, respectively.
Long-term debt, including capital leases, maturing in each of the years
subsequent to December 31, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal year ending December 31,
1997 $ 261,131
1998 10,493
1999 10,530
2000 10,576
2001 and thereafter 902,836
------------
Total long-term debt $1,195,566
============
</TABLE>
Future minimum payments under capital leases and the present value thereof
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal year ending December 31,
1997 $ 4,061
1998 3,846
1999 3,840
2000 3,948
2001 and thereafter 116,102
-----------
Total future minimum payments under capital leases 131,797
Less amount representing interest (99,279)
-----------
Present value of minimum payments under capital leases $ 32,518
===========
</TABLE>
F-16
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
The Company paid interest of $74.2 million, $60.2 million and $41.2
million during 1995, 1994 and 1993, respectively.
Based on borrowing rates currently available to the Company for loans with
similar terms and maturities, the fair value of loans payable to third
parties (carrying amount of approximately $50.0 million) was approximately
$62.0 million at December 31, 1995.
As discussed in Note 14, the Company is currently pursuing the issuance of
$150 million of Senior Subordinated Notes due in 2006 which will be used to
repay certain intercompany indebtedness owed to Corning. The Senior
Subordinated Notes will be guaranteed, fully, jointly and severally, and
unconditionally, on a senior subordinated basis by the Company and each of
the Company's wholly-owned, domestic subsidiaries (Subsidiary Guarantors).
Non-guarantor subsidiaries are immaterial to the Company. Full financial
statements of the Subsidiary Guarantors are not presented because they are
not deemed material to investors. The following is summarized financial
information of the Subsidiary Guarantors as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995.
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Current assets $244,547 $248,793
Noncurrent assets 864,351 916,499
Current liabilities 71,828 84,223
Noncurrent liabilities 682,805 692,742
Stockholder's equity 354,265 388,227
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Net revenues $930,472 $923,205 $749,090
Cost of services 587,100 581,397 447,246
Net income (loss) (33,961) (44,056) 258
</TABLE>
10. EMPLOYEE RETIREMENT PLANS
Defined Benefit Plans
An acquired entity had a defined benefit pension plan which in 1990 was
frozen as to the further accrual of benefits. At December 31, 1995 the
present value of the projected benefit obligation using a discount rate of
7.5% was $22.6 million and the fair value of the plan assets (publicly traded
corporate debt and equity securities, government obligations and money market
funds) was $17.4 million. The difference between the projected benefit
obligation and the fair value of plan assets is included in other long-term
liabilities in the accompanying combined balance sheet.
Defined Contribution Plans
The Company has several defined contribution plans covering substantially
all of its full-time employees. Company contributions to these plans
aggregated $18.5 million, $15.9 million and $7.3 million for 1995, 1994 and
1993, respectively.
11. RELATED PARTY TRANSACTIONS
The Company, in the ordinary course of business, conducts a number of
transactions with Corning and its affiliates. The significant transactions
occurring during the years ended December 31, 1995, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
Interest expense on borrowings $78,930 $55,835 $28,400
Purchase of laboratory supplies 11,261 11,607 7,338
Corporate fees 2,800 2,800 2,450
</TABLE>
F-17
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
Certain executives of the Company are included in various stock
compensation programs of Corning. Expenses related to these programs have
been included in the Company's combined financial statements.
In 1994, Corning contributed capital of $25.2 million through the
reduction of revolving credit notes and former S-Corporation shareholders
contributed capital of a building approximating $4.4 million.
12. COMMITMENTS AND CONTINGENCIES
Minimum rental commitments under noncancellable operating leases,
primarily real estate, in effect at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1996 $ 40,459
1997 30,481
1998 20,527
1999 14,877
2000 12,532
2001 and thereafter 65,920
----------
Net minimum lease payments $184,796
==========
</TABLE>
Operating lease rental expense for 1995, 1994 and 1993 aggregated $46.9
million, $49.4 million and $46.9 million, respectively.
The Company is self-insured for substantially all casualty losses and
maintains supplemental coverage on a claims made basis. The basis for the
insurance reserve at December 31, 1995 and 1994 is the actuarially determined
projected losses for each program (within the self-insured retention) based
upon the Company's loss experience.
The Company has entered into several settlement agreements with various
governmental and private payors during recent years. At present, government
investigations of certain practices by clinical laboratories acquired in
recent years are ongoing. In addition, certain payors are reviewing their
reimbursement practices for laboratory tests. The results of these
investigations and reviews may result in additional settlement payments or
reductions in reimbursements for certain tests. The recorded reserves of
approximately $37.0 million are included in accrued liabilities and represent
management's best estimate at December 31, 1995. Based on information then
available to CCL, management did not believe that the exposure to claims in
excess of recorded reserves would be material (see Note 13).
13. SUBSEQUENT EVENTS
As disclosed in Note 12, federal government investigations of certain
practices by clinical laboratories acquired in recent years are ongoing. In
the second quarter of 1996, the DOJ notified the Company that it has taken
issue with certain payments received by Damon from federally funded
healthcare programs prior to its acquisition by the Company. Specifically, in
late April 1996, the DOJ for the first time disclosed to CCL the total amount
of the claims that it proposed to assert against Damon. The government
presented its claim for the base recoupment (by lab, by test, by year) and
discussed various theories on which criminal and civil payments of up to
three times the various base recoupment amounts could be assessed. During May
and June, CCL management analyzed the government's claim in detail. CCL
management and outside counsel then believed that there were meritorious
defenses to a number of the claims for recoupments and potential payments in
excess of the base recoupment and these were presented to the government in
early July 1996.
At the end of the second quarter, CCL recorded a $46 million charge to
increase its reserves to equal management's estimate of the low end of the
range of amounts necessary to satisfy claims related to Damon and other
related and similar investigations. With respect to the Damon investigation,
the low end of the range was estimated to be equal to the base recoupment
sought by the government reflecting the basis on which CCL had settled an
earlier claim with the government in 1993. The low end of the range for the
Nichols and other government investigations was based on the base recoupment
estimated by management from internal investigations. Reserves for pending
private claims were estimated based on CCL's experience in settling private
claims following its 1993 government settlement.
CCL management considered the potential for some payments to be assessed
in excess of the base recoupment in estimating its liability at June 30,
1996. However, management believed that, although it was reasonably possible
that some level of
F-18
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
payment in excess of the base recoupment could ultimately be assessed, the
government had not provided sufficient information to reasonably estimate the
amount of any such payments. In addition, management and counsel believed
that it was unlikely that treble payments would be assessed. This position
was based on CCL's experience with the government in 1993, in which the
recovery in excess of base recoupments was not significant, the government's
representatives' invitation to present information and arguments to them and
their stated intention not to consider the issue of payment multiples until
the base recoupment amount had been established, and management's and
counsel's belief that it had meritorious factual, legal and equitable
defenses and mitigations of the government claims.
CCL management was aware that similar investigations of other clinical
laboratories in the industry were ongoing. Other than CCL's 1993 settlement,
the only other similar settlement known to management was the 1992 civil
Medicare settlement by a major competitor for $100 million. CCL had reviewed
the publicly-available information about that settlement, including press
releases and the settlement agreement. The competitor's settlement agreement
did not specify whether the civil settlement included substantial payments to
be assessed in excess of the base recoupment. It was believed by CCL that it
did not. Although the competitor and its chief executive officer each pleaded
guilty to criminal charges, the fine was only $1 million for conduct that was
contemporaneous with, and considered by CCL management and its counsel to be
more egregious than, that of Damon.
During the third quarter 1996, CCL management met with the government
several times to evaluate the substance of the government's allegations.
During a meeting with the government in mid-August, further information and
legal arguments were exchanged. Importantly, at this time, the government for
the first time began to disclose to CCL and its outside counsel grand jury
testimony and other evidence that was inconsistent with certain of CCL's
defenses.
The final settlement discussions began in late September. The government
responded to and rejected many of CCL's defenses and made its tentative final
settlement offer, which included significant payments in excess of base
recoupments, to CCL. Negotiations on the final settlement amount and terms
(including releases from various federal and state payors, compliance program
requirements, etc.) continued into early October and ended with the
settlement agreement dated October 9, 1996. The settlement included base
recoupments of approximately $40 million (which did not differ materially
from management's estimate at June 30, 1996) and total criminal and civil
payments in excess of base recoupments of approximately $80 million.
This settlement concludes all federal and Medicaid claims relating to the
billing by Damon of certain blood tests to Medicare and Medicaid patients and
other matters relating to Damon being investigated by the DOJ. Additionally,
the Company entered into a separate settlement agreement with the DOJ
totaling $6.9 million related to billings of hematology indices provided with
hematology test results. This claim will be paid during the fourth quarter of
1996.
As a result of these settlement agreements, CCL management has reassessed
the level of reserves recorded for other asserted and unasserted claims
related to the Damon and other similar government investigations, including
the investigation of billing practices by Nichols prior to its acquisition by
the Company in 1994. The Company recorded a charge totaling $142 million in
the third quarter 1996 to establish additional reserves to provide for the
above settlement agreements and management's best estimate of potential
amounts which could be required to satisfy the remaining claims. At September
30, 1996, recorded reserves approximated $215 million (including the $119
million Damon settlement paid in October 1996). Based on information
currently available to CCL, management does not believe that the exposure to
claims in excess of recorded claims is material. Although the Damon
settlement was substantially in excess of amounts anticipated by management,
it was primarily due to the civil and criminal payments in excess of the base
recoupment assessed by the government and CCL has now increased its reserves
for asserted and unasserted claims to approximate the amount that may be
required to settle the Nichols and other government civil claims taking into
account the basis for the Damon civil settlement. In addition, although there
is the possibility that CCL could be excluded from participation in Medicare
and Medicaid programs, management believes that the possibility is remote as
a result of the Damon settlement, which included CCL's signing a Corporate
Integrity Agreement, and due to the fact that the government has publicly
commended CCL for its cooperation in the investigation and cited CCL as
having one of the "model" compliance programs in the industry.
In October 1996, Corning contributed $119 million to CCL's capital to fund
the Damon settlement. Additionally, Corning has agreed to fund any additional
settlements prior to the CCL Spin-Off Distribution and to indemnify CCL
against all settlements for any governmental claims relating to billing
practices of CCL and its predecessors that have been settled or are pending
on the Distribution Date. Corning will also agree to indemnify CCL for 50% of
the aggregate of all settlement payments made by CCL that are in excess of
$42 million to private parties that relate to indemnified or previously
settled governmental claims (such as the Damon settlement) for services
provided prior to the Distribution Date; however, the indemnification of
F-19
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
private party claims will not exceed $25 million and will be paid on an
after-tax basis. Such indemnification will not cover any nongovernmental
claims not settled prior to five years after the Distribution Date.
Coincident with the CCL Spin-Off Distribution, the Company will record a
receivable and a contribution of capital from Corning currently estimated at
$25 million which is equal to management's best estimate of amounts which are
probable of being received from Corning to satisfy the remaining indemnified
governmental claims on an after-tax basis.
Although management believes that established reserves for both
indemnified and non-indemnified claims are sufficient, it is possible that
additional information (such as the indication by the government of criminal
activity, additional tests being questioned or other changes in the
government's theories of wrongdoing) may become available which may cause the
final resolution of these matters to exceed established reserves by an amount
which could be material to the Company's results of operations and, for
non-indemnified claims, the Company's cash flows in the period in which such
claims are settled. The Company does not believe that these issues will have
a material adverse effect on the Company's overall financial condition.
In addition to the $142 million special charge discussed above, in the
third quarter of 1996, the Company recorded a special charge of $13.7 million
to write off capitalized software as a result of its decision to abandon the
billing system which had been intended as its standard company-wide billing
system. Management now plans to standardize billing systems using a system
already implemented in seven of its sites.
14. SPIN-OFF DISTRIBUTION (unaudited)
Coincident with the CCL Spin-Off Distribution, the Company plans to record
a non-recurring charge of approximately $20 million ($13 million after tax)
associated with the CCL Spin-Off Distribution. The largest component of the
charge will be the cost of establishing an employee stock ownership plan ($11
million). The remainder of the charge will consist principally of the costs
for advisors and other fees associated with establishing the Company as a
separate publicly-traded entity. The amount of the charge is subject to
change based on the price of the CCL stock on the Distribution Date.
Prior to the CCL Spin-Off Distribution, the Company will borrow
approximately $500 million in long-term debt to repay Corning for certain
intercompany borrowings. The debt is assumed to consist of $350 million of
bank borrowings and $150 million of publicly-registered high-yield notes.
Corning will contribute the remaining debt to the Company's equity prior to
the CCL Spin-Off Distribution. The credit facility governing the bank
borrowings and the indenture governing the notes will contain various
customary affirmative and negative covenants, including the maintenance of
certain financial ratios and tests. The credit facility prohibits the Company
from paying cash dividends on the CCL common stock. Further, the indenture
will restrict the Company's ability to pay cash dividends based on a
percentage of the Company's cash flow.
In conjunction with the CCL Spin-Off Distribution, Corning and the Company
will enter into an indemnification agreement whereby Corning agrees to
indemnify CCL, on an after-tax basis, for any losses arising out of any
federal, criminal, civil or administrative investigations or claims that are
pending as of the Distribution Date to the extent that such investigations or
claims arise out of or are related to alleged violations of federal laws by
reason of CCL, its affiliates, officers or directors billing any federal
program or agency for services rendered to beneficiaries of such program or
agency.
Corning, CCL and Covance will enter into tax indemnification agreements
that will prohibit CCL and Covance for a period of two years after the
Spin-Off Distributions from taking certain actions that might jeopardize the
favorable tax treatment of the Distributions under section 355 of the
Internal Revenue Code of 1986, as amended and will provide Corning and CCL
with certain rights of indemnification against CCL and Covance. The tax
indemnification agreements will also require CCL and Covance to take such
actions as Corning may request to preserve the favorable tax treatment
provided for in any rulings obtained from the Internal Revenue Service in
respect of the Distributions.
Corning, CCL and Covance will also enter into a tax sharing agreement
which will allocate among Corning, CCL and Covance responsibility for
federal, state and local taxes relating to taxable periods before and after
the Spin-Off Distributions and provide for computing and apportioning tax
liabilities and tax benefits for such periods among the parties.
15. PLANNED CHANGE IN ACCOUNTING POLICY (unaudited)
Coincident with the CCL Spin-Off Distribution, CCL management will adopt a
new accounting policy for evaluating the recoverability of intangible assets
and measuring possible impairment under Statement of the Accounting
Principles Board No. 17. Most of CCL's intangible assets resulted from
purchase business combinations in 1993. Significant changes in the clinical
F-20
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
(dollars in thousands, unless otherwise indicated)
laboratory and health care industries subsequent to 1993, including increased
government regulation and movement from traditional fee-for-service care to
managed cost health care, have caused the fair value of CCL's intangible
assets to be significantly less than carrying value. CCL management believes
that a valuation of intangible assets based on the amount for which each
regional laboratory could be sold in an arms-length transaction is preferable
to using projected undiscounted pre-tax cash flows. CCL believes fair value
is a better indicator of the extent to which the intangible assets may be
recoverable and therefore, may be impaired. This change in method of
evaluating the recoverability of intangible assets will result in CCL
recording a charge of between $400 million and $450 million to operations
coincident with the CCL Spin-Off Distribution to reflect the other than
temporary impairment of intangible assets. This will result in a reduction of
amortization expense of approximately $10 million to $11.3 million annually
and $2.5 million to $2.8 million quarterly.
The fair value method will be applied to each of CCL's regional
laboratories. Management's estimate of fair value will primarily be based on
multiples of forecasted revenue or multiples of forecasted EBITDA. The
multiples will primarily be determined based upon publicly available
information regarding comparable publicly-traded companies in the industry,
but will also consider (i) the financial projections of each regional
laboratory, (ii) the future prospects of each regional laboratory, including
its growth opportunities, managed care concentration and likely operational
improvements, and (iii) comparable sales prices, if available. Multiples of
revenues will be used to estimate fair value in cases where the Company
believes that the likely acquirer of a regional laboratory would be a
strategic buyer within the industry which would realize synergies from such
an acquisition. In regions where management does not believe there is a
potential strategic buyer within the industry, and, accordingly, believes the
likely buyer would not have synergy opportunities, multiples of EBITDA will
be used for estimating fair value. Regional laboratories with lower levels of
profitability valued using revenue multiples would generally be ascribed a
higher value than if multiples of EBITDA were used, due to assumed synergy
opportunities. While management believes the estimation methods are
reasonable and reflective of common valuation practices, there can be no
assurance that a sale to a buyer for the estimated value ascribed to a
regional laboratory could be completed.
For purposes of estimating the fair value of each of the regional
laboratories, management assumed that a potential buyer would seek to be
indemnified for litigation or other contingencies resulting from
preacquisition activities. Therefore, the reserves recorded for potential,
and settled, billing and marketing claims were not allocated to the regional
laboratories for purposes of estimating their fair value.
On a quarterly basis, CCL management will perform a review of each
regional laboratory to determine if events or changes in circumstances have
occurred which could have an other than temporary material adverse effect on
the fair value of the business and its intangible assets. If such events or
changes in circumstances were deemed to have occurred, management would
consult with one or more of its investment bankers in estimating the impact
on fair value of the regional laboratory.
F-21
<PAGE>
Quarterly Operating Results (unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
1996
Net revenues $401,395 $ 424,543 $ 405,352
Gross profit 154,277 158,242 149,962
Loss before taxes (1,642) (37,518) (1) (162,989)(1)
Net loss (1,511) (37,922) (119,436)
1995
Net revenues $417,662 $ 421,853 $ 399,959 $ 389,914 $1,629,388
Gross profit 168,606 175,793 159,091 145,666 649,156
Income (loss) before taxes 19,827 (1) (5,088) (1) (56,405) (2) (15,902) (1) (57,568)
Net income (loss) 4,423 (3,852) (38,595) (14,028) (52,052)
1994
Net revenues $399,063 $ 422,942 $ 408,478 $ 403,216 $1,633,699
Gross profit 159,050 182,050 163,391 159,364 663,855
Income (loss) before taxes 40,624 45,109 (51,250) (1) 28,272 62,755
Net income (loss) 24,152 24,148 (36,535) 16,580 28,345
</TABLE>
(1) Includes impact of restructuring and other special charges of $46.0
million, $155.7 million, $12.8 million, $33.0 million, $4.8 million and
$79.8 million in second quarter 1996, third quarter 1996, first quarter
1995, second quarter 1995, fourth quarter 1995 and third quarter 1994,
respectively, which are discussed in Notes 5 and 13 to the CCL Combined
Financial Statements.
(2) Includes a $62.0 million charge to increase the reserve for doubtful
accounts and allowances resulting from billing systems implementation and
integration problems at certain laboratories and increased regulatory
requirements.
F-22
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
Combined Balance Sheets
September 30, 1996 and December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 48,319 $ 36,446
Accounts receivable, net of allowance of $116,996 and $147,947 for
September 30, 1996 and December 31, 1995, respectively 323,171 318,252
Inventories 25,559 26,601
Deferred taxes on income 126,906 98,845
Prepaid expenses and other assets 25,217 22,014
--------------- --------------
Total current assets 549,172 502,158
Property and equipment, net 293,490 296,116
Intangible assets, net 1,001,500 1,030,633
Other assets 42,216 24,478
--------------- --------------
TOTAL ASSETS $1,886,378 $1,853,385
=============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 374,058 $ 240,525
Current portion of long-term debt 11,885 12,148
Income taxes payable 34,212 39,766
Due to Corning Incorporated and affiliates 14,299 8,979
--------------- --------------
Total current liabilities 434,454 301,418
Long-term debt (principally due to Corning Incorporated) 1,219,900 1,195,566
Other liabilities 99,354 60,600
--------------- --------------
Total liabilities 1,753,708 1,557,584
=============== ==============
Stockholder's Equity:
Contributed capital 297,823 297,823
Accumulated deficit (163,158) (3,118)
Cumulative translation adjustment 1,801 2,325
Market valuation adjustment (3,796) (1,229)
--------------- --------------
Total stockholder's equity 132,670 295,801
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $1,886,378 $1,853,385
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
Combined Statements of Operations
For the Three and Nine Months Ended September 30, 1996 and 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net revenues $ 405,352 $399,959 $1,231,290 $1,239,474
Costs and expenses:
Cost of services 255,390 240,868 768,809 735,984
Selling, general and administrative 125,190 181,346 371,439 399,635
Provision for restructuring and
other special
charges 155,730 -- 201,730 45,885
Interest expense, net 19,866 20,927 59,887 61,529
Amortization of intangible assets 10,328 11,293 31,772 33,678
Other, net 1,837 1,930 (198) 4,429
--------------- --------------- --------------- ---------------
Total 568,341 456,364 1,433,439 1,281,140
--------------- --------------- --------------- ---------------
Loss before taxes (162,989) (56,405) (202,149) (41,666)
Income tax benefit (43,553) (17,810) (43,280) (3,642)
--------------- --------------- --------------- ---------------
Net loss $(119,436) $(38,595) $ (158,869) $ (38,024)
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated)
(a wholly-owned business of Corning Incorporated)
Combined Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(158,869) $ (38,024)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 75,232 76,036
Provision for doubtful accounts 81,891 127,297
Provision for restructuring and other special charges 201,730 45,885
Deferred income tax provision (31,612) (39,403)
Other, net (753) 4,984
Changes in operating assets and liabilities:
Accounts receivable (87,339) (112,110)
Accounts payable and accrued expenses 3,355 18,732
Restructuring, integration and other special charges (19,863) (49,836)
Due from/to Corning Incorporated and affiliates 5,320 4,572
Changes in other assets and liabilities (27,155) 15,656
------------- ------------
Net cash provided by operating activities 41,937 53,789
------------- ------------
Cash flows from investing activities:
Capital expenditures (58,802) (56,062)
Acquisition of businesses, net of cash acquired -- (22,907)
(Increase) decrease in investments (7,580) 1,058
Proceeds from sale of assets 13,285 --
------------- ------------
Net cash used in investing activities (53,097) (77,911)
------------- ------------
Cash flows from financing activities:
Proceeds from borrowings, primarily with Corning Incorporated 59,090 63,795
Repayment of long-term debt (34,885) (3,766)
Dividends paid (1,172) (27,718)
------------- ------------
Net cash provided by financing activities 23,033 32,311
------------- ------------
Net change in cash and cash equivalents 11,873 8,189
Cash and cash equivalents, beginning of year 36,446 38,719
------------- ------------
Cash and cash equivalents, end of period $ 48,319 $ 46,908
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated
(a wholly-owned business of Corning Incorporated)
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
Corning Clinical Laboratories Inc. and Corning Nichols Institute Inc.
(collectively referred to as "CCL" or the "Company") are wholly-owned
subsidiaries of Corning Life Sciences Inc. ("CLSI") which in turn is a
wholly-owned subsidiary of Corning Incorporated ("Corning"). The Company is
one of the largest clinical laboratory testing businesses in the United
States. These financial statements present the carved-out results of
operations, cash flows and financial position of Corning's clinical
laboratory testing business. Covance Inc. (formerly Corning Pharmaceutical
Services Inc.), a subsidiary of CCL, and its related entities ("Covance") as
well as environmental testing services formerly provided by CCL are excluded.
In May 1996, Corning's Board of Directors approved a plan to distribute to
its shareholders on a pro rata basis all of the shares of CCL and Covance
(the "CCL and Covance Spin-Off Distributions"). The result of the plan will
be the creation of two independent, publicly-owned companies. As a result of
the Spin-Off Distributions, CCL will operate Corning's clinical laboratory
testing business as an independent public company and Covance will own and
operate Corning's contract research business as an independent public
company. The Spin-Off Distributions will be effected by the distribution of a
dividend to holders of Corning Common Stock of all of the outstanding CCL
Common Stock, followed immediately by the distribution of a dividend to the
holders of CCL Common Stock of all of the Covance Common Stock. Corning has
submitted to the Internal Revenue Service a request for a ruling that the
Spin-Off Distributions qualify as tax-free distributions under the Internal
Revenue Code of 1986. Coincident with the Spin-Off Distributions, the Company
will be renamed Quest Diagnostics Incorporated.
The interim combined financial statements reflect all adjustments which,
in the opinion of management, are necessary for a fair statement of the
results of operations for the periods presented. All such adjustments are of
a normal recurring nature. The interim combined financial statements have
been compiled without audit and are subject to year-end adjustments. These
interim combined financial statements should be read in conjunction with the
historical combined financial statements of CCL for the years ended December
31, 1995, 1994 and 1993 included elsewhere herein.
2. COMMITMENTS AND CONTINGENCIES
As disclosed in the Company's 1995 combined financial statements, federal
government investigations of certain practices by clinical laboratories
acquired in recent years are ongoing. In the second quarter of 1996, the U.S.
Department of Justice ("DOJ") notified the Company that it has taken issue
with certain payments received by Damon Corporation ("Damon") from federally
funded healthcare programs prior to its acquisition by the Company.
Specifically, in late April 1996, the DOJ for the first time disclosed to CCL
the total amount of the claims that it proposed to assert against Damon. The
government presented its claim for the base recoupment (by lab, by test, by
year) and discussed various theories on which criminal and civil payments of
up to three times the various base recoupment amounts could be assessed.
During May and June, CCL management analyzed the government's claim in
detail. CCL management and outside counsel then believed that there were
meritorious defenses to a number of the claims for recoupments and potential
payments in excess of the base recoupment and these were presented to the
government in early July 1996.
At the end of the second quarter, CCL recorded a $46 million charge to
increase its reserves to equal management's estimate of the low end of the
range of amounts necessary to satisfy claims related to Damon and other
related and similar investigations. With respect to the Damon investigation,
the low end of the range was estimated to be equal to the base recoupment
sought by the government reflecting the basis on which CCL had settled an
earlier claim with the government in 1993. The low end of the range for the
Nichols and other government investigations was based on the base recoupment
estimated by management from internal investigations. Reserves for pending
private claims were estimated based on CCL's experience in settling private
claims following its 1993 government settlement.
CCL management considered the potential for some payments to be assessed
in excess of the base recoupment in estimating its liability at June 30,
1996. However, management believed that, although it was reasonably possible
that some level of payment in excess of the base recoupment could ultimately
be assessed, the government had not provided sufficient information to
reasonably estimate the amount of any such payments. In addition, management
and counsel believed that it was unlikely that treble payments would be
assessed. This position was based on CCL's experience with the government in
1993, in which the recovery in excess of base recoupments was not
significant, the government's representatives' invitation to present
information and arguments to them and their stated intention not to consider
the issue of payment multiples until the base recoupment amount had been
established, and management's and counsel's belief that it had meritorious
factual, legal and equitable defenses and mitigations of the government
claims.
F-26
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated
(a wholly-owned business of Corning Incorporated)
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued)
(unaudited)
CCL management was aware that similar investigations of other clinical
laboratories in the industry were ongoing. Other than CCL's 1993 settlement,
the only other similar settlement known to management was the 1992 civil
Medicare settlement by a major competitor for $100 million. CCL had reviewed
the publicly-available information about that settlement, including press
releases and the settlement agreement. The competitor's settlement agreement
did not specify whether the civil settlement included substantial payments to
be assessed in excess of the base recoupment. It was believed by CCL that it
did not. Although the competitor and its chief executive officer each pleaded
guilty to criminal charges, the fine was only $1 million for conduct that was
contemporaneous with, and considered by CCL management and its counsel to be
more egregious than, that of Damon.
During the third quarter 1996, CCL management met with the government
several times to evaluate the substance of the government's allegations.
During a meeting with the government in mid-August, further information and
legal arguments were exchanged. Importantly, at this time, the government for
the first time began to disclose to CCL and its outside counsel grand jury
testimony and other evidence that was inconsistent with certain of CCL's
defenses.
The final settlement discussions began in late September. The government
responded to and rejected many of CCL's defenses and made its tentative final
settlement offer, which included significant payments in excess of base
recoupments, to CCL. Negotiations on the final settlement amount and terms
(including releases from various federal and state payors, compliance program
requirements, etc.) continued into early October and ended with the
settlement agreement dated October 9, 1996. The settlement included base
recoupments of approximately $40 million (which did not differ materially
from management's estimate at June 30, 1996) and total criminal and civil
payments in excess of base recoupments of approximately $80 million.
This settlement concludes all federal and Medicaid claims relating to the
billing by Damon of certain blood tests to Medicare and Medicaid patients and
other matters relating to Damon being investigated by the DOJ. Additionally,
the Company entered into a separate settlement agreement with the DOJ
totaling $6.9 million related to billings of hematology indices provided with
hematology test results. This claim will be paid during the fourth quarter of
1996.
As a result of these settlement agreements, CCL management has reassessed
the level of reserves recorded for other asserted and unasserted claims
related to the Damon and other similar government investigations, including
the investigation of billing practices by Nichols Institute ("Nichols") prior
to its acquisition by the Company in 1994. The Company recorded a charge
totaling $142 million in the third quarter 1996 to establish additional
reserves to provide for the above settlement agreements and management's best
estimate of potential amounts which could be required to satisfy the
remaining claims. At September 30, 1996, recorded reserves approximated $215
million (including the $119 million Damon settlement paid in October 1996).
Based on information currently available to CCL, management does not believe
that the exposure to claims in excess of recorded claims is material.
Although the Damon settlement was substantially in excess of amounts
anticipated by management, it was primarily due to the civil and criminal
payments in excess of the base recoupment assessed by the government and CCL
has now increased its reserves for asserted and unasserted claims to
approximate the amount that may be required to settle the Nichols and other
government civil claims taking into account the basis for the Damon civil
settlement. In addition, although there is the possibility that CCL could be
excluded from participation in Medicare and Medicaid programs, management
believes that the possibility is remote as a result of the Damon settlement,
which included CCL's signing a Corporate Integrity Agreement, and due to the
fact that the government has publicly commended CCL for its cooperation in
the investigation and cited CCL as having one of the "model" compliance
programs in the industry.
In October 1996, Corning contributed $119 million to CCL's capital to fund
the Damon settlement. Additionally, Corning has agreed to fund any additional
settlements prior to the CCL Spin-Off Distribution and to indemnify CCL
against all settlements for any governmental claims relating to billing
practices of CCL and its predecessors that have been settled or are pending
on the Distribution Date. Corning will also agree to indemnify CCL for 50% of
the aggregate of all settlement payments made by CCL that are in excess of
$42 million to private parties that relate to indemnified or previously
settled governmental claims (such as the Damon settlement) for services
provided prior to the Distribution Date; however, the indemnification of
private party claims will not exceed $25 million and will be paid on an
after-tax basis. Such indemnification will not cover any nongovernmental
claims not settled prior to five years after the Distribution Date.
Coincident with the CCL Spin-Off Distribution, the Company will record a
receivable and a contribution of capital from Corning currently estimated at
$25 million which is equal to management's best estimate of amounts which are
probable of being received from Corning to satisfy the remaining indemnified
governmental claims on an after-tax basis.
F-27
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated
(a wholly-owned business of Corning Incorporated)
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued)
(unaudited)
Although management believes that established reserves for both
indemnified and non-indemnified claims are sufficient, it is possible that
additional information (such as the indication by the government of criminal
activity, additional tests being questioned or other changes in the
government's theories of wrongdoing) may become available which may cause the
final resolution of these matters to exceed established reserves by an amount
which could be material to the Company's results of operations and, for
non-indemnified claims, the Company's cash flow in the period in which such
claims are settled. The Company does not believe that these issues will have
a material adverse impact on the Company's overall financial condition.
3. PROVISION FOR RESTRUCTURING AND OTHER SPECIAL CHARGES
In addition to the $142 million special charge discussed in Note 2, in the
third quarter of 1996, the Company recorded a special charge of $13.7 million
to write off capitalized software as a result of its decision to abandon the
development of a billing system which had been intended as its standard
company-wide billing system. Management now plans to standardize billing
systems using a system already implemented in seven of its sites.
4. RESTRUCTURING RESERVES
As described in Note 5 to the CCL Combined Financial statements, CCL has
recorded charges for restructuring plans in previous years. Reserves relating
to these programs totaled approximately $37.7 million and $23.5 million at
December 31, 1995 and September 30, 1996, respectively. Management believes
that the costs of the restructuring plans will be financed through cash from
operations and does not anticipate any significant impact on its liquidity as
a result of the restructuring plans.
5. SPIN-OFF DISTRIBUTION
Coincident with the CCL Spin-Off Distribution, the Company plans to record
a non-recurring charge of approximately $20 million ($13 million after tax)
associated with the CCL Spin-Off Distribution. The largest component of the
charge will be the cost of establishing an employee stock ownership plan ($11
million). The remainder of the charge will consist principally of the costs
for advisors and other fees associated with establishing the Company as a
separate publicly-traded entity. The amount of the charge is subject to
change based on the price of the CCL stock on the Distribution Date.
Prior to the CCL Spin-Off Distribution, the Company will borrow
approximately $500 million in long-term debt to repay Corning for certain
intercompany borrowings. The debt is assumed to consist of $350 million of
bank borrowings and $150 million of publicly-registered high-yield notes.
Corning will contribute the remaining debt to the Company's equity prior to
the CCL Spin-Off Distribution. The credit facility governing the bank
borrowings and the indenture governing the notes will contain various
customary affirmative and negative covenants , including the maintenance of
certain financial ratios and tests. The credit facility prohibits the Company
from paying cash dividends on the CCL common stock. Further, the indenture
will restrict the Company's ability to pay cash dividends based on a
percentage of the Company's cash flow.
In conjunction with the CCL Spin-Off Distribution, Corning and the Company
will enter into an indemnification agreement whereby Corning agrees to
indemnify CCL, on an after-tax basis, for any losses arising out of any
federal, criminal, civil or administrative investigations or claims that are
pending as of the Distribution Date to the extent that such investigations or
claims arise out of or are related to alleged violations of federal laws by
reason of CCL, its affiliates, officers or directors billing any federal
program or agency for services rendered to beneficiaries of such program or
agency.
Corning, CCL and Covance will enter into tax indemnification agreements
that will prohibit CCL and Covance for a period of two years after the
Spin-Off Distributions from taking certain actions that might jeopardize the
favorable tax treatment of the Distributions under section 355 of the
Internal Revenue Code of 1986, as amended and will provide Corning and CCL
with certain rights of indemnification against CCL and Covance. The tax
indemnification agreements will also require CCL and Covance to take such
actions as Corning may request to preserve the favorable tax treatment
provided for in any rulings obtained from the Internal Revenue Service in
respect of the Distributions.
Corning, CCL and Covance will also enter into a tax sharing agreement
which will allocate among Corning, CCL and Covance responsibility for
federal, state and local taxes relating to taxable periods before and after
the Spin-Off Distributions and provide for computing and apportioning tax
liabilities and tax benefits for such periods among the parties.
F-28
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated
(a wholly-owned business of Corning Incorporated)
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued)
(unaudited)
6. PLANNED CHANGE IN ACCOUNTING POLICY
Coincident with the CCL Spin-Off Distribution, CCL management will adopt a
new accounting policy for evaluating the recoverability of intangible assets
and measuring possible impairment under Statement of the Accounting
Principles Board No. 17. Most of CCL's intangible assets resulted from
purchase business combinations in 1993. Significant changes in the clinical
laboratory and health care industries subsequent to 1993, including increased
government regulation and movement from traditional fee-for-service care to
managed cost health care, have caused the fair value of CCL's intangible
assets to be significantly less than carrying value. CCL management believes
that a valuation of intangible assets based on the amount for which each
regional laboratory could be sold in an arms-length transaction is preferable
to using projected undiscounted pre-tax cash flows. CCL believes fair value
is a better indicator of the extent to which the intangible assets may be
recoverable and therefore, may be impaired. This change in method of
evaluating the recoverability of intangible assets will result in CCL
recording a charge of between $400 million and $450 million to operations
coincident with the CCL Spin-Off Distribution to reflect the other than
temporary impairment of intangible assets. This will result in a reduction of
amortization expense of approximately $10 million to $11.3 million annually
and $2.5 million to $2.8 million quarterly.
The fair value method will be applied to each of CCL's regional
laboratories. Management's estimate of fair value will primarily be based on
multiples of forecasted revenue or multiples of forecasted EBITDA. The
multiples will primarily be determined based upon publicly available
information regarding comparable publicly-traded companies in the industry,
but will also consider (i) the financial projections of each regional
laboratory, (ii) the future prospects of each regional laboratory, including
its growth opportunities, managed care concentration and likely operational
improvements, and (iii) comparable sales prices, if available. Multiples of
revenues will be used to estimate fair value in cases where the Company
believes that the likely acquirer of a regional laboratory would be a
strategic buyer within the industry which would realize synergies from such
an acquisition. In regions where management does not believe there is a
potential strategic buyer within the industry, and, accordingly, believes the
likely buyer would not have synergy opportunities, multiples of EBITDA will
be used for estimating fair value. Regional laboratories with lower levels of
profitability valued using revenue multiples would generally be ascribed a
higher value than if multiples of EBITDA were used, due to assumed synergy
opportunities. While management believes the estimation methods are
reasonable and reflective of common valuation practices, there can be no
assurance that a sale to a buyer for the estimated value ascribed to a
regional laboratory could be completed.
For purposes of estimating the fair value of each of the regional
laboratories, management assumed that a potential buyer would seek to be
indemnified for litigation or other contingencies resulting from
preacquisition activities. Therefore, the reserves recorded for potential,
and settled, billing and marketing claims were not allocated to the regional
laboratories for purposes of estimating their fair value.
On a quarterly basis, CCL management will perform a review of each
regional laboratory to determine if events or changes in circumstances have
occurred which could have an other than temporary material adverse effect on
the fair value of the business and its intangible assets. If such events or
changes in circumstances were deemed to have occurred, management would
consult with one or more of its investment bankers in estimating the impact
on fair value of the regional laboratory.
F-29
<PAGE>
CORNING CLINICAL LABORATORIES INC.
(to be renamed Quest Diagnostics Incorporated
(a wholly-owned business of Corning Incorporated)
NOTES TO INTERIM COMBINED FINANCIAL STATEMENTS (Continued)
(unaudited)
7. SUMMARIZED FINANCIAL INFORMATION
As discussed in Note 5, the Company is currently pursuing the issuance of
$150 million of Senior Subordinated Notes due in 2006 which will be used to
repay certain intercompany indebtedness owed to Corning. The Senior
Subordinated Notes will be guaranteed, fully, jointly and severally, and
unconditionally, on a senior subordinated basis by the Company and each of
the Company's wholly-owned, domestic subsidiaries (Subsidiary Guarantors).
Non-guarantor subsidiaries are immaterial to the Company. Full financial
statements of the Subsidiary Guarantors are not presented because they are
not deemed material to investors. The following is summarized financial
information of the Subsidiary Guarantors as of September 30, 1996 and
December 31, 1995 and for the nine months ended September 30, 1996 and
September 30, 1995.
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Current assets $234,183 $244,547
Noncurrent assets 865,265 864,351
Current liabilities 71,416 71,828
Noncurrent liabilities 694,331 682,805
Stockholder's equity 333,701 354,265
For the nine months ended
September 30,
-------------------------------
1996 1995
--------------- ---------------
Net revenues $677,489 $709,317
Cost of services 427,583 444,705
Net loss (20,564) (26,435)
</TABLE>
F-30
<PAGE>
Inside Back Cover
Photo Descriptions
- ------------------
Photo of Corning Clinical Lab testing machinery:
Caption: As one of the nation's leading providers of clinical laboratory testing
services, Quest Diagnostics processes approximately 60 million requisitions for
diagnostic tests a year.
Photo of robot.
Caption: A test for lead poisoning once required several manual steps. Now, with
robots, the test is fully automated from specimen preparation to reporting
results.
Photo of meeting.
Caption: With this unusual microscope, more than a dozen Quest Diagnostics
doctors or technicians can simultaneously view the same slide and discuss
results.
Photo molecular biologist.
Caption: A Quest Diagnostics molecular biologist studies an autoradiogram,
looking for mutated genes as part of a molecular genetics test.
<PAGE>
OUTSIDE BACK COVER
[LOGO] QUEST DIAGNOSTICS
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrants in
connection with the sale of the securities being registered. All amounts are
estimates except for the fees payable to the Commission and to the NASD.
<TABLE>
<CAPTION>
---------------
Amount
to be paid
---------------
<S> <C>
SEC registration fee $45,455
Printing and engraving expenses *
Legal fees and expenses of CCL *
Accounting fees and expenses *
Blue Sky and NASD filing fees *
Rating Agency fees and expenses *
Trustee fees and expenses *
Escrow agent fees and expenses *
Miscellaneous *
---------------
TOTAL *
===============
</TABLE>
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Limitation on Liability of Directors
Pursuant to authority conferred by Section 102 of the Delaware General
Corporation Law (the "DGCL"), Paragraph 11 of CCL's certificate of
incorporation (the "Certificate") ("Paragraph 11") eliminates the personal
liability of CCL's directors to CCL or its stockholders for monetary damages
for breach of fiduciary duty, including without limitation, directors serving
on committees of CCL's board of directors (the "Board"). Directors remain
liable for (1) any breach of the duty of loyalty to CCL or its stockholders,
(2) any act or omission not in good faith or which involves intentional
misconduct or a knowing violation of law, (3) any violation of Section 174 of
the DGCL, which proscribes the payment of dividends and stock purchases or
redemptions under certain circumstances, and (4) any transaction from which
directors derive an improper personal benefit.
Indemnification and Insurance
In accordance with Section 145 of the DGCL, which provides for the
indemnification of directors, officers and employees under certain
circumstances, Paragraph 11 grants CCL's directors and officers a right to
indemnification for all expenses, liabilities and losses relating to civil,
criminal, administrative or investigative proceedings to which they are a
party (1) by reason of the fact that they are or were directors or officers
of CCL or (2) by reason of the fact that, while they are or were directors or
officers of CCL, they are or were serving at the request of CCL as directors
or officers of another corporation, partnership, joint venture, trust or
enterprise. Paragraph 11 further provides for the mandatory advancement of
expenses incurred by officers and directors in defending such proceedings in
advance of their final disposition upon delivery to CCL by the indemnitee of
an undertaking to repay all amounts so advanced if it is ultimately
determined that such indemnitee is not entitled to be indemnified under
Paragraph 11. CCL may not indemnify or make advance payments to any person in
connection with proceedings initiated against CCL by such person without the
authorization of the Board.
In addition, Paragraph 11 provides that directors and officers therein
described shall be indemnified to the fullest extent permitted by Section 145
of the DGCL, or any successor provisions or amendments thereunder. In the
event that any such successor provisions or amendments provide
indemnification rights broader than permitted prior thereto, Paragraph 11
allows such broader indemnification rights to apply retroactively with
respect to any predating alleged action or inaction and also allows the
indemnification to continue after an indemnitee has ceased to be a director
or officer of CCL and to inure to the benefit of the indemnitee's heirs,
executors and administrators.
Paragraph 11 further provides that the right to indemnification is not
exclusive of any other right which any indemnitee may have or thereafter
acquire under any statute, the Certificate, any agreement or vote of
stockholders or disinterested directors or otherwise,
II-1
<PAGE>
and allows CCL to indemnify and advance expenses to any person whom the
corporation has the power to indemnify under the DGCL or otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors and officers and controlling persons
pursuant to the foregoing provisions, CCL has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The Certificate authorizes CCL to purchase insurance for directors and
officers of CCL and persons who serve at the request of CCL as directors,
officers, employees or agents of another corporation, partnership, joint
venture, trust or enterprise, against any expense, liability or loss incurred
in such capacity, whether or not CCL would have the power to indemnify such
persons against such expense or liability under the DGCL. CCL intends to
maintain insurance coverage of its officers and directors as well as
insurance coverage to reimburse CCL for potential costs of its corporate
indemnification of directors and officers.
Item 15. Recent Sale of Unregistered Securities
None.
Item 16. Exhibits and Financial Statement Schedules
(a) A list of the exhibits included as part of this Registration
Statement is set forth in the Exhibit Index that immediately
precedes such exhibits and such list is incorporated herein by this
reference.
(b) Schedule II: Valuation Accounts and Reserves (previously filed).
Item 17. Undertakings
Each of the undersigned Registrants hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant, pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by any such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether or not such indemnification
is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
Each of the undersigned Registrants hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING CLINICAL LABORATORIES INC.
By: /s/ Kenneth W. Freeman
-------------------------------------------
Kenneth W. Freeman
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Kenneth W. Freeman President and Chief Executive Officer and Director
- ---------------------------- (principal executive officer)
Kenneth W. Freeman
/s/ Douglas M. VanOort Senior Vice President and Chief Financial Officer
- ---------------------------- (principal financial officer)
Douglas M. VanOort
/s/ Robert A. Hagemann Vice President and Controller
- ---------------------------- (principal accounting officer)
Robert A. Hagemann
/s/ Van C. Campbell
- ---------------------------- Director
Van C. Campbell
/s/ David A. Duke
- ---------------------------- Director
David A. Duke
/s/ Roger G. Ackerman
- ---------------------------- Director
Roger G. Ackerman
</TABLE>
II-3
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING CLINICAL LABORATORIES INC. (MI)
By: /s/ Leo C. Farrenkopf, Jr.
---------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ---------------------------------- Vice President and Director
Douglas M. VanOort
*
- ---------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-4
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING NICHOLS INSTITUTE INC.
By: /s/ Leo C. Farrenkopf, Jr.
--------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- --------------------------------- Chairman and Director
Kenneth W. Freeman
*
- --------------------------------- Director
Roger G. Ackerman
*
- --------------------------------- Director
Van C. Campbell
*
- --------------------------------- Director
David A. Duke
*By: /s/ Leo C. Farrenkopf, Jr.
----------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-5
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
DAMON CLINICAL LABORATORIES INC.
By: /s/ Leo C. Farrenkopf, Jr.
-------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ------------------------------------ Vice President and Director
Douglas M. VanOort
*
- ------------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
--------------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-6
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING CLINICAL LABORATORIES INC. (CT)
By: /s/ Leo C. Farrenkopf, Jr.
--------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ------------------------------------- Vice President and Director
Douglas M. VanOort
*
- ------------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
-----------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-7
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING CLINICAL LABORATORIES INC. (MA)
By: /s/ Leo C. Farrenkopf, Jr.
-----------------------------------------
Leo C. Farrenkopf, Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ----------------------------------- Vice President and Director
Douglas M. VanOort
*
- ----------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
--------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-8
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING CLINICAL LABORATORIES OF PENNSYLVANIA INC.
By: /s/ Leo C. Farrenkopf, Jr.
----------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ------------------------------------ Vice President and Director
Douglas M. VanOort
*
- ------------------------------------ Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
--------------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-9
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
DEYOR CPF/METPATH, INC.
By: /s/ Leo C. Farrenkopf, Jr.
--------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ----------------------------------- Vice President and Director
Douglas M. VanOort
*
- ----------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
--------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-10
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
SOUTHGATE MEDICAL SERVICES, INC.
By: /s/ Leo C. Farrenkopf, Jr.
-----------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
---------------------------------- Vice President and Director
Douglas M. VanOort
*
---------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
-------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING MRL INC.
By: /s/ Leo C. Farrenkopf, Jr.
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
---------------------------------- Vice President and Director
Douglas M. VanOort
*
----------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
---------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-12
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
DPD HOLDINGS, INC.
By: /s/ Leo C. Farrenkopf, Jr.
--------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ------------------------------------ Vice President and Director
Douglas M. VanOort
*
- ------------------------------------- Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
--------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-13
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
METWEST INC.
By: /s/ Leo C. Farrenkopf, Jr.
-----------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ------------------------------------ Vice President and Director
Douglas M. VanOort
*
- ------------------------------------ Director
Alister W. Reynolds
*By: /s/ Leo C. Farrenkopf, Jr.
---------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-14
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CORNING CLINICAL LABORATORIES INC. (MD)
By: /s/ Leo C. Farrenkopf, Jr.
---------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ---------------------------------- Vice President and Director
Douglas M. VanOort
*
- ---------------------------------- Director
Alister W. Reynolds
*By:/s/ Leo C. Farrenkopf, Jr.
--------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-15
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
NICHOLS INSTITUTE DIAGNOSTICS
By: /s/ Leo C. Farrenkopf, Jr.
--------------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ---------------------------------- Vice President and Director
Douglas M. VanOort
*
- ---------------------------------- Director
Alister W. Reynolds
*By:/s/ Leo C. Farrenkopf, Jr.
-------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-16
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
NOMAD-MASSACHUSETTS, INC.
By: /s/ Leo C. Farrenkopf, Jr.
----------------------------------
Leo C. Farrenkopf, Jr., Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ----------------------------------- Vice President and Director
Douglas M. VanOort
*
- ------------------------------------ Director
Alister W. Reynolds
*By:/s/ Leo C. Farrenkopf, Jr.
------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-17
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
QUEST DIAGNOSTICS INCORPORATED (MI)
By: /s/ Douglas M. VanOort
-----------------------------------
Douglas M. VanOort, Vice President
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C.
Farrenkopf, Jr. and each of them singly, his or her true and lawful
attorneys-in-fact and agents with full power of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
this Registration Statement and any and all amendments thereto, including
post-effective amendments, and to file the same, with all exhibits thereto,
any related registration filed pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all the said attorneys-in-fact and
agents or any of them or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Douglas M. VanOort
- ---------------------------- Vice President and Director
Douglas M. VanOort
/s/ Alister W. Reynolds
- ---------------------------- Director
Alister W. Reynolds
</TABLE>
II-18
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
QUEST DIAGNOSTICS INCORPORATED (MD)
By: /s/ Douglas M. VanOort
--------------------------------------
Douglas M. VanOort, Vice President
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C.
Farrenkopf, Jr. and each of them singly, his or her true and lawful
attorneys-in-fact and agents with full power of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
this Registration Statement and any and all amendments thereto, including
post-effective amendments, and to file the same, with all exhibits thereto,
any related registration filed pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all the said attorneys-in-fact and
agents or any of them or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Douglas M. VanOort
- ---------------------------- Vice President and Director
Douglas M. VanOort
/s/ Alister W. Reynolds
- ---------------------------- Director
Alister W. Reynolds
</TABLE>
II-19
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
CLMP INC.
By: /s/ Peter C. Fulweiler
----------------------------------
Peter C. Fulweiler, President
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C.
Farrenkopf, Jr. and each of them singly, his or her true and lawful
attorneys-in-fact and agents with full power of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
this Registration Statement and any and all amendments thereto, including
post-effective amendments, and to file the same, with all exhibits thereto,
any related registration filed pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all the said attorneys-in-fact and
agents or any of them or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Peter C. Fulweiler
- ------------------------------ President and Director
Peter C. Fulweiler
/s/ Robert S. Galen
- ------------------------------ Vice President and Director
Robert S. Galen
/s/ Stephen A. Calamari
- ------------------------------ Treasurer
Stephen A. Calamari
/s/ Louis M. Heidelberger
- ------------------------------ Director
Louis M. Heidelberger
</TABLE>
II-20
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on November 25, 1996.
DIAGNOSTIC REFERENCE SERVICES, INC.
By: /s/ Douglas M. VanOort
-----------------------------------
Douglas M. VanOort, Vice President
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Robert A. Carothers, Raymond C. Marier, Leo C.
Farrenkopf, Jr. and each of them singly, his or her true and lawful
attorneys-in-fact and agents with full power of substitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
this Registration Statement and any and all amendments thereto, including
post-effective amendments, and to file the same, with all exhibits thereto,
any related registration filed pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all the said attorneys-in-fact and
agents or any of them or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on November 25, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
*
- ----------------------------------
Douglas M. VanOort Vice President and Director
*
- ----------------------------------
Alister W. Reynolds Director
*By: /s/ Leo C. Farrenkopf, Jr.
- -----------------------------------
Leo C. Farrenkopf, Jr.
Attorney-in-fact
</TABLE>
II-21
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on
November 25, 1996.
PATHOLOGY BUILDING PARTNERSHIP
By: CORNING CLINICAL LABORATORIES INC. (MD)
As General Partner
By: /s/ Raymond C. Marier
Raymond C. Marier, Vice President
By: DIAGNOSTIC REFERENCE SERVICES, INC.
As General Partner
By: /s/ Raymond C. Marier
Raymond C. Marier, Vice President
Power of Attorney
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Robert A. Carothers, Raymond C.
Marier, Leo C. Farrenkopf, Jr. and each of them singly, his or her true and
lawful attorneys-in-fact and agents with full power of substitution, for him
or her and in his or her name, place and stead, in any and all capacities, to
sign this Registration Statement and any and all amendments thereto,
including post-effective amendments, and to file the same, with all exhibits
thereto, any related registration filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purpose as he or
she might or could do in person, hereby ratifying and confirming all the said
attorneys-in-fact and agents or any of them or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registrant Statement has been signed below by the following persons in
the capacities indicated on November , 1996.
PATHOLOGY BUILDING PARTNERSHIP
By: CORNING CLINICAL LABORATORIES INC. (MD)
As General Partner
By: /s/ Raymond C. Marier
Raymond C. Marier, Vice President
By: DIAGNOSTIC REFERENCE SERVICES, INC.
As General Partner
By: /s/ Raymond C. Marier
Raymond C. Marier, Vice President
II-22
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ----------- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1* Form of Underwriting Agreement
2.1 Form of Transaction Agreement among Corning Incorporated, Corning Life Sciences Inc., Corning Clinical
Laboratories Inc. (Delaware), Covance Inc. and Corning Clinical Laboratories Inc. (Michigan), dated
November 22, 1996 (filed as an exhibit to Corning Clinical Laboratories Inc.'s ("CCL") Registration
Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference)
3.1 Certificate of Incorporation of the Registrant (filed as an exhibit to CCL's Registration Statement on
Form 10 (File No. 1-12215) and incorporated herein by this reference)
3.2 By-Laws of the Registrant (filed as an exhibit to CCL's Registration Statement on Form 10 (File No.
1-12215) and incorporated herein by this reference)
3.3 Certificate of Incorporation of Corning Clinical Laboratories Inc. (MI)
3.4 Certificate of Incorporation of Corning Nichols Institute Inc.
3.5 Certificate of Incorporation of Damon Clinical Laboratories Inc.
3.6 Certificate of Incorporation of Corning Clinical Laboratories Inc. (CT)
3.7 Certificate of Incorporation of Corning Clinical Laboratories Inc. (MA)
3.8 Certificate of Incorporation of Corning Clinical Laboratories of Pennsylvania Inc.
3.9 Certificate of Incorporation of Deyor CPF/Metpath, Inc.
3.10 Certificate of Incorporation of Southgate Medical Services, Inc.
3.11 Certificate of Incorporation of Corning MRL Inc.
3.12 Certificate of Incorporation of DPD Holdings, Inc.
3.13 Certificate of Incorporation of Metwest Inc.
3.14 Certificate of Incorporation of Corning Clinical Laboratories Inc. (MD)
3.15 Certificate of Incorporation of Nichols Institute Diagnostics
3.16 Certificate of Incorporation of Nomad-Massachusetts, Inc.
3.17 Certificate of Incorporation of Quest Diagnostics Incorporated (MI)
3.18 Certificate of Incorporation of Quest Diagnostics Incorporated (MD)
3.19 Certificate of Incorporation of CLMP Inc.
3.20 Certificate of Incorporation of Diagnostic Reference Services, Inc.
3.21 By-Laws of Corning Nichols Institute Inc.
3.22 By-Laws of CLMP Inc.
3.23 By-Laws of Corning Clinical Laboratories Inc. (MI); Damon Clinical Laboratories Inc.; Corning Clinical
Laboratories Inc. (CT); Corning Clinical Laboratories Inc. (MA); Corning Clinical Laboratories of
Pennsylvania Inc.; Deyor CPF/Metpath, Inc.; Southgate Medical Services, Inc.; Corning MRL Inc.; DPD
Holdings, Inc.; Metwest Inc.; Corning Clinical Laboratories Inc. (MD); Nichols Institute Diagnostics;
Nomad-Massachusetts, Inc.; Quest Diagnostics Incorporated (MI); Quest Diagnostics Incorporated (MD);
Diagnostic Reference Services, Inc.
3.24* Partnership Agreement of Pathology Building Partnership
4.1* Form of [ ]% Senior Subordinated Notes due 2006 (included in Exhibit 4.2)
4.2* Form of Indenture between Corning Clinical Laboratories Inc. and [ ], as Trustee, dated [ ], 1996
5.1* Opinion of Shearman & Sterling
II-23
<PAGE>
10.1 Form of Tax Sharing Agreement among Corning Incorporated, Corning Clinical Laboratories Inc.
and Covance Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on
Form 10 (File No. 1-12215) and incorporated herein by this reference)
10.2 Form of Spin-Off Tax Indemnification Agreement between Corning Incorporated and Corning
Clinical Laboratories Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration
Statement on Form 10 (File No. 1-12215) and incorporated herein by this reference)
10.3 Form of Spin-Off Tax Indemnification Agreement between Corning Clinical Laboratories Inc.
and Covance Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on
Form 10 (File No. 1-12215) and incorporated herein by this reference)
10.4 Form of Spin-Off Tax Indemnification Agreement between Covance Inc. and Corning Clinical
Laboratories Inc., dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on
Form 10 (File No. 1-12215) and incorporated herein by this reference)
10.5 Form of Corning Clinical Laboratories Inc. Executive Retirement Supplemental Plan, dated
[ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No.
1-12215) and incorporated herein by this reference)
10.6 Form of Corning Clinical Laboratories Inc. Variable Compensation Plan, dated [ ], 1996
(filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and
incorporated herein by this reference)
10.7 Form of Corning Clinical Laboratories Inc. Employees Stock Purchase Program, dated [ ],
1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and
incorporated herein by this reference)
10.8 Form of Corning Clinical Laboratories Inc. Employee Equity Participation Program, dated
[ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10
(File No. 1-12215) and incorporated herein by this reference)
10.9 Corning Clinical Laboratories Inc. Profit Sharing Plan, dated [ ], 1996 (filed as an
exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and incorporated
herein by this reference)
10.10 Form of Corning Clinical Laboratories Inc. Director's Restricted Stock Plan, dated [ ],
1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No. 1-12215) and
incorporated herein by this reference)
10.11 Form of Credit Agreement among Corning Clinical Laboratories Inc., J.P. Morgan Securities
Inc., NationsBanc Capital Markets Inc. and Wachovia Bank of Georgia, N.A., as CoArrangers,
dated [ ], 1996 (filed as an exhibit to CCL's Registration Statement on Form 10 (File No.
1-12215) and incorporated herein by this reference)
12.1** Computation of Consolidated Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of Corning Clinical Laboratories Inc. (filed as an exhibit to CCL's
Registration Statement on Form 10 (File No. 1-12215) and incorporated herein by this
reference)
23.1* Consent of Shearman & Sterling (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Leverone & Company
23.4 Consent of Deloitte & Touche LLP
23.5 Consent of Ernst & Young LLP
23.6 Consent of Gail R. Wilensky, Ph.D.
24.1** Powers of Attorney
25.1* Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
of The Bank of New York
27.1** Financial Data Schedules
</TABLE>
*To be filed by amendment.
**Previously filed.
II-24
STATE OF MICHIGAN
MICHIGAN DEPARTMENT OF TREASURY
CORPORATION DIVISION
LANSING, MICHIGAN
DO NOT WRITE IN SPACE BELOW -- FOR DEPARTMENT USE
Date Received: Compared by:
JAN 27 1969
This is to certify this
Date: document to be a true copy
of the original on file in this
office.
FILED
JAN 29 1969
Examiner: /s/ Allison Grun
STATE TREASURER
Michigan Department of
Treasury
ARTICLES OF INCORPORATION
These Articles of Incorporation are signed and acknowledged by the incorporators
for the purpose of forming a corporation for profit under the provisions of Act
No. 327 of the Public Acts of 1931, as amended, as follows:
ARTICLE I.
The name of the corporation is ADVANCE MEDICAL & RESEARCH CENTER, INC.
ARTICLE II.
The purpose or purposes for which the corporation is formed are as follows:
To conduct, operate, own, manage and generally carry on the business of medical,
clinical and research laboratories within the State of Michigan, and to acquire,
lease, own and convey and dispose of real or personal property used in the
operation of said business.
In general to carry on any business in connection therewith and incident thereto
not forbidden by the laws of the State of Michigan and with all the powers
conferred upon corporations by the laws of the State of Michigan.
ARTICLE III.
Location of the first registered office is:
1509 S. Telegraph Pontiac Oakland Michigan 48053
Post office address of the first registered office is:
1509 S. Telegraph Pontiac Michigan 48053
ARTICLE IV.
The name of the first resident agent is Robert L. Moloney
1
<PAGE>
ARTICLE V.
The total authorized capital stock is
Preferred shs. NONE Par Value $ NONE
(1) per share
Common shs. 50,000 Par Value $ 1.00
Book Value $
per share
Preferred none Price fixed for sale
and/or shs. of (2) no par value
Common Book Value $
per share
Price fixed for sale $
(3) A statement of all or any of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof is as follows:
All shares of stock shall have the same powers, preferences and rights.
ARTICLE VI.
The names and places of residence or business of each of the incorporators and
the number and class of shares subscribed for by each are as follows: (Statute
requires one or more incorporators)
Name Residence or Business Address Number of Shares
Par Stock Non-Par Stock
Common Preferred Common Preferred
Robert L. Moloney
1509 S. Telegraph Pontiac, Mich. 18,000
ARTICLE VII.
The names and addresses of the first board of directors are as follows:
(Statute requires at least three directors)
Name Residence or Business Address
Robert L. Moloney 1509 S. Telegraph, Pontiac, Michigan
Richard E. Arnold 1940 Welbeck, Union Lake, Michigan
Aldoph H. Magnus, Jr. 879 Foxhall Rd. Bloomfield Hills, Michigan
ARTICLE VIII.
The term of the corporate existence is perpetual.
(If term is for a limited number of years, then state the number of years
instead of perpetual)
2
<PAGE>
ARTICLE IX.
OPTIONAL (Please delete Article IX if not applicable)
Whenever a compromise or arrangement or any plan of reorganization of this
corporation is proposed between this corporation and its creditors or any class
of them or between this corporation and its shareholders or any class of them,
any court of equity jurisdiction within the state may on the application of this
corporation or of any creditor or any shareholder thereof, or on the application
of any receiver or receivers appointed for this corporation, order a meeting of
the creditors or class of creditors, or of the shareholders or class of
shareholders, to be affected by the proposed compromise or arrangement or
reorganization, to be summoned in such manner as said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, or of the shareholders or class of shareholders, to be affected by
the proposed compromise or arrangement or reorganization, agree to any
compromise or arrangement or to any reorganization of this corporation as a
consequence of such compromise or arrangement, said compromise or arrangement
and said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, or on all the shareholders or class of shareholders, and also on this
corporation.
ARTICLE X.
(Here insert any desired additional provisions authorized by the Act)
This corporation is organized with plan to qualify under Sec.
1244, Sub-Chapter P - Capital Gains & Losses, and under Secs. 1372,
1373 and 1374, Sub-Chapter S - Election of Certain Small Business
Corporations as to Taxable Status, of amendments to Internal Revenue
Code of 1954.
We, the incorporators, sign our names this 23rd day of January 19 69.
(All parties appearing under Article VI are required to sign in this space)
/s/ Robert L. Moloney
---------------------
Robert L. Moloney
STATE OF MICHIGAN } (One or more of the parties signing must acknowledge
} ss. before the Notary)
COUNTY OF OAKLAND }
On this 23rd day of January 1969,
before me personally appeared Robert L. Moloney
to me known to be the persons described in and who executed the foregoing
instrument, and acknowledged that they executed the same as their free act and
deed.
(Signature of Notary)
/s/ Sheila Steinhoff
----------------------------------------------------------------
(Print or type name of Notary)
Notary Public for Oakland County,
State of Michigan.
My commisison expires 3/8/70
(Notarial seal required if acknowledgment taken out of State)
3
<PAGE>
STATE OF MICHIGAN
MICHIGAN DEPARTMENT OF TREASURY
CORPORATION DIVISION
LANSING, MICHIGAN
NOTE DO NOT WRITE IN SPACE BELOW --
FOR DEPARTMENT USE
Mail ONE signed and acknowledged copy to Date Received:
Michigan Department of Treasury DEC-9 1969
Corporation Division
P.O. Drawer C
Lansing, Michigan 48904
Filing Fee $5.00
(Make fee payable to
State of Michigan)
This is to certify this document to be a
true copy of the original on file in this
office.
FILED
DEC 11 1969
/s/ Allison Grun
STATE TREASURER
MICHIGAN DEPARTMENT OF TREASURY
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
Advance Medical & Research Center, Inc.
a Michigan corporation, whose registered office is located at
1509 South Telegraph
Pontiac Oakland Michigan 48053 certifies pursuant to the
provisions of Section 43 of Act No. 327 of the Public Acts of 1931, as amended,
that at a meeting of the Shareholders
of said corporation called for the purpose of amending the articles of
incorporation, and held on the 7th day of November 1969 it was resolved by the
unanimous vote of each class entitled to vote and of each class whose rights,
privileges or preferences are changed,
that Article No. V of the Articles of Incorporation is amended to read as
follows, viz.:
ARTICLE V.
(Any article being amended is required to be set forth in its entirety.)
The total authorized capital stock is:
(1) 50,000 Shares of $1.00 par value common stock
(2) 500 Shares of $100.00 par value Class A 7% Cumulative Preferred Shares
(3) A statement of all or any of the designations and the powers,
preferences and rights, and
the qualifications, limitations or restrictions thereof is as follows:
The Common stock is fully paid, non-assessable, voting stock, without
pre-emptive rights.
The Class A 7% Cumulative Preferred stock shall be entitled to a cumulative
dividend of $7.00 per share accruing as of November 1, of each year as to each
share issued and outstanding on that date and subject to payment form the earned
surplus of the corporation at such times as declared by the Board of Directors;
it shall be entitled and limited to preferential payment on liquidation of an
amount equal to its par value prior to any liquidation payments upon the issued
and outstanding common stock; it shall be non-voting; it shall be subject to
call by the corporation at any time prior to November 1, 1979, and to redemption
at the shareholders option
4
<PAGE>
on or after November 1, 1979, at a call or redemption price of $110.00 per share
plus any accrued and unpaid dividends; it shall be convertible on a dollar for
dollar basis into any future common stock issue which may be offered to the
public while such preferred stock is outstanding, provided that such conversion
rights shall terminate thirty days after written notice to the stockholder of
the availability of the public issue for conversion.
NOTE: Sec. 43. amended by Act 155, P.A. 1953, provides:
". . . That any amendment which impairs the preemptive right of the
holders of shares of any class of capital stock entitled to such right
shall be approved by the vote of the holders of 2/3 of the shares of each
such class . . . . "
Signed on December 6, 1969.
Affix Corporate Seal Here
ADVANCE MEDICAL & RESEARCH CENTER, INC.
(Corporate Name)
By /s/ Robert L. Moloney
----------------------------------
(President or Vice-President)
Robert L. Moloney
/s/ James L. Howlet
----------------------------------
(Secretary or Assistant Secretary)
James L. Howlett
STATE OF MICHIGAN
COUNTY OF OAKLAND } SS
On this 6 day of December, 1969, before me appeared
Robert L. Moloney
to me personally known, who, being by me duly sworn, did say that he is the
president or
of Advance Medical & Research Center, Inc.,
which executed the foregoing instrument, and that* [the seal affixed to said
instrument is the corporate seal of said corporation, and that] said instrument
was signed* [and sealed] in behalf of said corporation by authority of its board
of directors, and said officer acknowledged said instrument to be the free act
and deed of said corporation.
*If corporation has no seal strike out the words
in brackets and add at end of acknowledgment
the following: "and that said corporation has
no corporate seal".
/s/ Norma M. Anderson
---------------------
Norma M. Anderson
Notary Public for Oakland County
State of Michigan
My Commisison expires May 13, 1972
(Notarial seal required if
acknowledgment taken out
of State)
5
<PAGE>
(For Use By Domestic Corporations)
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORAITON OF
ADVANCE MEDICAL & RESEARCH CENTER, INC.
(Name of Corporation)
The undersigned corporation executes the following Certificate
of Amendment to its Articles of Incorporation pursuant to
the provisions of Section 631, Act 284, Public Acts of
1972:
1. The name of the corporation is Advance Medical & Research Center, Inc.
The location of the registered office is
1270 Doris Road Pontiac, Michigan 48057
2. The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation in accordance with Subsection
(2) of Section 611, Act 284, Public Acts of 1972, on the 19th day of May, 1978:
Resolved, that Article V of the Articles of Incorporation be amended to
read as follows: (Any article being amended is required to be set forth in its
entirety.)
The total authorized capital stock is:
(1) 50,000 shares of $1.00 par value common stock.
3. The necessary number of shares as required by statute were voted in favor
of the amendment.
Dated this 31st day of May, 1978.
ADVANCE MEDICAL & RESEARCH CENTER, INC.
By /s/ Robert L. Moloney, President
------------------------------------
Robert L. Moloney, President
6
<PAGE>
- --------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
- --------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
DEC 15 1995 FILED
DEC 15 1995
Administrator
MICHIGAN DEPARTMENT OF COMMERCE
Corporation & Securities Bureau
Name
Address
City
EFFECTIVE DATE:
- --------------------------------------------------------------------------------
Document will be returned to the name and address you enter above
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Profit Corporations
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the
undersigned corporation executes the following Certificate:
- --------------------------------------------------------------------------------
1. The present name of the corporation is: ADVANCE MEDICAL & RESEARCH
CENTER, INC.
2. The identification number assigned by the Bureau is: 179-214
3. The location of the registered office is: The Corporation Company
30600 Telegraph Road, Bingham Farms, Michigan 48025
- ----------------------------------- -----------------------------------
(Street Address) (City) (Zip Code)
4. Article I of the Articles of Incorporation is hereby amended to read as
follows:
"The name of the corporation is Corning Clinical Laboratories Inc."
- --------------------------------------------------------------------------------
7
<PAGE>
5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS
CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF
DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE
BOTH.
a. |_| The foregoing amendment to the Articles of Incorporation was
adopted on the day of , 19 , in accordance with
the provisions of the Act by the unanimous consent of the
incorporator(s) before the first meeting of the Board of
Directors of Trustees.
Signed this day of , 19 .
-------------------- --------------------
(Signature) (Signature)
-------------------- --------------------
(Type or Print Name) (Type or Print Name)
-------------------- --------------------
(Signature) (Signature)
-------------------- --------------------
(Type or Print Name) (Type or Print Name)
b. |_| The foregoing amendment to the Articles of Incorporation was
duly adopted on the 25th day of November, 1995. The amendment:
(check one of the following)
|_| was duly adopted in accordance with Section 611(2) of the
Act by the vote of the shareholders if a profit
corporation, or by the vote of the shareholders or
members if a nonprofit corporation, or by the vote of the
directors if a nonprofit corporation organized on a
nonstock directorship basis. The necessary votes were
cast in favor of the amendment.
|_| was duly adopted by the written consent of all directors
pursuant to Section 525 of the Act and the corporation is
a nonprofit corporation organized on a nonstock
directorship basis.
|_| was duly adopted by the written consent of the
shareholders or members having not less than the minimum
number of votes required by statute in accordance with
Section 407(1) and (2) of the Act if a nonprofit
corporation, or Section 407(1) of the Act if a profit
corporation. Written notice to shareholders who have not
consented in writing has been given. (Note: Written
consent by less than all of the shareholders or members
is permitted only if such provision appears in the
Articles of Incorporation.)
|X| was duly adopted by the written consent of all the
shareholders or members entitled to vote in accordance
with Section 407(3) of the Act if a nonprofit
corporation, or Section 407(2) of the Act if a profit
corporation.
Signed this 28 day of December, 1995
By____________________________________________________
(Only Signature of President Vice-President,
Chairperson, or Vice-Chairperson)
Raymond C. Marier Vice President
----------------------------------------------------
(Type or Print Name) (Type or Print Name)
8
<PAGE>
CERTIFICATE OF MERGER
OF
METPATH SERVICES CORPORATION
AND METPATH TPA, INC.
INTO
CORNING CLINICAL LABORATORIES INC.
(a Michigan corporation)
----------
To the Administrator
Michigan Department of Commerce
Corporation and Securities Bureau
Corporate Division
State of Michigan
Pursuant to the provisions of the Business Corporation Act of the State of
Michigan, Act 284 P. A. 1972, it is hereby certified that:
1. Annexed hereto and made a part hereof is the Plan of Merger for merging
MetPath Services Corporation ("MSC") and MetPath TPA, Inc. ("TPA"), each a
Michigan business corporation, with and into Corning Clinical Laboratories Inc.
("CCL"), a Michigan business corporation.
2. The Plan of Merger has been adopted by the Board of Directors of MSC and
TPA in accordance with Section 701 of the Business Corporation Act and has been
approved by the shareholders of MSC and TPA entitled to vote thereon in
accordance with Section 703a of the Business Corporation Act, except that all of
the shareholders entitled to vote dispensed with the holding of the meeting of
shareholders otherwise prescribed by Section 703a of the Business Corporation
Act and approved the Plan of Merger by a consent in writing signed by all of
them without any such meeting.
The Plan of Merger has been adopted by the Board of Directors of CCL in
accordance with Section 701 of the Business Corporation Act. No approval by the
shareholders of CCL was required under Section 703a of the Business Corporation
Act or by the Articles of Incorporation of CCL.
3. The number of outstanding shares of MSC is 1,000, all of which are of
one class and are common shares. The number of outstanding shares of TPA is
1,000, all of which are of one class and are common shares. The number of
outstanding shares of CCL is 22,000, all of which are of one class and common
shares.
4. The Plan of Merger does not amend the Articles of Incorporation of CCL.
5. The Plan of Merger will be furnished by CCL, on request and without
cost, to any shareholder of CCL, TPA or MSC.
6. The effective date is: August 31, 1996 at 11:59 p.m. Executed as of June
30, 1996.
9
<PAGE>
CORNING CLINICAL LABORATORIES INC. (MI)
By: /s/ Kenneth Roe
-------------------------------------
Kenneth Roe
President
METPATH SERVICES CORPORATION
By: /s/ Kenneth Roe
-------------------------------------
Kenneth Roe
President
METPATH TPA, INC.
By: /s/ Douglas VanOort
-------------------------------------
Douglas VanOort
Vice President
10
<PAGE>
PLAN OF MERGER
OF
METPATH SERVICES CORPORATION
AND METPATH TPA, INC.
INTO
CORNING CLINICAL LABORATORIES INC.
(a Michigan corporation)
PLAN OF MERGER adopted as of June 30, 1996 by Corning Clinical Laboratories
Inc. ("CCL"), a business corporation of the State of Michigan, and by resolution
of its Board of Directors on said date, and adopted on June 30, 1996 by MetPath
Services Corporation ("MSC") and MetPath TPA, Inc. ("TPA"), each of which is a
business corporation of the State of Michigan, and by resolution of its Board of
Directors on said date.
1. The Merger. MSC, TPA and CCL shall, pursuant to the provisions of the
Business Corporation Act of the State of Michigan ("BCA"), be merged with and
into a single corporation, to wit, CCL, which shall be the surviving corporation
upon the effective date of the merger and which is sometimes hereinafter
referred to as the "Surviving Corporation," and which shall continue to exist as
said Surviving Corporation under the provisions of the BCA. The separate
corporate existence of MSC and TPA shall cease upon said effective date of the
merger.
2. Effective Time. The Merger shall become effective (the "Effective Time")
at 11:59 p.m. on August 31, 1996 or, if later, upon the filing of the
Certificate of Merger with the Secretary of State of Michigan in accordance with
the BCA.
11
<PAGE>
3. Outstanding Shares. The number of outstanding shares of MSC is 1,000,
all of which are of one class and are common shares, and all of which are
entitled to vote. The number of outstanding shares of TPA is 1,000, all of which
are of one class and are common shares, and all of which are entitled to vote.
The number of outstanding shares of CCL is 22,000, all of which are of one
class and are common shares, and all of which are entitled to vote.
4. Articles of Incorporation of the Surviving Corporation. The Articles of
Incorporation of CCL as in effect immediately prior to the Effective Time shall,
until thereafter and further amended as provided therein and under the BCA, be
the Articles of Incorporation of the surviving corporation.
5. By-Laws of the Surviving Corporation. The By-Laws of CCL as in effect
immediately prior to the Effective Time, shall, until thereafter and further
amended as provided therein and under the BCA, be the By-Laws of the Surviving
Corporation.
6. Directors of the Surviving Corporation. The Directors of the Surviving
Corporation shall be the Directors of CCL immediately prior to the Effective
Time, until their respective successors are duly elected and qualified.
12
<PAGE>
7. Officers of the Surviving Corporation. The Officers of the Surviving
Corporation shall be the Officers of CCL immediately prior to the Effective
Time, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified.
8. Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof:
(i) Each share of common stock of CCL issued and outstanding immediately
prior to the Effective Time shall remain outstanding and shall thereafter
evidence one validly issued, fully paid and nonassessable share of common stock
of the Surviving Corporation.
(ii) Each outstanding share of Common Stock of MSC and TPA issued and
outstanding immediately prior to the Effective Time shall be canceled without
consideration.
9. Rights and Liabilities of the Surviving Corporation. At and after the
Effective Time, the Surviving Corporation shall succeed to and possess, without
further act or deed, all of the estate, rights, privileges, powers, and
franchise, both public and private, and all of the property, real, personal, and
mixed, of each of MSC, TPA and CCL; all debts due to MSC and TPA shall be vested
in the Surviving Corporation; all claims, demands, property rights, privileges,
powers and franchises and every other interest of MSC and TPA shall be
effectively the property of the Surviving Corporation as they were of MSC and
TPA; the title
13
<PAGE>
to any real estate vested by deed or otherwise in MSC and TPA shall not revert
or be in any way impaired by reason of the Merger, but shall be vested in the
Surviving Corporation, all rights of creditors and all liens upon any property
of MSC and TPA shall be preserved unimpaired, limited to the property affected
by such lien at the Effective Time of the Merger; and all debts, liabilities,
and duties of MSC and TPA shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it.
10. Submission to Shareholders of MSC and TPA. This Plan of Merger shall be
submitted to the shareholders of MSC and TPA for their approval or rejection in
the manner prescribed by the BCA. This Plan of Merger is not required to be
submitted to the shareholders CCL for their approval.
11. Abandonment of Merger. This Plan of Merger may be terminated and abandoned
by joint action of the Board of Directors of CCL, MSC and TPA at any time prior
to Effective Time.
12. Further Actions. The proper officers of CCL, MSC and TPA are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file and/or record any and all instruments, papers, and
documents which shall be or become necessary, proper, or convenient to carry out
or put into effect any of the provisions of this Plan of Merger or of the
Merger.
14
ARTICLES OF INCORPORATION
OF
NICHOLS INSTITUTE FOR ENDOCRINOLOGY
ONE: The name of this corporation is
NICHOLS INSTITUTE FOR ENDOCRINOLOGY.
TWO: The purposes for which this corporation is formed are:
(a) To engage primarily in the specific business of analyzing,
researching, developing, producing, manufacturing and/or distributing
biological materials and/or otherwise providing services and materials
required in analysis of biological materials.
(b) To manufacture, buy, sell, assemble, distribute, and to
otherwise acquire, or to own, hold, use, sell, lease, assign, transfer,
exchange, license or otherwise dispose of, and to invest, trade, deal
in and with goods, wares, merchandise, building materials, supplies and
all other property of every class and description.
(c) To purchase, acquire, own, hold, use, lease, either as
lessor or lessee, rent, sublet, grant, sell, exchange, subdivide,
mortgage, deed in trust, manage, improve, cultivate, develop, maintain,
construct, operate, and generally deal in, any and all real estate,
improved, or unimproved, stores, office buildings, dwelling houses,
boarding houses, apartment houses, hotels, business blocks, garages,
warehouses, manufacturing plants, and other buildings of any kind or
description, real, personal and mixed, and any interest or right
therein, including water and water rights, wheresoever situated, in
California, other states of the United States, the District of
Columbia, territories of the United States and foreign countries.
1
<PAGE>
(d) To purchase, acquire, take, hold, own, use and enjoy, and
to sell, lease, transfer, pledge, mortgage, convey, grant, assign or
otherwise dispose of, and generally to invest, trade deal in and with
oil royalties, mineral rights of all kinds, mineral bearing lands and
hydro-carbon products of all kinds, oil, gas and mineral leases, and
all rights and interests therein, and. in general, products of the
earth and deposits, both subsoil and surface, of every nature and
description.
(e) To enter into, make, perform and carry out contracts of
every kind for any lawful purpose without limit as to amount, with any
person, firm, association, or corporation, municipality, county,
parish, state, territory, government (foreign and domestic) or other
municipal or governmental subdivision.
(f) To become a partner (either general or limited or both)
and to enter into agreements of partnership with one or more other
persons or corporations, for the purpose of carrying on any business
whatsoever which this corporation may deem proper or convenient in
connection with any of the purposes herein set forth or otherwise, or
which may be calculated, directly or indirectly, to promote the
interest of this corporation or to enhance the value of its property or
business.
(g) To acquire, by purchase or otherwise, the goodwill,
business, property rights, franchises and assets of every kind, with or
without undertaking, either wholly or in part, the liabilities of any
person, firm, association or corporation; and to acquire any property
or business as a going concern or otherwise (a) by purchase of the
assets thereof wholly or in part; (b) by acquisition of the shares or
any part thereof; or (c) in any manner; and to pay for the same in cash
or in the shares or
2
<PAGE>
bonds of other evidences of indebtedness of this corporation, or
otherwise; to hold, maintain and operate, or in any manner dispose of
the whole or any part of the goodwill, business, rights and property so
acquired and to conduct, in any lawful manner, the whole or any part of
any business so acquired; and to exercise all the powers necessary or
convenient in and about the management of such business.
(h) To take, purchase, and otherwise acquire, own, hold, use,
sell, assign, transfer, exchange, lease, mortgage, convey in trust,
pledge, hypothecate, grant licenses in respect of and otherwise dispose
of letters patent of the United States or any foreign country, patent
rights, licenses and privileges, inventions, improvements, and
processes, copyrights, trademarks and trade names, and government,
state, territorial, county and municipal grants and concessions of
every character which this corporation may deem advantageous in the
prosecution of its business or in the maintenance, operation,
development or extension of its properties.
(i) From time to time to apply for, purchase, acquire by
assignment, transfer or otherwise, exercise, carry out, and enjoy any
benefit, right, privilege, prerogative or power conferred by, acquired
under or granted by any statute, ordinance, order, license, power,
authority, franchise, commission, right or privilege which any
government or authority or governmental agency or corporation or other
public body may be empowered to enact, make or grant; to pay for, aid
in, and contribute towards carrying the same into effect; and to
appropriate any of this corporation's shares, bonds and/or assets to
defray costs, charges and expenses thereof.
3
<PAGE>
(j) To subscribe or cause to be subscribed for, and to take,
purchase, and otherwise acquire, own, hold, use, sell, assign,
transfer, exchange, distribute and otherwise dispose of, the whole or
any part of the shares of the capital stock, bonds, coupons, mortgages,
deeds of trust, debentures, securities, obligations, evidences of
indebtedness, notes, goodwill, rights, assets and property of any and
every kind, or any part thereof, of any other corporation or
corporations, association or associations, firm or firms, or person or
persons, together with the shares, rights, units or interests in or in
respect of any trust estate, now or hereafter existing, and whether
created by the laws of the State of California or of any other state,
territory or country; and to operate, manage and control such
properties, or any of them, either in the name of such other
corporation or corporations or in the name of this corporation; and
(k) To have and to exercise all the powers conferred by the
laws of the State of California upon corporations formed under the laws
pursuant to and under which this corporation is formed, as such laws
are now in effect or may at any time hereafter be amended.
The foregoing statement of purposes shall be construed as a
statement of both purposes and powers, and the purposes and powers
stated in each clause, except where otherwise expressed, be in nowise
limited or restricted by any reference to or inference from the terms
or provisions of any other clause, but shall be regarded as independent
purposes and powers.
THREE: The County in the State of California where the principal office
for the transaction of the business of this corporation is to be located is Los
Angeles.
4
<PAGE>
FOUR: This corporation is authorized to issue an aggregate of Five
Thousand (5,000) shares of Common Stock, all of one class. The aggregate par
value of said shares shall be Fifty Thousand Dollars ($50,000.00) and the par
value of each of said shares shall be Ten Dollars ($10.00).
FIVE: The number of directors of this corporation shall be Three (3).
The names and addresses of the persons who are appointed to act
as the first directors of this corporation are:
Name Address
---- -------
Albert L. Nichols, M.D. 2422 Colt Road
Miraleste, California 90732
Lillian Nichols 2422 Colt Road
Miraleste, California 90732
Albert A. Nichols 953 Holly Road
Inglewood, California
5
<PAGE>
IN WITNESS WHEREOF, for the purpose of forming this corporation under
the laws of the State of California, the undersigned, constituting the
incorporators of this corporation, including the persons named hereinabove as
the first directors of this corporation, have executed these Articles of
Incorporation this 9th day of August, 1971.
/s/ Albert L. Nichols, M.D.
---------------------------
Albert L. Nichols, M.D.
/s/ Lillian Nichols
---------------------------
Lillian Nichols
/s/ Albert A. Nichols
---------------------------
Albert A. Nichols
6
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 9th day of August, 1971, before me, the undersigned Notary
Public in and for said County and State, residing therein, duly commissioned and
sworn, personally appeared Albert L. Nichols, M. D., known to me to be the
person whose name is subscribed to the foregoing Articles of Incorporation, and
acknowledged to me that (s)he executed the same.
WITNESS my hand and official seal.
/s/ Harriet M. Spann
---------------------------
Notary Public
Harriet M. Spann
7
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 9th day of August, 1971, before me, the undersigned Notary
Public in and for said County and State, residing therein, duly commissioned and
sworn, personally appeared Lillian Nichols, known to me to be the person whose
name is subscribed to the foregoing Articles of Incorporation, and acknowledged
to me that (s)he executed the same.
WITNESS my hand and official seal.
/s/ Harriet M. Spann
---------------------------
Notary Public
Harriet M. Spann
8
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 9th day of August, 1971, before me, the undersigned Notary
Public in and for said County and State, residing therein, duly commissioned and
sworn, personally appeared Albert A. Nichols, known to me to be the person whose
name is subscribed to the foregoing Articles of Incorporation, and acknowledged
to me that (s)he executed the same.
WITNESS my hand and official seal.
/s/ Harriet M. Spann
---------------------------
Notary Public
Harriet M. Spann
9
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
NICHOLS INSTITUTE FOR ENDOCRINOLOGY
A California corporation
Albert L. Nichols, M.D. and Albert A. Nichols certify:
1. That they are the President and Secretary, respectively, of Nichols
Institute for Endrocrinology, a California corporation (the "Corporation"),
2. That the By-Laws of the Corporation authorize the Directors to
adopt, by unanimous written consent without a meeting, resolutions amending the
Articles of Incorporation; and, therefore, by unanimous written consent without
a meeting, the Directors did adopt the following resolutions amending the
Articles of Incorporation:
WHEREAS, Article Four of the Articles of Incorporation of this
Corporation presently authorizes Five Thousand (5,000) shares of Common
Stock, Ten Dollars ($10.00) par value; and
WHEREAS, this Corporation has issued only Four Thousand One
Hundred (4,100) of said authorized shares; and
WHEREAS, it is deemed in the best interests of this Corporation to
increase the authorized number of shares of stock from Five Thousand
(5,000) to Five Hundred Thousand (500,000) and to change the par value
per share from Ten Dollars ($10.00) to Ten Cents ($0.10); and
WHEREAS, it is deemed in the best interest of this Corporation to
increase the number of outstanding shares by effecting a split of each
outstanding share into One Hundred (100) shares;
10
<PAGE>
NOW, THEREFORE, BE IT RESOLVED: that Article Four of the Articles
of Incorporation is hereby amended to read in full as follows:
"This corporation is authorized to issue an aggregate of Five
Hundred Thousand (500,000) shares of Common Stock, all of one
class. The aggregate par value of said shares shall be Fifty
Thousand Dollars ($50,000) and the par value of each of said
shares shall be Ten Cents ($0.10). Upon the amendment of this
article to read as hereinabove set forth, each outstanding share,
Ten Dollars ($10.00) par value is split up and converted into One
Hundred (100) shares, Ten Cents ($0.10) par value."
3. That the stockholders of this Corporation have adopted the foregoing
resolutions by written consent; that the wording of each of said resolutions is
the same as that set forth in Paragraph 2, hereinabove.
4. That the total number of shares represented by said written consent
of shareholders is Four Thousand One Hundred (4,100), and that the total number
of shares entitled to vote on or consent to the amendment is Four Thousand One
Hundred (4,100).
/s/ Albert L. Nichols, M.D.
----------------------------------
Albert L. Nichols, M.D., President
/s/ Albert A. Nichols
----------------------------------
Albert A. Nichols, Secretary
11
<PAGE>
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true and correct. Executed at
San Pedro, California, on this 1st day of October, 1974.
/s/ Albert L. Nichols, M.D.
----------------------------
Albert L. Nichols, M.D.
/s/ Albert A. Nichols
----------------------------
Albert A. Nichols
12
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
NICHOLS INSTITUTE FOR ENDOCRINOLOGY
A California corporation
Albert L. Nichols, M.D. and Albert A. Nichols certify:
1. That they are the President and Secretary, respectively, of Nichols
Institute for Endocrinology, a California corporation (the "Corporation"),
2. That the By-Laws of the Corporation authorize the Directors to
adopt, by unanimous written consent without a meeting, resolutions amending the
Articles of Incorporation; and, therefore, by unanimous written consent without
a meeting, the Directors did adopt the following resolutions amending the
Articles of Incorporation:
I
"RESOLVED, that Article One of the Articles of Incorporation of
this Corporation shall be amended to read in full as follows:
'The name of this Corporation is:
NICHOLS INSTITUTE'"
II
"WHEREAS, Article Four of the Articles of Incorporation of this
Corporation presently authorizes Five Hundred Thousand (500,000) shares
of common stock, Ten Cent ($.10) par value; and
WHEREAS, it is deemed in the best interests of this Corporation to
increase the authorized number of shares of stock
13
<PAGE>
from Five Hundred Thousand (500,000) shares, Ten Cent ($.10) par value,
to Five Million (5,000,000) shares of common stock, Ten Cent ($.10) par
value; and
WHEREAS, it is deemed in the best interests of this Corporation to
leave each of the issued and outstanding shares of the Corporation
unaffected by this change in capitalization;
NOW, THEREFORE, BE IT RESOLVED, that Article Four of the Articles
of Incorporation of this Corporation is hereby amended to read in full
as follows:
'This Corporation is authorized to issue an aggregate of Five
Million (5,000,000) shares of Common Stock, all of one class. The
aggregate par value of said shares shall be Five Hundred Thousand
Dollars ($500,000) and the par value of each of said shares shall be
Ten Cents ($.10).'"
III
"RESOLVED, that Article Five of the Articles of Incorporation of
this Corporation be amended to read in full as follows:
'(a) The number of directors of this Corporation shall be no less
than five (5) nor more than eight (8). Within said range, the board of
directors shall have the power to fix the exact number of directors;
provided, however, that until the board of directors acts to fix such
number, the number of directors shall be five (5).
(b) The names and addresses of the persons who are appointed to
act as the first directors of this corporation are:
Name Address
---- -------
Albert L. Nichols, M.D. 2422 Colt Road
Miraleste, California 90732
Lillian Nichols 2422 Colt Road
Miraleste, California 90732
Albert A. Nichols 953 Holly Road
Inglewood, California 90301
14
<PAGE>
3. That the stockholders of this Corporation have adopted the foregoing
resolutions by written consent; that the wording of each of said resolutions is
the same as that set forth in Paragraph 2, hereinabove.
4. That the total number of shares represented by said written consent
of shareholders is Four Hundred Forty Five Thousand Two Hundred Sixty (445,260),
and that the total number of shares entitled to vote on or consent to the
amendment is Four Hundred Forty Five Thousand Two Hundred Sixty (445,260).
/s/ Albert L. Nichols, M.D.
----------------------------------
Albert L. Nichols, M.D., President
/s/ Albert A. Nichols
----------------------------------
Albert A. Nichols, Secretary
Each of the undersigned declares under penalty of perjury that the
matters set forth in the foregoing certificate are true and correct. Executed at
San Pedro, California, on this 30th day of January, 1976.
/s/ Albert L. Nichols, M.D.
----------------------------------
Albert L. Nichols, M.D.,
/s/ Albert A. Nichols
----------------------------------
Albert A. Nichols,
15
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
NICHOLS INSTITUTE
A California Corporation
Albert L. Nichols, M.D. and Victor Rosenblatt certify that:
1. They are the duly elected and acting President and Assistant
Secretary respectively, of said corporation.
2. The Articles of Incorporation of said corporation shall be amended
to read in full as follows:
Four: The total number of shares which this corporation is
authorized to issue is ten million (10,000,000) all of the same
class designated "Common Stock" ten cent ($.10) par value per share.
Upon the amendment of this Article Four as set forth above, each
outstanding share of Common Stock is divided into two shares of
Common Stock ten cent ($.10) par value per share.
3. The foregoing amendment has been approved by the Board of Directors
of said corporation.
4. The foregoing amendment was one which may be adopted with approval
by the Board of Directors alone under Corporations Code Section 902(c) because
the corporation has no more than one class of shares outstanding and the
amendment effects only a stock split and an increase in authorized shares in
proportion thereto.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
July 5, 1978.
/s/ Albert L. Nichols, M.D.
----------------------------------
Albert L. Nichols, M.D.
President
/s/ Victor Rosenblatt
----------------------------------
Victor Rosenblatt
Assistant Secretary
16
<PAGE>
AGREEMENT OF MERGER
BETWEEN
NICHOLS INSTITUTE
AND
NICHOLS INSTITUTE MERGING CORPORATION NO. 1
This Agreement of Merger is entered into between NICHOLS INSTITUTE, a
California corporation (herein "Surviving Corporation"), and NICHOLS INSTITUTE
MERGING CORPORATION NO. 1, a California corporation (herein "Merging
Corporation").
1. Merging Corporation shall be merged into Surviving Corporation.
2. Each outstanding share of Merging Corporation shall be converted
into one share of Surviving Corporation.
3. Each share of Surviving Corporation outstanding immediately prior to
the effectiveness of the merger shall be converted into 1 share of the Common
Stock, $.10 par value, of Nichols Institute, a Delaware corporation and the
parent company of Merging Corporation.
4. Upon the effectiveness of the merger Article One of the Articles of
Incorporation of Surviving Corporation will be amended to read as follows:
"The name of this corporation is:
'NICHOLS INSTITUTE LABORATORIES.'"
5. Merging Corporation shall from time to time, as and when requested
by Surviving Corporation, execute and deliver all such documents and instruments
and take all such action necessary or desirable to evidence or carry out this
merger.
6. The effect of the merger and the effective date of the merger are as
prescribed by law.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement.
NICHOLS INSTITUTE
By /s/ Donald S. Mullins
-------------------------
Executive Vice President
By /s/ Marilyn Hague
-------------------------
Assistant Secretary
NICHOLS INSTITUTE MERGING
CORPORATION NO. 1
By /s/ Donald S. Mullins
-------------------------
Executive Vice President
By /s/ Marilyn Hague
-------------------------
Assistant Secretary
18
<PAGE>
CERTIFICATE OF MERGER
OF
NICHOLS INSTITUTE,
a California Corporation
Donald S. Mullins and Marilyn Hague certify that:
1. They are the duly elected and acting Executive Vice-President and
Assistant Secretary, respectively, of said corporation (hereinafter called "this
corporation").
2. This certificate is attached to the Agreement of Merger dated as of
August 7, 1981, providing for the merger of this corporation with Nichols
Institute Merging Corporation No. 1, a California corporation.
3. The Agreement of Merger in the form attached hereto has been
approved by the board of directors of this corporation.
4. The principal terms of the Agreement of Merger in the form attached
hereto were approved by this corporation by the vote of a number of shares of
each class which equaled or exceeded the vote required, such classes, the total
number of outstanding shares of each class entitled to vote on the merger and
the percentage vote required of each class being as follows:
Total Number
of Outstanding
Shares Entitled
Name of Class to Vote Vote Required
- ------------- --------------- -------------
Common 1,084,051 majority
Dated: August 7, 1981.
/s/ Donald S. Mullins
---------------------------
Donald S. Mullins
Executive Vice-President
/s/ Marilyn Hague
---------------------------
Marilyn Hague
Assistant Secretary
19
<PAGE>
The undersigned, Donald S. Mullins and Marilyn Hague, the Executive
Vice-President and Assistant Secretary, respectively, of Nichols Institute, each
declares under penalty of perjury that the matters set out in the foregoing
Certificate are true of his and her own knowledge.
Executed at Los Angeles, California on August 7, 1981.
/s/ Donald S. Mullins
---------------------------
Donald S. Mullins
Executive Vice-President
/s/ Marilyn Hague
---------------------------
Marilyn Hague
Assistant Secretary
20
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
DONALD S. MULLINS AND MARILYN HAGUE certify that:
1. They are the Executive Vice-President and the Assistant Secretary,
respectively, of NICHOLS INSTITUTE LABORATORIES, a California corporation.
2. Article ONE of the Articles of Incorporation of this corporation is
amended to read as follows:
"The name of this corporation is NICHOLS INSTITUTE
REFERENCE LABORATORIES."
3. The foregoing Amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing Amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the corporation
is 1,000. The number of shares voting in favor of the Amendment equaled or
exceeded the vote required.
The percentage vote required was more than 50%.
/s/ Donald S. Mullins
---------------------------
Donald S. Mullins
Executive Vice-President
/s/ Marilyn Hague
---------------------------
Marilyn Hague
Assistant Secretary
21
<PAGE>
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing certificate are true of their own knowledge. Executed at
San Juan Capistrano, California on June 23, 1982.
/s/ Donald S. Mullins
---------------------------
Donald S. Mullins
/s/ Marilyn Hague
---------------------------
Marilyn Hague
22
<PAGE>
A 456526
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
NICHOLS INSTITUTE REFERENCE LABORATORIES
ENDORSED
FILED
in the office of the Secretary
of State of the State of
California
JAN 26 1995
To The Secretary of State
State of California BILL JONES
SECRETARY OF STATE
Pursuant to the General Corporation Law of the State of California, the
undersigned officers of the corporation hereinafter named do hereby certify as
follows:
1. The name of the corporation is Nichols Institute Reference Laboratories.
2. Article One of the corporation's Articles of Incorporation is hereby amended
so as to read as follows:
"The name of this corporation is Corning Nichols Institute."
3. The amendment herein provided for has been approved by the corporation's
Board of Directors.
4. The amendment herein provided for was approved by the required written
consent of the corporation's shareholders in accordance with the provisions of
Section 902 of the General Corporation Law. The corporation's total number of
shares of which were outstanding and entitled to vote or to furnish written
consent with respect to the amendment herein provided for at the time of the
approval thereof is 1,000, all of which are of one class. The percentage vote of
the number of the aforesaid outstanding shares which is required to vote or
furnish written consent in favor of the amendment herein provided for is 50.1%.
The number of the aforesaid outstanding shares which voted or furnished a
written
23
<PAGE>
consent in favor of the amendment herein provided for is 100%, and the said
number exceeded the percentage of the vote or written consent required to
approve said amendment.
Signed on January 3, 1996.
/s/ James D. Chambers
---------------------------------
James D. Chambers, Vice President
/s/ Leo C. Farrenkopf, Jr.
---------------------------------
Leo C. Farrenkopf, Jr., Secretary
On this 3rd day of January, 1995, in the Town of Teterboro, in the
State of New Jersey, each of the undersigned does hereby declare under the
penalty of perjury that he signed the foregoing Certificate of Amendment of
Articles of Incorporation in the official capacity set forth beneath his
signature, and that the statements set forth in said certificate are true of his
own knowledge.
/s/ James D. Chambers
---------------------------------
James D. Chambers, Vice President
/s/ Leo C. Farrenkopf, Jr.
---------------------------------
Leo C. Farrenkopf, Jr., Secretary
24
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CORNING NICHOLS INSTITUTE
We, Douglas M. VanOort, the Vice President, and Leo C. Farrenkopf, Jr.,
the Secretary of Corning Nichols Institute (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of California,
DO HEREBY CERTIFY:
1. That we are the Vice President and Secretary, respectively, of the
Corporation.
2. That an amendment to the Articles of Incorporation of the
Corporation has been duly approved by the Board of Directors of the Corporation.
3. The amendment so approved by the Board of Directors is as follows:
Article ONE of the Articles of Incorporation is hereby deleted in
its entirety and the following substituted therefor:
"ONE: The name of this Corporation is CORNING NICHOLS INSTITUTE
INC."
Article SIX of the Articles of Incorporation is hereby deleted in its
entirety and the following substituted therefor:
"SIX: (a) The liability of the Directors of the Corporation for
monetary damages shall be eliminated to the fullest extent permissible
under California law; provided, that this provision shall not eliminate
or limit the liability of a Director (i) for acts or omissions that
involve intentional misconduct or a knowing and culpable violation of
law, (ii) for acts or omissions that a Director believes to be contrary
to the best interests of the Corporation or its shareholders or that
involve the absence of good faith on the part of the Director, (iii)
for any transaction from which a Director derived an improper personal
benefit, (iv) for acts or omissions that show a reckless disregard for
the Director's duty to the Corporation or its shareholders in
circumstances in which the Director was aware, or should have been
aware, in the ordinary course of performing a director's duties, of a
risk of serious injury to the Corporation or its shareholders, (v) for
acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the Director's duty to the
25
<PAGE>
Corporation or its shareholders, and (vi) under Section 310 or Section
316 of the California General Corporation Law.
(b) Each person who was or is made a party or is threatened to
be made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action either in an
official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
General Corporation Law of the State of California, as the same exists
or may hereafter be amended, against all expenses, liability and loss
(including attorneys' fees, judgments, fines, excise taxes pursuant to
the Employee Retirement Income Security Act of 1974, as amended, or
penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the Corporation
shall indemnify any such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to be indemnified conferred in
this Article Six shall be a contract right and shall include the right
to be paid by the Corporation the expenses incurred in defending any
such proceeding in advance of its final disposition; provided, however,
that the payment of such expenses incurred by the director or officer
in his or her capacity as a director or officer (and not in any other
capacity in which service was or is to be rendered by such person while
a director or officer, including, without limitation, service to an
employee benefit plan), in advance of the final disposition of
proceeding, shall be made only upon delivery to the Corporation of an
undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this
Article or otherwise. The Corporation may, by action of its Directors,
provide indemnification to employees and agents of the Corporation with
the same scope and effect as the foregoing indemnification of directors
and officers.
(c) The indemnification provided by this Article Six shall not
limit or exclude any rights, indemnities or limitations of liability to
which any person may be entitled, whether as a matter of law, under the
By-Laws of the Corporation, by agreement, vote of the stockholders or
disinterested directors of the Corporation or otherwise.
(d) If a claim under paragraph (b) of this Article Six is not
paid in full by the Corporation within sixty (60) days after a written
claim has been received by the
26
<PAGE>
Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the General
Corporation Law of the State of California for the Corporation to
indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board, independent legal counsel, or
its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the General Corporation Law of the
State of California, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders)
that the claimant has not met such applicable standard of conduct,
shall create a presumption that the claimant has not met the applicable
standard of conduct.
(e) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust
or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General
Corporation Law of the State of California."
4. The amendment herein provided for was approved by the shareholders
at a duly convened meeting. The Corporation's total number of shares which were
outstanding and entitled to vote on said amendment is 1,000, all of which are of
one class. The percentage vote of the number of the aforesaid outstanding shares
which is required to vote in favor of the amendment is 50.1%. The number of the
aforesaid outstanding shares which voted in favor of the amendment is 100%, and
said number exceeded the percentage of the vote required to approve said
amendment.
27
<PAGE>
IN WITNESS WHEREOF, each of the undersigned declares under penalty of perjury
that the statements contained in the foregoing certificate are true of their own
knowledge, on this 18th day of September, 1995 in the Town of Teterboro, State
of New Jersey.
/s/ Douglas M. VanOort
--------------------------
Douglas M. VanOort
Vice President
/s/ Leo C. Farrenkopf, Jr.
--------------------------
Leo C. Farrenkopf, Jr.
Secretary
28
FEDERAL IDENTIFICATION
NO. 04-2449994
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Raymond C. Marier, Vice President,
and Leo C. Farrenkopf, Jr., Clerk,
of MetPath New England Inc.,
located at 3 Sterling Drive, Wallingford, CT 06492,
certify that these Articles of Amendment affecting articles numbered:
article 1
of the Articles of Organization were duly adopted by unanimous written consent
on __________, 1996, by vote of:
1,001 shares of COMMON of 1,001 shares outstanding,
shares of of shares outstanding,
shares of of shares outstanding,
1*being at least a majority of each type, class or series outstanding and
entitled to vote thereon:/or 2*being at least two-thirds of each type, class or
series outstanding and entitled to vote thereon and of each type, class or
series of stock whose rights are adversely affected thereby: ___________________
1 For amendments adopted pursuant to Chapter 156B, Section 70. * Delete the
inapplicable clause. 2 For amendments adopted pursuant to Chapter 156B, Section
71.
1
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
NUMBER OF NUMBER OF
TYPE SHARES TYPE SHARES PAR VALUE
Common: Common:
Preferred: Preferred:
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
NUMBER OF NUMBER OF
TYPE SHARES TYPE SHARES PAR VALUE
Common: Common:
Preferred: Preferred:
Article 1 of the Articles of Organization is hereby amended to read as follows:
"The name of the corporation is Damon Clinical Laboratories, Inc."
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: September 13, 1996
2
<PAGE>
SIGNED UNDER THE PENALTIES OF PERJURY, this 30th day of August, 1996,
/s/ Raymond C. Marier, Vice President,
- --------------------------
Raymond C. Marier
/s/ Leo C. Farrenkopf, Jr., Clerk.
- --------------------------
Leo C. Farrenkopf, Jr.
3
<PAGE>
FEDERAL IDENTIFICATION NO. 06-0873707
FEDERAL IDENTIFICATION NO. 04-2449994
The Commonwealth of Massachusetts
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE
BOSTON, MASS. 02108
ARTICLES OF MERGER
Pursuant to General Laws, Chapter 156B, Section 79
The fee for filing this certificate is prescribed by
General Laws, Chapter 156B, Section 114. Make
checks payable to the Commonwealth of
Massachusetts.
* * * *
MERGER OF MetPath New England Inc.,
a Delaware corporation
and
Damon Clinical Laboratories, Inc.
a Massachusetts corporation
the constituent corporations
into
Damon Clinical Laboratories, Inc.
one of the constituent corporations organized under the laws of Massachusetts as
specified in the agreement referred to in Paragraph 1 below.
The undersigned officers of each of the constituent corporations certify
under the penalties of perjury as follows:
4
<PAGE>
1. An agreement of merger has been duly adopted in compliance with the
requirements of subsections (b) and (c) of General Laws, Chapter 156B, Section
79, and will be kept as provided by subsection (c) thereof. The surviving
corporation will furnish a copy of said agreement to any of its stockholders, or
to any person who was a stockholder of any constituent corporation, upon written
request and without charge.
2. The effective date of the merger determined pursuant to the agreement
referred to in paragraph shall be 11:59 p.m. on December 31, 1993.
3. (For a merger)
The following amendments to the articles of organization of the SURVIVING
corporation have been affected pursuant to the agreement of merger referred to
in paragraph 1: At such time as the merger is effective, Article 1 of the
Articles of Organization of the surviving corporation shall be amended to read
as follows: "The name of this corporation is MetPath New England Inc."
(a) The purposes of the RESULTING corporation are as follows:
(b) The total number of shares and the par value, if any, of each class of
stock which the resulting corporation authorized is as follows:
CLASS OF STOCK WITHOUT PAR VALUE WITH PAR VALUE
PAR
NUMBER OF SHARES NUMBER OF SHARES VALUE AMOUNT
Preferred $
Common
(c) If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established.
NONE
(d) Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, for
restrictions upon the transfer of shares of stock of any class, or for limiting,
defining or regulating the powers of the corporation, or of its directors or
stockholders, or any class of stockholders:
NONE
5
<PAGE>
4. The following information shall not for any purpose be treated as a
permanent part of the articles of organization of the surviving corporation:
(a) The post office address of the initial principal office of the
surviving corporation in Massachusetts is:
82 Wilson Way, Westwood, Massachusetts 02070
(b) The name, residence and post office address of each of the initial
directors and President, Treasurer and Clerk of the surviving corporation is as
follows:
Name Residence Post Office Address
President Raymond E. Vermette 82 Wilson Way, Westwood,
Massachusetts 02070
Treasurer Beno R. Kon 82 Wilson Way, Westwood,
Massachusetts 02070
Clerk Bruce G. Goodman 82 Wilson Way, Westwood,
Massachusetts 02070
Directors Jeffrey S. Hurwitz One Malcolm Ave., Teterboro NJ
07608
James D. Chambers One Malcolm Ave., Teterboro NJ
07608
Bruce G. Goodman 82 Wilson Way, Westwood,
Massachusetts 02070
(c) The date initially adopted on which the fiscal year of the surviving
corporation ends is:
December 31
(d) The date initially fixed in the by-laws for the Annual Meeting of
stockholders of the surviving corporation is:
Third Tuesday of Each December
6
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF CONSOLIDATION/MERGER
(General Laws, Chapter 156B, Section 79)
I hereby approve the within articles of consolidation/merger and, the
filing fee in the amount of $250.00 having been paid, said articles are deemed
to have been filed with me this 28th day of December, 1993.
Effective Date: December 31, 1993
/s/ Michael Joseph Connolly
---------------------------
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo Copy of Articles of Merger to be sent
TO:
C T Corporation System
2 Oliver Street
Boston, Mass. 02109
Telephone 617-482-4420
7
CERTIFICATE OF INCORPORATION
STOCK CORPORATION
STATE OF CONNECTICUT
SECRETARY OF THE STATE
30 Trinity Street, Hartford, CT 06106
The undersigned incorporator(s) hereby form(s) a corporation under the Stock
Corporation Act of the State of Connecticut:
1. The name of the corporation is Corning Clinical Laboratories Inc.
2. The nature of the business to be transacted, or the purposes to be promoted
or carried out by the corporation, are as follows:
Clinical laboratory testing and anatomical pathology services.
<PAGE>
3. The designation of each class of shares, the authorized number of shares of
each such class (if any) of each share thereof are as follows:
one thousand shares of Common stock with no par value
4. The terms, limitations and relative rights and preferences of each class of
shares and series thereof (if any), or an express grant of authority to the
board of directors pursuant to Section 33-341, as amended, are as follows:
n/a
5. The minimum amount of stated capital with which the corporation shall
commence business is $1,000 dollars.
---------------------------------------
(Not less than one thousand dollars).
6. (7) Other provisions:
n/a
dated this 29th day of July , 1996
-------------------- --------------- --
I/We hereby declare, under the penalties of false statement, that the statements
made in the foregoing certificate are true.
This certificate of incorporation must be signed by each incorporator.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
NAME OF INCORPORATOR (Print/Type) NAME OF INCORPORATOR (Print/Type) NAME OF INCORPORATOR (Print/Type)
1. Diane Possumato 2. 3.
- -----------------------------------------------------------------------------------------------------------------------------------
SIGNED (Incorporator) SIGNED (Incorporator) SIGNED (Incorporator)
1. /s/ Diane Possumato 2. 3.
- -----------------------------------------------------------------------------------------------------------------------------------
Rec; CC; G.S.:
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
(Please provide filer's name and complete address for mailing receipt above.)
</TABLE>
<PAGE>
APPOINTMENT OF STATUTORY AGENT FOR SERVICE
DOMESTIC CORPORATION
Secretary of the State
30 Trinity Street
Hartford, CT 06106
<TABLE>
<CAPTION>
Name of Corporation: Complete All Blanks
Corning Clinical Laboratories Inc.
- --------------------------------------------------------------------------------------------------------------------------------
The above corporation appoints as its statutory agent for service, one of the following:
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Name of Natural Person Who is Resident of Connecticut Business Address Zip Code
Resident Address Zip Code
- --------------------------------------------------------------------------------------------------------------------------------
Name of Connecticut Corporation Address of Principal Office in Conn. (If none,
enter address of appointee's statutory agent for service)
- --------------------------------------------------------------------------------------------------------------------------------
Name of Corporation Address of Principal Office in Conn.
(Not organized under the Laws of Conn.*) (If none, enter "Secretary of the State of Conn.")
One Commercial Plaza
C T CORPORATION SYSTEM Hartford, Connecticut 06103
- --------------------------------------------------------------------------------------------------------------------------------
*Which has procured a Certificate of Authority to transact business or conduct affairs in this state.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AUTHORIZATION
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Name of Incorporator (Print or Type) Signed l(Incorporator) Date
Original Diane Possumato /s/ Diane Possumato
Appointment
(Must be Signed
by a majority of
Incorporators)
7/29/96
--------------------------------------------------------------------------------------------------------
Name of Incorporator (Print or Type) Signed (Incorporator)
--------------------------------------------------------------------------------------------------------
Name of Incorporator (Print or Type) Signed (Incorporator)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Subsequent Name of President, or Vice President or Secretary Date
Appointment
--------------------------------------------------------------------------------------------------------
Signed (President, or Vice President or Secretary)
--------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Acceptance: Name of Statutory Agent for Service (Print or Type) Signed (Statutory Agent for Service)
CT Corporation System /s/ Gary Scappini Special Asst. Sec.
- --------------------------------------------------------------------------------------------------------------------------------
For Official Use Only Rec; CC:
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
Please provide filer's name and complete address for
mailing receipt
</TABLE>
<PAGE>
FEDERAL IDENTIFICATION
No.
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
FOREIGN CORPORATION CERTIFICATE
We, Raymond C. Marier, Vice President and Leo C. Farrenkopf, Jr., Secretary of
Corning Clinical Laboratories, Inc., in compliance with the provisions of
General Laws, Chapter 181, Section 4, certify that:
1. The exact name of the corporation, including any words or abbreviations
indicating incorporation or limited liability is: Corning Clinical
Laboratories Inc.
2. If the exact name of the corporation is not available for use in the
Commonwealth, state the name the corporation will use to transact
business in the Commonwealth:
3. The corporation is organized under the laws of: Connecticut
4. The date of its organization is: July 31, 1996
----------------------------
(Month) (Day) (Year)
5. The location of its principal office is:
3 Sterling Drive, Wallingford, Connecticut 06492
6. A brief description of the activities of the corporation within the
Commonwealth of Massachusetts is as follows: Clinical laboratory
testing and anatomical pathology services
7. The location of its local office in the Commonwealth of Massachusetts,
if any, is:
130 Maple Street, Suite 219, Springfield, MA 01103
8. The name and address of its resident agent in the Commonwealth of
Massachusetts is: CT Corporation System, 2 Oliver Street, Boston,
Massachusetts 02109
9. The date on which the corporation's fiscal year ends is: December 31,
--------------
(Month) (Day)
10. If the corporation's existence is other than perpetual, state the
duration of existence:
<PAGE>
11. The NAME and BUSINESS ADDRESSES of the following officers and directors
are as follows:
NAMES BUSINESS ADDRESSES
----- ------------------
President: See attached list of officers
* Vice President:
Treasurer:
Clerk or
Secretary:
* Assistant Clerk
or Assistant
Secretary:
Board of Directors:
See attached list of directors
- --------
* Please provide the name and business address of the Vice President and
Assistant Clerk/Assistant Secretary if they are executing this certificate.
<PAGE>
12. Please indicate the fees a Massachusetts corporation would be required
to pay to register to do business in your state of incorporation:
Connecticut Qualification Fees:
Filing Application for and Issuance of Certificate of Authority
($50.00)
Initial License Fee ($225.00)
13. Attached to this certificate shall be a certificate of Legal Existence
of such foreign corporation issued by an officer or agency properly
authorized in the state or country in which such foreign corporation
was organized or other evidence of legal existence acceptable to the
Secretary. If such certificate or other evidence of such legal
existence is in language other than English, a translation thereof,
under oath of the translator, shall also be attached.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we hereto sign
our names this day of , 19 .
/s/ Raymond C. Marier /s/ Leo C. Farrenkopf, Jr.
Vice President Secretary
Raymond C. Marier Leo C. Farrenkopf, Jr.
<PAGE>
Corning Clinical Laboratories Inc. (CT)
DIRECTORS: Alister W. Reynolds
Douglas M. VanOort
<TABLE>
<CAPTION>
<S> <C> <C>
Office Names Business Address
President Paul A. Flood 3 Sterling Drive
Wallingford, CT
Vice President & Assistant Raymond C. Marier One Malcolm Avenue
Secretary Teterboro, NJ
Vice President James D. Chambers same NJ address as above
Vice President Douglas M. VanOort same NJ address as above
Vice President Alister W. Reynolds same NJ address as above
Treasurer Stephen A. Calamari same NJ address as above
Secretary Leo C. Farrenkopf, Jr. same NJ address as above
</TABLE>
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL J. CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108
ARTICLES OF ORGANIZATION
(Under G.L. 156B)
ARTICLE I
The name of the corporation is:
CORNING BIORAN INC.
ARTICLE II
The purpose of the corporation is to engage in the following
business activities:
To acquire, own, operate, maintain, provide, furnish and generally deal
in and with, in any lawful capacity, laboratories, laboratory
Massachusetts Business Corporation Law, more specifically, To acquire, own,
operate, maintain, provide, furnish and generally deal in and with, in any
lawful capacity, laboratories, laboratory facilities, services, techniques,
establishments and equipment for the observation, analysis and evaluation of
materials, fluids, tissue and organisms of every kind and description; To
carry on any other business as may be necessary, convenient, or desirable to
accomplish the above purposes; and to engage in any lawful act or activity for
which corporations may be organized under the General Laws of the Commonwealth
of Massachusetts.
1
<PAGE>
ARTICLE III
The type and classes of stock and the total number of shares and par value, if
any, of each type and class of stock which the corporation is authorized to
issue is as follows:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR
VALUE
COMMON: 3,000 COMMON:
PREFERRED: PREFERRED:
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established with any class.
n/a
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are as follows:
n/a
ARTICLE VI
______________________________________ and regulation of business and affairs of
the corporation, for its voluntary dissolution, or for limiting,
____________________________ or of its directors or stockholders, or of any
class of stockholders: (If there are no provisions ___________
n/a
2
<PAGE>
ARTICLE VII
The effective date of organization of the corporation shall be the date approved
and filed by the Secretary of the Commonwealth. If a later effective date is
desired, specify such date which shall not be more than thirty days after the
date of filing.
The information contained in ARTICLE VIII is NOT a PERMANENT part of the
Articles of Organization and may be changed ONLY by filing the appropriate form
provided therefor.
ARTICLE VIII
a. The post office address of the corporation IN MASSACHUSETTS is: 82 Wilson
Way, Westwood, Massachusetts 02090
b. The name, residence and post office address (if different) of the directors
and officers of the corporation are as follows:
NAME RESIDENCE POST OFFICE ADDRESS
President: Douglas M. VanOort 350 E. 79th Street, Apt. 3K, One Malcolm Avenue,
New York, NY 10021 Teterboro, NJ 07608
Treasurer: James D. Chamber 35 Woodland Avenue, One Malcolm Avenue,
Mountain Lakes, NJ 07046 Teterboro, NJ 07608
Clerk: Leo C. Farrenkopf, Jr. 780 Forest Avenue, One Malcolm Avenue,
Rye, NY 10580 Teterboro, NJ 07608
Directors:
Alister W. Reynolds 3 Harbor Drive One Malcolm Avenue,
Rumson, NJ 07760 Teterboro, NJ 07608
Douglas M. VanOort 350 E. 79th Street One Malcolm Avenue,
Apt. 3K Teterboro, NJ 07608
New York, NY 10021
c. The fiscal year of the corporation shall end on the last dayy of the month
of: December
d. The name and BUSINESS address of the RESIDENT AGENT of the corporation, if
any, is:
CT Corporation System
2 Oliver St., Boston, MA 02109
ARTICLE IX
By-laws of the corporation have been duly adopted and the president, treasurer,
clerk and directors whose names are set forth above, have been duly elected.
3
<PAGE>
IN WITNESS WHEREOF and under the pains and penalties of perjury, I/WE, whose
signature(s) appear below as incorporator(s) and whose names and business or
residential address(es) ARE CLEARLY TYPED OR PRINTED beneath each signature do
hereby associate with the intention of forming this corporation under the
provisions of General Laws Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 4th day of October 1994.
/s/ Siobhan Vincent
- --------------------------------------------------------------------------------
Siobhan Vincent 2 Oliver Street, Boston, Massachusetts 02109
/s/ Patricia Canario
- --------------------------------------------------------------------------------
Patricia Canario 2 Oliver Street, Boston, Massachusetts 02109
/s/ Kristen Tirrell
- --------------------------------------------------------------------------------
Kristen Tirrell 2 Oliver Street, Boston, Massachusetts 02109
NOTE: If an already-existing corporation is acting as incorporator, type in
the exact name of the corporation, the state or other jurisdiction
where it was incorporated, the name of the person signing on behalf of
said corporation and the title he/she holds or other authority by
which such action is taken.
4
<PAGE>
AGREEMENT OF MERGER
OF
CORNING BIORAN INC.
AND
MORAN RESEARCH LABS d/b/a
BIORAN MEDICAL LABORATORY
AGREEMENT OF MERGER dated as of October 10, 1994 between Corning Bioran Inc. and
Moran Research Labs d/b/a Bioran Medical Laboratory as approved by the Board of
Directors of Sub:
1. Moran Research Labs, which is a Massachusetts business trust doing business
as Bioran Medical Laboratory ("Bioran"), shall be merged with and into Sub,
which is a Massachusetts corporation ("Sub" or the "Surviving
Corporation"). Bioran owns all of the outstanding shares of Common Stock of
Sub.
2. The purpose of Sub is to provide clinical laboratory testing and related
services and to engage in any other business as is permitted by applicable
law.
3. The separate existence of Bioran shall cease upon the effective date of the
merger in accordance with the provisions of the Massachusetts Business
Corporation Law and the Declaration of Trust, as amended, of Bioran.
4. Sub shall continue in existence under its present name pursuant to the
provisions of the Massachusetts Business Corporation Law.
5. The merger is permitted under the terms of the Declaration of Trust, as
amended, of Bioran.
6. The Articles of Incorporation of Sub upon the effective date of the merger
shall be the Articles of Incorporation of the Surviving Corporation and
shall continue in full force and effect until amended and changed in the
manner prescribed by the provisions of the Massachusetts Business
Corporation Law.
7. The bylaws of Sub upon the effective date of the merger shall be the bylaws
of the Surviving Corporation and shall continue in full force and effect
until changed, altered or amended as therein provided and in the manner
prescribed by the provisions of the Massachusetts Business Corporation Law.
5
<PAGE>
8. The directors and officers in office of Sub upon the effective date of the
merger shall continue to be members of the Board of Directors and the
officers of the Surviving Corporation, all of whom shall hold their
directorships and offices until the election and qualification of their
respective successors or until their tenure is otherwise terminated in
accordance with the bylaws of the Surviving Corporation.
9. Each issued share of common stock of Sub shall, upon the effective date of
the merger, be canceled without consideration. Each issued share of Bioran
Trust Stock as of the effective date of merger shall be converted into one
issued share of Common Stock of the Surviving Corporation. Sub is
authorized to issue 3,000 shares of Common Stock, no par value, all of
which are outstanding.
10. The Agreement of Merger herein entered into and approved is not required to
be, and shall not be, submitted for approval by the holders of the Bioran
Trust Stock or the holders of the Common Stock of Sub.
11. As soon as practical after the execution of this Agreement of Merger, Sub
and Bioran will cause to be executed and filed and/or recorded any document
or documents prescribed by the Massachusetts Business Corporation Law, and
they will cause to be performed all necessary acts therein and elsewhere to
effectuate the merger.
12. The Board of Directors of Sub,the Trustee of Bioran and the proper officers
of Sub and Bioran, are hereby authorized, empowered and directed to do any
and all acts and things, and to make, execute, deliver, file, and/or record
any and all instruments, papers and documents which shall be or become
necessary, proper or convenient to carry out or put into effect any of the
provisions of this Agreement of Merger or of the merger herein provided
for.
The merger herein provided for shall become effective upon its filing with
the Office of the Secretary of State of the Commonwealth of Massachusetts.
13. The merger herein provided for shall become effective upon its filing with
the Office of the Secretary of State of the Commonwealth of Massachusetts.
6
<PAGE>
14. The merger may be abandoned at any time prior to its effective date by
joint action of the Board of Directors of Sub and the Trustee of Bioran.
Signed on October 10, 1994
CORNING BIORAN INC.
By:/s/ Douglas M. VanOort
----------------------
Douglas M. VanOort
President
By:/s/ Leo C. Farrenkopf, Jr.
--------------------------
Leo C. Farrenkopf, Jr.
Secretary
Signed on October 10, 1994
MORAN RESEARCH LABS d/b/a
BIORAN MEDICAL LABORATORY
By:/s/ Douglas M. VanOort
----------------------
Douglas M. VanOort
Trustee
7
<PAGE>
The Commonwealth of Massachusetts
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE
BOSTON, MASS. 02108
FEDERAL IDENTIFICATION
No. 04-324-8020
Examiner
ARTICLES OF
MERGER OF TRUST AND CORPORATION
PURSUANT TO GENERAL LAWS, CHAPTER 156B, SECTION 83
The fee for filing this certificate is prescribed by
General Laws, Chapter 156B, Section 114. Make check
payable to the Commonwealth of Massachusetts.
* * * *
CORNING BIORAN INC.
name of corporation
The undersigned officers of said corporation and the trustees or other
persons authorized to sign for the trust named below hereby certify as follows:
1. The trust to be merged into the corporation is as follows:
Name State of Organization Date of Organization
Moran Research Labs Massachusetts 3/2/89
042442964
2. The trust owns at least ninety per cent of the outstanding shares of
each class of the corporation.
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3. In the case of the above-named trust the provisions of the Instrument or
Declaration of Trust permit the merger herein described and all action required
under the laws of this Commonwealth in connection with the merger have been duly
taken.
4. The agreement of merger complies with the requirements of the
subsections (b) and (c) of General Laws, Chapter 156B, Section 83, and will be
kept as provided by subsection (d) thereof. The corporation will furnish a copy
of said agreement to any stockholder of the corporation, or any person who was
an owner of a certificate of participation or shares of the association or
trust, upon written request and without charge.
5. The effective date of the merger determined pursuant to the agreement
referred to in paragraph 4 shall be upon filing.
6. The undersigned officers, with respect to the corporation, and the
undersigned trustees or other authorized persons, with respect to the trust,
further certify that the agreement of merger which is set forth under paragraph
4 has been duly approved by the corporation and by the trust, respectively, in
the manner required by General Laws, Chapter 156B, Section 83 on the following
dates:
Date of approval by the corporation: October 10, 1994
Date of approval by the trust: October 10, 1994
IN WITNESS WHEREOF and under the penalties of perjury we have hereto
signed our names this 10th day of October, 1994.
For the Corporation:
Douglas M. VanOort
----------------------
President
Leo C. Farrenkopf, Jr.
----------------------
Clerk
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For the Trust:
Douglas M. VanOort
----------------------
Trustees
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The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLE OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
We, Raymond C. Marier, Vice President
and Leo C. Farrenkopf, Jr., Clerk
of Corning Bioran Inc.
located at 415 Massachusetts Ave., Cambridge, MA 02139
certify that these Articles of Amendment affecting articles numbered:
Article 1
of the Articles of Organization were duly adopted by unanimous written consent
on November 28, 1995, by vote of:
376.55 shares of Common Stock of 376.55 shares outstanding.
shares of of shares outstanding.
shares of of shares outstanding.
1*being at least a majority of each type, class or series outstanding and
entitled to vote thereon:/ or 2* being at least two-thirds of each type, class
or series outstanding and entitled to vote thereon and of each type, class or
series of stock whose rights are adversely affected thereby:
1 For amendments adopted pursuant to Chapter 156B, Section 70.
* Delete the inapplicable clause.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
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To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
Common: Common:
Preferred: Preferred:
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
Common: Common:
Preferred: Preferred:
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Article 1 of the Articles of Organization is amended as follows:
"The name of the corporation is Corning Clinical Laboratories Inc.
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment a later effective date not more than thirty days after such filing, in
which event the amendment will become effective on such later date.
Later effective date: December 31, 1995
SIGNED UNDER THE PENALTIES OF PERJURY, this 13th day of December, 1995
/s/ Raymond C. Marier , Vice President.
- ---------------------------
/s/ Leo C. Farrenkopf, Jr. , Clerk
- ---------------------------
13
CERTIFICATE OF INCORPORATION
of
CPF/METPATH INC.
FIRST, the name of the Corporation is
CPF/MetPath Inc.
SECOND, the address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Registered Agent at such address is The Corporation Trust
Company.
THIRD, the purpose of the corporation is (i) to own and operate medical,
clinical, industrial and research laboratories, and (ii) to research,
manufacture, design, construct, use, buy, sell, lease, hire and deal in and with
articles and property of all kinds, to render services of all kinds, and (iii)
generally to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH, the total number of shares of all classes of stock which the corporation
shall have authority to issue is 1,000 shares which shall be Common Stock, all
of which shares shall be without par value, and each with a right to one vote.
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FIFTH, the name and mailing address of the Incorporator is as follows:
Name Mailing Address
Raymond C. Marier 2 West Market Street
Corning, NY 14830
SIXTH, the names and mailing addresses of the persons who are to serve as
directors until the first annual meeting of stockholders of the corporation or
until their successors axe elected and qualify, are as follows:
Name Mailing Address
Raymond C. Marier 2 West Market Street
Corning, NY 14830
Richard A. Michaelson One Malcolm Avenue
Teterboro, NJ 07608
Douglas M. VanOort 2 West Market Street
Corning, NY 14830
SEVENTH, the corporation may indemnify, to the full extent permitted by
applicable law, any person who was or is a party, or is threatened to he made a
party, to any threatened or pending action, suit or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he or she
is or was a director or officer of the corporation, or is or was serving at the
request of the corporation, as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. Any indemnification
pursuant to the foregoing shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the director or
officer is proper under the circumstances
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because he or she has met any legally applicable standard of conduct. Such
determination may be made (i) be resolution of the Board of Directors adopted in
the manner provided in the By-laws of the corporation, or (ii) if a quorum
consisting of directors or are not parties to such action, suit or proceeding,
is not obtainable, or, even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
EIGHTH, any action required or permitted to be taken at any annual or special
meeting of stockholders of the corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the actions so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
are present and voted.
THE UNDERSIGNED, being the sole Incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does hereby make this Certificate, declaring and certifying
that this is his act and
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deed and the facts herein stated are true, and accordingly has hereunto set his
hand this 14th day of October, 1991.
/s/ Raymond C. Marier
--------------------------------
Raymond C. Marier
2 West Market Street
Corning, NY 14830
STATE OF NEW YORK )
) s.s.:
COUNTY OF STEUBEN )
BE IT REMEMBERED, that on this 14th day of October, 1991, personally came
before me, a Notary Public in and for the State of New York and the County of
Steuben, Raymond C. Marier, the sole Incorporator named in the foregoing
Certificate of Incorporation, known to me personally to be such, and he
acknowledged the said Certificate to be his act and deed and that the facts
stated therein are truly set forth.
GIVEN under my hand and seal of
office the day and year aforesaid.
/s/ Barbara E. Wellington
-------------------------------------
Barbara E. Wellington
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CPF/METPATH INC.
The undersigned directors of CPF/MetPath Inc., a Delaware Corporation (the
"Corporation"), for purposes of amending the Certificate of Incorporation of the
Corporation filed October 16, 1991, hereby certify as follows:
FIRST, the Certificate of Incorporation is hereby amended such that name of the
Corporation is changed to CPF/Corning Inc.
SECOND, the Corporation has not received any payment for any of its stock.
THIRD, the amendment herein has been duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of the State of
Delaware to be effective as
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provided therein, and this Certificate is duly executed by a majority of the
directors of the Corporation in accordance with Section 103(a)(2)(ii) of said
General Corporation Law.
/s/ Raymond C. Marier
----------------------
Raymond C. Marier
2 West Market Street
Corning, NY 14830
[Director]
/s/ Douglas M. VanOort
----------------------
Douglas M. VanOort
2 West Market Street
Corning, NY 14830
[Director]
STATE OF NEW YORK )
) S.S.:
COUNTY OF STEUBEN )
Be it remembered that on this 4th day of November, 1991 personally came before
me a Notary Public in and for the State of New York and County of Steuben,
Raymond C. Marier and Douglas M. VanOort named in the foregoing Certificate of
Amendment, known to me personally to be such, and they each acknowledged the
said Certificate to be his act and deed and that the facts stated therein are
truly set forth.
Given under my hand and seal of
office the day and year aforesaid.
/s/ Barbara E. Wellington
---------------------------------------------
Barbara E. Wellington
Notary Public, State of New York
Qualified in Steuben County
No. 4914239
My Commission Expires December 14, 1991
CPF
a:\Amend.
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STATE OF DELAWARE BK 1221 PG 0535
SECRETARY OF STATE
DIVISION OF CORPORTIONS
FILED 10:30 AM 11/26/1991
721330013 - 2276289
CERTIFICATE OF MERGER
OF
CLINICAL PATHOLOGY FACILITY, INC.,
A PENNSYLVANIA CORPORATION
INTO
CPF/CORNING INC., A DELAWARE CORPORATION
The undersigned corporation DOES HEREBY CERTIFY:
FIRST: That the name and state of Incorporation of each of the constituents of
the Merger is as follows:
NAME STATE OF INCORPORATION
Clinical Pathology Facility, Inc. Pennsylvania
CPF/Corning Inc. Delaware
SECOND: That an Agreement of Merger dated November 11, 1991 between CPF/Corning
Inc., a Delaware corporation and Clinical Pathology Facility, Inc., a
Pennsylvania corporation ("Clinical"), the constituent corporations of
the merger, has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations as follows: In the
case of CPF/Corning Inc., in accordance with the requirements of
Subsection (c) of Section 252 of the Delaware Corporation Law of the
State of Delaware; and in the case of Clinical, in accordance with
Section 1924 of the Associations Code of the Commonwealth of
Pennsylvania.
THIRD: That the name of the surviving corporations of the Merger is hereby
changed from CPF/CORNING INC., a Delaware corporation, to CLINICAL
PATHOLOGY FACILITY, INC., a Delaware corporation.
FOURTH: That the Certificate of Incorporation of CPF/Corning Inc., a Delaware
corporation, shall be the Certificate of Incorporation of the surviving
corporation except that Article First of the Certificate of
Incorporation shall be amended to read in full as follows:
"FIRST, the name of the Corporation is Clinical Pathology Facility,
Inc."
FIFTH: That the executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation, the address
of which is 711 Bingham Street, Pittsburgh, Pennsylvania 15203.
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SIXTH: That a copy of the executed Agreement and Plan of Merger will be
furnished by the surviving corporation on request and without cost to
any stockholder of either constituent corporation.
SEVENTH: That the authorized capital stock of each foreign [to Delaware]
corporation which is a party to the merger is as follows:
Shares Par
Corporation Class Authorized Value
Clinical Pathology Facility, Inc. Common 600,000 $1 per share
a Pennsylvania corporation
The undersigned officers of the surviving corporation of the merger do sign this
Certificate of Merger pursuant to Section 252(c) of the General Corporation Law
of the State of Delaware.
November 26, 1991 CPF/CORNING INC.
[SEAL] By:/s/ Richard A. Michaelson
----------------------------------
Richard A. Michaelson, President
ATTEST:
/s/ Raymond C. Marier
- ----------------------------
Raymond C. Marier, Secretary
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CERTIFICATE OF MERGER
OF
MEDICAL MANAGEMENT SYSTEMS, INC.
INTO
CLINICAL PATHOLOGY FACILITY, INC.
Pursuant to Section 252 of the General
Corporation Law of the State of Delaware
* * * *
The undersigned hereby certifies that:
1. The name of and state of incorporation of
each of the constituent corporations are as follows:
Name State of Incorporation
MEDICAL MANAGEMENT SYSTEMS, INC. Pennsylvania
CLINICAL PATHOLOGY FACILITY, INC. Delaware
2. An Agreement and Plan of Merger dated as of December 6, 1994 (the
"Merger Agreement") between Medical Management Systems, Inc. and Clinical
Pathology Facility, Inc. has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 252(c) of the General Corporation Law of the State of
Delaware.
3. The name of the surviving corporation is Clinical Pathology
Facility, Inc.
4. The Certificate of Incorporation of Clinical Pathology Facility,
Inc. in effect at the effective time of the merger shall be the Certificate of
Incorporation of the surviving corporation except that Article 1 of the
Certificate of Incorporation of Clinical Pathology Facility, Inc shall be
amended as of the effective time of the Merger to read as follows:
"The name of the Corporation is MetPath (PA) Inc."
5. The surviving corporation is a corporation of the State of Delaware.
6. The executed Merger Agreement is on file at the principal place of
business of the surviving corporation at 711 Bingham Street, Pittsburgh,
Pennsylvania 15213.
7. A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of any constituent
corporation.
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8. The authorized capital stock of the Medical Management Systems, Inc.
is 2,000,000 shares of Common Stock, par value $1.00 per share.
9. That the merger shall become effective at 11:59 P.M. on December 31,
1994.
IN WITNESS WHEREOF, this Certificate of Merger has been executed on
this 6th day of December, 1994.
Attest: CLINICAL PATHOLOGY FACILITY, INC.
/s/ Leo C. Farrenkopf, Jr By: /s/ James D. Chambers
- ------------------------- ------------------------
Leo C. Farrenkopf, Jr. James D. Chambers
Secretary Vice President
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
MetPath (PA) Inc. a corporation organized and existing under and by virtue of
the General Corporation Law of the state of Delaware,
DOES HEREBY CERTIFY:
FIRST: By unanimous written consent of the Board of Directors,
resolutions were duly adopted setting forth a proposed amendment of Article 1 of
the Certificate of Incorporation of said corporation declaring said amendment to
be advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Board of Directors hereby approves the amendment to
Article 1 of the Company's Certificate of Incorporation to read as follows:
The name of the corporation (which is hereafter referred to as the
"Corporation") is Corning Clinical Laboratories of Pennsylvania Inc.
SECOND: That said amendment was approved by the unanimous written
consent of the sole stockholder of the Corporation in accordance with Section
228 of the General Corporation Law of the state of Delaware.
THIRD: That said amendment was duly adopted in accordance with Section
242 (a)(1) of the Business Corporation Act of the state of Delaware
IN WITNESS WHEREOF, said corporation has used this certificate to be
signed by Raymond C. Marier, its Vice President, and Leo C. Farrenkopf, Jr., its
Secretary this 28th day of December, 1995.
BY: /s/ Raymond C. Marier
---------------------------
Raymond C. Marier
Vice President
ATTEST: /s/ Leo C. Farrenkopf, Jr.
---------------------------
Leo C. Farrenkopf, Jr.
Secretary
11
ARTICLES OF INCORPORATION
OF
DEYOR CPF/METPATH, INC.
The undersigned, being a natural person and acting as the incorporator,
does hereby adopt the following Articles of Incorporation for the purpose of
forming a corporation pursuant to the provisions of Chapter 1701 of the Revised
Code of Ohio, as amended and implemented, and as hereinafter sometimes referred
to as the "General Corporation Law".
FIRST: The name of the corporation (hereinafter called the
"Corporation") is DeYor CPF/MetPath, Inc.
SECOND: The place in the State of Ohio where the principal office of
the Corporation is to be located is 7655 Market Street, Youngstown, County of
Mahoning 44513.
THIRD: The purposes for which the Corporation is formed, which shall be
in addition to the authority to engage in any lawful act or activity for which
corporations may be formed under Chapter 1701 of the Revised Code of Ohio, are
as follows:
(i) to own and operate medical, clinical, industrial and research
laboratories;
(ii) to research, manufacture, design, construct, use, buy, sell,
lease, hire and deal in and with articles and property of all
kinds; and
(iii) to render services of all kinds.
FOURTH: The authorized number of shares of the Corporation is 1,000,
all of which are without par value and are of the same class and are to be
common shares, each with a right to one vote.
All or any part of said common shares without par value may be issued
by the Corporation from time to time and for such consideration as may be
determined upon and fixed by the Board of Directors, as provided by law. Any and
all such shares issued, for which the full consideration has been paid and
delivered, shall be deemed fully paid shares and the holder of such shares shall
not be liable for any further call or assessment or any other payment thereon.
FIFTH: The period of existence of the Corporation is perpetual.
<PAGE>
2
SIXTH: The Corporation may indemnify, to the full extent permitted by
Section 1701.13 of the General Corporation Law, as the same may be amended and
supplemented, any person who was or is a party, or is threatened to be made a
party, to any threatened or pending action, suit or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he or she
is or was a director or officer of the Corporation, or was or is serving at the
request of the Corporation, as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. Any indemnification
pursuant to the foregoing shall be made by the Corporation only as authorized in
the specific case upon a determination that indemnification of the director or
officer is proper under the circumstances because he or she has met any legally
applicable standard of conduct. Such determination may be made (i) by resolution
of the Board of Directors adopted in the manner provided in the Regulations of
the Corporation, or (ii) if a quorum consisting of directors who are not parties
to such action, suit or proceeding, is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the shareholders.
SEVENTH: Notwithstanding any provision of the General Corporation Law
now or hereafter in force requiring, for any purpose, the vote, consent, waiver,
or release of the holders of a designated proportion (but less than all) of the
shares of any particular class or of each class, of the shares are classified,
the vote, consent, waiver, or release if the holders of at least a majority of
the voting power or of at least a majority of the shares entitled to vote, as
the case may be, of such particular class or of each class, if shares are
classified, shall be required in lieu of any such designated greater proportion
otherwise required by any provision of said General Corporation Law.
EIGHTH: From time to time any of the provisions of these Articles of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the General Corporation Law and the laws of the State of Ohio at
the time in force may be added or inserted in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
shareholders of the corporation by these Articles of Incorporation are granted
subject to the provisions of this Article EIGHTH.
Signed on May 11, 1993.
/s/ Patrick J. Corr
------------------------
Patrick J. Corr
Sole Incorporator
<PAGE>
3
APPOINTMENT OF STATUTORY AGENT
(Pursuant to Sections 1701.04 and 1701.07, Revised Code)
KNOW ALL MEN BY THESE PRESENTS, that THE PRENTICE-HALL CORPORATION
SYSTEM, INC., a corporation of the State of Delaware, which holds a license from
the State of Ohio, which is authorized by its Certificate of Incorporation to
act as a statutory agent for other corporations, and which has 380 South 5th
Street, Columbus 43215-5436, Franklin County, as a business address in the State
of Ohio, is hereby appointed as the statutory agent upon which any process,
notice, or demand, as required or permitted by Chapter 1701 of the Revised Code
of Ohio, against said corporation may he served.
/s/ Patrick J. Orr
--------------------------
Patrick J. Orr
Sole Incorporator of DeYor
CPF/MetPath, Inc.
ACCEPTANCE OF APPOINTMENT OF STATUTORY AGENT
The statutory agent named in the foregoing Appointment of Statutory
Agent hereby acknowledges and accepts the said appointment as such statutory
agent.
The Prentice-Hall Corporation System, Inc.
By
----------------------------
ARTICLES OF INCORPORATION
OF
CLS/SG, INC.
----------------
The undersigned, being a natural person and acting as the
incorporator, does hereby adopt the following Articles of Incorporation for the
purpose of forming a corporation pursuant to the provisions of Chapter 1701 of
the Revised Code of Ohio, as amended and implemented, and as hereinafter
sometimes referred to as the "General Corporation Law".
FIRST: The name of the corporation (hereinafter called the
"Corporation") is CLS/SG, INC.
SECOND: The place in the State of Ohio where the principal office of
the Corporation is to be located is City of Maple Heights, County of Cuyahoga
(44137-3054).
THIRD: The purposes for which the Corporation is formed, which shall
be in addition to the authority to engage in any lawful act or activity for
which corporations may be formed under Chapter 1701 of the Revised Code of Ohio,
are as follows:
(i) to own and operate medical, clinical, industrial and research
laboratories;
(ii) to research, manufacture, design, construct, use, buy, sell,
lease, hire and deal in and with articles and property of all
kinds; and
(iii) to render services of all kinds.
FOURTH: The authorized number of shares of the Corporation is 1,000,
all of which are without par value and are of the same class and are to be
common shares, each with a right to one vote.
All or any part of said common shares without par value may be issued
by the Corporation from time to time and for such consideration as may be
determined upon and fixed by the Board of Directors, as provided by law. Any and
all such shares issued, for which the full consideration has been paid and
delivered, shall be deemed fully paid shares and the holder of such shares shall
not be liable for any further call or assessment or any other payment thereon.
FIFTH: The period of existence of the Corporation is perpetual.
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SIXTH: The Corporation may indemnify, to the full extent permitted by
Section 1701.13 of the General Corporation Law, as the same may be amended and
supplemented, any person who was or is a party, or is threatened to be made a
party, to any threatened or pending action, suit or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that he or she
is or was a director or officer of the Corporation, or was or is serving at the
request of the Corporation, as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise. Any indemnification
pursuant to the foregoing shall be made by the Corporation only as authorized in
the specific case upon a determination that indemnification of the director or
officer is proper under the circumstances because he or she has met any legally
applicable standard of conduct. Such determination may be made (i) by resolution
of the Board of Directors adopted in the manner provided in the Regulations of
the corporation, or (ii) if a quorum consisting of directors who are not parties
to such action, suit or proceeding, is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the shareholders.
SEVENTH: Notwithstanding any provision of the General Corporation Law
now or hereafter in force requiring, for any purpose, the vote, consent, waiver,
or release of the holders of a designated proportion (but less than all) of the
shares of any particular class or of each class, of the shares are classified,
the vote, consent, waiver, or release if the holders of at least a majority of
the voting power or of at least a majority of the shares entitled to vote, as
the case may be, of such particular class or of each class, if shares are
classified, shall be required in lieu of any such designated greater proportion
otherwise required by any provision of said General Corporation Law.
EIGHTH: From time to time any of the provisions of these Articles of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the General Corporation Law and the laws of the State of Ohio at
the time in force may be added or inserted in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
shareholders of the corporation by these Articles of Incorporation are granted
subject to the provisions of this Article EIGHTH.
Signed on September 4, 1992.
/s/ Peter J. Sheptak
--------------------
Peter J. Sheptak
Sole Incorporator
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SOUTHGATE MEDICAL SERVICES, INC.
CERTIFICATE OF ADOPTION
OF AGREEMENT OF MERGER
The undersigned, Edward E. Siegler, President, and Charles J.
Silverman, Secretary, respectively, of Southgate Medical Services, Inc., an Ohio
corporation, do hereby certify that:
1. The Agreement of Merger, dated as of September 14, 1992,
between Southgate Medical Services, Inc. ("Southgate") and
CLS/SG, Inc., to which this Certificate is attached, was duly
approved by the Board of Directors of Southgate in an action
without a meeting dated September 14, 1992 and was duly
executed by the President and the Secretary of Southgate; and
2. Pursuant to the provisions of Section 1701.78(D) of the Ohio
Revised Code, such Agreement of Merger was submitted to and
adopted by the shareholders of Southgate in an action without
a meeting, dated September 14, 1992, signed by each of the
shareholders of Southgate.
IN WITNESS WHEREOF, the undersigned have duly executed this Certificate
this 14th day of September, 1992.
/s/ Edward E. Siegler
-------------------------------
Edward E. Siegler, President
/s/ Charles J. Silverman
-------------------------------
Charles J. Silverman, Secretary
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CLS/SG, INC.
CERTIFICATE OF ADOPTION
OF AGREEMENT OF MERGER
The undersigned, Thomas D. Moses, President, and Anthony J. Geramita,
Assistant Secretary, respectively, of CLS/SG, Inc., an Ohio corporation
("Newco"), do hereby certify that:
1. The Agreement of Merger, dated as of September 14, 1992, between
Southgate Medical Services, Inc., an Ohio corporation, and Newco, to
which this Certificate is attached, was duly approved by the Board of
Directors of Newco in an action without a meeting dated September 11,
1992, and was duly executed by the President and Assistant Secretary of
Newco; and
2. Pursuant to the provisions of Section 1701.78(D) of the Ohio Revised
Code, such Agreement of Merger was approved by the consent in writing,
dated September 11, 1992, signed by the sole shareholder of Newco, the
only shareholder entitled to notice of and to vote at a meeting of the
shareholders held for the purpose of approving an agreement of merger.
IN WITNESS WHEREOF, the undersigned have duly executed this Certificate
this 11th day of September, 1992.
/s/ Thomas D. Moses
----------------------------------------
Thomas D. Moses, President
/s/ Anthony J. Geramita
----------------------------------------
Anthony J. Geramita, Assistant Secretary
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AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is made as of this 14th day of September,
1992, by and among Charles J. Silverman, JoAnn Silverman, Frank J. Ilkanich and
Edward E. Siegler, M.D., as Trustee (collectively, the "Shareholders" and
individually, a "Shareholder"); Southgate Medical Services, Inc., an Ohio
corporation ("Southgate"); CLS/SG, Inc., an Ohio corporation ("Newco"), a wholly
owned subsidiary of Corning Incorporated, a New York business corporation
("Corning").
RECITALS:
WHEREAS, the Shareholders own all of the issued and outstanding shares of the
capital stock of Southgate, as well as all outstanding rights to acquire shares
of such capital stock (the "Shares"); and
WHEREAS, Corning desires to acquire all of the Shares in exchange for shares of
common stock of Corning, par value $.50 per share (the "Corning Common Stock"),
pursuant to a plan of merger upon the terms and conditions hereinafter set
forth; and WHEREAS, Corning has organized Newco in the State of Ohio as its
wholly-owned subsidiary corporation for the purpose of merging with Southgate as
provided herein. NOW, THEREFORE, in consideration of the foregoing premises and
of the mutual and independent promises hereinafter set forth, the parties agree
as follows:
ARTICLE I. The Merger
5
<PAGE>
Pursuant to the merger (the "Merger") to be consummated as
provided in this Agreement, Newco shall be merged with and into Southgate on the
Closing Date (as defined in Article III hereof), and Newco's separate corporate
existence shall thereupon cease. The Articles of Incorporation of Newco shall be
amended and restated to reflect the change in corporate name, in the form
attached hereto as Exhibit A, which Amended and Restated Articles of
Incorporation shall be the Articles of Incorporation of Southgate, as the
surviving corporation. The Code of Regulations of Newco shall be the Code of
Regulations of Southgate, as the surviving corporation. The directors and
officers of Newco at the Closing Date shall be the directors and officers of
Southgate, as the surviving corporation, and shall hold office from the Closing
Date until their respective successors are duly elected or appointed and
qualified in the manner provided in the Code of Regulations of Southgate, as the
surviving corporation, or as otherwise provided by law.
ARTICLE II. Exchange and Conversion of Shares
(a) On the Closing Date, each outstanding share of Southgate
common stock shall by virtue of the Merger and without any action on the part of
the holder thereof by exchanged for 1,594.5073 shares of Corning Common Stock.
No certificates representing fractional shares will be issued by Corning on
account of the Merger. The number of shares that each Shareholder is entitled to
receive shall be rounded up to the nearest whole share.
(b) Each share of common stock, no par value, of Newco issued
and outstanding immediately prior to the Closing Date shall, by virtue of the
Merger and without any
6
<PAGE>
action on the part of the holder thereof, be converted into one share of common
stock of Southgate.
ARTICLE III. Closing Date
The closing of the transactions contemplated by this
Agreement will take place on such date and at such time and place as may be
mutually agreed upon by the Shareholders and Corning ("Closing Date"). The
Merger shall become effective as of the filing of this Agreement in the office
of the Secretary of State of the State of Ohio on the Closing Date.
ARTICLE IV. 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 counterparts have been signed by each of the parties
hereto and delivered to each of the other parties hereto.
IN WITNESS WHEREOF, each of the parties hereto have caused
this Agreement to be executed on its behalf by this officers thereunto duly
authorized, all as of the day and year first above written.
SHAREHOLDERS
7
<PAGE>
/s/ Charles J. Silverman
-------------------------------
Charles J. Silverman
/s/ JoAnn Silverman
-------------------------------
JoAnn Silverman
/s/ Frank J. Ilkanich
-------------------------------
Frank J. Ilkanich
SOUTHGATE MEDICAL SERVICES, INC.
by: /s/ Edward E. Siegler
------------------------
title: President
by: /s/ Charles J. Silverman
------------------------
title: Secretary
CLS/SG, INC.
by: /s/ Thomas D. Moses
------------------------
title: President
by: /s/ Anthony J. Geramita
------------------------
title: Assistant Secretary
8
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SOUTHGATE MEDICAL SERVICES, INC.
-----------------------
FIRST: The name of the corporation (hereinafter called the
"Corporation") is SOUTHGATE MEDICAL SERVICES, INC.
SECOND: The place in the State of Ohio where the principal
office of the Corporation is to be located is City of Maple Heights, County of
Cuyahoga (44137-3054).
THIRD: The purposes for which the Corporation is formed,
which shall be in addition to the authority to engage in any lawful act or
activity for which corporations may be formed under Chapter 1701 of the Revised
Code of Ohio, are as follows:
(i) to own and operate medical, clinical, industrial and
research laboratories;
(ii) to research, manufacture, design, construct, use, buy,
sell, lease, hire and deal in and with articles and
property of all kinds; and
(iii) to render services of all kinds.
FOURTH: The authorized number of shares of the Corporation is
1,000, all of which are without par value and are of the same class and are to
be common shares, each with a right to one vote.
All or any part of said common shares without par value may
be issued by the Corporation from time to time and for such consideration as may
be determined upon and fixed by the Board of Directors, as provided by law. Any
and all such shares issued, for which the full consideration has been paid and
delivered, shall be deemed fully paid shares and the holder of such shares shall
not be liable for any further call or assessment or any other payment thereon.
FIFTH: The period of existence of the Corporation is
perpetual.
SIXTH: The Corporation shall indemnify, to the full extent
permitted by Section 1701.13 of the General Corporation Law, as the same may be
amended and supplemented, any person who was or is a party, or is threatened to
be made a party, to any
9
<PAGE>
threatened or pending action, suit or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he or she is or was
a director or officer of the Corporation, or was or is serving at the request of
the Corporation, as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise. Any indemnification pursuant to the
foregoing shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director or officer is
proper under the circumstances because he or she has met any legally applicable
standard of conduct. Such determination may be made (i) by resolution of the
Board of Directors adopted in the manner provided in the Regulations of the
corporation, or (ii) if a quorum consisting of directors who are not parties to
such action, suit or proceeding, is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the shareholders.
SEVENTH: Notwithstanding any provision of the General
Corporation Law now or hereafter in force requiring, for any purpose, the vote,
consent, waiver, or release of the holders of a designated proportion (but less
than all) of the shares of any particular class or of each class, of the shares
are classified, the vote, consent, waiver, or release if the holders of at least
a majority of the voting power or of at least a majority of the shares entitled
to vote, as the case may be, of such particular class or of each class, if
shares are classified, shall be required in lieu of any such designated greater
proportion otherwise required by any provision of said General Corporation Law.
EIGHTH: From time to time any of the provisions of these
Articles of Incorporation may be amended, altered, or repealed, and other
provisions authorized by the General Corporation Law and the laws of the State
of Ohio at the time in force may be added or inserted in the manner and at the
time prescribed by said laws, and all rights at any time conferred upon the
shareholders of the corporation by these Articles of Incorporation are granted
subject to the provisions of this Article EIGHTH.
NINTH: These Amended and Restated Articles of Incorporation
of the Corporation supersede and replace in their entirety the existing Articles
of Incorporation of the Corporation.
10
CERTIFICATE OF INCORPORATION
of
MRL NuCor, Inc.
---------------------
FIRST, the name of the corporation is
MRL NuCor, Inc.
SECOND, the address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Registered Agent at such address is The Corporation Trust
Company.
THIRD, the purpose of the corporation is (i) to acquire, own, operate, maintain,
provide, furnish and generally deal in and with, in any lawful capacity,
pathology and clinical laboratories, pathology and clinical laboratory
facilities, services, techniques, establishments and equipment for the
observation, analysis and evaluation of materials, fluids, tissue and organisms
of every kind and description; (ii) to carry on any other business as may be
necessary, convenient, or desirable to accomplish the above purposes; and (iii)
generally to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
1
<PAGE>
FOURTH, the total number of shares of all classes of stock which the corporation
shall have authority to issue is 3,000 shares which shall be Common Stock, all
of which shares shall be without par value, and each with a right to one vote.
FIFTH, the name and mailing address of the Incorporator are as follows:
Name Mailing Address
Bruce G. Goodman 80 Wilson Way
Westwood, Massachusetts 02090
SIXTH, (a) No director of the corporation shall have any personal liability to
the corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit.
(b) Each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such
2
<PAGE>
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the corporation to
the fullest extent authorized by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment), against all expenses,
liability and loss (including attorneys' fees, judgments, fines, excise taxes
pursuant to the Employee Retirement Income Security Act of 1974, as amended, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, the corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to be
indemnified conferred in this Article 6 shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the General Corporation Law of the State of Delaware requires,
the payment of such expenses incurred by the director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is to be rendered by such person while a director or officer,
including, without limitation, service to an employee benefit
3
<PAGE>
plan), in advance of the final disposition of a proceeding, shall be made only
upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article or otherwise. The corporation may, by action of its directors,
provide indemnification to employees and agents of the corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
(c) The indemnification provided by this Article 6 shall not limit or
exclude any rights, indemnities or limitations of liability to which any person
may be entitled, whether as a matter of law, under the By-Laws of the
corporation, by agreement, vote of the stockholders or disinterested directors
of the corporation or otherwise.
(d) The corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
SEVENTH, any action required or permitted to be taken at any annual or special
meeting of stockholders of the corporation may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the actions so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
are present and voted.
4
<PAGE>
THE UNDERSIGNED, being the sole Incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does hereby make this Certificate, declaring and certifying that this
is his act and deed and the facts herein stated are true, and accordingly has
hereunto set his hand this 5th day of October, 1994.
/s/ Bruce G. Goodman
------------------------
Bruce G. Goodman
80 Wilson Way
Westwood, Massachusetts 02090
COMMONWEALTH OF MASSACHUSETTS )
) ss
COUNTY OF NORFOLK )
BE IT REMEMBERED, that on this 5th day of October, 1994, personally
came before me, a Notary Public in and for the Commonwealth of Massachusetts and
the County of Norfolk, Bruce G. Goodman, the sole Incorporator named in the
foregoing Certificate of Incorporation, known to me personally to be such, and
he acknowledged the said Certificate to be his act and deed and that the facts
stated therein are truly set forth.
GIVEN under my hand seal of
office the day and year aforesaid.
/s/ Bruce G. Goodman
------------------------
5
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
(Pursuant to Section 242)
*****
MRL NuCor, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: that the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the Board,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of MRL NuCor, Inc. be
amended by changing the First Article thereof so that, as amended, said
Article shall be and read as follows;
"FIRST, the name of the corporation is Corning MRL, Inc."
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Bruce G. Goodman, its Assistant Secretary, this 28th day of December,
1994.
MRL NUCOR, INC.
By:/s/ Bruce G. Goodman
---------------------
Its: Assistant Secretary
6
RESTATED
CERTIFICATE OF INCORPORATION
OF
Unilab Corporation
UNILAB CORPORATION, a Delaware corporation, hereby certifies
as follows:
1. The name of the Corporation is Unilab Corporation. The date
of the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware was September 24, 1990, and the Corporation filed
a Certificate of Amendment to its Certificate of Incorporation with the
Secretary of State of the State of Delaware on May 23, 1991.
2. This Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the Corporation
and was duly adopted in accordance with the provisions of Sections 242 and 245
of the General Corporation Law of the State of Delaware.
3. The text of the Certificate of Incorporation is hereby
amended and restated in its entirety to read as follows:
"ARTICLE I
Name
The name of the corporation is DPD Holdings Inc. (the "Corporation").
ARTICLE II
Registered Office and Registered Agent
The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
1
<PAGE>
ARTICLE III
Corporate Purpose
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "General Corporation Law").
ARTICLE IV
Capital Stock
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 10,000, all of which shall be
shares of Common Stock, par value $.01 per share.
ARTICLE V
Directors
SECTION 1. Elections of directors of the Corporation need not
be by written ballot, except and to the extent provided in the By-laws of the
Corporation.
SECTION 2. To the fullest extent permitted by the General
Corporation Law as it now exists and as it may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
ARTICLE VI
Indemnification of Directors, Officers and Others
SECTION 1. The Corporation shall to the fullest extent
permitted by the provisions of the General Corporation Law of Delaware, as now
or hereafter in effect, indemnify all persons whom it may indemnify under such
provisions. The indemnification provided by this Section shall not limit or
exclude any rights, indemnities or limitations of liability to which any person
may be entitled whether as a matter of law, under the By-laws of the
Corporation, by agreement, vote of the stockholders or disinterested directors
of the Corporation or otherwise.
2
<PAGE>
SECTION 2. The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by paragraph
(7) of Subsection (b) of Section 102 of the General Corporation Law of Delaware,
as the same may be amended and supplemented.
ARTICLE VII
By-laws
The directors of the Corporation shall have the power to
adopt, amend or repeal by-laws.
ARTICLE VIII
Reorganization
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
3
<PAGE>
ARTICLE IX
Amendment
The Corporation reserves the right to amend, alter, change or
repeal any provision of this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders in this
Certificate of Incorporation are subject to this reservation."
IN WITNESS WHEREOF, DPD HOLDINGS INC. has caused this
certificate to be signed by Andrew H. Baker, its Chairman of the Board,
President and Chief Executive Officer, and attested by Mark L. Bibi, its
Secretary, as of this 10th day of November, 1993.
UNILAB CORPORATION
By /s/ Andrew H. Baker
----------------------------
Andrew H. Baker
Chairman of the Board,
President and
Chief Executive Officer
ATTEST:
/s/ Mark L. Bibi
- ---------------------------
Mark L. Bibi
Secretary
4
<PAGE>
CERTIFICATE OF MERGER
OF
AMERICAN CLINICAL LABORATORIES, INC.
DAMON CLINICAL LABORATORIES, INC.
DAMON CLINICAL LABORATORIES-HOUSTON, INC.
MEDLAB INC.
MPC LABORATORY, INC.
NICHOLS INSTITUTE PROFESSIONAL SERVICES ORGANIZATION, INC.
NICHOLS GP CORPORATION
NICHOLS LP CORPORATION
NICHOLS INSTITUTE SUBSTANCE ABUSE TESTING LABORATORIES, INC.
PATHLAB, INC.
AND
REDWOOD MEDICAL LABORATORY
INTO
DPD HOLDINGS INC.
Pursuant to Section 252 of the General
Corporation Law of the State of Delaware
* * * *
The undersigned hereby certifies that:
1. The name of and state of incorporation of each of the constituent
corporations are as follows:
Name State of Incorporation
AMERICAN CLINICAL LABORATORIES, INC. California
DAMON CLINICAL LABORATORIES, INC. Texas
DAMON CLINICAL LABORATORIES - Texas
HOUSTON, INC.
MEDLAB INC. Oregon
MPC LABORATORY, INC. Texas
NICHOLS INSTITUTE PROFESSIONAL California
SERVICES ORGANIZATION, INC.
NICHOLS GP CORPORATION California
NICHOLS LP CORPORATION California
NICHOLS INSTITUTE SUBSTANCE ABUSE Delaware
5
<PAGE>
TESTING LABORATORIES, INC.
PATHLAB, INC. Texas
REDWOOD MEDICAL LABORATORY California
DPD HOLDINGS INC. Delaware
2. An Agreement and Plan of Merger dated as of December 6, 1994 (the
"Merger Agreement") among each of the constituent corporations has been
approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Section 252(c)
of the General Corporation Law of the State of Delaware.
3. The name of the surviving corporation is DPD Holdings Inc.
4. The Certificate of Incorporation of DPD Holdings Inc. in effect at
the effective time of the merger shall be the Certificate of Incorporation of
the surviving corporation.
5. The surviving corporation is a corporation of the State of Delaware.
6. The executed Merger Agreement is on file at the principal place of
business of the surviving corporation at One Malcolm Avenue, Teterboro, New
Jersey 07608.
7. A copy of the Merger Agreement will be furnished by the surviving
corporation, on request and without cost, to any stockholder of any constituent
corporation.
8. The authorized capital stock of each constituent corporation which
is not a Delaware corporation is as follows:
Name Authorized Capital Stock
AMERICAN CLINICAL LABORATORIES, INC. 50,000 shares, no par value
DAMON CLINICAL LABORATORIES, INC. 1,000 shares, no par value
DAMON CLINICAL LABORATORIES - 1,000 shares, no par value
HOUSTON, INC
MEDLAB, INC. 375,000 shares, no par value
MPC LABORATORY, INC 1,000 shares, $.01 par value
NICHOLS INSTITUTE PROFESSIONAL 10,000 shares, no par value
SERVICES ORGANIZATION, INC.
NICHOLS GP CORPORATION 1,000 shares, $.01 par value
NICHOLS LP CORPORATION 1,000 shares, $.01 par value
PATHLAB, INC. 1,000 shares, $.01 par value
REDWOOD MEDICAL LABORATORY 75,000 shares, $1.00 par value
9. That the merger shall become effective at 9:00 P.M. on December 30,
1994.
6
<PAGE>
IN WITNESS WHEREOF, this Certificate of Merger has been
executed on this 6th day of December, 1994.
Attest: DPD HOLDINGS INC.
/s/ Leo C. Farrenkopf, Jr. By: /s/ James D. Chambers
- -------------------------- -------------------------
Leo C. Farrenkopf, Jr. James D. Chambers
Secretary Vice President
7
CERTIFICATE OF INCORPORATION
OF
METWEST INC.
The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of Delaware, does hereby set forth
as follows:
FIRST: The name of the corporation is MetWest Inc.
SECOND: The address of the initial registered office and registered
agent in this state is c/o United Corporate Services, Inc., 410 South State
Street, in the City of Dover, County of Kent, State of Delaware 19901 and the
name of the registered agent at said address is United Corporate Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the corporation laws
of the State of Delaware.
FOURTH: The corporation shall be authorized to issue the following
shares:
NAME NUMBER OF SHARES PAR VALUE
Common 1,000 $0.01
FIFTH: The name and address of the incorporator are as follows:
NAME ADDRESS
Metpath Inc. One Malcolm Avenue
Teterboro, New Jersey 07608
1
<PAGE>
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation, and for no
further definition, limitation and regulation of the powers of the corporation
and of its directors and stockholders:
(1) The number of directors of the corporation shall be such as from
time to time shall be fixed by, or in the manner provided in the by-laws.
Election of directors need not be by ballot unless the by-laws so provide.
(2) The Board of Directors shall have power without the asset or vote
of the shareholders:
(a) To make, alter, amend, change, add to or repeal the By-laws of
the corporation; to fix and vary the amount to be reserved for any
proper purpose; to authorize and cause to be executed mortgages and
liens upon all or any part of the property of the corporation; to
determine the use and disposition of any surplus or net profits; and
to fix the times for the declaration and payment of dividends.
(b) To determine from time to time whether, and to what times and
places, and under what conditions the accounts and books of the
corporation (other than the stockledger) or any of them, shall be
open to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and as binding upon the corporation and upon all the
stockholders as though it had been approved or ratified by every stockholder of
the corporation, whether or not the contract or act would otherwise be open to
legal attack because of director's interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws from time to time
made by the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid if such
by-laws had not been made.
2
<PAGE>
SEVENTH: No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
corporation or its stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of the foregoing provision to eliminate the liability of the
corporation's directors to the corporation or its stockholders to the fullest
extent permitted by Section 102(b)(7) of the Delaware General Corporation Law,
as amended from time to time. The corporation shall indemnify to the fullest
extent permitted by Sections 102(b)(7) and 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such Sections
grant the corporation the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class or them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a summary
way of this corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 Title 8 of the Delaware
Code order a meeting of the creditors or class of creditors, and/or of the
stockholders of this corporation,
3
<PAGE>
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing three-fourths (3/4) in value of the creditors,
and/or the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all creditors or class or creditors, and/or on all the
stockholders or class or stockholders, of this corporation, as the case may be,
and also on this corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the facts set forth herein are true under the penalties of perjury
this 15th day of August, 1988.
METPATH INC.
BY:/s/ Thomas Kossl
-------------------------------
Thomas Kossl, Vice President &
Assistant Secretary
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
METWEST INC.
The undersigned corporation, in order to amend its Certificate
of Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is: MetWest Inc.
SECOND: The corporation hereby amends the Certificate of
Incorporation as follows:
Paragraph FOURTH of the Certificate of Incorporation, related to
the number of shares the Corporation shall have authority to issue, is hereby
amended to read as follows:
FOURTH: The aggregate number of shares which this corporation
shall have the authority to issue is
Name Number of Shares Par Value
Common 1,250,000 $0.01
THIRD: The amendment effected herein was authorized by the
unanimous written consent of the shareholders pursuant to sections 228 and 242
of the Delaware General Corporation Law.
5
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IN WITNESS WHEREOF, we hereunto sign our names this 30th day of
September, 1988.
/s/ David J. Bush
------------------------
David J. Bush, President
ATTEST:
/s/ Thomas Kossl
- -----------------------
Thomas Kossl, Secretary
6
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METWEST INC.
Written Consent of Stockholder in Lieu of a Meeting
MetPath Inc., being the sole stockholder of MetWest Inc., a
Delaware corporation (the "Corporation"), hereby authorizes and approves the
following corporate action:
WHEREAS, Section 228 of the Delaware General Corporation Law
provides that any action permitted to be taken by vote at a meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote upon written consent signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all such stockholders entitled to vote
thereon were present and voted; and
WHEREAS, MetPath Inc. is the sole stockholder of the Corporation;
and
WHEREAS, Section 242 of the Delaware General Corporation Law
provides that a corporation may amend its Certificate of Incorporation to
increase its authorized capital stock at a meeting of the stockholders by
majority vote of the stockholders entitled to vote thereon pursuant to a
resolution of the Board of Directors proposing such an amendment and declaring
the advisability of the same; and
WHEREAS, the Board of Directors of the Corporation, at a meeting
held on September 30, 1988, adopted a resolution recommending and declaring the
advisability of an amendment to the Certificate of Incorporation of the
Corporation, increasing the capital stock of the Corporation from one thousand
(1,000) shares of Common stock to one million two hundred and fifty thousand
(1,250,000) shares of Common stock and MetPath desires to so amend the
Certificate of Incorporation.
NOW, THEREFORE, IT IS RESOLVED, that paragraph FOURTH of the
Certificate of Incorporation of the Corporation be amended to read in its
entirety as follows:
FOURTH: The aggregate number of shares which this corporation
shall have authority to issue is:
Name Number of Shares Par Value
Common 1,250,000 $0.01
7
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METPATH INC.
October 1, 1988 By:/s/ Thomas Kossl
-----------------------------
Thomas Kossl, Assistant Secretary
Common Stock: 100 shares
8
<PAGE>
CERTIFICATE OF MERGER
OF
METWEST INC.
INTO
UNILAB ACQUISITION CORPORATION
The undersigned corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituen corporations of the merger is as follows:
Name State of Incorporation
Unilab Acquisition Corporation Delaware
MetWest Inc. Delaware
SECOND: That an Agreement and Plan of Merger between the parties
to the merger has been approved, adopted, certified, executed and acknowledged
by each of the constituent corporations in accordance with the requirements of
subsection (c) of Section 251 of the General Corporation Law of the State of
Delaware.
THIRD: That the name of the surviving corporation of the merger
is Unilab Acquisition Corporation, which shall be changed herewith to MetWest
Inc.
FOURTH: That the certificate of incorporation of Unilab
Acquisition Corporation, a Delaware corporation, the surviving corporation,
shall be the certificate of incorporation of the surviving corporation.
FIFTH: That the executed Agreement and Plan of Merger is on file
at the principal place of business of the surviving corporation. The address of
the principal place of business of the surviving corporation is 4675 MacArthur
Court, Suite 1030, Newport Beach, California 92660.
SIXTH: That a copy of the Agreement and Plan of Merger will be
furnished by the surviving corporation, on request and without cost to any
stockholder of any constituent corporation.
UNILAB ACQUISITION CORPORATION
Dated: June 22, 1989
By:
--------------------
President
ATTEST:
By:
--------------------
Secretary
9
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CERTIFICATE OF INCORPORATION
OF
UNILAB ACQUISITION CORPORATION
FIRST: The name of this corporation is Unilab Acquisition
Corporation.
SECOND: The address of the registered office of the corporation
in the State of Delaware is 15 East North Street, P.O. Box 899, the City of
Dover, County of Kent, Delaware 19903, and the name of its registered agent at
that address is Incorporating Services, Ltd.
THIRD: The name and mailing address of the incorporator of the
corporation is:
Brendan R. McDonnell
4675 MacArthur Court
Suite 1000
Newport Beach, CA 92660-1836
FOURTH: The purpose of the corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FIFTH: This corporation is authorized to issue 1,250,000 shares
of Common Stock with a par value of $0.01 per share.
SIXTH: A director of this corporation shall not be personally
liable to this corporation or its stockholders for monetary damages for breach
of fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived any
improper personal benefit. The foregoing sentence notwithstanding, if the
Delaware General Corporation Law hereafter is amended to authorize further
limitations of the liability of a director of a corporation, then a Director of
this corporation, in addition to the circumstances in which a Director is not
personally liable as set forth in the preceding sentence, shall not be liable to
the fullest extent permitted by the Delaware General Corporation Law as so
amended. Any repeal or modification of the foregoing provisions of this Article
Sixth by the stockholders of this corporation shall not adversely affect any
right or protection of a Director of this corporation existing at the time of
such repeal or modification.
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SEVENTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind from time to time any or all of the bylaws of
the Corporation.
EIGHTH: This corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
on stockholders herein are granted subject to this reservation.
/s/ Brendan R. McDonnell
--------------------
Brendan R. McDonnell
Sole Incorporator
11
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CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND
REGISTERED OFFICE
* * * * *
MetWest Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
The present registered agent of the corporation is INCORPORATING
SERVICES, Ltd. (Resigned) and the present registered office of the corporation
is in the county of Kent (No registered Office at present).
The Board of Directors of MetWest Inc. adopted the following
resolution on the 5th day of October, 1992.
RESOLVED, that the registered office of Incorporating Services,
Ltd. in the state of Delaware be and it hereby is changed to Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and
the authorization of the present registered agent of this corporation be and the
same is hereby withdrawn, and THE CORPORATION TRUST COMPANY, shall be and is
hereby constituted and appointed the registered agent of this corporation at the
address of its registered office.
IN WITNESS WHEREOF, MetWest Inc. has caused this statement to be
signed by James Lawrence, its Group President and attested by Paul J. Traina,
Jr., its Secretary this 8th day of October, 1992.
By /s/ James Lawrence
--------------------
James Lawrence
President
ATTEST:
By /s/ Paul J. Traina
--------------------
Paul J. Traina, Jr.
Secretary
12
<PAGE>
CERTIFICATE OF MERGER
OF
DAMON CLINICAL LABORATORIES, INC. (AZ)
INTO
METWEST INC.
Pursuant to Section 252 of the General
Corporation Law of the State of Delaware
* * * *
The undersigned hereby certifies that:
1. The name and state of incorporation of each of the constituent
corporations are as follows:
Name State of Incorporation
DAMON CLINICAL LABORATORIES, INC. ARIZONA
METWEST INC. DELAWARE
2. An Agreement and Plan of Merger dated as of December 31, 1993
(the "Merger Agreement") has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with the
requirements of Section 252(c) of the General Corporation Law of the State of
Delaware.
3. The name of the surviving corporation is MetWest Inc.
4. The Certificate of Incorporation of MetWest Inc. in effect at
the effective time of the merger shall be the Certificate of Incorporation of
the surviving corporation.
5. The surviving corporation is a corporation of the State of
Delaware.
6. The executed Merger Agreement is on file at the principal
place of business of the surviving corporation at 2510 O'Conner Ridge Boulevard,
Irving, TX 75038.
7. A copy of the Merger Agreement will be furnished by the
surviving corporation, on request and without cost, to any stockholder of any
constituent corporation.
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<PAGE>
8. The authorized capital stock of each constituent corporation
which is not a corporation of the State of Delaware is as follows:
Authorized Number of Par
Name Shares of Common Stock Value
DAMON CLINICAL LABORATORIES. (AZ) 100,000 $10.00
IN WITNESS WHEREOF, this Certificate of Merger has been executed
on this 10th day of December, 1993.
METWEST INC.
By:/s/ Michael J. Bachich
-------------------------
Michael J. Bachich
Vice President
[SEAL]
ATTEST:
/s/ Leo C. Farrenkopf, Jr.
- ---------------------------------------
Leo C. Farrenkopf, Jr.
Assistant Secretary
14
<PAGE>
ARTICLES OF MERGER
OF
DAMON CLINICAL LABORATORIES, INC.
INTO
METWEST INC.
To the Arizona Corporation Commission
Pursuant to the provisions of the General Corporation Law of the
State of Arizona governing the merger of one or more domestic business
corporations with and into a foreign business corporation, the corporations
hereinafter named do hereby adopt the following articles of merger:
1. The names of the merging corporations are Damon Clinical
Laboratories, Inc., which is a business corporation organized under the laws of
the State of Arizona, and MetWest Inc., which is a business corporation
organization under the laws of the State of Delaware.
2. Annexed hereto and made a part hereof is the Plan of Merger
for merging Damon Clinical Laboratories, Inc. with and into MetWest Inc. as
approved by resolution of the Board of Directors of each of said corporations.
3. The number of shares of Damon Clinical Laboratories, Inc.
which were outstanding at the time of the approval of the Plan of Merger by its
shareholders is 900, all of which are of one class and entitled to vote. The
number of the aforesaid shares which were voted for the Plan of Merger is 900,
and the number of said shares which were voted against the same is 0.
The number of shares of MetWest Inc. which were outstanding at
the time of the approval of the Plan of Merger by its shareholders is 100, all
of which are of one class and entitled to vote. The number of aforesaid shares
which were voted for the Plan of Merger is 100, and the number of said shares
which were voted against the same is 0.
4. The laws of the jurisdiction of organization of MetWest Inc.
permit the merger of a business corporation of another jurisdiction with and
into a business corporation of the jurisdiction of incorporation of MetWest
Inc.; and the merger of Damon Clinical Laboratories, Inc. with and into MetWest
Inc. is in compliance with the laws of the jurisdiction of organization of
MetWest Inc.
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<PAGE>
5. MetWest Inc. will continue its existence as the surviving
corporation under its present name pursuant to the provisions of the General
Corporation Law of the State of Delaware.
6. MetWest Inc. does hereby agree that it may be served with
process in the State of Arizona in any proceeding for the enforcement of any
obligation of Damon Clinical Laboratories, Inc. and in any proceeding for the
enforcement of the rights of a dissenting shareholder of Damon Clinical
Laboratories, Inc. against MetWest Inc.; does hereby irrevocably appoint the
Arizona Corporation Commission as its agent to accept service of process in any
such proceeding; and does hereby agree that it will promptly pay to the
dissenting shareholders of Damon Clinical Laboratories, Inc. the amount, if any,
to which they shall be entitled under the provisions of the General Corporation
Law of the State of Arizona with respect to the rights of dissenting
shareholders.
7. The address within or without the State of Arizona to which
the Arizona Corporation Commission may forward a copy of such process is: CT
Corporation System, 3225 North Central Avenue, Phoenix, AZ 85012.
Executed on December 10, 1993
DAMON CLINICAL LABORATORIES, INC.
By: /s/ James D. Chambers
---------------------------------
James D. Chambers
Vice President
/s/ Leo C. Farrenkopf, Jr.
---------------------------------
Leo C. Farrenkopf, Jr.
Assistant Secretary
16
<PAGE>
Executed on December 10, 1993
METWEST INC.
By: /s/ Michael J. Bachich
---------------------------------
Michael J. Bachich
Vice President
/s/ Leo C. Farrenkopf, Jr.
---------------------------------
Leo C. Farrenkopf, Jr.
Assistant Secretary
17
<PAGE>
PLAN OF MERGER
OF
DAMON CLINICAL LABORATORIES, INC. (AZ)
INTO
METWEST INC.
PLAN OF MERGER adopted on December 15, 1993 by Damon Clinical
Laboratories, Inc. ("DCL-AZ"), a business corporation of the State of Arizona,
by resolution of its Board of Directors on said date, and adopted on December
15, 1993 by MetWest Inc. ("MetWest"), a business corporation of the State of
Delaware, by resolution of its Board of Directors on said date.
1. The Merger. Pursuant to the provisions of the General Corporation Law of the
State of Arizona ("AGCL") and the provisions of the General Corporation Law of
the State of Delaware ("DGCL"), DCL-AZ and MetWest shall be merged at the
Effective Time (as hereinafter defined) with and into a single corporation, to
wit, MetWest, which shall be the surviving corporation and which shall continue
to exist under the provisions of the DGCL. MetWest is sometimes hereinafter
referred to as the "Surviving Corporation." The separate corporate existence of
DCL-AZ shall cease at the Effective Time.
2. Effective Time. The Merger shall become effective (the "Effective Time") at
11:59 PM (Eastern Standard Time) on December 31, 1993 or, if later, upon the
filing of the Certificate Merger with the Secretary of State of Delaware in
accordance with the DGCL and the Articles of Merger with the Secretary of the
State of Arizona in accordance with the AGCL.
3. Outstanding Shares. The number of outstanding shares of DCL-AZ is 900, all of
which are of one class and are common shares, and all of which are entitled to
vote on this Plan of Merger.
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<PAGE>
The number of outstanding shares of MetWest is 100, all of which
are of one class and are common shares, and all of which are entitled to vote on
this Plan of Merger.
4. Certificate of Incorporation of the Surviving Corporation. The Certificate of
Incorporation of MetWest as in effect immediately prior to the Effective Time
shall, until thereafter and further amended as provided therein and under the
DGCL, be the Certificate of Incorporation of the Surviving Corporation.
5. By-Laws of the Surviving Corporation. The By-Laws of MetWest as in effect
immediately prior to the Effective Time shall, until thereafter and further
amended as provided therein and under the DGCL, be the By-Laws of the Surviving
Corporation.
6. Directors of the Surviving Corporation. The Directors of the Surviving
Corporation shall be the Directors of MetWest immediately prior to the Effective
Time, until their respective successors are duly elected and qualified.
7. Officers of the Surviving Corporation. The Officers of the Surviving
Corporation shall be the Officers of MetWest immediately prior to the Effective
Time, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified.
8. Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof:
(i) Each share of common stock of MetWest issued and outstanding
immediately prior to the Effective Time shall remain outstanding
and shall thereafter evidence one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
19
<PAGE>
(ii) Each outstanding share of common stock of DCL-AZ issued and
outstanding immediately prior to the Effective Time shall be
canceled without consideration.
9. Rights and Liabilities of the Surviving Corporation. At and after the
Effective Time, the Surviving Corporation shall succeed to and possess, without
further act or deed, all of the estate, rights, privileges, powers, and
franchises, both public and private, and all of the property, real, personal,
and mixed, of each of DCL-AZ and MetWest; all debts due to DCL-AZ shall be
vested in the Surviving Corporation; all claims, demands, property, rights,
privileges, powers and franchises and every other interest of DCL-AZ shall be
effectively the property of the Surviving Corporation as they were of DCL-AZ;
the title to any real estate vested by deed or otherwise in DCL-AZ shall not
revert or be in any way impaired by reason of the Merger, but shall be vested in
the Surviving Corporation; all rights of creditors and all liens upon any
property of DCL-AZ shall be preserved unimpaired, limited to the property
affected by such lien at the Effective Time of the Merger; and all debts,
liabilities, and duties of DCL-AZ shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
10. Submission to Shareholders. This Plan of Merger herein made and adopted
shall be submitted to the shareholders of DCL-AZ and MetWest for their approval
or rejection in the manner prescribed by the AGCL and DGCL.
11. Abandonment of Merger. This Plan of Merger may be terminated and abandoned
by joint action of the Board of Directors of MetWest and DCL-AZ at any time
prior to the Effective Time.
12. Further Actions. The proper officers of MetWest and DCL-AZ are hereby
authorized, empowered, and directed to do any and all acts and things, and to
make, execute, deliver, file and/or record any and all instruments, papers, and
documents which shall be or
20
<PAGE>
become necessary, proper, or convenient to carry out or put into effect any of
the provisions of this Plan of Merger.
21
<PAGE>
METWEST INC.
ARTICLES OF AMENDMENT
METWEST INC., a Delaware corporation having its principal office
in Dallas, Texas (hereinafter called the "Corporation"), hereby certifies that:
FIRST: The Certificate of Incorporation of the Corporation is hereby amended by
striking out ARTICLE FIFTH of the Articles of Incorporation and inserting in
lieu thereof the following:
"FIFTH: The total number of shares of stock which the Corporation
has authority to issue is three thousand (3,000) shares of common stock with no
par value."
SECOND: The Board of Directors of the Corporation, by written
consent to such action, adopted a resolution in which was set forth the
foregoing amendment to the Certificate of Incorporation declaring that said
Amendment to the Certificate of Incorporation was advisable and directing that
it be submitted for consideration thereon to the sole stockholder.
THIRD: A written consent setting forth approval of the amendment
to the Certificate of Incorporation of the Corporation hereinabove set forth,
was signed by the sole stockholder of the Corporation and such consent is filed
with the records of the Corporation.
FOURTH: The Articles of Amendment to the Certificate of
Incorporation of the Corporation is hereinabove set forth were duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
22
<PAGE>
IN WITNESS WHEREOF, said corporation has caused this certificate
to be signed in its name and on its behalf by its Vice President, and its
corporate seal to be hereunto affixed and attest by its Secretary on this 30th
day of April, 1996.
METWEST INC.
BY:/s/ Douglas M. Van Oort (SEAL)
---------------------------------
Douglas M. Van Oort, Vice President
ATTEST:/s/ Leo C. Farrenkopf, Jr., Secretary
---------------------------------------
Leo C. Farrenkopf, Jr., Secretary
23
ARTICLES OF INCORPORATION
OF
LAUREL MEDICAL LABORATORY, INC.
THIS IS TO CERTIFY:
FIRST: That we, the subscribers, DAVID B. RUDOW, 2424 Diana Road,
Baltimore, Maryland, 21209, R. DAVID ADELBERG, 3217 Timberfield Road, Baltimore,
Maryland 21208, and MICHAEL G. HENDLER, 8343 Church Lane, Baltimore, Maryland,
21207, each being of full age, do under and by virtue of the laws of the State
of Maryland authorizing the formation of corporations, associate ourselves with
the intention of forming a corporation.
SECOND: That the name of the Corporation (which is hereinafter
called the "Corporation"), is
LAUREL MEDICAL LABORATORY, INC.
THIRD: The purposes for which, and for any one or more of which
the Corporation is formed, and the business and objects to be carried on and
promoted, are as follows:
(a) To carry on the business of operating a medical
laboratory or laboratories and to engage generally in
the business of the operation of medical laboratories.
(b) To acquire all necessary franchises, licenses and
permits or any other evidences of authority to carry on
the business of the operation of a medical laboratory or
laboratories.
(c) To acquire, by purchase or otherwise, own, hold, buy,
sell, convey, lease, mortgage or encumber real estate or
other property, personal or mixed.
(d) To take, own, hold, yield, income, mortgage or otherwise
give liens against, and to sell, lease, exchange,
transfer or in any manner whatever to dispose of real
property within or without the State of Maryland,
wherever situated.
1
<PAGE>
(e) To acquire, by purchase, lease or otherwise, the
property rights, business, good will, franchises and
assets of every kind of any corporation, association,
firm or individual, carrying on in whole or in part the
aforesaid businesses, or any of them, or any other
business in whole or in part that the Corporation may be
authorized to carry on, and to undertake, guarantee,
assume and pay the indebtedness and liabilities thereof
and to pay for any property, rights, business, good
will, franchises and assets so acquired in the stock,
bonds or other securities of the Corporation or
otherwise.
(f) To carry on any other business in connection with the
foregoing whether directly or indirectly related
thereto.
(g) To carry on any other business which may seem to the
Corporation to be calculated directly or indirectly to
effectuate the aforesaid objects, or any of them, to
facilitate it in the transaction of the aforesaid
businesses, or any part thereof, or in the transaction
of any other business that may be calculated directly or
indirectly to enhance the value of its property and
rights; and to have and exercise all powers conferred by
the General Laws of the State of Maryland upon corpora-
tions formed thereunder, and to exercise and enjoy all
powers, rights and privileges granted to or conferred
upon corporations of this character by said General Laws
now or hereafter in force; the enumeration of certain
powers, as herein specified, not being intended to
exclude any such other powers, rights and privileges.
(h) To have one or more offices and places of business, and
to carry on all or any of its operations and business,
without restrictions or limit as to amount or place, in
any of the States, Districts, Territories or Colonies of
the United States, and in any and all foreign countries,
subject to the laws of such States, Districts,
Territories, Colonies or Countries.
The foregoing enumeration of the purposes, objects and business
of the Corporation is made in furtherance and not in limitation of the powers
conferred upon the Corporation by law, and it is not intended by the mention of
any particular purpose, object or business in any manner to limit or to restrict
the generality of any other purpose, object or business mentioned or to limit or
to restrict any of the powers of the Corporation, and the said Corporation shall
have, enjoy and exercise all of the powers and rights now or hereafter conferred
by statute upon corporations.
2
<PAGE>
The Corporation is formed upon the articles, conditions and
provisions herein expressed, and subject in all particulars to the limitations
relating to corporations which are contained in the General Laws of this State.
FOURTH: The place in which the principal office of the
Corporation will be located is 608 Washington Boulevard, Laurel, Maryland 20810.
The name and post office address of the Resident Agent is DAVID B. RUDOW, 10
Light Street, Baltimore, Maryland 21202. Said Resident agent is a citizen of
Maryland and actually resides therein.
FIFTH: The corporation shall have no less than three (3)
directors and DAVID B. RUDOW, R. DAVID ADELBERG and MICHAEL G. HENDLER shall act
as such until the first annual meeting, or until their successors are duly
chosen and qualify.
SIXTH: The total amount of authorized capital stock shall be five
thousand (5,000) shares of common stock, which shall have no nominal or par
value, all of one class.
SEVENTH: That the Board of Directors of the Corporation is hereby
empowered to authorize from time to time the issuance of shares of its common
stock of no par value for such consideration as the Board of Directors may deem
advisable, provided that when the consideration is other than money, the Board
of Directors shall state by resolution its opinion of the actual value thereof.
The Board of Directors shall have full power and authority to determine, from
time to time, what part of the consideration received upon the issue of common
stock, without par value, shall constitute capital and what part surplus.
EIGHTH: That no contract or other transaction between this
Corporation and any other corporation, whether or not a majority of the capital
stock of either corporation shall be owned by the other, shall be affected or
invalidated by reason of the fact that any one or more of the Board of Directors
of this Corporation is or are interested in or is a director or officer or are
directors or officers of such other corporation and any director or directors,
individually or jointly, may be a party or parties to or may be interested in
any contract or transaction of this Corporation, or in which this Corporation is
interested, and no contract, act or transaction of the Corporation with any
person or persons, firm or corporation, shall be affected or invalidated by the
fact that any director or directors of this Corporation is or are parties to, or
are interested in such contract, act or transaction, or in any way connected
with such person or persons, firm or corporation, and each and every
3
<PAGE>
person who may become a director of this Corporation is hereby relieved from any
liability that might otherwise exist from thus contracting with any other
corporation in which he may be in anywise interested, and any director of the
Corporation who is also a director or officer of such other corporation, or who
is so interested, may be counted in determining the existence of a quorum at any
meeting of the Board of Directors of this Corporation, which shall authorize any
such contract, act or transaction, with like force and effect as if he were not
a director or officer of such other corporation, or not so interested.
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, we have signed these Articles of
Incorporation, on this 1st day of April, 1969.
/s/ David B. Rudow (SEAL)
-----------------------------
David B. Rudow
/s/ R. David Adelberg (SEAL)
-----------------------------
R. David Adelberg
/s/ Michael G. Hendler (SEAL)
-----------------------------
Michael G. Hendler
STATE OF MARYLAND, CITY OF BALTIMORE, TO WIT:
I HEREBY CERTIFY, that on this 1st day of April, 1969, before me,
the subscriber, a Notary Public of the State of Maryland, in and for the City of
Baltimore, personally appeared DAVID B. RUDOW, R. DAVID ADELBERG and MICHAEL G.
HENDLER, the three (3) persons who signed the foregoing Articles of
Incorporation, and they acknowledged the same to be their act and deed.
AS WITNESS my hand and notarial seal.
/s/ Katherine L. Sinnett
-----------------------------
Katherine L. Sinnett - Notary Public
4
<PAGE>
LAUREL MEDICAL LABORATORY, INC.
ARTICLES OF AMENDMENT
THIS IS TO CERTIFY:
FIRST: That the Articles of Incorporation of Laurel Medical
Laboratory, Inc., a Maryland corporation, having its principal office in Laurel,
Maryland (hereinafter called the "Corporation"), are hereby amended by striking
out Article SECOND of the Articles of Incorporation and inserting in lieu
thereof the following:
"SECOND: That the name of the Corporation (which is hereinafter
called the "Corporation"), is
MARYLAND MEDICAL LABORATORY, INC."
SECOND: That the Board of Directors of the Corporation at a
meeting duly convened and held on June 15, 1970, duly advised the Amendment of
the Articles of Incorporation hereinabove set forth by passing a resolution
declaring that said Amendment is advisable and calling a meeting of the
Stockholders to take action thereon.
THIRD: That a meeting of the Stockholders of the Corporation,
called by the Board of Directors of the Corporation as aforesaid with due notice
in the manner provided by law, was held on June 15, 1970, and at said meeting
the Stockholders, by affirmative vote of all the holders of each share of class
outstanding and entitled to vote, duly adopted the Amendment of the Articles of
Incorporation of the Corporation hereinabove set forth.
FOURTH: The Amendment of the Charter of the Corporation as
hereinabove set forth has been duly advised by the Board of Directors and
approved by the Stockholders of the Corporation.
IN WITNESS WHEREOF, LAUREL MEDICAL LABORATORY, INC. has caused
these presents to be signed in its name and on its behalf by its President and
its corporate seal hereto attached, and attested by its Assistant Secretary, on
the 16th day of June, 1970.
ATTEST: LAUREL LABORATORY, INC.
/s/ M. Wilson Toll By: /s/ W. Bradley King
- ------------------------------------ -----------------------
M. Wilson Toll, Assistant Secretary W. Bradley King, President
5
<PAGE>
STATE OF MARYLAND, CITY OF BALTIMORE: to wit
I HEREBY CERTIFY, that on this 16th day of June, 1970, before me,
the subscriber, a Notary Public of the State of Maryland, in and for the City of
Baltimore, personally appeared W. BRADLEY KING, President of LAUREL MEDICAL
LABORATORY, INC., in the name of said Corporation and on behalf of said
Corporation acknowledged the foregoing Articles of Amendment to be the corporate
act and deed; and at the same time personally appeared M. WILSON TOLL, Assistant
Secretary of LAUREL MEDICAL LABORATORY, INC., and he made oath in due form of
law that he was the Secretary of the meeting of the Stockholders of the
Corporation at which the Amendment of the Articles of Incorporation of the
Corporation set forth in said Articles of Amendment were adopted, and that the
matters and facts set forth in said Articles of Amendment were true and correct
to the best of his personal knowledge, information and belief.
AS WITNESS, my hand and Notarial Seal.
-------------------------
NOTARY PUBLIC
6
<PAGE>
MARYLAND MEDICAL LABORATORY, INC.
ARTICLES OF AMENDMENT
MARYLAND MEDICAL LABORATORY, INC., a Maryland corporation having
its principal office in Baltimore, Maryland (hereinafter called, the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that
FIRST: The Charter of the Corporation is hereby amended by
striking out ARTICLE NINTH and inserting in lieu thereof the following:
"NINTH: No Directors or Officers of the Corporation shall be
liable to the Corporation or its Stockholders for money damages arising from any
act or omission of such Director or Officer in his or her capacity as Officer or
Director, except to the extent that (i) it is proved that the Director or
Officer actually received an improper benefit or profit in money, property, or
services actually received, or (2) a judgment or other final adjudication
adverse to the Director or Officer is entered in a proceeding based on a finding
in the proceeding that the Director's or Officer's action, or failure to act,
was the result of active and deliberate dishonesty and was material to the cause
of action adjudicated in the proceeding."
SECOND: The Charter of the Corporation is hereby amended by
adding ARTICLE TENTH as follows:
"TENTH: The duration of the Corporation shall be perpetual."
THIRD: The Board of Directors of the Corporation, by written
consent to such action, adopted a resolution in which was set forth the
foregoing amendment to the Charter declaring that said Amendment to the Charter
was advisable and directing that it be submitted for consideration thereon to
the Stockholders.
FOURTH: A written consent setting forth approval of the amendment
to the Charter of the Corporation hereinabove set forth, was signed by the
Stockholders of the Corporation and such consent is filed with the records of
the Corporation.
FIFTH: The Articles of Amendment to the Charter of the
Corporation as hereinabove set forth was advised by the Directors and approved
by the Stockholders of the Corporation.
7
<PAGE>
IN WITNESS WHEREOF, MARYLAND MEDICAL LABORATORY, INC., has caused
these presents to be signed in its name and on its behalf by its President, and
its corporate seal to be hereunto affixed and attested by its Secretary on this
1st day of May, 1988.
ATTEST: MARYLAND MEDICAL LABORATORY, INC.
/s/ Jacob M. Schorr, Ph.D. By: /s/ Selvin Passen, M.D.(SEAL)
- --------------------------------- -----------------------------------
JACOB M. SCHORR, Ph.D., Secretary SELVIN PASSEN, M.D., President
VERIFICATION
I DO SOLEMNLY DECLARE AND AFFIRM, under the penalties of perjury,
that the contents of the a foregoing document are true and correct to the best
of my knowledge, information and belief.
------------------------------
SELVIN PASSEN, M.D., President
8
<PAGE>
ARTICLES OF MERGER
BETWEEN
Maryland Medical Laboratory, Inc.
(a Maryland Corporation)
AND
MML/MetPath Inc.
(a Maryland Corporation)
Maryland Medical Laboratory, Inc., a corporation duty organized
and existing under the laws of the State of Maryland (the "Surviving
Corporation") and MML/MetPath Inc., a corporation duly organized and existing
under the laws of the State of Maryland ("CMS"), do hereby certify that:
FIRST: The Surviving Corporation and CMS agree to merge.
SECOND: The name and place of incorporation of each party to
these Articles are Maryland Medical Laboratory, Inc., a Maryland corporation,
and MML/MetPath Inc., a Maryland corporation. The Surviving Corporation shall
survive the merger and shall continue under the name Maryland Medical
Laboratory, Inc. as a corporation of the State of Maryland.
THIRD: The Surviving Corporation has its principal office in
Baltimore County. CMS has its principal office in Baltimore County.
FOURTH: The terms and conditions of the transaction set forth in
these Articles were advised, authorized, and approved by each corporation party
to the Articles in the manner and by the vote required by its Charter and the
laws of Maryland, the state of its incorporation. The manner of approval was as
follows:
(a) The Board of Directors of The Surviving Corporation by
written consent dated June 6, 1994, signed by all the Directors and filed with
the minutes of proceedings of the Board of Directors of the Surviving
Corporation, and the Board of Directors of CMS by written consent dated June 6,
1994, signed by all the Directors and filed with the minutes of proceedings of
the Board of Directors of CMS, each adopted a resolution which declared that the
proposed merger was advisable on substantially the terms and conditions set
forth or referred to in the resolution and directed that the proposed merger be
submitted for consideration by unanimous written consent of the stockholders of
respective parties.
9
<PAGE>
(b) By written consent dated June 6, 1994, signed by all of the
stockholders of the Surviving Corporation and by written consent dated June 6,
1994, signed by all of the stockholders of CMS and filed with the minutes of
proceedings of stockholders of each of them, the proposed merger was approved by
all the stockholders of each corporation.
FIFTH: (a) The Charter of the Surviving Corporation be and hereby
is amended by striking out ARTICLE THIRD through ARTICLE TENTH in their entirety
and inserting in lieu thereof the following:
THIRD: The purpose or purposes of the corporation shall be
to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State
of Maryland.
FOURTH: The address of the principal office of the
Corporation in Maryland is 1901 Sulphur Spring Road, Baltimore,
Maryland 21227. The name and address of the resident agent is The
Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a Maryland corporation.
FIFTH: The total number of shares of stock which the
Corporation has authority to issue is one thousand (1,000) shares
of common stock with no par value.
SIXTH: The initial number of directors of the Corporation
shall be two, which number may be increased or decreased pursuant
to the by-laws of the Corporation, and so long as there are fewer
than three (3) stockholders, the number of directors may be fewer
than three (3) but not fewer than the number of stockholders, and
the names of the initial directors who shall act until their
successors are duly chosen and qualified are:
Raymond Marier
Douglas M. VanOort
SEVENTH: The duration of the Corporation shall be perpetual.
(b) The By-Laws of CMS, as in effect immediately prior to the
Effective Date, shall, until further amended, be and constitute the By-Laws of
the Surviving Corporation.
(c) The Directors of CMS on the Effective Date shall be and
constitute the Directors of the Surviving Corporation, and shall hold office
until the next meeting of the stockholders of the Surviving Corporation called
for the election of Directors and until the election and qualification of their
respective successors or until their resignation or removal.
10
<PAGE>
(d) The Officers of CMS on the Effective date shall be and
constitute the officers of the Surviving Corporation, and shall hold office
until their successors shall have been elected and qualified or until their
resignation or removal.
SIXTH: The total number of shares of stock of all classes which
the Surviving Corporation has authority to issue is 5,000 shares, all of which
are Common Stock with no par value. All of the shares of stock of all classes of
the Surviving Corporation have no par value. The total number of shares of stock
of all classes which CMS has authority to issue is 1,000 shares, all of which
are Common Stock with no par value.
SEVENTH: The merger does not increase the authorized stock of the
Surviving Corporation.
EIGHTH: The manner and basis of converting or exchanging issued
stock of the merging corporations into different stock of a corporation, for
other consideration and the treatment of any issued stock of the merging
corporations not to be converted or exchanged are as follows:
(a) Each issued and outstanding share of the Common Stock of the
Surviving Corporation on the effective date shall be converted into 1,679.99452
shares of the Common Stock of Corning Incorporated of which CMS is a wholly
owned subsidiary and which CMS shall cause to be delivered in the merger.
(b) Each issued and outstanding share of Common Stock of CMS on
the effective date of the merger, shall upon effectiveness and without further
act, be converted into, and become one share of Common Stock of the Surviving
Corporation.
(c) As soon as practicable following the effective date of the
merger, each holder of issued and outstanding shares of Common Stock of the
Surviving Corporation and CMS shall be entitled to surrender to the Surviving
Corporation the certificates representing the shares of Common Stock of the
Surviving Corporation and CMS, respectively, held by such holder immediately
prior to effectiveness of the merger, and, upon such surrender, shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of Common Stock of Corning, Incorporated and
the Surviving Corporation, respectively deliverable in respect thereof.
NINTH: The merger shall become effective upon acceptance for
record by the State Department of Assessments and Taxation of Maryland.
11
<PAGE>
IN WITNESS WHEREOF, Maryland Medical Laboratory, Inc. and
MML/MetPath Inc. have caused these presents to be signed in their respective
names and on their respective behalves by their respective president and vice
president and witnessed on June 7, 1994.
WITNESS: Maryland Medical Laboratory, Inc.
(a Maryland corporation)
/s/ John K. Smith /s/ Selvin Passen
- ------------------------------ ------------------------------
President
WITNESS: MML/MetPath Inc.
(a Maryland corporation)
/s/ Margaret M. Dall /s/ Raymond C. Marier
- ------------------------------ ------------------------------
Asst. Secretary Vice President
12
<PAGE>
THE UNDERSIGNED, President of Maryland Medical Laboratory, Inc,
who executed on behalf of the Corporation the foregoing Articles of Merger of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Merger to be the corporate
act of said Corporation and hereby certifies that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ Selvin Passen, MD
------------------------------
President
THE UNDERSIGNED, Vice President of MML/MetPath Inc., who executed
on behalf of the Corporation the foregoing Articles of Merger of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Merger to be the corporate act of
said Corporation and hereby certifies that to the best of his knowledge,
information and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ Raymond C. Marier
------------------------------
Vice President
13
<PAGE>
ARTICLES OF MERGER
of
MARYLAND MEDICAL DATA, INC.
METPATH SERVICES CORPORATION
PODIATRIC PATHOLOGY LABORATORIES, INC.
and
MARYLAND MEDICAL LABORATORY, INC.
FIRST: Maryland Medical Data, Inc., MetPath Services Corporation,
Podiatric Pathology Laboratories, Inc., and Maryland Medical Laboratory, Inc.,
being the corporations which are the parties to these Articles of Merger, do
hereby agree to effect a merger of said corporations upon the terms and
conditions herein set forth.
SECOND: The name of the successor corporation is Maryland Medical
Laboratory, Inc. which is a corporation incorporated in the State of Maryland
under the provisions of the Maryland General Corporation Law with its principal
office in the State of Maryland located in Baltimore City, and which will
continue its corporate existence under the name Corning Clinical Laboratories
Inc., pursuant to the provisions of the Maryland General Corporation Law.
THIRD: The names of the corporations to be merged into the
successor corporation are Maryland Medical Data, Inc. ("MMD"), MetPath Services
Corporation ("MSC") and Podiatric Pathology Laboratories, Inc. ("PPL"), each of
which is a corporation incorporated in the State of Maryland under the
provisions of the Maryland General Corporation Law with its principal office in
the State of Maryland located in Baltimore City, and the corporate existence of
which will cease upon the effective date of the merger pursuant to the
provisions of the Maryland General Corporation Law. MML owns an interest in land
in Baltimore County. MSC, MMD and PPL do not own any interest in land in the
State of Maryland.
FOURTH: The amendments to the charter of Maryland Medical
Laboratories, Inc., which are to be effected as part of the merger are to strike
out Article Second of said charter and to substitute the following new Article
Second.
"Second: The name of the Corporation (which is hereinafter called
the "Corporation") is CORNING CLINICAL LABORATORIES INC."
FIFTH: The authorized share structure of each of the corporations
which is a party to these Articles of Merger at the time of execution thereof is
as follows:
14
<PAGE>
Company Authorized Shares Per Share Par Value
Maryland Medical Laboratory, Inc. 1,000 $0.00
Maryland Medical Data, Inc. 1,000 $0.00
MetPath Services Corporation 1,000 $0.00
Podiatric Pathology Laboratories, Inc. 1,000 $0.00
SIXTH: Each issued share of stock of MNO, MSC and PPL shall, upon
the effective date of the merger, be cancelled without consideration. The issued
shares of stock of MML shall not be converted or exchanged in any manner, but
each said share which is issued as of the effective date of the merger shall
continue to represent one issued share of stock of MML.
SEVENTH: The terms and conditions of the merger herein set forth
were advised, authorized, and approved by each of MMD, MSC, PPL, and MML in the
manner and by the vote required by its charter and the provisions of the
Maryland General Corporation Law, and the said merger was approved in the manner
hereinafter set forth.
EIGHTH: The merger was duly advised by the Board of Directors of
each of MSC, PPL and in the following manner. The Board of Directors of each of
MMD, MSC, PPL and adopted a resolution declaring that the merger of MMD, MSC and
PPL into is advisable on substantially the terms and conditions set forth or
referred to in said resolution. Said resolution of the Board of Directors was
adopted without a meeting by a written consent dated as of December 6, 1994 and
signed by all of the members of the Board of Directors.
NINTH: The Board of Directors of each of MNM, MSC, PPL and
directed the Secretary of the corporation to prepare a written notice of the
time, place, and purpose of a meeting of stockholders to take action upon the
proposed merger and the aforesaid terms and conditions and to furnish a copy of
said notice to all of the stockholders of the corporation entitled to vote upon
the proposed merger and the aforesaid terms and conditions unless said
stockholders shall duly waive notice of the meeting.
TENTH: The merger and the aforesaid terms and conditions were
duly approved by the stockholders of each of MMD, MSC, PPL and MML in the
following manner. All of the stockholders entitled to vote thereon approved the
same without a meeting by a written consent signed by them.
ELEVENTH: The effective date of the merger herein provided for
shall be 11:59 PM on December 30, 1994.
IN WITNESS WHEREOF, these Articles of Merger are hereby signed
for and on behalf of each of Maryland Medical Data, Inc., MetPath Services
Corporation, Podiatric
15
<PAGE>
Pathology Laboratories, Inc. and Maryland Medical Laboratory, Inc. by its Vice
President, who does hereby acknowledge that said Articles of Merger are the act
of said corporation, and who does hereby state under the penalties for perjury
that the matters and facts set forth therein with respect to authorization and
approval of said merger are true in all material respects to the best of his
knowledge, information, and belief.
16
<PAGE>
Executed on December 6, 1994
Attest: MARYLAND MEDICAL LABORATORY, INC.
/s/ Leo C. Farrenkopf By: /s/ James D. Chambers
- --------------------- -------------------------
Leo C. Farrenkopf James D. Chambers
Vice-President
Attest: METPATH SERVICES CORPORATION
/s/ Leo C. Farrenkopf By: /s/ James D. Chambers
- --------------------- -------------------------
Leo C. Farrenkopf James D. Chambers
Vice-President
Attest: PODIATRIC PATHOLOGY LABORATORIES, INC.
/s/ Leo C. Farrenkopf By: /s/ James D. Chambers
- --------------------- -------------------------
Leo C. Farrenkopf James D. Chambers
Vice-President
Attest: MARYLAND MEDICAL DATA, INC.
/s/ Leo C. Farrenkopf By: /s/ James D. Chambers
- --------------------- -------------------------
Leo C. Farrenkopf James D. Chambers
Vice-President
17
<PAGE>
CORNING CLINICAL LABORATORIES INC.
ARTICLES OF AMENDMENT
CORNING CLINICAL LABORATORIES INC., a Maryland corporation having its
principal office in Baltimore, Maryland (hereinafter called, the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Charter of the Corporation is hereby amended by striking
out ARTICLE FIFTH and inserting in lieu thereof the following:
"FIFTH: The total number of shares of stock which the
Corporation has authority to issue is two thousand (2,000)
shares of common stock with no par value."
SECOND: The Board of Directors of the Corporation, by written consent
to such action, adopted a resolution in which was set forth the foregoing
amendment to the Charter declaring that said Amendment to the Charter was
advisable and directing that it be submitted for consideration thereon to the
Stockholders.
THIRD: A written consent setting forth approval of the Amendment to
the Charter of the Corporation hereinabove set forth, was signed by the
Stockholders of the Corporation and such consent is filed with the records of
the Corporation.
FOURTH: The Articles of Amendment to the Charter of the Corporation as
hereinabove set forth were advised by the Directors and approved by the
Stockholders of the Corporation.
IN WITNESS WHEREOF, CORNING CLINICAL LABORATORIES INC., has caused
these presents to be signed in its name and on its behalf by its Vice President,
and its
18
<PAGE>
corporate seal to be hereunto affixed and attested by its Secretary as of this
1st day of January 1995.
ATTEST: CORNING CLINICAL LABORATORIES, INC.
/s/ Leo C. Farrenkopf By: /s/ Douglas M. VanOort
- --------------------- ----------------------------------
Leo C. Farrenkopf Douglas M. VanOort
Vice-President
VERIFICATION
I DO SOLEMNLY DECLARE AND AFFIRM, under the penalties of perjury, that
the contents of the foregoing document are true and correct to the best of my
knowledge, information and belief.
/s/ Douglas M. VanOort
----------------------------------
Douglas M. VanOort, Vice President
19
ARTICLES OF INCORPORATION
OF
NICHOLS INSTITUTE PRODUCTS
I
The name of this corporation is NICHOLS INSTITUTE PRODUCTS.
II
The purposes for which this corporation is formed are:
(a) To engage primarily in the business of development,
manufacture and distribution of reagents and materials used in
medical diagnostic laboratories.
(b) To manufacture, buy, sell, assemble, distribute, and to
otherwise acquire, or to own, hold, use, sell, assign,
transfer, exchange, lease, license or otherwise dispose of,
and to invest, trade, deal in and with goods, wares,
merchandise, building materials, supplies and all other
property of every class and description.
(c) To purchase, acquire, own, hold, use, lease, either as
lessor or lessee, rent, sublet, grant, sell, exchange,
subdivide, mortgage, deed in trust, manage, improve,
cultivate, develop, maintain, construct, operate, and
generally deal
<PAGE>
2
in, any and all real estate, improved or unimproved, stores,
office buildings, dwelling houses, boarding houses, apartment
houses, hotels, business blocks, garages, warehouses,
manufacturing plants, and other buildings of any kind or
description, and any and all other property of every kind or
description, real, personal and mixed, and any interest or
right therein, including water and water rights, wheresoever
situated, either in California, other states of the United
States, the District of Columbia, territories and possessions
of the United States and foreign countries.
(d) To purchase, acquire, take, hold, own, use and enjoy, and
to sell, lease, transfer, pledge, mortgage, convey, grant,
assign or otherwise dispose of, and generally to invest,
trade, deal in and with oil royalties, mineral rights of all
kinds, mineral bearing lands and hydrocarbon products of all
kinds, oil, gas and mineral leases, and all rights and
interests therein, and in general products of the earth and
deposits, both subsoil and surface, of every nature and
description.
(e) To enter into, make, perform and carry out contracts of
every kind for any lawful purpose without limit as to amount,
with any person, firm, association or corporation,
municipality, county, parish, state, territory, government
(foreign or domestic) or other municipal or governmental
<PAGE>
3
subdivision.
(f) To become a partner (either general or limited or both)
and to enter into agreements of partnership, with one or more
other persons or corporations, for the purpose of carrying on
any business whatsoever which this corporation may deem proper
or convenient in connection with any of the purposes herein
set forth or otherwise, or which may be calculated, directly
or indirectly, to promote the interest of this corporation or
to enhance the value of its property or business.
(g) To acquire, by purchase or otherwise, the goodwill,
business, property rights, franchises and assets of every
kind, with or without undertaking, either wholly or in part,
the liabilities of any person, firm, association or
corporation; and to acquire any property or business as a
going concern or otherwise, (i) by purchase of the assets
thereof wholly or in part, (ii) by acquisition of the shares
or any part thereof, or (iii) in any other manner; and to pay
for the same in cash or in the shares or bonds or other
evidences of indebtedness of this corporation, or otherwise;
to hold, maintain and operate, or in any manner dispose of the
whole or any part of the goodwill, business, rights and
property so acquired, and to conduct, in any lawful manner,
the whole or any part of any business so acquired; and to
exercise all the powers
<PAGE>
4
necessary or convenient in and about the management of such
business.
(h) To take, purchase and otherwise acquire, own, hold, use,
sell, assign, transfer, exchange, lease, mortgage, convey in
trust, pledge, hypothecate, grant licenses in respect of and
otherwise dispose of letters patent of the United States or
any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, copyrights, trademarks
and trade names, and government, state, territorial, county
and municipal grants and concessions of every character which
this corporation may deem advantageous in the prosecution of
its business or in the maintenance, operation, development or
extension of its properties.
(i) From time to time to apply for, purchase, acquire by
assignment, transfer or otherwise, exercise, carry out and
enjoy any benefit, right, privilege, prerogative or power
conferred by, acquired under or granted by any statute,
ordinance, order, license, power, authority, franchise,
commission, right or privilege which any government or
authority or governmental agency or corporation or other
public body may be empowered to enact, make or grant; to pay
for, aid in, and contribute toward carrying the same into
effect; and to appropriate any of this corporation's shares,
bonds and/or assets to defray the costs, charges and expenses
thereof.
<PAGE>
5
(j) To subscribe or cause to be subscribed for, and to take,
purchase and otherwise acquire, own, hold, use, sell, assign,
transfer, exchange, distribute and otherwise dispose of, the
whole or any part of the shares of the capital stock, bonds,
coupons, mortgages, deeds of trust, debentures, securities,
obligations, evidences of indebtedness, notes, goodwill,
rights, assets and property of any and every kind, or any part
thereof of any other corporation or corporations, association
or associations, firm or firms, or person or persons, together
with shares, rights, units or interests in or in respect of
any trust estate, now or hereafter existing, and whether
created by the laws of the State of California or any other
state, territory or country; and to operate, manage and
control such properties, or any of them, either in the name of
such other corporation or corporations or in the name of this
corporation, and, while the owner of any of said shares of
capital stock, to exercise all of the rights, powers and
privileges of ownership of every kind and description,
including the right to vote thereon, with power to designate
some person or persons for that purpose from time to time, and
to the same extent as natural persons might or could do.
(k) To promote or to aid in any manner, financially or
otherwise, any person, firm, corporation or association of
which any shares of stock, bonds, notes, debentures or other
securities or evidences of indebtedness are held
<PAGE>
6
directly or indirectly by this corporation; and for this
purpose to guarantee the contracts, dividends, shares, bonds,
debentures, notes and other obligations of such other persons,
firms, corporations or associations; and to do any other acts
or things designed to protect, preserve, improve or enhance
the value of such shares, bonds, notes, debentures or other
securities or evidences of indebtedness.
(l) To borrow and lend money, but nothing herein contained
shall be construed as authorizing the business of banking, or
as including the business purposes of a commercial bank,
savings bank or trust company.
(m) To issue bonds, notes, debentures or other obligations of
this corporation from time to time for any of the objects or
purposes of this corporation, and to secure the same by
mortgage, deed of trust, pledge or otherwise, or to issue the
same unsecured; to purchase or otherwise acquire its own
bonds, debentures or other evidences of its indebtedness or
obligations; to purchase, hold, sell, and transfer the shares
of its own capital stock to the extent and in the manner
provided by the laws of the State of California as the same
are now in force or may be hereafter amended.
(n) To conduct and carry on, directly or indirectly,
research, development
<PAGE>
7
and promotional or experimental activities, and to promote or
aid financially or otherwise, any person, firm or corporation
engaged in such activities, or any of them.
(o) To carry on any business whatsoever, either as principal,
agent or partner, which this corporation may deem proper or
convenient in connection with any of the foregoing purposes or
otherwise, or which may be calculated directly or indirectly
to promote the interests of this corporation or to enhance the
value of its property or business; and to conduct its business
in this State, in other states, in the District of Columbia,
in the territories and possessions of the United States, and
in foreign countries.
(p) To have and to exercise all the powers conferred by the
laws of California upon corporations formed under the laws
pursuant to and under which this corporation is formed, as
such laws are now in effect or may at any time hereafter be
amended.
The foregoing statement of purposes shall be construed as a
statement of both purposes and powers, and the purposes and powers stated in
each clause shall, except where otherwise expressed, be in nowise limited or
restricted by any reference to or inference from the terms or provisions of any
other clause, but shall be regarded as independent purposes
<PAGE>
8
and powers.
III
The County in the State of California where the principal office for the
transaction of the business of this corporation is to be located is Los Angeles
County.
IV
(a) This corporation is authorized to issue an aggregate of Seven Hundred Fifty
Thousand (750,000) shares of Common Stock, all of one class. The aggregate par
value of said shares shall be Seventy-Five Thousand Dollars ($75,000) and the
par value of each of said shares shall be Ten Cents ($0.10).
(b) No holder of shares of any class of this corporation shall, as such
shareholder, have any right to purchase or subscribe for any shares of this
corporation which it may issue or sell, whether out of the number of shares
authorized by the articles of incorporation of this corporation as originally
filed or by any amendment thereof, or out of shares of this corporation acquired
by it after the issue thereof; nor shall any holder of shares of any class, as
such shareholder, have any right to purchase or subscribe for any obligation
which this corporation may issue or sell that shall be convertible into, or
exchangeable for, any shares of this corporation, or to which shall be attached
or appertain to any warrant or warrants or other instrument or instruments that
shall confer upon the holder or owner of such warrant
<PAGE>
9
the right to subscribe for, or purchase from this corporation, any shares of
this corporation.
V
(a) The number of directors of this corporation shall be four (4) until changed
by amendment to these Articles or by a by-law adopted by the shareholders.
(b) The names and addresses of the persons who are appointed to act as the first
directors of this corporation are:
Name Address
- ---- -------
Albert L. Nichols, M.D. 1300 South Beacon Street, Suite 122
San Pedro, California 90731
Albert A. Nichols 1300 South Beacon Street, Suite 122
San Pedro, California 90731
Richard Horton, M.D. 1300 South Beacon Street, Suite 122
San Pedro, California 90731
Horton S. Mullins 1300 South Beacon Street, Suite 122
San Pedro, California 90731
VI
Any action required or permitted to be taken by the board of directors under any
provision of the California General Corporation Law may be taken without a
meeting, if all members of the board shall individually or collectively consent
in writing to such action. Such written consent or consents shall be filed with
the minutes of the proceedings of the board.
<PAGE>
10
IN WITNESS WHEREOF, for the purpose of forming this
corporation under the laws of the State of California, the undersigned,
constituting the incorporators of this corporation, including the persons named
hereinabove as the first directors of this corporation, have executed these
Articles of Incorporation this 18 day of September, 1974.
/s/ Albert L. Nichols, M.D.
--------------------------------------
Albert L. Nichols, M.D.
/s/ Albert A. Nichols
--------------------------------------
Albert A. Nichols
See next page
--------------------------------------
Richard Horton, M.D.
/s/ Donald S. Mullins
--------------------------------------
Donald S. Mullins
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 18th day of September, 1974, before me, the
undersigned Notary Public in and for said County and State, residing therein,
duly commissioned and sworn, personally appeared Albert L. Nichols, M.D., Albert
A. Nichols, and Donald S. Mullins known to me to be the persons whose names are
subscribed to the foregoing Articles of Incorporation, and acknowledged to me
that they executed the same.
WITNESS my hand and official seal.
/s/ Gary G. French
--------------------------------------
Notary Public
<PAGE>
11
IN WITNESS WHEREOF, for the purpose of forming this
corporation under the laws of the State of California, the undersigned,
constituting the incorporators of this corporation, including the persons named
hereinabove as the first directors of this corporation, have executed these
Articles of Incorporation this 19 day of September, 1974.
See previous page
------------------------------------
Albert L. Nichols, M.D.
See previous page
------------------------------------
Albert A. Nichols
/s/ Richard Horton, M.D.
------------------------------------
Richard Horton, M.D.
See previous page
------------------------------------
Donald S. Mullins
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On this 19th day of September, 1974, before me, the
undersigned Notary Public in and for said County and State, residing therein,
duly commissioned and sworn, personally appeared Richard Horton, M.D. known to
me to be the persons whose names are subscribed to the foregoing Articles of
Incorporation, and acknowledged to me that they executed the same.
WITNESS my hand and official seal.
/s/ Judith M. Swayne
------------------------------------
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
NICHOLS INSTITUTE PRODUCTS
A California corporation
Albert L. Nichols, M.D. and Albert A. Nichols certify:
1. That they are the President and Secretary, respectively, of
Nichols Institute Products, a California corporation (the "Corporation"),
2. That the By-Laws of the Corporation authorize the Directors
to adopt, by unanimous written consent without a meeting, resolutions amending
the Articles of Incorporation; and, therefore, by unanimous written consent
without a meeting, the Directors did adopt the following resolutions amending
the Articles of Incorporation:
WHEREAS, Article IV of the Articles of Incorporation
of this Corporation presently authorized seven hundred fifty
thousand (750,000) shares of Common Stock, ten cent ($.10) par
value; and
WHEREAS, it is deemed in the best interests of this
Corporation to increase the authorized number of shares of
Common Stock from seven hundred fifty thousand (750,000)
shares to two million (2,000,000) shares of Common Stock and
to change the par value per share from ten cents ($.10) per
share to one cent ($.01); and
WHEREAS, it is deemed in the best interests of this
Corporation to make provision authorizing a class of Preferred
Stock consisting of five hundred thousand (500,000) shares
with a par value of one dollar ($1.00) per share; and
WHEREAS, it is deemed in the best interest of this
Corporation to increase the number of outstanding shares by
effecting a split of each
<PAGE>
2
outstanding share in fifty (50) shares;
NOW, THEREFORE, BE IT RESOLVED: that Article IV of
the Articles of Incorporation is hereby amended to read in
full as follows:
"(a) This corporation is authorized to issue two
classes of shares to be designated respectively "Preferred"
and "Common"; the total number of shares which this
Corporation shall have authority to issue is two million five
hundred thousand (2,500,000), and the aggregate par value of
all shares that are to have par value shall be five hundred
twenty thousand dollars ($520,000); the number of Preferred
Shares that are to have a par value share be five hundred
thousand (500,000) and the par value of each share of such
class shall be one dollar ($1.00); and the number of Common
Shares that are to have a par value shall be two million
(2,000,000) and the par value of each share of such class
shall be one cent ($.01). Upon amendment of this article to
read as hereinabove set forth, each outstanding share of
Common Stock, ten cent ($.10), par value is split up and
converted into fifty (50) shares of Common Stock one cent
($.01) par value."
"(b) The Preferred shares may be issued from time to
time in one or more series. The board of directors is hereby
authorized to fix or alter the dividend rights, rights and
terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of
any wholly unissued series of Preferred shares, and the number
of shares constituting any such series and the designation
thereof, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issue of
shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they
had prior to the adoption of the number of shares of such
series."
3. That the stockholders of this Corporation have adopted the
foregoing resolutions at a meeting held at Rancho Palos Verdes, California on
October 12, 1976. That the wording of the amended article, as set forth in the
Shareholder's Resolution, is the same as that set forth in the Director's
Resolution in Paragraph 2, above.
<PAGE>
3
4. That the number of shares which voted affirmatively for the
adoption of said resolutions is 8266 ( ) and that the total number of shares
entitled to vote on or to consent to said amendment is ten thousand six hundred
ninety-three (10,693).
/s/ Albert L. Nichols, M.D.
----------------------------------
ALBERT L. NICHOLS, M.D., PRESIDENT
/s/ Albert A. Nichols
----------------------------------
ALBERT A. NICHOLS, SECRETARY
Each of the undersigned declares under penalty of perjury that
the matters set forth in the foregoing certificate are true and correct.
Executed at Los Angeles, California on this 13th day of October, 1976.
/s/ Albert L. Nichols, M.D.
----------------------------------
ALBERT L. NICHOLS, M.D., PRESIDENT
/s/ Albert A. Nichols
----------------------------------
ALBERT A. NICHOLS, SECRETARY
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
ALBERT L. NICHOLS, M.D. and ALBERT A. NICHOLS certify that:
1. They are the President and the Secretary, respectively, of
NICHOLS INSTITUTE PRODUCTS, a California Corporation.
2. Article I of the Articles of Incorporation of this
Corporation is amended to read as follows:
"The name of this corporation is:
NICHOLS INSTITUTE DIAGNOSTICS".
3. Paragraph (a) of Article V of the Articles of Incorporation
of this corporation is amended to read as follows:
"(a) The number of directors of this Corporation
shall be no less than five (5) nor more than eight
(8). Within said range, the board of directors shall
have the power to fix the exact number of directors;
provided, however, that until the board of directors
acts to fix such number, the number of directors
shall be five (5).
4. The foregoing amendments of Articles of Incorporation has
been duly approved by the board of directors.
5. The foregoing amendments of Articles of Incorporation has
been duly approved by the required vote of shareholders in accordance with
Section 902 of the
<PAGE>
2
Corporations Code. The total number of outstanding shares of the corporation is
582,150. The number of shares voting in favor of the amendments equaled or
exceeded the vote required. The percentage vote required was more than 50%.
/s/ Albert L. Nichols, M.D.
----------------------------------
ALBERT L. NICHOLS, M.D.
/s/ Albert A. Nichols
----------------------------------
ALBERT A. NICHOLS
The undersigned declare under penalty of perjury that the matters set
forth in the foregoing Certificates are true of their own knowledge.
EXECUTED at San Pedro, California on this 9th day of August,
1977.
Albert L. Nichols, M.D.
----------------------------------
ALBERT L. NICHOLS, M.D.
Albert A. Nichols
----------------------------------
ALBERT A. NICHOLS
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
ALBERT L. NICHOLS and MARILYN I. HAUGE certify that:
1. They are the president and the secretary, respectively, of NICHOLS
INSTITUTE DIAGNOSTICS, a California corporation.
2. Article VII is added to the articles of incorporation of this
corporation to read as follows:
"The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent
permissible under California law."
3. The foregoing amendment of articles of incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of articles of incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902 of the Corporations Code. The total number of
outstanding shares of the corporation is 1,000. The number of
shares voting in favor of the amendment equaled or exceeded the
vote required. The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: May 11, 1988
Albert L. Nichols, M.D.
----------------------------------
Albert L. Nichols, M.D., President
Albert A. Nichols
----------------------------------
Albert A. Nichols, Secretary
The Commonwealth of Massachusetts
JOHN F. X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE
BOSTON, MASS.
ARTICLES OF ORGANIZATION
(Under G.L. Ch. 156B)
Incorporators
NAME POST OFFICE ADDRESS
Include given name in full in case of natural persons; in case of a corporation,
give state of incorporation.
Constantine Alexander 75 Federal Street
Boston, MA 02110
The above-named incorporator does hereby act with the intention of
forming a corporation under the provisions of General Laws, Chapter 156B and
hereby state(s):
1. The name by which the corporation shall be known is:
Damon Medical Instruments Corporation
2. The purposes for which the corporation is formed are as follows:
To manufacture, buy, trade, sell, deal in
all respects with reference to all kinds and
varieties of mechanical appliances, instruments,
medical laboratory instruments, machines and
products, and to carry on any business permitted by
the laws of the Commonwealth of Massachusetts to a
corporation organized under Chapter 156B.
NOTE: If provisions for which the space provided under Articles 2, 4, 5 and 6 is
not sufficient additions should be set out on continuation sheets to be numbered
2A, 2B, etc. Indicate under each Article where the provision is set out.
Continuation sheets shall be on 8 1/2" x 11" paper and must have a left-hand
margin 1 inch wide for binding. Only one side should be used.
1
<PAGE>
3. The total number of shares and the par value, if any, of each
class of stock which the corporation is authorized is as follows:
================================================================================
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK
----------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES PAR AMOUNT
VALUE
- --------------------------------------------------------------------------------
Preferred None None $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common 7,500 None
================================================================================
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges
as to each class thereof and any series now established:
None
*5. The restrictions, if any, imposed by the Articles of Organization
upon the transfer of shares on stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of
the business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers
of the corporation, or of its directors or stockholders, or of any
class of stockholders:
The directors may make, amend, or repeal the By-laws in
whole or in part, except with respect to any provision thereof
which by law or the By-laws requires action by the stockholders.
Meetings of the stockholders of the corporation may be held
anywhere in the United States.
2
<PAGE>
7. By-laws of the corporation have been duly adopted and the initial
directors, president, treasurer and clerk, whose names are set out
below, have been duly elected.
8. The effective date of organization of the corporation shall be the
date of filing with the Secretary of the Commonwealth or if later
date is desired, specify date (not more than 30 days after date of
filing).
9. The following information shall not for any purpose be treated as
a permanent part of the Articles of Organization of the
corporation.
a. The post office address of the initial principal office of
the corporation in Massachusetts is:
Route One, Industrial Park, Westwood, Massachusetts
b. The name, residence, and post office address of each of the
initial directors and following officers of the corporation
are as follows:
NAME RESIDENCE POST OFFICE ADDRESS
44 Littlefield Rd. 44 Littlefield Rd.
President: David I. Kosowsky Newton Center, MA Newton Center, MA
- --------------------------------------------------------------------------------
519 Washington St. 519 Washington St.
Treasurer: Allan B. Beitchman Brookline, MA Brookline, MA
- --------------------------------------------------------------------------------
115 Shornecliffe Rd. 115 Shornecliffe Rd.
Clerk: Samuel Frankenheim Newton, MA Newton, MA
- --------------------------------------------------------------------------------
44 Littlefield Rd. 44 Littlefield Rd.
Directors: David I. Kosowsky Newton Center, MA Newton Center, MA
- --------------------------------------------------------------------------------
Allan B. Beitchman 519 Washington St. 519 Washington St.
Brookline, MA Brookline, MA
- --------------------------------------------------------------------------------
Samuel Frankenheim 115 Shornecliffe Rd. 115 Shornecliffe Rd.
Newton, MA Newton, MA
- --------------------------------------------------------------------------------
Carl R. Hurtig Woodworth Lane Woodworth Lane
Greenbush, MA Greenbush, MA
- --------------------------------------------------------------------------------
c. The date initially adopted on which the corporation's fiscal year
ends is:
3
<PAGE>
August 31
d. The date initially fixed in the by-laws for the annual meeting of
stockholders of the corporation is:
Third Tuesday in December
e. The name and business address of the resident agent, if any, of
the corporation is:
None
IN WITNESS WHEREOF and under the penalties of perjury the above-named
INCORPORATOR(S) sign(s) these Articles of Organization this 26th day of May
1971.
/s/ Constantine Alexander
--------------------------
The signature of each incorporator which is not a natural person must be by an
individual who shall show the capacity in which he acts and by signing shall
represent under the penalties of perjury that he is duly authorized on its
behalf to sign these Articles of Organization.
4
<PAGE>
The Commonwealth of Massachusetts
JOHN F. X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE
BOSTON, MASS.
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
-------------
We, David I. Kosowsky , President and
Samuel Frankenheim , Clerk of
Damon Medical Instruments Corporation
-------------------------------------
(Name of Corporation)
located at Route One Industrial Park, Westwood, Massachusetts
---------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted May 27, 1971,
by the sole incorporator of the corporation, none of the stock of the
corporation having then been issued.
"That, effective when proper Articles of Amendment
are duly filed with the Secretary of the Commonwealth, the name of the
corporation is hereby changed to Damon Medical Instrumentation, Inc."
5
<PAGE>
The foregoing amendment will become effective when these articles are
filed in accordance with Chapter 156B, Section 6 of the general Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 22nd day of July, in the year 1971.
/s/ David I. Kosowsky , President
---------------------------
/s/ Samuel Frankenheim , Clerk
---------------------------
6
<PAGE>
The Commonwealth of Massachusetts
PAUL GUZZI FEDERAL IDENTIFICATION
Secretary of the Commonwealth NO. 042283603
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
-----------
We, James S. Kennedy, Jr. , President and
Sarah M. Gallivan , Clerk of
Damon Medical Instrumentation, Inc.
-----------------------------------
(Name of Corporation)
located at 115 Fourth Avenue, Needham Heights, Massachusetts 02194
--------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on May 12, 1978, by vote
of
100 shares of Common out of 100 shares outstanding,
- ---------- -------------- -------------
(Class of Stock)
"That effective when Articles of Amendment are duly filed with the
Secretary of the Commonwealth, the name of the corporation is hereby
changed to Nomad Massachusetts, Inc."
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of the General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more
7
<PAGE>
than thirty days after such filing, in which event the amendment will become
effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 19th day of May, in the year 1978
/s/ James S. Kennedy, Jr. , President
James S. Kennedy, Jr.
/s/ Sarah M. Gallivan , Assistant Clerk
Sarah M. Gallivan
8
- --------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
- --------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
SEP 23 1996
- ---------------------------------------------------- FILED
SEP 23 1996
- ---------------------------------------------------- Administrator
PH. 517-663-2525 Ref #64806
MI DEPARTMENT OF CONSUMER &
Attn: Cheryl J. Bixby ----------- INDUSTRY SERVICES CORPORATION,
MICHIGAN RUNNER SERVICE SECURITIES & LAND DEVELOPMENT
P.O. Box 266 ----------- BUREAU
Eaton Rapids, MI 48827-0266 Zip Code EFFECTIVE DATE:
- --------------------------------------------------------------------------------
^Document will be returned to the name and address you enter above ^
-----------------------------
4 2 0 - 9 4 0
-----------------------------
ARTICLES OF INCORPORATION
For use by Domestic Profit Corporations
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following Articles:
ARTICLE I
- --------------------------------------------------------------------------------
The name of the corporation is:
Quest Diagnostics Incorporated
- --------------------------------------------------------------------------------
ARTICLE II
- --------------------------------------------------------------------------------
The purpose or purposes for which the corporation is formed is to engage in any
activity within the purposes for which corporations may be formed under the
Business Corporation Act of Michigan.
The purpose or purposes for which the corporation is formed is to engage in any
activity within the purposes for which corporations may be formed under the
Business Corporation Act of Michigan.
- --------------------------------------------------------------------------------
ARTICLE III
- --------------------------------------------------------------------------------
The total authorized shares:
1. Common Shares 1,000
Preferred Shares
2. A statement of all or any of the relative rights, preferences, and
limitations of the shares of each class is as follows:
- --------------------------------------------------------------------------------
(MICH. - 179 - 12/16/93)CT System
<PAGE>
ARTICLE IV
- --------------------------------------------------------------------------------
1. The address of the registered office is:
30600 Telegraph Road,
Bingham Farms, Michigan 48025
2. The mailing address of the registered office, if different than above:
3. The name of the resident agent at the registered office is:
THE CORPORATION COMPANY
- --------------------------------------------------------------------------------
ARTICLE V
- --------------------------------------------------------------------------------
Name Residence or Business Address
Cynthia Montalvo 1633 Broadway, New York, New York 10019
- --------------------------------------------------------------------------------
Kim Wasilewski 1633 Broadway, New York, New York 10019
- --------------------------------------------------------------------------------
Timothy E. Carlson 1633 Broadway, New York, New York 10019
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE VI (Optional. Delete if not applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE VII (Optional. Delete if not applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(MICH. - 179 - 12/16/93)CT System
<PAGE>
Use space below for additional Articles or for continuation of previous
Articles. Please identify any Article being continued or added. Attach
additional pages if needed.
I, (We), the incorporator(s) sign my (our) name(s) this 19th day of September,
1996.
/s/ Cynthia Montalvo /s/ Kim Wasilewski
Cynthia Montalvo Kim Wasilewski
/s/ Timothy E. Carlson
Timothy E. Carlson
(MICH. - 179 - 12/16/93)CT System
<PAGE>
------------------------
Prescribed by 05626 - 0733 Approved
Bob Taft, Secretary of State
30 East Broad Street, 14th Floor Date
Columbus, Ohio 43266-0418
Form FLF (August 1992) Fee
------------------------
96093004801
FOREIGN CORPORATION APPLICATION FOR LICENSE
1. The name of the corporation is Quest Diagnostics Incorporated
2. The application is made to secure a |X| permanent |_| temporary license.
3. The corporation was incorporated on: September 23, 1996 under the laws of
the state of: Michigan.
4. The corporation's principal office is located at: One Malcolm Avenue,
Teterboro, New Jersey 07608
5. The corporation's principal office within Ohio is to be located in:
Youngstown in Mahoning County, Ohio 44513
6. The corporation hereby appoints the following as its statutory agent upon
whom process against the corporation may be served in the state of Ohio.
The name and complete address of the statutory agent is: (SEE INSTRUCTION
NO. 4 ON SECOND PAGE)
CT Corporation System
441 Vine Street
Cincinnati, Ohio 45202
7. The corporation irrevocably consents to service of process on the statutory
agent listed above as long as the authority of the agent continues, and to
service of process upon the SECRETARY OF STATE IF:
(a) the agent cannot be found, or
(b) the corporation fails to designate another agent when
required to do so, or
(c) the corporation's license to do business in Ohio expires
or is cancelled.
8. The corporation will exercise the following corporate purpose(s) in Ohio:
(Please provide a brief but specific description; a general purpose clause
is not sufficient.)
Clinical and anatomical laboratory testing services
9. Has the corporation obtained a license to transact business in Ohio at any
time in the past?
|_|yes |X|no.
10. The date on which the corporation began transacting business in Ohio:
|_| Date
OR
|X| will begin business upon approval of application.
11. Is this application being made to enable the corporation to prosecute or
defend a legal action?
|_|yes |X| no. (SEE INSTRUCTION NO. 5 ON SECOND PAGE)
12. The corporation has currently authorized 1,000 shares of stock and has
issued 1 share.
(OHIO - 1931 - 10/9/92)
<PAGE>
STATE OF New Jersey
ss:
COUNTY OF Bergen
I, Leo C. Farrenkopf, Jr., being duly sworn, state that I am the
|_| President
|_| Vice President
|X| Secretary
|_| Treasurer of Quest Diagnostics Incorporated and that the foregoing
statements are true and correct to the best of my knowledge and belief.
/s/ Leo C. Farrenkopf
SWORN TO AND SUBSCRIBED IN MY PRESENCE
THIS 23rd DAY OF September, 1996.
/s/ Elsie M. Barnd
Elsie Barnd
My commission expires June 1, 1998
NOTARY SEAL
ELSIE M. BARND
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES JUNE 1, 1998
INSTRUCTIONS
1. This application must be accompanied by an original certificate of good
standing from the state in which the applicant is incorporated, dated not
more than 60 days prior to the filing of the application. (O.R.C.
1703.04(A))
2. The filing fee for a permanent license is $75.00 and for a temporary
license is $125.00. (O.R.C. 1703.04 (C), 1703.13)
3. The application must be signed by the president, vice-president, secretary
or treasurer of the corporation and must be notarized. (O.R.C. 1703.041)
4. In item 6, the agent for service of process may be (a) a natural person who
is a resident of Ohio, or (b) an Ohio corporation or a foreign corporation
licensed in Ohio which is explicitly authorized by its articles to act as
statutory agent and which has a business address in Ohio. (O.R.C. 1703.041)
5. No foreign corporation which previously should have obtained a license to
do business in Ohio shall maintain any action in any court until it has
obtained such a license. Before the corporation shall maintain such action
on any cause of action arising at the time when it was not licensed to
transact business in this state, it shall pay to the Secretary of State a
forfeiture of two hundred fifty dollars with this license application.
(O.R.C. 1703.29) It is only under these circumstances that question no. 11
should be answered "yes". Under all other circumstances the answer to this
question should be "no".
NOTE: Foreign corporations doing business in Ohio must file each year with the
Secretary of State an Annual Statement of Proportion of Capital Stock (Form 7),
showing activity in Ohio during the preceding calendar or fiscal year. This
report is due March 31st, unless an extension has been requested in writing and
has been granted. (O.R.C. 1703.07).
The report is separate and distinct from the Ohio Franchise Tax Report.
If the corporation has been doing business in Ohio prior to the date of
licensing, it must submit a Form 7 for each of the years of unlicensed operation
in Ohio, together with a certificate from the Ohio Department of Taxation
showing that all applicable Franchise Taxes have been paid. For information on
this certificate (D-4), call the Department of Taxation at 614-433-7636.
(OHIO - 1931)
ARTICLES OF INCORPORATION
OF
Quest Diagnostics Incorporated
* * * * *
WE, THE UNDERSIGNED, Cynthia Montalvo, whose post-office
address is 1633 Broadway, New York, New York 10019, Gary Sherman, whose
post-office address is 1633 Broadway, New York, New York 10019 and Timothy E.
Carlson, whose post-office address is 1633 Broadway, New York, New York 10019 ,
each being at least eighteen years of age, do, under and by virtue of the
General Laws of the State of Maryland authorizing the formation of corporations,
associate dourselves as incorporators with the intention of forming a
corporation.
FIRST: The name of the corporation is Quest Diagnostics
Incorporated.
SECOND: The purposes for which the corporation is formed are:
To engage in any or all lawful business for which corporations
may be organized under the Maryland General Corporation Law.
THIRD: The post-office address of the principal office of the
corporation in this State is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. The name of the resident agent of the
corporation in this State is Corporation Trust Incorporated, a corporation of
this State, and the post-office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is One Thousand (1,000) shares without
par value, all of one class.
FIFTH: The number of directors of the corporation shall be Two
(2), which may be changed in accordance with the by-laws of the corporation. The
names of the directors who shall act until the first annual meeting or until
their successors are duly chosen
Page 1
- --------------------------------------------------------------------------------
STATE OF MARYLAND
I hereby certify that this is a true and complete copy of the 3 page
document on file in this office. DATED: 9-23-96 .
STATE DEPARTMENT OF ASSESSMENTS AND TAXATION
BY: , Custodian
This stamp replaces our previous certification system. Effective: 6/95
- --------------------------------------------------------------------------------
<PAGE>
and qualify are: Alister W. Reynolds and Douglas M. Van Oort.
IN WITNESS WHEREOF, the undersigned incorporators of Quest
Diagnostics Incorporated who executed the foregoing Articles of Incorporation
hereby acknowledge the same to be their act and further acknowledge that, to the
best of their knowledge the matters and facts set forth therein are true in all
material respects under the penalties of perjury.
Dated the 19th day of September, 1996.
/s/ Cynthia Montalvo
----------------------------
Cynthia Montalvo
/s/ Gary Sherman
----------------------------
Gary Sherman
/s/ Timothy E. Carlson
----------------------------
Timothy E. Carlson
Page 2
CERTIFICATION OF INCORPORATION
OF
INTERNATIONAL LABORATORIES CORP.
---------------
FIRST: The name of the Corporation is International Laboratories Corp.
SECOND: The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The nature of the business and the purpose of the Corporation is
to conduct research, to manufacture, design, construct, use, buy, sell, lease,
hire and deal in and with articles and property of all kinds, to render
laboratory and other services of all kinds, and generally to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 10,000 shares which shall be designated Common Stock,
of the par value of one dollar ($l) per share, amounting to ten thousand dollars
($10,000) in the aggregate.
The designations and the powers, preferences and rights, and the
qualifications, limitations or destructions of the shares shall be as follows:
4.1 Dividends. The holders of Common Stock shall be entitled to receive
such dividends as may be declared from time to time by the Board of Directors.
4.2 Voting Rights. Each holder of Common Stock shall be entitled to one
vote for each share held and, except as otherwise herein or by law provided,
voting rights shall be vested exclusively in the holders of Common Stock.
FIFTH: The name and mailing address of the incorporator is as follows:
Name Mailing Address
---- ---------------
Raymond C. Marier Houghton Park HP CB 03
Corning, New York 14831
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the By-Laws of the Corporation.
1
<PAGE>
SEVENTH: Elections of directors need not be by written ballot except
and to the extent provided in the By-Laws of the Corporation.
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
EIGHTH:
A. The Corporation may indemnify, to the full extent permitted by
applicable law, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director or officer of the Corporation, or is or was serving
at the request of the Corporation, as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise.
B. Any indemnification under Section A of this ARTICLE EIGHTH (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met any applicable
standard of conduct. Such determination may be made (i) by resolution of the
Board of Directors adopted in the manner provided in the By-Laws of the
Corporation, or (ii) if a quorum consisting of directors who were not parties to
such action, suit or proceeding is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, then by independent legal counsel
in a written opinion, or (iii) by the stockholders.
C. No director shall have any liability to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such liability may arise from (i) any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit.
NINTH: Any action required or permitted to be taken at any annual or
special meeting of stockholders of the Corporation may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted.
2
<PAGE>
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 1st day of March, 1988.
/s/ Raymond C. Marier
-----------------------------
Raymond C. Marier
STATE OF NEW YORK )
: ss:
COUNTY OF STEUBEN )
BE IT REMEMBERED that on this 1st day of March, 1988, personally came
before me, a Notary Public in and for the State of New York and County of
Steuben, Raymond C. Marier, the sole party to the foregoing Certificate of
Incorporation, known to me personally to be such, and acknowledged the said
Certificate to be the act and deed of the signer and that the facts therein
stated are truly set forth.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ Barbara E. Wellington
-----------------------------
Notary Public
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL LABORATORIES CORP.
The undersigned incorporator, in order to amend the Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is:
International Laboratories Corp.
SECOND: The incorporator hereby amends the Certificate of Incorporation
as follows:
Paragraph FIRST of the Certificate of Incorporation, relating
to the corporate title of the Corporation, is hereby amended
to read as follows:
"FIRST: The name of the corporation is:
MetPath Investment Company, Inc."
THIRD: The amendment effected herein was authorized by the consent in
writing, setting forth the action so taken, signed by incorporator of the
Corporation pursuant to the General Corporation Law of the State of Delaware,
ss. 241 where the Corporation has not received any payment for any of the
previously authorized stock.
IN WITNESS WHEREOF, I hereunto sign my name and affirm that the
statements made herein are true under the penalties of perjury, this 9th day of
January, 1989.
/s/ Raymond C. Marier
- ----------------------
Raymond C. Marier
4
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF
CORPORATIONS
FILED 09:00 AM 08/01/1994
944142028-2153945
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
MetPath Investment Company, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That the Board of said corporation, at a meeting duly held,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of MetPath Investment
Company, Inc. be amended by changing the First Article thereof so that, as
amended, said Article shall be and read as follows:
The name of the Corporation is CLMP Inc.
SECOND: That the stockholder, at a meeting duly held, adopted a
resolution to amend the Certificate of Incorporation accordingly.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
5
<PAGE>
IN WITNESS WHEREOF, said MetPath Investment Company, Inc. has caused
this certificate to be signed by Robert Galen, Vice President and attested by
David Meinhard, Secretary, this 18th day of May, 1994.
By:/s/ Robert Galen
-----------------------------
V.P.
ATTEST:
By:/s/ David Meinhard
-----------------------
Secretary
6
ARTICLES OF INCORPORATION
OF
DIAGNOSTIC REFERENCE SERVICES, INC.
FIRST: The undersigned, DAVID B. RUDOW, whose post office address is
600 Mercantile Bank & Trust Bldg., 2 Hopkins Plaza, Baltimore, Maryland 21201, a
resident of the State of Maryland, over eighteen (18) years of age, does hereby
constitute himself an incorporator with the purpose of forming a corporation
under and by virtue of the General Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter called the
"Corporation") is
"DIAGNOSTIC REFERENCE SERVICES, INC."
THIRD: The purposes for which the Corporation is formed are as
follows:
(a) To engage in the business of operating a medical
laboratory or laboratories and to engage generally in the
business of the operation of medical laboratories.
(b) To acquire by purchase or otherwise, own, hold, buy,
sell, convey, lease, mortgage, or encumber real estate or
other property, personal or mixed.
(c) To take, own, yield income, mortgage or otherwise give
liens against, and to lease, sell, exchange, transfer or
in any manner whatsoever to dispose of real property
within or without the State of Maryland wherever situate.
(d) To purchase, acquire, hold, improve, sell, convey,
assign, release, mortgage, encumber, lease, hire and deal
in real and personal property of every name and nature,
including stocks and securities of other corporations,
and to loan money and take securities for the payments of
all sums due the
<PAGE>
2
Corporation, and to sell, assign and release such
securities.
(e) To purchase, acquire, apply for, register, secure, hold,
own, sell, or otherwise obtain and dispose of any and all
copyrights, trade names and distinctive marks.
(f) To carry on any other business in connection with the
foregoing, whether owning, operating and managing real
estate or otherwise.
(g) To borrow money, make and issue bonds payable to bearer
or otherwise, and to secure the same by mortgage, deed of
trust or otherwise, to sell or pledge any and all
securities or evidence of debt owned by the Corporation,
and to carry on such business and to deal with the
property by law as may seem to be calculated, directly or
indirectly, to promote the objects or purposes.
(h) To acquire by purchase, lease or otherwise, the property,
rights, business good will, franchises and assets of
every kind of any corporation, association, firm or
individual, in whole or in part, and to operate the same,
and to undertake, guarantee, assume the indebtedness and
liabilities thereof, and to pay for any property, rights,
business, good will, franchises and assets so acquired in
the stock, bonds or other securities of the Corporation
or otherwise.
(i) To carry on any other business which may seem to the
Corporation to be calculated directly or indirectly to
effectuate the aforesaid objects, or any of them, to
facilitate it in the transaction of its aforesaid
businesses, or any part thereof, or in the transaction of
any other business that may be calculated directly or
indirectly to so enhance the value of its property and
directly or otherwise of its right; and to have and
exercise all powers conferred by the General Laws of the
State of Maryland and the Corporations and Associations
Article of the
<PAGE>
3
Annotated Code of Maryland, upon corporations formed
thereunder, and to exercise and enjoy all powers, rights
and privileges granted to or conferred upon corporations
of this character by said General Laws and said
Corporations and Associations Article, now or hereafter
in force; the enumeration of certain powers, as herein
specified, not being intended to exclude any such other
powers, rights and privileges.
(j) To have one or more offices and places of business and to
carry on all or any of its operations and businesses, and
without restrictions or limits, as to amount or number,
in any of the States, Districts, Territories or Colonies
of the United States, and in any and all foreign
countries, subject to the laws of such State, District,
Territory, Colony or Country.
The foregoing clauses shall be construed both as objects and powers and
shall be deemed to be cumulative and none of them shall be deemed as restricting
or limiting the other, nor shall the foregoing enumeration of specific powers be
deemed in any way to limit or restrict in any manner the general powers
hereinbefore enumerated or the general powers of the Corporation and the
enjoyment thereof as conferred by law.
FOURTH: The post office address of the principal office of the
Corporation is 1901 Sulphur Spring Road, Baltimore, Maryland 21227. The name and
post office address of the Resident Agent of the Corporation in this State is
David B. Rudow, 600 Mercantile Bank & Trust Building, 2 Hopkins Plaza,
Baltimore, Maryland 21201, an individual actually residing in this State.
<PAGE>
4
FIFTH: The total number of shares of stock which the Corporation has
authority to issue is one thousand (1,000) shares of common stock, all of one
class, with no nominal or par value.
SIXTH: The number of Directors of the Corporation shall be two (2),
which number may be increased or decreased pursuant to the By-Laws of the
Corporation, provided that any such increase or decrease in the number of
Directors shall conform with the requirements of the laws of the State of
Maryland. The names of the Directors who shall act until the first annual
meeting of Stockholders or until their successors are duly chosen and qualify
are: Selvin Passen, M.D. and Jacob M. Schorr, Ph.D.
SEVENTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
Directors and Stockholders:
(a) The Board of Directors of the Corporation is hereby
empowered to authorize, from time to time, the issuance
of shares of the Common Stock of the Corporation, of no
par value for such consideration as the Board of
Directors may deem advisable, provided that when the
consideration is other than money, the Board of Directors
shall state by resolution its opinion of the actual value
thereof. The Board of Directors shall have full power and
authority to determine, from time to time, what part of
the consideration received upon the issue of Common
Stock, without par value, shall constitute capital and
what part surplus.
(b) Agreements may be entered into by any Stockholder or
Stockholders giving to the Corporation or to any other
Stockholder or Stockholders an option to purchase the
stockholdings of such Stockholder or Stockholders, and
binding such Stockholder or Stockholders, his or their
heirs, executors,
<PAGE>
5
administrators and assigns, and the shares of stock of
such person or persons shall, thereupon, be subject to
such agreement and transferable only upon proof of
compliance therewith; provided, however, such agreement
be filed with the Corporation, and reference thereto be
placed upon the Certificates of Stock.
(c) The Board of Directors shall have the power, from time to
time, to fix, determine and vary the amount of working
capital of the Corporation and to determine what part of
the surplus and retained earnings of the Corporation, if
any, or of the net profits of the Corporation, if any,
shall be declared as dividends and paid in cash, in kind
or in any combination thereof, to the Stockholders.
EIGHTH: To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers, no director
or officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any other provision of the Charter or
By-Laws inconsistent with this Article, shall apply to or affect in any respect
the applicability of the preceding sentence with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption.
NINTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation this
16th day of February, 1993, and I acknowledge the same to be my act.
WITNESS:
/s/ William Galvin /s/ David B. Rudow (SEAL)
- ------------------ ------------------------
David B. Rudow
CORNING NICHOLS INSTITUTE
A California corporation
(formerly known as Nichols Institute Reference Laboratories)
AMENDED AND RESTATED BY-LAWS
Adopted July 19, 1995
<PAGE>
CORNING NICHOLS INSTITUTE
A California corporation
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings............................................... 1
Section 1.02. Special Meetings.............................................. 1
Section 1.03. Notice of Meetings............................................ 1
Section 1.04. Business Transacted at Special Meetings of Stockholders....... 1
Section 1.06. Consent of Stockholders in Lieu of Meeting.................... 2
ARTICLE II
BOARD OF DIRECTORS
Section 2.01. General Powers................................................ 2
Section 2.02. Number and Term of Office..................................... 2
Section 2.03. Election of Directors......................................... 2
Section 2.04. Annual and Regular Meetings................................... 2
Section 2.05. Special meetings; Notice...................................... 3
Section 2.06. Telephonic Meetings........................................... 3
Section 2.07. Quorum and Vote............................................... 3
Section 2.08. Action Without a Meeting...................................... 3
Section 2.09. Manner of Acting.............................................. 3
Section 2.10. Resignations.................................................. 4
Section 2.11. Removal of Directors.......................................... 4
Section 2.12. Vacancies and Newly Created Directorships..................... 4
Section 2.13. Reliance on Accounts and Reports, etc......................... 4
Section 2.14. Committees.................................................... 4
ARTICLE III
OFFICERS
Section 3.01. Number and Designation
Section 3.02. Additional Officers........................................... 5
Section 3.03. Election...................................................... 5
<PAGE>
Section 3.04. Removal and Vacancies......................................... 5
Section 3.05. Duties of the Chairman of the Board of Directors.............. 5
Section 3.06. Duties of the President....................................... 5
Section 3.08 Duties of the Secretary....................................... 6
Section 3.09 Duties of the Treasurer....................................... 6
Section 3.10 Duties of the Controller...................................... 6
Section 3.11 Duties of the Assistant Secretary............................. 6
Section 3.12 Duties of the Assistant Controller............................ 7
Section 3.13 Duties of the Assistant Treasurer............................. 7
ARTICLE IV
EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES
Section 4.01 General....................................................... 7
Section 4.02 Corporate Indebtedness........................................ 7
Section 4.03 Checks, Drafts, etc........................................... 7
Section 4.04 Deposits...................................................... 8
Section 4.05 Dividends..................................................... 8
Section 4.06 Fiscal Year................................................... 8
ARTICLE V
CAPITAL STOCK
Section 5.01 Certificates of Stock..................................... 8
ARTICLE VI
SEAL; OFFICES
Section 6.01 Seal...................................................... 8
Section 6.02 Offices................................................... 9
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification........................................... 9
ARTICLE VIII
AMENDMENTS
Section 8.01 Amendments................................................11
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
CORNING NICHOLS INSTITUTE
ARTICLE I
STOCKHOLDERS
Section 1.01 Annual Meetings. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as properly may come before such meeting shall be held at such place
either within or outside the State of California, at such time and date as shall
be fixed from time to time by resolution of the Board of Directors and as set
forth in the notice of the meeting.
Section 1.02 Special Meetings. Special meetings of the stockholders may be
called at any time by the Chairman of the Board of Directors, if any, or by the
President (or, in the absence or disability of the Chairman of the Board and the
President, by any Vice President), or by the Board of Directors. Such special
meetings of the stockholders shall be held at such places, within or outside the
State of California, as shall be specified in the respective notices or waivers
of notice thereof.
Section 1.03 Notice of Meetings. The Secretary or any Assistant Secretary shall
cause written notice of the date, time and place of each meeting of the
stockholders to be given, at least ten but not more than fifty days prior to the
meeting, to each stockholder of record entitled to vote. Such notice shall be
given either personally or by mail or other means of written communication,
addressed to each stockholder at the address of such stockholder appearing on
the books of the Corporation at the time such notice is dispatched. Such further
notice shall be given as may be required by law. Notice of any meeting of
stockholders need not be given to any stockholder who shall sign a waiver of
such notice in writing, whether before or after the time of such meeting. Notice
of any adjourned meeting of the stockholders of the Corporation need not be
given.
Section 1.04 Business Transacted at Special Meetings of Stockholders. Business
transacted at any special meeting of stockholders shall not be limited to the
purposes stated in the notice thereof.
Section 1.05 Quorum. Except as at the time otherwise required by statute or by
the Certificate of Incorporation, the presence at any stockholders meeting, in
person or by proxy, of the holders of record of shares of stock (of any class)
entitled to vote at the meeting, aggregating a majority of the total number of
shares of stock of all classes then issued and
<PAGE>
outstanding and entitled to vote at the meeting, shall be necessary and
sufficient to constitute a quorum for the transaction of business.
Section 1.06 Consent of Stockholders in Lieu of Meeting. To the extent provided
by any statute at the time in force, whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any statute, by the Certificate of Incorporation or by
these By-Laws, the meeting and vote of stockholders may be dispensed with if the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted shall consent in
writing to such corporate action being taken.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 General Powers. The property, affairs and business of the
Corporation shall be managed by the Board of Directors. The Board of Directors
may exercise all the powers of the Corporation, whether derived from law or the
Certificate of Incorporation, except such powers as are, by statute, by the
Certificate of Incorporation or by these By-Laws, vested solely in the
stockholders of the Corporation. No Director need be a stockholder of the
Corporation.
Section 2.02 Number and Term of Office. The Board of Directors shall consist of
such number (but in no event less than three) of Directors as may be determined
from time to time by resolution adopted by affirmative vote of a majority of the
whole Board of Directors. Each Director (whenever elected) shall hold office
until the next annual meeting and his or her successor shall have been elected,
or until his or her death, or until he or she shall have resigned in the manner
provided in Section 2.10 hereof or shall have been removed in the manner
provided in Section 2.11 hereof.
Section 2.03 Election of Directors. Except as otherwise provided in Sections
2.11 and 2.12 hereof, the Directors shall be elected annually at the annual
meeting of the stockholders. In the event of the failure to elect Directors at
an annual meeting of the stockholders, then Directors may be elected at any
regular or special meeting of stockholders entitled to vote for election of
Directors, provided that notice of such meeting shall contain mention of such
purpose.
Section 2.04 Annual and Regular Meetings. The annual meeting of the Board of
Directors, for the choosing of officers and for the transaction of such other
business as may come before the meeting, shall be held in each year as soon as
possible after the annual meeting of the stockholders at the place of such
annual meeting of the stockholders, and notice of such annual meeting of the
Board of Directors shall not be required to be given. The Board of
<PAGE>
Directors from time to time may provide by resolution for the holding of regular
meetings and fix the time and place (which may be within or outside the State of
California) thereof. Notice of such regular meetings need not be given;
provided, however, that in case the Board of Directors shall fix or change the
time or place of regular meetings, notice of such action shall be given
personally or by mail, facsimile or similar means of communication promptly to
each Director who shall not have been present at the meeting at which such
action was taken.
Section 2.05 Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, if any, or
by the President (or, in the absence or disability of the Chairman of the Board
and the President, by any Vice President), or by any two Directors, at such time
and place (which may be within or outside of the State of California) as may be
specified in the respective notices or waivers of notice thereof. Special
meetings of the Board of Directors may be called on two days' notice to each
Director, personally or by telephone or facsimile or on four days' notice by
mail. Notice of any special meeting need not be given to any Director who shall
be present at such meeting, or to any Director who shall waive notice of such
meeting in writing, whether before or after the time of such meeting, and any
business may be transacted thereat. No notice need be given of any adjourned
meeting.
Section 2.06 Telephonic Meetings. Directors may participate in a meeting of the
Board of Directors, or a meeting of any committee designated by the Board, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in the meeting pursuant to this By-Law shall constitute presence
in person at such meeting.
Section 2.07 Quorum and Vote. At all meetings of the Board of Directors, the
presence of a majority of the total authorized number of Directors under Section
2.02 hereof shall be necessary and sufficient to constitute a quorum for the
transaction of business. Except when otherwise required by statute, the vote of
a majority of the total number of Directors present and acting at a meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, a majority of the Directors present may adjourn the meeting
from time to time, until a quorum shall be present.
Section 2.08 Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any meeting of a Committee of
the Board of Directors may be taken without a meeting, if written consents
thereto are signed by all members of the Board or Committee and such written
consents are filed with the minutes of proceedings of the Board.
Section 2.09 Manner of Acting. The Directors shall act only as a Board, and the
individual Directors shall have no power as such, except as permitted by
statute.
<PAGE>
Section 2.10 Resignations. Any Director may resign at any time by delivering a
written resignation to the Chairman of the Board, if any, the President, a Vice
President, the Secretary or any Assistant Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 2.11 Removal of Directors. Any Director may be removed at any time,
either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such Director, given at a special meeting of such
stockholders called for the purpose; provided, however, that if less than the
entire Board is to be removed, no Director may be removed without cause if the
votes cast against his or her removal would be sufficient to elect him or her if
then cumulatively voted at an election of the entire Board of Directors. Any
vacancy in the Board of Directors caused by any such removal may be filled at
such meeting by a vote of the stockholders entitled to vote for the election of
the Directors so removed. If such stockholders do not fill such vacancy at such
meeting, such vacancy may be filled in the manner provided in Section 2.12
hereof.
Section 2.12 Vacancies and Newly Created Directorships. If any vacancies shall
occur in the Board of Directors, by reason of death, resignation, removal or
otherwise, or if the authorized number of directors shall be increased, the
Directors then in office shall continue to act, and such vacancies may be filled
by a majority of the Directors then in office, though less than a quorum, and
the Directors so chosen shall hold office until the next annual election and
until their successors are duly elected and qualified, unless sooner displaced.
Any such vacancies or newly created Directorships may also be filled by a vote
of the stockholders entitled to vote for the election of Directors.
Section 2.13 Reliance on Accounts and Reports, etc. A Director, or a member of
any committee designated by the Board of Directors, in the performance of his or
her duties, shall be fully protected in relying in good faith upon such
information, opinions, reports or statements presented to the Corporation by any
of its officers or employees whom the Director believes to be reliable and
competent in the matters presented, or by counsel, independent accountants, or
other persons as to matters the Director or member reasonably believes are
within such other person's professional or expert competence or by a committee
of the Board upon which the Director does not serve as to matters within its
designated authority, which committee the Director believes to merit confidence,
in any such case so long as the Director acts in good faith after reasonable
inquiry and when the need therefor is indicated by the circumstances and without
knowledge that would cause such reliance to be unwarranted.
Section 2.14 Committees. The Board may establish such committees having such
responsibilities and composition as it shall from time to time by resolution
determine.
<PAGE>
ARTICLE III
OFFICERS
Section 3.01 Number and Designation. The officers of the Corporation shall be
chosen by the Board of Directors and may include a Chairman of the Board, a
President, a Vice President, a Secretary, a Controller and a Treasurer who shall
hold office until their successors are chosen and qualify or their earlier
resignation or removal. The Board of Directors may also choose additional Vice
Presidents, and one or more Assistant Secretaries, Assistant Controllers and
Assistant Treasurers. Any one or more of such Vice Presidents may be designated
as Executive or Senior Vice President. Any number of offices may be held by the
same person, except that no person shall simultaneously hold the offices of
Chairman or President and Secretary, Treasurer or Controller. The Chairman shall
be a member of the Board of Directors. The Board may also designate any Vice
Presidents as Chief Financial Officer and as General Counsel.
Section 3.02 Additional Officers. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors. The Board of Directors
may also delegate its Chairman or the President to appoint and remove such
additional officers as the Chairman or the President, as the case may be, shall
designate in writing, with such limited authority as shall be set forth in
writing, and such appointments shall be reported to the Board of Directors.
Section 3.03 Election. The Board of Directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting, shall choose the officers of the
Corporation. If any officers are not chosen at an annual meeting, such officers
may be chosen at any subsequent regular or special meeting.
Section 3.04 Removal and Vacancies. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors, either with or without cause. Any vacancy
occurring in any office or the Corporation shall be filled by the Board of
Directors.
Section 3.05 Duties of the Chairman of the Board of Directors. The Chairman of
the Board of Directors, if present, shall preside at all stockholders' meetings
and all meetings of the Board at which he is present and shall have such other
duties as shall be assigned to him or her by the Board of Directors. The
Chairman may be the Chief Executive Officer of the Corporation.
Section 3.06 Duties of the President. The President shall have direct charge of
the business of the Corporation, subject to the general control of the Board of
Directors, and may be the Chief Executive Officer and/or the Chief Operating
Officer of the Corporation. In the
<PAGE>
absence of the Chairman of the Board or if no Chairman of the Board has been
chosen, the President shall also have the duties of the Chairman of the Board.
Section 3.07 Duties of the Vice President. In the event of the absence or
disability of the Chairman of the Board and the President, the Executive or
Senior Vice President, if any, or if absent, any Vice President designated by
the Board of Directors, shall perform all the duties of the President, and when
so acting, shall have all the powers of, and be subject to all the restrictions
upon, the President. Except where by law the signature of the President is
required, each of the Vice Presidents shall possess the same power as the
President to sign all certificates, contracts, obligations and other instruments
of the Corporation. Any Vice President shall perform such other duties and may
exercise such other powers as from time to time may be assigned to him or her by
these By-Laws or by the Board of Directors or the President. An Executive Vice
President may be the Chief Operating Officer of the Corporation.
Section 3.08 Duties of the Secretary. The Secretary shall, if present, act as
Secretary of, and keep the minutes of, all the proceedings of the meetings of
the stockholders and of the Board of Directors and of any committee of the Board
of Directors in one or more books to be kept for that purpose; shall perform
such other duties as shall be assigned to him or her by the President or the
Board of Directors; and, in general, shall perform all duties incident to the
office of Secretary.
Section 3.09 Duties of the Treasurer. The Treasurer shall keep or cause to be
kept full and accurate records of all receipts and disbursements in the books of
the Corporation and shall have the care and custody of all funds and securities
of the Corporation. He or she shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the President and the
Board of Directors, whenever they request it, an account of all of his or her
transactions as Treasurer and shall perform such other duties as may be assigned
to him or her by the President or the Board of Directors; and, in general, shall
perform all duties incident to the office of Treasurer.
Section 3.10 Duties of the Controller. The Controller shall be the chief
accounting officer of the Corporation. The Controller shall keep or cause to be
kept all books of account and accounting records of the Corporation and shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the Corporation. The
Controller shall prepare or cause to be prepared appropriate financial
statements for the Corporation and shall perform such other duties as may be
assigned to him or her by the President or the Board of Directors; and, in
general, shall perform all duties incident to the office of Controller.
Section 3.11 Duties of the Assistant Secretary. The Assistant Secretary, if any,
shall, in the absence or disability of the Secretary, exercise the powers and
perform the duties of the Secretary, and shall perform such other duties as
shall be assigned to him or her by the President or the Board of Directors.
<PAGE>
Section 3.12 Duties of the Assistant Controller. The Assistant Controller, if
any, shall, in the absence or disability of the Controller, exercise the powers
and perform the duties of the Controller, and shall perform such other duties as
shall be assigned to him or her by the President or the Board of Directors.
Section 3.13 Duties of the Assistant Treasurer. The Assistant Treasurer, if any,
shall, in the absence or disability of the Treasurer, exercise the powers and
perform the duties of the Treasurer, and shall perform such other duties as
shall be assigned to him or her by the President or the Board of Directors.
ARTICLE IV
EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES
Section 4.01 General. Subject to the provisions of Sections 4.02, 4.03 and 4.04
hereof, all deeds, documents, transfers, contracts, and agreements and other
instruments requiring execution by the Corporation shall be signed by the
Chairman of the Board, the President, a Vice President or the Treasurer, or as
the Board of Directors may otherwise from time to time authorize by resolution.
Any such authorization may be general or confined to specific instances.
Section 4.02 Corporate Indebtedness. No loan shall be contracted on behalf of
the Corporation, and no evidences of indebtedness shall be issued in its name,
unless authorized by the Board of Directors. Such authorizations of the Board
may be general or confined to specific instances. Loans authorized by the Board
of Directors may be effected at any time for the Corporation from any bank,
trust company or other institution, or from any firm, corporation or individual.
All bonds, debentures, notes and other obligations or evidences of indebtedness
of the Corporation issued for such loans as the Board shall authorize shall be
made, executed and delivered as the Board of Directors shall authorize. All
notes and other obligations or evidences of indebtedness permitted hereunder
without authorization of the Board of Directors shall be signed by the
President, a Vice President or the Treasurer. When so authorized by the Board of
Directors, any part of or all the properties, including contract rights, assets,
business or goodwill of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness so the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
Section 4.03 Checks, Drafts, etc. All checks, drafts, bills of exchange or
orders for the payment of money, issued in the name of the Corporation, shall be
signed only by the Treasurer or such other person or persons and in such manner
as may from time to time be designated by the Board of Directors, which
designation may be general or confined to
<PAGE>
specific instances; and unless so designated, no person shall have any power or
authority thereby to bind the Corporation or to pledge its credit or to render
it liable.
Section 4.04 Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may select. The
Board of Directors may make such special rules and regulations with respect to
such bank accounts, not consistent with the provisions of these By-Laws, as it
may deem expedient. For the purpose of deposit and for the purpose of collection
for the account of the Corporation, checks, drafts and other orders for the
payment of money which are payable to the order of the Corporation shall be
endorsed, assigned and delivered by the Treasurer or such other person or
persons and in such manner as may from time to time be designated by the Board
of Directors.
Section 4.05 Dividends. Dividends upon the stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law. Such
declaration may be continuing or limited to a specific payment or distribution.
Dividends may be paid in cash, in property, or in shares of stock, subject to
the provisions of the Certificate of Incorporation.
Section 4.06 Fiscal Year. The fiscal year of the Corporation shall be the
calendar year, unless otherwise fixed by resolution of the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01 Certificates of Stock. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman of the Board of Directors, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or by the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation.
ARTICLE VI
SEAL; OFFICES
Section 6.01 Seal. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its incorporation and the words "Corporate Seal,
California." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
<PAGE>
Section 6.02 Offices. The Corporation may have offices at such other places both
within or outside the State of California as the Board of Directors may from
time to time determine or as the business of the Corporation may require.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. (a) The liability of Directors of the Corporation
for monetary damages shall be eliminated to the fullest extent permissible under
California law; provided, that this provision shall not eliminate or limit the
liability of a Director (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a Director believes to be contrary to the best interests of the
Corporation or its shareholders or that involve the absence of good faith on the
part of the Director, (iii) for any transaction from which a Director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the Director's duty to the Corporation or its shareholders in
circumstances in which the Director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Corporation or its shareholders, and (vi) under
Section 310 or Section 316 of the California General Corporation Law.
(b) Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action either in an official
capacity as a director or officer or in any other capacity while serving as a
director or officer, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the General Corporation Law of the State of
California, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expenses,
liability and loss (including attorneys' fees, judgments, fines, excise taxes
pursuant to the Employee Retirement Income Security Act of 1974, as amended, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof)
<PAGE>
was authorized by the Board of Directors of the Corporation. The right to be
indemnified conferred in this Section 7.01 shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, the payment of such expenses incurred by the director or officer
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is to be rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan), in
advance of the final disposition of proceeding, shall be made only upon delivery
to the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under this
Article or otherwise. The Corporation may, by action of its Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(c) The indemnification provided by this Section 7.01 shall not limit or
exclude any rights, indemnities or limitations of liability to which any person
may be entitled, whether as a matter of law, under the Articles of Incorporation
of the Corporation, by agreement, vote of the stockholders or disinterested
directors of the Corporation or otherwise.
(d) If a claim under paragraph (b) of this Section 7.01 is not paid in full
by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of California for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard or conduct set forth in the General Corporation
Law of the State of California, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall create a
presumption that the claimant has not met the applicable standard of conduct.
(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of California.
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 8.01 Amendments. These By-Laws may only be altered or repealed and new
By-Laws adopted by resolution of the Board or Directors or of the Shareholders.
================================================================================
METPATH INVESTMENT COMPANY, INC.
Incorporated under the laws of the State of Delaware
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By-Laws
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Approved January 27, 1989
================================================================================
<PAGE>
METPATH INVESTMENT COMPANY, INC.
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BY-LAWS
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ARTICLE I.
Offices of the Corporation
Section 1. Principal Office. The principal office of the corporation
within the State of Delaware shall be at such address within the State of
Delaware as may be fixed by the Board of Directors.
Section 2. Other Offices. The Board of Directors may establish and
discontinue, from time to time, other offices and places of business as it deems
advisable and proper for the conduct of the corporation's busineSection
ARTICLE II.
Meetings of Stockholders
Section 1. Place of Meeting. All meetings of stockholders of the
corporation may be held at such place, within or without the State of Delaware,
as may be fixed from time to time by the Board of Directors.
Section 2. Annual Meeting. The annual meeting of stockholders for the
election of directors and consideration of such other business as may come
before the meeting shall be held on the fourth Friday in February of each year
or at such other date and time as is designated by resolution of the Board of
Directors and as set forth in the notice of the meeting.
Section 3. Special Meetings. Special meetings of the stockholders shall
be called by the Secretary upon order of a majority of the Board of Directors,
the Chairman of the Board, the President or at the request in writing of the
stockholders who together own of record not less than a majority of the shares
of stock of the corporation issued and outstanding and entitled to vote at such
meetings.
Section 4. Notice of Meetings. Notice of each annual or special meeting
of the stockholders shall be served personally by mail, telex, rapifax or cable
upon each stockholder of record entitled to vote thereat at such address as
appears on the books of the corporation
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at the time such notice is dispatched or at such other address as is provided by
the stockholder or its agent and reasonably relied upon by the Secretary of the
corporation. Service of such notice shall be made not less than ten nor more
than sixty days before the meeting date.
Section 5. Waiver of Notice. A written waiver, signed by a person
entitled to notice, whether before or after the time of such required notice,
shall be deemed equivalent to notice. The attendance of any stockholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by such stockholder.
Section 6. Chairman and Secretary of Meeting. The Chairman of the
Board, or, in his absence, the President or, in the absence of both, by a
chairman chosen by a majority of stockholders entitled to vote at the meeting
who are present in person or by proxy, shall call to order and preside at
meetings of stockholders, and the Secretary of the corporation, or, in his
absence, any person appointed by the chairman of the meeting shall act as
secretary of the meeting.
Section 7. Voting Rights. Unless otherwise provided in the Certificate
of Incorporation forming this corporation or other certificate filed pursuant to
law, every stockholder of record shall be entitled at every meeting of the
stockholders of the corporation to one vote for every share of stock standing in
his name on the books of the corporation.
Section 8. Record Date. The Board of Directors may prescribe a period,
not exceeding fifty days prior to the date of any meeting of the stockholders or
prior to the last day on which the consent or dissent of a stockholder
effectively may be expressed for any purpose without a meeting, during which no
transfer of stock on the books of the corporation may be made; or in lieu of
prohibiting the transfer of stock may fix a record date not more than sixty nor
less than ten days prior to the date of any meeting of stockholders and prior to
the last day on which the consent or dissent of stockholders may be effectively
expressed for any purpose without a meeting as the time as of which stockholders
entitled to notice of and to vote at such a meeting or whose consent or dissent
is required or may be expressed for any purpose, as the case may be, shall be
determined, and holders of record of voting stock at such time and no others
shall be entitled to notice of and to vote at such meeting or to express consent
or dissent, as the case may be. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day of the meeting, except that, if notice is waived or
action is to be taken by the stockholders in writing without a meeting and the
Board of Directors does not set a record date in accordance with the foregoing,
the record date shall be as prescribed by the Delaware General Corporation Law.
Section 9. Quorum and Adjournment. Holders of a majority of the issued
and outstanding stock entitled to vote at the meeting shall constitute a quorum
at all meetings,
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except as otherwise provided by law, by the Certificate of Incorporation or
these By-laws. If, however, such majority, either in person or by proxy, be not
present at any meeting, the stockholders entitled to vote thereat, present in
person or by proxy, shall have power to adjourn the meeting from time to time,
without other notice than announcement at the meeting, until the requisite
amount of voting stock shall be present. When the requisite amount of voting
stock is present at an adjourned meeting, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 10. Order of BusineSection The order of business at
stockholders' meetings shall be as determined by the chairman of the meeting.
Section 11. Vote of Stockholders. At each meeting of stockholders,
every stockholder entitled to vote shall have the right to vote in person or by
proxy duly appointed by an instrument in writing, executed by such stockholder
or its attorney-in-fact and executed not more than eighteen months prior to the
meeting, unless the instrument provides for a longer period. Upon the demand of
any stockholder, the vote upon any question before the meeting, shall be by
ballot. In a vote by ballot each ballot shall state the number of shares voted
and the name of the stockholder or proxy voting. Except as otherwise provided by
law, the Certificate of Incorporation or these By-laws, if a quorum is present,
the affirmative vote of a majority of the shares of stock represented at the
meeting shall be the act of the stockholders.
Section 12. Consent of Stockholders in Lieu of Meeting. To the extent
permitted by statute at the time in force, any action required to be taken or
which may be taken at an annual or special meeting of the stockholders of the
corporation may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Every written consent shall bear the date of signature of each stockholder who
signs the consent and no such consent shall be effective unless signed by a
sufficient number of holders within sixty days of the earliest dated consent and
delivery to the corporation has been effected within such sixty-day period.
ARTICLE III.
Directors
Section 1. [sic] Election and Term. The directors of the corporation
shall be elected at the annual meting of stockholders for a term of one year and
until their successors are chosen and qualified. Vacancies occurring in the
interim may be filled for the unexpired term by a majority vote of the remaining
directors or, in the case of a tie, at a meeting of the stockholders called for
the purpose. Newly created directorships resulting from an increase
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in the authorized number of directors may be filled by a majority of the
directors elected by all of the stockholders having the right to vote as a
single class for the election of such new directors.
Section 2. Qualification. Directors need not be shareholders.
Acceptance of the office may be expressed orally or in writing, except as
otherwise provided in these By-laws.
Section 3. Number. The number of directors constituting the Board of
Directors of the corporation shall be not less than one nor more than fifteen,
the exact number to be fixed from time to time by resolution adopted by a
majority of the whole Board.
Section 4. General Powers. The business, properties and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
which shall have power to elect the officers of the corporation and fix their
salaries and other compensation, to appoint and direct agents, to grant general
or limited authority to its Chairman, the President and other officers and
agents of the corporation to make, execute and deliver contracts and other
instruments and documents in the name and on behalf of the corporation and under
its seal without specific authority in each case. In addition, the Board may
exercise all of the powers of the corporation and do all lawful acts and things
which are not reserved to the shareholders by statute, the Certificate of
Incorporation or these By-laws.
Section 5. Executive Committee. The Board of Directors may, by
resolution adopted by vote of a majority of the whole Board, designate an
Executive Committee consisting of three or more of the Directors of the
corporation, which Committee shall have and may exercise all the authority of
the Board of Directors with respect to all matters other than:
(a) the submission to stockholders of any action requiring
authorization of stockholders pursuant to statute or
the Certificate of Incorporation;
(b) the filing of vacancies in the Board or in the
Executive Committee;
(c) the fixing of compensation of the directors for serving
on the Board or on any committee of the Board,
including the Executive Committee;
(d) the amendment or repeal of these By-laws or the
adoption of new by-laws; and
(e) the amendment or repeal of any resolution of the Board
which by its terms may be amended or repealed only by
the Board.
Section 6. Other Committees. The Board of Directors may by resolution
adopted by vote of a majority of the whole Board appoint such other committees,
each consisting of one or more Directors and such other persons as the Board may
designate, which shall be
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empowered to perform such functions as may be delegated to such committee or
committees by the Board.
Section 7. Meetings of the Board; Quorum and Manner of Acting. A newly
elected Board may meet and organize immediately after and at the place where the
annual meeting of stockholders is held, and no notice of such meeting shall be
required, provided a majority of the whole Board shall be present, or it may
convene at such place and time or shall be fixed by the consent in writing of
the directors.
Regular meetings of the Board may be held without notice at such time
and place as from time to time may be determined by the Board.
Special meetings of the Board or of any committee thereof may be called
by the Chairman of the Board or the President and shall be called by the
Secretary on the written request of any two directors. Notice of any special
meeting of the Board or any committee thereof shall be given to each director,
or each committee member, as the case may be, not later than the day before the
day on which the meeting is to be held. Such notice may be by prepaid mail
addressed to the director at his/her residence or usual place of business or by
telex, rapifax or cable or be delivered personally, or by telephone. Notice of
any meeting of the Board or of any committee need not be given, however, to any
director, if waived by him in writing, either before or after such meeting be
held, or if he shall be present at the meeting; and any meeting of the Board of
Directors or of any committee shall be a legal meeting without any notice
thereof having been given, if all the members shall be present thereat.
A majority of the directors in office at the time of any regular or
special meeting of the Board or any committee thereof shall be present in person
at such meeting in order to constitute a quorum for the transaction of business;
provided that there shall be required to constitute a quorum a number of
directors present at least equal to the number of directors required for any
valid action of the Board. Any one or more directors or committee members may
participate in any meeting of the Board or any committee thereof by means of a
conference telephone or similar communications equipment permitting all persons
participating in such meeting to hear each other at the same time, participation
by such means to constitute presence in person at such meeting. Except as
otherwise required by statute, by the Certificate of Incorporation or these
By-Laws, the act of a majority of the directors or committee members present at
any such meeting at which a quorum is present shall be the act of the Board of
Directors or any committee thereof. In the absence of a quorum, a majority of
the directors or committee members present may adjourn the meeting from time to
time until a quorum be had. Notice of any adjourned meeting need not be given.
Action by the Board or any committee thereof may be taken without a
meeting provided that all members of the Board or committee consent in writing
to the adoption of a
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resolution authorizing such action and such resolution and written consent are
filed with the minutes of the proceedings of the Board or committee.
Section 8. Resignations and Removal of Directors. Any director of the
corporation may resign at any time by giving written notice of his resignation
to the Chairman of the Board, the President or the Secretary. Such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. Any director may be removed, for or
without cause, at any time, by the affirmative vote of the holders of record of
a majority of the issued and outstanding stock entitled to vote for the election
of directors. Any director may be removed for cause by the Board of Directors at
a special meeting thereof.
Section 9. Dividends. Subject to the provisions of law and the
Certificate of Incorporation, the Board shall have the power to determine
whether any, and if so what part, of the funds legally available for the payment
of dividends shall be declared in dividends and paid.
ARTICLE IV.
Officers
Section 1. Officers. The elected officers of the corporation may
include a Chairman of the Board (who shall be a director), a President, and one
or more Vice Presidents, a Treasurer, a Controller and a Secretary. The Board of
Directors may elect or appoint, or the Chairman of the Board may appoint such
other officers (including one or more Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers and one or more group or division officers) and such other assistant
officers and agents as, from time to time, may appear to be necessary or
advisable in the conduct of the affairs of the corporation. The same person may
be elected or appointed to two or more offices except that no person shall
simultaneously hold the offices of President and Secretary. So far as
practicable, all elected officers shall be elected at the organization meeting
of the Board, in each year, and shall hold office until the organization meeting
of the Board in the next subsequent year and until their respective successors
are chosen. All officers shall hold office at the pleasure of the Board. If any
vacancy occurs in any office, the Board of Directors or the Chairman of the
Board or the President, as provided above, may elect or appoint a successor to
fill such vacancy for the remainder of the term.
Section 2. Resignations and Removal of Officers. Any officer of the
corporation may resign at any time by giving written notice of his resignation
to the Board, the Chairman of the Board, the President or the Secretary. Any
such resignation shall take effect at the time specified therein, or, if the
time when it shall become effective shall not be specified therein,
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immediately upon its receipt; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
officer may be removed at any time for or without cause by vote of a majority of
the directors present and eligible to vote at any meeting of the Board of
Directors at which a quorum is present.
Section 3. General Powers. In addition to any authority conferred by
the Board of Directors or these By-laws and without limitation to any authority
inherent in any office to which such person is elected, the Chairman of the
Board, the President, and the Vice Presidents of the Corporation, and each of
them individually, is, authorized and empowered to enter into contracts and to
execute instruments and documents in the name of and on behalf of the
corporation, under the seal of the corporation affixed by the Secretary of the
corporation or otherwise, provided that the foregoing are performed in the
ordinary course of business and in substantial compliance with the applicable
procedures adopted by the corporation, including without limitation, those
procedures pertinent to capital expenditures and investments and the appropriate
request approval procedures pertinent to capital appropriation requests,
purchases, leases, investments and acquisitions and provided further that the
foregoing activities, contracts, instruments and documents are consistent with
the law, the Certificate of Incorporation, these By-laws and any applicable
resolutions of the Board of Directors of the corporation.
Section 4. Chairman of the Board. The Chairman of the Board shall
preside, when present, at all meetings of the Board of Directors and of the
stockholders. The Chairman of the Board, under the direction of the Board of
Directors, shall have the general power and duty of management over the business
of the corporation and such further powers and duties as may be given to him by
the Board of Directors,
Section 5. President. The President shall be the chief executive and
operating officer of the corporation and, under the direction of the Board of
Directors, shall have general and active management, superintendence and
direction of the business, properties and affairs of the corporation. He shall
have such further powers and duties as may be given him by the Board of
Directors or the Chairman of the Board. In the absence or incapacity of the
Chairman of the Board, he shall perform the duties of the Chairman of the Board.
Section 6. Vice Presidents. The Vice Presidents shall perform such
duties and shall have such powers as may be given them by these By-laws, the
Board of Directors, the Chairman of the Board, or the President. From time to
time one of the Vice Presidents may be designated as the Vice President-Finance
and, in such event, the Vice President-Finance shall be the chief financial
officer and shall have administrative responsibility for the financial and
accounting functions of the corporation.
Section 7. Treasurer and Assistant Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all
the funds and securities of the corporation;
8
<PAGE>
(b) have control of all the books of account of the
corporation;
(c) keep all accounting records of the corporation;
(d) cause all moneys and other valuables to be deposited to
the credit of the corporation in such depositories as
may be designated by the Board of Directors;
(e) receive, and give receipts for, moneys due and payable
to the corporation from any sources whatsoever;
(f) disburse the funds of the corporation and supervise the
investment of its funds as ordered or authorized by the
Board of Directors, taking proper vouchers therefor;
(g) render to the Board of Directors, whenever the Board may
require, an account of the financial condition of the
corporation;
(h) keep a true and accurate record of all property owned by
it, of its debts and of its revenues and expenses; and
(i) in general, perform all the duties incident to the
office of Treasurer and chief financial officer and such
other duties as from time to time may be assigned to him
by the Board of Directors, the Chairman of the Board or
the President.
The Assistant Treasurer shall, in the absence, disability or at the
direction of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time confer.
Section 8. Controller. The Controller shall be the chief accounting
officer of the corporation and shall maintain adequate records of all assets,
liabilities and transactions of the corporation; he shall establish and maintain
internal accounting control, and in cooperation with the independent public
accountants selected by the Board, shall supervise internal auditing. He shall
have such further powers and perform all such duties as from time to time may be
assigned to him by the President or the Board of Directors.
Section 9. Secretary and Assistant Secretary. The Secretary shall:
(a) attend in person or by designation of a representative
for such purpose, all meetings of the stockholders and
Board of Directors and record or cause to be recorded
and keep or cause to be kept in one or more
9
<PAGE>
books provided for the purpose, the minutes of all
meetings of the Board of Directors, the committees of
the Board and the shareholders;
(b) see that all notices are duly given in accordance with
the provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the
corporation and affix and attest the seal to all stock
certificates of the corporation (unless the seal of the
corporation on such certificates shall be a facsimile,
as hereinafter provided) and affix and attest the seal
to all other documents to be executed on behalf of the
corporation under its seal;
(d) see that the books, reports, statements, certificates
and other documents and records required by law to be
kept and filed are properly kept and filed; and
(e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time
to time may be assigned to him by the Board of
Directors, the Chairman of the Board or the President.
The Assistant Secretary shall, in the absence, disability or at the
direction of the Secretary, perform the duties and exercise the powers of the
Secretary and perform such other duties and have such other powers as the Board
of Directors may from time to time confer.
Section 10. Compensation. The compensation of the officers of the
corporation for their services as such officers shall be fixed from time to time
by the Board of Directors; provided, however, that the Board may delegate to the
President the power to fix the compensation of officers and agents appointed by
such officer. An officer of the corporation shall not be prevented from
receiving compensation by reason of the fact that he is also a director of the
corporation, but any such officer who shall also be a director shall not have
any vote in the determination of the amount of compensation paid to him.
ARTICLE V.
Capital Stock
Section 1. Payments. All payments for stock of the corporation shall be
received by the Treasurer. Failure to pay an installment upon a stock
subscription when required to be paid by the Board of Directors shall constitute
a forfeiture of the shares of stock in arrears, pursuant to Section 164 of the
Delaware General Corporation Law.
10
<PAGE>
Section 2. Certificates of Stock. The stock of the corporation shall be
evidenced in certificates certifying the number of shares represented thereby
and in a form consistent with the Certificate of Incorporation and as provided
from time to time by the Board of Directors and such certificate shall be signed
by the Chairman of the Board, the President or a Vice President and the
Secretary or the Treasurer, and may be sealed with the seal of the corporation
or a facsimile thereof. Any or all signatures on such certificate may be a
facsimile. In case any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate was issued, it may be issued by the corporation with the same
effect as if he were such officer at the date of issue.
Section 3. Transfer Agents and Registrars. The Board of Directors may,
in its discretion, appoint responsible banks or trust companies to act as
transfer agents or registrars of the stock of the corporation; and, upon such
appointments being made, no stock certificates shall be valid until
countersigned by one of such transfer agents and registered by one of such
registrars.
Section 4. Transfers. Transfers of stock shall be made on the books of
the corporation only by the person named in the certificate or by attorney
lawfully constituted in writing upon the surrender of a certificate or
certificates for a like number of shares of the same class of stock, with duly
executed assignment and power of transfer endorsed thereon or attached thereto,
and with such proof of the authenticity of the signatures as the corporation or
its agents may reasonably require. A new certificate shall be issued to the
person entitled thereto and the old certificate cancelled and the transaction
recorded upon the books of the corporation. Any stock transfers or attempted
stock transfers shall be subject to the requirements and limitations set forth
in any written agreement among the stockholders of the corporation, properly
executed and then in effect.
Section 5. Determination of Stockholders of Record for Certain
Purposes. The Board of Directors may fix a time, not exceeding fifty days
preceding the date fixed for the payment of any dividend, or the making of any
distribution or for the delivery of evidences of rights or evidences of interest
arising out of any change, conversion or exchange of capital stock, as a record
time for the determination of the stockholders entitled to receive any such
dividend, distribution, rights or interest. The Board of Directors at its
option, in lieu of so fixing a record time, may prescribe a period not exceeding
fifty days prior to the date for such payment, distribution or delivery during
which no transfer of stock on the books of the corporation may be made.
Section 6. Stockholders of Record Recognized. The corporation shall be
entitled to treat the holder of record of any stock certificate as the holder in
fact and owner of the shares represented thereby and shall not be bound to
recognize any equitable claim to or interest in such stock on the part of any
other person, whether or not it shall have express or other notice thereof save
as expressly provided by the laws of Delaware.
11
<PAGE>
Section 7. Lost Certificate. In case any certificate of stock alleged
to be lost or destroyed, the Board of Directors, in its discretion, may
authorize the issuance of a substitute certificate in place of the certificate
alleged to be so lost or destroyed, and may cause such substitute certificate to
be countersigned by the appropriate transfer agent and registered by the
appropriate registrar; provided, that, in each such case, the applicant for a
substitute certificate shall furnish to the corporation and to such of its
transfer agents and registrars as may require the same, evidence to their
satisfaction, in their discretion, of the loss or destruction of such
certificate and of the ownership thereof, and also such security and indemnity
as may by them be required.
ARTICLE VI.
Seal
Section 1. Seal. The seal of the corporation shall be in such form as
shall be approved by the Board of Directors.
Section 2. Affixing and Attesting. The seal of the corporation shall be
in the custody of the Secretary, who shall have power to affix it to the proper
corporate instruments and documents, and who shall attest it. In his absence it
may be affixed and attested by the Assistant Secretary or Treasurer. The
transfer agent of the stock of the corporation may have a facsimile thereof and
affix the same to stock certificates issued by it.
ARTICLE VII.
Miscellaneous
Section 1. Loans. When expressly authorized by the Board of Directors,
the Chairman of the Board, President, Vice President-Finance, the Treasurer or
other officer designated by the Board may effect loans and advances at any time
on behalf of the corporation from any bank, trust company or other institution,
or from any firm, corporation or individual, and for such loans and advances may
make, execute and deliver promissory notes, bonds, or other certificates or
evidences of indebtedness of the corporation, and no officer or officers shall
mortgage, pledge, hypothecate or transfer any securities or other property of
the corporation, except upon the express authorization of the Board of
Directors. The Chairman of the Board, President, Vice President-Finance or
Treasurer may, without express authorization of the Board, cause the corporation
to borrow money from or lend money to the parent company or ultimate parent
company of the [sic] Corporation or any wholly owned, direct or indirect,
subsidiary of the corporation, subject to legal restrictions or other
requirements as may be established by the Board or stockholders.
12
<PAGE>
Section 2. Signatures to Negotiable Paper. All checks, drafts, notes
and other negotiable instruments of the corporation shall be signed,
countersigned and endorsed by such directors, officers and agents as the Board
of Directors may designate from time to time or as are designated in accordance
with a resolution of the Board of Directors in effect at the time of such
designation.
Section 3. Delegation of Duties. The Board of Directors may, in its
discretion, delegate the powers or duties of any officer to any other officer or
director.
Section 4. Dividends. Dividends upon the shares of the capital stock of
the corporation may be declared and paid out of the net assets of the
corporation in excess of its capital, as often and at such times as the Board of
Directors may determine, subject to the limitations set forth in the Certificate
of Incorporation and applicable statutes and legal restrictions.
Section 5. Indemnification of Officers and Directors. To the full
extent permitted by law, each officer, director and member of a committee duly
constituted by the Board of Directors and each former officer, director and
committee member of this corporation shall be indemnified by the corporation
against all costs and expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense of any claim, action,
suit or proceeding against him by reason of his being or having been an officer,
director or member of a committee of the Board of Directors of this corporation,
and which have not been recouped by him in any other manner, whether or not
based on matters antedating the adoption of this provision. If any other
unexhausted right of recoupment shall exist, payment of this indemnification
shall be conditioned upon its release or assignment to this corporation.
Section 6. Indemnification of Officers and Directors of Affiliated or
Subsidiary Companies. Each officer and director and former officer and director
of another corporation in which this corporation shall have a financial interest
as an investor or creditor, who serves as such on behalf of this corporation,
shall be indemnified to the extent permitted by law against all costs and
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense of any claim, action, suit or proceeding against him
by reason of his being or having been an officer or director of such
corporation, and which have not been recouped by him in any other manner,
whether or not based on matters antedating the adoption of this provision. If
any other unexhausted right of recoupment shall exist, payment of this
indemnification shall be conditioned upon its release or assignment to this
corporation.
Section 7. Amendment to Conform to Business Corporation Law. If and to
the extent that any provision of Section 5 or Section 6 of this Article VII is
inconsistent with the Delaware General Corporation Law, as in effect from time
to time, such provision shall be deemed to have been amended, mutatis mutandis,
to the extent necessary to make it consistent with such Law.
13
<PAGE>
Section 8. Signatures to Contracts. Except as otherwise authorized or
required by statute, the Certificate of Incorporation or these By-laws, any
contract or other instrument may be executed and delivered in the name and on
behalf of the corporation by such officer or officers (including any assistant
officer) of the corporation as the Board of Directors or the President of the
Corporation may from time to time direct; provided that the President may not
authorize the execution or delivery of any contract or other instrument if the
same may pose a direct or indirect conflict of interest unless with the prior
approval of the Secretary of the Corporation. Such authority may be general or
confined to specific instances and need not be in writing. Unless otherwise
authorized by the Board or expressly permitted by these by-laws, no officer,
agent or employee shall have the power or authority to bind the corporation by
any contract or engagement or to pledge its credit or to render it pecuniarily
liable for any purpose or to any amount.
Section 9. Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
ARTICLE VIII.
Amendments
Section 1. Amendments. These By-laws may be altered or repealed, in any
particular, and new By-laws, not inconsistent with any provision of the
Certificate of Incorporation forming this corporation or any certificate filed
pursuant to law or any provision of law, may be adopted, either by the
affirmative vote of the holders of record of a majority in number of the
outstanding shares of stock entitled to vote, given at an annual meeting, or at
any special meeting, or by vote of a majority of the whole Board of Directors,
given at any meeting thereof.
14
AMENDED AND RESTATED BY-LAWS
Adopted November ___, 1996
CORNING CLINICAL LABORATORIES INC.,
A Connecticut corporation
CORNING CLINICAL LABORATORIES INC.,
A Maryland corporation
CORNING CLINICAL LABORATORIES INC.,
A Massachusetts corporation
CORNING CLINICAL LABORATORIES INC.,
A Michigan corporation
CORNING CLINICAL LABORATORIES OF PENNSYLVANIA INC.,
A Delaware corporation
CORNING MRL INC.,
A Delaware corporation
DAMON CLINICAL LABORATORIES INC.,
A Massachusetts corporation
DEYOR CPF/METPATH, INC.,
An Ohio corporation
DIAGNOSTIC REFERENCE SERVICES, INC.,
A Maryland corporation
DPD HOLDINGS, INC.,
A Delaware corporation
METWEST INC.,
A Delaware corporation
NICHOLS INSTITUTE DIAGNOSTICS,
A California corporation
NOMAD - MASSACHUSETTS, INC.,
A Massachusetts corporation
QUEST DIAGNOSTICS INCORPORATED,
A Maryland corporation
QUEST DIAGNOSTICS INCORPORATED,
A Michigan corporation
SOUTHGATE MEDICAL SERVICES, INC.,
An Ohio corporation
<PAGE>
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
ARTICLE I
STOCKHOLDERS
Page
Section 1.01 Annual Meetings....................................1
Section 1.02 Special Meetings...................................1
Section 1.03 Notice of Meetings.................................1
Section 1.04 Business Transacted at Special
Meetings of Stockholders...........................1
Section 1.05 Quorum.............................................1
Section 1.06 Consent of Stockholders in Lieu
of Meeting.........................................1
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 General Powers.....................................2
Section 2.02 Number and Term of Office..........................2
Section 2.03 Election of Directors..............................2
Section 2.04 Annual and Regular Meetings........................2
Section 2.05 Special Meetings; Notice...........................3
Section 2.06 Telephonic Meetings................................3
Section 2.07 Quorum and Vote....................................3
Section 2.08 Action Withouta Meeting............................3
Section 2.09 Manner of Acting...................................3
Section 2.10 Resignations.......................................3
Section 2.11 Removal of Directors...............................4
Section 2.12 Vacancies and Newly Created
Directorships......................................5
Section 2.13 Reliance on Accounts and
Reports, etc.......................................5
Section 2.14 Committees.........................................5
(i)
<PAGE>
ARTICLE III
OFFICERS
Page
Section 3.01 Number and Designation.............................5
Section 3.02 Additional Officers................................6
Section 3.03 Election...........................................6
Section 3.04 Removal and Vacancies..............................6
Section 3.05 Duties of the Chairman of
the Board of Directors.............................6
Section 3.06 Duties of the President............................6
Section 3.07 Duties of the Vice President ......................6
Section 3.08 Duties of the Secretary............................7
Section 3.09 Duties of the Treasurer............................7
Section 3.10 Duties of the Controller...........................7
Section 3.11 Duties of the Assistant Secretary..................7
Section 3.12 Duties of the Assistant Controller.................7
Section 3.13 Duties of the Assistant Treasurer..................7
ARTICLE IV
EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES
Section 4.01 General............................................8
Section 4.02 Corporate Indebtedness.............................8
Section 4.03 Checks, Drafts, etc................................8
Section 4.04 Deposits...........................................8
Section 4.05 Dividends..........................................9
Section 4.06 Fiscal Year........................................9
ARTICLE V
CAPITAL STOCK
Section 5.01 Certificates of Stock..............................9
ARTICLE VI
SEAL; OFFICES
Section 6.01 Seal...............................................9
Section 6.02 Offices............................................9
(ii)
<PAGE>
ARTICLE VII
INDEMNIFICATION
Page
Section 7.01 Indemnification...................................9
ARTICLE VIII
CONFLICTS
Section 8.01 Conflicts.........................................10
ARTICLE IX
AMENDMENTS
Section 9.01 Amendments........................................11
(iii)
<PAGE>
AMENDED AND RESTATED BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1.01. Annual Meetings. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as properly may come before such meeting shall be held at such place
either within or outside the State of Delaware, at such time and date as shall
be fixed from time to time by resolution of the Board of Directors and as set
forth in the notice of the meeting.
Section 1.02. Special Meetings. Special meetings of the stockholders may be
called at any time by the Chairman of the Board of Directors, if any, or by the
President (or, in the absence or disability of the Chairman of the Board and the
President, by any Vice President), or by the Board of Directors. Such special
meetings of the stockholders shall be held at such places, within or outside the
State of Delaware, as shall be specified in the respective notices or waivers of
notice thereof.
Section 1.03. Notice of Meetings. The Secretary or any Assistant Secretary shall
cause written notice of the date, time and place of each meeting of the
stockholders to be given, at least ten but not more than fifty days prior to the
meeting, to each stockholder of record entitled to vote. Such notice shall be
given either personally or by mail or other means of written communication,
addressed to each stockholder at the address of such stockholder appearing on
the books of the Corporation at the time such notice is dispatched. Such further
notice shall be given as may be required by law. Notice of any meeting of
stockholders need not be given to any stockholder who shall sign a waiver of
such notice in writing, whether before or after the time of such meeting. Notice
of any adjourned meeting of the stockholders of the Corporation need not be
given.
Section 1.04. Business Transacted at Special Meetings of Stockholders. Business
transacted at any special meeting of stockholders shall not be limited to the
purposes stated in the notice thereof.
Section 1.05 Quorum. Except as at the time otherwise required by statute or by
the Certificate of Incorporation, the presence at any stockholders meeting, in
person or by proxy, of the holders of record of shares of stock (of any class)
entitled to vote at the meeting, aggregating a majority of the total number of
shares of stock of all classes then issued and outstanding and entitled to vote
at the meeting, shall be necessary and sufficient to constitute a quorum for the
transaction of business.
Section 1.06 Consent of Stockholders in Lieu of Meeting. To the extent provided
by any statute at the time in force, whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken for or in connection with
any corporate action, by any statute, by the Certificate of Incorporation or by
these By-Laws, the meeting and vote of
<PAGE>
stockholders may be dispensed with if the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted shall consent in writing to such corporate action being
taken.
ARTICLE II
BOARD OF DIRECTORS
Section 2.01 General Powers. The property, affairs and business of the
Corporation shall be managed by the Board of Directors. The Board of Directors
may exercise all the powers of the Corporation, whether derived from law or the
Certificate of Incorporation, except such powers as are, by statute, by the
Certificate of Incorporation or by these By-Laws, vested solely in the
stockholders of the Corporation. No Director need be a stockholder of the
Corporation.
Section 2.02 Number and Term of Office. The Board of Directors shall consist of
such number (but in no event less than three) of Directors as may be determined
from time to time by resolution adopted by affirmative vote of a majority of the
whole Board of Directors. Each Director (whenever elected) shall hold office
until his or her successor shall have been elected, shall qualify, or until his
or her death, or until he or she shall have resigned in the manner provided in
Section 2.10 hereof or shall have been removed in the manner provided in Section
2.11 hereof.
Section 2.03 Election of Directors. Except as otherwise provided in Sections
2.11 and 2.12 hereof, the Directors shall be elected annually at the annual
meeting of the stockholders. In the event of the failure to elect Directors at
an annual meeting of the stockholders, then Directors may be elected at any
regular or special meeting of stockholders entitled to vote for election of
Directors, provided that notice of such meeting shall contain mention of such
purpose.
Section 2.04 Annual and Regular Meetings. The annual meeting of the Board of
Directors, for the choosing of officers and for the transaction of such other
business as may come before the meeting, shall be held in each year as soon as
possible after the annual meeting of the stockholders at the place of such
annual meeting of the stockholders, and notice of such annual meeting of the
Board of Directors shall not be required to be given. The Board of Directors
from time to time may provide by resolution for the holding of regular meetings
and fix the time and place (which may be within or outside the State of
Delaware) thereof. Notice of such regular meetings need not be given; provided,
however, that in case the Board of Directors shall fix or change the time or
place of regular meetings, notice of such action shall be given personally or by
mail, facsimile or similar means of communication promptly to each Director who
shall not have been present at the meeting at which such action was taken.
<PAGE>
Section 2.05 Special Meetings; Notice. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, if any, or
by the President (or, in the absence or disability of the Chairman of the Board
and the President, by any Vice President), or by any two Directors, at such time
and place (which may be within or outside of the State of Delaware) as may be
specified in the respective notices or waivers of notice thereof. Special
meetings of the Board of Directors may be called on two days' notice to each
Director, personally or by telephone or facsimile or on four days' notice by
mail. Notice of any special meeting need not be given to any Director who shall
be present at such meeting, or to any Director who shall waive notice of such
meeting in writing, whether before or after the time of such meeting, and any
business may be transacted thereat. No notice need be given of any adjourned
meeting.
Section 2.06 Telephonic Meetings. Directors may participate in a meeting of the
Board of Directors, or a meeting of any committee designated by the Board, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this By-Law shall constitute presence in
person at such meeting.
Section 2.07 Quorum and Vote. At all meetings of the Board of Directors, the
presence of a majority of the total authorized number of Directors under Section
2.02 hereof shall be necessary and sufficient to constitute a quorum for the
transaction of business. Except when otherwise required by statute, the vote of
a majority of the total number of Directors present and acting at a meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, a majority of the Directors present may adjourn the meeting
from time to time, until a quorum shall be present.
Section 2.08 Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or any meeting of a Committee of
the Board of Directors may be taken without a meeting, if written consents
thereto are signed by all members of the Board or Committee and such written
consents are filed with the minutes of proceedings of the Board.
Section 2.09 Manner of Acting. The Directors shall act only as a Board, and the
individual Directors shall have no power as such, except as permitted by
statute.
Section 2.10 Resignations. Any Director may resign at any time by delivering a
written resignation to the Chairman of the Board, if any, the President, a Vice
President, the Secretary or any Assistant Secretary. Unless otherwise specified
therein, such resignation shall take effect upon delivery.
Section 2.11 Removal of Directors. Any Director may be removed at any time,
either for or without cause, upon the affirmative vote of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
for the election of such Director, given at a special meeting of such
stockholders called for the purpose; provided, however, that if less than the
entire Board is to be removed, no Director may be removed without cause if the
votes cast against his or her removal would be sufficient to elect him
<PAGE>
or her if then cumulatively voted at an election of the entire Board of
Directors. Any vacancy in the Board of Directors caused by any such removal may
be filled at such meeting by a vote of the stockholders entitled to vote for the
election of the Directors so removed. If such stockholders do not fill such
vacancy at such meeting, such vacancy may be filled in the manner provided in
Section 2.12 hereof.
Section 2.12 Vacancies and Newly Created Directorships. If any vacancies shall
occur in the Board of Directors, by reason of death, resignation, removal or
otherwise, or if the authorized number of Directors shall be increased, the
Directors then in office shall continue to act, and such vacancies may be filled
by a majority of the Directors then in office, though less than a quorum, and
the Directors so chosen shall hold office until the next annual election and
until their successors are duly elected and qualified, unless sooner displaced.
Any such vacancies or newly created Directorships may also be filled by a vote
of the stockholders entitled to vote for the election of Directors.
Section 2.13 Reliance on Accounts and Reports, etc. A Director, or a member of
any committee designated by the Board of Directors, in the performance of his or
her duties, shall be fully protected in relying in good faith on the records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees, or committees
of the Board of Directors or by any other person as to matters the Director or
member reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation.
Section 2.14 Committees. The Board may establish such committees having such
responsibilities and composition as it shall from time to time by resolution
determine.
ARTICLE III
OFFICERS
Section 3.01 Number and Designation. The officers of the Corporation shall be
chosen by the Board of Directors and may include a Chairman of the Board, a
President, a Vice President, a Secretary, a Controller and a Treasurer who shall
hold office until their successors are chosen and qualify or their earlier
resignation or removal. The Board of Directors may also choose additional Vice
Presidents, and one or more Assistant Secretaries, Assistant Controllers and
Assistant Treasurers. Any one or more of such Vice Presidents may be designated
as Executive or Senior Vice President.
Any number of offices may be held by the same person, except that no person
shall simultaneously hold the offices of Chairman or President and Secretary,
Treasurer or Controller.The Chairman shall be a member of the Board of
Directors. The Board may also designate any Vice Presidents as Chief Financial
Officer and as General Counsel.
Section 3.02 Additional Officers. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms
<PAGE>
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors. The Board of Directors may also
delegate its Chairman or the President to appoint and remove such additional
officers as the Chairman or the President, as the case may be, shall designate
in writing, with such limited authority as shall be set forth in writing, and
such appointments shall be reported to the Board of Directors.
Section 3.03 Election. The Board of Directors at its first meeting or such
subsequent meetings as shall be held prior to its first annual meeting, and
thereafter annually at its annual meeting, shall choose the officers of the
Corporation. If any officers are not chosen at an annual meeting, such officers
may be chosen at any subsequent regular or special meeting.
Section 3.04 Removal and Vacancies. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors, either with or without cause. Any vacancy
occurring in any office or the Corporation shall be filled by the Board of
Directors.
Section 3.05 Duties of the Chairman of the Board of Directors. The Chairman of
the Board of Directors, if present, shall preside at all stockholders' meetings
and all meetings of the Board at which he is present and shall have such other
duties as shall be assigned to him or her by the Board of Directors. The
Chairman may be the Chief Executive Officer of the Corporation.
Section 3.06 Duties of the President. The President shall have direct charge of
the business of the Corporation, subject to the general control of the Board of
Directors, and may be the Chief Executive Officer and/or the Chief Operating
Officer of the Corporation. In the absence of the Chairman of the Board or if no
Chairman of the Board has been chosen, the President shall also have the duties
of the Chairman of the Board.
Section 3.07 Duties of the Vice President. In the event of the absence of
disability of the Chairman of the Board and the President, the Executive or
Senior Vice President, if any, or if absent, any Vice President designated by
the Board of Directors, shall perform all the duties of the President, and when
so acting, shall have all the powers of, and be subject to all the restrictions
upon, the President. Except where by law the signature of the President is
required, each of the Vice Presidents shall possess the same power as the
President to sign all certificates, contracts, obligations and other instruments
of the Corporation.
Any Vice President shall perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these By-Laws or by
the Board of Directors or the President. An Executive Vice President may be the
Chief Operating Officer of the Corporation.
Section 3.08 Duties of the Secretary. The Secretary shall, if present, act as
Secretary of, and keep the minutes of, all the proceedings of the meetings of
the stockholders and of
<PAGE>
the Board of Directors and of any committee of the Board of Directors in one or
more books to be kept for that purpose; shall perform such other duties as shall
be assigned to him or her by the President or the Board of Directors; and, in
general, shall perform all duties incident to the office of Secretary.
Section 3.09 Duties of the Treasurer. The Treasurer shall keep or cause to be
kept full and accurate records of all receipts and disbursements in the books of
the Corporation and shall have the care and custody of all funds and securities
of the Corporation. He or she shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, shall render to the President and the
Board of Directors, whenever they request it, an account of all of his or her
transactions as Treasurer and shall perform such other duties as may be assigned
to him or her by the President or the Board of Directors; and, in general, shall
perform all duties incident to the office of Treasurer.
Section 3.10 Duties of the Controller. The Controller shall be the chief
accounting officer of the Corporation. The Controller shall keep or cause to be
kept all books of account and accounting records of the Corporation and shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the Corporation. The
Controller shall prepare or cause to be prepared appropriate financial
statements for the Corporation and shall perform such other duties as may be
assigned to him or her by the President or the Board of Directors; and, in
general, shall perform all duties incident to the office of Controller.
Section 3.11 Duties of the Assistant Secretary. The Assistant Secretary, if any,
shall, in the absence or disability of the Secretary, exercise the powers and
perform the duties of the Secretary, and shall perform such other duties as
shall be assigned to him or her by the President or the Board of Directors.
Section 3.12 Duties of the Assistant Controller. The Assistant Controller, if
any, shall, in the absence or disability of the Controller, exercise the powers
and perform the duties of the Controller, and shall perform such other duties as
shall be assigned to him or her by the President or the Board of Directors.
Section 3.13 Duties of the Assistant Treasurer. The Assistant Treasurer, if any,
shall, in the absence or disability of the Treasurer, exercise the powers and
perform the duties of the Treasurer, and shall perform such other duties as
shall be assigned to him or her by the President or the Board of Directors.
<PAGE>
ARTICLE IV
EXECUTION OF INSTRUMENTS; DEPOSITS; FINANCES
Section 4.01 General. Subject to the provisions of Sections 4.02, 4.03 and 4.04
hereof, all deeds, documents, transfers, contracts, and agreements and other
instruments requiring execution by the Corporation shall be signed by the
Chairman of the Board, the President, a Vice President or the Treasurer, or as
the Board of Directors may otherwise from time to time authorize by resolution.
Any such authorization may be general or confined to specific instances.
Section 4.02 Corporate Indebtedness. No loan shall be contracted on behalf of
the Corporation, and no evidences of indebtedness shall be issued in its name,
unless authorized by the Board of Directors. Such authorizations of the Board
may be general or confined to specific instances. Loans authorized by the Board
of Directors may be effected at any time for the Corporation from any bank,
trust company or other institution, or from any firm, corporation or individual.
All bonds, debentures, notes and other obligations or evidences of indebtedness
of the Corporation issued for such loans as the Board shall authorize shall be
made, executed and delivered as the Board of Directors shall authorize. All
notes and other obligations or evidences of indebtedness permitted hereunder
without authorization of the Board of Directors shall be signed by the
President, a Vice President or the Treasurer. When so authorized by the Board of
Directors, any part of or all the properties, including contract rights, assets,
business or goodwill of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness so the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
Section 4.03 Checks, Drafts, etc. All checks, drafts, bills of exchange or
orders for the payment of money, issued in the name of the Corporation, shall be
signed only by the Treasurer or such other person or persons and in such manner
as may from time to time be designated by the Board of Directors, which
designation may be general or confined to specific instances; and unless so
designated, no person shall have any power or authority thereby to bind the
Corporation or to pledge its credit or to render it liable.
Section 4.04 Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board of Directors may select. The
Board of Directors may make such special rules and regulations with respect to
such bank accounts, not inconsistent with the provisions of these By-Laws, as it
may deem expedient. For the purpose of deposit and for the purpose of collection
for the account of the Corporation, checks, drafts and other orders for the
payment of money which are payable to the order of the Corporation shall be
endorsed, assigned and delivered by the
<PAGE>
Treasurer or such other person or persons and in such manner as may from time to
time be designated by the Board of Directors.
Section 4.05 Dividends. Dividends upon the stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law. Such
declaration may be continuing or limited to a specific payment or distribution.
Dividends may be paid in cash, in property, or in shares of stock, subject to
the provisions of the Certificate of Incorporation.
Section 4.06 Fiscal Year. The fiscal year of the Corporation shall be the
calendar year, unless otherwise fixed by resolution of the Board of Directors.
ARTICLE V
CAPITAL STOCK
Section 5.01 Certificates of Stock. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman of the Board of Directors, or the President or a
Vice President, and by the Treasurer or an Assistant Treasurer, or by the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation.
ARTICLE VI
SEAL; OFFICES
Section 6.01 Seal. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its incorporation and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 6.02 Offices. The Corporation may have offices at such other places both
within or outside the State of Delaware as the Board of Directors may from time
to time determine or as the business of the Corporation may require.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. (a) No director of the Corporation shall have any
personal liability to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, provided that this provision shall
not eliminate or limit the
<PAGE>
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit.
(b) Each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a director
or officer of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action either in an official
capacity as a director or officer or in any other capacity while serving as a
director or officer, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expenses,
liability and loss (including attorneys' fees, judgments, fines, excise taxes
pursuant to the Employee Retirement Income Security Act of 1974, as amended, or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to be indemnified conferred in
this Section 7.01 shall be a contract right and shall include the right to be
paid by the Corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; provided, however, that, the payment of
such expenses incurred by the director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is to
be rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan), in advance of the final
disposition of proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Article or otherwise. The
Corporation may, by action of its Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(c) The indemnification provided by this Section 7.01 shall not limit
or exclude any rights, indemnities or limitations of liability to which any
person may be entitled,
<PAGE>
whether as a matter of law, under the Certificate of Incorporation of the
Corporation, by agreement, vote of the stockholders or disinterested directors
of the Corporation or otherwise.
(d) If a claim under paragraph (b) of this Section 7.01 is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or she
has met the applicable standard or conduct set forth in the General Corporation
Law of the State of Delaware, nor an actual determination by the Corporation
(including its Board, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall create a
presumption that the claimant has not met the applicable standard of conduct.
(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
ARTICLE VIII
CONFLICTS
Section 8.01 Conflicts. To the extent any provision of these By-Laws conflicts
with the law of the State of incorporation of the Corporation, the laws of such
state shall control.
<PAGE>
ARTICLE IX
AMENDMENTS
Section 9.01 Amendments. These By-Laws may only be altered or repealed and new
ByLaws adopted by resolution of the Board of Directors or of the Shareholders.
Exhibit 23.2
Consent of Price Waterhouse LLP, Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated September 20, 1996,
except for Note 13 as to which the date is November 4, 1996, relating to the
combined financial statements of Corning Clinical Laboratories Inc., which
appears in such Prospectus. We also consent to the application of such report
to the Financial Statement Schedule for the three years ended December 31,
1995 listed under Item 16b of this Registration Statement when such schedule
is read in conjunction with the financial statements referred to in our
report. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
November 25, 1996
E-3
Exhibit 23.3
Consent of Leverone & Company, Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Corning Clinical Laboratories Inc. of
our report dated November 10, 1994 relating to the financial statements of
Moran Research Labs (not presented separately herein) as of and for the year
ended December 31, 1993. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ Leverone & Company
Leverone & Company
Billerica, Massachusetts
November 21, 1996
E-4
Exhibit 23.4
Consent of Deloitte & Touche LLP, Independent Auditors
We consent to the use in this Amendment No. 1 to the Registration
Statement of Corning Clinical Laboratories Inc. on Form S-1 of our report
dated February 28, 1994 relating to the consolidated statements of
operations, stockholders' equity and cash flows for the year ended December
31, 1993 of Nichols Institute (not presented separately herein) which report
includes explanatory paragraphs related to uncertainties as to an
investigation by the Office of the Inspector General of the Department of
Health and Human Services and substantial doubt as to the Company's ability
to continue as a going concern. We also consent to the reference to us under
the heading "Experts" in such Registration Statement.
/s/Deloitte & Touche LLP
Deloitte & Touche LLP
Costa Mesa, California
November 25, 1996
E-5
Exhibit 23.5
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 19, 1994, relating to the combined financial
statements of Maryland Medical Laboratory, Inc. and affiliates (not presented
separately herein) in Amendment No. 1 to the Registration Statement on Form S-1
and related Prospectus of Corning Clinical Laboratories Inc. dated November 25,
1996.
/s/ Ernst & Young LLP
Ernst & Young LLP
Baltimore, Maryland
November 25, 1996
E-6
[Project Hope Letterhead]
November 23, 1996
Legal Department
Corning Clinical Laboratiories, Inc.
One Malcolm Avenue
Teterboro, NJ 07608
Dear Ms. Serocke:
This letter serves as written consent for Corning Clinical Laboratories to
include my name and information in the filing to the Securities and Exchange
Commission on Monday, November 25, 1996 as a potential new member of the board
of directors of Quest Diagnostics, Inc.
Sincerely,
/s/ Gail R. Wilensky, Ph.D.
John M. Olin Senior Fellow
Project HOPE