SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22758
UNILAB CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-4415490
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
18448 Oxnard Street, Tarzana, California 91356
(Address of principal executive offices) (Zip Code)
(818) 996-7300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
As of November 1, 1996, 37,170,047 shares of Registrant's
Common Stock, par value $.01 per share, were outstanding.
Page 1 of 15 pages
<PAGE>
UNILAB CORPORATION AND SUBSIDIARIES
Form 10-Q for the Quarterly Period Ended September 30, 1996
INDEX
Page
Part I FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 3
1996 and December 31, 1995.
Consolidated Statements of Operations -
Three month and nine month periods ended
September 30, 1996 and September 30, 1995. 4
Consolidated Statements of Cash Flows -
Nine month periods ended September 30, 1996
and September 30, 1995. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II - OTHER INFORMATION:
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
<TABLE>
Unilab Corporation and Subsidiaries
Consolidated Balance Sheets - September 30, 1996 and December 31, 1995
(amounts in thousands)
<CAPTION>
Assets
September 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $11,136 $70
Accounts receivable, net of
allowance for doubtful accounts
of $10,146 at September 30 and $8,454
at December 31 40,721 40,334
Amounts due from UGL/UniHolding 15,375 15,000
Inventory of supplies 2,589 2,361
Prepaid expenses and other current assets 1,863 1,819
____________________________
Total current assets 71,684 59,584
____________________________
PROPERTY AND EQUIPMENT, net 17,709 18,326
GOODWILL, net of accumulated
amortization of $8,392 at September 30
and $5,676 at December 31 100,330 100,598
OTHER INTANGIBLE ASSETS, net of
accumulated amortization of $19,523
at September 30 and $17,909 at
December 31 10,807 12,421
OTHER ASSETS 6,614 5,245
____________________________
$207,144 $196,174
_____________________________
</TABLE>
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
Septemer 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $1,722 $21,947
Accounts payable and accrued liabilities 34,404 27,326
_____________________________
Total current liabilities 36,126 49,273
_____________________________
LONG-TERM DEBT, net of current portion 126,561 87,207
OTHER LIABILITIES 3,112 3,364
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Convertible Preferred Stock $.01 par value
Issued and Outstanding - 400 at
September 30 and December 31 4 4
Common stock $.01 par value
Voting - Authorized - 100,000 shares;
Issued and Outstanding - 36,844 at
September 30 and 35,052 at December 31 368 351
Non-Voting - Authorized - 5,000 shares;
Issued and Outstanding - 1,050 at
December 31 - 10
Additional paid-in capital 225,698 224,020
Accumulated deficit (184,725) (168,055)
______________________________
Total shareholders' equity 41,345 56,330
______________________________
$207,144 $196,174
______________________________
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
Unilab Corporation and Subsidiaries
Consolidated Statements of Operations
Three Month and Nine Month Periods Ended September 30, 1996 and 1995
(amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three months ended Sept.30, Nine Months Ended Sept.30,
1996 1995 1996 1995
____________________________________________________________________________
<S> <C> <C> <C> <C>
Revenue $52,670 $50,160 $156,269 $140,315
_____________________________________________________________________________
Operating Expenses:
Salaries, wages and benefits 17,912 17,117 52,808 46,551
Supplies 7,562 6,690 21,314 17,707
Other operating expenses 14,114 11,347 40,513 31,995
Legal and acquisition related charges 4,940 - 4,940 2,400
Amortization and depreciation 2,921 2,69 38,645 6,822
_____________________________________________________________________________
Total Operating Expenses 47,449 37,847 128,220 105,475
Selling, general and administrative expenses 10,606 9,975 32,461 27,370
_____________________________________________________________________________
Operating Income (5,385) 2,338 (4,412) 7,470
_____________________________________________________________________________
Other Income (Expenses):
Third party interest, net (3,525) (2,481) (9,824) (6,493)
Related party interest 375 375 1,125 285
Equity in earnings of affiliate - - 250
Loss on sale of equity investment - - - (36,499)
_____________________________________________________________________________
Total Other Expenses, net (3,150) (2,106) (8,699) (42,457)
_____________________________________________________________________________
Loss (Loss) Before Income Taxes and
Extraordinary Item (8,535) 232 (13,111) (34,987)
Tax Provision - - - -
_____________________________________________________________________________
Loss (Loss) Before Extraordinary Item (8,535) 232 (13,111) (34,987)
Extraordinary item - loss on early
extinguishment of debt - - 3,451 1,732
_____________________________________________________________________________
Net Income (Loss ) ($8,535) $232 ($16,562) ($36,719)
_____________________________________________________________________________
Preferred Stock Dividends $36 $36 $108 $108
Net Income (Loss) Available to
Common Shareholders ($8,571) $196 ($16,670) ($36,827)
Net Income (Loss) Per Share:
Income (Loss) Before Extraordinary Item ($0.23) $0.01 ($0.35) ($0.98)
Extraordinary Item $0.00 $0.00 ($0.10) ($0.05)
Net Income (Loss) Per Share ($0.23) $0.01 ($0.45) ($1.03)
Weighted Average Common Shares
Outstanding 36,718 36,114 36,695 35,848
_____________________________________________________________________________
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
Unilab Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995
(amounts in thousands)
(Unaudited)
<CAPTION>
Nine months ended September 30,
1996 1995
_____________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($16,562) ($36,719)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Amortization and depreciation 8,645 6,822
Provision for doubtful accounts 10,608 8,032
Equity in earnings of affiliate - (250)
Loss on sale of equity investment - 36,499
Extraordinary item - loss on early
extinguishment of debt 3,451 1,732
Changes in assets and liabilities affecting
operations, net of acquisitions:
Increase in Accounts receivable (10,995) (16,602)
(Increase) decrease in Inventory of supplies (228) 40
Increase in Prepaid expenses and
other current assets (44) (1,705)
Increase in Other assets (284) (369)
Increase (decrease) in Accounts payable and
accrued liabilities 6,997 (1,776)
Other 577 (302)
_____________________________________________________________________________
Net cash provided (used) by operating
activities 2,165 (4,598)
_____________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under third party debt 123,490 48,400
Payments under third party debt (104,361) (17,451)
Financing costs under the Senior Notes/
Receivables Financing (4,932) -
Financing costs under credit agreement - (3,325)
Other - (208)
_____________________________________________________________________________
Net cash provided by financing activities 14,197 27,416
_____________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,150) (2,767)
Payments for acquisitions, net of cash
acquired (2,146) (30,452)
Transaction fees paid related to acquisitions - (449)
Net cash proceeds from the sale of equity
investments - 13,000
Other - (240)
_____________________________________________________________________________
Net cash used by investing activities (5,296) (20,908)
_____________________________________________________________________________
NET INCREASE IN CASH AND
CASH EQUIVALENTS 11,066 1,910
CASH AND CASH EQUIVALENTS - Beginning of
Period 70 1,491
_____________________________________________________________________________
CASH AND CASH EQUIVALENTS - End of Period $11,136 $3,401
_____________________________________________________________________________
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<PAGE>
UNILAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Management Opinion
In the opinion of management, the accompanying unaudited
interim financial statements reflect all adjustments which are
necessary to present fairly the financial position, results of
operations and cash flows for the interim periods reported.
All such adjustments made were of a normal recurring nature,
except for the extraordinary charge of $3.5 million recorded
in the first quarter of 1996 as discussed in note 4 below, a
$4.9 million charge recorded in the third quarter of 1996 as
discussed in note 3 below and a legal charge of $1.2 million
recorded in the first quarter of 1995, a $1.2 million
acquisition related charge recorded in the second quarter of
1995, a $36.5 million charge recorded in the second quarter
of 1995 related to the sale of Unilab Corporation's ("Unilab"
or the "Company") equity investment and an extraordinary
loss of $1.7 million recorded in the second quarter of 1995
related to a loss upon the early extinguishment of debt. See
the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (as amended by the 1995 Annual
Report on Form 10-K/A) (collectively, the "1995 Form 10-
K") for more detailed information on the above noted charges
recorded in 1995.
The accompanying interim financial statements and related
notes should be read in conjunction with the consolidated
financial statements of Unilab and related notes as contained
in the 1995 Form 10-K.
2. Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net
income (loss) less preferred stock dividends by the weighted
average number of common shares outstanding for each
period presented. Common stock equivalents, which include
options and warrants, are included in the income (loss) plus
common share calculation when the effect is dilutive. The
assumed conversion of the convertible preferred stock is
excluded from the calculation since its effect would be
immaterial.
3. Legal Charge
During the third quarter of 1996, the Company recorded
charges of approximately $4.9 million, primarily related to
settlements reached with the United States ("U.S.")
Government and certain other entities in connection with the
Company's sales, marketing and billing practices. The
Company agreed to pay the U.S. Government approximately
$4.0 million to conclude an investigation of certain of
Unilab's billings to Medicare and certain other governmental
entities for hemotology indices being billed in conjunction
with complete blood counts. The Company paid the U.S.
Government approximately $528,000 in October 1996 and
has remaining payments of $650,000 due March 1 and
September 1, 1997 and 1998, $500,000 due March 1, 1999
and approximately $324,000 due on September 1, 1999. All
deferred payments to the U.S. Government will bear interest
at approximately 5.2 percent. In addition, Unilab has paid
the California MediCal program approximately $160,000 in
October 1996 to settle all their claims concerning the same
issue.
4. Long-Term Debt
In March 1996, the Company completed an offering for
$120.0 million of Senior Notes (the "Senior Notes"). The
proceeds from the Senior Notes offering were used to retire
outstanding borrowings under the Company's then existing
bank term loan and revolving line of credit facility (the "Old
Credit Facility") in the principal amount of $102.1 million,
plus accrued interest. Interest on the Senior Notes is 11%
and is payable on April 1st and October 1st of each year. The
first interest payment on the Senior Notes of approximately
$7.2 was paid by the Company on October 1, 1996. The
Senior Notes are due April 2006 and the Company is not
required to make any mandatory redemption or sinking fund
payment with the respect to the Senior Notes prior to
maturity.
In connection with the Senior Notes offering and the account
receivable financing discussed below, the Company incurred
approximately $5.0 million of financing costs. The debt
financing costs are deferred and amortized, using the interest
method, over the term of the related debt. Upon completion
of the Senior Notes offering, the Company wrote-off $3.5
million of deferred financing costs related to the Old Credit
Facility in the first quarter of 1996. The $3.5 million charge
has been shown as an extraordinary loss from the early
extinguishment of debt in the statement of operations.
The Senior Notes were issued at a discount of 99.242% per
note. The aggregate discount on the Senior Notes
approximated $0.9 million and is charged to operations as
additional interest expense over the life of the Senior Notes
using the interest method.
The Senior Notes are not redeemable prior to April 1, 2001,
after which the Senior Notes will be redeemable at any time
at the option of the Company, in whole or in part, at various
redemption prices as set forth in the indenture covering such
Senior Notes (the "Indenture"), plus accrued and unpaid
interest, if any, to the date of redemption. In addition, at any
time prior to April 1, 1999, the Company may redeem up to
$42.0 million in aggregate principal amount of the Senior
Notes with the net proceeds of one or more public offerings
of common stock of the Company, at a redemption price of
110% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the redemption date.
In the event of a change in control, as defined in the
Indenture, holders of the Senior Notes will have the right to
require the Company to purchase their Notes, in whole or in
part, at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to
the date of purchase.
The Notes are general unsecured obligations of the Company
and rank pari passu in right of payment with all
unsubordinated indebtedness of the Company. In addition,
the Indenture limits the ability of the Company to incur
additional indebtedness, under certain circumstances.
In July 1996, the Company entered into an agreement with a
financial institution whereby it can sell accounts receivable
up to a maximum of $20.0 million. As collections reduce
accounts receivables which have been sold, the Company
may sell new receivables to bring the amount sold up to a
maximum of $20.0 million.
As of November 1, 1996, the Company had not sold any
accounts receivable under this agreement. The termination
date for the agreement is July 1999. A commitment fee of
1/2 percent is required on the unused portion of the available
facility. Borrowings, if any, under the facility are subject to a
liquidity and debt service coverage ratio. The Company
retains collection and administrative responsibilities on the
receivables sold as agent for the purchaser. In addition, any
accounts receivable sold, if any, will be reflected as a
reduction of account receivables in the balance sheet. The
full amount of the allowance for doubtful accounts will be
retained because the Company will retain substantially the
same risk of credit loss as if the receivables had not been
sold.
The Company expects to either reduce its $20.0 million line of
credit with a bank to $3.0 million or terminate the line in its
entirety, given that no funds have been drawn under the line.
5. Non-Voting Common Stock
At the Company's May 1996 annual meeting of stockholders,
an amendment to the Company's Certificate of Incorporation
was approved and adopted by stockholders permitting the
holders of all the 1,050,000 outstanding shares of the
Company's non-voting common stock to convert such shares
into regular voting common stock. In July 1996, all of the
outstanding shares of non-voting stock were converted into
shares of the Company's voting common stock on a share for
share basis.
6. Supplemental Disclosure of Cash Flow Information
(amounts in thousands) Nine months ended September 30,
1996 1995
Cash paid during the period for:
Interest $3,405 $6,696
Income taxes 8 3
In addition, the Company issued Unilab common shares valued
at $1.0 million in the first quarter of 1996 in partial payment of
the purchase price for an acquisition made in 1993 and issued
Unilab common shares valued at $0.2 million in the second
quarter of 1996 to the Company 401-K plan to meet the
Company's matching obligation to the plan.
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three and Nine Month Periods Ended September 30, 1996
Compared with the Three and Nine Month Periods Ended
September 30, 1995
Revenue for the three and nine month periods ended September 30,
1996 increased $2.5 million or 5.0% and $16.0 or 11.4%,
respectively, versus the comparable prior year periods. The
increases were the result of additional specimen volume generating
approximately $8.6 million and $28.3 million offset by changes in
payor mix and decreases in reimbursement levels of approximately
$6.0 million and $12.3 million during the three and nine month
periods ended September 30, 1996 and 1995. The increases in
specimen volume of $8.6 million and $28.3 million were primarily
attributable to growth in the Company's core business of $8.6
million and $19.7 million for the three and nine month periods
ended September 30, 1996 and 1995, respectively, and revenue
from the acquisition of Medical Laboratory Network, Inc.
("MLN") completed in May 1995 of $8.6 million for the nine
month period ended September 30, 1996. The changes in payor
mix and decreases in reimbursement levels is primarily due to a
reduction in the national fee caps for Medicare reimbursement in
January 1996, an increase in managed care business and a general
softening in reimbursement levels across most payor groups, most
notably from insurance carriers.
Salaries, wages and benefits increased to $17.9 million and $52.8
million for the three and nine month periods ended September 30,
1996 from $17.1 million and $46.6 million for the comparable
prior year periods. As a percentage of revenue, salaries, wages and
benefits were 34.0% and 33.8% for the three and nine month
periods ended September 30, 1996 versus 34.1% and 33.2% for the
comparable prior year periods. The increase in the percentage for
the nine months ended September 30, 1996 is due to additional
personnel added by the Company throughout the second half of
1995.
Supplies expense increased to $7.6 and $21.3 million for the three
and nine month periods ended September 30, 1996 from $6.7
million and $17.7 million for the comparable prior year periods.
As a percentage of revenue, supplies expense increased to 14.4%
and 13.6% for the three and nine month periods ended September
30, 1996 from 13.3% and 12.6% for the comparable prior year
periods. Such increases were the result of increased specimen
volume as the cost of supplies for each specimen processed has
remained relatively consistent during the respective periods.
Other operating expenses increased to $14.1 million and $40.5
million for the three and nine month periods ended September 30,
1996 from $11.3 million and $32.0 million for the comparable
prior year periods. As a percentage of revenue, other operating
expenses increased to 26.8% and 25.9% for the three and nine
month periods ended September 30, 1996 from 22.6% and 22.8%
for the comparable prior year periods. Such increases were
primarily due to increases in lab subcontracting expenses due to
increases in fees charged by, and volume sent to, outside reference
laboratories and increases in bad debt expenses, both being
consistent with the higher trends recognized by the Company in the
second half of 1995.
During the third quarter of 1996, the Company recorded charges of
approximately $4.9 million, primarily related to settlements
reached with the U.S. Government and certain other entities in
connection with the Company's sales, marketing and billing
practices. The Company agreed to pay the U.S. Government
approximately $4.0 million to conclude an investigation of certain
of Unilab's billings to Medicare and certain other governmental
entities for hemotology indices being billed in conjunction with
complete blood counts. Unilab also paid the California MediCal
program approximately $160,000 in October 1996 to settle all their
claims concerning the same issue.
In December 1993, the Company was named as a defendant in The
Trylon Corporation v. MetWest Inc., Unilab Corporation and Does
1 through 30. The lawsuit alleged that Unilab breached a contract,
and the implied covenants of good faith and fair dealing in
connection with that contract with respect to the sales, marketing
and distribution of blue white speculite lightsticks, a product
designed for use in connection with PAP smears to screen for
cervical cancer and precancerous conditions in women. Plaintiff
sought an unspecified amount of damages. In February 1994, the
case was referred to arbitration in accordance with the arbitration
clause of the contract between the parties. In September 1995, the
arbitrator rendered an award in favor of Trylon of approximately
$437,000. In November 1995, the arbitrator reduced the award to
Trylon to approximately $374,000 (comprised of approximately
$313,000 principal award plus interest of approximately $61,000)
and granted Trylon's request for payment of legal fees of
approximately $1.4 million (payment of such legal fees of $1.4
million was made in the first quarter of 1996). The Company
recorded a $1.2 million charge during the first quarter of 1995
related to the expected cost, consisting primarily of legal fees, in
defending itself against such lawsuit and another $2.0 million
charge during the fourth quarter of 1995 reflecting the costs
associated with the conclusion of this arbitration, including the fees
of Trylon's counsel and counsel for the Company.
The Company recorded an acquisition charge of $1.2 million in the
second quarter of 1995 in connection with the acquisition of MLN.
Such charges related to the integration of the acquired MLN
operations with those of the Company.
Selling, general and administrative expenses increased to $10.6
million and $32.5 million for the three and nine months period
ended September 30, 1996 from $10.0 million and $27.4 million
from the comparable prior year periods. As a percentage of
revenue, selling, general and administrative expenses increased to
20.1% and 20.8% for the three and nine month periods ended
September 30, 1996 from 19.9% and 19.5% for the comparable
prior year periods. Such increase was primarily due to personnel
added in sales and marketing throughout the latter half of 1995.
Amortization and depreciation expense increased to $2.9 million
and $8.6 million for the three and nine month periods ended
September 30, 1996 from $2.7 million and $6.8 million from the
comparable prior year periods primarily due to the additional
amortization expense resulting from the acquisition of MLN in
May 1995 and certain smaller acquisitions made in late 1995 and
in 1996 and additional depreciation expense primarily resulting
from depreciation started in the second half of 1995 on
approximately $3.0 million of computer equipment and software.
Third party interest expense increased to $3.5 million and $9.8
million for the three and nine month periods ended September 30,
1996 from $2.5 million and $6.5 million for the comparable prior
year periods primarily due to increased borrowings by the
Company used to finance the acquisition of MLN and to pay
related transaction fees and expenses in May 1995 and increased
indebtedness incurred by the Company under the Senior Notes
offering in March 1996.
Related party interest income of $0.4 million and $1.1 million for
the three and nine months periods ended September 30, 1996
reflect interest income on the $15.0 million promissory note the
Company received upon the sale of its 40% equity investment in
UGL to UGL for $30.0 million. The sale was effective June 30,
1995 and the Company ceased recording equity earnings from
UGL after April 30, 1995. The sale resulted in a one-time charge
by the Company during the nine month period ended September
30, 1995 of approximately $36.5 million.
Upon completion of the Senior Notes offering, the Company wrote
off $3.5 million of deferred financing costs related to the
Company's Old Credit Facility. In addition, upon completion of a
credit agreement in May 1995 entered into in connection with the
MLN acquisition, the Company wrote-off $1.7 million of deferred
financing costs related to a previous credit facility.
Liquidity and Capital Resources
Net cash provided by operating activities was $2.2 million for the
nine months ended September 30, 1996 and reflects an increase of
$6.8 million over the comparable prior year period when net cash
used by operating activities was $4.6 million. The change was
primarily due to a decrease in the growth of accounts receivable
and the timing of interest due of the Senior Notes ($7.2 million of
interest was paid to the holders of the Senior Notes on October 1,
1996) offset by a reduction in net income before extraordinary item
and loss on sale of the Company's equity investment in UGL.
Net cash provided by financing activities was $14.2 million for the
nine months ended September 30, 1996, primarily resulting from
approximately $4.4 million of borrowing under the Company's Old
Credit Facility used for working capital purposes and
approximately $17.0 million of additional indebtedness incurred in
connection with the Senior Notes offering offset primarily by $2.3
million of scheduled principal repayments under the Company's
Old Credit Facility and capital lease obligations and payment of
approximately $4.9 million of financing costs incurred in
connection with the Senior Notes offering.
Net cash used by investing activities was $5.3 million for the nine
months ended September 30, 1996, primarily resulting from $3.2
million of capital expenditures and $2.1 million of payments made
on smaller acquisitions completed in 1996 and 1995.
The Company had $11.1 million of cash and cash equivalents on
hand at September 30, 1996. However, the Company made
interest payments to the holders of the Senior Notes and payments
in connection with the investigation into the Company's sales,
marketing, and billing practices of approximately $7.9 million on
October 1, 1996. Cash and cash equivalents on hand and
additional borrowing capabilities of $20.0 million under the
agreement to sell accounts receivable and any proceeds received
from the Company's $15.0 million promissory note due from
UGL/UniHolding Corp. received upon sale of the Company's
equity investment in UGL in 1995 are expected to be sufficient to
meet anticipated operating requirements, debt repayments and
provide funds for capital expenditures and working capital for the
foreseeable future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 1995 Unilab received a subpoena (the "CBC Subpoena")
from the Office of Inspector General ("OIG") of the U.S.
Department of Health and Human Services ("HHS") requesting
information with respect to hematology indices being billed in
conjunction with Complete Blood Counts ("CBC's") from 1991 to
1993. The Company cooperated fully in responding to the
subpoena and produced the requested documents to the
government. In September 1996, as part of a joint settlement with
Corning Clinical Laboratories ("CCL"), the Company agreed to
pay the U.S. Government approximately $4.0 million to settle the
investigation (CCL paid approximately $7 million). The payments
are to be made in semi-annual installments over three years, with
approximately $500,000 paid in the current year. In addition, as
part of the CBC Settlement Agreement, Unilab paid the California
MediCal program on October 1, 1996 approximately $160,000 to
settle all their claims concerning the same issue. The CBC
settlement did not constitute an admission by Unilab with respect
to any allegation, issue of law or fact arising from the
investigation, and the Company received a full civil and
administrative release from all claims by the government with
respect to these billings through the date of the settlement
agreement.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 10.1 - Healthcare Receivables Purchase Agreement, dated
as of July 31, 1996 between the Company and Daiwa Healthco-2
LLC.
Exhibit 10.2 - Settlement Agreement, dated September 19, 1996
among the Company, Corning Inc., the Office of Inspector General
of the Department of Health and Human Services, the State of
California, and certain other governmental entities.
Exhibit 99.1 - Press Release dated November 4, 1996, announcing
third quarter earnings results.
(B) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNILAB CORPORATION
By: /s/ Richard A. Michaelson
Date: November 4, 1996 Richard A. Michaelson
Senior Vice President - Finance,
Treasurer and Chief Financial Officer
Exhibit 10.1
HEALTHCARE RECEIVABLES PURCHASE AGREEMENT
Dated as of July 31, 1996
UNILAB CORPORATION, a Delaware corporation
(together with its successors and assigns, the "Provider) and
DAIWA HEALTHCO-2 LLC, a Delaware limited liability
company (together with its successors and assigns, the
"Purchaser"), agree as follows:
PRELIMINARY STATEMENTS. Certain terms
that are capitalized and used throughout this Agreement are
defined in Exhibit I to this Agreement. References herein and in
the Exhibits and Schedules hereto to the "Agreement" refer to this
Agreement, as amended, modified or supplemented from time to
time in accordance with its terms.
The Provider wishes to sell to the Purchaser on a
continuing basis certain of its healthcare receivables. The
Purchaser is prepared to purchase such healthcare receivables on
the terms and subject to the conditions set forth herein.
Accordingly, the parties agree as follows:
ARTICLE I
COMMITMENTS; AMOUNTS AND TERMS OF THE PURCHASES
SECTION 1.01. Sale and Purchase. On the terms
and conditions set forth herein, the Provider agrees to sell to the
Purchaser on the Initial Purchase Date and each Purchase Date
thereafter until the Facility Termination Date, and the Purchaser
agrees to purchase from the Provider on each Purchase Date until
the Facility Termination Date, the Provider's Designated
Receivables. Under no circumstances shall the Purchaser make a
purchase of Receivables on any Purchase Date if, after giving
effect to such purchase, the aggregate Outstanding Purchase Price
of all Purchased Batches would exceed $20,000,000 (the "Purchase
Limit").
SECTION 1.02. Receivable Information and
Purchased Batch Determination. (a) On each Business Day after
the Initial Purchase Date, the Provider shall provide the Master
Servicer by Transmission the information listed on Exhibit VI
hereto (as such Exhibit may be modified by the Purchaser in
consultation with the Provider from time to time, the "Receivable
Information") with respect to all of its new Accounts, including,
without limitation, new Receivables of Designated Obligors that it
has determined constitute Eligible Receivables (the "Proposed
Eligible Receivables").
(b) On or prior to the Batching Time, the Provider
shall inform the Program Manager of the Proposed Purchase
Amount of Eligible Receivables with respect to the following
Purchase Date. All Proposed Eligible Receivables for which
Receivable Information has been received by the Master Servicer
between the prior Batching Time and the current Batching Time
shall be reviewed by the Purchaser Group to determine whether
they constitute Eligible Receivables. The Program Manager shall
determine by Selection those Eligible Receivables in an aggregate
amount equal to the Proposed Purchase Amount that shall become
Designated Receivables on the Purchase Date. On the Purchase
Date the Purchaser shall purchase from the Provider the
Designated Receivables (a "Purchased Batch"). On or prior to
each Purchase Date, the Purchaser or the Program Manager shall
send to the Provider a list of the Designated Receivables to be
purchased on such date.
SECTION 1.03. The Purchases. (a) On each
Purchase Date, subject to satisfaction of the applicable conditions
set forth in Exhibit II hereto, the Purchaser shall make available to
the Provider in same day funds, at the Provider Account, an
amount equal to the Initial Disbursement of the Purchased Batch.
The Initial Disbursement for such Purchased Batch plus the
Residual Amounts (representing the deferred purchase price with
respect thereto) payable on the dates set forth in Section 1.04(c),
shall constitute the "Purchase Price" with respect to such
Purchased Batch. Reference is made to Exhibit XIII hereto for a
numerical example (for illustrative purposes only) of the manner of
calculation of the Initial Disbursement and the Residual Amounts
for a Purchased Batch.
(b) Effective on each Purchase Date, in
consideration of payment of the Purchase Price, the Provider
hereby sells and assigns to the Purchaser, as absolute owner, the
Purchased Batch purchased on such Purchase Date.
SECTION 1.04. Collection and Payment
Procedures. (a) Collections on the Purchased Batch. The
Purchaser shall be entitled with respect to each Purchased Batch,
(i) to receive all Collections on such Purchased Batch, and (ii) to
have and to exercise any and all rights (x) to collect, record, track
and take all actions to obtain Collections with respect to each
Purchased Receivable payable by Insurers, and (y) in a manner
consistent with all applicable laws and regulations, to collect,
record, track and take all actions to obtain Collections with respect
to each Purchased Receivable payable by Governmental Entities.
The parties acknowledge that the Purchaser is assigning certain of
these rights to the Master Servicer and the Primary Servicer in
accordance with the terms of Section 1.05 hereof.
(b) Collections Not Part of Purchased Batch. As
soon as practicable (based on the reasonable efforts of the
Purchaser to effectuate distributions on each Business Day), but
subject to the rights of the Purchaser pursuant to Section 4.03
hereof, the Purchaser shall turn over to the Provider any cash
collections or other cash proceeds received by the Purchaser since
the prior distribution under this Section 1.04(b) with respect to
Redirected Receivables and other Accounts that are not part of any
Purchased Batch.
(c) Distributions on each Settlement Date. On each
Settlement Date and with respect to each Purchased Batch, Total
Collections not distributed on any prior Settlement Date shall be
distributed as follows: FIRST, to the Provider an amount equal to
the Excess Default Amount, if any, with respect to any prior
Purchased Batch, until such amount has been paid in full;
SECOND, to the Purchaser an amount in cash equal to the
Aggregate Batch Discounts with respect to such Purchased Batch,
until such amount has been paid in full; THIRD, to the Provider, an
amount in cash equal to the Reserve Reduction Amount, until such
amount has been paid in full; FOURTH, to the Purchaser, an
amount in cash equal to the Initial Disbursement with respect to
such Purchased Batch, until such amount has been paid in full; and
FIFTH, to the Provider, an amount equal to any Residual Amount
with respect to such Purchased Batch.
(d) Distributions to the Provider Generally.
Distributions to the Provider on each Settlement Date shall be
deposited in an account designated by the Provider to the Program
Manager from time to time provided, that, upon the occurrence of
the Accumulation Date distributions to the Provider shall not be
made until the Provider shall have paid all amounts then due and
owing to the Purchaser under this Agreement.
SECTION 1.05. Allocation of Servicer
Responsibilities. (a) Tracking of purchases, Collections and other
transactions pertaining to each Purchased Batch shall be
administered by the Master Servicer in a manner consistent with
the terms of this Agreement. The responsibilities of the Provider
to the Master Servicer have been set forth in Exhibit XI attached
hereto. The Provider shall cooperate fully with the Master Servicer
in establishing and maintaining the Transmission of the Receivable
Information, including, without limitation, the matters described in
Exhibit XI, and shall provide promptly to the Master Servicer such
other information, to the extent available and otherwise permitted
to be provided under applicable law and regulation, that may be
necessary or desirable for the administration of Collections on the
Purchased Receivables as may be reasonably requested from time
to time.
(b) The Purchaser hereby appoints the Provider as
its agent for the administration and servicing obligations set forth
in Exhibit IX hereto (the "Primary Servicer Responsibilities"), and
the Provider hereby accepts such appointment and agrees to
perform the Primary Servicer Responsibilities. The Purchaser
may, at any time following the occurrence of a Servicer
Termination Event (and shall, without requirement of notice to any
party, upon a Servicer Termination Event resulting from the events
described in clauses (g) or (j) of Exhibit V hereto), designate the
Master Servicer or any other Person to succeed the Provider as its
agent for performance of the Primary Servicer Responsibilities. As
compensation for the performance of the Primary Servicer
Responsibilities, the Purchaser shall pay to the Provider (or any
successor to the Provider who performs such Primary Servicer
Responsibilities) an A/R Collection Fee with respect to each
Purchased Batch. The A/R Collection Fee with respect to each
Purchased Batch shall be payable to the Provider (so long as the
Provider is performing the Primary Servicer Responsibilities) on
the first Settlement Date on which the Aggregate Batch Discounts
for such Purchased Batch have been paid in full in accordance with
the provisions of Section 1.04(c) of this Agreement.
ARTICLE II
INSURER PAYMENT MECHANICS;
GOVERNMENTAL ENTITIES PAYMENT MECHANICS;
EOB'S; MISDIRECTED PAYMENTS
SECTION 2.01. Insurer Payment Mechanics.
(a) On or prior to the Initial Purchase Date, the Provider and the
Purchaser shall have entered into the Depositary Agreement and
shall have caused the Lockbox Bank to establish the Purchaser
Lockbox and Purchaser Lockbox Account. The Provider shall
prepare, execute and deliver on or prior to the Initial Purchase Date
to each Insurer who becomes an Obligor of Designated
Receivables from time to time, with copies to the Purchaser,
Notices to Insurers addressed to each such Insurer, which Notice to
Insurers shall provide that all checks and EOB's from such Insurers
on account of Receivables shall be sent to the Purchaser Lockbox
and all wire transfers on account of Eligible Receivables shall be
wired directly into the Purchaser Lockbox Account.
(b) On and after the Initial Purchase Date, the
Provider shall cause all invoices that are sent to Insurers who are
qualified to be Obligors of Designated Receivables from time to
time (and return envelopes, if provided by the Provider) to set forth
only the address of the Purchaser Lockbox as a return address for
payment of Receivables and delivery of EOB's, and only the
Purchaser Lockbox Account with respect to wire transfers for
payment of Receivables. The Provider hereby further covenants
and agrees to instruct and notify each of the members of the
Provider's accounting and collections staff to provide identical
information in communications with such Insurers with respect to
Collections, wire transfers and EOB's.
SECTION 2.02. Governmental Entities Payment
Mechanics. (a) On or prior to the Initial Purchase Date, the
Provider and the Purchaser shall have entered into the Depositary
Agreement, and the Provider shall have caused the Lockbox Bank
to establish the Provider Lockbox and the Provider Lockbox
Account. The Provider shall prepare, execute and deliver to the
Purchaser on or prior to the Initial Purchase Date, Notices to
Governmental Entities addressed to each Governmental Entity or
its fiscal intermediary who is an Obligor of Receivables, which
Notice to Governmental Entities shall provide that all checks and
EOB's from Governmental Entities on account of Receivables
shall be sent to the Provider Lockbox and all wire transfers on
account of Receivables shall be wired directly into the Provider
Lockbox Account.
(b) On and after the Initial Purchase Date, the
Provider shall cause all invoices that are sent to Governmental
Entities who are qualified to be Obligors of Designated
Receivables from time to time (and return envelopes, if provided
by the Provider) to set forth only the address of the Provider
Lockbox as a return address for payment of Receivables and
delivery of EOB's, and only the Provider Lockbox Account with
respect to wire transfers for payment of Receivables. The Provider
further covenants and agrees to instruct and notify each of the
members of the Provider's accounting and collections staff to
provide identical information in communications with
Governmental Entities with respect to Collections, wire transfers
and EOB's.
SECTION 2.03. Misdirected Payments; EOB's. (a)
In the event that the Provider receives an EOB or a Misdirected
Payment from an Insurer in the form of a check, the Provider shall
send to the Purchaser Lockbox such Misdirected Payment, together
with the EOB and the envelope in which such payment was
received, by messenger, courier or overnight mail, duly indorsed
over to the Purchaser. In the event that the Provider receives a
Misdirected Payment from a Governmental Entity in the form of
cash or a check, the Provider shall send to the Provider Lockbox
such Misdirected Payment by messenger, courier or overnight mail
together with the EOB. In the event the Provider receives a
Misdirected Payment in the form of a wire transfer, the Provider
shall immediately wire transfer the amount of such Misdirected
Payment directly into the Purchaser Lockbox Account. All such
Misdirected Payments and EOB's shall be sent promptly upon
receipt thereof, and in no event later than 11:00 A.M., local time,
on the first Business Day after receipt thereof.
(b) If a Misdirected Payment in the form of a check
is received by the Purchaser more than six days after the postmark
date on the envelope enclosing a check from the Obligor (or, if no
such envelope is sent to the Purchaser Lockbox Account by the
Provider, more than six days after the date of such check or wire
transfer with respect thereto), then the Provider shall pay interest
on such Misdirected Payment to the Purchaser from such sixth
subsequent day to and including the date such check is received in
the Purchaser Lockbox Account, at the Annual Yield then in effect.
(c) The Provider hereby agrees and consents to the
Purchaser directing the Primary Servicer to take such actions as are
reasonably necessary to ensure that future payments from the
Obligor of a Misdirected Payment shall be made in accordance
with the intent of Article II hereof and any Notice previously
delivered to such Obligor, including, without limitation, (i)
executing on the Provider's behalf and delivering to such Obligor a
new Notice, and (ii) contacting such Obligor by telephone to
confirm the instructions previously set forth in the Notice to such
Obligor. Upon the Purchaser's request, the Provider shall
promptly (and in any event, within two Business Days from such
request) take such similar actions as the Purchaser may reasonably
request.
SECTION 2.04. Unidentified Payments;
Purchaser's Right of Presumption. The Provider agrees and
consents that the Purchaser Group may apply any payment it
receives from an Obligor against a Purchased Batch if the
Purchaser Group is unable in good faith (after utilizing reasonable
efforts to consult with the Provider) to determine from the
information in the EOB whether such payment from an Obligor
relates to a Purchased Receivable.
SECTION 2.05. No Rights of Withdrawal. The
Provider shall have no rights of direction or withdrawal with
respect to amounts held in the Purchaser Lockbox Account.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; COVENANTS;
EVENTS OF TERMINATION
SECTION 3.01. Representations and Warranties;
Covenants. (a) The Provider hereby makes on the Closing Date,
the Initial Purchase Date and each subsequent Purchase Date the
representations and warranties, and hereby agrees to perform and
observe the covenants, set forth in Exhibits III(1) and IV,
respectively, hereto.
(b) The Purchaser hereby makes the representations
and warranties set forth in Exhibit III(2) hereto.
SECTION 3.02. Events of Termination; Servicer
Termination Events. (a) If any Event of Termination shall occur
and be continuing, the Purchaser may, by notice to the Provider,
take either or both of the following actions: (x) declare the Facility
Termination Date to have occurred (except with respect to the
Event of Termination in clause (g) of Exhibit V, in which case the
Facility Termination Date shall be deemed to have occurred
automatically and without notice), and (y) without limiting any
rights hereunder, terminate the appointment of the Provider to
perform any or all of the Primary Servicer Responsibilities. Upon
any such declaration or designation, the Purchaser shall have, in
addition to the rights and remedies which it may have under this
Agreement, all other rights and remedies provided after default
under the UCC and under other applicable law, which rights and
remedies shall be cumulative.
(b) If a Servicer Termination Event shall occur and
be continuing, the Purchaser, by writtten notice to the Provider
(except for a Servicer Termination Event described in clause (a) of
Exhibit X, which shall not require independent notice under this
Section 3.02(b)), may terminate the appointment of the Provider to
perform any or all of the Primary Servicer Responsibilities.
ARTICLE IV
REPURCHASE; SETOFF; INDEMNIFICATION;
GRANT OF SECURITY INTEREST
SECTION 4.01. Indemnification and Set-Off
Rights for Repurchase Receivables. (a) If any Purchased
Receivable ceases to be an Eligible Receivable as a result of either
(x) such Purchased Receivable becoming a Redirected Receivable,
or (y) the material inaccuracy as at the relevant Purchase Date of
any other representation or warranty contained herein relating to a
Purchased Receivable (each, a "Repurchase Receivable"), then the
Provider shall, on the next Settlement Date, repurchase such
Repurchase Receivable from the Purchaser (effectuated pursuant to
the Purchaser's set-off rights as set forth in Section 4.03, unless
the Provider elects to repurchase the Repurchase Receivable in
cash) at a repurchase price (the "Repurchase Price") equal to (x)
the Initial Disbursement with respect to such Repurchase
Receivable, minus (y) any cash proceeds theretofore received by
the Purchaser with respect to such Repurchase Receivable, plus (z)
interest equal to the Annual Yield on the average outstanding
difference between clauses (x) and (y) from and including the fifth
Business Day following the Purchase Date of such Repurchase
Receivable to the date the Repurchase Price is received by the
Purchaser.
(b) For ease of administration, the Purchaser shall
be entitled to presume that the failure of any Purchased Receivable
(or portion thereof) to be paid in full on or after the 180th day
following the Last Service Date thereof is the result of a material
inaccuracy of a representation or warranty contained herein with
respect to such Purchased Receivable, unless the Purchaser shall
have actual knowledge or otherwise receive notice to the contrary
(such as, by way of example, actual knowledge of the financial
inability of an Obligor to pay its obligations represented by a
Receivable). In the event the Purchaser receives the Repurchase
Price for any such Purchased Receivable and it is thereafter
determined that the failure of such Purchased Receivable to be paid
in full was not the result of a material inaccuracy of a
representation or warranty contained herein, the parties hereto shall
make an appropriate adjustment in the payments due hereunder on
the next Settlement Date.
(c) Upon receipt by the Purchaser of the
Repurchase Price with respect to any Repurchase Receivable, the
Purchaser automatically and without further action shall be deemed
to have sold, transferred and assigned to the Provider all of the
ownership rights of the Purchaser in such Repurchase Receivable
without any representation, warranty or recourse whatsoever, and
thereafter no member of the Purchaser Group shall have any
further servicing or other obligation to the Provider with respect to
such Repurchase Receivable.
SECTION 4.02. Indemnities by the Provider.
Without limiting any other rights that the Purchaser, the Program
Manager, the Master Servicer or any of their respective Affiliates
(together with their respective officers, directors, shareholders and
lenders, each, an "Indemnified Party") may have hereunder or
under applicable law (but only to the extent that the rights of
repurchase and setoff set forth in Sections 4.01 and 4.03 hereof do
not satisfy a below-described claim of any Indemnified Party), the
Provider hereby agrees to indemnify each Indemnified Party from
and against any and all claims, losses and liabilities (including,
without limitation, reasonable attorneys' fees) (all of the foregoing
being collectively referred to as "Indemnified Amounts") arising
out of or resulting from any of the following:
(a) the sale of any Designated Receivable
which purports to be part of a Purchased Batch but which is
not, at the date of such sale, the type of Receivable
described in subsection (i) of Exhibit III to this Agreement;
(b) any representation or warranty or
statement made or deemed made by the Provider (or any of
its officers) under or in connection with this Agreement
which shall have been incorrect in any material respect
when made;
(c) the failure by the Provider or any
Purchased Receivable to comply with any applicable law,
rule or regulation with respect to such Purchased
Receivable;
(d) any dispute, claim, set-off or defense to
the payment, in whole or in part, of any Purchased
Receivable (including, without limitation, a defense based
on such Purchased Receivable not being a legal, valid and
binding obligation) or any other claim resulting from the
services or merchandise related to such Purchased
Receivable or the furnishing or failure to furnish such
services or merchandise or relating to collection activities
with respect to such Purchased Receivable (if such
collection activities were performed by the Provider or any
of its Affiliates acting as Servicer), provided, however, this
clause (d) shall not be deemed to include any dispute,
claim, set-off or defense to the payment of any Purchased
Receivable (i) arising out of the financial inability of an
Obligor to pay its obligations represented by such
Purchased Receivable, or (ii) arising after the sale of such
Receivable to the Purchaser hereunder and arising directly
as a result of actions or omissions by any member of the
Purchaser Group; or
(e) the commingling by the Provider of
Collections of Purchased Receivables at any time with
other funds of the Provider.
SECTION 4.03. Right of Set-Off. Unless the
Provider notifies the Purchaser in writing that it desires to pay on
the date when due the Repurchase Price under Section 4.01 or any
Indemnified Amounts under Section 4.02 and the Provider makes
such payment to the Purchaser in immediately available funds on
such date, the Provider hereby irrevocably instructs the Purchaser
to set-off the full amount of the Repurchase Price or the
Indemnified Amounts or any fees due to outside servicers pursuant
to subsection (e) of Exhibit IX of this Agreement, as the case may
be, against (i) any amounts required to be remitted to the Provider
pursuant to Sections 1.04 or 1.05 hereof or otherwise, or (ii) the
Initial Disbursements with respect to Designated Receivables to be
purchased on or after such date. No further notification, act or
consent of any nature whatsoever is required prior to the right of
the Purchaser to exercise such right of set-off, provided, however,
a member of the Purchaser Group shall notify the Provider that a
set-off pursuant to this Section 4.03 occurred, the amount of such
set-off and a description of the Repurchase Receivable,
Indemnified Amounts or fees due to outside servicers, as the case
may be.
ARTICLE V
MISCELLANEOUS
SECTION 5.01. Amendments, etc. No amendment
or waiver of any provision of this Agreement or consent to any
departure therefrom by a party hereto shall be effective unless in a
writing signed by the Purchaser and the Provider and then such
amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No
failure on the part of the Purchaser or the Provider to exercise, and
no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the
exercise of any other right.
SECTION 5.02. Notices, etc. All notices and other
communications hereunder shall, unless otherwise stated herein, be
in writing (which may include facsimile communication) and shall
be faxed or delivered, (i) to each party hereto, at its address set
forth under its name on the signature pages hereof or at such other
address as shall be designated by such party in a written notice to
the other party hereto, and (ii) to the Program Manager and the
Master Servicer at the addresses set forth on Schedule I attached
hereto. Notices and communications by facsimile shall be
effective when sent (and shall be followed by hard copy sent by
regular mail), and notices and communications sent by other means
shall be effective when received.
SECTION 5.03. Assignability. (a) This
Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns.
(b) This Agreement and the Purchaser's rights and
obligations hereunder (including ownership of the Purchased
Receivables in each Purchased Batch) shall be assignable by the
Purchaser and its successors and assigns. The Provider hereby
acknowledges that the Purchaser is granting Daiwa Finance
Corporation a security interest in this Agreement and all of the
Purchaser's rights, title and interests hereunder (including the
Purchased Receivables).
(c) The Provider may not assign its rights or
obligations hereunder or any interest herein without the prior
written consent of the Purchaser, which consent shall not be
unreasonably withheld.
SECTION 5.04. Further Assurance. The Provider
shall, at its cost and expense, upon the request of the Purchaser,
duly execute and deliver, or cause to be duly executed and
delivered, to the Purchaser such further instruments and do and
cause to be done such further acts as may be necessary or proper in
the reasonable opinion of the Purchaser to carry out more
effectively the provisions and purposes of this Agreement.
SECTION 5.05. Costs and Expenses. In addition
to the rights of indemnification granted under Section 4.02 hereof,
the Provider agrees to pay on demand all costs and expenses in
connection with the preparation, execution and delivery of this
Agreement and any waiver, modification, supplement or
amendment hereto, including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Purchaser and
all costs and expenses, if any (including reasonable counsel fees
and expenses), of the Purchaser and its Affiliates in connection
with the enforcement of this Agreement. The Provider further
agrees to pay on demand (a) all documented costs and expenses
incurred by the Purchaser or its agent in connection with periodic
audits performed as provided in paragraph (h) of Exhibit IV hereto,
(b) all documented costs and expenses incurred by the Master
Servicer or the Program Manager to accommodate any significant
coding or data system changes made by the Provider that would
affect the transmission or interpretation of data received through
the interface, and (c) all documented costs and expenses incurred
by the Purchaser for additional time (calculated at a rate of $85 per
hour) and material expenses of the Master Servicer resulting from a
lack of cooperation or responsiveness of the Provider to agreed-
upon protocol and schedules with the Master Servicer; provided,
that the Provider has been informed of the alleged lack of
cooperation or responsiveness and has been provided the
opportunity to correct such problems. The Provider (w) has
delivered to the Purchaser in connection with this Agreement
$25,000 in payment or reimbursement for legal fees and receivable
evaluation services rendered by the Purchaser or its agent, (x) is
hereby delivering $2,000 in reimbursement for the cost of
establishing the interface with the Master Servicer, (y) is hereby
delivering to the Purchaser $3,500 in reimbursement of out-of-
pocket expenses, and (z) is hereby delivering to the Purchaser in
immediately available funds by wire transfer $45,000 for legal and
receivable evaluation services rendered by the Purchaser or its
agent. The Provider is hereby delivering to the Purchaser on the
Closing Date $150,000 in payment of 50% of the $300,000
Advisory Fee due to the Purchaser, and the Provider hereby agrees
that it shall pay to the Provider the remaining 50% of the Advisory
Fee on or prior to the earliest to occur of (x) the first anniversary of
the Closing Date, (y) the Facility Termination Date, and (z) the
Business Day on which the Outstanding Purchase Price of all
Purchased Batches equals or exceeds $10,000,000.
SECTION 5.06. Confidentiality. (a) The Provider
and the Purchaser each acknowledge that this Agreement contains
confidential and proprietary information. Unless otherwise
required by applicable law, the Provider and the Purchaser each
hereby agree to maintain the confidentiality of this Agreement (and
all drafts and other documents delivered in connection therewith)
in communications with third parties and otherwise and to take all
reasonable action to prevent the unauthorized use or disclosure of
and to protect the confidentiality of such information; provided,
that, this Agreement may be disclosed to each of the Provider's
and the Purchaser's financial advisers, banks, investors, legal
counsel and auditors and rating agencies rating the Provider.
(b) Each of the Provider and the Purchaser
understands and agrees that the Provider or the Purchaser, as the
case may be, may suffer irreparable harm if the Provider or the
Purchaser, as the case may be, breaches its obligations under this
Section 5.06 and that monetary damages shall be inadequate to
compensate the Provider or the Purchaser, as the case may be, for
such breach. Accordingly, the Provider and the Purchaser each
agree that, in the event of a breach by the Provider or the
Purchaser, as the case may be, of this Section 5.06 the Provider or
the Purchaser, as the case may be, in addition and not in limitation
of its rights and remedies under law, shall be entitled to a
temporary restraining order, preliminary injunction and permanent
injunction to prevent or restrain any such breach by the Provider or
the Purchaser, as the case may be.
SECTION 5.07. Term and Termination; Early
Termination Fee. (a) This Agreement shall continue in full force
and effect from the Closing Date until the Final Payment Date;
provided, however, that the occurrence of the Final Payment Date
shall not terminate any security interest of the Purchaser or relieve
or discharge the Provider or the Purchaser of their respective
duties, obligations or covenants hereunder with respect to any
Purchased Receivables purchased prior to the Final Payment Date,
and all the terms, provisions and conditions of this Agreement
shall remain in effect for such purpose until such obligations have
been satisfied and performed in full.
(b) If the Facility Termination Date shall occur
prior to July 31, 1999 for any reason, the Provider shall pay to the
Purchaser an Early Termination Fee of $200,000.
SECTION 5.08. Sale Treatment. The Provider and
the Purchaser have structured the transactions contemplated by this
Agreement with respect to each Purchased Batch as a sale, and the
Provider and the Purchaser agree to treat each such transaction as a
sale for all purposes, including, without limitation, in their
respective books, records, computer files, tax returns (federal, state
and local), regulatory and governmental filings (and shall reflect
such sale in their respective financial statements). The Provider
will advise all persons inquiring about the ownership of the
Purchased Receivables that all Purchased Receivables have been
sold to the Purchaser. The parties hereto hereby acknowledge and
agree that, except as otherwise expressly provided herein
(including, without limitation, pursuant to Exhibits III and VII and
Article IV hereof), all sales of Purchased Receivables by the
Provider hereby shall be and are without recourse or representation
or warranty of any kind, express or implied. The Provider will pay
all taxes (other than taxes directly relating to the income of the
Purchaser), if any, relating to the transactions contemplated under
this Agreement, including, without limitation, the purchase and
transfer of each Purchased Batch to the Purchaser.
SECTION 5.09. Grant of Security Interest. In the
event that, contrary to the mutual intent of the Provider and the
Purchaser, a court of competent jurisdiction determines that the
purchase of a Purchased Batch should not be characterized as a
sale, the Provider shall, effective as of the Initial Purchase Date, be
deemed to have granted (and the Provider hereby does grant) to the
Purchaser a first priority security interest in and to any and all
Purchased Receivables and the proceeds thereof to secure the
repayment of all amounts advanced to the Provider hereunder with
accrued interest thereon, and this Agreement shall be deemed to be
a security agreement. With respect to such grant of a security
interest, the Purchaser may at its option exercise from time to time
any and all rights and remedies available to it under the UCC or
otherwise. The Provider agrees that five days shall be reasonable
prior notice of the date of any public or private sale or other
disposition of all or any of the Purchased Receivables.
SECTION 5.10. No Liability of Purchaser. (a)
Neither this Agreement nor any document executed in connection
herewith shall constitute an assumption by the Purchaser of any
obligation to an Obligor.
(b) Notwithstanding any other provision herein, no
recourse under any obligation, covenant, agreement or instrument
of the Purchaser contained herein or with respect hereto shall be
had against any Related Person whether arising by breach of
contract, or otherwise at law or in equity (including any claim in
tort), whether express or implied, it being understood that the
agreements and other obligations of the Purchaser herein and with
respect hereto are solely its corporate obligations; provided,
however, nothing herein above shall operate as a release of any
liability which may arise as a result of such Related Person's gross
negligence or willful misconduct. The provisions of this Section
5.10 shall survive the termination of this Agreement.
SECTION 5.11. Attorney-in-Fact. The Provider
hereby irrevocably designates and appoints the Purchaser, the
Master Servicer and each other Person in the Purchaser Group, to
the extent permitted by applicable law and regulation, as its
attorneys-in-fact with respect to all Purchased Receivables, which
irrevocable power of attorney is coupled with an interest, with
authority, upon the occurrence and continuance of an Event of
Termination or Servicer Termination Event, to (i) endorse or sign
the Provider's name to financing statements, remittances, invoices,
assignments, checks (other than payments from Governmental
Entities), drafts or other instruments or documents in respect of the
Purchased Receivables, (ii) notify Insurers to make payments on
the Purchased Receivables directly to the Purchaser, and (iii) bring
suit in the Provider's name and settle or compromise such
Purchased Receivables as the Purchaser or the Master Servicer
may, in its discretion, deem appropriate.
SECTION 5.12. Entire Agreement; Severability.
(a) This Agreement, including all exhibits hereto, embodies the
entire agreement and understanding of the parties concerning the
subject matter contained herein. This Agreement supersedes any
and all prior agreements and understandings between the parties,
whether written or oral.
(b) If any provision of this Agreement shall be
declared invalid or unenforceable, the parties hereto agree that the
remaining provisions of this Agreement shall continue in full force
and effect.
SECTION 5.13. GOVERNING LAW. THIS
AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF EXCEPT TO
THE EXTENT THAT ISSUES OF PERFECTION ARE
GOVERNED BY THE LAWS OF ANOTHER JURISDICTION).
SECTION 5.14. WAIVER OF JURY TRIAL,
JURISDICTION AND VENUE. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ALL RIGHTS TO A TRIAL BY JURY
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO
ANY MATTER RELATED TO THIS AGREEMENT, AND
HEREBY IRREVOCABLY CONSENTS TO THE
JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN NEW YORK COUNTY, NEW YORK CITY,
NEW YORK IN CONNECTION WITH ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT. IN ANY SUCH LITIGATION, EACH PARTY
HERETO WAIVES PERSONAL SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER PROCESS AND
AGREES THAT SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH
PARTY AT ITS ADDRESS SET FORTH ON THE SIGNATURE
PAGES HEREOF. EACH PARTY HERETO SHALL APPEAR
IN ANSWER TO SUCH SUMMONS, COMPLAINT OR OTHER
PROCESS WITHIN THE TIME PRESCRIBED BY LAW,
FAILING WHICH SUCH PARTY SHALL BE DEEMED IN
DEFAULT AND JUDGMENT MAY BE ENTERED BY THE
OTHER PARTY FOR THE AMOUNT OF THE CLAIM AND
OTHER RELIEF REQUESTED THEREIN.
SECTION 5.15. Execution in Counterparts. This
Agreement may be executed in counterparts, each of which when
so executed shall be deemed to be an original and all of which
when taken together shall constitute one and the same agreement.
SECTION 5.16. No Proceedings. The Provider
hereby agrees that it will not institute against the Purchaser any
proceeding of the type referred to in paragraph (g) of Exhibit V so
long as any senior indebtedness issued by the Purchaser shall be
outstanding or there shall not have elapsed one year plus one day
since the last day on which any such senior indebtedness shall have
been outstanding.
SECTION 5.17. Survival of Termination. The
provisions of Article IV (and the representations and warranties
with respect thereto) and Sections 5.05, 5.06 and 5.16 shall survive
any termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have caused
this Agreement to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
PROVIDER: UNILAB CORPORATION
By:
Name:
Title:
18448 Oxnard Street
Tarzana, California 91356
Facsimile Number: (818) 757-3809
Trade names:
Prior names: MetCal Inc.
PURCHASER: DAIWA HEALTHCO-2 LLC
By:
Title:
c/o Lord Securities Corporation
Two Wall Street
New York, NY 10005
Attention: Andrew L. Stidd
Facsimile Number: (212) 346-9012
Exhibit 10.2
SETTLEMENT AGREEMENT PARTIES
This Settlement Agreement ("Agreement") is entered by and between
the United States of America, acting through its Department of
Justice and the United States Attorney's Offices for the Districts
of New Jersey and Massachusetts; and on behalf of the Office of
Inspector General of the United States Department of Health and
Human Services ("HHS-OIG"), the Office of Inspector General of
the United States Railroad Retirement Board ("RRB-OIG"), the
Office of the Civilian Health and Medical Program of the Uniformed
Services ("Office of CHAMPUS") through the General Counsel, Office
of CHAMPUS, a field activity of the Office of the Secretary of Defense,
the United States Department of Defense, the Federal Employees Health
Benefits Program, administered by the United States Office of Personnel
Management ("OPM-OIG"), through the United States Attorney's Office for
the District of Columbia; and the Medicaid programs administered by
the states of California and Georgia (hereinafter collectively referred
to as "the Government"); Corning Inc. ("Corning"), f/k/a MetPath Inc.
("MetPath"), MetWest Inc. ("MetWest"), and Unilab Corporation ("Unilab")
(hereinafter collectively referred to as "Defendants"); and Kevin Spear
and C. Jack Dowden (hereinafter referred to as "Relators").
Collectively, all of the above will be referred to as "the Parties."
PREAMBLE
A. WHEREAS, at all relevant times, Defendants owned and/or operated
clinical blood testing laboratories in California; Denver, Colorado;
Wallingford, Connecticut; Deerfield Beach, Florida; Detroit, Michigan;
St. Louis, Missouri; and Atlanta, Georgia;
B. WHEREAS, on or about January 27, 1995, Relators Kevin Spear and
C. Jack Dowden filed a qui tam action in the United States District
Court for the Northern District of California, which was subsequently
transferred to the United States District Court for the District of
New Jersey, entitled United States and State of California ex rel.
Spear and Dowden v. MetPath, Inc., Corning Inc., and Unilab Corp.,
Civil Action No. 95-2379 (WGB) ("the Civil Action"), alleging that
Defendants violated the False Claims Act, 31 U.S.C.
Sections 3729-3733, and the California False Claims Act, Cal. Gov't
Code Section 12650 et seq.;
C. WHEREAS, Defendants submitted or caused to be submitted claims
for payment to the Medicare program, Title XVIII of the Social
Security Act, 42 U.S.C. Section 1395 et seq. and administered by
the United States Department of Health and Human Services;
D. WHEREAS, Defendants submitted or caused to be submitted claims
for payment to the Railroad Retirement Medicare program, Railroad
Retirement Act of 1974, 45 U.S.C. Section 231 et seq., which is
administered by the United States Railroad Retirement Board ("RRB");
E. WHEREAS, Defendants submitted or caused to be submitted claims
for payment to the Civilian Health and Medical Program for the
Uniformed Services ("CHAMPUS"), 10 U.S.C. Sections 1071-1106, which
is administered by the United States Department of Defense through
its component agency, the Office of CHAMPUS ("OCHAMPUS");
F. WHEREAS, Defendants submitted or caused to be submitted claims
for payment to the Federal Employees Health Benefits Program, which
is administered by the Office of Personnel Management ("OPM"),
pursuant to 5 U.S.C. Section 8901 et seq.;
G. WHEREAS, Defendants submitted or caused to be submitted claims
for payment to the Medicaid programs of the states of California and
Georgia (the "Participating States");
H. WHEREAS, the Government contends that Defendants violated federal
statutes and/or common law doctrines and state statutes as identified
in Paragraphs 2, 6 and 7 below, by submitting claims to the Medicare
Program, the RRB Medicare Program, the CHAMPUS Program, the Federal
Employees Health Benefits Program, and the California and Georgia
Medicaid Programs for payment for hemogram indices (designated by
Current Procedural Terminology ("CPT") Codes 85029 and 85030) in
conjunction with claims for Complete Blood Counts (CPT Codes 85025)
starting in 1989 through the date of execution of this Agreement,
at the California; Wallingford, Connecticut; Denver, Colorado;
Deerfield Beach, Florida; St. Louis, Missouri; and Detroit,
Michigan laboratories; and for payment for hemogram indices
in conjunction with claims for Reticulocyte Counts (CPT Code 85045)
from October 1, 1993 to October 1, 1995 at the Atlanta, Georgia
laboratory;
I. WHEREAS, the Government contends that the practices described
in Preamble Paragraph H above resulted in the submission of false
claims actionable under the False Claims Act, 31 U.S.C. Section 3729
et seq., to the Medicare Program, the Railroad Retirement Medicare
Program, the CHAMPUS Program, the Federal Employees Health Benefits
Program, and the California and Georgia Medicaid Programs which
enabled Defendants to improperly collect federal Medicare payments,
RRB Medicare program payments, CHAMPUS payments, Federal Employees
Health Benefits Program payments, and Medicaid Program payments from
California and Georgia;
J. WHEREAS, the Parties mutually desire to reach a full and final
compromise of all civil claims the Government has or may have against
Defendants based on the conduct alleged in Preamble Paragraphs H and
I and in the Civil Action, and further wish to avoid the delay,
expense, inconvenience and uncertainty of protracted litigation of
these claims;
TERMS AND CONDITIONS
NOW, THEREFORE, in reliance on the representations contained herein
and in consideration of the mutual promises, covenants, and obligations
in this Agreement, and for good and valuable consideration, receipt of
which is hereby acknowledged, the Parties hereby agree as follows:
1. Defendants agree to pay to the United States and the Participating
States the sum of eleven million dollars ($11,000,000) (the "Settlement
Amount") and this sum shall constitute a debt immediately due and owing
to the United States and the Participating States on the execution of
this Agreement. This debt is to be discharged upon the following
terms and conditions:
(a) Pursuant to the instructions provided by the Department of Justice,
Defendant Corning shall electronically transfer six million eight
hundred fifty thousand one hundred eight dollars ($6,850,108) and
Defendant Unilab shall electronically transfer five hundred twenty
eight thousand five hundred ninety-seven dollars ($528,597) on
October 1, 1996;
(b) Pursuant to instructions provided, Defendant Unilab shall make
payment of one hundred sixty two thousand forty-two dollars ($162,046)
to the state of California, and Defendant Corning shall make payment of
thirty four thousand nine hundred eighty nine dollars ($34,989) to
the state of Georgia, on October 1, 1996;
(c) Defendant Unilab shall electronically transfer to the United States
Attorney's Office for the District of New Jersey an additional six
hundred fifty thousand dollars ($650,000) on or before the close of
business on March 1, 1997;
(d) Defendant Unilab shall electronically transfer to the United States
Attorney's Office for the District of New Jersey an additional six
hundred fifty thousand dollars ($650,000) on or before the close of
business on September 1, 1997;
(e) Defendant Unilab shall electronically transfer to the United
States Attorney's Office for the District of New Jersey an additional
six hundred fifty thousand dollars ($650,000) on or before the close
of business on March 1, 1998;
(f) Defendant Unilab shall electronically transfer to the United States
Attorney's Office for the District of New Jersey an additional six
hundred fifty thousand dollars ($650,000) on or before the close of
business on September 1, 1998;
(g) Defendant Unilab shall electronically transfer to the United
States Attorney's Office for the District of New Jersey an additional
five hundred thousand dollars ($500,000) on or before the close of
business on March 1, 1999; and
(h) Defendant Unilab shall electronically transfer to the United States
Attorney's Office for the District of New Jersey an additional three
hundred twenty four thousand two hundred sixty dollars ($324,260) on
or before the close of business on September 1, 1999;
(i) The balance of the debt described in Paragraphs 1(c) through (h)
above shall, in addition, bear interest at the United States' six month
Treasury Bill coupon-equivalent rate published in the Wall Street Journal
as of the date most immediately prior to the date of this Settlement
Agreement. Interest on the amount of the principal payment (compounded
semi-annually) shall be paid concurrently on the date each respective
principal payment is due.
(j) A five business day grace period will be allowed for payments due
under Paragraph 1(c) through (h). However, all late payments are subject
to an additional interest charge of 6% per annum during the five business
day grace period, compounded daily commencing on the date payment is due.
Failure by Unilab to pay any installment provided for in Paragraph 1(c)
through (h) within the five business day grace period shall constitute
an Event of Default. If Unilab does not cure such Event of Default by
paying the total amount due, with interest, the United States may,
at its option, declare this Agreement with respect to Unilab to be
in default, and the full remaining unpaid balance shall become
immediately due and payable, and shall bear interest at the rate
of 18% per annum compounded daily from the date of Unilab's failure
to cure the Event of Default. If, following an Event of Default,
the United States is required to take legal action to collect any
amounts due under this Agreement, Unilab will pay to the United States
all reasonable costs of collection and enforcement of this Agreement,
including attorneys fees and expenses.
(k) In the Event of a Default by Unilab, the United States may, upon
ten business days notice to Unilab, at its option, exclude Unilab from
participation in any federally-funded health care program until such
time as Unilab has fully cured the default. Unilab agrees not to contest
such exclusion either administratively or in any state or federal court,
except based upon lack of notice, cure of the default, or court
proceedings which may delay or prevent the payment of the funds required
under this Agreement.
(l) As authorized by 42 U.S.C. Sections 1320a-7a(f), in the Event of
Default or if Unilab declares bankruptcy, the United States may, at
any time and at its option, satisfy any part of the remaining unpaid
balance by offset of any monies payable to Unilab by any department,
agency, or agent of the United States. The United States shall notify
the Relators, through counsel, if it takes such action. Unilab agrees
not to contest or oppose any motion by the United States seeking relief
from or modification of the automatic stay of 11 U.S.C. Section 362(a)
nor to seek relief under 11 U.S.C. Section 105 to enjoin or restrain
the United States from recovering monies owed by Unilab to the
United States arising out of this Agreement or through any offset.
(m) Nothing in this Agreement shall preclude Unilab from prepaying any
payments due under this Agreement.
(n) In the event of bankruptcy by Defendant Unilab, the United States
shall have a liquidated claim in the amount of four million one hundred
fourteen thousand nine hundred three dollars ($4,114,903), plus any
accrued interest, less any payments already made to the United States.
Should Defendant Unilab file for bankruptcy protection, Unilab will
not oppose any motion by the United States that any debt, as enumerated
in this Settlement Agreement, remaining to be paid to the United States
is nondischargeable pursuant to 11 U.S.C. Section 523 as being a debt
for money or property obtained by false representation or actual fraud.
2. Subject only to the conditions specified in Paragraph 3 below, on
receipt of the payment described in Paragraph 1(a) above, the United
States, on behalf of itself, its officers, agents, agencies, and
departments, will release and will be deemed to have released Defendants,
their parents, affiliates, divisions, trustees, subsidiaries, successors
and assigns, and their present or former directors, officers, employees
and shareholders from any civil or administrative monetary claims
(including recoupment claims) that the United States has or may have
under the False Claims Act, 31 U.S.C. Section 3729 et seq. (as amended);
the Program Fraud Civil Remedies Act, 31 U.S.C. Section 3801 et seq.; the
Civil Monetary Penalties Law, 42 U.S.C. Section 1320a-7a;
Titles XVIII and XIX of the Social Security Act, 42 U.S.C. Section 1395
et seq., and 42 U.S.C. Section 1395 et seq.; the FEHBP
Debarment provision, 5 U.S.C. Section 8902a; or common law for the
conduct described in Paragraphs H and I of the Preamble at the
laboratories identified in Paragraph A of the Preamble with respect
to claims submitted or caused to be submitted to the Medicare Program,
the Railroad Retirement Medicare Program, the CHAMPUS Program, the
Federal Employees Health Benefits Program, and to the
Medicaid Programs of California and Georgia.
3. Notwithstanding any other provision in this Agreement, the United
States specifically does not release Defendants or any other entity
or individual under this Agreement from (a) any potential criminal
liability arising from the subject matter of this Agreement;
(b) any potential criminal, civil or administrative claims arising
under Title 26 U.S. Code (Internal Revenue Code); (c) any potential
liability to the United States (or any agencies thereof) for: any
conduct other than that identified in Preamble Paragraphs H and I at
any laboratory identified in Preamble Paragraph A; any conduct at any
laboratory not identified in Paragraph A, including any laboratory
owned or operated, in whole or part, by Corning Life Sciences Inc.,
Damon Clinical Laboratories, Inc., Nichols Institute, and Metpath Inc.;
and any conduct at any laboratory formerly owned by Damon Clinical
Laboratories, except for the conduct identified in Preamble Paragraphs
H and I at the Corning Atlanta laboratory for the period from
October 1, 1993 to October 1, 1995; (d) any claims against any
individual who is criminally indicted or convicted, or who enters
into a criminal plea agreement, if the facts underlying the indictment,
conviction, or plea are related to the conduct alleged in Preamble
Paragraph H and I; (e) any obligations created by this Agreement;
and (f) any claims for defective or deficient services, including any
claims relating to the quality of testing services by Defendants.
4. The Office of Inspector General of HHS agrees to release and
refrain from instituting, directing, or maintaining any administrative
claim or any action seeking exclusion from the Medicare program or
State health care programs (as defined in 42 U.S.C. Section 1320a-7(h))
against Defendants, their parents, affiliates, divisions, subsidiaries,
its predecessors, successors, assigns, transferees or any of their
present or former directors, officers, employees, or agents under
42 U.S.C. Section 1320-7a (Civil Monetary Penalties Law); 31 U.S.C.
Sections 3801-3812 (Program Fraud Civil Remedies Act); or 42 U.S.C.
Section 1320a-7(b) (permissive exclusion) for the conduct described
in Preamble Paragraphs H and I at the laboratories identified in
Preamble Paragraph A.
5. In conjunction with the Department of Health and Human Services,
Defendants hereby agree that they will revise and develop their
corporate compliance program as may be necessary.
6. On receipt of the payment described in Paragraph 1(b), the State
of California, on behalf of itself, its officers, agents, agencies
and departments, will release and will be deemed to have released
Defendants, their parents, affiliates, divisions, trustees,
subsidiaries, successors and assigns, and their present or former
directors, officers, employees and shareholders from any civil or
administrative monetary claims (including recoupment claims) that
the State of California has or may have under the federal False Claims
Act, 31 U.S.C. Section 3729 et seq. (as amended); the California False
Claims Act, Cal. Govt. Code Section 12650 et seq.; and California
Business and Professions Code Section 17200 et seq. which prohibits
acts of unfair competition; or common law for the conduct described
in Preamble Paragraphs H and I at the laboratories identified in
Preamble Paragraph A with respect to claims submitted or caused to
be submitted to the Medicaid (Medi-Cal) Program of California.
7. On receipt of the payment described in Paragraph 1(b), the State
of Georgia, on behalf of itself, its officers, agents, agencies and
departments, will release and will be deemed to have released Defendants,
their parents, affiliates, divisions, trustees, subsidiaries, successors
and assigns, and their present or former directors, officers, employees
and shareholders from any civil or administrative monetary claims
(including recoupment claims) that the State of Georgia has or may
have under the federal False Claims Act, 31 U.S.C. Section 3729
et seq. (as amended); O.C.G.A. Sections 49-4-146.1(b) and (d); or
common law for the conduct described in Preamble Paragraphs H and I
at the laboratories identified in Preamble Paragraph A. with
respect to claims submitted or caused to be submitted to the
Medicaid Program of Georgia.
8. The Relators agree that the settlement of claims in this case
is fair, adequate, and reasonable under all the circumstances,
pursuant to 31 U.S.C. Section 3730(c)(2)(B). The United States agrees
to pay Relators (a) $28,596 on behalf of the State of California as
the Relators' share of the proceeds recovered pursuant to the
California False Claims Act, Cal. Gov't Code Section 12650 et seq.,
and (b) fifteen per cent (15%) of all sums in excess of $28,596 paid
to the United States pursuant to Paragraphs 1(a), 1(c) through 1(j), 1(l)
through 1(n), within a reasonable time after receipt by the United
States of such payment. On receipt of the relators' share payment made
pursuant to Paragraph 1(a), Relators, for themselves, their heirs,
successors, and assigns, will release and will be deemed to have released
and forever discharged the United States from any claims arising from
or relating to the filing of the Civil Action, or, pursuant to
31 U.S.C. Section 3730(d)(1), for a share of the proceeds of the settlement
of claims under this Agreement, with the exception of those claims
expressly reserved in Paragraph 9; amounts recovered by the United
States from those defendants specifically named in the Civil Action
through any federally-funded program other than those enumerated in
Preamble Paragraphs H and I for the conduct alleged in the Civil
Action; and any obligations created by this Agreement which
Relators have the right to enforce. On the United Stats' receipt of
payment made pursuant to Paragraph 1(a), Relators, for themselves,
their heirs, successors and assigns, will release and will be
deemed to have released Defendants from any claims Relators have
or may have that arise under or relate to any of the allegations in
the Civil Action and/or the facts or conduct described in Preamble
Paragraphs H and I.
9. Notwithstanding Paragraph 8, the Relators reserve whatever
rights and claims they may have against Corning with respect to
reasonable expenses, including reasonable attorneys fees and costs,
incurred with the Civil Action and with respect to liabilities arising
from conduct at laboratories formerly owned by Damon Clinical
Laboratories with respect to the conduct described in Preamble
Paragraphs H and I, not including the Corning Atlanta laboratory
for its conduct after its acquisition by Corning. Whatever rights or
claims the Relators may have with respect to any Corning laboratory
formerly owned by Damon Clinical Laboratories (not including the
Corning Atlanta laboratory after its acquisition) pursuant to
United States and State of California ex rel. Spear and Dowden
v. MetPath, Inc. et al. are not affected by this Agreement.
10. This Agreement does not resolve or in any manner affect any
claims that United States has or may have against the Relators arising
under Title 26, U.S. Code (Internal Revenue Code), or any claims
arising under this Agreement.
11. After this Agreement is executed, the Parties will notify the
Court that all Parties have stipulated that the Defendants MetPath,
MetWest, and Unilab be dismissed with prejudice as to the United States,
the State of California and the Relators, and shall request that the
remainder of the Civil Action, including any pending unresolved issues
between Relators and Defendants, remain under seal and be transferred
to the District of Massachusetts.
12. For government contracting purposes and for Medicare, Railroad
Retirement Medicare, CHAMPUS, and state Medicaid program purposes,
Defendants agree to treat as unallowable all costs (as defined in
the Federal Acquisition Regulations ("FAR") Section 31.205.47(a))
incurred by or on behalf of Defendants and/or their current or former
officers, directors, agents, employees, shareholders, parents,
subsidiaries, divisions, predecessors and successors in connection
with (a) the matters covered by this Agreement; (b) the Government's
audit and investigation of the matters covered by this Agreement;
(c) Defendants' investigation, defense, and corrective actions;
(d) the negotiation and performance of this Agreement; and (e) the
payments made to the United States provided for in this Agreement.
These amounts shall be separately estimated and accounted for by
Defendants, and Defendants will not charge such costs directly or
indirectly to any contracts with the United States, or to any cost
report submitted to the Medicare, Railroad Retirement Medicare,
CHAMPUS, or state Medicaid Programs.
13. Nothing in this Agreement constitutes an agreement by the United
States concerning the characterization of the amounts paid hereunder
for purposes of any proceeding under Title 26 of the Internal
Revenue Code.
14. Defendants hereby agree that they will waive and will not assert
any defense which may be based in whole or in part on the Double
Jeopardy or Excessive Fine Clauses of the Constitution or the holding
or principles set forth in United States v. Halper, 490 U.S. 435 (1989),
in any criminal prosecution based on the conduct alleged in
Preamble Paragraph H.
15. The Parties agree that this Agreement does not constitute an
admission by any person or entity, and shall not be construed as an
admission by any person or entity, with respect to any issue of
law or fact.
16. This Agreement shall be binding upon the Parties, their
successors, assigns, and heirs.
17. The undersigned signatories for the Defendants represent and
warrant that they are fully empowered and authorized by their Board of
Directors to execute this Agreement. The undersigned United States
signatories represent that they are signing this Agreement in their
official capacity.
18. This Agreement shall become final and binding only upon signing
by each respective party hereto.
19. This Agreement may not be changed, altered or modified, except
in writing signed by all parties.
20. This Agreement may be executed in counterparts, each of which
shall constitute an original and all of which shall constitute one
and the same Agreement.
21. This Agreement is effective on the date signed by the last
signatory.
<PAGE>
UNITED STATES OF AMERICA
FAITH S. HOCHBERG
United States Attorney
District of New Jersey
By: ___________________ Dated:
JANET S. NOLAN
Assistant United States Attorney
DONALD K. STERN
United States Attorney
District of Massachusetts
By: ___________________ Dated:
SUSAN G. WINKLER
Assistant United States Attorney
ERIC H. HOLDER
United States Attorney
District for the District of Columbia
By: ___________________ Dated:
DARA A. CORRIGAN
Assistant United States Attorney
By: ___________________ Dated:
LAURENCE J. FREEDMAN
Civil Division
United States Department of Justice
By: ____________________ Dated:
LEWIS MORRIS
Assistant Inspector General
Office of Litigation Coordination
Office of the Inspector General
U.S. Department of Health and Human Services
By: _____________________ Dated:
ROBERT D. SEAMAN
General Counsel
Office of CHAMPUS
By: _____________________ Dated:
LUCRETIA F. MYERS
Assistant Director for Insurance Programs
U.S. Office of Personnel Management
By: _____________________ Dated:
JANET S. NOLAN
Assistant U.S. Attorney
On behalf of California
Medicaid programs, and the Railroad
Retirement Board
THE STATE OF GEORGIA
By:_______________________
MICHAEL J. BOWERS
Attorney General
The State of Georgia and the
Georgia Medicaid Plan
CORNING CLINICAL LABORATORIES INC.
By: _______________________ Dated:
RAYMOND C. MARIER
Vice-President
Corning Clinical Laboratories Inc.
UNILAB CORPORATION
By: _______________________ Dated:
MARK L. BIBI
Vice-President
Unilab Corporation
THE RELATORS
By: ________________________ Dated:
KEVIN SPEAR
By: ________________________ Dated:
C. JACK DOWDEN
Exhibit 99.1
For Further Information:
Richard A. Michaelson
Phone: (818) 758-6607
IMMEDIATE RELEASE
November 4, 1996
UNILAB CORPORATION ANNOUNCES THIRD QUARTER RESULTS
TARZANA, CA, November 4, 1996 -- UNILAB Corporation
(AMEX: ULB) announced today that net sales for the quarter
ending September 30, 1996 increased to $52.7 million from $50.2
million in the same period last year. The Company reported a net
loss for the third quarter of 1996 of $8.5 million, or $0.23 per
common share, compared to net income of $0.2 million, or $0.01
per common share in the same period last year. 1996 third quarter
results, as previously announced, included a non-recurring charge
of $4.9 million for the settlement of a government investigation
into Unilab's billing practices. Excluding the non-recurring
charge, 1996 third quarter net loss would have been $3.6 million,
or $0.10 per share.
For the nine months ended September 30, 1996, net sales were
$152.3 million compared to $140.3 million in the same period last
year. The net loss for the nine months was $16.6 million, or $0.45
per common share, which included a $3.5 million extraordinary
charge associated with the early extinguishment of debt in addition
to the $4.9 million non-recurring charge noted above. This
compares with a net loss of $36.8 million, or $1.03 per common
share, for the nine months ended September 30, 1995, inclusive of
approximately $41 million in charges primarily related to
divestiture and acquisition activities and early extinguishment of
debt.
Andrew Baker, Chairman and Chief Executive Officer of Unilab,
remarked, "Our third quarter results continue to reflect the
challenging industry environment. Continued price erosion,
though moderating from the first two quarters' rate of decline, has
resulted in the third quarter average pricing running approximately
10% below the same period last year. Despite approximately 15%
specimen volume growth ahead of third quarter last year, the price
erosion continues to be the primary factor behind third quarter
EBITDA of $2.5 million, excluding the non-recurring charge. Our
efforts to improve this earnings level are focused on improving the
profitability of our managed care business, lowering our expenses
and average costing, and improving our reimbursement levels."
Unilab Corporation is the largest provider of clinical laboratory
testing services in California through its primary testing facilities
in Los Angeles, San Jose and Sacramento and over 200 regional
service and testing facilities located throughout the state.
- tables to follow -
<PAGE>
<TABLE>
Unilab Corporation
Consolidated Balance Sheet
(Unaudited)
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
(amounts in thousands)
Cash and Cash Equivalents $ 11,136 $ 70
Accounts Receivable, net 40,721 40,334
Amounts Due from UGL/UniHoldings 15,375 15,000
Other Current Assets 4,452 4,180
Total Current Assets 71,684 59,584
Fixed Assets, net 17,709 18,326
Goodwill and Other Intangible Assets 111,137 113,019
Other Assets 6,614 5,245
Total Assets $207,144 $196,174
Total Current Liabilities 36,126 $49,273
Long-term Debt, net of current portion 126,561 87,207
Other Liabilities 3,112 3,364
Total Shareholders' Equity 41,345 56,330
Total Liabilities and Shareholders'
Equity $207,144 $196,174
</TABLE>
<PAGE>
<TABLE>
Unilab Corporation
Consolidated Statement of Operations
(Unaudited)
(amounts in thousands, except per share data)
<CAPTION>
Three months ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<C> <C> <C> <C> <C>
Revenue $52,670 $50,160 $156,269 $140,315
Operating Expenses, Excluding Legal
Charge and Acquisition Related
Charges 53,115 47,822 155,741 130,445
Legal and Acquisition Related Charges 4,940 - 4,940 2,400
Operating Income (Loss) (5,385) 2,338 (4,412) 7,470
Other Income (Expenses):
Interest Expense, net (3,150) (2,106) (8,699) (6,208)
Equity in Earnings of Affiliate - - - 250
Loss on Sale of Equity Investment - - - (36,499)
Income (Loss) Before Income Taxes and (8,535) 232 (13,111) (34,987)
Extraordinary Item
Extraordinary Item - Loss on Early - - 3,451 1,732
Extinguishment of Debt
Net Income (Loss) (8,535) 232 (16,562) (36,719)
Preferred Stock Dividends 36 36 108 108
Net Income (Loss) Available to
Common Shareholders ($8,571) $196 ($16,670) ($36,827)
Net Income (Loss) per Share:
Income (Loss) Before Extraordinary Item ($0.23) $0.01 ($0.35) ($0.98)
Extraordinary Item - - (0.10) (0.05)
Net Income (Loss) ($0.23) $0.01 ($0.45) ($1.03)
Weighted Average Common
Shares Outstanding 36,718 36,114 36,695 35,848
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,136
<SECURITIES> 0
<RECEIVABLES> 66,242
<ALLOWANCES> (10,146)
<INVENTORY> 2,589
<CURRENT-ASSETS> 71,684
<PP&E> 38,969
<DEPRECIATION> (21,260)
<TOTAL-ASSETS> 207,144
<CURRENT-LIABILITIES> 36,126
<BONDS> 126,561
0
4
<COMMON> 368
<OTHER-SE> 40,973
<TOTAL-LIABILITY-AND-EQUITY> 207,144
<SALES> 52,670
<TOTAL-REVENUES> 52,670
<CGS> 0
<TOTAL-COSTS> 40,889
<OTHER-EXPENSES> 13,527
<LOSS-PROVISION> 3,639
<INTEREST-EXPENSE> 3,150
<INCOME-PRETAX> (8,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,535)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
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