<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_]Confidential, For Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
UNILAB CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
-----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE>
Unilab Corporation
18448 Oxnard Street
Tarzana, California 91356
(818) 996-7300
October 26, 1999
To the Common Stockholders of Unilab Corporation:
You are cordially invited to attend a Special Meeting of common stockholders
of Unilab Corporation to be held at the Hilton New York, 1335 Avenue of the
Americas, New York, New York 10019 on November 23, 1999 at 10:00 a.m. local
time.
As described in the accompanying proxy statement, at the Special Meeting you
will be asked to approve a merger agreement and the transactions contemplated
by that agreement, including the merger of UC Acquisition Sub, Inc., a
corporation formed by Kelso & Company, with and into Unilab. In the merger:
. each outstanding share of the common stock of Unilab (other than those
shares of certain Unilab institutional stockholders and Unilab senior
management described below) will be converted into the right to receive
$5.85 in cash and each outstanding share of convertible preferred of
Unilab will be converted into the right to receive its liquidation
preference of $5.75 in cash;
. some or all of the shares of certain Unilab institutional stockholders
and members of Unilab senior management in either case designated by UC
Acquisition Sub, that are not expected to exceed in the aggregate 5% of
the outstanding common stock on a fully diluted basis prior to the
merger, will remain outstanding; and
. Unilab will become a subsidiary of affiliates and designees of Kelso &
Company and other investors.
The Board of Directors has received a written opinion dated May 24, 1999 of
its financial advisor, BT Alex. Brown Incorporated, to the effect that, as of
such date and based upon and subject to the matters stated in the opinion, the
common stock merger consideration was fair, from a financial point of view, to
the holders of common stock.
The Board of Directors has unanimously approved the merger agreement, has
determined that the merger is fair to, advisable and in the best interests of
Unilab and the holders of the common stock and recommends that stockholders
vote "FOR" approval and adoption of the merger agreement and the merger.
YOUR VOTE IS IMPORTANT. To assure your representation at the Special
Meeting, please complete, sign and date the enclosed proxy card and return it
in the enclosed prepaid envelope. This will allow your shares to be voted
whether or not you attend the meeting.
Detailed information concerning the proposed merger is set forth in the
accompanying proxy statement. I urge you to read the enclosed material
carefully and request that you promptly complete and return the enclosed proxy
in the enclosed return envelope, which requires no postage if mailed in the
United States. If you attend the special meeting, you may vote in person even
if you have previously returned your proxy. Your vote is important regardless
of the number of shares of common stock you own.
Sincerely,
/s/ David C. Weavil
---------------------------------
David C. Weavil
Chairman of the Board of
Directors, President and Chief
Executive Officer
<PAGE>
Unilab Corporation
18448 Oxnard Street
Tarzana, California 91356
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 23, 1999
NOTICE IS HEREBY GIVEN that a special meeting of holders of common stock of
Unilab Corporation, a Delaware corporation (the "Company"), will be held at
the Hilton New York, 1335 Avenue of the Americas, New York, New York 10019 on
November 23, 1999 at 10:00 a.m. local time, for the following purposes:
(1) To approve and adopt an Agreement and Plan of Merger, dated as of May
24, 1999 between the Company and UC Acquisition Sub, Inc., a
subsidiary of Kelso Investment Associates VI, L.P. and KEP VI LLC, as
amended on July 8, 1999, July 30, 1999 and August 10, 1999 (as so
amended, the "Merger Agreement") and the transactions contemplated
thereby, including the merger of UC Acquisition Sub, Inc. with and
into the Company (the "Merger"); and
(2) To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The accompanying proxy statement describes the Merger Agreement and the
proposed Merger in detail.
Only holders of common stock of the Company of record at the close of
business on October 4, 1999 will be entitled to notice of and to vote at the
meeting or any adjournments or postponements thereof.
Stockholders who do not vote in favor of adopting the Merger Agreement and
who otherwise comply with the requirements of Delaware law will be entitled to
appraisal rights. A summary of the applicable Delaware law provision,
including the requirements a stockholder must follow in order to exercise his
or her appraisal rights, is contained in the accompanying proxy statement.
By order of the Board of Directors
/s/ MARK L. BIBI
--------------------------------
Mark L. Bibi
Secretary
October 26, 1999
The form of proxy is enclosed. To assure that your shares will be voted at
the special meeting, please complete and sign the enclosed proxy and return it
promptly in the enclosed envelope. No postage is required if mailed in the
United States. Sending a proxy will not affect your right to vote in person if
you attend the special meeting.
Please do not send your common stock certificates at this time. If the
Merger is consummated, you will be sent instructions regarding the surrender
of your certificates.
<PAGE>
Unilab Corporation
18448 Oxnard Street
Tarzana, California 91356
----------------
PROXY STATEMENT
----------------
This proxy statement is being furnished to the holders of the outstanding
shares of common stock of Unilab Corporation.
This proxy statement is being mailed in connection with the solicitation of
proxies by the Unilab Board of Directors for the approval and adoption of an
agreement and plan of merger involving Unilab and UC Acquisition Sub, Inc., a
corporation formed by Kelso & Company, and the approval of the merger
contemplated by that agreement.
If the merger is completed, you will be paid $5.85 for each share of Unilab
common stock you own, unless you are an institutional stockholder of Unilab or
a member of Unilab senior management designated by UC Acquisition Sub who has
agreed to retain some or all of your shares in the merger, and Unilab will
become a subsidiary of affiliates and designees of Kelso & Company and other
investors.
Some or all of the shares of certain Unilab institutional stockholders and
of certain members of Unilab senior management in either case designated by UC
Acquisition Sub will remain outstanding following the completion of the
merger. The shares of the designated institutional stockholders and management
members that will remain outstanding are not expected to exceed in the
aggregate 5% of the common stock outstanding on a fully diluted basis prior to
the merger and, in no event, exceed in the aggregate 15% of the common stock
outstanding on a fully diluted basis prior to the merger.
Because our Board of Directors has determined that the terms of the merger
agreement and the merger are fair to, advisable and in the best interests of
our holders of common stock, the Board unanimously approved and adopted the
merger agreement.
The Board of Directors unanimously recommends that you vote "FOR" approval
and adoption of the merger agreement and the transactions contemplated by that
agreement.
We have scheduled a special meeting of our stockholders to vote on the
merger agreement. YOUR VOTE IS VERY IMPORTANT. The special meeting will be
held at 10:00 a.m., local time, on November 23, 1999 at the Hilton New York,
1335 Avenue of the Americas, New York, New York 10019.
Whether or not you plan to attend the special meeting, please take the time
to vote by completing and mailing the enclosed proxy card to us. If you sign,
date and mail your proxy without indicating how you want to vote, your proxy
will be counted as a vote in favor of the merger agreement. If you abstain or
do not vote, it will have the effect of a vote against the merger agreement.
This proxy statement provides you with detailed information about the
proposed merger. In addition, you may obtain information about Unilab from
documents that we have filed with the Securities and Exchange Commission. We
encourage you to read the entire document carefully.
The Securities and Exchange Commission has not passed upon the accuracy or
adequacy of this proxy statement. Any representation to the contrary is
unlawful.
----------------
This proxy statement and the accompanying notice of special meeting, form of
proxy and the annual report are first being mailed to stockholders of Unilab
on or about October 26, 1999.
The date of this proxy statement is October 26, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
Who Can Help Answer Your Questions........................................ 3
SUMMARY................................................................... 4
The Companies........................................................... 4
Reasons for the Merger.................................................. 4
The Special Meeting..................................................... 5
Recommendation to Stockholders.......................................... 5
Opinion of Unilab's Financial Advisor................................... 6
The Merger.............................................................. 6
Other Interests of Officers and Directors in the Merger................. 8
Forward Looking Statements May Prove Inaccurate......................... 9
Information Concerning Kelso, UC Acquisition Sub and their Affiliates,
Designees and Investors................................................ 9
MARKET PRICE AND DIVIDEND INFORMATION..................................... 10
Recent Closing Prices................................................... 10
Number of Stockholders.................................................. 10
Dividends............................................................... 10
SELECTED HISTORICAL FINANCIAL DATA........................................ 11
THE SPECIAL MEETING....................................................... 12
General; Date; Place and Time........................................... 12
Purpose of the Special Meeting.......................................... 12
Record Date; Voting Power............................................... 12
Vote Required........................................................... 12
Revocation of Proxy..................................................... 13
Expenses of Solicitation................................................ 13
Miscellaneous........................................................... 13
THE PARTIES............................................................... 14
Unilab Corporation...................................................... 14
UC Acquisition Sub, Inc. and its Affiliates............................. 14
THE MERGER................................................................ 15
Background of the Merger................................................ 15
Reasons for the Merger; Recommendation of the Board of Directors........ 17
Projections............................................................. 19
Opinion of the Company's Financial Advisor.............................. 20
Certain Federal Income Tax Consequences of the Merger................... 25
Accounting Treatment of the Merger...................................... 26
Regulatory Filings and Approvals........................................ 26
Financing of the Merger................................................. 27
Management, Operations and Ownership Structure Following the Merger..... 29
Appraisal Rights........................................................ 29
Public Trading Market................................................... 31
THE MERGER AGREEMENT...................................................... 32
General; Merger Consideration........................................... 32
Dissenting Shares....................................................... 33
Treatment of Stock Options.............................................. 33
Closing; Effective Time................................................. 33
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
Existing Company Indebtedness............................................ 34
Cancellation of Shares................................................... 34
Exchange of Certificates................................................. 34
Transfers................................................................ 34
Lost, Stolen or Destroyed Certificates................................... 34
Representations and Warranties........................................... 35
Rights Agreement Amendment............................................... 35
Conduct of Business Prior to the Merger.................................. 35
Agreement Not to Solicit Other Offers.................................... 37
Board Recommendations.................................................... 38
Certain Other Covenants and Agreements................................... 38
Indemnification.......................................................... 38
Continuation of Employee Benefits........................................ 39
Solvency Letter.......................................................... 40
Recapitalization of UC Acquisition Sub; Financing........................ 40
Recapitalization......................................................... 40
Conditions to the Proposed Merger........................................ 41
Termination.............................................................. 43
Effect of Termination.................................................... 44
Amendment and Waiver..................................................... 45
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................. 46
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS..................................... 48
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.................. 51
AVAILABLE INFORMATION...................................................... 53
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 53
APPENDIX A--RESTATEMENT OF AGREEMENT AND PLAN OF MERGER, AS AMENDED
APPENDIX B--OPINION OF BT ALEX. BROWN INCORPORATED
APPENDIX C--SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
</TABLE>
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<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
This summary highlights certain information from this proxy statement, is
qualified in its entirety by reference to the proxy statement and may not
contain all of the information that is important to you. To understand the
merger more fully and for a more complete description of the legal and
technical terms of the merger, you should read carefully this entire proxy
statement, the documents referred to in the "Incorporation of Certain
Documents by Reference" Section on page 53 and the appendices included with
the proxy statement. The summary does not contain a complete statement of
material information relating to the merger agreement, as amended, the merger,
or other matters discussed in this document.
Q. Why is Unilab proposing to merge with UC Acquisition Sub?
A. The Board of Directors determined to recommend approval of the merger
agreement, as amended, and the merger after considering the following
material factors:
. the premium offered by UC Acquisition Sub over the historical market
prices and recent trading activity of Unilab's common stock;
. the extensive auction process that led to the selection of Kelso's
acquisition proposal;
. Unilab's financial condition and prospects, and current industry,
economic and market conditions;
. that, although the merger agreement contains a financing condition,
Kelso has a strong business reputation and has successfully completed a
significant number of transactions similar to the merger;
. the terms and provisions of the merger agreement and related agreements;
. that, although they would no longer have an opportunity to participate
in any potential improvements of Unilab's business following the merger,
public stockholders would be able to receive a cash premium for all of
their shares of Unilab common stock in the merger and not be forced to
retain a small number of relatively illiquid shares;
. that, although they would continue to have the opportunity to
participate in any potential improvements of Unilab's business following
the merger, the institutional stockholders of Unilab and members of
Unilab's management in either case designated by UC Acquisition Sub and
who agree to retain shares in the merger would, by that agreement,
enable all other common stockholders to receive cash for all of their
shares and ensure that the merger be accounted for as a
recapitalization; and
. the opinion of Unilab's financial advisor, BT Alex. Brown Incorporated
(now merged with Deutsche Bank Securities Inc., and known as Deutsche
Banc Alex. Brown), as of the date of such opinion and based upon and
subject to certain matters stated in such opinion, as to the fairness,
from a financial point of view, of the common stock merger consideration
to the holders of Unilab's common stock.
Q. What will I receive as a result of the merger?
A. You will receive $5.85 in cash, without interest, in exchange for each
share of Unilab's common stock that you own, unless you are one of the
certain institutional stockholders of Unilab or members of Unilab senior
management who has been designated by UC Acquisition Sub and who has agreed
to retain some or all of its shares in the merger.
Q. Who is UC Acquisition Sub?
A. UC Acquisition Sub is a corporation newly formed by Kelso & Company for the
merger. Kelso & Company is a private investment firm based in New York, New
York.
Q. How is the merger being financed?
A. The merger consideration, refinancing of Unilab's existing debt and related
fees and expenses will be funded from new borrowings by Unilab, an equity
investment by affiliates and designees of Kelso and other
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investors of approximately $139.5 million and approximately $21.2 million of
Unilab's cash on hand. Unilab's receipt of $310 million in debt financing is
a condition to UC Acquisition Sub's obligation to close the Merger. UC
Acquisition Sub has delivered to us written commitments from lenders for
that debt financing.
As part of that debt financing, on September 28, 1999, Unilab Finance Corp.,
a newly formed corporation formed at the direction of Kelso, completed a
private offering of its senior subordinated notes, resulting in proceeds of
approximately $150.8 million to Unilab Finance Corp. At the completion of the
merger, Unilab will receive those proceeds and assume Unilab Finance Corp.'s
obligations with respect to those notes.
Q. What do I need to do now?
A. After you have carefully read this proxy statement, just indicate on your
proxy card how you want to vote, and sign and mail it in the enclosed
prepaid return envelope as soon as possible, so that your shares of common
stock may be represented at the special meeting. The Special Meeting will
take place at 10:00 a.m., local time, on November 23, 1999, at the Hilton
New York, 1335 Avenue of the Americas, New York, New York 10019. The Board
of Directors unanimously recommends voting "FOR" the merger agreement and
the proposed merger.
Q. What stockholder vote is required to approve the merger?
A. In order to complete the merger, the merger agreement must be approved by a
majority of the votes eligible to be cast by the holders of the outstanding
shares of Unilab's common stock.
Q. If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A. Your broker will vote your shares only if you provide him or her with
instructions on how to vote. You should follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
Without instructions, your shares will not be voted, which for purposes of
voting on the merger agreement and the merger, will have the same effect as
voting against the merger agreement and the merger.
Q. Can I change my vote after I have mailed my signed proxy card?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting of stockholders. You can do this in one of three ways.
. First, you can send a written notice stating that you would like to
revoke your proxy.
. Second, you can complete and submit a new proxy card. If you choose
either of these two methods, you must submit your notice of revocation
or your new proxy card to Unilab at the address on page 5.
. Third, you can attend the special meeting of stockholders and vote in
person. Simply attending the special meeting, however, will not revoke
your proxy.
If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
Q. Will I have appraisal rights as a result of the merger?
A. Yes. Holders of common stock and holders of our convertible preferred stock
have appraisal rights. If you wish to exercise your appraisal rights you
must follow the requirements of Delaware law. A summary describing the
requirements you must follow in order to exercise your appraisal rights is
described in greater detail beginning on page 29.
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Q. Should I send in my stock certificates when I return my proxy form?
A. No. Holders of common stock should not send in their stock certificates
now. Following the merger, a separate letter of transmittal will be mailed
to the holders of common stock which will enable holders to receive the
merger consideration due to them.
Q. When do you expect the merger to be completed?
A. We are working towards completing the merger as quickly as possible. In
addition to the approval of our stockholders, we must obtain the debt
financing described above. We presently expect to complete the merger
promptly after the special stockholders meeting.
Q. What are the tax consequences of the merger?
A. The receipt of cash by a stockholder of Unilab in the merger will be a
taxable transaction for federal income tax purposes and may also be taxable
under applicable state, local and foreign income and other tax laws. In the
case of stockholders who do not retain any shares in the merger, a
stockholder will recognize gain or loss in an amount equal to the
difference between the adjusted tax basis of the common stock and the
amount of cash received in exchange for that stock in the merger. The gain
or loss will be capital gain or loss if the common stock is a capital asset
in the hands of the stockholder and will be long-term capital gain or loss
if the holding period exceeds one year. To review the tax consequences to
stockholders in greater detail, see page 25.
Q. What other matters will be voted on at the special meeting?
A. We do not expect to ask you to vote on any matter other than the merger
agreement at the special meeting.
Who Can Help Answer Your Questions
If you have more questions about the merger or if you would like additional
copies of this proxy statement, you should contact:
Unilab Corporation
18448 Oxnard Street
Tarzana, California 91356
Attention: Director of Investor Relations
Phone Number: (818) 996-7300
or through the Unilab website: www.Unilab.com
If you would like additional copies of the proxy statement you should contact:
Kissel-Blake
A Division of Georgeson Shareholder Communications, Inc.
17 State Street
New York, New York 10004
(212) 440-9800
3
<PAGE>
SUMMARY
The Companies
Unilab Corporation
18448 Oxnard Street
Tarzana, California 91356
Unilab is the largest independent clinical laboratory testing company in
California, providing laboratory testing services to physicians, managed care
groups, hospitals and other health care providers. Unilab currently operates
three full-service clinical laboratories located in Tarzana, San Jose and
Sacramento, California and over 40 "short turn around time" laboratories and
approximately 300 patient service centers throughout the state which offer over
1,000 clinical testing procedures used in the diagnosis, monitoring and
treatment of diseases and other medical conditions.
UC Acquisition Sub, Inc.
c/o Kelso & Company
320 Park Avenue, 24th Floor
New York, New York 10022
UC Acquisition Sub is a corporation newly formed by Kelso & Company for the
merger. Kelso & Company is a private investment firm based in New York, New
York. UC Acquisition Sub has not engaged in any business activities other than
in connection with its organization, the negotiation of the merger agreement
and the consummation of the transactions contemplated by that agreement.
Reasons for the Merger
The Unilab Board of Directors determined to recommend approval and adoption
of the merger agreement and the merger after considering the following material
factors:
. the premium offered by UC Acquisition Sub over the historical market
prices and recent trading activity of Unilab's common stock;
. the extensive auction process that led to the selection of Kelso's
acquisition proposal;
. Unilab's financial condition and prospects, and current industry,
economic and market conditions;
. that, although the merger agreement contains a financing condition,
Kelso has a strong business reputation and has successfully completed a
significant number of transactions similar to the merger;
. the terms and provisions of the merger agreement and related agreements;
. that, although they would no longer have an opportunity to participate
in any potential improvements of Unilab's business following the merger,
public stockholders would be able to receive a cash premium for all of
their shares of Unilab common stock in the merger and not be forced to
retain a small number of relatively illiquid shares;
. that, although they would continue to have the opportunity to
participate in any potential improvements of Unilab's business following
the merger, the institutional stockholders of Unilab and members of
Unilab's management in either case designated by UC Acquisition Sub and
who agree to retain shares in the merger would, by that agreement,
enable all other common stockholders to receive cash for all of their
shares and ensure that the merger be accounted for as recapitalization;
and
. the opinion of Unilab's financial advisor, BT Alex. Brown Incorporated,
as of the date of such opinion and based upon and subject to certain
matters stated in such opinion, as to the fairness, from a financial
point of view, of the common stock merger consideration to the holders
of Unilab's common stock.
4
<PAGE>
The Special Meeting
When and Where. The special meeting will be held at 10:00 a.m., local time,
on November 23, 1999, at the Hilton New York, 1335 Avenue of the Americas, New
York, New York 10019.
Purposes of the Special Meeting. At the special meeting, you will be asked to
approve and adopt the merger agreement and the consummation of the merger.
Record Date; Voting Power. Holders of common stock as of the close of
business on October 4, 1999, the record date, are entitled to vote at the
special meeting or any adjournment thereof. As of the record date, there were
outstanding 41,993,968 shares of common stock. Each share of common stock is
entitled to one vote. Holders of our convertible preferred stock are not
entitled to vote at the special meeting.
Vote Required. The affirmative vote of a majority of the votes eligible to be
cast by holders of the outstanding shares of common stock as of the record date
is required to approve and adopt the merger agreement and the merger.
Revocation of Proxy. A stockholder may revoke a proxy at any time prior to
its exercise by (i) delivering to Mark L. Bibi, Secretary, Unilab Corporation,
401 Hackensack Avenue, Hackensack, New Jersey 07601, a written notice of
revocation of proxy prior to the special meeting, (ii) delivering prior to the
special meeting a duly executed proxy bearing a later date than the initial
proxy or (iii) attending the special meeting and voting in person. The presence
of a stockholder at the special meeting will not in and of itself automatically
revoke such stockholder's proxy. If not revoked, the proxy will be voted in
accordance with the instructions indicated on the proxy, or if no instructions
are indicated on a properly executed proxy, such proxy will be voted "FOR" the
approval and adoption of the merger agreement.
Quorum; Abstentions and Broker Non-Votes. The required quorum for the special
meeting is a majority of votes eligible to be cast by holders of common stock
issued and outstanding as of the record date. Both abstentions and broker non-
votes will be included in determining the number of votes present and voting at
the special meeting for the purpose of determining the presence of a quorum.
Abstentions and broker non-votes will have the same effect as votes against the
merger agreement and the consummation of the merger. The actions proposed in
this proxy statement are not matters that can be voted on by brokers holding
shares for beneficial owners without the owners' specific instructions.
Accordingly, all beneficial owners of common stock are urged to return the
enclosed proxy card marked to indicate their votes.
If you participate in the Unilab Corporation Profit Sharing Plan for
Employees (Unilab's "401(k) Plan"), you may vote shares of common stock
credited to your 401(k) account by instructing Northwestern Trust Company, the
trustee of the 401(k) Plan, pursuant to the instruction card being mailed with
this proxy statement to plan participants. You should complete and return the
401(k) Plan proxy card to Chase Mellon Shareholder Services, the proxy
tabulators, at the address set forth on the card. The trustee will vote your
shares in accordance with your duly executed instructions received by November
18, 1999. If you do not send instructions, the shares credited to your account
will be voted by the trustee in the same proportion that it votes share
equivalents for which it did receive timely instructions.
Recommendation to Stockholders
On May 24, 1999, the Unilab Board of Directors (i) determined that the merger
and the transactions contemplated by the merger agreement are fair to,
advisable and in the best interests of Unilab and its stockholders, (ii)
approved and adopted the merger agreement and (iii) resolved to recommend that
its stockholders vote in favor of the merger agreement and the merger
contemplated by that agreement. On August 10, 1999, the Unilab Board of
Directors approved, ratified and adopted amendments to the merger agreement and
reaffirmed its determination as to the fairness and advisability of the merger
agreement and its
5
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recommendation that its stockholders vote in favor of the merger agreement and
the merger contemplated by that agreement. The Board of Directors unanimously
recommends a vote "FOR" approval and adoption of the merger agreement and the
merger.
Opinion of Unilab's Financial Advisor
The Unilab Board of Directors has received an opinion of Unilab's financial
advisor, BT Alex. Brown, as to the fairness, from a financial point of view, of
the common stock merger consideration to the holders of common stock. The full
text of the written opinion of BT Alex. Brown, dated May 24, 1999, is attached
to the back of this document as Appendix B, and should be read carefully in its
entirety. The opinion of BT Alex. Brown is directed to the Unilab Board of
Directors and does not constitute a recommendation to any stockholder as to how
such stockholder should vote with respect to matters relating to the proposed
merger.
The Merger
The merger agreement is attached as Appendix A to this proxy statement. The
Unilab Board of Directors encourages you to read the merger agreement in its
entirety. It is the legal document governing the merger.
What Unilab's stockholders receive as a result of the merger. Holders of
common stock will receive $5.85 in cash in exchange for each share of common
stock, unless the holders are institutional stockholders of Unilab or members
of Unilab senior management in either case designated by UC Acquisition Sub and
who have agreed to retain some or all of their shares in the merger.
Some or all of the shares of Unilab institutional stockholders and of certain
members of Unilab senior management designated by UC Acquisition Sub will
remain outstanding following the completion of the Merger. The shares of the
designated institutional stockholders and management members that will remain
outstanding are not expected to exceed in the aggregate 5% of the common stock
outstanding prior to the merger and will, in no event, exceed in the aggregate
15% of the common stock outstanding on a fully diluted basis prior to the
merger.
Holders of Unilab convertible preferred stock will receive $5.75 in cash plus
accrued and unpaid dividends for each share of convertible preferred stock
(equal to the liquidation preference of the preferred stock).
What holders of stock options will receive as a result of the merger. Unilab
will use its reasonable best efforts to provide for the cancellation of each
outstanding stock option in exchange for an amount in cash equal to the product
of (A) the excess, if any, of $5.85 over the exercise price of each such option
and (B) the number of shares subject to the option. However, UC Acquisition Sub
or Kelso may, instead, designate that certain outstanding stock options remain
outstanding following the merger, possibly on amended terms but with the same
aggregate spread per holder, with the consent of the holders of those options.
Conditions to the merger. Consummation of the merger is subject to various
conditions, including, among others:
. the approval of the merger by the stockholders at the special meeting;
. that no law has been enacted or injunction entered which effectively
prohibits the merger;
. that Unilab has received $310,000,000 in debt financing to be used in
funding a portion of the merger consideration, the refinancing of
Unilab's existing debt and related fees and expenses;
6
<PAGE>
. that the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, has expired or terminated;
. that all governmental approvals have been obtained that are necessary
for Unilab to continue conducting its business following the merger in
materially the same manner as it was conducted prior to the merger;
. that Unilab's and UC Acquisition Sub's respective representations and
warranties are, depending on the particular representation or warranty,
either true and correct or true and correct in all material respects;
. that the parties have performed in all material respects their
respective obligations under the merger agreement;
. that Unilab and UC Acquisition Sub have received a letter as to the
solvency of Unilab immediately following the merger;
. that the consents of specified third parties have been obtained on terms
reasonably acceptable to UC Acquisition Sub; and
. that no action, proceeding or investigation be pending or threatened
relating to any billing by Unilab of any governmental authority or third
party payor which, in UC Acquisition Sub's reasonable judgment, either
(i) materially adversely affects the value of the equity of Unilab or
(ii) presents a risk reasonably unacceptable to UC Acquisition Sub of
subjecting Unilab to a material liability or imposing material
limitations on Unilab's business.
Termination. Unilab and UC Acquisition Sub can mutually agree to terminate
the merger agreement without completing the merger, and either can terminate
the merger agreement if any of the following occurs:
. a court or other governmental authority permanently prohibits the
merger;
. the required approval of the stockholders is not received at the special
meeting;
. the merger has not occurred by November 30, 1999; or
. the other company materially breaches or fails to comply with any of its
representations or warranties or obligations under the merger agreement
and such breach is not cured within 10 days written notice thereof.
In addition, UC Acquisition Sub can terminate the merger agreement if, among
other things, (A) the Unilab Board of Directors recommends, or fails to reject
a proposal with respect to, a business combination with a third party other
than Kelso or (B) the Unilab Board of Directors withdraws or adversely modifies
its recommendation of the merger agreement.
Unilab also may terminate the merger agreement to enter into an alternative
acquisition transaction with a third party if that transaction meets specified
criteria (including a higher price) and Unilab pays a termination fee to Kelso.
Termination fee; reimbursement of Kelso expenses. If the merger agreement is
terminated under certain circumstances, Unilab is required to pay Kelso a
termination fee of up to $10 million and reimburse Kelso for up to $1.5 million
in expenses incurred in connection with the merger.
Regulatory approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, prohibits the companies from completing the merger until
after the companies have furnished certain information and materials to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and a required waiting period has ended. On August 4, 1999, Unilab
and UC Acquisition Sub furnished that information. The waiting period
terminated on August 16, 1999. However, the Department of Justice and the
Federal Trade
7
<PAGE>
Commission will continue to have the authority to challenge the merger on
antitrust grounds before or after the merger is completed.
In addition, Unilab is required under various healthcare laws and regulations
to provide regulatory authorities with notice of the completion of the merger.
Federal income tax consequences. The receipt of cash by a stockholder of
Unilab in the merger will be a taxable transaction for federal income tax
purposes and may also be taxable under applicable state, local and foreign
income and other tax laws. In the case of stockholders who do not retain any
shares in the merger, a stockholder will recognize gain or loss in an amount
equal to the difference between the adjusted tax basis of the common stock and
the amount of cash received in exchange for that stock in the merger. The gain
or loss will be capital gain or loss if the common stock is a capital asset in
the hands of the stockholder and will be long-term capital gain or loss if the
holding period exceeds one year. To review the tax consequences to stockholders
in greater detail, see page 25.
Appraisal rights. Under Delaware law, holders of common stock and holders of
Unilab convertible preferred stock have a right to an appraisal of the value of
their shares in connection with the merger. For a description of this right,
see page 29 and Appendix C.
Other Interests of Officers and Directors in the Merger
In considering the recommendation of the Unilab Board of Directors with
regard to the merger, stockholders should be aware that certain officers and
directors of Unilab have arrangements and agreements with Unilab which will be
effected as a result of the merger. Under these agreements, certain officers
and directors will receive additional bonus payments in connection with their
efforts to complete the merger.
UC Acquisition Sub has advised Unilab that it intends to offer members of
senior management the opportunity to retain some or all of their outstanding
shares and stock options in the merger, and, therefore, certain members of
senior management may retain some or all of their shares and stock options. If
those members of management elect to retain shares and/or stock options, they
will continue to have opportunity to participate in any potential future
improvements in Unilab's business that will not be available to the public
stockholders who receive cash for all their shares. The shares of the
management members that may remain outstanding (including those subject to pre-
existing options) will not exceed in the aggregate 5% of the common stock
outstanding on a fully diluted basis prior to the merger. Shares and Options
held by management will be subject to certain rights and restrictions,
including puts and calls in the event of termination or resignation.
Upon completion of the merger, Mr. Weavil's employment agreement will
terminate and Unilab expects to enter into a five-year consulting agreement
with Mr. Weavil. Pursuant to the consulting agreement, Mr. Weavil will be
entitled to an annual consulting fee of $220,000, a seat on the board of
directors and options to purchase common stock of Unilab on terms that are
substantially similar to the options expected to be granted to the management
and other employees of Unilab following the merger. So long as the merger is
completed in 1999, Mr. Weavil will be entitled to a bonus of $400,000. Unilab
also expects to enter into a non-competition agreement pursuant to which Unilab
will compensate Mr. Weavil for limiting his ability to compete with Unilab
following the completion of the merger with UC Acquisition.
These agreements and arrangements are discussed in greater detail at page 46.
8
<PAGE>
Forward Looking Statements May Prove Inaccurate
Unilab has made forward looking statements in this proxy statement and in the
annual report incorporated by reference in this proxy statement that are
subject to risks and uncertainties. Forward looking statements include
information concerning possible or assumed future results of operations of
Unilab. When words such as "believes," "expects," "anticipates" or similar
expressions are used, they are intended to identify forward looking statements.
Stockholders should note that many factors, some of which are discussed
elsewhere in this proxy statement and in the annual report incorporated in this
proxy statement by reference, could affect the future financial and business
results of Unilab and could cause those results to differ materially from those
expressed in the forward looking statements contained or incorporated by
reference into this document.
Information Concerning Kelso, UC Acquisition Sub and their Affiliates,
Designees and Investors
All information contained in this proxy statement concerning Kelso, UC
Acquisition Sub, their affiliates and designees and other equity investors has
been supplied by Kelso and has not been independently verified by Unilab.
9
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
The common stock is traded on the American Stock Exchange under the trading
symbol "ULB". The following table sets forth for the fiscal quarters
indicated, the high and low closing sale prices per share of the common stock
as reported by the American Stock Exchange.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1999
First Quarter................................................. $2.71 $2.312
Second Quarter................................................ 6.00 2.937
Third Quarter................................................. 5.75 5.125
Fourth Quarter (through October 21, 1999)..................... 5.625 5.50
1998
First Quarter................................................. 3.00 1.688
Second Quarter................................................ 3.125 2.375
Third Quarter................................................. 2.625 1.75
Fourth Quarter................................................ 2.375 1.625
1997
First Quarter................................................. 0.875 0.438
Second Quarter................................................ 1.125 0.563
Third Quarter................................................. 1.813 1.125
Fourth Quarter................................................ 2.125 1.50
</TABLE>
Recent Closing Prices
On May 24, 1999, the last trading day before the public announcement of the
proposed merger, the reported closing sale price per share of common stock was
$4.875.
As indicated in the table above, Unilab's common stock reached a market
price of $6.00 per share on June 30, 1999, which is in excess of the $5.85 per
share that stockholders will receive in the Merger. On no other date from
January 1, 1997 to October 21, 1999 has the closing price of Unilab's common
stock equaled or exceeded the price of $5.85 per share. Although Unilab cannot
explain why the closing stock price on June 30, 1999 exceeded the previously
announced transaction price, it does note that the common stock was included
in the Russell 2000 Index, effective as of that date. Such addition may have
caused the programmed trading policies of investment firms that are tied to
the Russell 2000 Index to be triggered, thereby resulting in a higher volume
and price for the common stock than has otherwise been the case.
On October 21, 1999, the reported closing sale price per share of common
stock was $5.50
Number of Stockholders
On October 4, 1999, there were approximately 41,993,968 holders of record of
common stock.
Dividends
The Company has not paid any common stock dividends and does not expect to
do so in the foreseeable future.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected financial data of Unilab for the years 1998, 1997, 1996, 1995
and 1994 presented below has been derived from the audited financial
statements of Unilab. The selected financial data of Unilab for the quarters
ended June 30, 1999 and 1998 presented below has been derived from the
unaudited consolidated financial statements of Unilab. The information shown
below is qualified in its entirety by, and should be read in conjunction with,
the related consolidated financial statements of Unilab, including the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for Unilab incorporated by reference in this proxy
statement.
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
-------------------- ------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 137,286 $ 108,886 $217,370 $214,001 $205,217 $189,042 $151,820
Legal, acquisition and
restructuring related
charges................ 600 -- -- -- 70,595 4,400 1,282
Operating income
(loss)................. 19,325 13,278 24,241 14,604 (72,842) 4,539 9,137
Loss on sale of equity
investment/promissory
note................... -- -- -- -- 4,529 36,499 --
Income (loss) before in-
come taxes and extraor-
dinary item............ 12,059 6,518 10,703 536 (89,493) (40,043) 4,515
Income tax provision.... -- -- -- -- -- -- --
Income (loss) before
extraordinary item..... 12,059 6,518 10,703 536 (89,493) (40,043) 4,515
Extraordinary item...... -- -- -- -- 3,451 1,732 --
Net income (loss)....... 12,059 6,518 10,703 536 (92,944) (41,775) 4,515
Preferred stock
dividends.............. 66 66 131 138 144 144 144
Net income (loss) avail-
able to common share-
holders................ 11,993 6,452 10,572 398 (93,088) (41,919) 4,371
Basic net income (loss)
before extraordinary
item per common share.. .29 .15 0.26 0.01 (2.43) (1.12) 0.12
Basic net income (loss)
per common share....... .29 .15 0.26 0.01 (2.53) (1.17) 0.12
Weighted average shares
outstanding............ 41,084 40,642 40,665 39,926 36,831 35,918 35,069
At December 31,
Total assets............ 190,723 120,595 142,460 118,700 125,919 196,174 196,407
Long-term debt, net of
current portion........ 161,767 123,714 137,170 124,285 126,120 87,207 67,660
Shareholders' equity
(deficit).............. (5,923) (25,643) (21,367) (32,283) (34,688) 56,330 95,334
</TABLE>
- --------
Note: The variations in the year-to-year comparisons are due primarily to the
acquisition of substantially all of the assets of Physicians Clinical
Laboratory, Inc., which does business as Bio-Cypher Laboratories,
effective May 6, 1999, the acquisition of substantially all of the assets
of Meris Laboratories, Inc., effective November 5, 1998, the acquisition
of MLN Holding Acquisition Co., effective May 16, 1995 and the acquisition
of Premier Laboratory Services, Inc., effective January 24, 1994. In
addition, see Notes 4, 5 and 7 of the Notes to Consolidated Financial
Statements at page 23 of the Company's 1998 Annual Report to shareholders
for a more detailed discussion of the legal and acquisition related
charges, restructuring charges and loss on sale of promissory note
recorded in 1996, and such information is incorporated herein by
reference. The $4.4 million legal charge recorded in 1995 relates to a
settlement and legal fees paid in connection with a lawsuit regarding the
company's sales, marketing and distribution of a product designed for use
in connection with pap smears. The $36.5 loss on the sale of equity
investment recorded in 1995 relates to the sale of a 40% equity investment
the Company had in a European laboratory company. The $1.3 million
acquisition related charges recorded in 1994 relates to the closure of
Unilab patient service centers and related facilities and reduction in the
Unilab workforce incurred in connection with the Premier acquisition.
11
<PAGE>
THE SPECIAL MEETING
General; Date; Place and Time
This proxy statement is being provided by, and the enclosed proxy is
solicited by and on behalf of, the Board of Directors (the "Board of
Directors") of Unilab Corporation (the "Company" or "Unilab") for use at a
special meeting (the "Special Meeting") of the holders of the common stock of
the Company, par value $0.01 per share (the "Common Stock").
The Special Meeting is scheduled to be held at 10:00 a.m., local time, on
November 23, 1999, at the Hilton New York, 1335 Avenue of the Americas, New
York, New York 10019.
Purpose of the Special Meeting
The purpose of the Special Meeting is to consider and vote upon the approval
and adoption of the Agreement and Plan of Merger, dated as of May 24, 1999,
between UC Acquisition Sub, Inc. ("UC Acquisition Sub"), a subsidiary of Kelso
Investment Associates VI, L.P. and KEP VI LLC, and the Company, as amended on
July 8, 1999, July 30, 1999 and August 10, 1999 (as so amended, the "Merger
Agreement"), and the approval of the transactions contemplated by that
agreement, including the merger of UC Acquisition Sub with and into the
Company (the "Merger"), and to transact any other business that is properly
brought before the Special Meeting.
Record Date; Voting Power
Only holders of shares of Common Stock as of the close of business on
October 4, 1999 (the "Record Date") will be entitled to receive notice of and
to vote at the Special Meeting. As of the Record Date, there were 41,993,968
shares of Common Stock outstanding and entitled to vote at the Special
Meeting. Each share of Common Stock is entitled to one vote. Holders of the
Company's convertible preferred stock are not entitled to vote at the Special
Meeting.
Vote Required
The affirmative vote of a majority of votes eligible to be cast by holders
of the outstanding shares of Common Stock as of the Record Date is required to
approve and adopt the Merger Agreement.
Because the required vote of the stockholders with respect to the Merger
Agreement is based upon the total number of outstanding shares of Common
Stock, the failure to submit a proxy card (or to vote in person at the Special
Meeting) or the abstention from voting by a stockholder will have the same
effect as a vote against approval and adoption of the Merger Agreement.
Brokers holding shares of Common Stock as nominees will not have discretionary
authority to vote such shares in the absence of instructions from the
beneficial owners thereof, so the failure to provide voting instructions to
your broker will also have the same effect as a vote against the merger.
Participants in the Unilab Corporation Profit Sharing Plan for Employees
("401(k) Plan") may vote shares of Common Stock credited to their 401(k)
accounts by instructing Northwestern Trust Company, the trustee of the 401(k)
Plan, pursuant to the instruction card being mailed with this proxy statement
to plan participants. Plan participants should complete and return the 401(k)
Plan proxy card to Chase Mellon Shareholder Services, the proxy tabulators, at
the address set forth on the card. The trustee will vote participants shares
in accordance with the duly executed instructions received by November 18,
1999. If participants do not send instructions, the shares credited to their
account will be voted by the trustee in the same proportion that it votes
share equivalents for which it did receive timely instructions.
The Delaware General Corporation Law (the "Delaware Law"), the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), the Company's Second Amended and Restated
12
<PAGE>
By-laws of Unilab Corporation (the "By-laws") and the Securities Exchange Act
of 1934 (the "Exchange Act") contain requirements governing the actions of the
Company's stockholders at the Special Meeting. According to the By-laws, the
holders of a majority of the shares of the Common Stock outstanding on the
Record Date must be present, either in person or by proxy, at the Special
Meeting to constitute a quorum. In general, abstentions and broker non-votes
are counted as present or represented at the Special Meeting for the purpose
of determining a quorum for the Special Meeting.
The obligation of the Company and UC Acquisition Sub to consummate the
Merger is subject to, among other things, the condition that the common
stockholders approve and adopt the Merger Agreement. The failure to obtain
such approval affords each of the Company and UC Acquisition Sub the right to
terminate the Merger Agreement. If holders of Common Stock fail to approve the
Merger Agreement and the Merger Agreement is terminated, the Company would
continue as a public company pursuing its present business plan and might
consider seeking another business combination or strategic transaction.
Revocation of Proxy
A stockholder may revoke a proxy at any time prior to its exercise by (i)
delivering to Mark L. Bibi, Secretary, Unilab Corporation, 401 Hackensack
Avenue, Hackensack, New Jersey 07601, a written notice of revocation of proxy
prior to the Special Meeting, (ii) delivering prior to the Special Meeting a
duly executed proxy bearing a later date than the initial proxy or (iii)
attending the Special Meeting and voting in person. The presence of a
stockholder at the Special Meeting will not in and of itself automatically
revoke such stockholder's proxy. If not revoked, the proxy will be voted in
accordance with the instructions indicated on the proxy, or if no instructions
are indicated on a properly executed proxy, such proxy will be voted "FOR" the
approval and adoption of the Merger Agreement.
Expenses of Solicitation
The Company will bear the costs of soliciting proxies from stockholders. In
addition to soliciting proxies by mail, directors, officers and employees of
the Company, without receiving additional compensation therefor, may solicit
proxies by telephone, by facsimile or in person. Arrangements may also be made
with brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares held of record by
such persons, and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by
them in connection therewith. In addition, Kissel-Blake, Inc. (the "Proxy
Solicitor") has been retained by the Company to assist in the solicitation of
proxies. The Proxy Solicitor may contact holders of shares of Common Stock by
mail, telephone, facsimile, telegraph and personal interviews and may request
brokers, dealers and other nominee stockholders to forward materials to
beneficial owners of shares of Common Stock. The Proxy Solicitor will receive
reasonable and customary compensation for its services (estimated at $5,000)
and will be reimbursed for certain reasonable out-of-pocket expenses.
Miscellaneous
It is not expected that any matter not referred to herein will be presented
for action at the Special Meeting. If any other matters are properly brought
before the Special Meeting, the persons named in the proxies will have
discretion to vote on such matters in accordance with their best judgment. The
grant of a proxy will also confer discretionary authority on the persons named
in the proxy as proxy appointees to vote in accordance with their best
judgment on matters incident to the conduct of the Special Meeting, including
(except as stated in the following sentence) postponement or adjournment for
the purpose of soliciting additional votes. However, shares represented by
proxies that have been voted "AGAINST" the Merger Agreement and the Merger
will not be used to vote "FOR" postponement or adjournment of the Special
Meeting for the purposes of allowing additional time for soliciting additional
votes "FOR" the approval and adoption of the Merger Agreement and the Merger.
13
<PAGE>
Holders of Common Stock should not send their stock certificates with their
proxy cards. If the Merger is consummated, a separate letter of transmittal
will be mailed to the holders of Common Stock which will enable a holder to
receive the appropriate consideration.
THE PARTIES
Unilab Corporation
The Company is the largest independent clinical laboratory testing company
in California, providing laboratory testing services to physicians, managed
care groups, hospitals and other health care providers. The Company currently
operates three full-service clinical laboratories located in Tarzana, San Jose
and Sacramento, California, over 40 "short turn around time" laboratories and
approximately 300 patient service centers throughout the state which offer
over 1,000 clinical testing procedures used in the diagnosis, monitoring and
treatment of diseases and other medical conditions. The principal executive
offices of the Company are located at 18448 Oxnard Street, Tarzana, California
91364 and its telephone number is (818) 996-7300.
UC Acquisition Sub, Inc. and its Affiliates
UC Acquisition Sub is a corporation newly formed by Kelso & Company for the
Merger. Kelso & Company is a private investment firm based in New York, New
York. UC Acquisition Sub has not engaged in any business activities other than
in connection with its organization, the negotiation of the Merger Agreement
and the consummation of the transactions contemplated by that agreement. Kelso
Investment Associates VI, L.P. has approximately $1.5 billion in equity
capital.
14
<PAGE>
THE MERGER
Background of the Merger
Since January 1997, the Company's financial performance has continually and
significantly improved. The Company had a net loss of approximately ($14.4
million) in 1996 (excluding certain restructuring and other non-recurring
charges); net income of approximately $0.5 million in 1997; and net income of
approximately $10.7 million in 1998. The Company's EBITDA has similarly
steadily improved from $4.5 million in the first quarter of 1997 to $8.4
million in the first quarter of 1998 to $11.5 million in the first quarter of
1999. However, the Company believes that the Company's stock market price has
not increased commensurately with its improved financial performance. For
example, on November 3, 1997 (the day the Company announced third quarter 1997
earnings of $0.02 per share, as compared to a third quarter 1996 loss of
$(0.23) per share), the closing market price of the Common Stock was $2.0625
per share; one year later on November 2, 1998 (the day the Company announced
third quarter 1998 earnings of $0.07 per share, as compared to the prior
year's period $0.02 per share), the Company's closing market price was $1.875
per share. Notwithstanding the significantly improved financial performance,
the Company's stock price was essentially flat. As a result, the Company
believes its historical stock market price has not fully reflected the
Company's true value.
At a dinner in Los Angeles on the evening of May 18, 1998 and at the Board
meeting the following day, May 19, 1998, the Board discussed various potential
strategic alternatives, including the following: (1) possible acquisitions of
other laboratories in California or of the California business of national
laboratories, including the possible acquisition of Meris Laboratories, Inc.
("Meris"); (2) various actions that could potentially improve the Company's
stock market price, including declaring a special stock dividend, instituting
a quarterly cash dividend, or effecting a reverse stock split; (3) possible
joint ventures or strategic alliances with other companies performing clinical
laboratory testing in California; and (4) the possible sale of all or a
portion of the Company. The Board determined to pursue the Meris acquisition,
but did not take affirmative action with respect to any other strategic
alternative.
In July 1998, a third party contacted the Company on an unsolicited basis
through one of the Company's former directors to express an interest in
meeting with the Company to discuss a possible acquisition. In light of the
Company's belief that it was undervalued in the public market (the Common
Stock was trading at the time at approximately $2.25 per share), the Company
determined that it should more formally explore various strategic
alternatives, including joint ventures, acquisitions of other laboratory
companies, sales of all or a part of the Company, mergers or other business
combinations, collaborations, extraordinary dividend distributions and stock
repurchases. Accordingly, in August 1998, the Company engaged BT Alex. Brown
to assist it in analyzing various strategic alternatives, including
identifying potential acquirors, and, if an appropriate opportunity emerged,
in discussing and negotiating a possible transaction.
In September 1998, while a confidential information memorandum was being
prepared in contemplation of soliciting interest in a potential strategic
transaction with the Company, management and BT Alex. Brown met with the party
that had contacted the Company in July to gauge that party's interest in
pursuing a transaction with the Company. On September 17, 1998, the Company
announced that it had entered into a definitive asset purchase agreement to
acquire for approximately $16.5 million substantially all of the assets of
Meris, a leading California regional independent clinical laboratory with
annual revenues of approximately $30 million. The Company's management
believed that the Meris acquisition offered a strong opportunity for the
Company. However, the stock market price of the Common Stock closed at $1.9375
on September 17, 1998, the day of the announcement of the Meris acquisition,
which was only slightly higher than the closing market price on September 16,
1998 ($1.75 per share).
In October 1998, management discussed with BT Alex. Brown the weakness in
the high-yield and other financial markets and formally decided to delay the
commencement of a process to solicit interest in a potential strategic
transaction with the Company. Management believed that such weakness might
adversely affect both the ability of third parties to finance such transaction
and the potential purchase price that third parties would be
15
<PAGE>
willing to pay in such a transaction. In November 1998, management again
reviewed with BT Alex. Brown the conditions in the high-yield and leveraged
loan market, which were then improving.
During the fall of 1998 the Company had periodic discussions with another
company in the clinical laboratory testing industry about possible
collaborations or joint ventures of their respective Southern California
businesses. On December 3, 1998, Company representatives met with
representatives of that company to discuss possible collaborations. On
December 4, 1998, at a regularly scheduled meeting of the Board of Directors,
BT Alex. Brown reviewed with the Board improving market conditions and the
potential for a strategic transaction. In December 1998, David Weavil, the
Company's CEO, was contacted on an unsolicited basis by a representative of a
financial investor, who invited Mr. Weavil to dinner to discuss his firm's
interest in a possible acquisition of the Company. Mr. Weavil met with that
representative for dinner on December 8, 1999 in Los Angeles.
The Board determined to re-emphasize the process of exploring potential
strategic transactions, and in January 1999, the Company completed the
confidential information memorandum and authorized BT Alex. Brown to contact
third parties to solicit their interest in a strategic transaction with the
Company. During January and February 1999, 39 parties were contacted regarding
a possible strategic transaction involving the Company. The parties contacted
included the parties which had contacted the Company in July and December
1998, other companies in the same or comparable industries as the Company and
financial investors that had portfolio companies in the same or comparable
industries as the Company or otherwise believed to be interested in investing
in those industries and financially capable of completing a transaction with
the Company. Of the parties contacted, 23 signed confidentiality agreements
with the Company and received the confidential information memorandum. In late
February 1999, nine parties submitted written indications of interest.
At its regularly scheduled March 2, 1999 meeting, the Board of Directors
reviewed with management and BT Alex. Brown, among other things: the February
solicitation process; the identities and nature of the parties contacted as
well as those who submitted indications of interest; the broad terms of the
indications of interest received; the timeline for continuing the process; the
condition of the financial markets; and publicly available information
regarding transactions involving companies comparable to the Company. During
the two-week period following the Board meeting, seven parties attended
management presentations by Company management in which more detailed
confidential information about the Company and its plans was discussed. In
March 1999, the Company retained Willkie Farr & Gallagher ("Willkie Farr") as
special legal counsel for the potential transaction. In early April 1999, the
Company determined to proceed with discussions with the two parties that had
given the Company expressions of interest in acquiring the Company at the
highest value, with what the Company believed to be the greatest certainty.
Subsequent to that determination, a third party on its own initiative raised
its bid to a level sufficient to be included in the next round of discussions.
At a special telephonic Board meeting on April 13, 1999, the management and
BT Alex. Brown updated the Board on the nature and progress of discussions
with the bidders. During the weeks of April 19, 1999 and April 26, 1999, the
three final bidders each attended full day presentations by Company management
and conducted due diligence of the Company. Due diligence continued through
the first week in May. During that period, the Company also distributed a form
of merger agreement and requested that the three bidders submit written
comments on that draft.
The three remaining parties submitted written revised bids and comments on
the proposed merger agreement on May 10, 1999. These bids were all at higher
levels than the initial bids they previously had submitted. The Board of
Directors held a special telephonic meeting on May 12, 1999, at which meeting
the Company's management and legal and financial advisors updated the Board on
the terms, relative value and conditionality of the respective bids. The Board
of Directors determined to continue discussions with the two parties that had
submitted the highest bids, one of which was Kelso. The Board of Directors
also established a committee (the "Committee"), comprised of Messrs. David
Weavil and Richard Michaelson, to act on behalf of the Board in negotiations
with the bidders.
16
<PAGE>
The Board of Directors held another special telephonic meeting on May 13,
1999 to receive an update on financial, legal and regulatory aspects of the
proposed transactions. At that meeting, Willkie Farr also counseled the Board
on its fiduciary duties in reviewing the bids.
Due diligence and contract discussions with the two final bidders continued
during the next week. The Board held another special telephonic meeting on May
19, 1999, at which meeting the Committee and the Company's legal and financial
advisors updated the Board on the status of the negotiations with the two
bidders and the relative values of the respective bids. The Board of Directors
reiterated its desire to have the Committee continue negotiations with the two
bidders, with the goal of selecting a final party as promptly as practical.
The Committee held meetings on May 21 and May 23, 1999 with the Company's
legal and financial advisors to discuss details of the respective bids and to
guide the negotiating process. At the Friday, May 21 meeting, the Committee
determined to negotiate that weekend solely with Kelso, the high bidder, in an
attempt to reach a final definitive merger agreement with Kelso. At the
Sunday, May 23 meeting, the Committee gave guidance to the Company's legal and
financial advisors regarding final proposed terms of the Kelso transaction.
On Monday, May 24, 1998, the Board met in New York with its legal and
financial advisors to consider the proposed Kelso transaction. Willkie Farr
reviewed the fiduciary duties of the Board of Directors in considering the
proposed transaction, and then made a detailed presentation to the Board of
Directors regarding the terms of the Merger Agreement and related documents,
including a summary of the representations, warranties, covenants, conditions,
termination events and termination consequences, as well as the structure of
the proposed transaction, including the proposed debt and equity financing for
the Merger and the refinancing of the Company's existing debt. BT Alex. Brown
then reviewed its financial analyses with respect to the proposed Common Stock
Merger Consideration (as defined below) and delivered its oral opinion,
subsequently confirmed in writing, as to the fairness, from a financial point
of view, of the Common Stock Merger Consideration to the holders of Common
Stock.
The Board, after consideration of the presentations by the Company's legal
and financial advisors, and the other matters discussed at the Board meeting,
unanimously approved the Merger Agreement and the transactions contemplated by
that agreement. The parties executed the Merger Agreement in the late evening
hours of May 24, 1999 and publicly announced the transaction before the
opening of trading on May 25, 1999.
The Company and UC Acquisition Sub entered into a letter agreement on July
8, 1999 extending the time period within which UC Acquisition Sub had to elect
to convert the Merger into an all cash transaction from 45 days after the
signing of the Merger Agreement to 60 days after the signing of the Merger
Agreement. On July 30, 1999 the Company and UC Acquisition Sub entered into a
letter agreement regarding the completion of the subordinated debt financing
to fund the Merger prior to the consummation of the Merger.
On August 10, 1999, the Board held a special telephonic meeting to approve
an amendment of the Merger Agreement providing for, among other things, some
or all the shares of institutional stockholders and of certain members of
Company senior management designated by UC Acquisition Sub to remain
outstanding following the completion of the Merger and the shares of all other
holders of common stock to be converted into cash in the Merger. At the
meeting, the Board was advised by its legal and financial advisors.
On August 31, 1999, UC Acquisition Sub notified the Company that it had
elected to convert the Merger into an all-cash merger for stockholders other
than institutional stockholders and members of management in either case
designated by UC Acquisition Sub to retain some or all of their shares.
Reasons for the Merger; Recommendation of the Board of Directors
The Board of Directors has unanimously approved the Merger Agreement, has
determined that the Merger is fair to, advisable and in the best interests of,
the Company and the holders of Common Stock, and recommends that stockholders
vote "FOR" approval and adoption of the Merger Agreement and approval of the
Merger.
17
<PAGE>
In reaching its determination to recommend approval and adoption of the
Merger Agreement and the Merger, the Board of Directors consulted with
management, as well as BT Alex. Brown, the Company's financial advisor, and
Willkie Farr & Gallagher, the Company's legal advisor, and considered various
factors that it considered material, all of which are listed below. In view of
the wide variety of factors considered in connection with the Merger, the
Board of Directors did not consider it practicable to, nor did it attempt to,
quantify or otherwise assign relative weights to the specific material factors
it considered in reaching its decision.
(i) Historical and Recent Market Prices Compared to Consideration to be
Received by Holders of Common Stock. The Board of Directors reviewed the
historical market prices and trading information with respect to the Common
Stock, and considered that the price of $5.85 per share of Common Stock
represented a premium of approximately (A) 20% over the $4.88 closing price
of the Common Stock on May 24, 1999, the date of the Board of Directors
meeting at which the Merger Agreement was approved, (B) 30.4% over the
average closing price of the Common Stock for the 30 previous trading days
prior to the May 24 Board of Directors meeting, (C) 122% over the closing
price of the Common Stock on March 2, 1999, the date on which the Board of
Directors reviewed with management and BT Alex. Brown the February
solicitation process.
(ii) Auction Process. As described above under "Background of the
Merger," the Board of Directors considered that the Merger Consideration
(as defined below) and the ultimate selection of Kelso & Company's
acquisition proposal was the result of an extensive auction process
involving discussions with a number of potential bidders and that Kelso's
proposal of $5.85 per share represented the highest bid made in that
auction process.
(iii) The Company's Business, Condition and Prospects. The Board of
Directors considered information with respect to the financial condition,
results of operations and business of the Company, on both an historical
and prospective basis, and current industry, economic and market
conditions, including the Company's market position in the clinical
laboratories market.
(iv) Kelso Reputation and Experience. The Board of Directors considered
that, although the Merger Agreement contained a financing condition, Kelso
has a strong business reputation, had successfully completed a significant
number of transactions similar to the Merger, and had obtained financing
commitments, including a bridge commitment for a portion of the
contemplated debt financing.
(v) Terms of the Merger. The Board of Directors considered the terms and
provisions of the Merger Agreement and related agreements, including the
provision of the Merger Agreement permitting the Board of Directors to
receive unsolicited inquiries and proposals from, and, under certain
circumstances, negotiate and give information to, third parties. The Board
of Directors further considered that the maximum aggregate termination fee
that could be realized by UC Acquisition Sub pursuant to the Merger
Agreement was $10 million plus up to $1.5 million in expenses. Based on the
advice of its financial and legal advisors, the Board of Directors
concluded that this termination fee was within the range of fees payable in
comparable transactions, that it would not in and of itself preclude
alternative proposals and that the protections it afforded UC Acquisition
Sub encouraged UC Acquisition Sub to submit its best possible offer.
However the Board also considered that, under certain circumstances, the
Company could be obligated to pay a termination fee even if the Company had
not entered into an alternative transaction with another party. The
Company's legal and financial advisors advised the Board of Directors that
there had been extensive negotiations with UC Acquisition Sub over both the
amount of the fee and the circumstances under which the fee became payable.
The Board of Directors further considered that UC Acquisition Sub had
stated that it would not enter into a transaction which did not include
provisions similar to the termination fee.
(vi) Requirement that Certain Shares be Retained in the Merger. The Board
of Directors considered that the purchase price that UC Acquisition Sub was
willing to offer in the Merger depended on the transaction being accounted
for as a recapitalization and that, to ensure the availability of the
accounting treatment, a relatively small portion of the shares outstanding
immediately prior to the Merger would need to remain outstanding
immediately following the Merger. The Board of Directors also considered
that many holders of Common Stock would likely prefer to receive cash for
all their shares than to be obligated to retain a relatively small portion
of their shares in the Merger, and that UC Acquisition Sub preferred that
18
<PAGE>
the retained shares be held by a relatively small number of holders rather
than by all public stockholders. Accordingly, the Board of Directors
concluded that it was advisable for the Merger to be structured to maximize
the possibility that all holders of Common Stock receive cash in exchange
for their shares, unless they are institutional stockholders of the Company
or members of senior management of the Company in either case designated by
UC Acquisition Sub who agree to retain some or all of their shares in the
Merger.
(vii) Public Stockholders to Receive Cash for all their Shares. The Board
of Directors considered that the public holders of Common Stock would
benefit from the Merger by being able to receive a cash premium for all
their shares rather than being potentially forced to retain a small number
of shares that would likely be relatively illiquid following the Merger.
However, the Board of Directors also considered that, in receiving cash for
all their shares, the public holders of Common Stock would no longer have
the opportunity to participate in any potential future improvements in the
Company's business following the Merger.
(viii) Designated Institutional Stockholders and Management Members to
Retain Shares. The Board of Directors considered that, by agreeing to
retain shares in the Merger, certain of the Company's institutional common
stockholders and members of management in either case designated by UC
Acquisition Sub made it possible for all other holders of Common Stock to
receive cash for all their shares. The Board of Directors also considered
that these institutional stockholders and members of management were
sacrificing the immediate opportunity to receive cash for those retained
shares and that the retained shares were not expected to represent in the
aggregate more than 5% of the Common Stock on a fully diluted basis
outstanding prior to the Merger. However, the Board of Directors further
considered that, through their continued share ownership, these
institutional stockholders and members of management would retain the
opportunity to participate in any potential future improvements in the
Company's business and that such persons were, in effect, being able to
continue their investment in the Company without paying taxes, as would be
the case if they were to reinvest the Merger proceeds.
(ix) Opinion of BT Alex. Brown. The Board of Directors considered the
opinion delivered on May 24, 1999 of BT Alex. Brown, the Company's
financial advisor, to the effect that, as of the date of such opinion and
based upon and subject to the matters stated in the opinion, the Common
Stock Merger Consideration was fair, from a financial point of view, to the
holders of Common Stock. The Board of Directors also considered the
financial analyses performed by BT Alex. Brown in connection with its
opinion. See "The Merger--Opinion of Unilab's Financial Advisor".
Projections
In the course of discussions giving rise to the Merger Agreement,
representatives of the Company furnished representatives of UC Acquisition Sub
and Kelso with certain business and financial information that was not
publicly available, including certain financial projections for fiscal year
2000 (the "Projections"). The Projections were prepared solely for the
Company's internal purposes and were not prepared for publication or with a
view to complying with the published guidelines of the Securities and Exchange
Commission regarding projections or with the American Institute of Certified
Public Accountants Guide for Prospective Financial Statements, and such
information is being included in this proxy statement solely because it was
furnished to UC Acquisition Sub and Kelso in connection with the discussions
giving rise to the Merger Agreement. The independent accountants of the
Company have neither examined nor compiled the prospective financial
information set forth below and, accordingly, do not express an opinion or any
other form of assurance with respect thereto. The report of such independent
accountants incorporated by reference in this proxy statement relate to the
historical financial information of the Company and do not extend to the
prospective financial information and should not be read to do so.
The Projections set forth below necessarily reflect numerous assumptions
with respect to general business and economic conditions and other matters,
many of which are inherently uncertain or beyond the Company's or UC
Acquisition Sub's control, and do not take into account any changes in the
Company's operations or capital structure which may result from the Merger. It
is not possible to predict whether the assumptions made in
19
<PAGE>
preparing the projected financial information will be valid, and actual
results may prove to be materially higher or lower than those contained in the
projections. The inclusion of this information should not be regarded as an
indication that the Company, UC Acquisition Sub or anyone else who received
this information considered it a reliable predictor of future events, and this
information should not be relied on as such. None of the Company, UC
Acquisition Sub or any of their respective representatives assumes any
responsibility for the validity, reasonableness, or completeness of the
projected financial information, and the Company has made no representation to
UC Acquisition Sub regarding such information.
<TABLE>
<CAPTION>
For the Year Ending December 31,
--------------------------------------------------------
1999 E 1999 PF (1) 2000 E 2001 E 2002 E 2003 E
-------- ----------- -------- -------- -------- --------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues.......... $281,208 $301,662 $336,880 $373,866 $412,708 $453,500
EBITDA................ $ 52,219 $ 65,566 $ 76,673 $ 89,986 $104,061 $118,955
Net Income............ $ 29,146 $ 40,806 $ 31,356 $ 39,853 $ 49,268 $ 59,664
======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) Pro forma for the Company's May 6, 1999 acquisition of the assets of
Physicians Clinical Laboratory, Inc., which does business as Bio-Cypher
Laboratories.
Opinion of the Company's Financial Advisor
The Company engaged BT Alex. Brown to act as exclusive financial advisor to
the Company in connection with the Merger. On May 24, 1999, at a meeting of
the Board of Directors held to evaluate the proposed Merger, BT Alex. Brown
rendered an oral opinion, which opinion was subsequently confirmed by delivery
of a written opinion dated May 24, 1999, to the effect that, as of that date
and based upon and subject to matters stated in the opinion, the Common Stock
Merger Consideration was fair, from a financial point of view, to the holders
of Common Stock.
The full text of BT Alex. Brown's written opinion dated May 24, 1999, which
describes the assumptions made, matters considered and limitations of the
review undertaken, is attached as Appendix B to this document and is
incorporated herein by reference. BT Alex. Brown's opinion is directed to the
Board of Directors, addresses only the fairness of the Common Stock Merger
Consideration from a financial point of view, does not address the merits of
the underlying decision by the Company to engage in the Merger, and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote with respect to matters relating to the proposed Merger. The
summary of BT Alex. Brown's opinion described below is qualified in its
entirety by reference to the full text of such opinion.
In connection with BT Alex. Brown's role as the Company's financial advisor,
and in arriving at its opinion, BT Alex. Brown:
. reviewed publicly available financial and other information concerning
the Company and internal analyses and other information furnished to or
discussed with BT Alex. Brown by the Company and its advisors;
. held discussions with members of the senior management of the Company
and Kelso regarding the business and prospects of the Company;
. reviewed the reported prices and trading activity for the Common Stock;
. compared financial and stock market information for the Company with
similar information for other companies whose securities are publicly
traded;
. reviewed the financial terms of recent business combinations which BT
Alex. Brown deemed comparable in whole or in part;
. reviewed the terms of a draft of the Merger Agreement dated May 24,
1999; and
. performed other studies and analyses and considered other factors as BT
Alex. Brown deemed appropriate.
20
<PAGE>
In connection with its engagement, BT Alex. Brown was authorized to
approach, and held discussions with, third parties to solicit indications of
interest with respect to the acquisition of the Company.
BT Alex. Brown did not assume responsibility for independent verification
of, and did not independently verify, any information, whether publicly
available or furnished to BT Alex. Brown, concerning the Company, including,
without limitation, any financial information, forecasts or projections
considered in connection with the rendering of its opinion. For purposes of
its opinion, BT Alex. Brown assumed and relied upon the accuracy and
completeness of all information reviewed, BT Alex. Brown did not conduct a
physical inspection of any of the properties or assets, and did not prepare or
obtain any independent evaluation or appraisal of any of the assets or
liabilities, of the Company. With respect to the financial forecasts and
projections made available to BT Alex. Brown and used in its analyses, BT
Alex. Brown assumed that they were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company as to the
matters covered thereby. In rendering its opinion, BT Alex. Brown expressed no
view as to the reasonableness of the forecasts and projections or the
assumptions on which they are based. BT Alex. Brown's opinion was necessarily
based upon economic, market and other conditions existing on, and the
information made available to BT Alex. Brown as of, the date of its opinion.
For purposes of rendering its opinion, BT Alex. Brown assumed that, in all
respects material to its analysis, the representations and warranties of the
Company and UC Acquisition Sub contained in the Merger Agreement are true and
correct, the Company and UC Acquisition Sub will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
all conditions to the obligations of each of the Company and UC Acquisition
Sub to consummate the Merger will be satisfied without any waiver. BT Alex.
Brown also assumed that all material governmental, regulatory or other
approvals and consents required in connection with the consummation of the
Merger will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either the Company or UC Acquisition Sub is a party or is subject or by which
it is bound, no limitations, restrictions or conditions will be imposed or
amendments, modifications or waivers made that would have a material adverse
effect on the Company or materially reduce the contemplated benefits of the
Merger to the Company. In addition, the Company informed BT Alex. Brown, and
for purposes of rendering its opinion, BT Alex. Brown assumed, that the Merger
will be recorded as a recapitalization for financial reporting purposes and
that the final terms of the Merger Agreement would not vary materially from
those set forth in the draft reviewed by BT Alex. Brown. BT Alex. Brown
expressed no opinion as to the price at which the common stock of the
surviving corporation will trade at any time. No other instructions or
limitations were imposed by the Board of Directors upon BT Alex. Brown with
respect to the investigations made or the procedures followed by it in
rendering its opinion.
The following is a summary of the material analyses performed by BT Alex.
Brown in connection with its opinion to the Board of Directors dated May 24,
1999. The financial analyses summarized below include information presented in
tabular format. In order to fully understand BT Alex. Brown's financial
analyses, the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the financial
analyses. Considering the data set forth below without considering the full
narrative description of the financial analyses, including the methodologies
and assumptions underlying the analyses, could create a misleading or
incomplete view of BT Alex. Brown's financial analyses.
Analysis of Selected Public Companies.
BT Alex. Brown compared financial and stock market information for the
Company and the following three selected publicly held companies in the
clinical laboratory industry:
. LabOne, Inc.
. Laboratory Corporation of America
. Quest Diagnostics Incorporated
21
<PAGE>
BT Alex. Brown reviewed adjusted market values, calculated as equity market
value, plus debt, less cash, as multiples of latest 12 months revenues,
earnings before interest, taxes, depreciation and amortization, and earnings
before interest and taxes, and equity market values as multiples of latest 12
months and estimated calendar years 1999 and 2000 earnings per share. All
multiples were based on closing stock prices on May 21, 1999. Estimated
financial data for the selected companies were based on publicly available
research analysts' estimates and estimated financial data for the Company were
based both on internal estimates of the management of the Company and publicly
available research analysts' estimates. This analysis indicated the following
implied adjusted market value and equity market value multiples for the
selected companies, as compared to the implied multiples for the Company based
on the Common Stock Merger Consideration:
<TABLE>
<CAPTION>
Implied Multiples Multiples for the Company
of Implied by Common
Selected Companies Stock Merger Consideration
------------------- --------------------------
Mean Range
----- -------------
<S> <C> <C> <C> <C>
Adjusted Market Values:
Latest 12 months revenues..... 1.1x 0.8x - 1.6x 1.9x
Latest 12 months earnings
before interest, taxes,
depreciation and
amortization................. 8.2x 6.6x - 9.4x 12.0x
Latest 12 months earnings
before interest and taxes.... 11.9x 10.8x - 13.4x 15.3x
Equity Market Values:
Latest 12 months net income... 19.0x 10.0x - 30.8x 21.2x
Estimated calendar year 1999
earnings per share (research
analysts' estimates)......... 18.8x 5.1x - 22.4x 17.7x
Estimated calendar year 1999
earnings per share
(management estimates)....... N/A N/A 14.2x
Estimated calendar year 2000
earnings per share (research
analysts' estimates)......... 13.0x 12.5x - 13.5x 13.0x
Estimated calendar year 2000
earnings per share
(management estimates)....... N/A N/A 9.2x
</TABLE>
Analysis of Selected Precedent Transactions.
BT Alex. Brown reviewed the purchase prices and implied transaction
multiples in the following five pending or completed merger and acquisition
transactions announced since June 1993 in the clinical laboratory industry:
Acquiror Target
-------- ------
.Quest Diagnostics Incorporated SmithKline Beecham Clinical
.National Health Laboratories, Inc. Laboratories
.National Health Laboratories, Inc. Roche Biomedical Laboratories
.Corning Incorporated Allied Clinical Laboratories, Inc.
.Corning Incorporated Nichols Institute
Damon Corporation
BT Alex. Brown reviewed adjusted market values in the selected transactions as
multiples of latest 12 months revenues, earnings before interest, taxes,
depreciation and amortization and earnings before interest and taxes, and
equity market values as multiples of latest 12 months and estimated calendar
years 1999 and 2000 earnings per share. All multiples were based on closing
stock prices on May 21, 1999. Estimated financial data for the selected
companies were based on publicly available research analysts' estimates and
estimated financial data for the Company were based both on internal estimates
of the management of the Company and publicly available research analysts'
estimates. This analysis indicated the following implied adjusted market value
and equity market value multiples for the selected companies, as compared to
the implied multiples for the Company based on the Common Stock Merger
Consideration:
22
<PAGE>
<TABLE>
<CAPTION>
Implied Multiples
of
Selected Companies Multiples for the Company
------------------- Implied by Common Stock
Mean Range Merger Consideration
----- ------------- -------------------------
<S> <C> <C> <C>
Adjusted Market Values:
Latest 12 months revenues...... 1.2x 0.9x - 1.4x 1.9x
Latest 12 months earnings
before interest, taxes,
depreciation and
amortization.................. 9.8x 8.2x - 12.7x 12.0x
Latest 12 months earnings
before interest and taxes..... 12.2x 10.1x - 15.5x 15.3x
Equity Market Values:
Latest 12 months net income.... 27.9x 20.7x - 36.1x 21.2x
</TABLE>
Discounted Cash Flow Analysis.
BT Alex. Brown performed a discounted cash flow analysis to estimate the
present value of the unlevered, after-tax free cash flows that the Company
could generate for the second half of fiscal year 1999 and fiscal years 2000
through 2003 based on internal estimates of the management of the Company,
excluding future acquisitions ("Base Case"), and adjustments to the Base Case
discussed with the management of the Company which assumed a flat margin
growth rate for the Company for fiscal years 2000 through 2003 ("Flat Margin
Case"). The range of estimated terminal values for the Company was calculated
by applying terminal value multiples ranging from 6.0x to 8.0x to the
Company's projected fiscal year 2003 earnings before interest, taxes,
depreciation and amortization. The present value of the cash flows and
terminal values were calculated using discount rates ranging from 15% to 19%.
This analysis yielded the following implied equity reference ranges for the
Company, as compared to the Common Stock Merger Consideration:
<TABLE>
<CAPTION>
Implied Per Share
Equity
Reference Range Per Share Common
for the Company Stock Merger Consideration
----------------- --------------------------
<S> <C>
$4.91 - $7.88
(base case) $5.85
$3.24 - $5.46
(flat margin
case)
</TABLE>
Premiums Analysis.
BT Alex. Brown reviewed the premiums paid in 588 selected mergers and
acquisitions transactions, including 27 selected health care mergers and
acquisitions, effected since January 1, 1995 with transaction values of
between $250 million and $750 million. BT Alex. Brown analyzed the premiums in
these transactions based on the target company's stock price one trading day
and one month prior to public announcement of the transaction, as compared to
the premiums implied in the Merger one trading day and one month prior to
public announcement of the Merger and on March 2, 1999, the date on which the
Board of Directors met to evaluate initial indications of interest in the
acquisition of the Company received from third parties. BT Alex. Brown also
analyzed the premiums payable in the five selected clinical laboratory mergers
and acquisitions transactions discussed above in "Analysis of Selected
Precedent Transactions." This analysis indicated the following mean and range
of premiums in the selected transactions, as compared to the implied premiums
in the Merger one day and one month prior to public announcement of the Merger
and on March 2, 1999:
<TABLE>
<CAPTION>
Premiums Paid in
Premium Implied Selected Mergers
in the Merger and Acquisitions (588)
--------------- ------------------------
Mean Range
------ --------------
<S> <C> <C> <C>
One Trading Day Prior to
Public Announcement
(May 21, 1999)........................ 18.5% 21.5% (48.8%) - 601.8%
One Month Prior to
Public Announcement
(April 21, 1999)...................... 53.4% 28.4% (67.3%) - 684.3%
Board of Directors' Meeting
(March 2, 1999)....................... 122.9% N/A N/A
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Premiums Paid in
Selected Health Care
Mergers and Acquisitions (27)
------------------------------
Premium Implied
in the Merger Mean Range
--------------- -------- ---------------
<S> <C> <C> <C>
One Trading Day Prior to
Public Announcement
(May 21, 1999).................. 18.5% 16.7% (19.0%) - 75.3%
One Month Prior to
Public Announcement
(April 21, 1999)................ 53.4% 27.3% (6.8%) - 85.5%
Board of Directors' Meeting
(March 2, 1999)................. 122.9% N/A N/A
<CAPTION>
Premiums Paid in
Selected Clinical Laboratory
Mergers and Acquisitions (5)
------------------------------
Premium Implied
in the Merger Mean Range
--------------- -------- ---------------
<S> <C> <C> <C>
One Trading Day Prior to
Public Announcement
(May 21, 1999).................. 18.5% 80.3% 33.3% - 170.3%
One Month Prior to Public
Announcement
(April 21, 1999)................ 53.4% 107.8% 65.8% - 173.7%
</TABLE>
Other Factors.
In rendering its opinion, BT Alex. Brown also reviewed and considered, among
other things:
. historical and projected financial data for the Company;
. historical market prices and trading volumes for the Common Stock and
the relationship between movements in the Common Stock, movements in the
common stock of selected companies and movements in the S&P 500 Index;
and
. selected published analysts' reports, including analysts' estimates as
to the earnings per share of the Company.
The above summary is not a complete description of the opinion of BT Alex.
Brown to the Board of Directors or the financial analyses performed and
factors considered by BT Alex. Brown in connection with its opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
summary description. BT Alex. Brown did not form a conclusion as to whether
any single factor or analysis, considered in isolation, supported or did not
support an opinion as to fairness from a financial point of view. Rather, BT
Alex. Brown believed that the totality of the factors considered and analyses
performed by it in connection with its opinion operated collectively to
support its determination as to the fairness of the Common Stock Merger
Consideration from a financial point of view. Accordingly, BT Alex. Brown
believes that its analyses and the summary above must be considered as a whole
and that selecting portions of its analyses and factors or focusing on
information presented in tabular format, without considering all analyses and
factors or the narrative description of the analyses, could create a
misleading or incomplete view of the processes underlying BT Alex. Brown's
analyses and opinion.
In performing its analyses, BT Alex. Brown considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond
24
<PAGE>
the control of the Company. No company, transaction or business used in such
analyses as a comparison is identical to the Company or the proposed Merger,
nor is an evaluation of the results of those analyses entirely mathematical;
rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect
the merger, public trading or other values of the companies, business segments
or transactions being analyzed. The estimates contained in BT Alex. Brown's
analyses and the ranges of valuations resulting from any particular analysis
are not necessarily indicative of actual values or future results, which may
be significantly more or less favorable than those suggested by its analyses.
In addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, BT Alex. Brown's analyses and
estimates are inherently subject to substantial uncertainty.
BT Alex. Brown is an internationally recognized investment banking firm and,
as a customary part of its investment banking business, is engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and valuations for
estate, corporate and other purposes. The Company selected BT Alex. Brown
based on BT Alex. Brown's reputation, expertise and familiarity with the
Company. BT Alex. Brown and its affiliates have in the past provided financial
services to the Company and affiliates of Kelso unrelated to the proposed
Merger, for which services BT Alex. Brown and its affiliates have received
compensation. An affiliate of BT Alex. Brown will participate in the financing
of the Merger, for which services such affiliate will receive compensation.
In the ordinary course of business, BT Alex. Brown and its affiliates may
actively trade or hold the securities and other instruments and obligations of
the Company for their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities,
instruments or obligations.
The type and amount of consideration payable in the Merger was determined
through negotiation between the Company and UC Acquisition Sub. Although BT
Alex. Brown provided financial advice to the Company during the course of
negotiations, the decision to enter into the Merger was solely that of the
Board of Directors. BT Alex. Brown's opinion and financial analyses were only
one of many factors considered by the Board of Directors in its evaluation of
the proposed Merger and should not be viewed as determinative of the views of
the Board of Directors or management with respect to the Common Stock Merger
Consideration or the Merger.
Pursuant to the terms of BT Alex. Brown's engagement, the Company has agreed
to pay BT Alex. Brown upon completion of the Merger an aggregate financial
advisory fee equal to 1.0% of the aggregate consideration, including
liabilities assumed, payable in connection with the Merger. In addition, the
Company has agreed to reimburse BT Alex. Brown for its reasonable travel and
other out-of-pocket expenses, including reasonable fees and disbursements of
counsel, and to indemnify BT Alex. Brown and related parties against
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, its engagement.
Certain Federal Income Tax Consequences of the Merger
The following discussion describes certain United States federal income tax
consequences of the Merger. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder, rulings, administrative pronouncements and
judicial decisions, changes to which could materially affect the tax
consequences described herein and could be made on a retroactive basis. This
discussion does not address all aspects of federal income taxation that may be
important to a stockholder based on such holder's particular circumstances and
does not address any aspect of state, local or foreign tax laws. This summary
generally considers only shares of Common Stock that are held as capital
assets (generally, assets held for investment) and may not apply to holders
who acquired Common Stock pursuant to the exercise of employee stock options
or other compensation arrangements with the Company, holders that are subject
to special tax treatment (such as broker-dealers, insurance companies, tax-
exempt organizations, financial institutions, and regulated investment
companies), holders that hold Common Stock as part of a "straddle", "hedge",
or "conversion transaction", or holders the functional currency of which is
not the U.S. dollar.
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Consequences to Holders of Common Stock Who Do Not Retain Shares. A holder
of Common Stock will recognize gain or loss equal to the difference between
the amount of cash received in the Merger and the holder's adjusted tax basis
in the shares of Common Stock exchanged. Such gain or loss will generally be
capital gain or loss and will be long-term capital gain or loss if at the
Effective Time (as defined below) the holder has a holding period for the
Common Stock of more than one year.
Consequences to Holders of Common Stock Who Retain A Portion of Their
Shares. A Holder of Common Stock who retains a portion of his Common Stock
will be treated as having received a distribution equal to the amount of cash
received, which will be taxable as a dividend to the extent of the Company's
current and accumulated earnings and profits, unless the exchange (i) is
"substantially disproportionate" within the meaning of section 302(b)(2) of
the Code, or (ii) is "not essentially equivalent to a dividend" within the
meaning of section 302(b)(1) of the Code. Shares imputed to the Holder under
certain attribution rules, as well as shares actually owned by the Holder,
will be taken into account for purposes of applying these tests. In no event,
however, will the exchange qualify as either "substantially disproportionate"
or "not essentially equivalent to a dividend" under either of these provisions
if the Holder's percentage interest in the Common Stock of the Company after
the Merger equals or exceeds such Holder's percentage interest in the Common
Stock of the Company immediately before the Merger. To the extent that cash
received in exchange for Common Shares is treated as a dividend to a U.S.
corporate Holder, (i) it may be eligible for a dividends-received deduction
equal to 70% of the dividend and (ii) it will be subject to the "extraordinary
dividend" provisions of the Code. U.S. corporate Holders of Common Stock
should consult their tax advisors concerning the availability of the
dividends-received deduction and the application of the "extraordinary
dividend" provisions of the Code.
If a Holder satisfies either of the foregoing tests for avoiding dividend
treatment, the exchange will be treated in the manner described under
"Consequences to Holders of Common Stock Who Do Not Retain Shares."
Backup Withholding and Information Reporting. Payments of cash to a holder
surrendering shares of Common Stock will be subject to information reporting
and "backup" withholding at a rate of 31% of the cash payable to the holder,
unless the holder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and
meets certain other conditions. Any amounts withheld from payments to a holder
under the backup withholding rules will be allowed as a refund or credit
against the holder's United States federal income tax liability, provided the
required information is furnished to the Internal Revenue Service.
The preceding discussion does not purport to be a complete analysis or
discussion of all potential tax effects relevant to the Merger. Thus,
stockholders are urged to consult their own tax advisors as to the specific
tax consequences to them of the Merger, including tax return reporting
requirements, the applicability and effect of federal, state, local and other
applicable tax laws and the effect of any proposed changes in the tax laws.
Accounting Treatment of the Merger
The Merger will be accounted for by UC Acquisition Sub as a recapitalization
for financial reporting purposes.
Regulatory Filings and Approvals
Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger cannot be consummated until
notifications have been given and certain information has been furnished to
the FTC and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and specified waiting period requirements have been
satisfied. Each of the Company and UC Acquisition Sub filed notification and
report forms under the HSR Act with the FTC and the Antitrust Division on
August 4, 1999. The waiting period was terminated on August 16, 1999.
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At any time before or after consummation of the Merger, the Antitrust
Division or the FTC or any state could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking divestiture of
substantial assets of the Company or UC Acquisition Sub. Private parties may
also seek to take legal action under the antitrust laws under certain
circumstances.
In addition, the Company is required under various healthcare laws and
regulations to provide regulatory authorities with notice of the completion of
the Merger.
There can be no assurance that the required regulatory approvals described
above will be received or, if received, the timing and the terms and
conditions thereof.
Financing of the Merger
It is estimated that approximately $484.9 million will be required to
consummate the Merger, repurchase or refinancing of the Company's existing
debt and pay related fees and expenses. These funds are expected to come from
the following sources:
. an equity investment by Kelso and certain additional investors of
approximately $139.5 million (the "Kelso Equity Commitment");
. borrowings by the Company of approximately $162.9 million under a new
senior secured credit facility (the "New Credit Facility");
. the issuance of $155.0 million of senior subordinated notes resulting in
approximately $150.8 million in gross proceeds to the Company (the "New
Senior Subordinated Notes"); and
. $21.2 million from the Company's available cash reserves.
The $317.9 million in aggregate borrowings under the New Credit Facility and
from the issuance of the New Senior Subordinated Notes is referred to as the
"Debt Financing." UC Acquisition Sub's obligations under the Merger Agreement
are conditioned on the Company's having received the Debt Financing on terms
that, in the case of bank borrowings, are consistent with those in the bank
commitment letter with respect to the New Credit Facility and, in the case of
subordinated debt financing, are satisfactory to UC Acquisition Sub.
Kelso Equity Commitment. Kelso has delivered to the Company and to UC
Acquisition Sub an equity commitment letter in which it undertakes, subject to
the conditions in the Merger Agreement, to provide or cause to be provided to
UC Acquisition Sub $139.5 million of the equity financing required in
connection with the Merger. Kelso has agreed that, for purposes of its equity
commitment, the condition to UC Acquisition Sub's obligation under the Merger
Agreement that the Company has received the Debt Financing will be deemed
satisfied if the sole reason for the Company's failure to obtain the Debt
Financing is a failure by Kelso to fund its equity commitment. To the extent
that the aggregate number of shares of Common Stock retained in the Merger
exceeds approximately 3.5% of the shares outstanding on a fully diluted basis
prior to the Merger the amount of the Kelso Equity Commitment will be reduced
by an amount equal to the product of $5.85 and such number of excess shares.
In addition, if holders of outstanding options to purchase Common Stock elect
to retain those options in the Merger, the Kelso Equity Commitment will be
reduced by an amount equal to the product of (1) .58, (2) the excess of $5.85
over the weighted average exercise price of the retained options and (3) the
number of shares of Common Stock subject to those retained options. If the
aggregate number of shares of Common Stock retained in the Merger is less than
approximately 3.5% of the shares outstanding on a fully diluted basis prior to
the Merger, the Merger Agreement contemplates that additional investors will
provide equity financing, at $5.85 per share, for the amount of the excess of
approximately 3.5% of the outstanding shares over the actual number of
retained shares. In addition to the foregoing, additional investors can
replace a portion of the Kelso Equity Commitment on a dollar for dollar basis
so long as Kelso and its affiliates continue to own in the aggregate at least
75% of UC Acquisition Sub.
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New Credit Facility. The Company anticipates that it will raise
approximately $162.9 million of the funds necessary to consummate the merger
and related transactions through borrowings under the New Credit Facility.
Bankers Trust Company and Merrill Lynch Capital Corporation each have provided
to the Company and UC Acquisition Sub a binding commitment to provide the
funds for the New Credit Facility in the form of a commitment letter, dated
May 24, 1999 and June 15, 1999, respectively. It is expected that the New
Credit Facility, among other things, will:
. include $160 million of term loan facilities, of which $50 million will
have a term of six years and $110 million will have a term of seven
years;
. include a $25 million revolving loan facility, of which approximately
2.5 million will be available to be drawn on the Effective Date;
. provide that prepayment will be mandatory with the net proceeds from
certain sales of equity, incurrence of certain indebtedness and certain
asset sales and with a percentage of annual excess cash flow;
. be secured by a first priority perfected interest in substantially all
of the Company's tangible and intangible assets;
. be subject to customary closing conditions;
. be subject to customary representations and warranties; and
. be subject to customary covenants, including delivery of financial
statements, certain financial covenants, including minimum interest
coverage ratio, minimum fixed charge coverage ratio and maximum total
debt coverage ratio, compliance with laws, maintenance of insurance,
interest rate protection, limitations on disposition of assets, changes
of business, mergers, acquisitions, indebtedness, including guarantees
and other contingent obligations, loans and investments, liens,
transactions with affiliates, capital expenditures, dividends and other
restricted payments, and restrictions on modifications of certain
agreements.
Definitive agreements for the New Credit Facility have not been negotiated
or completed. Accordingly, the terms of the New Credit Facility described
above may change as a result of the negotiation of definitive agreements. In
addition, the New Credit Facility is subject to the satisfaction of numerous
customary conditions, including the condition that no material adverse change
has occurred to the Company or its business and that the Merger has been
consummated.
New Senior Subordinated Notes. On September 28, 1999, Unilab Finance Corp.,
a newly formed corporation formed at the direction of Kelso ("EscrowCo"),
completed a private offering of the New Senior Subordinated Notes. The
proceeds from the New Senior Subordinated Notes were approximately $150.8
million before deducting commissions and expenses. At the Effective Time, the
Surviving Corporation (as defined below) will assume EscrowCo's obligations
with respect to the New Senior Subordinated Notes, EscrowCo will be released
from those obligations and the Surviving Corporation will receive the proceeds
received by EscrowCo from the issuance of those notes. Upon the Surviving
Corporation's assumption of the New Senior Subordinated Notes, the New Senior
Subordinated Notes will be:
. subordinated to the New Credit Facility;
. have registration rights;
. redeemable by the Company after five years, and, during the first three
years after issuance up to 35% of principal amount of such notes may be
redeemed by the Company with the net proceeds from certain sales of
equity;
. redeemable by the Company at the option of the holders upon a change of
control of the Company; and
. subject to customary covenants for this type of financing, including
restrictions on indebtedness, dividends, liens, affiliate transactions,
stock repurchases, asset sales and mergers.
As contemplated by the Merger Agreement, the proceeds from the issuance of
the New Senior Subordinated Notes are being held in escrow pending the closing
of the Merger or termination of the Merger Agreement. Upon such issuance, the
Company has agreed to pay to EscrowCo an amount (the "Breakage Amount")
sufficient to cover (i) the interest accrued on the New Senior Subordinated
Notes from the date of issuance to the Termination
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Date (as defined below) less the estimated net income EscrowCo will earn from
investing the proceeds of those notes and (ii) any repayment premium
applicable to the New Senior Subordinated Notes if the Merger Agreement is
terminated in accordance with its terms or the Merger is not consummated by
the Termination Date. If the Merger Agreement is terminated in accordance with
its terms or the Merger is not consummated by the Termination Date, EscrowCo
will repay the notes and UC Acquisition Sub or an affiliate will promptly
reimburse the Company for one-half of the Breakage Amount paid to noteholders.
Management, Operations and Ownership Structure Following the Merger
Following the Merger, the Company will continue its operations as a
subsidiary of Kelso Investment Associates VI, L.P. and KEP VI LLC. The
directors of UC Acquisition Sub will become the directors of the Company. At
the Effective Time, the officers of the Company will remain unchanged, except
that, David C. Weavil, the Chairman of the Board of Directors, President and
Chief Executive Officer of the Company, will cease serving as President and
Chief Executive Officer but will continue as Chairman of the Board of
Directors.
For information concerning the anticipated ownership of the Company after
the Merger, see "THE MERGER--Financing of the Merger," "INTEREST OF CERTAIN
PERSONS IN THE MERGER" and "OWNERSHIP OF CERTAIN BENEFICIAL OWNERS."
Stockholders Agreement. It is anticipated that the Company, Kelso, EOS
Partners, LP, Pequot Capital LLC and its affiliates, certain additional
investors and members of management will be entering into, at or immediately
prior to the Merger, a stockholders agreement containing various rights and
restrictions, including tag-along and drag-along rights, rights of first
refusal and restrictions on transfer, in connection with such parties'
ownership of equity securities of the Company following the Merger. Under the
stockholders agreement, management and the Company will also have put and call
rights, respectively, with respect to shares of stock and options held by
members of management in event of termination of employment, including in the
event of death, disability or resignation. Depending on the circumstances of
termination, such put and call rights are exercisable at fair market value,
based on an annual appraisal of the Company's stock, or at cost (deemed to be
$5.85 for Retained Shares and the spread based on the $5.85 merger price for
retained options) plus 6% annual interest.
It is anticipated that the Company will adopt at or following the Merger a
new stock option plan for management and employees of the Company. Although
the terms of such plan have not been finalized, it is currently anticipated
that options granted initially will have an exercise price of $5.85 per share,
will cover approximately 15% of the shares outstanding following the Merger on
a primary basis and will consist of two tranches, one of which will vest over
time and one of which will vest subject to various performance criteria which
will be established.
Appraisal Rights
Under the Delaware Law, holders of Common Stock and holders of Preferred
Stock (as defined below) are entitled to appraisal rights in connection with
the Merger. Any holder of record of Common Stock that objects to the Merger (a
"Dissenting Stockholder") may elect to have his or her shares of Common Stock
appraised under the procedures of the Delaware Law and to be paid the
appraised value of his or her shares. The appraised value of the shares will
not include any value arising from the Merger but may include a fair rate of
interest. It is possible that the fair value determined may be more or less
than the Common Stock Merger Consideration.
Any stockholder who is considering exercising his or her appraisal rights is
urged to review carefully the provisions of Section 262 of the Delaware Law
("Section 262"), a copy of which is attached as Appendix C to this proxy
statement, particularly with respect to the procedural steps required to
perfect the right of appraisal. The right of appraisal may be lost if the
procedural requirements of Section 262 are not followed exactly. The following
is a summary of the procedures relating to exercise of the right of appraisal,
which should be read in conjunction with the full text of Section 262.
Under Section 262, the Company is required to notify each stockholder
entitled to appraisal rights at least 20 days prior to the Special Meeting
that such appraisal rights are available. The notice must include a copy of
Section 262. This Proxy Statement Constitutes Such Notice To The Stockholders.
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A stockholder electing to exercise his or her appraisal rights under Section
262 must deliver to the Company a written demand for appraisal before the vote
is taken at the Special Meeting. The written demand must identify the
stockholder and state that the stockholder intends to demand appraisal of his
or her shares of Common Stock. A vote against the adoption of the Merger
Agreement or an abstention will not constitute a demand for appraisal. A
stockholder electing to take any of those actions must do so by a separate
written demand to the Company. Demands should be mailed or delivered to Unilab
Corporation, 401 Hackensack Avenue, Hackensack, New Jersey 07601, Attention:
Mark L. Bibi, Secretary. Within 10 calendar days after the Effective Time, the
Company will notify each stockholder who has made a proper written demand for
appraisal and who has not voted for the adoption of the Merger Agreement that
the Merger has been completed. A vote "FOR" the adoption of the Merger
Agreement will have the effect of waiving all appraisal rights.
Within 120 calendar days after the Effective Time, the Company or any
stockholder who has complied with the foregoing notice requirement and the
other requirements of Section 262 may file a petition in the Delaware Court of
Chancery (the "Court") demanding a determination of the fair value of his or
her shares of Common Stock. The Company has no obligation to file a petition
and does not currently intend to do so. As a result, any Dissenting
Stockholder who wishes to file a petition is advised to do so on a timely
basis. If a petition for appraisal is not filed during the 120-day period, all
appraisal rights relating to the Common Stock will terminate. Any stockholder
may withdraw a demand for appraisal at any time within 60 calendar days after
the Effective Time (or thereafter with the written consent of the Company).
If a stockholder either withdraws his or her demand for appraisal or has his
or her appraisal rights terminated as described above, the stockholder will
only be entitled to receive the Merger Consideration for his or her shares of
Common Stock as provided under the terms of the Merger Agreement.
Within 120 calendar days after the Effective Time, any stockholder who has
complied with the above-described notice requirements and the other
requirements of Section 262 may request in writing a list of the aggregate
number of shares of Common Stock for which demands for appraisal have been
made and the aggregate number of holders demanding appraisal rights.
If a petition is filed by a Dissenting Stockholder, the Company will receive
notice from the Court of such filing. Within 20 calendar days after the
Company receives notice from the Court, the Company must file with the office
of the Register in Chancery in which the petition was filed, a list containing
the names and addresses of all stockholders who have demanded appraisal rights
and the names of all stockholders who have disagreements with the Company
regarding the value of their shares of Common Stock. If a petition is filed by
the Company, the petition will be accompanied by a similar list. If ordered by
the Court, the Register in Chancery will give notice of the time and place of
the hearing by registered or certified mail to the Company and to each
stockholder shown on the list. The notice will also be given by publishing the
notice in a newspaper of general circulation published in Wilmington, Delaware
(or any other location the Court may determine), at least one week before the
hearing. The forms of the notices to be used will be approved by the Court,
and all costs related to the distribution of the notices will be paid by the
Company.
After the Court determines which of the stockholders are entitled to an
appraisal under Section 262, the Court will appraise the shares of the Common
Stock. Following determination by the Court of the fair value of the shares,
the Company will pay all Dissenting Stockholders the appraised value of their
shares, together with interest, if any, upon surrender to the Company of their
certificates representing the Common Stock. The costs of the appraisal
proceeding may be determined by the Court and charged to the parties as the
Court deems equitable in the circumstances. Upon application of a Dissenting
Stockholder, the Court may order all or a portion of the expenses incurred by
any Dissenting Stockholder in connection with the appraisal proceeding,
including reasonable attorneys' fees and the fees and expenses of experts, to
be charged pro rata against the value of all of the shares entitled to an
appraisal.
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After the Effective Time, no stockholder who has demanded his or her
appraisal rights as set forth above will be entitled to vote his or her shares
for any purpose or to receive payment of dividends or other distributions on
his shares (except dividends or other distributions payable to stockholders of
record at a date prior to the Effective Time).
Public Trading Market
The Common Stock is currently traded on the American Stock Exchange under
the trading symbol "ULB". Upon consummation of the Merger, the Common Stock
will no longer be traded on the American Stock Exchange and will be
deregistered under the Exchange Act.
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THE MERGER AGREEMENT
The following describes certain aspects of the proposed Merger, including
material provisions of the Merger Agreement. The following description of the
Merger does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which has been restated to incorporate all
amendments, is attached as Appendix A to this proxy statement and is
incorporated herein by reference. Holders of Common Stock are urged to read
the Merger Agreement carefully. Capitalized terms used in this section or
elsewhere in this proxy statement but not defined in this proxy statement have
the meanings attributed to them in the Merger Agreement.
General; Merger Consideration
The terms of the Merger are set forth in the Merger Agreement. The Merger
Agreement was approved by the Board of Directors and signed by the Company and
UC Acquisition Sub on May 24, 1999 and subsequently amended on July 8, July
30, and August 10, 1999. Pursuant to the Merger Agreement, and on the terms
and conditions set forth therein, at the Effective Time, UC Acquisition Sub
will be merged with and into the Company, and the Company will be the
surviving corporation (the "Surviving Corporation"). As a result of the
Merger, each share of Common Stock issued and outstanding immediately prior to
the Effective Time (other than Retained Shares (as defined below) and shares
with respect to which the holders have perfected appraisal rights under the
Delaware Law (collectively, the "Excluded Shares")) will be converted into the
right to receive $5.85 in cash, without interest (the "Common Stock Merger
Consideration"), and each share of convertible preferred stock, par value $.01
per share, of the Company ("Preferred Stock") issued and outstanding
immediately prior to the Effective Time will be converted into the right to
receive $5.75 in cash, plus all dividends accrued but unpaid thereon
("Preferred Stock Merger Consideration" and, together with the Common Stock
Merger Consideration, the "Merger Consideration").
The Merger Agreement originally contemplated that approximately 3.5% of the
Common Stock outstanding on a fully diluted basis immediately prior to the
Effective Time would be retained in the Merger by the existing holders of
Common Stock. However, UC Acquisition Sub had the ability under the Merger
Agreement to convert the Merger into an all-cash transaction in which the
existing stockholders (other than institutional stockholders of the Company
and members of Company senior management in either case designated by UC
Acquisition Sub and who have agreed to retain some or all of their shares in
the Merger) would receive cash and not retain any shares of Common Stock. On
August 31, 1999, UC Acquisition Sub notified the Company that it had elected
to convert the Merger into an all-cash merger for stockholders other than the
institutional stockholders and members of management designated by UC
Acquisition Sub to retain some or all of their shares.
Some or all of the shares of Common Stock (the "Retained Shares") held by
institutional stockholders of the Company and certain members of senior
management of the Company in either case designated by UC Acquisition Sub,
will remain outstanding following the completion of the Merger. The Retained
Shares are not expected to exceed in the aggregate 5% of the Common Stock
outstanding on a fully diluted basis prior to the Merger. The number of
Retained Shares held by institutional stockholders will, in no event, exceed
in the aggregate 10% of the Common Stock outstanding on a fully diluted basis
prior to the Merger. The number of Retained Shares held by members of Company
senior management will, in no event, exceed in the aggregate 5% of the Common
Stock on a fully diluted basis outstanding prior to the Merger.
UC Acquisition Sub has advised the Company that it has entered into
agreements with EOS Partners, L.P. and Pequot Scout Fund, LP pursuant to which
EOS Partners, LP has agreed to retain 855,000 of the 1,977,400 shares of
Common Stock it holds and Pequot Scout Fund, LP and its affiliates have agreed
to retain 940,000 of the 3,878,200 shares of Common Stock they hold. In
addition, UC Acquisition Sub expects to offer members of senior management the
opportunity to retain some or all of their shares of Common Stock and options
purchase Common Stock in the Merger, and, therefore, certain members of senior
management expect to retain some or all of their shares following the Merger.
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UC Acquisition has reserved the right, at any time prior to the Effective
Time, to replace any stockholder that it had previously designated to retain
shares with another stockholder, subject to specific limits on the
qualifications and numbers of the designated stockholders. In addition, UC
Acquisition has reserved the right, at any time prior to the Effective Time,
to replace any shares it had previously designated as Retained Shares with
other shares of Common Stock or to eliminate those previously designated
shares from the category of Retained Shares, subject to the requirement that
the total number of Retained Shares equal in the aggregate approximately 3.5%
of the shares of Common Stock outstanding on a fully diluted basis prior to
the Merger and/or additional investors provide additional equity financing, at
$5.85 per share, to cover the amount of the excess of approximately 3.5% of
the outstanding shares of Common Stock on a fully diluted basis over the
actual number of Retained Shares.
Dissenting Shares
In the Merger, stockholders have appraisal rights under Section 262 of the
Delaware Law. If a stockholder exercises his or her appraisal rights and
complies with the requirements of Section 262, the shares of Common Stock
owned by the Dissenting Stockholder will not be converted into the right to
receive the Merger Consideration at the Effective Time. Instead, such
Dissenting Stockholder will receive the appraisal value of his or her shares
of Common Stock (the "Dissenting Shares"). If after the Effective Time, the
Dissenting Stockholder fails to comply with the requirements of Section 262,
the Dissenting Shares of such Dissenting Stockholder will be treated as shares
of Common Stock and will be converted into the right to receive the Merger
Consideration. At the Effective Time, a Dissenting Stockholder will not have
any rights (including voting rights and rights to dividends or distributions)
with respect to his or her Dissenting Shares other than rights provided by
Section 262. For a summary of the requirements that a stockholder must follow
in order to exercise his or her appraisal rights, see "The Merger--Appraisal
Rights."
Treatment of Stock Options
The Company will use its reasonable best efforts to take all actions
necessary to provide that, at the Effective Time, (i) each then outstanding
option to purchase shares of Common Stock (the "Options") granted under any of
the Company's stock option plans, each as amended (collectively, the "Option
Plans") or granted otherwise, whether or not then exercisable or vested, will
be canceled and (ii) in consideration of such cancellation, UC Acquisition Sub
will (or will cause the Surviving Corporation to) pay to such holders of
Options an amount in cash in respect thereof equal to the product of (A) the
excess, if any, of $5.85 over the exercise price thereof and (B) the number of
shares of Common Stock subject thereto (such payment to be net of applicable
withholding taxes). However, UC Acquisition Sub or Kelso may, instead,
designate that certain outstanding Options remain outstanding following the
merger, possibly on amended terms but with the same aggregate spread per
holder, with the consent of the holders of those Options.
Except as provided in the Merger Agreement or as otherwise agreed to by the
parties and to the extent permitted by the Option Plans, (i) the Company will
use its reasonable best efforts to cause the Option Plans to terminate as of
the Effective Time and the provisions in any other plan, program or
arrangement, providing for the issuance or grant by the Company of any
interest in respect of the capital stock of the Company will be terminated and
have no further force or effect as of the Effective Time and (ii) the Company
will use all reasonable best efforts to ensure that following the Effective
Time no holder of Options or any participant in the Option Plans or anyone
otherwise shall have any right to acquire any equity securities of the
Company, the Surviving Corporation or any subsidiary thereof.
Closing; Effective Time
The closing of the Merger (the "Closing") will take place by the fifth
business day following the satisfaction or waiver of the conditions to the
Merger set forth in the Merger Agreement, unless otherwise agreed by the
parties. Concurrently with the Closing, the Company and UC Acquisition Sub
will cause a Certificate of
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Merger to be executed, acknowledged and filed with the Secretary of State of
the State of Delaware. The Merger will become effective at the time the
Certificate of Merger is duly filed with the Secretary or at such later time
agreed by the parties (the "Effective Time"). See "Conditions to the Proposed
Merger" and "The Merger--Regulatory Filings and Approvals".
Existing Company Indebtedness
The Company has commenced an offer to purchase its $120 million of
outstanding 11% Senior Notes due 2006 (the "Existing Senior Notes"). The
Company's obligations to accept for payment Existing Senior Notes tendered in
the offer is conditioned on the concurrent closing of the Merger. In
connection with the Company's offer to purchase the Existing Senior Notes, the
Company has solicited from the holders of those notes consents to effect such
amendments to the indenture relating to those notes. The proposed amendments
require the consent of the holders of a majority of the aggregate outstanding
principal amount of the notes and provide for (1) the elimination of
substantially all restrictive covenants, (2) the removal from the definition
of events of default of all events other than nonpayment, failure to comply
with the remaining covenants and certain bankruptcy events relating to the
Company and (3) the amendment of certain other provisions of the indenture.
As of October 21, 1999, approximately $119.4 million principal amount of
Existing Senior Notes had been tendered in the offer and not been withdrawn.
In addition, the Company has agreed to repay at Closing all indebtedness
outstanding under the Company's healthcare receivables facility with Daiwa
Healthco-2 LLC and the Company's $25 million promissory note payable to
Physicians Clinical Laboratories, Inc. The Company also has agreed to convert
its $14 million note payable to Meris into shares of Common Stock.
Cancellation of Shares
At the Effective Time, all shares of Common Stock other than Retained Shares
will no longer be outstanding and will be canceled and retired and will cease
to exist, and each certificate (a "Certificate") formerly representing any of
such shares (other than Excluded Shares) will thereafter represent only the
right to receive the Merger Consideration.
Exchange of Certificates
UC Acquisition Sub will designate a bank or trust company to act as agent
(the "Exchange Agent") for the benefit of the holders of shares of Common
Stock to receive the funds to which holders of shares of Common Stock become
entitled upon surrender of their Certificates. Upon surrender of a Certificate
to the Exchange Agent, the Exchange Agent will pay, in accordance with normal
exchange practices, to the holder of such Certificate in exchange therefor the
Merger Consideration for each share formerly represented by such Certificate
and the Certificate surrendered will then be canceled. No interest will be
paid or accrued on any amount payable upon due surrender of a Certificate.
Transfers
At the Effective Time, the stock transfer books of the Company will be
closed with respect to shares of Common Stock (other than Retained Shares) and
thereafter there will be no further registration of transfers of such shares
on the records of the Company.
Lost, Stolen or Destroyed Certificates
In the event any Certificate is lost, stolen or destroyed, upon the making
of an affidavit of that fact by the stockholder claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving Corporation,
the posting by such stockholder of a bond in customary amount as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the applicable Merger Consideration such stockholder
is entitled to receive pursuant to the Merger Agreement.
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Representations and Warranties
The Merger Agreement contains customary representations and warranties of
the Company relating to, among other things, (a) organization, standing and
similar corporate matters; (b) the Company's capital structure; (c) the
authorization, execution, delivery, performance and enforceability of the
Merger Agreement; (d) documents filed by the Company with the Commission, the
accuracy of information contained therein and the absence of undisclosed
liabilities; (e) the accuracy of information supplied by the Company in
connection with this Proxy Statement; (f) the absence of certain changes or
events since the date of the most recent audited financial statements filed
with the Commission, including material adverse changes with respect to the
Company; (g) pending or threatened material litigation, certain labor matters
and compliance with applicable laws; (h) benefit plans and other matters
relating to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and employment matters; (i) filing of tax returns and payment of
taxes; (j) title to owned real property, valid leasehold and subleasehold
interests in leased real property, possession of required permits, and other
real-estate related matters; (k) environmental matters; (1) the absence of
defaults under material contracts; (m) brokers' fees and expenses; (n) receipt
of an opinion of the Company's financial advisor; (o) recommendation of the
Board of Directors with respect to the Merger Agreement and the Merger and
related transactions; (p) the amendment (the "Rights Amendment") to the
Company's Amended and Restated Rights Plan, dated February 27, 1996 (the
"Rights Agreement"); (q) insurance; and (r) labor matters.
The Merger Agreement also contains customary representations and warranties
of UC Acquisition Sub relating to, among other things (a) organization,
standing and similar corporate matters; (b) the authorization, execution,
delivery, performance and enforceability of the Merger Agreement and related
matters; (c) brokers' fees and expenses; and (d) the accuracy of information
supplied by UC Acquisition Sub in connection with this proxy statement and (e)
financing arrangements.
Rights Agreement Amendment
In connection with the execution of the Merger Agreement, the Company
amended the Rights Agreement to provide, among other things, that neither the
Merger Agreement nor any of the transactions contemplated by that agreement,
including the Merger, will result in the occurrence of a "Distribution Date"
under the Rights Agreement or otherwise cause the rights under the Rights
Agreement to become exercisable.
Conduct of Business Prior to the Merger
The Company has agreed that after the date of the Merger Agreement and prior
to the Effective Time (except as expressly provided in the Merger Agreement or
as UC Acquisition Sub otherwise agrees in writing) that:
(a) it will conduct its business only in and will not take any action
except in the ordinary course of business and in a manner consistent with
past practice;
(b) it will use its reasonable best efforts to preserve substantially
intact its business organization, to keep available the services of its
present officers, employees and consultants and preserve its present
relationships with customers, suppliers and other Persons with which it has
significant business relations, and it will use reasonable best efforts to
resolve in all material respects all deficiencies and issues, and comply in
all material respects with the recommendations made in its 1998 internal
compliance program audit reports;
(c) it will not amend the Certificate of Incorporation or the By-Laws or
any material term of any outstanding security issued by it or any of its
Subsidiaries;
(d) it will not declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock;
(e) it will not redeem, purchase or otherwise acquire, directly or
indirectly, any of its capital stock or other securities;
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(f) it will not issue, sell, pledge, dispose of or encumber (A) any
shares of its capital stock, (B) securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of its capital stock or (C) any of its other
securities, other than shares of its Common Stock issued upon the exercise
of Options outstanding on the date of the Merger Agreement in accordance
with the Option Plans as in effect on that date or upon conversion of any
convertible securities outstanding on that date;
(g) it will not split, combine or reclassify any of its outstanding
capital stock;
(h) it will not acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
joint venture, association or other business organization or division or
(B) any assets, including real estate, except purchases of inventory,
equipment and supplies in the ordinary course of business consistent with
past practice and other purchases of assets in the ordinary course of
business consistent with past practice;
(i) it will not, except in the ordinary course of business consistent
with past practice, amend, enter into or terminate any of its Material
Contracts, or waive, release or assign any material rights or claims;
(j) it will not transfer, lease, license, sell, mortgage, pledge, dispose
of, or encumber any property or assets or cease to operate any assets,
including but not limited to any laboratories, other than excess or
obsolete assets or in the ordinary course of business and consistent with
past practice;
(k) it will not (A) enter into any employment or severance agreement with
or, except in accordance with its existing obligations, grant any severance
or termination pay to any of its officers or directors or (B) hire or agree
to hire any new or additional officers;
(l) it will not, except as required to comply with applicable law, (A)
adopt, enter into, terminate, amend or increase the amount or accelerate
the payment or vesting of any benefit or award or amount payable under any
Employee Plan or other arrangement for the current or future benefit or
welfare of any director, officer or employee, other than in the case of
employees who are not officers or directors in the ordinary course of
business consistent with past practice, (B) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director,
officer or, other than in the ordinary course of business consistent with
past practice, other employee, (C) other than benefits accrued through the
date of the Merger Agreement and other than in the ordinary course of
business for employees other than its officers or directors, pay any
benefit not provided for under any Employee Plan, (D) other than bonuses
earned through the date of the Merger Agreement and other than in the
ordinary course of business consistent with past practice for employees
other than officers and directors, grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or
Employee Plan or (E) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or Employee Plan;
(m) it will not (A) incur or assume any indebtedness for money borrowed
other than in accordance with the current terms of the Company's healthcare
receivables facility and in an amount not to exceed $5,000,000 at any one
time outstanding, (B) incur or modify any material indebtedness or other
liability, (C) assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any Person except in the ordinary course
of business and consistent with past practice, or (D) except for advances
or prepayments in the ordinary course of business in amounts consistent
with past practice, make any loans, advances or capital contributions to,
or investments in, any other Person;
(n) it will not change the accounting methods it uses unless required by
GAAP;
(o) it will not, other than in the ordinary course of business consistent
with past practice, make any Tax election or settle or compromise any Tax
liability;
(p) it will not settle or compromise any claim, litigation or other
legal proceeding, except for any settlement or compromise involving less
than $100,000;
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(q) it will not enter into any agreement, arrangement or contract to
allocate, share or otherwise indemnify for Taxes;
(r) it will not (A) redeem the rights outstanding under the Rights
Agreement, or amend or modify or terminate the Rights Agreement or render
it inapplicable (or otherwise exempt from the application of the Rights
Agreement) any Person or action, other than to delay the Distribution Date
(as defined in the Rights Agreement) or to render the rights inapplicable
to the execution, delivery and performance of the Merger or (B) permit the
rights to become non-redeemable at the redemption price currently in effect
(unless immediately prior to the Effective Time, UC Acquisition Sub
requests that the rights be redeemed);
(s) it will not terminate or suspend participation in Medicare, Medicaid
or any other federal or state funded healthcare or health benefits program;
(t) it will not terminate or fail to renew any Permits the failure of
which to possess would be reasonably likely to have a Material Adverse
Effect;
(u) it will not enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize, recommend, propose
or announce an intention to do any of the foregoing (a)-(t); and
(v) it will not take any action that would make any of its
representations and warranties contained in the Merger Agreement false in
any material respect at or prior to the Effective Time.
Agreement Not to Solicit Other Offers
The Company has agreed that it will not, directly or indirectly, through any
officer, director, agent, financial advisor or otherwise, (a) solicit,
initiate or encourage submission of proposals or offers from any Person
relating to an Acquisition Transaction (as defined below), (b) participate in
any negotiations regarding, or furnish to any other Person any information
(except for information which has been previously publicly disseminated by the
Company in the ordinary course of business) with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing or (c) enter into any agreement or agreement in principle providing
for or relating to an Acquisition Transaction. However, nothing contained in
the Merger Agreement prohibits the Company or the Board of Directors from (A)
taking and disclosing to the Company stockholders, pursuant to Rules 14d-9 and
14e-2 promulgated under the Exchange Act, a position with respect to a tender
or exchange offer by a third party or (B) making such disclosure to the
Company stockholders as, in the good faith judgment of the Board of Directors,
after receiving advice from outside counsel, is required under applicable law.
In addition, the Company may, in response to an unsolicited written proposal
with respect to an Acquisition Transaction from a third party, furnish
information to, and negotiate, explore or otherwise engage in substantive
discussions with such third party, and enter into any agreement, arrangement
or understanding with such third party, in each case if (A) the Board of
Directors determines in good faith, after consultation with its financial
advisors and outside legal counsel, that (x) such proposal would, if
consummated, result in a transaction that provides a higher price to its
stockholders, from a financial point of view, than the transactions
contemplated by the Merger Agreement and (y) failing to take such action would
create a reasonable possibility of a breach of the fiduciary duties of the
Board of Directors and (B) in the case of entering into any agreement in
respect of an Acquisition Transaction, the Company, concurrently with the
execution of such agreement, terminates the Merger Agreement. The Company has
not received any unsolicited offers from third parties since entering into the
Merger Agreement.
For purposes of the Merger Agreement, an "Acquisition Transaction" means any
acquisition or purchase of all or a portion of the assets of (other than
immaterial or insubstantial assets or inventory in the ordinary course of
business or assets held for sale), or any equity interest in, the Company or
any business combination with the Company.
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Board Recommendations
In connection with the Merger and Special Meeting, the Board of Directors,
at a meeting duly called and held, at which all of the Directors were present,
duly and unanimously: (i) approved and adopted the Merger Agreement and the
transactions contemplated thereby, including the Merger; (ii) recommended that
the stockholders of the Company approve the Merger Agreement and the
transactions contemplated hereby, including the Merger; and (iii) determined
that the Merger Agreement and the transactions contemplated thereby, including
the Merger, are fair to, advisable and in the best interests of the
stockholders of the Company. On August 10, 1999, the Board of Directors
approved, ratified and adopted amendments to the Merger Agreement and
reaffirmed its determination as to the fairness and advisability of the Merger
Agreement and its recommendation that its stockholders vote in favor of the
Merger Agreement and the transactions contemplated by that agreement.
Certain Other Covenants and Agreements
Access to Information; Confidentiality. The Company has agreed to, and to
cause its officers, directors, employees, auditors and agents to, afford the
officers, employees, environmental consultants, attorneys, accountants and
agents of UC Acquisition Sub and the sources of financing for the Merger
reasonable access at all reasonable times to its officers, employees, agents,
properties, offices and other facilities and to all books and records, and
furnish UC Acquisition Sub and such financing sources with all financial,
operating and other data and information UC Acquisition Sub and the financing
sources through their officers, employees, environmental consultants or
agents, reasonably request.
UC Acquisition Sub has agreed to cause its affiliates and each of their
respective officers, directors, employees, financial advisors, environmental
consultants and agents (the "UC Acquisition Sub Representatives"), to hold in
strict confidence all data and information obtained by them from the Company
(unless such information is or becomes publicly available without the fault of
any UC Acquisition Sub Representative or public disclosure of such information
is required by law in the opinion of counsel to UC Acquisition Sub) and insure
that UC Acquisition representatives do not disclose such information to others
without the prior written consent of the Company. The terms of the
Confidentiality Agreement executed by Kelso and BT Alex. Brown as agent for
the Company remains in full force and effect, provided, however, that the
Confidentiality Agreement does not apply to disclosures of information
reasonably necessary in connection with any financing for the Merger.
Reasonable Best Efforts. Upon the terms and subject to the conditions set
forth in the Merger Agreement, each of the parties has agreed to use all
reasonable best efforts to obtain and furnish in a timely manner all necessary
waivers, consents and approvals and notices and to effect all necessary
notifications, registrations and filings and to use all reasonable efforts to
take, or cause to be taken, all other actions and to do, or cause to be done,
all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by the
Merger Agreement.
Indemnification
Subject to the limitations on indemnification contained in Delaware Law, the
Company has agreed that, to the fullest extent permitted under applicable law
and regardless of whether the Merger becomes effective, it will indemnify and
hold harmless, and after the Effective Time, the Surviving Corporation has
agreed that, to the fullest extent permitted under applicable law, it will
indemnify and hold harmless, each director, officer, employee, fiduciary and
agent of the Company including, without limitation, officers and directors
serving as such as of May 24, 1999 (collectively, the "Indemnified Parties")
against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to any of the transactions
contemplated by the Merger Agreement, including without limitation liabilities
arising under the Securities Act or the Exchange Act in connection with the
Merger or any financing. In the event of any such
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claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Company and the Surviving Corporation have
agreed to pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties and (ii) the Company and the Surviving Corporation have
agreed to cooperate in the defense of any such matter. However, neither the
Company nor the Surviving Corporation will be liable for any settlement
effected without its written consent (which consent may not be unreasonably
withheld). In addition, neither the Company nor the Surviving Corporation are
obligated to pay the fees and disbursements of more than one counsel for all
Indemnified Parties in any single action except to the extent that, in the
opinion of counsel for the Indemnified Parties, two or more of such
Indemnified Parties have conflicting interests in the outcome of such action.
For a period of six years after the Effective Time, the Surviving
Corporation is required to maintain or obtain officers' and directors'
liability insurance covering the Indemnified Parties who are currently covered
by the Company's officers' and directors' liability insurance policy on terms
not less favorable than those in effect on the date hereof in terms of
coverage and amounts. However, in no event will the Surviving Corporation be
required to expend more than an amount per year equal to 200% of current
annual premiums paid by the Company for such insurance to maintain or procure
insurance coverage pursuant hereto, in which case the Surviving Corporation
will provide the maximum coverage that is then available for 200% of such
annual premiums. UC Acquisition Sub has agreed to cause the Surviving
Corporation to continue in effect the indemnification provisions currently
provided by the Certificate of Incorporation and the By-Laws for a period of
not less than six years following the Effective Time.
Continuation of Employee Benefits.
From and after the Effective Time, the Surviving Corporation has agreed to
honor in accordance with their terms all existing employment, severance,
consulting and salary continuation agreements between the Company and any
current or former officer, director, employee or consultant of the Company or
group of such officers, directors, employees or consultants described in the
Merger Agreement. This obligation survives the consummation of the Merger at
the Effective Time and continues without limit.
Until the first anniversary of the Effective Time, the Surviving Corporation
has agreed to provide or cause to be provided to each current or former
employee (presently entitled to benefits) of the Company (i) employee
compensation, benefit plans, programs, policies and arrangements, that are no
less favorable in the aggregate than those currently provided by the Company
to its employees and former employees; and (ii) severance benefits that are in
the aggregate no less favorable to any employee of the Company than those
currently provided to each such employee.
To the extent permitted under any applicable law and that would not result
in a duplication of benefits, each employee of the Company will be given
credit for all service with the Company (or service credited by the Company)
under all employee benefit plans, programs, policies and arrangements
maintained by the Surviving Corporation in which they participate or in which
they become participants for purposes of eligibility, vesting and benefit
accrual including, without limitation, for purposes of determining (i) short-
term and long-term disability benefits, (ii) severance benefits, (iii)
vacation benefits and (iv) benefits under any retirement plan.
Executive Retirement Plan. The Company sponsors an unfunded supplemental
executive retirement plan ("SERP") for a select group of officers and other
senior executives. Under the SERP, each eligible executive's retirement
account is credited each year with phantom units of Company common stock equal
in value to the amount needed to fund the executive's target retirement
benefit. The target retirement benefit is equal to 2% of the executive's final
average compensation multiplied by the executive's years of service with the
Company at age 65, but not to exceed 25 years of service.
As a result of the Merger, each executive's SERP account will be fully
vested. In addition, the number of phantom stock units credited to the
executive's account will be converted to its cash equivalent (based on the
Common Stock Merger Consideration) unless, with the executive's consent, the
Surviving Corporation elects to substitute an equivalent number of shares of
the Surviving Corporation's common stock for the phantom stock
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units then credited to the executive's account. After the Effective Time, the
executive's account will be credited with interest (prime rate plus 2%), plus
such additional amounts as determined by the SERP's actuary to fund the
executive's target retirement benefit, until the date of distribution (which
is the earlier of death, disability or the attainment of age 65, or
termination of employment following a change in control).
Deferred Compensation Plan. The Company sponsors an unfunded deferred
compensation plan ("DCP") for a select group of management or highly
compensated employees of the Company. Under the DCP, an eligible executive's
account is credited each year with 8% of his or her total cash compensation
for such year. Benefits under the DCP are normally paid out at the time the
executive's employment with the Company is terminated, unless the benefits are
forfeited due a termination for "cause" as defined in the DCP. As a result of
the Merger, each executive's DCP benefits will become payable without regard
to the executive's termination of employment unless the executive elects to
defer the receipt of his or her DCP benefits to a later date.
Solvency Letter
UC Acquisition Sub has agreed to use all reasonable efforts to deliver to
the Board of Directors, prior to the consummation of the Merger, a copy of any
letter relating to the solvency of the Surviving Corporation delivered to the
banks or financial institutions providing the Debt Financing. If no such
letter is obtained in connection with the Debt Financing, UC Acquisition Sub
will use reasonable best efforts to obtain from an independent third party
selected by UC Acquisition Sub (the "Appraiser") a letter attesting that,
immediately after the Effective Time, the Surviving Corporation (i) will be
solvent (in that both the fair value of its assets is not less than the sum of
its debts and that the present fair saleable value of its assets will not be
less than the amount required to pay its probable liability on its debts as
they become absolute and matured), (ii) will have adequate capital with which
to engage in its business, and (iii) will not have incurred and does not plan
to incur debts beyond its ability to pay as they become absolute and matured,
based upon the proposed financing structure for the Merger and certain other
financial information to be provided to the Appraiser by UC Acquisition Sub
and the Company and after giving effect to any changes in the Surviving
Corporation's assets and liabilities as a result of the Merger and the
financing relating thereto (the "Solvency Letter"). This obligation of UC
Acquisition Sub does not require it to agree to any terms with respect to the
Equity Financing or the Debt Financing which it is not otherwise obligated to
agree to under the Merger Agreement.
Recapitalization of UC Acquisition Sub; Financing
UC Acquisition Sub has agreed use its reasonable best efforts to obtain the
Debt Financing and the Equity Financing consistent with the terms specified
and described in the commitment letters delivered to the Company by UC
Acquisition Sub and otherwise on and subject to terms reasonably acceptable to
UC Acquisition Sub. The amount of Equity Financing specified in Kelso Equity
Commitment delivered to the Company automatically adjusts downward (i) at
$5.85 per share, for the number of Retained Shares that exceed approximately
3.5% of the outstanding shares of Common Stock on a fully diluted basis and
(ii) by an amount equal to the product of (1) .58, (2) the excess of $5.85
over the weighted average exercise price of retained options and (3) the
number of shares of Common Stock subject to retained options.
The Company has agreed to provide, and will use its reasonable best efforts
to cause its officers and employees to provide, all necessary cooperation
reasonably requested by UC Acquisition Sub in connection with the arrangement
of the Debt Financing and the Equity Financing, including, in the case of the
Debt Financing, using its reasonable best efforts to cause appropriate
officers and employees to be available on a reasonable basis for "road show"
appearances and the preparation of disclosure documents in connection
therewith.
Recapitalization
Each of the Company and UC Acquisition Sub have agreed to use all reasonable
best efforts to cause the transactions contemplated by the Merger Agreement,
including the Merger, to be accounted for as a recapitalization and such
accounting treatment to be accepted by their respective accountants and by the
SEC,
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and each of the Company and UC Acquisition Sub have agreed that it will not
take any action that would reasonably be likely to cause such accounting
treatment not to be obtained.
Conditions to the Proposed Merger
Mutual Conditions. The obligation of the Company and UC Acquisition Sub to
effect and consummate the Merger is conditioned on the following:
(a) The approval and adoption of the Merger Agreement by the requisite
vote of the holders of Common Stock as is required by applicable law, the
Company's Certificate of Incorporation and its By-laws;
(b) The expiration or termination of the waiting period applicable to the
consummation of the Merger under the HSR Act; and
(c) No statute, rule, regulation, judgment, writ decree, order or
injunction shall have been promulgated, enacted, entered or enforced, and
no other action shall have been taken, by any government or governmental,
administrative or regulatory authority or by any court of competent
jurisdiction, that in any of the foregoing cases has the effect of making
illegal or directly or indirectly restraining, prohibiting or restricting
the consummation of the Merger.
Additional Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger is subject to the fulfillment
at or prior to the Effective Time of the additional following conditions,
unless waived by the Company:
(a) UC Acquisition Sub performs in all material respects its agreements
contained in the Merger Agreement required to be performed on or prior to the
Effective Time and the Company receives a certificate of the President or
Chief Executive Officer or a Vice President of UC Acquisition Sub to that
effect.
(b) The representations and warranties of UC Acquisition Sub contained in
the Merger Agreement that are qualified by a reference to materiality are true
and correct when made and on and as of the Effective Time as if made on and as
of such time (except for those representations and warranties of UC
Acquisition Sub that are so qualified and relate to a particular date which
representations and warranties shall be true and correct in all respects as of
such date), and the representations and warranties of UC Acquisition Sub that
are not so qualified are true and correct in all material respects when made
and on and as of the Effective Time as if made on and as of such time (except
for those representations and warranties of UC Acquisition Sub that are not so
qualified and relate to a particular date which representations and warranties
shall be true and correct in all material respects as of such date). The
Company receives a certificate of the President or Chief Executive Officer or
a Vice President of UC Acquisition Sub to the foregoing effects.
(c) The Solvency Letter has been delivered to the Company.
Additional Conditions to Obligation of UC Acquisition Sub to Effect the
Merger. The obligations of UC Acquisition Sub to effect the Merger are subject
to the fulfillment at or prior to the Effective Time of the additional
following conditions, unless waived by UC Acquisition Sub:
(a) The Company has performed in all material respects its agreements
contained in the Merger Agreement required to be performed on or prior to the
Effective Time, and UC Acquisition Sub has received a certificate of the
President or Chief Executive Officer or a Vice President of the Company to
that effect.
(b) The representations and warranties of the Company that are qualified by
a reference to materiality or Material Adverse Effect are true and correct
when made and on and as of the Effective Time as if made on and as of such
time (except for those representations and warranties of the Company that are
so qualified and relate to a particular date which representations and
warranties shall be true and correct in all respects as of such date), and the
representations and warranties of the Company that are not so qualified are
true and correct in all material respects when made and on and as of the
Effective Time as if made on and as of such time (except for those
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representations and warranties of the Company that are not so qualified and
relate to a particular date which representations and warranties shall be true
and correct in all material respects as of such date). UC Acquisition Sub has
received a certificate of the President or Chief Executive Officer or a Vice
President of the Company to the foregoing effects.
(c) The Company has received aggregate proceeds of $310,000,000 in Debt
Financing as follows: (i) proceeds of Debt Financing other than subordinated
debt financing on terms consistent with the terms specified and described in
the commitment letters delivered to the Company and otherwise reasonably
satisfactory to UC Acquisition Sub and (ii) proceeds of subordinated debt
financing on terms satisfactory to UC Acquisition Sub (it being agreed that
the terms specified and described pursuant to the commitment letter delivered
to Company from Bankers Trust Corporation and Merrill Lynch Capital
Corporation with respect to $150 million in bridge financing are satisfactory
to UC Acquisition Sub and that the condition in clause (ii) shall be deemed to
be satisfied if EscrowCo shall have issued the Senior Subordinated Notes, the
Surviving Corporation shall have assumed EscrowCo's obligations with respect
to those notes, EscrowCo shall have been released from those obligations and
the Surviving Corporation shall have received the proceeds held by EscrowCo);
(d) The Company has obtained and provided to UC Acquisition Sub copies of
evidence with respect thereto the consents of third parties listed on the
Schedules to the Merger Agreement, the terms of which consents shall be
reasonably satisfactory to UC Acquisition Sub.
(e) No suit, action or proceeding by any governmental or regulatory
authority has been commenced or threatened in writing that is reasonably
likely to have a Material Adverse Effect.
(f) At the Effective Time, all Options issued and outstanding under the
Option Plans or otherwise have either (i) been cashed out and canceled or (ii)
remain outstanding to acquire shares of common stock of the Surviving
Corporation on terms acceptable to UC Acquisition Sub.
(g) UC Acquisition Sub has received a copy of the Solvency Letter.
(h) From and after the Effective Time, after giving effect to the Merger (i)
the Meris Note will not be convertible into shares of Common Stock and (ii)
there will be no shares of Common Stock outstanding in respect of which the
Meris Note has been converted.
(i) All notices, applications, approvals, consents, and waivers
("Approvals") required to be furnished to or obtained from any governmental or
regulatory authority or accreditation or certification agency, including any
Approvals in respect of Permits, provider numbers, and program participation
rights possessed by the Company, necessary in order for the Company to conduct
its business following the consummation of the transactions contemplated by
this Agreement in all material respects in the manner as such business, taken
as a whole, was conducted prior to the Effective Time shall have been obtained
or furnished and any applicable waiting period or periods shall have expired
(or, if there be no time limit for waiver or objection, a notice of no-
objection or equivalent with respect thereto shall have been received by the
Company).
(j) No suit, action, claim, proceeding or investigation has been commenced
or be pending by or before any court, arbitration panel or governmental,
administrative or regulatory authority, or shall have been, to the Company's
knowledge, threatened by any governmental, administrative or regulatory
authority, nor has any qui tam action have been filed or, to the Company's
knowledge, threatened, relating to any billing or claims made or submitted by
the Company of or to any governmental, regulatory or administrative authority
(including any federal or state healthcare or health benefit program) or any
insurance carrier, health maintenance or other managed care organization,
independent physician association or any other third party payor which, in the
case of any of the foregoing taken separately or together, in the reasonable
judgment of UC Acquisition Sub either (i) materially adversely affects the
value of the equity of the Company to Kelso or (ii) presents a risk reasonably
unacceptable to UC Acquisition Sub of subjecting the Company to a material
liability or a material amount of damages or, on a going-forward basis,
imposing material limitations on the Company's business and/or methods of
operation (including any limitations on the Company's ability to be reimbursed
by any governmental, regulatory or administrative authority, including any
federal or state healthcare or health benefit program).
42
<PAGE>
(k) A majority in principal amount of the Existing Senior Notes has been
accepted for payment pursuant to the Company's offer to purchase such notes
and the amendments to the indenture relating to such notes have become
effective and be in full force and effect.
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time:
(a) by mutual written consent of the Boards of Directors of UC Acquisition
Sub and the Company; or
(b) by either UC Acquisition Sub or the Company, if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission issues an order, decree or ruling or taken any other action (which
order, decree or ruling the parties hereto shall use their best efforts to
lift), in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement; or
(c) by either UC Acquisition Sub or the Company, if the stockholders of the
Company fail to approve the Merger upon the taking of a vote at a duly held
meeting of the stockholders or at any adjournment thereof; or
(d) by UC Acquisition Sub if, without any material breach by UC Acquisition
Sub of its obligations under this Agreement, the Merger has not been
consummated on or before November 30, 1999 (the "Termination Date"); or
(e) by the Company if, without any material breach by the Company of its
obligations under this Agreement, the Merger has not been consummated on or
before the Termination Date; or
(f) by the Company (i) if there is a material breach of any of UC
Acquisition Sub's representations, warranties or covenants under the Merger
Agreement, which breach is not be cured within ten days of written notice
thereof to UC Acquisition Sub or (ii) at any time prior to the approval of
this Agreement by the stockholders of the Company and upon five business days
notice to UC Acquisition Sub, for the purpose of entering into an agreement
with respect to an unsolicited written proposal for an alternative Acquisition
Transaction, provided that (1) prior to any such termination, the Company
discloses to UC Acquisition Sub the terms of such unsolicited written proposal
and, if requested by UC Acquisition Sub, negotiates in good faith with UC
Acquisition Sub for such five business day period with a view to determining
whether UC Acquisition Sub would be willing to propose a revised transaction
to the Company, (2) after consultation with its financial advisors and outside
legal counsel, the Board of Directors believes in good faith that (A) such
third party proposal would, if consummated, result in a transaction that
provides a higher price to its shareholders, from a financial point of view,
than the transactions contemplated by this Agreement and any revised proposal
by UC Acquisition Sub and (B) failing to take such action would create a
reasonable possibility of a breach of its fiduciary duties, (3) such agreement
is entered into concurrently with the exercise of this termination right, and
(4) the Company shall have paid to UC Acquisition Sub the Fee (as defined
below); or
(g) by UC Acquisition Sub, if there is a material breach of any of the
Company's representations, warranties or covenants under the Merger Agreement,
which breach is not be cured within ten days of written notice thereof to the
Company; or
(h) by UC Acquisition Sub, if (i) the Board of Directors withdraws,
modifies, or changes its recommendation or approval in respect of this
Agreement in a manner adverse to UC Acquisition Sub, (ii) the Board of
Directors recommends any proposal other than by UC Acquisition Sub in respect
of an Acquisition Transaction or fails to reject and, if applicable, recommend
against any such proposal, (iii) a Stock Acquisition Date (as defined in the
Rights Agreement) has occurred pursuant to the Rights Agreement (as in effect
on the date of the Merger Agreement) or (iv) any of the actions or events
regarding the Rights Agreement which are prohibited by the Merger Agreement
occur without the prior written consent of UC Acquisition Sub, whether or not
such consent is required.
43
<PAGE>
Effect of Termination
If UC Acquisition Sub or the Company terminates the Merger Agreement because
(i) the Board of Directors withdraws, modifies or changes its recommendation
or approval in a manner adverse to UC Acquisition Sub, (ii) the Board of
Directors recommends any other proposal in respect of an Acquisition
Transaction, (iii) any of the actions or events regarding the Rights Agreement
which are prohibited by the Merger Agreement occur without the prior written
consent of UC Acquisition Sub, whether or not such consent is required, or
(iv) the Company gives notice of its intention to enter into an unsolicited
written proposal for an alternative Acquisition Transaction, then the Company
must promptly, but in no event later than two business days after the date of
such termination, pay Kelso (x) a termination fee of $10,000,000 (the "Fee")
plus (y) an amount, not in excess of $1,500,000, equal to Kelso's actual and
reasonably documented out-of-pocket expenses directly attributable to the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby including the financing thereof ("Transaction
Expenses").
If (a) the Merger Agreement is terminated because (i) the Company
stockholders fail to approve the Merger, (ii) the Merger is not consummated by
November 30, 1999 (provided, in the case of termination by UC Acquisition Sub,
that there has not been stockholder approval) or (iii) there is a material
breach of any of the Company's covenants described above under "The Merger
Agreement--Agreement Not to Solicit Other Offers" and such breach is not cured
within 10 days of receipt of notice of such breach and (b) at any time after
the date of the Merger Agreement and at or before the date of such
termination, a proposal with respect to an alternative Acquisition Transaction
has been publicly announced or disclosed or disclosed to the Board of
Directors or any committee thereof, then the Company must promptly, but in no
event later than two business days after such termination, pay Kelso a
termination fee of $4 million plus the Transaction Expenses. If, within twelve
months after the date the Company first becomes obligated to make the payment,
the Company enters into an agreement with respect to an alternative
Acquisition Transaction that provides a higher price to the Company's
stockholders, from a financial point of view, than the transactions
contemplated by the Merger Agreement, then the Company must promptly, but in
no event later than two business days after the execution of such agreement
with respect to such Acquisition Transaction, pay Kelso an additional
termination fee of $6 million.
If (a) this Agreement is terminated (i) by UC Acquisition Sub because the
Merger is not consummated by November 30, 1999 (provided that there has been
stockholder approval) or (ii) because a Stock Acquisition Date has occurred
pursuant to the Rights Agreement; (b) at any time after the date of the Merger
Agreement and at or before the date of such termination, a proposal with
respect to an alternative Acquisition Transaction has been publicly announced
or disclosed or disclosed to the Board of Directors or any committee thereof;
and (c) within twelve months after the date of such termination the Company
enters into an agreement with respect to an alternative Acquisition
Transaction that provides a higher price to the Company's stockholders, from a
financial point of view, than the transactions contemplated by this Agreement,
then the Company must promptly, but in no event later than two business days
after the execution of such agreement with respect to such Acquisition
Transaction, pay Kelso the Fee plus the Transaction Expenses.
If the Merger Agreement is terminated because there is a material breach of
any of the Company's representations, warranties or covenants under the Merger
Agreement (other than the covenants described above under "The Merger
Agreement--Agreement Not to Solicit Other Offers") and such breach is not
cured within 10 days of receipt of notice of such breach, the Company must
promptly, but in no event later than two business days after such termination,
pay Kelso the Transaction Expenses.
No termination fees or Transaction Expenses are required to be paid by the
Company if UC Acquisition Sub is in material breach of its obligations under
the Merger Agreement.
44
<PAGE>
Amendment and Waiver
Subject to applicable law, the Merger Agreement may be amended, modified and
supplemented in any and all respects, whether before or after any vote of the
stockholders of the Company contemplated thereby, by written agreement of the
parties thereto at any time prior to the Closing Date with respect to any of
the terms contained therein. The conditions to each of the parties' obligation
to consummate the Merger are for the sole benefit of such party and may be
waived by such party in whole or in part to the extent permitted by applicable
law.
45
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain officers and directors of the Company have arrangements or
agreements with the Company which will be affected as a result of the Merger.
These arrangements and agreements are discussed below.
Employment agreements. The employment of eleven executive officers and
members of senior management of the Company is governed by the terms of
individual employment agreements. Each agreement provides that if the
employee's employment with the Company is terminated following the Merger
without "cause" or the employee quits for "good reason" (as such terms are
defined in the agreements), the employee will receive a lump sum cash
severance payment, plus continuation of Company provided health and other
fringe benefits at no cost to the employee. The amount of the severance
benefit and the period of coverage provided under the Company's health and
fringe benefit plans vary for each employee. In such event, none of the
affected employees will receive less than 12 months' nor more than 24 months'
compensation and continued benefit plan coverage.
Bonus Payments. The Company's Board of Directors has granted David C.
Weavil, the Chairman, President and Chief Executive Officer of the Company, a
bonus of $400,000 if the Merger occurs in 1999. In addition, Brian D. Urban,
Executive Vice President, Treasurer and Chief Financial Officer of the
Company, and Mark L. Bibi, Executive Vice President, Secretary and General
Counsel of the Company, have been granted a bonus of $175,000 and $125,000,
respectively, for their efforts in connection with the Merger, and the Company
has agreed to forgive a Company loan of $150,000 to Richard Michaelson, a
director of the Company, for his efforts in connection with the Merger.
Consulting Agreement. At the Effective Time, David C. Weavil, the Company's
Chairman of the Board, President and Chief Executive Officer, will cease
serving as President and Chief Executive Officer but will continue as Chairman
of the Board. Upon completion of the Merger, Mr. Weavil's employment agreement
will terminate and the Company expects to enter into a five-year consulting
agreement with Mr. Weavil. Pursuant to the consulting agreement, Mr. Weavil
will be entitled to an annual consulting fee of $220,000, a seat on the board
of directors and options to purchase common stock of the Company on terms that
are substantially similar to the options expected to be granted to the
management and other employees of the Company following the Merger. So long as
the Merger is completed in 1999, Mr. Weavil will be entitled to a bonus of
$400,000. The Company also expects to enter into a non-competition agreement
pursuant to which the Company will compensate Mr. Weavil for limiting his
ability to compete with the Company following the completion of the Merger
with UC Acquisition Sub.
Options. The Company's directors and executive officers, as well as many of
the Company's employees, hold Options. Many of these Options have exercise
prices less than the Common Stock Merger Consideration. Under the Merger
Agreement, at the Effective Time, (i) each outstanding Option whether or not
exercisable or vested, will be canceled and (ii) in consideration of such
cancellation, UC Acquisition Sub will (or will cause the Surviving Corporation
to) pay to such holders of Options an amount in cash in respect thereof equal
to the product of (A) the excess, if any, of $5.85 over the exercise price
thereof and (B) the number of shares of Common Stock subject thereto (such
payment to be net of applicable withholding taxes). The Company estimates that
the aggregate payments to the holders of all outstanding Options pursuant to
the Merger (without giving effect to any applicable withholding taxes) is
approximately $17 million.
However, UC Acquisition Sub or Kelso may, instead, designate that certain
outstanding Options remain outstanding following the merger, possibly on
amended terms but with the same aggregate spread per holder, with the consent
of the holders of those Options.
46
<PAGE>
The table below sets forth the pre-tax amounts that directors and certain
officers of the Company of Options will receive with respect to their Options
in the Merger, assuming that none of such Options are retained in the Merger.
All such Options were granted with an exercise price equal to the closing per
share market price of Common Stock on the date of grant. Except as
specifically noted, all Options owned by directors (Messr. Cochrane, Cramer,
Gedale, Michaelson, Thomas and Weavil) were granted in consideration for their
services rendered as directors of the Company pursuant to the Company's Non-
Employee Directors Stock Plan. All Options owned by the specified executive
officers (Messrs. Brotchie and Lanzolatta) were granted in consideration for
their services rendered as officers of the Company pursuant to the Company's
Stock Option and Performance Incentive Plan.
<TABLE>
<CAPTION>
Weighted Average
Number of Shares Exercise Price of
Name Subject to Options Options Total Pre-Tax Value
- ---- ------------------ ----------------- -------------------
<S> <C> <C> <C>
Haywood Cochrane........ 30,000 $1.60 $ 127,375
Kirby Cramer............ 110,000 2.31 389,750
William Gedale.......... 30,000 1.92 118,000
Richard Michaelson...... 490,000(1) 2.98 1,407,337
Gabriel Thomas.......... 100,000 2.34 351,252
David Weavil............ 500,000(2) 1.09 2,378,125
Ian Brotchie............ 340,000 2.04 1,295,250
Jeffrey Lanzolatta...... 299,000 1.61 1,267,962
All Directors and
Executive Officers as a
group (10 persons)..... 2,667,000 2.04 10,164,887
</TABLE>
- --------
(1) 470,000 of these options were granted to Mr. Michaelson while he was
Chief Financial Officer of the Company in consideration for his services
rendered as an officer of the Company.
(2) These options were granted to Mr. Weavil in his role as Chief Executive
Officer of the Company pursuant to his Employment Agreement. Mr. Weavil
has received no compensation for his services as a director.
47
<PAGE>
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information, to the knowledge of the
Company, regarding the beneficial ownership of Common Stock as of the Record
Date and the anticipated beneficial ownership of Common Stock immediately
after the Effective Time by (i) all stockholders known by the Company (based
on public filings with the Commission, except as otherwise noted) to be the
beneficial owners of more than 5% of the outstanding shares of Common Stock,
(ii) each director, (iii) the Chief Executive Officer (David Weavil) and the
two other Named Executive Officers (the Division Presidents, Ian Brotchie and
R. Jeffrey Lanzolatta) whose total annual salary and bonus for the year ended
December 31, 1998 exceeded $100,000 (Messrs. Weavil, Brotchie, and Lanzolatta
collectively are referred to herein as the "Named Executive Officers") and
(iv) all executive officers and directors of the Company as a group. For
purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares as of a given date which such person has
the right to acquire within 60 days after such date. For purposes of computing
the percentage of outstanding shares held by each person or group of persons
named above on a given date, any security which such person or persons has the
right to acquire within 60 days after such date is deemed to be outstanding,
but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person. Except as noted below, each person
has full voting and investment power over the shares indicated.
<TABLE>
<CAPTION>
Prior to Merger Post Merger
-------------------------- -----------------------
Shares of Shares of
Common Stock Common Stock
Name and Address Beneficially Percent of Beneficially Percent of
of Beneficial Owner Owned(1) Class(1) Owned Class
- ------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Rockefeller & Co............ 3,550,514(2) 8.7% -- --
30 Rockefeller Plaza
New York, NY 10112
Andrew H. Baker............. 2,716,228(3) 6.7% -- --
c/o Focused Healthcare
Partners, Ltd.
401 Hackensack Avenue
Hackensack, NJ 07601
Oaktree Capital Management,
LLC........................ 3,243,800(4) 7.7% -- --
333 Grand Avenue, 28th
Floor
Los Angeles, CA 90071
EOS Partners, LP............ 1,977,400(4) 4.5% 855,000 3.3%
320 Park Avenue
New York, NY 10022
Pequot Funds................ 3,878,200(4) 9.3% 940,000 3.7%
500 Nyala Farm Road
Westport, Connecticut 06880
David C. Weavil............. 1,487,428(5) 3.6% (13) (13)
Haywood D. Cochrane, Jr..... 70,265(6) * -- --
Kirby L. Cramer............. 1,075,622(7) 2.6% -- --
William Gedale.............. 7,751(8) * -- --
Richard A. Michaelson....... 745,024(9) 1.8% -- --
Gabriel B. Thomas........... 120,934(10) * -- --
Ian Brotchie................ 390,000(11) * (13) (13)
R. Jeffrey Lanzolatta....... 379,500(12) * (13) (13)
All Directors and Executive
Officers as a Group
(10 persons)............... 4,923,324 11.4% (13) (13)
</TABLE>
48
<PAGE>
(1) Calculated pursuant to Rule 13d-3 promulgated under the Exchange Act and
based on 41,993,968 shares of Common Stock outstanding as of the Record
Date.
(2) As reported in Schedule 13G, Amendment No. 3 filed with the SEC on
February 12, 1999.
(3) Mr. Baker is the former Chairman, President and Chief Executive Officer of
the Company. Represents 2,176,238 shares directly or indirectly owned by
Mr. Baker (of which 18,069 shares are directly owned by Mr. Baker's
spouse) and beneficial ownership of 540,000 shares issuable upon exercise
of fully vested and presently exercisable options to purchase Common
Stock. Based on Company records, a Form 4 filed by Mr. Baker on January
30, 1997 and a Schedule 13D filed by Mr. Baker on April 16, 1997.
(4) Based on information supplied to the Company by Kelso.
(5) Mr. Weavil is Chairman, President and Chief Executive Officer of the
Company. Pursuant to the terms of an Employment Agreement dated January
20, 1997 between David C. Weavil and Unilab, Mr. Weavil (a) purchased
$500,000 of Common Stock from the Company at the closing market price of
the Common Stock on January 17, 1997 ($0.4375), with funds borrowed from
the Company (half of which have been paid back to the Company, including
accrued 6% interest thereon), resulting in ownership of 1,142,857 shares
and (b) received 228,571 shares ($100,000 of stock issued at the January
17, 1997 closing price ($0.4375)) as a partial payment of his 1997 bonus.
During 1999, 1998 and 1997 Mr. Weavil donated 8,300, 18,000 and 7,500
shares, respectively, to charity. Pursuant to his Employment Agreement,
Mr. Weavil has also received options to purchase 250,000 shares at the
January 17, 1997 closing price of $0.4375 per share, 100,000 shares of
which have vested and are included in this ownership calculation, and
options to purchase 250,000 shares at the January 2, 1998 closing price of
$1.75, 50,000 of which have vested.
(6) Mr. Cochrane is a director of the Company. Includes a presently
exercisable option to purchase 10,000 shares at $0.75 per share, which
expires in June 2007, a presently exercisable option to purchase 10,000
shares at $1.75 per share, which expires in January 2008 and a presently
exercisable option to purchase 5,000 shares at $2.3125 per share, which
expires in January 2009. Also includes 953 shares received in pro rata
payment of second quarter 1997 director fees, 4,444 shares received in
payment of third quarter 1997 director fees, 3,077 shares received in
payment of fourth quarter 1997 director fees, 2,857 shares received in
payment of first quarter 1998 director fees, 3,721 shares received in
payment of second quarter 1998 director fees, 4,324 shares received in
payment of third quarter 1998 director fees, 5,161 shares received in
payment of fourth quarter 1998 director fees, 4,324 shares received in
payment of first quarter 1999 director fees and 3,404 shares received in
payment of second quarter 1999 director fees.
(7) Mr. Cramer is a director of the Company. Includes a presently exercisable
option to purchase 10,000 shares at $2.00 per share, which expires in July
2000, a presently exercisable option to purchase 30,000 shares at $6.125
per share, which expires in March 2003, a presently exercisable option to
purchase 10,000 shares at $6.00 per share, which expires in November 2003,
a presently exercisable option to purchase 20,000 shares at $4.50 per
share, which expires in December 2004, a presently exercisable option to
purchase 20,000 shares at $2.625 per share, which expires in January 2006,
a presently exercisable option to purchase 20,000 shares at $0.50 per
share, which expires in January 2007, a presently exercisable option to
purchase 20,000 shares at $1.75 per share, which expires in January 2008
and a presently exercisable option to purchase 10,000 shares at $2.3125
per share, which expires in January 2009. Also includes 6,667 shares
received in payment of fourth quarter 1996 director fees, 10,000 shares
received in payment of first quarter 1997 director fees, 8,000 shares
received in payment of second quarter 1997 director fees, 4,444 shares
received in payment of third quarter 1997 director fees, 3,077 shares
received in payment of fourth quarter 1997 director fees, 3,721 shares
received in payment of second quarter 1998 director fees, 4,324 shares
received in payment of third quarter 1998 director fees, 5,161 shares
received in payment of fourth quarter 1998 director fees, 4,324 shares
received in payment of first quarter 1999 director fees and 3,404 shares
received in payment of second quarter 1999 director fees. Mr. Cramer
purchased 500,000 shares of Common Stock from the Company on April 4, 1997
at a per share purchase price equal to the closing market price on such
date of $0.5625. Such shares were purchased pursuant to the Company's
Directors Stock Purchase Plan.
(8) Mr. Gedale is a director of the Company. Includes a presently exercisable
option to purchase 10,000 shares at $1.6875 per share, which expires in
September 2007, a presently exercisable option to purchase 10,000 shares
at $1.75 per share, which expires in January 2008, and a presently
exercisable option to purchase 5,000 shares at $2.3125 per share, which
expires in January 2009. Also includes 3,721 shares received in payment of
second quarter 1998 director fees. Mr. Gedale received 4,324 shares
received in
49
<PAGE>
payment of third quarter 1998 director fees, 5,161 shares received in
payment of fourth quarter 1998 director fees, 4,324 shares received in
payment of first quarter 1999 director fees and 3,404 shares received in
payment of second quarter 1999 director fees. He sold 5,161 shares on
December 14, 1998 in open market sales transactions at a sales price of
$2.0625 per share, 4,000 shares on October 12, 1998 in open market sales
transactions at a sales price of $1.8125 per share, 2,162 shares on July 9,
1998 in open market sales transactions at a sales price of $2.50 per share,
1,160 shares on April 20, 1998 in open market sales transactions at a sales
price of $2.6875 per share and 4,324 shares on January 4, 1999 in open
market sales transactions at a sales price of $2.3125 per share.
(9) Mr. Michaelson is a director of and consultant to the Company. He served as
Senior Vice President of the Company until December 31, 1997. Includes a
presently exercisable option to purchase 50,000 shares at $5.625 per share,
which expires in February 2004, a presently exercisable option to purchase
35,000 shares at $4.50 per share, which expires in January 2005, a
presently exercisable option to purchase 150,000 shares at $5.1875 per
share, which expires in May 2005, a presently exercisable option to
purchase 35,000 shares at $2.1875 per share, which expires in February
2006, a presently exercisable option to purchase 200,000 shares at $0.625
per share which expires in April 2007, a presently exercisable option to
purchase 10,000 shares at $1.75 per share, which expires in January 2008
and a presently exercisable option to purchase 5,000 shares at $2.3125 per
share, which expires in January 2009. Also includes 29,090 shares received
in partial payment of salary for the months of August and September 1996.
Additionally, includes 3,721 shares received in payment of second quarter
1998 director fees, 4,324 shares received in payment of third quarter 1998
director fees, 5,161 shares received in payment of fourth quarter 1998
director fees, 4,324 shares received in payment of first quarter 1999
director fees and 3,404 shares received in payment of second quarter 1999
director fees.
(10) Mr. Thomas is a director of the Company. Includes a presently exercisable
option to purchase 10,000 shares at $6.00 per share, which expires in
November 2003, a presently exercisable option to purchase 20,000 shares
at $4.50 per share, which expires in December 2004, a presently
exercisable option to purchase 20,000 shares at $2.625 per share, which
expires in January 2006, a presently exercisable option to purchase
20,000 shares at $0.50 per share, which expires in January 2007, a
presently exercisable option to purchase 20,000 shares at $1.75 per
share, which expires in January 2008 and a presently exercisable option
to purchase 10,000 shares at $2.3125 per share, which expires in January
2009. Also includes 3,721 shares received in payment of second quarter
1998 director fees, 4,324 shares received in payment of third quarter
1998 director fees, 5,161 shares received in payment of fourth quarter
1998 director fees, 4,324 shares received in payment of first quarter
1999 director fees and 3,404 shares received in payment of second quarter
1999 director fees.
(11) Mr. Brotchie is an Executive Vice President of the Company. Includes a
presently exercisable option to purchase 100,000 shares at $6.13 per
share, which expires January, 2004, a presently exercisable option to
purchase 25,000 shares at $4.50 per share, which expires January, 2005, a
presently exercisable option to purchase 50,000 shares at $5.1875 per
share, which expires May, 2005, a presently exercisable option to
purchase 165,000 shares at $0.625 per share, which expires April, 2007,
and a presently exercisable option to purchase 25,000 shares at $2.0625
per share, which expires January, 2008.
(12) Mr. Lanzolatta is an Executive Vice President of the Company. Includes a
presently exercisable option to purchase 10,000 shares at $5.625 per
share, which expires February, 2004, a presently exercisable option to
purchase 10,000 shares at $5.625 per share, which expires February, 2005,
a presently exercisable option to purchase 7,000 shares at $4.50 per
share, which expires January, 2006, a presently exercisable option to
purchase 7,000 shares at $2.1875 per share, which expires February, 2006,
a presently exercisable option to purchase 165,000 shares at $0.625 per
share, which expires April, 2007, and a presently exercisable option to
purchase 25,000 shares at $2.0625 per share, which expires January, 2008.
(13) UC Acquisition Sub expects to offer members of the Company's senior
management the opportunity to retain some of all of their shares of Common
Stock and options to purchase Common Stock in the Merger, and, therefore,
certain members of senior management expect to retain some or all of their
shares following the Merger. The number of Retained Shares held by members
of the Company's Senior Management will, in no event, exceed in the
aggregate 5% of the Common Stock outstanding on a fully diluted basis prior
to the Merger.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the "Litigation Reform
Act") provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about their companies without
fear of litigation, provided those statements are identified as forward-
looking and are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those projected in the statement. Accordingly, the Company hereby identifies
the following important factors that could cause the Company's actual
financial or operating results to differ materially from those projected,
forecast or estimated by the Company in forward-looking statements.
The Company wishes to caution investors that the following factors are
hereby identified as potentially important factors that could cause the
Company's actual financial or operating results to differ materially from
those projected, forecast or estimated by the Company in forward-looking
statements contained in this Proxy Statement.
(a) Adverse actions by governmental or other third-party payors, including
Medicare and Medicaid, including unilateral reduction of fee schedules
payable to the Company.
(b) The impact of the Company's compliance with Medicare and Medicaid
administrative and legal policies, including, specifically, but
without limitation, the requirements by Medicare carriers that
physicians provide diagnosis (ICD-9) codes for certain tests in order
for such tests to be deemed "medically necessary" and, therefore,
reimbursed; the policy of HCFA to eliminate Medicare reimbursement for
tests contained in certain commonly ordered automated multichannel
chemistry panels (CPT Series 80002-80019) and the replacement of such
panels in 1998 with four clinically relevant test groupings;
reimbursement based on demonstrable "medical necessity"; and, in
connection with such "medical necessity" issues and compliance-related
recommendations made by governmental representatives (including the
recommendations made in the OIG Model Compliance Plan for Clinical
Laboratories, as amended), and the Company's introduction during 1998
of a new requisition form for ordering chemistry tests.
(c) Adverse implications of the Company's introduction of a new
requisition form to meet the requirements set forth in (b) above.
(d) Impact of changes in payor mix, including the shift from traditional,
fee-for-service medicine to managed care, including the increased
shift of MediCal testing business to managed care.
(e) Failure to properly contain costs and expenses.
(f) Failure to obtain new or retain existing customers at profitable
pricing.
(g) Adverse results from any new governmental investigations, or liability
from acquired companies that have had governmental investigations,
including in particular significant monetary damages and/or exclusion
from the Medicare and Medicaid programs and/or other significant
litigation.
(h) Computer or other system failures that affect the ability of the
Company to perform tests, report test results or properly bill
customers, including the Year 2000 issue.
(i) Inability to obtain professional liability insurance coverage or a
material increase in premiums for such coverage.
(j) Denial of CLIA certification or other licensure of any of the
Company's clinical laboratories under CLIA, by HCFA for Medicare and
Medicaid programs or other federal, state and local agencies.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. The Company's stockholders are cautioned not to place
undue reliance on such statements, which speak only as of the date of this
proxy statement or, in the case of the Company documents incorporated by
reference, the date of such document.
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All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its or their behalf are expressly qualified
in their entirety by the cautionary statements contained or referred to in
this section. The Company does not undertake any obligation to release
publicly any revisions to such forward-looking statements to reflect events or
circumstances after the date of this proxy statement or to reflect the
occurrence of unanticipated events.
No person has been authorized by the Company to give any information or to
make any representation not contained in this proxy statement and, if given or
made, such information or representation should not be relied upon as having
been authorized by the Company. This proxy statement does not constitute an
offer or solicitation to sell or a solicitation of an offer to buy any
securities. The delivery of this proxy statement shall not, under any
circumstances, imply or create any implication that there have not been any
changes in the affairs of the Company or in the information set forth or
incorporated by reference herein subsequent to the date hereof.
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AVAILABLE INFORMATION
The Company files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may
read and copy any reports, statements or other information we file at the
Securities and Exchange Commission's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Our filings are also available to the public from commercial
document retrieval services and at the web site maintained by the Securities
and Exchange Commission at "http://www.sec.gov".
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information into this proxy
statement, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information in this Proxy
Statement. This proxy statement incorporates by reference the documents set
forth below that we have previously filed with the SEC under file number 0-
22758. These documents contain important information about us and our
finances.
(1) The Company's Annual Report on Form 10-K and Forms 10-K/A for the
fiscal year ended December 31, 1998;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999;
(3) The Company's Quarterly Report on Form 10-Q and Form 10-Q/A for the
quarter ended June 30, 1999;
(4) The Company's Current Report on Form 8-K/A filed January 19, 1999;
(5) The Company's Current Report on Form 8-K filed April 6, 1999;
(6) The Company's Current Report on Form 8-K filed May 11, 1999;
(7) The Company's Current Report on Form 8-K filed May 17, 1999;
(8) The Company's Current Report on Form 8-K filed May 27, 1999;
(9) The Company's Current Report on Form 8-K/A filed July 23, 1999;
(10) The Company's Current Report on Form 8-K filed August 13, 1999;
(11) The Company's Current Report on Form 8-K/A filed October 22, 1999;
and
(12) The Company's Current Reports on Form 8-K/A filed October 25, 1999
and October 26, 1999.
We are also incorporating by reference additional documents that we file
with the SEC between the date of this proxy statement and the date of the
Special Meeting. Any statement which is made in this proxy statement or
incorporated by reference into this proxy statement will be modified or
superseded to the extent any document subsequently filed with the SEC by us
does so.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
SEC. Documents incorporated by reference are available from us without charge,
excluding all exhibits unless we have specifically incorporated by reference
an exhibit in this proxy statement. If you would like to request documents
from us, please do so by November 16, 1999 to make sure you receive them
before the Special Meeting.
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APPENDIX A
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UNILAB CORPORATION
and
UC ACQUISITION SUB, INC.
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AGREEMENT AND PLAN OF MERGER
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Dated as of May 24, 1999/1/
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- --------
/1 /As amended July 8, 1999, July 30, 1999 and August 10, 1999.
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 24, 1999, as amended July 8,
1999, July 30, 1999 and August 10, 1999 (the "Agreement"), between UNILAB
CORPORATION, a Delaware corporation (the "Company"), and UC ACQUISITION SUB,
INC. ("Merger Sub"), a Delaware corporation and a direct wholly owned
subsidiary of Kelso Investment Associates VI L.P., a Delaware limited
partnership, and KEP VI LLC, a Delaware limited liability company
(collectively, "Parent").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board of Directors")
and the Board of Directors of Merger Sub have each determined that it is in
the best interests of their respective stockholders for Merger Sub to merge
with and into the Company (the "Merger") in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law") and upon the terms
and subject to the conditions set forth herein;
WHEREAS, the Board of Directors and the Board of Directors of Merger Sub
have approved the Merger;
WHEREAS, Merger Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Merger Sub hereby agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and
Delaware Law, Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease, and the Company shall
continue as the surviving corporation. The Company as the surviving
corporation after the Merger hereinafter sometimes is referred to as the
"Surviving Corporation."
SECTION 1.2. Effective Time. As promptly as practicable, and in any event
within five business days after the satisfaction or waiver of the conditions
set forth in Article VI, the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger with the Secretary of State of
the State of Delaware, in such form as required by, and executed in accordance
with the relevant provisions of, Delaware Law (the time of such filing being
the "Effective Time").
SECTION 1.3. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary
or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of the Company or Merger Sub
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acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of either the Company or Merger
Sub, all such deeds, bills of sale, assignments and assurances and to take and
do, in the name and on behalf of each of such corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights, properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
SECTION 1.5. Certificate of Incorporation; By-Laws; Directors and Officers.
(a) Unless otherwise determined by Merger Sub before the Effective Time,
at the Effective Time the Amended and Restated Certificate of Incorporation
of the Company, as amended (the "Restated Certificate"), as in effect
immediately before the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation.
(b) The By-Laws of Merger Sub, as in effect immediately before the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of
the Surviving Corporation and such By-Laws.
(c) The directors of Merger Sub immediately before the Effective Time
will be the initial directors of the Surviving Corporation, and, except as
Merger Sub may otherwise notify the Company in writing prior to the
Effective Time, the officers of the Company immediately before the
Effective Time will be the initial officers of the Surviving Corporation,
in each case until their successors are elected or appointed and qualified.
If, at the Effective Time, a vacancy shall exist on the Board of Directors
or in any office of the Surviving Corporation, such vacancy may thereafter
be filled in the manner provided by law.
SECTION 1.6. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or
the holder of any of the following securities:
(a) Common Stock of Merger Sub. Each share of common stock, par value
$.01 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
the number of fully paid and nonassessable shares of common stock, par
value $.01 per share, of the Surviving Corporation as equals (i) 23,846,154
plus 170,940 for each $1,000,000 of cash equity financing to be received by
Merger Sub prior to the Effective Time in excess of $139.5 million, the
exact number to be determined by Merger Sub and provided in writing to the
Company no less than three business days prior to the mailing of the Proxy
Statement/Prospectus (such number, the "Parent Equity Number") divided by
(ii) the aggregate number of shares of Merger Sub Common Stock issued and
outstanding immediately prior to the Effective Time.
(b) Cancellation of Treasury Stock and Merger Sub-Owned Company Common
Stock. Each share of common stock, par value $.01 per share, of the Company
(the "Company Common Stock") that is owned by Parent, Merger Sub or any
subsidiary of Parent or Merger Sub or held in the treasury of the Company
(collectively, the "Excluded Shares") shall automatically be canceled and
retired and shall cease to exist, and no cash, Company Common Stock or
other consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion or Retention of Company Common Stock. Except as otherwise
provided herein and subject to Sections 1.7 and 1.8, each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time
other than Excluded Shares or Dissenting Shares (as defined in Section
1.6(e)) shall be converted into the following (the "Common Stock Merger
Consideration"):
(i) for each such share of Company Common Stock with respect to which
an election to retain such share has been effectively made and not
revoked or lost pursuant to Sections 1.7 and 1.8 (the "Electing
Shares"), the right to retain one fully paid and nonassessable share of
Common Stock of the Surviving Corporation (a "Retained Share"); and
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(ii) for each such share of Company Common Stock (other than Retained
Shares), the right to receive in cash following the Merger an amount
equal to $5.85 (the "Cash Election Price").
(d) Each share of convertible preferred stock, par value $.01 per share,
of the Company (the "Company Convertible Preferred Stock" and, together
with the Company Common Stock, the "Company Stock") shall be converted into
the right to receive in cash following the Merger an amount equal to $5.75,
plus all dividends accrued but unpaid thereon through the Effective Time
(the "Preferred Stock Merger Consideration" and, together with the Common
Stock Merger Consideration, the "Merger Consideration").
(e) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock or Company Convertible Preferred
Stock that are issued and outstanding immediately prior to the Effective
Time and that are held by a holder who has validly demanded payment of the
fair value for such holder's shares as determined in accordance with
Section 262 of Delaware Law ("Dissenting Shares") shall not be converted
into or be exchangeable for the right to receive the Common Stock Merger
Consideration or the Preferred Stock Merger Consideration, as the case may
be (but instead shall be converted into the right to receive payment from
the Surviving Corporation with respect to such Dissenting Shares in
accordance with Delaware Law), unless and until such holder shall have
failed to perfect or shall have effectively withdrawn or lost such holder's
right under Delaware Law. If any such holder of Company Common Stock shall
have failed to perfect or shall have effectively withdrawn or lost such
right, each share of such holder shall be treated, at the Company's sole
discretion, as either (i) a share of Company Common Stock (other than an
Electing Share) that had been converted as of the Effective Time into the
right to receive the Common Stock Merger Consideration in accordance with
Section 1.6(c)(ii) or (ii) an Electing Share. If any such holder of Company
Convertible Preferred Stock shall have failed to perfect or shall have
effectively withdrawn or lost such right, each share of such holder shall
be treated as a share of Company Convertible Preferred Stock that had been
converted as of the Effective Time into the right to receive the Preferred
Stock Merger Consideration in accordance with Section 1.6(d). The Company
shall give prompt notice to Merger Sub of any demands received by the
Company for appraisal of shares of Company Common Stock or Company
Convertible Preferred Stock, and Merger Sub shall have the right to
participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of
Merger Sub, make any payment with respect to, or settle or offer to settle,
any such demands.
(f) Cancellation and Retirement of Company Stock. As of the Effective
Time, all shares of Company Stock (other than Electing Shares and
Dissenting Shares) issued and outstanding immediately prior to the
Effective Time, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Stock shall, to the
extent such certificate represents such shares, cease to have any rights
with respect thereto, except, in all cases other than Excluded Shares, the
right to receive cash, including cash in lieu of fractional shares of
Company Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 1.9(e).
(g) Unless the context indicates otherwise, all references herein to
shares of Company Common Stock shall be deemed to include any accompanying
Rights.
SECTION 1.7. Company Common Stock Elections.
(a) Each holder who, on or prior to the Election Date referred to in
Section 1.7(c) below, is a record holder of shares of Company Common Stock
will be entitled, with respect to all or any portion of its shares, to make
an unconditional election (a "Retention Election") on or prior to the
Election Date (as defined in Section 1.7(c)) to retain Retained Shares
(subject to Section 1.8), on the basis hereinafter set forth, provided
that, on or prior to August 31, 1999, Merger Sub shall use reasonable best
efforts to convert the Merger into a merger pursuant to which all shares of
Company Common Stock, other than Roll-Over Shares (as defined in Section
1.7(f)), if any, will be converted only into the right to receive the Cash
Election Price in cash in the Merger (a "Conversion Decision"); provided
that the foregoing shall not require Merger Sub or Parent or any of their
affiliated entities to agree to any terms or provisions in connection
therewith which it
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or they find unacceptable or which it or they believe, based on
conversations with the SEC (as defined in Section 2.8), jeopardize the
availability of recapitalization accounting treatment for the Merger. Upon
making a Conversion Decision, Merger Sub shall promptly provide written
notice thereof to the Company. In connection with such Conversion Decision,
Parent and Persons affiliated or related to Parent shall continue to hold
in the aggregate at least a sufficient number of shares of the capital
stock of Merger Sub so that immediately following the consummation of the
Merger Parent and such Persons will own at least 75% of the outstanding
shares of Common Stock of the Surviving Corporation calculated on a primary
basis. So long as such 75% test is satisfied, and regardless of whether a
Conversion Decision is made, a portion of the equity financing to be
provided by Parent for cash can, at Merger Sub's option, instead be
provided by one or more third parties other than Parent for cash, in the
form of either purchases of Merger Sub capital stock immediately prior to
the Effective Time or purchases of Company Common Stock at the Effective
Time, so long as the price paid is equivalent to the Cash Election Price
per share of Company Common Stock. In the event that Merger Sub makes a
Conversion Decision, Sections 1.6(c)(i), 1.7(c), 1.7(d), 1.7(e), 1.8
(provided that the defined term "Retention Election Number" contained
therein and the number represented thereby shall remain operative for
purposes of this Agreement), 1.9(c) and 1.9(e) hereof and all references
herein to the Form S-4 (as defined in Section 2.8) (except to the extent
the SEC (as defined in Section 2.8) requires that a Form S-4 must be used
because of the existence of Roll-Over Shares) and any obligations in
connection therewith shall be deemed eliminated and have no effect, and
there shall be no Form of Election and no Retained Shares. In the event of
a Conversion Decision, this Agreement shall be deemed amended such that the
words (i) "or Roll-Over Shares, if any," shall be inserted immediately
after the phrase "other than Excluded Shares or Dissenting Shares (as
defined in Section 1.6(e))" in the fourth line of Section 1.6(c) hereof and
before the words "shall be converted" and (ii) "or Roll-Over Shares, if
any" shall be inserted immediately after the words "Retained Shares" inside
the parenthetical in subparagraph 1.6(c)(ii).
(b) Prior to the mailing of the Proxy Statement/Prospectus (as defined in
Section 2.8), Merger Sub shall appoint a bank or trust company to act as
exchange agent (the "Exchange Agent") for the payment of the Merger
Consideration.
(c) The Company shall prepare and mail a form of election, which form
shall be subject to the reasonable approval of Merger Sub (the "Form of
Election"), with the Proxy Statement/Prospectus to the record holders of
Company Common Stock as of the record date for the Company Stockholders'
Meeting (as defined below), which Form of Election shall be used by each
record holder of shares of Company Common Stock who wishes to make a
Retention Election for any or all shares of Company Common Stock held,
subject to the provisions of Section 1.8 hereof, by such holder. The
Company will use commercially reasonable efforts to make the Form of
Election and the Proxy Statement/Prospectus available to all Persons (as
defined in Section 8.4) who become holders of record of shares of Company
Common Stock during the period between such record date and the Election
Date referred to below. Any such holder's election to retain Retained
Shares shall have been properly made only if the Exchange Agent shall have
received at its designated office, by 5:00 p.m., New York City time on the
business day immediately preceding the date of the Company Stockholders'
Meeting (the "Election Date"), a Form of Election properly completed and
signed and accompanied by certificates for the shares of Company Common
Stock to which such Form of Election relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books of the Company (or
by an appropriate guarantee of delivery of such certificates as set forth
in such Form of Election from a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, provided such certificates are in fact
delivered to the Exchange Agent within three American Stock Exchange
trading days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder submitting its
revocation to the Exchange Agent only by written notice received by the
Exchange Agent prior to 5:00 p.m., New York City time on the Election Date.
In addition, all Forms of Election shall automatically be revoked if the
Exchange
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Agent is notified in writing by Merger Sub and the Company that the Merger
has been abandoned or that this Agreement has been terminated in accordance
with its terms. If a Form of Election is revoked, the certificate or
certificates (or guarantees of delivery, as appropriate) for the shares of
Company Common Stock to which such Form of Election relates shall be
promptly returned by the Exchange Agent to the stockholder submitting the
same.
(e) The determination of the Exchange Agent of whether Retention
Elections have been properly made or revoked pursuant to this Section 1.7
with respect to shares of Company Common Stock and when Retention Elections
and revocations were received by it shall be binding. If the Exchange Agent
determines that any Retention Election was not properly made with respect
to shares of Company Common Stock, such shares shall be treated by the
Exchange Agent as shares which were not Electing Shares at the Effective
Time, and such shares shall be exchanged in the Merger for cash pursuant to
Section 1.6(c)(ii). The Exchange Agent shall also make all computations as
to the allocation and the proration contemplated by Section 1.8, and any
such computation shall be conclusive and binding on the holders of shares
of Company Common Stock. The Exchange Agent may, with the mutual agreement
of Merger Sub and the Company, make such rules as are consistent with this
Section 1.7 for the implementation of the elections provided for herein as
shall be necessary or desirable fully to effect such elections.
(f) In the event that Merger Sub makes a Conversion Decision, Merger Sub
shall deliver or cause to be delivered to the Company concurrently
therewith or at the time of any change in the number or identity of Roll-
Over Shares (i) agreements or undertakings between stockholders of the
Company designated by Merger Sub (the "Roll-Over Stockholders") whose
shares of Company Common Stock shall remain outstanding following the
Effective Time and Parent, Kelso (as defined in Section 8.8), Merger Sub or
the Company to the effect that such Roll-Over Stockholders have agreed that
all or a specified portion of their shares of Company Common Stock (such
designated shares, "Roll-Over Shares") shall remain outstanding pursuant to
the Merger in lieu of being converted into the right to receive what the
Common Stock Merger Consideration would otherwise consist of, in an
aggregate number of shares sufficient to provide that the number of Roll-
Over Shares shall be not less than the Retention Election Number (as
defined in Section 1.8(a)) or (ii) in the event that there are no Roll-Over
Shares or that the number of Roll-Over Shares is less than the Retention
Election Number, commitment letters for equity financing from one or more
third parties in a form reasonably satisfactory to the Company (it being
agreed that the form of the Kelso Equity Letter (as defined in Section 2.5)
is reasonably satisfactory to the Company) for an aggregate amount (the
"Shortfall Amount") equal to the product of (x) the excess, if positive, of
the Retention Election Number over the number of Roll-Over Shares, if any,
and (y) the Cash Election Price; provided that Merger Sub in its discretion
may replace any stockholder theretofore designated as a Roll-Over
Stockholder or any shares of Company Common Stock theretofore designated as
Roll-Over Shares with another stockholder and/or other shares prior to the
Effective Time; and provided further that Merger Sub in its discretion may,
prior to the Effective Time, eliminate from the category of Roll-Over
Shares (and not replace as Roll-Over Shares) any shares that had been
theretofore designated as Roll-Over Shares. In the event that at any time
on or after a Conversion Decision is made the number of Roll-Over Shares is
less than the Retention Election Number, then the amount of "Equity
Financing" (as defined in Section 2.5) shall be increased as provided for
in such definition. If a Conversion Decision is made, each Roll-Over Share
shall remain outstanding as one fully paid and nonassessable share of
Common Stock of the Surviving Corporation (such consideration, the "Roll-
Over Consideration") and references to "Merger Consideration" in this
Agreement shall include the Roll-Over Consideration unless the context
indicates otherwise. In the event that no Conversion Decision is made,
there shall be no Shortfall Amount and no Roll-Over Shares. Notwithstanding
anything to the contrary contained herein, (i) the number of Roll-Over
Shares, other than Roll-Over Shares held by employees of the Company, shall
not exceed ten percent (10%) of the number of shares of Company Common
Stock outstanding on the date hereof, (ii) the number of Roll-Over Shares
owned by affiliates of the Company shall not exceed five percent (5%) of
the number of shares Company Common Stock outstanding on the date hereof,
(iii) all Roll-Over Stockholders, other than not more than thirty-five (35)
employees and Persons deemed to be excluded purchasers pursuant to Rule
501(e) under the Securities Act (as defined in Section 2.4(b)) by virtue of
their relationship with any of such employees, shall be
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"Accredited Investors" under the Securities Act and the rules and
regulations thereunder and (iv) no more than six Roll-Over Stockholders
will consist of Persons who are not employees of the Company; provided
that, for purposes of the foregoing clause (iv), affiliates and associates
of any Person shall not be counted separately from such Person.
SECTION 1.8. Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock to be retained as
Retained Shares at the Effective Time (the "Retention Election Number")
shall be equal to the Parent Equity Number, multiplied by 0.07, and divided
by 0.93.
(b) If the number of Electing Shares exceeds the Retention Election
Number, then each Electing Share shall remain outstanding as a Retained
Share or be converted into the right to receive cash in accordance with the
terms of Section 1.6(c) in the following manner:
(i) a proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Retention Election Number by the total number of
Electing Shares;
(ii) subject to Section 1.9(e), the number of Electing Shares covered by
each Retention Election to be retained as Retained Shares shall be
determined by multiplying the Non-Cash Proration Factor by the total number
of Electing Shares covered by such Retention Election; and
(iii) all Electing Shares, other than those shares to remain outstanding
as Retained Shares in accordance with Section 1.8(b)(ii), shall be
converted into cash as if such shares were not Electing Shares in
accordance with the terms of Section 1.6(c)(ii).
(c) If the number of Electing Shares is less than the Retention Election
Number, then:
(i) all Electing Shares shall remain outstanding as Retained Shares in
accordance with the terms of Section 1.6(c)(i);
(ii) additional shares of Company Common Stock other than Electing Shares
shall remain outstanding as Retained Shares in accordance with the terms of
Section 1.6(c)(i) in the following manner:
(1) a proration factor (the "Cash Proration Factor") shall be
determined by dividing (x) the difference between the Retention
Election Number and the number of Electing Shares by (y) the total
number of outstanding shares of Company Common Stock other than
Electing Shares; and
(2) the number of shares of Company Common Stock in addition to
Electing Shares to be retained as Retained Shares shall be determined
by multiplying the Cash Proration Factor by the total number of shares
of Company Common Stock other than Electing Shares; and
(iii) subject to Sections 1.6(e) and 1.9(e), shares of Company Common
Stock subject to clause (ii) of this Section 1.8(c) shall remain
outstanding as Retained Shares in accordance with Section 1.6(c)(i) (on a
consistent basis among stockholders who held shares of Company Common Stock
as to which they did not make the election referred to in Section
1.6(c)(i), pro rata to the number of shares as to which they did not make
such election).
SECTION 1.9. Exchange of Certificates. Exchange of Certificates.
(a) Exchange Agent. Immediately after the Effective Time, the Surviving
Corporation shall deposit with the Exchange Agent, for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with
this Article I, the cash portion (or in the case of a Conversion Decision,
all) of the Merger Consideration (such cash consideration being hereinafter
referred to as the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions of the Surviving Corporation, make payments of the
Cash Election Price and the Preferred Stock Merger Consideration out of the
Exchange Fund. The Exchange Fund shall not be used for any other purpose.
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(b) Exchange Procedures. As soon as practicable after the Effective Time,
each holder of an outstanding certificate or certificates which prior thereto
represented shares of Company Stock (the "Certificates") shall, upon surrender
to the Exchange Agent of such Certificate or Certificates and acceptance
thereof by the Exchange Agent, be entitled to the amount of cash, if any, into
which the number of shares of Company Stock previously represented by such
Certificate or Certificates surrendered shall have been converted pursuant to
this Agreement and, in the event a Conversion Decision was not made, a
certificate or certificates representing the number of full shares of common
stock of the Surviving Corporation, if any, to be retained by the holder
thereof as Retained Shares pursuant to this Agreement. The Exchange Agent
shall accept such Certificates upon compliance with the terms and conditions
of Section 1.7 and such other reasonable terms and conditions as the Exchange
Agent may impose to effect an orderly exchange thereof in accordance with
normal exchange practices. After the Effective Time, there shall be no further
transfer on the records of the Company or its transfer agent of Certificates
which have been converted, in whole or in part, pursuant to this Agreement
into the right to receive the Cash Election Price or the Preferred Stock
Merger Consideration, as the case may be, and if such Certificates are
presented to the Company for transfer, they shall be canceled against delivery
of the Cash Election Price or the Preferred Stock Merger Consideration, as the
case may be, and, if appropriate, certificates for Retained Shares. If any
certificate for such Retained Shares is to be issued in, or if cash is to be
remitted to, a name other than that in which the Certificate surrendered for
exchange is registered, it shall be a condition of such exchange that the
Certificate so surrendered shall be properly endorsed, with signature
guaranteed, or otherwise in proper form for transfer and that the Person
requesting such exchange shall pay to the Company, its transfer agent, or
Exchange Agent any transfer or other taxes required by reason of the issuance
of certificates for such Retained Shares in a name other than that of the
registered holder of the Certificate surrendered, or establish to the
satisfaction of the Company or its transfer agent that such tax has been paid
or is not applicable. Until surrendered as contemplated by this Section
1.9(b), each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the Merger
Consideration as contemplated by Section 1.6. No interest will be paid or will
accrue on any cash payable as Merger Consideration or in lieu of any
fractional Retained Shares.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Retained Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the Retained Shares represented thereby and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to Section
1.9(e) until the surrender of such Certificate in accordance with this Article
I. Subject to the effect of applicable law, following surrender of any such
Certificate, there shall be paid to the holder of the Certificate representing
whole Retained Shares, without interest, (i) at the time of such surrender or
as promptly after the sale of the Excess Shares (as defined in Section 1.9(e))
as practicable, the amount of any cash payable in lieu of a fractional
Retained Share to which such holder is entitled pursuant to Section 1.9(e) and
the proportionate amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such Retained
Shares, and (ii) at the appropriate payment date, the proportionate amount of
dividends or other distributions with a record date after the Effective Time
but prior to such surrender and payment date subsequent to such surrender
payable with respect to such whole Retained Shares.
(d) No Further Ownership Rights in Company Stock Exchanged For Cash. All
cash paid upon the surrender for exchange of Certificates representing shares
of Company Stock in accordance with the terms of this Article I (including any
cash paid pursuant to Section 1.9(e)) shall be deemed to have been paid in
full satisfaction of all rights pertaining to the shares of Company Stock
exchanged for cash theretofore represented by such Certificates.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional Retained Shares
shall be issued in connection with the Merger, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of a
stockholder of the Surviving Corporation after the Merger.
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(ii) Notwithstanding any other provision of this Agreement, each holder
of shares of Company Common Stock exchanged pursuant to the Merger who
would otherwise have been entitled to receive a fraction of a Retained
Share (after taking into account all shares of Company Common Stock
delivered by such holder) shall receive, in lieu thereof, a cash payment
(without interest), rounded to the nearest cent, representing such holder's
proportionate interest in the net proceeds from the sale by the Exchange
Agent (following the deduction of applicable transaction costs), on behalf
of all such holders, of the Retained Shares (the "Excess Shares")
representing such fractions. Such sale shall be made as soon as practicable
after the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for one year after
the Effective Time shall be delivered to the Surviving Corporation and any
holders of shares of Company Stock prior to the Merger who have not
theretofore complied with this Article I shall thereafter look only to the
Surviving Corporation and only as general creditors thereof for payment of the
Merger Consideration.
(g) No Liability. None of Merger Sub, the Surviving Corporation or the
Exchange Agent, or any employee, officer, director, agent or affiliate
thereof, shall be liable to any Person in respect of any Retained Shares (or
dividends or distributions with respect thereto), if applicable, or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by the Surviving Corporation, on a
daily basis. Any interest and other income resulting from such investments
shall be paid to the Surviving Corporation. To the extent that there are
losses with respect to such investments, or the Exchange Fund diminishes for
other reasons below the level required to make prompt payments of the Merger
Consideration as contemplated hereby, the Surviving Corporation shall promptly
replace or restore the portion of the Exchange Fund lost through investments
or other events so as to ensure that the Exchange Fund is, at all times,
maintained at a level sufficient to make such payments.
(i) Withholding Rights. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Stock such amounts as the
Surviving Corporation is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code of 1986, as amended
(the "Code"), or any provision of state, local or foreign tax law. To the
extent that amounts are so deducted and withheld by the Surviving Corporation,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Stock in respect of
which such deduction and withholding was made by the Surviving Corporation.
(j) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may require as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration payable, and unpaid dividends and distributions on
Retained Shares (if applicable) deliverable in respect thereof, pursuant to
this Agreement.
(k) Notwithstanding anything to the contrary contained in this Agreement
(including the penultimate sentence of Section 1.9(b)), certificates
representing Roll-Over Shares shall not be delivered or surrendered to the
Exchange Agent upon consummation of the Merger and shall remain outstanding
and represent shares of Common Stock of the Surviving Corporation subject to
all rights, powers, privileges and preferences of such shares.
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SECTION 1.10. Stock Plans.
(a) The Company shall use its reasonable best efforts to take all actions
necessary to provide that, at the Effective Time, (i) each then outstanding
option to purchase shares of Company Common Stock (the "Options") granted
under any of the Company's stock option plans referred to in Section 3.2, each
as amended (collectively, the "Option Plans") or granted otherwise, whether or
not then exercisable or vested, shall be canceled and (ii) in consideration of
such cancellation, Merger Sub shall (or shall cause the Surviving Corporation
to) pay to such holders of Options an amount in cash in respect thereof equal
to the product of (A) the excess, if any, of the Cash Election Price over the
exercise price thereof and (B) the number of shares of Company Common Stock
subject thereto (such payment to be net of applicable withholding taxes);
provided that, with respect to any Option as Merger Sub, Parent or Kelso shall
determine prior to the Effective Time (and with the applicable optionee's
consent), such Option shall, in lieu of being cancelled pursuant to the
foregoing, remain outstanding on such terms (which, subject to the following
provisos, may vary from optionee to optionee, including as to the number of
shares of Common Stock of the Surviving Corporation into which such Options
are exercisable and the exercise price thereof) as Merger Sub, Parent or
Kelso, as the case may be, and the applicable optionee shall decide (each such
Option, a "Roll-Over Option"); provided further that with respect to Roll-Over
Options of any particular optionee, the aggregate spread of the Cash Election
Price over the exercise price of such Roll-Over Options, after giving effect
to the foregoing proviso, shall remain equal to the aggregate spread of the
Cash Election Price over the exercise price of such Roll-Over Options prior to
giving such effect; and provided further that in no event shall the exercise
price of any Roll-Over Option, after giving effect to any amendment thereto,
be less than 25% of the Cash Election Price.
(b) Prior to the Effective Time, the Company shall cause any restrictions
imposed pursuant to any stock plan on any outstanding shares of Company Common
Stock (such shares, "Company Restricted Stock") to lapse and each share of
Company Restricted Stock shall be subject to the same terms and conditions of
this Agreement as other shares of Company Common Stock, including, but not
limited to, Section 1.6(c) herein.
(c) Except as provided herein or as otherwise agreed to by the parties and
to the extent permitted by the Option Plans, (i) the Company shall use its
reasonable best efforts to cause the Option Plans to terminate as of the
Effective Time and the provisions in any other plan, program or arrangement,
providing for the issuance or grant by the Company of any interest in respect
of the capital stock of the Company shall be terminated and have no further
force or effect as of the Effective Time and (ii) the Company shall use all
reasonable best efforts to ensure that following the Effective Time no holder
of Options or any participant in the Option Plans or anyone otherwise shall
have any right to acquire any equity securities of the Company, the Surviving
Corporation or any subsidiary thereof.
SECTION 1.11. Indebtedness
(a) At closing, the Company shall cause the satisfactory repayment,
repurchase and discharge of all indebtedness outstanding (including accrued
interest, premiums, if any, and expense reimbursement, if required) under the
Healthcare Receivables Purchase Agreement, dated as of July 31, 1996, between
the Company and Daiwa Healthco-2 LLC (the "Receivables Facility") and the
7.50% promissory note of the Company in the aggregate principal amount of
$25,000,000, payable to Physicians Clinical Laboratories, Inc., in accordance
with their terms.
(b) Provided that this Agreement shall not have been earlier terminated in
accordance with Section 7.1, the Company shall, as soon as reasonably
practicable after receiving a written request (the "Debt Offer Request") by
Merger Sub to do so, commence an offer to purchase all of the Company's
outstanding 11% Senior Notes due 2006 (the "Senior Notes") and related consent
solicitation on the terms set forth on Schedule 1.11 hereto and such other
customary terms and conditions specified by Merger Sub, as may be reasonably
requested, provided that the Company's obligations to accept for payment
Senior Notes shall be conditioned on the closing of the Merger occurring
substantially concurrently (the "Debt Offer"). The consents being solicited
pursuant the Debt Offer (the "Consents") shall be to effect such amendments to
the Indenture dated as of March 14,
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1996 with respect to the Senior Notes (the "Indenture Amendments") as are
determined by Merger Sub; provided that the amendments shall not require the
consent of the holders of more than a majority of the outstanding principal
amount of the Senior Notes in the aggregate. The tendering of Senior Notes
pursuant to the Debt Offer shall constitute the grant of a Consent. To the
extent permitted by law, the Company shall waive any of the conditions to the
Debt Offer and make any other changes to the terms and conditions of the Debt
Offer as may be reasonably requested by Merger Sub, and the Company shall not,
without Merger Sub's prior consent (which consent will not be unreasonably
withheld), waive any condition to the Debt Offer, make any changes to the
terms and conditions of the Debt Offer set forth on Schedule 1.11 or make any
other changes to the terms and conditions of the Debt Offer.
(c) Promptly following the date of this Agreement, the Company shall
prepare, subject to advice and comments of Merger Sub, an offer to purchase
the Senior Notes and forms of the related letter of transmittal (the "Letter
of Transmittal") (collectively, the "Offer to Purchase"), as well as all other
information and exhibits required in connection therewith (collectively, the
"Offer Documents"). All mailings to the holders of the Senior Notes in
connection with the Debt Offer shall be subject to the prior review, comment
and approval of Merger Sub, which review, comment and approval shall not be
unreasonably withheld or delayed. The Company will use its reasonable best
efforts to cause the Offer Documents to be mailed to the holders of the Senior
Notes as promptly as practicable following commencement of the Debt Offer in
accordance with Section 1.11(b). The Company agrees to promptly correct any
information in the Offer Documents that shall be or have become false or
misleading in any material respect.
(d) Subject to the terms and conditions of this Agreement, including but not
limited to the conditions to the Debt Offer, at the closing of the Merger the
Company will accept for payment the Senior Notes.
(e) As soon after the date of this Agreement as it is permissible to do so
under the terms of the Note dated as of November 5, 1998 issued to Meris
Laboratories, Inc. (the "Original Meris Note", and including any note or notes
issued following a permitted transfer or assignment of such Note and any
secondary notes with respect thereto, the "Meris Note"), the Company shall
convert the Meris Note into shares of Company Common Stock pursuant to Section
5.l(a) of the Original Meris Note. If required to do so, the Company shall use
reasonable best efforts to (i) obtain any consents necessary to convert the
Meris Note into shares of Company Common Stock and (ii) accordingly convert
the Meris Note into shares of Company Common Stock prior to the Effective
Time.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Merger Sub represents and warrants to the Company as follows:
SECTION 2.1. Corporate Organization. Merger Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power and authority and any
necessary governmental authority to own, operate or lease the properties that
it purports to own, operate or lease and to carry on its business as it is now
being conducted.
SECTION 2.2. Capitalization. The authorized capital stock of Merger Sub
consists of 10,000,000 shares of Merger Sub Stock. As of the date hereof, 100
of such shares are issued and outstanding, duly authorized, validly issued,
fully paid and nonassessable and owned beneficially and of record by Parent
free and clear of any liens, security interests, pledges, agreements, claims,
charges or encumbrances of any nature whatsoever ("Liens"). Except in
connection with the Equity Financing, there are no other options, warrants or
other rights, agreements, arrangements or commitments of any character
obligating Merger Sub to issue or sell any shares of capital stock of or other
equity interests in Merger Sub.
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SECTION 2.3. Authority Relative to this Agreement. The execution and
delivery of this Agreement by Merger Sub and the consummation by Merger Sub of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Merger Sub and no other corporate
proceeding is necessary for the execution and delivery of this Agreement by
Merger Sub, the performance by Merger Sub of its obligations hereunder and the
consummation by Merger Sub of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Merger Sub and constitutes a
legal, valid and binding obligation of Merger Sub, enforceable against it in
accordance with its terms.
SECTION 2.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Merger Sub do not,
and the performance of this Agreement by Merger Sub will not, (i) conflict
with or violate any law, regulation, court order, judgment or decree
applicable to Merger Sub or by which its property is bound or subject, (ii)
violate or conflict with the Certificate of Incorporation or By-Laws of
Merger Sub, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination or cancellation of, or
result in the creation of a Lien on any of the property or assets of Merger
Sub pursuant to, any contract, instrument, permit, license or franchise to
which Merger Sub is a party or by which Merger Sub or any of its property
is bound or subject.
(b) Except for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Securities Act
of 1933, as amended (the "Securities Act"), the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the filing and recordation of an
appropriate Certificate of Merger as required by Delaware Law, Merger Sub
is not required to submit any notice, report or other filing with any
governmental or regulatory authority or accreditation or certification
agency, board or other organization, domestic or foreign, in connection
with the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby, except for such of
the foregoing as are required by reason of the legal or regulatory status
or the activities of the Company or by reason of facts specifically
pertaining to it. No waiver, consent, approval or authorization of any
governmental or regulatory authority or accreditation or certification
agency, board or other organization, domestic or foreign, is required to be
obtained or made by Merger Sub in connection with its execution, delivery
or performance of this Agreement, except for such of the foregoing as are
required by reason of the legal or regulatory status or the activities of
the Company or by reason of facts specifically pertaining to it.
SECTION 2.5. Financing Arrangements. Merger Sub has received and delivered
to the Company commitment letters with respect to equity financing of
$139,500,000 minus the After-Tax Roll-Over Amount (as defined below) plus
additional cash equity financing from third parties in the amount of any
Shortfall Amount, if any (the "Equity Financing") and debt financing (other
than subordinated debt financing) of $180,000,000 (collectively, the
"Commitment Letters") and a commitment letter (the "Bridge Financing Letter")
with respect to bridge financing of $150,000,000 ("Bridge Financing") in
subordinated debt financing, in an aggregate amount sufficient (a) to pay (or
provide the funds for the Surviving Corporation to pay) the aggregate cash
portion of the Merger Consideration, (b) to pay (or provide the funds for the
Surviving Corporation to pay) all amounts contemplated by Section 1.10 when
due, (c) to refinance any indebtedness or other obligation of the Company
which may become due as a result of this Agreement or any of the transactions
contemplated hereby (including pursuant to the Debt Offer), and (d) to pay all
related fees, expenses and premiums. As of the date of this Agreement, Merger
Sub believes that total debt financing shall consist of (i) $160,000,000 in
term loans and anticipated initial revolving credit borrowings provided by
banks and (ii) $150,000,000 of subordinated debt financing (together, the
"Debt Financing"). Except as provided in Section 5.11, as of the date hereof,
Merger Sub or affiliates thereof does not intend to utilize the Bridge
Financing described in the Bridge Financing Letter but intends, rather, to
obtain the subordinated debt financing from the Rule 144A market. The "After-
Tax Roll-Over Amount" shall mean an amount in dollars equal to the sum of (i)
the product of (x) the excess, if positive, of the number of Roll-Over Shares
over the Retention Election Number and (y) the Cash Election Price and
(ii) the product of (x) .58 and (y) the aggregate spread (equal to the excess
of Cash Election Price over the
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exercise price) of all Roll-Over Options. The Commitment Letter with respect
to the equity financing delivered by Kelso (the "Kelso Equity Letter") shall
be deemed amended such that the reference therein to "$139,500,000" shall
instead refer to such amount in dollars as equals $139,500,000 minus the
After-Tax Roll-Over Amount.
SECTION 2.6. No Prior Activities. Except for obligations or liabilities
incurred in connection with its incorporation or organization or the
negotiation and consummation of this Agreement and the transactions
contemplated hereby (including any financing), Merger Sub has not incurred any
obligations or liabilities, and has not engaged in any business or activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.
SECTION 2.7. Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
and on behalf of Merger Sub.
SECTION 2.8 Information Supplied. None of the information supplied by Merger
Sub or its officers, directors, representatives, agents or employees (the
"Purchaser Information") specifically for inclusion in (i) the Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission
(the "SEC") by the Company in connection with the shares of Company Common
Stock to be retained in the Merger (including the proxy statement and
prospectus (the "Proxy Statement/Prospectus") constituting a part thereof)
(the "Form S-4"), at the time it becomes effective under the Securities Act,
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading and (ii) the Proxy Statement/Prospectus
will, on the date it is first mailed to the holders of Company Common Stock or
at the time of the meeting of the Company's stockholders to consider the
Merger Agreement (the "Company Stockholders' Meeting"), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading. If at any time
prior to the Company Stockholders' Meeting, any event with respect to Merger
Sub, or with respect to information supplied by Merger Sub specifically for
inclusion in the Proxy Statement/Prospectus, shall occur which is required to
be described in an amendment of, or supplement to, the Proxy
Statement/Prospectus, such event shall be so described by Merger Sub and
provided to the Company. All documents that Merger Sub is responsible for
filing with the SEC in connection with the transactions contemplated herein
will comply as to form, in all material respects, with the provisions of the
Securities Act, the Exchange Act and the respective rules and regulations
thereunder, and each such document required to be filed with any government
entity or agency ("Governmental Entity") other than the SEC will comply in all
material respects with the provisions of applicable law as to the information
required to be contained therein. Notwithstanding the foregoing, Merger Sub
makes no representation or warranty with respect to the information supplied
or to be supplied by the Company for inclusion in the Form S-4 or the Proxy
Statement/Prospectus. In the event of a Conversion Decision, all references
herein to "Proxy Statement/Prospectus" shall mean a proxy statement prepared
in accordance with the Exchange Act and the rules promulgated thereunder, used
to solicit proxies in connection with the Company Stockholders' Meeting.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Merger Sub as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority and any necessary governmental authority to own, operate or lease
the properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted, and is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction
where the character of its properties owned, operated or leased or the nature
of its activities makes such qualification necessary, except for such failure
which, when taken together with all other such failures, would not have a
Material
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Adverse Effect (as defined below in this Section 3.1). For purposes of this
Agreement, "Material Adverse Effect" means any change in or effect on the
business of the Company that is or will be materially adverse to the business,
operations, properties (including intangible properties), condition (financial
or otherwise), prospects, assets or liabilities of the Company; provided that
any change or effect relating to, or that can reasonably be expected to result
in, or results in, (i) the exclusion or suspension of the Company or any
director, officer or key employee of the Company from participation in any
federal or state healthcare or health benefit program such as Medicare,
Medicaid or MediCal or (ii) the loss or suspension or materially adverse
modification of a material laboratory license or certification shall
automatically be deemed to be a Material Adverse Effect.
SECTION 3.2. Capitalization. (a) The authorized capital stock of the Company
consists of: (i) 100,000,000 shares of Company Common Stock; (ii) 5,000,000
shares of non-voting common stock, par value $.01 per share ("Company Non-
Voting Common Stock"); and (iii) 20,000,000 shares of Preferred Stock, par
value $.01 per share ("Company Preferred Stock"), of which 400,000 shares have
been designated as Company Convertible Preferred Stock and 1,000,000 shares
have been designated as Series A Junior Participating Preferred Stock ("Series
A Preferred Stock"). As of April 1, 1999: (A) 40,824,563 shares of Company
Common Stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable; (B) no shares of Company Non-Voting Common Stock
were issued and outstanding; (C) 364,000 shares of Company Convertible
Preferred Stock were issued and outstanding and no other shares of Company
Preferred Stock were issued and outstanding; (D) 457,195 outstanding units of
Company phantom stock granted under the Company's Executive Retirement Plan,
as amended (whether vested or unvested), (E) 5,932,083 shares of Company
Common Stock were reserved for issuance upon exercise of outstanding options
under the Company's employee stock option plans listed in Schedule 3.2(a); (F)
364,000 shares of Company Common Stock were reserved for issuance upon
conversion of outstanding Company Convertible Preferred Stock; (G) 8,106,406
shares of Company Common Stock were reserved for issuance upon the conversion
of the Company's outstanding convertible notes; and (H) 1,000,000 shares of
Series A Preferred Stock were reserved for issuance upon the exercise of
outstanding rights to purchase Series A Preferred Stock (the "Rights") issued
under the Company's Amended and Restated Rights Agreement, dated as of March
15, 1996 (the "Rights Agreement"). Except as disclosed in the SEC Reports (as
defined in Section 3.5) filed prior to the date of this Agreement or in
Schedule 3.2(a), there are (i) no other options, warrants or other rights,
agreements, arrangements or commitments of any character obligating the
Company to issue or sell any shares of capital stock of or other equity
interests in the Company or any Voting Debt (as defined below) and (ii) no
bonds, debentures, notes or other indebtedness having the right to vote on any
matters on which stockholders of the Company may vote ("Voting Debt"). Since
April 1, 1999, except as set forth in Schedule 3.2(a), there have been no
shares of capital stock issued or sold, except upon the exercise of options
outstanding on April 1, 1999.
(b) There are no Subsidiaries of the Company. Except as set forth in
Schedule 3.2(b) or in the SEC Reports, the Company does not directly or
indirectly own a greater than 5% equity interest in any other corporation,
partnership, joint venture or other business association or entity. For
purposes of this Agreement, "Subsidiary" means any corporation or other legal
entity of which the Company (either alone or through or together with any
other Subsidiary) owns, directly or indirectly, more than 50% of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 3.3 Authority Relative to this Agreement.
The Company has the necessary corporate power and authority to enter into
this Agreement and, subject to obtaining any necessary stockholder approval of
the Merger, to carry out its obligations hereunder. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to the approval of the
Merger by the Company's stockholders in accordance with Delaware Law. This
Agreement has been duly executed and delivered by the Company and constitutes
a legal, valid and binding obligation of the Company, enforceable against it
in accordance with its terms.
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SECTION 3.4 No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 3.4(a), the execution and delivery of
this Agreement by the Company do not, and the performance of this Agreement by
the Company will not, (i) conflict with or violate any law, regulation, court
order, judgment or decree applicable to the Company or by which its property
is bound or subject, (ii) violate or conflict with the Restated Certificate or
By-Laws or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
terminate or cancel or give to others any rights of termination or
cancellation of (with or without notice or lapse of time or both), or result
in the creation of a Lien on any of the properties or assets of the Company
pursuant to, any contract, instrument, permit, license, certificate or
franchise to which the Company is a party, of which the Company is the
beneficiary or by which the Company or its property is bound or subject,
except for conflicts, violations, breaches or defaults, terminations,
cancellations or rights of termination or cancellation which, in the
aggregate, and assuming the exercise of any rights of termination or
cancellation, would not have a Material Adverse Effect.
(b) Except for applicable requirements of the Exchange Act, the filing of
the Form S-4 under the Securities Act, the pre-merger notification
requirements of the HSR Act, and filing and recordation of an appropriate
merger or other documents as required by Delaware Law, "takeover" or "blue
sky" laws of various states, and except as set forth in Schedule 3.4(b), the
Company is not required to submit any application, notice, report or other
filing with any governmental or regulatory authority or accreditation or
certification agency, board or other organization, domestic or foreign, in
connection with the execution, delivery or performance of this Agreement,
except where the failure the submit such application, notice, report or other
filing would not, individually or in the aggregate, be reasonably likely to
(x) have a Material Adverse Effect or (y) impair, in any material respect, the
ability of the Company to perform its obligations under this Agreement. No
waiver, consent, approval or authorization of any governmental or regulatory
authority or accreditation or certification agency, board or other
organization, domestic or foreign, is required to be obtained or made by the
Company in connection with its execution, delivery or performance of this
Agreement, except where the failure to obtain such waivers, consents,
approvals or authorizations would not, individually or in the aggregate, be
reasonably likely to (x) have a Material Adverse Effect or (y) impair, in any
material respect, the ability of the Company to perform its obligations under
this Agreement.
SECTION 3.5. SEC Filings; Financial Statements.
(a) Except as set forth in Schedule 3.5, the Company has filed all forms,
reports and documents required to be filed with the SEC since January 1, 1997
(collectively, the "SEC Reports"). The SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be, as in effect at the time they were filed and (ii) did not at
the time they were filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The financial statements contained in the SEC Reports were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and fairly presented the financial position of the
Company as at the respective dates thereof and the statements of operations
and cash flows of the Company for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments.
(c) Except as reflected or reserved against in the financial statements
contained in the SEC Reports filed prior to the date of this Agreement or as
otherwise disclosed in such SEC Reports, the Company has no liabilities of any
nature (whether accrued, absolute, contingent or otherwise) which in the
aggregate would have, or are reasonably likely to have, a Material Adverse
Effect.
SECTION 3.6 Absence of Certain Changes or Events. Since December 31, 1998,
except as contemplated by this Agreement or as set forth in Schedule 3.6 or in
the SEC Reports filed prior to the date of this Agreement, there has not been:
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(a) any event or state of fact that, individually or in the aggregate,
has had or is reasonably likely to have a Material Adverse Effect;
(b) any strike, picketing, work slowdown or other labor disturbance
having a Material Adverse Effect;
(c) any damage, destruction or loss (whether or not covered by insurance)
with respect to any of the assets of the Company having a Material Adverse
Effect;
(d) any (A) grant of any severance or termination pay to (1) any director
or officer of the Company or (2) any other employee of the Company, except
in the case of clause (2) in an aggregate cost not to exceed $1,000,000,
(B) employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of the Company entered into, (C) increase in benefits payable
under any existing severance or termination pay policies or employment
agreements or (D) increase in compensation, bonus or other benefits payable
to directors, officers or employees of the Company other than, in the case
of employees (other than directors and officers), in the ordinary course of
business consistent with past practice.
(e) any redemption or other acquisition of, Company Common Stock or
capital stock of the Company or options or rights to acquire shares of
capital stock of the Company by the Company or any declaration or payment
of any dividend or other distribution in cash, stock or property with
respect to Company Stock, except for purchases heretofore made pursuant to
the terms of the Company's employee benefit plans and ordinary course cash
dividends paid before the date hereof; or
(f) any change by the Company in accounting principles except insofar as
may have been required by a change in generally accepted accounting
principles and disclosed in the SEC Reports filed prior to the date of this
Agreement.
SECTION 3.7 Litigation. Except as disclosed in the SEC Reports filed prior
to the date of this Agreement or in Schedule 3.7, there are no claims,
actions, suits, arbitrations, grievances, proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
any properties or rights of the Company or any officers or directors of the
Company in their capacity as such, before any court, administrative,
governmental or regulatory authority, domestic or foreign, nor any internal
investigations (other than investigations in the ordinary course of the
Company's compliance program) being conducted by the Company or have any acts
of alleged misconduct by the Company been reported to the Company, which are,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect. Neither the Company nor any of its properties is subject to any order,
judgment, injunction or decree, having or which is reasonably likely to have a
Material Adverse Effect.
SECTION 3.8. Employee Benefit Plans. Schedule 3.8(a) sets forth a list of
all material employee welfare benefit plans (as defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
employee pension benefit plans (as defined in Section 3(2) of ERISA) and all
other bonus, stock option, stock purchase, benefit, profit sharing, savings,
retirement, disability, insurance, incentive, deferred compensation and other
similar fringe or employee benefit plans, programs or arrangements for the
benefit of, or relating to, any employee of, or independent contractor or
consultant to, the Company (together, the "Employee Plans"). The Company has
delivered or made available to Merger Sub true and complete copies of all
Employee Plans, as in effect, and will, without limiting the other provisions
of this Agreement, make available all other employee plans, together with all
amendments thereto which will become effective at a later date, as well as the
latest Internal Revenue Service determination letters obtained with respect to
any Employee Plan intended to be qualified under Section 401(a) or 501(a) of
the Code. With respect to each Employee Plan, true and complete copies of the
(i) most recent annual actuarial valuation report, if any, (ii) last filed
Form 5500 together with Schedule A and/or B thereto, if any, (iii) summary
plan description (as defined in ERISA), if any, and all modifications thereto
communicated to employees, and (iv) most recent annual and periodic accounting
of related plan assets, if any, have been, or will be, delivered to Merger Sub
and are correct in all material respects. Neither the Company nor, to the
knowledge of the Company, any of its directors, officers, employees or agents
has, with
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respect to any Employee Plan, engaged in or been a party to any "prohibited
transaction", as such term is defined in Section 4975 of the Code or Section
406 of ERISA, which could result in the imposition of either a penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975
of the Code, in each case applicable to the Company or any Employee Plan. All
Employee Plans are in compliance in all material respects with the currently
applicable requirements prescribed by all statutes, orders, or governmental
rules or regulations currently in effect with respect to such Employee Plans,
including, but not limited to, ERISA and the Code and, to the knowledge of the
Company, there are no pending or threatened claims, lawsuits or arbitrations
(other than routine claims for benefits), relating to any of the Employee
Plans, which have been asserted or instituted against the Company, any
Employee Plan or the assets of any trust for any Employee Plan. Each Employee
Plan intended to qualify under Section 401(a) of the Code, and the trusts
created thereunder intended to be exempt from tax under the provisions of
Section 501(a) of the Code, either (i) has received a favorable determination
letter from the Internal Revenue Service to such effect or (ii) is still
within the "remedial amendment period," as described in Section 401(b) of the
Code and the regulations thereunder. All contributions or payments required to
be made or accrued before the Effective Time under the terms of any Employee
Plan will have been made or accrued by the Company by the Effective Time. No
Employee Plan subject to Section 412 of the Code has incurred any "accumulated
funding deficiency" (as defined in ERISA), whether or not waived. The Company
has not incurred nor reasonably expects to incur any liability to the Pension
Benefit Guaranty Corporation with respect to any Employee Plan other than with
respect to insurance premiums. The Company does not contribute nor has within
the six-year period ending on the date hereof contributed or been obligated to
contribute, to any pension or retirement plan which is a "multiemployer plan"
(as defined in Section 3(37) of ERISA). Except as disclosed on Schedule
3.8(b), neither the execution and delivery of this Agreement or the
consummation of the transactions contemplated thereby will cause the vesting
of any material benefit or the payment of any material benefit to be
accelerated. The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event, result
in payment of greater than $12 million of "excess parachute payments" to all
"disqualified individuals" (as each such term is defined in Section 280G of
the Code) in the aggregate with respect to the Company.
SECTION 3.9. Information Supplied. None of the information to be supplied by
the Company specifically for inclusion or incorporation by reference in (i)
the Form S-4 will, at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) the Proxy Statement/Prospectus will, on the date it is
first mailed to the holders of the Company Common Stock or on the date of the
Company Stockholders' Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading. If at any time prior to the date of the
Company Stockholders' Meeting, any event with respect to the Company, or with
respect to information supplied by the Company specifically for inclusion in
the Proxy Statement/Prospectus, shall occur which is required to be described
in an amendment of, or supplement to, the Proxy Statement/Prospectus, such
event shall be so described by the Company. All documents that the Company is
responsible for filing with the SEC in connection with the transactions
contemplated herein, to the extent relating to the Company or other
information supplied by the Company for inclusion therein, will comply as to
form, in all material respects, with the provisions of the Securities Act, the
Exchange Act and the respective rules and regulations thereunder, and each
such document required to be filed with any Governmental Entity other than the
SEC will comply in all material respects with the provisions of applicable law
as to the information required to be contained therein. Notwithstanding the
foregoing, but subject to the definition of "Material Adverse Effect", the
Company makes no representation or warranty with respect to (i) the
information supplied or to be supplied by Merger Sub for inclusion in the Form
S-4 or the Proxy Statement/Prospectus or (ii) any projections, forward-looking
statements or similar information provided to Merger Sub that are not of an
historical nature.
SECTION 3.10. (a) Conduct of Business; Permits. (a) Except as disclosed in
the SEC Reports filed prior to the date of this Agreement or in Schedule
3.10(a), the business of the Company is not being (and since January 1, 1997
has not been) conducted in default or violation of any term, condition or
provision of (i) the
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Restated Certificate or By-Laws, (ii) any note, bond, mortgage, indenture,
contract, agreement, lease or other instrument or agreement of any kind to
which the Company is now a party or by which the Company or any of its
properties or assets may be bound, or (iii) any Federal, state, local or
foreign statute, law, ordinance, rule, regulation, judgment, decree, order,
concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to the Company or its business,
including, without limitation, laboratory licenses issued for participation in
the Medicare, Medicaid and MediCal programs, all licenses required in respect
of the Company's laboratories under the Clinical Laboratory Improvements Act
of 1988 and all state laboratory licenses required to be issued in those
states in which the Company does business, including under the California
Clinical Laboratory Improvements Act, except, with respect to the foregoing
clauses (ii) and (iii), defaults or violations that would not, individually or
in the aggregate, have a Material Adverse Effect. The material permits,
licenses, approvals, certifications and authorizations from federal, state,
local and foreign governmental and regulatory authorities and accreditation
and certification agencies, bodies or other organizations (collectively,
"Permits") held by the Company are valid and sufficient in all material
respects for all business presently conducted by the Company. The Company has
not received any written claim or notice nor has any knowledge indicating that
the Company is not in compliance with the terms of any such Permits and with
all requirements, standards and procedures of the federal, state, local and
foreign governmental or regulatory authorities which issued them, or any
limitation or proposed limitation on any Permit, except where the failure to
be in compliance would not, individually or in the aggregate, have a Material
Adverse Effect. Billing by the Company, under the Medicare and Medicaid
programs and otherwise, has been true and correct and in compliance with all
applicable laws, regulations and policies, including the Federal Physician
Self-Referral Act, the Federal False Claims Act, and other federal and state
physician self-referral, fraudulent billing, and false claims laws, except
where the failure to be in such compliance would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.10(b), since December 31, 1996,
neither the Company nor, to the best knowledge of the Company, any individual
who is an officer, director or employee of the Company (in his or her capacity
as such) has been (i) convicted of, charged with or (to the best knowledge of
the Company) investigated for a Medicare, Medicaid or state health program
related offense, (ii) convicted of, charged with or (to the best knowledge of
the Company) investigated for a violation of federal or state law related to
fraud, financial misconduct, obstruction of an investigation, theft or
embezzlement specifically related to and that adversely affects or is
reasonably likely to adversely affect the Company's participation in Medicare,
Medicaid or any federal or state healthcare or health benefit program, or
(iii) excluded or suspended from participation in Medicare, Medicaid or any
such program. Notwithstanding anything in this Agreement to the contrary, in
determining, for the purposes of Section 6.3(b) hereof, whether the
representation in clause (ii) of the preceding sentence is true and correct on
and as of the Effective Time as if made on and as of such time, such
representation shall be deemed to be true and correct as of such time unless
the failure to be so has or is reasonably likely to have a Material Adverse
Effect. Except as set forth in Schedule 3.10(b), since December 31, 1996, (i)
neither the Company nor any individual who is an officer or director of the
Company has been or became subject to any order or consent decree of, or
criminal or civil fine or penalty imposed by, any court or governmental agency
which has had, or might reasonably be believed may have a Material Adverse
Effect and (ii) except as set forth on Schedule 3.10(b), no claim, complaint,
suit, action, proceeding or investigation is pending, or to the best of the
knowledge of the Company, threatened against any individual who is, or during
such period was, an officer, director or employee of the Company which has
had, or is reasonably likely to have, a Material Adverse Effect.
(c) There is no action for recoupment against the Company, or to the best
knowledge of the Company, threatened or pending actions for recoupment against
the Company, nor, except for amounts which are customary for the Company and
the clinical laboratory industry, is there any request for payments or
reimbursement of the Company by Medicare, nor by any other agency affiliated
with Medicare, nor by or from any third-party reimburser, agency affiliated
with Medicare, nor by or from any third-party reimburser, including, without
limitation, any insurance carrier, pre-paid plan, or any other similar entity,
nor is the Company aware of any basis for any such recoupment by any party
against the Company.
(d) To the best knowledge of the Company, since December 31, 1996, neither
the Company nor any director, officer, employee, agent or representative of
the Company (acting in his or her capacity as such) has
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directly or indirectly (i) knowingly and willfully offered or paid any
remuneration, in cash or in kind, to, or made any financial arrangements with,
any past or present customers, past or present suppliers, contractors, or
third party payors in order to obtain business or payments from such persons,
other than entertainment or other activities in the ordinary and lawful course
of business, (ii) knowingly and willfully given or agreed to give, any gift or
gratuitous payment of any kind, nature or description (whether in money,
property, or services) to any customer or potential customer, supplier or
potential supplier, contractor, third party payor, or any other person other
than in connection with promotional or entertainment or other expenses in the
ordinary and lawful course of business, (iii) knowingly and willfully made or
agreed to make, any contribution, payment, or gift of funds or property to, or
for the private use of, any governmental official, employee, or agent where
either the contribution, payment, or gift is or was illegal under the laws of
the United States or under the laws of any state thereof or any other
jurisdiction (foreign or domestic) under which such payment, contribution, or
gift was made, or (iv) knowingly and willfully paid or offered to pay any
illegal remuneration for any referral to the Company in violation of any
applicable anti-kickback law, including the Federal Anti-Kickback Statute, 42
U.S.C. (S) 1320a-7b(b), or any applicable state or local anti-kickback law.
SECTION 3.11. Taxes.
(a) Except as set forth in Schedule 3.11, and except as would not,
individually or in the aggregate, have a Material Adverse Effect, (i) the
Company has timely filed with the appropriate governmental authorities all Tax
Returns (as hereinafter defined) required to be filed by or with respect to
the Company or its operations or assets, and such Tax Returns are true,
correct and complete in all material respects, (ii) all Taxes (as hereinafter
defined) due with respect to taxable years for which the Company's Tax Returns
were filed, all Taxes required to be paid on an estimated or installment
basis, and all Taxes required to be withheld with respect to the Company or
its employees, operations or assets have been timely paid or, if applicable,
withheld and paid to the appropriate taxing authority in the manner provided
by law, (iii) the reserve for Taxes set forth on the balance sheet of the
Company as of December 31, 1998 is adequate for the payment of all Taxes
through the date thereof and no Taxes have been incurred after December 31,
1998 which were not incurred in the ordinary course of business, (iv) there
are no Liens for Taxes upon the assets of the Company, (v) no Federal, state,
local or foreign audits, administrative proceedings or court proceedings are
pending with regard to any Taxes or Tax Returns of the Company and there are
no outstanding deficiencies or assessments asserted or proposed, and any such
proceedings, deficiencies or assessments shown in Schedule 3.11 are being
contested in good faith through appropriate proceedings and the Company has
made available to Merger Sub copies of all revenue agent reports (or similar
reports) and related schedules relating to pending income tax audits of the
Company, (vi) there are no outstanding agreements, consents or waivers
extending the statutory period of limitations applicable to the assessment of
any Taxes or deficiencies against the Company, or with respect to its
operations or assets, no power of attorney granted by the Company with respect
to any matter relating to Taxes is currently in force, and the Company is not
a party to any agreement providing for the allocation or sharing of Taxes
(vii) the federal income Tax Returns of the Company have been examined by the
IRS (or the applicable statutes of limitation for the assessment of federal
income Taxes for such periods have expired) for all periods through and
including December 31, 1995, (viii) the Company will not be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing
Date as a result of any (x) change in method of accounting for a taxable
period ending on or prior to the Closing Date, or (y) "closing agreement," as
described in Section 7121 of the Code (or any corresponding provision of
state, local or foreign income Tax law), entered into on or prior to the
Closing Date, or (z) any ruling received from the IRS.
(b) The Company has not filed a consent to the application of Section 341(f)
of the Code.
(c) The Company is not and has not been a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(ii) of the Code.
(d) Except as set forth in Schedule 3.11, the Company is not a party to any
agreement, contract or arrangement that could result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of section 280G of the Code.
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(e) The Company's net operating loss carryover, as of December 31, 1998, for
federal income Tax purposes is not materially less than $60 million.
(f) For purposes of this Agreement, "Taxes" means all taxes, charges, fees,
levies or other assessments imposed by any United States Federal, state, or
local taxing authority or by any non-U.S. taxing authority, including but not
limited to, income, gross receipts, excise, property, sales, use, transfer,
payroll, license, ad valorem, value added, withholding, social security,
national insurance (or other similar contributions or payments), franchise,
estimated, severance, stamp, and other taxes (including any interest, fines,
penalties or additions attributable to or imposed on or with respect to any
such taxes, charges, fees, levies or other assessments).
(g) For purposes of this Agreement, "Tax Return" means any return, report,
information return or other document (including any related or supporting
information and, where applicable, profit and loss accounts and balance
sheets) with respect to Taxes.
SECTION 3.12. Environmental.
(a) Except as set forth in Schedule 3.12, the Company is in compliance with
all applicable Environmental Laws (which compliance includes, but is not
limited to, the possession by the Company of all permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof), except where failure to be
in compliance would not have a Material Adverse Effect. The Company has not
received any written communication, whether from a governmental authority,
citizens group, employee or otherwise, alleging that the Company is not in
such compliance, and there are no past or present actions, activities,
circumstances, conditions, events or incidents that are reasonably likely to
prevent or interfere with such compliance in the future.
(b) Except as set forth in Schedule 3.12, there is no Environmental Claim
pending or, to the best knowledge of the Company, threatened, against the
Company or, to the best knowledge of the Company, against any Person whose
liability for any Environmental Claim the Company has or may have retained or
assumed either contractually or by operation of law, in each case which would
have a Material Adverse Effect.
(c) Except as set forth in Schedule 3.12, there are no past or present
actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the Release or presence of any Hazardous
Material which could form the basis of any Environmental Claim against the
Company, or to the best knowledge of the Company, against any Person whose
liability for any Environmental Claim the Company has or may have retained or
assumed either contractually or by operation of law, in each case which would
have a Material Adverse Effect.
(d) The Company has delivered or otherwise made available for inspection to
Merger Sub true, complete and correct copies and results of any reports,
studies, analyses, tests or monitoring possessed by the Company which have
been prepared since December 31, 1995 pertaining to Hazardous Materials in,
on, beneath or adjacent to any property currently or formerly owned, operated
or leased by the Company, or regarding the Company's compliance with
applicable Environmental Laws.
(e) Definitions
(i) "Cleanup" means all actions required to: (1) cleanup, remove, treat
or remediate Hazardous Materials in the indoor or outdoor environment; (2)
prevent the Release of Hazardous Materials so that they do not migrate,
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment; (3) perform pre-remedial studies and investigations
and post-remedial monitoring and care; or (4) respond to any government
requests for information or documents in any way relating to cleanup,
removal, treatment or remediation or potential cleanup, removal, treatment
or remediation of Hazardous Materials in the indoor or outdoor environment.
(ii) "Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for
investigatory costs, Cleanup costs, governmental response costs, natural
resources damages, property
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damages, personal injuries, or penalties) arising out of, based on or
resulting from (a) the presence, or Release of any Hazardous Materials at
any location, whether or not owned or operated by the Company, or (b)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
(iii) "Environmental Laws" means all federal, state, local and foreign
laws and regulations relating to pollution or protection of the
environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to record keeping, notification, disclosure and
reporting requirements respecting Hazardous Materials.
(iv) "Hazardous Materials" means all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. (S) 300.5, or
defined as such by, or regulated as such under, any Environmental Law.
(v) "Release" means any release, spill, emission, discharge, leaking,
pumping, injection, deposit, disposal, dispersal, leaching or migration
into the indoor or outdoor environment (including, without limitation,
ambient air, surface water, groundwater and surface or subsurface strata)
or into or out of any property, including the movement of Hazardous
Materials through or in the air, soil, surface water, groundwater or
property.
SECTION 3.13. Properties
(a) The Company has good and marketable title to, or a valid leasehold
interest in, all its properties and assets, free and clear of all Liens,
except as set forth in Schedule 3.13(a) and for Liens that do not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.13.(b), the Company does not own real
property. Schedule 3.13(b) also sets forth a true and complete list of each
lease or sublease relating to real property or interests in real property
leased by the Company that involves annual expenditures by the Company of
$500,000 or more (collectively, the "Company Material Leases").
(c) With respect to each of the Company Material Leases, (i) such lease or
sublease is legal, valid, binding, enforceable and in full force and effect,
(ii) except as otherwise set forth in Schedule 3.13(c), such lease or sublease
will not cease to be legal, valid, binding, enforceable and in full force and
effect as a result of the consummation of the transactions contemplated by
this Agreement, nor will the consummation of such transactions constitute (or
with notice or lapse of time or both), a breach or default under such lease or
sublease or otherwise give the landlord a right to terminate such lease or
sublease and (iii) the Company does not know of, nor has it given or received
notice of, any violation or default thereunder (nor, to the knowledge of the
Company, does there exist any condition which with the passage of time or the
giving of notice or both would result in such a violation or default
thereunder), except for, in the case of clause (iii), violations or defaults
that would not, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 3.14. Intellectual Property. Except as set forth in Schedule 3.14,
to the knowledge of the Company, the Company owns, or is licensed or otherwise
possesses rights to use all patents, trademarks and service marks (registered
or unregistered), trade names, domain names, computer software and copyrights
and applications and registrations therefor, in each case, which are material
to the conduct of the business of the Company, (collectively, the
"Intellectual Property Rights"). Except as set forth in Schedule 3.14, there
are neither any outstanding nor, to the Company's knowledge, threatened
disputes or disagreements with respect to any of the Intellectual Property
Rights nor to the Company's knowledge is there any basis therefor.
SECTION 3.15. Material Contracts.
(a) Except as set forth in the SEC Reports filed prior to the date of this
Agreement or Schedule 3.13(b) or 3.15, the Company is not a party to or bound
by:
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(i) any "material contract" (as such term is defined in Item 601(b)(10)
of Regulation S-K of the SEC);
(ii) any contract or agreement for the purchase of materials or personal
property from any supplier or for the furnishing of services to the Company
that involves future aggregate annual payments by the Company of $250,000
or more;
(iii) any contract or agreement for the sale, license or lease (as
lessor) by the Company of services, materials, products, supplies or other
assets, owned or leased by the Company, that involves future aggregate
annual payments to the Company of $250,000 or more;
(iv) any contract, agreement or instrument relating to or evidencing
indebtedness for borrowed money of the Company in the amount of $250,000 or
more;
(v) any non-competition agreement or any other agreement or obligation
which purports to limit in any material respect the manner in which, or the
localities in which, the business of the Company may be conducted;
(vi) any voting or other agreement governing how any shares of Company
Common Stock shall be voted;
(vii) any contract, agreement or arrangement to allocate, share or
otherwise indemnify for Taxes; or
(viii) any contract with a managed care organization involving capitated
payments in 1998 of $300,000 to the Company; or
(ix) any contract with a physician, group of physicians or other
physician organization that made referrals to the Company in 1998 of more
than $300,000 to the Company.
The foregoing contracts and agreements to which the Company is a party or are
bound are collectively referred to herein as "Company Material Contracts."
(b) Each Company Material Contract is valid and binding on the Company and
is in full force and effect, and the Company has performed all obligations
required to be performed by it to date under each Company Material Contract,
except where such noncompliance, individually or in the aggregate, would not
have a Material Adverse Effect. The Company does not know, nor has given or
received notice of, any violation or default under (nor, to the knowledge of
the Company, does there exist any condition which with the passage of time or
the giving of notice or both would result in such a violation or default
under) any Company Material Contract, except where such violations or
defaults, individually or in the aggregate, would not have a Material Adverse
Effect.
SECTION 3.16. Brokers. No broker, finder or investment banker (other than BT
Alex. Brown Incorporated ("BT Alex. Brown")) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf
of the Company. The Company has heretofore furnished to Merger Sub true and
complete information concerning the financial arrangements between the Company
and BT Alex. Brown pursuant to which such firm would be entitled to any
payment as a result of the transactions contemplated hereunder.
SECTION 3.17. Board Action. The Board of Directors, at a meeting duly called
and held, at which all of the Directors were present, duly and unanimously:
(i) approved and adopted this Agreement and the transactions contemplated
hereby, including the Merger; (ii) recommended that the stockholders of the
Company approve this Agreement and the transactions contemplated hereby,
including the Merger; and (iii) determined that this Agreement and the
transactions contemplated hereby, including the Merger, are fair to and in the
best interests of the stockholders of the Company.
SECTION 3.18. Opinion of Financial Advisor. BT Alex. Brown has rendered to
the Board of Directors a written opinion, dated as of the date of this
Agreement, to the effect that, subject to the assumptions and limitations set
forth therein, the Common Stock Merger Consideration to be received by the
holders of the
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Company Common Stock pursuant to the Merger is fair to such holders from a
financial point of view. A true and correct copy of such opinion has been
delivered to Merger Sub.
SECTION 3.19. Control Share Acquisition. No state takeover statute or
similar statute or regulation or comparable takeover provision of the Restated
Certificate or By-Laws of the Company applies or purports to apply to the
Merger or this Agreement.
SECTION 3.20. Rights Agreement Amendment. The Company and the Rights Agent
under the Rights Agreement have duly executed and delivered an amendment to
the Rights Agreement, and as a result of such amendment (which amendment is
valid and enforceable), among other things, (a) neither this Agreement nor any
of the transactions contemplated hereby, including the Merger, will result in
the occurrence of a "Distribution Date" or otherwise cause the Rights to
become exercisable by the holders thereof and (b) the Rights shall
automatically terminate on and as of the Effective Time be void and of no
further force or effect.
SECTION 3.21. Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of the Company's capital stock necessary
(under applicable law or otherwise) to adopt this Agreement.
SECTION 3.22. Y2K Compliance. The Company has established and is
implementing a program to provide (x) that the change of the year from 1999 to
the year 2000 would not, nor be reasonably likely to, have a Material Adverse
Effect and (y) that the impacts of such change on the vendors and customers of
the Company would not have a Material Adverse Effect.
SECTION 3.23. Insurance. The Company currently has in effect insurance
policies covering itself, its assets and the conduct of its business of an
insurable nature, which insurance has been written by unaffiliated insurers in
such amounts and against such losses or casualties as is consistent with sound
business practice, and all such policies are valid and enforceable for the
benefit of the Company and are, and through the Effective Time will be
continued, in full force and effect.
SECTION 3.24. Labor. Except as set forth on Schedule 3.24, (i) since the
enactment of the Worker Adjustment and Retraining Notification Act (the "WARN
Act"), the Company has not effectuated a "plant closing" or a "mass layoff"
(as such terms are defined in the WARN Act); (ii) the Company has not been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state, local or
foreign law or regulation; and (iii) none of the Company's employees has
suffered an "employment loss" (as defined in the WARN Act) during the 90 day
period prior to the date of this Agreement.
ARTICLE IV.
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1. Acquisition Proposals. The Company will notify Merger Sub
promptly if any proposals are received by, any information is requested from,
or any negotiations or discussions are sought to be initiated or continued
with the Company, in each case in connection with any acquisition, business
combination or purchase of all or any significant portion of the assets of, or
any equity interest in, the Company.
SECTION 4.2. Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, unless Merger Sub shall otherwise consent in writing, the
businesses of the Company shall be conducted only in, and the Company shall
not take any action except in, the ordinary course of business and in a manner
consistent with past practice; and the Company will use its reasonable best
efforts to preserve substantially intact the business organization of the
Company, to keep available the services of the present officers, employees and
consultants of the Company and to preserve the present relationships of the
Company with customers, suppliers and other Persons with which the
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Company has significant business relations and to use reasonable best efforts
to resolve in all material respects all deficiences and issues, and comply in
all material respects with the recommendations made, in the Company's 1998
compliance program audit reports. Without limiting the generality of the
foregoing, except as (x) expressly contemplated by this Agreement or (y) set
forth in Schedule 4.2, the Company shall not, without the prior written
consent of Merger Sub:
(a) amend (i) the Restated Certificate or its By-Laws or (ii) any
material term of any outstanding security issued by the Company or any
Subsidiary thereof;
(b) (i) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to its capital stock, (ii)
redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock or other securities; (iii) issue, sell, pledge, dispose of or
encumber any (A) shares of its capital stock, (B) securities convertible
into or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock, or (C)
other securities of the Company, other than shares of Company Common Stock
issued upon the exercise of Options outstanding on the date hereof in
accordance with the Option Plans as in effect on the date hereof or upon
conversion of any convertible securities outstanding on the date hereof; or
(iv) split, combine or reclassify any of its outstanding capital stock;
(c) acquire or agree to acquire (A) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (B) any
assets, including real estate, except, with respect to clause (B) above,
(x) purchases of inventory, equipment and supplies in the ordinary course
of business consistent with past practice and (y) other purchases of assets
in the ordinary course of business consistent with past practice;
(d) except in the ordinary course of business consistent with past
practice, amend, enter into or terminate any Company Material Contract, or
waive, release or assign any material rights or claims thereunder;
(e) transfer, lease, license, sell, mortgage, pledge, dispose of, or
encumber any property or assets or cease to operate any assets, including
but not limited to any laboratories, other than (i) excess or obsolete
assets or (ii) in the ordinary course of business and consistent with past
practice;
(f) (i) enter into any employment or severance agreement with or, except
in accordance with the existing obligations of the Company, grant any
severance or termination pay to any officer or director of the Company; or
(ii) hire or agree to hire any new or additional officers;
(g) except as required to comply with applicable law, (A) adopt, enter
into, terminate, amend or increase the amount or accelerate the payment or
vesting of any benefit or award or amount payable under any Employee Plan
or other arrangement for the current or future benefit or welfare of any
director, officer or employee, other than in the case of employees who are
not officers or directors in the ordinary course of business consistent
with past practice, (B) increase in any manner the compensation or fringe
benefits of, or pay any bonus to, any director, officer or, other than in
the ordinary course of business consistent with past practice, other
employee, (C) other than benefits accrued through the date hereof and other
than in the ordinary course of business for employees other than officers
or directors of the Company, pay any benefit not provided for under any
Employee Plan, (D) other than bonuses earned through the date hereof and
other than in the ordinary course of business consistent with past practice
for employees other than officers and directors, grant any awards under any
bonus, incentive, performance or other compensation plan or arrangement or
Employee Plan; provided that there shall be no grant or award to any
director, officer or employee of stock options, stock appreciation rights,
stock based or stock related awards, performance units, units of phantom
stock or restricted stock, or any removal of existing restrictions in any
Company Employee Benefit Plans or agreements or awards made thereunder
other than consistent with past practice under the Company's Non-Employee
Director Stock Plan or (E) take any action to fund or in any other way
secure
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the payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or Employee Plan;
(h) (i) incur or assume any indebtedness for money borrowed other than in
accordance with the current terms of the Receivables Facility and in an
amount not to exceed $5,000,000 at any one time outstanding; (ii) incur or
modify any material indebtedness or other liability; (iii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
Person, except in the ordinary course of business and consistent with past
practice; or (iv) except for advances or prepayments in the ordinary course
of business in amounts consistent with past practice, make any loans,
advances or capital contributions to, or investments in, any other Person
(other than customary loans or advances to employees in accordance with
past practice);
(i) change of the accounting methods used by it unless required by
generally accepted accounting principles;
(j) other than in the ordinary course of business consistent with past
practice, make any Tax election or settle or compromise any Tax liability;
(k) settle or compromise any claim, litigation or other legal proceeding,
except for any settlement or compromise involving less than $100,000;
(l) enter into any agreement, arrangement or contract to allocate, share
or otherwise indemnify for Taxes;
(m) (1) redeem the rights outstanding under the Rights Agreement, or
amend or modify or terminate the Rights Agreement or render it inapplicable
to (or otherwise exempt from the application of the Rights Agreement) any
Person or action, other than to delay the Distribution Date (as defined
therein) or to render the Rights inapplicable to the execution, delivery
and performance of this Agreement and the Merger or (2) permit the Rights
to become non-redeemable at the redemption price currently in effect;
provided that the foregoing shall not apply to any such actions that are
taken immediately prior to the termination of this Agreement pursuant to
Section 7.1(f)(ii) or the entering into of an agreement in respect of an
Acquisition Proposal to the extent permitted by Section
4.3(B)(Notwithstanding the foregoing, immediately prior to the Effective
Time, the Company shall, if so requested by Merger Sub, redeem the Rights);
(n) terminate or suspend participation in Medicare, Medicaid or any other
federal or state funded healthcare or health benefits program;
(o) terminate or fail to renew any Permit the failure of which to possess
would be reasonably likely to have a Material Adverse Effect; or
(p) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing (a)-(o) of this Section 4.2; or
(q) take any action that would make any of its representations and
warranties contained herein false in any material respect at or prior to
the Effective Time.
SECTION 4.3. Alternative Acquisition Transactions. The Company will not,
directly or indirectly, through any officer, director, agent, financial
advisor or otherwise, solicit, (a) initiate or encourage submission of
proposals or offers from any Person relating to any acquisition or purchase of
all or a portion of the assets of (other than immaterial or insubstantial
assets or inventory in the ordinary course of business or assets held for
sale), or any equity interest in, the Company or any business combination with
the Company (an "Acquisition Transaction"), (b) participate in any
negotiations regarding, or furnish to any other Person any information (except
for information which has been previously publicly disseminated by the Company
in the ordinary course of business) with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other Person to do or seek any of the foregoing or (c) enter
into any agreement or agreement in principle providing for or relating to an
Acquisition Transaction; provided, that
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(i) nothing contained in this Section 4.3 or any other provision of this
Agreement shall prohibit the Company or the Board of Directors from (A) taking
and disclosing to the Company stockholders, pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act, a position with respect to a tender or
exchange offer by a third party or (B) making such disclosure to the Company
stockholders as, in the good faith judgment of the Board of Directors, after
receiving advice from outside counsel, is required under applicable law and
(ii) the Company may, in response to an unsolicited written proposal with
respect to an Acquisition Transaction from a third party, furnish information
to, and negotiate, explore or otherwise engage in substantive discussions with
such third party, and enter into any agreement, arrangement or understanding
with such third party, in each case only if (A) the Board of Directors
determines in good faith, after consultation with its financial advisors and
outside legal counsel, that (x) such proposal would, if consummated, result in
a transaction that provides a higher price to its stockholders, from a
financial point of view, than the transactions contemplated by this Agreement
and (y) failing to take such action would create a reasonable possibility of a
breach of the fiduciary duties of the Board of Directors and (B) in the case
of entering into any agreement in respect of an Acquisition Transaction, the
Company shall, concurrently with the execution of such agreement, terminate
this Agreement pursuant to Section 7.1(f)(ii).
ARTICLE V.
ADDITIONAL AGREEMENTS
SECTION 5.1. Proxy Statement. As promptly as practicable after the date of
this Agreement, the Company shall prepare the Proxy Statement/Prospectus, and
the Company shall prepare and file with the SEC the Form S-4, in which the
Proxy Statement/Prospectus will be included. Merger Sub will cooperate with
the Company in connection with the preparation of the Proxy
Statement/Prospectus including, but not limited to, furnishing to the Company
any and all information regarding Merger Sub and its affiliates as may be
required to be disclosed therein. The Proxy Statement/Prospectus shall contain
the recommendation of the Board of Directors that the Company's stockholders
approve this Agreement and the transaction contemplated hereby. The Company
shall use its reasonable best efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. The
Company will use all reasonable efforts to cause the Proxy
Statement/Prospectus to be mailed to its stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
The Company shall also take any action required to be taken under any
applicable state securities laws in connection with the registration and
qualification of Company Common Stock following the Merger.
SECTION 5.2. Meeting of Stockholders of the Company. The Company shall
promptly take all action necessary in accordance with Delaware Law, the
Restated Certificate and the Company's By-Laws to convene the Company
Stockholders' Meeting. The stockholder vote or consent required for approval
of the Merger will be no greater than that set forth in Delaware Law. The
Company shall use all reasonable efforts to solicit from stockholders of the
Company proxies in favor of the Merger and shall take all other action
necessary or, in the reasonable opinion of Merger Sub, advisable to secure any
vote or consent of stockholders required by Delaware Law to effect the Merger.
Merger Sub shall vote, or cause to be voted, in favor of the Merger all shares
of Company Common Stock directly or indirectly beneficially owned by it,
provided that the Board of Directors may withdraw, modify or change its
recommendation of the Merger and this Agreement if and only if, after receipt
of an unsolicited written proposal with respect to an alternative Acquisition
Proposal and in consultation with its financial advisors and outside legal
counsel, it believes in good faith that (i) such proposal would, if
consummated, result in a transaction that provides a higher price to its
stockholders, from a financial point of view, than the transactions
contemplated by this Agreement and (ii) failing to take such action would
create a reasonable possibility of a breach of its fiduciary duties.
SECTION 5.3. Additional Agreements. The Company and Merger Sub will each
comply in all material respects with all applicable laws and with all
applicable rules and regulations of any governmental authority in connection
with its execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
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SECTION 5.4. Notification of Certain Matters. The Company shall give prompt
notice to Merger Sub and Merger Sub shall give prompt notice to the Company,
of (i) the occurrence, or non-occurrence of any event whose occurrence, or
non-occurrence would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time and (ii) any material
failure of the Company or Merger Sub, as the case may be, or any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
5.4 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 5.5. Access to Information.
(a) From the date hereof to the Effective Time, the Company shall, and shall
cause its officers, directors, employees, auditors and agents to, afford the
officers, employees, environmental consultants, attorneys, accountants and
agents of Merger Sub and the potential sources of the Debt Financing and
Equity Financing (the "Financing Sources"), reasonable access at all
reasonable times to its officers, employees, agents, properties, offices and
other facilities and to all books and records, and shall furnish Merger Sub
and the Financing Sources with all financial, operating and other data and
information Merger Sub and the Financing Sources through their officers,
employees, environmental consultants or agents, may reasonably request.
(b) Merger Sub agrees that it shall, and shall cause its affiliates and each
of their respective officers, directors, employees, financial advisors,
environmental consultants and agents (the "Merger Sub Representatives"), to
hold in strict confidence all data and information obtained by them from the
Company (unless such information is or becomes publicly available without the
fault of any Merger Sub Representative or public disclosure of such
information is required by law in the opinion of counsel to Merger Sub) and
shall insure that Merger Sub Representatives do not disclose such information
to others without the prior written consent of the Company. Notwithstanding
anything herein to the contrary, the terms of the Confidentiality Agreement,
dated February 24, 1999 (the "Confidentiality Agreement"), executed by Kelso &
Company and BT Alex. Brown as agent for the Company shall remain in full force
and effect, provided that the foregoing shall not apply to disclosures of
information reasonably necessary in connection with any Debt Financing or the
Equity Financing.
(c) In the event of the termination of this Agreement, Merger Sub shall, and
shall cause its affiliates to, return promptly every document furnished to
them by the Company or any division, associate or affiliate of the Company in
connection with the transactions contemplated hereby and any copies thereof
which may have been made, and shall cause Merger Sub Representatives to whom
such documents were furnished promptly to return such documents and any copies
thereof any of them may have made, other than documents filed with the SEC or
otherwise publicly available.
SECTION 5.6. Public Announcements. Merger Sub and the Company shall consult
with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such
press release or make any such public statement before such consultation,
except as may be required by law.
SECTION 5.7. Reasonable Efforts; Cooperation. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use all reasonable
best efforts to obtain and furnish in a timely manner all necessary waivers,
consents and approvals and notices and to effect all necessary notifications,
registrations and filings (including, without limitation, all necessary
applications and notifications to the Health Care Financing Administration,
including but not limited to Medicare, the California Department of Health
Services, MediCal, Medicaid and Medicare or Medicaid intermediary, the United
States Drug Enforcement Administration, the College of American Pathologists
and all other applicable local, state and Federal accreditation, certification
and licensing agencies, boards or other bodies or payors with oversight or
payment responsibility for or in respect of the industry in which the Company
operates), and to use all reasonable efforts to take, or cause to be taken,
all other actions and to do, or cause to be done, all other things necessary,
proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement. The parties shall
cooperate in responding to inquiries from, and making presentations to,
regulatory authorities.
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SECTION 5.8. Agreement to Defend and Indemnify.
(a) If any action, suit, proceeding or investigation relating hereto or to
the transactions contemplated hereby is commenced, whether before or after the
Effective Time, the parties hereto agree to cooperate and use their best
efforts to defend against and respond thereto. It is understood and agreed
that, subject to the limitations on indemnification contained in Delaware Law,
the Company shall, to the fullest extent permitted under applicable law and
regardless of whether the Merger becomes effective, indemnify and hold
harmless, and after the Effective Time, the Surviving Corporation shall, to
the fullest extent permitted under applicable law, indemnify and hold
harmless, each director, officer, employee, fiduciary and agent of the Company
including, without limitation, officers and directors serving as such on the
date hereof (collectively, the "Indemnified Parties") against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation arising out of or
pertaining to any of the transactions contemplated hereby, including without
limitation liabilities arising under the Securities Act or the Exchange Act in
connection with the Merger or any financing, and in the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Company or the Surviving Corporation shall
pay the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to the Company or the
Surviving Corporation, promptly as statements therefor are received, and (ii)
the Company and the Surviving Corporation will cooperate in the defense of any
such matter; provided, however, that neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld); and further,
provided, that neither the Company nor the Surviving Corporation shall be
obliged pursuant to this Section 5.8 to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single action except to
the extent that, in the opinion of counsel for the Indemnified Parties, two or
more of such Indemnified Parties have conflicting interests in the outcome of
such action. For six years after the Effective Time, the Surviving Corporation
shall be required to maintain or obtain officers' and directors' liability
insurance covering the Indemnified Parties who are currently covered by the
Company's officers and directors liability insurance policy on terms not less
favorable than those in effect on the date hereof in terms of coverage and
amounts; provided however that in no event shall the Surviving Corporation be
required to expend more than an amount per year equal to 200% of current
annual premiums paid by the Company for such insurance to maintain or procure
insurance coverage pursuant hereto, in which case the Surviving Corporation
shall provide the maximum coverage that is then available for 200% of such
annual premiums. Merger Sub shall cause the Surviving Corporation to continue
in effect the indemnification provisions currently provided by the Restated
Certificate and By-Laws of the Company for a period of not less than six years
following the Effective Time. This Section 5.8 shall survive the consummation
of the Merger. This covenant shall survive any termination of this Agreement
pursuant to Section 7.1 hereof. Notwithstanding Section 8.7 hereof, this
Section 5.8 is intended to be for the benefit of and to grant third-party
rights to Indemnified Parties whether or not parties to this Agreement, and
each of the Indemnified Parties shall be entitled to enforce the covenants
contained herein.
(b) If the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
Person, then and in each such case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.8.
SECTION 5.9. Continuation of Employee Benefits.
(a) From and after the Effective Time, the Surviving Corporation and its
Subsidiaries will honor in accordance with their terms all existing
employment, severance, consulting and salary continuation agreements between
the Company and any current or former officer, director, employee or
consultant of the Company or group of such officers, directors, employees or
consultants described on Schedule 5.9. This Section 5.9(a), which shall
survive the consummation of the Merger at the Effective Time and shall
continue without limit, is intended to benefit and bind the Company, the
Surviving Corporation and any Person referenced in this Section 5.9(a), each
of whom may enforce the provisions of this Section 5.9(a) whether or not
parties to this Agreement.
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(b) In addition to honoring the agreements referred to in Schedule 5.9,
until the first anniversary of the Effective Time, the Surviving Corporation
will provide or will cause to be provided to each current or former employee
(presently entitled to benefits) of the Company (i) employee compensation,
benefit plans, programs, policies and arrangements, that are no less favorable
in the aggregate than those currently provided by the Company to its employees
and former employees; and (ii) severance benefits that are in the aggregate no
less favorable to any employee of the Company than those currently provided to
each such employee. Nothing in this Section 5.9(b) shall be deemed to prevent
the Surviving Corporation or any of its Subsidiaries from making any change
required by law or which is consented to by any employee.
(c) To the extent permitted under any applicable law, each employee of the
Company shall be given credit for all service with the Company (or service
credited by the Company) under all employee benefit plans, programs, policies
and arrangements maintained by the Surviving Corporation in which they
participate or in which they become participants for purposes of eligibility,
vesting and benefit accrual including, without limitation, for purposes of
determining (i) short-term and long-term disability benefits, (ii) severance
benefits, (iii) vacation benefits and (iv) benefits under any retirement plan;
provided that credit need not be given for service with the Company to the
extent such credit would result in a duplication of benefits.
(d) Except as provided in clause (a) above, nothing contained in this
Section 5.9 shall create any beneficiary rights in any employee or former
employee (including any dependent thereof) of the Company or the Surviving
Corporation in respect of continued employment for any specified period of any
nature or kind whatsoever.
SECTION 5.10. Solvency Letter.
(a) Merger Sub shall use all reasonable efforts to deliver to the Board of
Directors, prior to the consummation of the Merger, a copy of any letter
relating to the solvency of the Surviving Corporation delivered to the banks
or financial institutions providing the Debt Financing. If no such letter is
obtained in connection with the Debt Financing, Merger Sub shall use
reasonable best efforts to obtain from an independent third party selected by
Merger Sub (the "Appraiser") a letter attesting that, immediately after the
Effective Time, the Surviving Corporation (i) will be solvent (in that both
the fair value of its assets is not less than the sum of its debts and that
the present fair saleable value of its assets will not be less than the amount
required to pay its probable liability on its debts as they become absolute
and matured), (ii) will have adequate capital with which to engage in its
business, and (iii) will not have incurred and does not plan to incur debts
beyond its ability to pay as they become absolute and matured, based upon the
proposed financing structure for the Merger and certain other financial
information to be provided to the Appraiser by Merger Sub and the Company and
after giving effect to any changes in the Surviving Corporation's assets and
liabilities as a result of the Merger and the financing relating thereto,
provided that such obligation of Merger Sub shall not require it to agree to
any terms with respect to the Equity Financing or the Debt Financing which it
is not otherwise obligated to agree to pursuant to this Agreement.
(b) Merger Sub shall deliver a copy of the Solvency Letter (if obtained) to
the Company and use its reasonable best efforts to have it addressed to the
Board of Directors and such other parties as Merger Sub shall determine. The
parties hereto shall cooperate in connection with the preparation of the
Solvency Letter, including, without limitation, providing any information
reasonably available to them necessary for the preparation of such letter,
including any preparation thereof by the Appraiser. As used herein, "Solvency
Letter" shall refer to the letter described in the first sentence of Section
5.10(a) or, if no such letter is obtained, the letter described in the second
sentence of Section 5.10(a).
SECTION 5.11. Recapitalization of Merger Sub, Financing. Recapitalization of
Sub.
(a) Merger Sub shall use its reasonable best efforts to obtain the Debt
Financing and the Equity Financing consistent with the terms specified and
described in the Commitment Letters delivered to the Company by Merger Sub and
otherwise on and subject to terms reasonably acceptable to Merger Sub. Unless
the Merger has
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theretofore been consummated or this Agreement terminated, if Merger Sub has
not otherwise received proceeds from subordinated debt financing in an amount
as great as that set forth in the Bridge Financing Letter (or such lesser
amount as necessary to provide, when taken together with the debt financing
under the Commitment Letters, all necessary Debt Financing) no later than the
Draw Down Date, Merger Sub shall use its reasonable best efforts to cause the
Bridge Financing to be made available on the Draw Down Date so as to result in
the satisfaction of the condition set forth in Section 6.3(c); provided that,
except as set forth in this Section 5.11(a), Merger Sub shall have no
obligation to draw on or obtain for it or the Company the proceeds of the
Bridge Financing; provided further that Merger Sub shall have no obligation to
draw on or obtain for it or the Company the proceeds of the Bridge Financing
if an Escrow Closing (as defined in Section 5.11(c)) has theretofore occurred.
For purposes hereof, the term "Draw Down Date" shall mean the later to occur
of (i) 45 days after the date on which all conditions to closing set forth in
Sections 6.1 or 6.3 shall have been satisfied or waived (or upon receipt of
such the Bridge Financing, will have been satisfied or waived) and (ii)
October 15, 1999, but in no event shall such date be later than ten business
days prior to the Termination Date (as defined in Section 7.1(d)).
(b) The Company agrees to provide, and will use its reasonable best efforts
to cause its officers and employees to provide, all necessary cooperation
reasonably requested by Merger Sub in connection with the arrangement of the
Debt Financing and the Equity Financing, including, in the case of the Debt
Financing, using its reasonable best efforts to cause appropriate officers and
employees to be available on a reasonable basis for "road show" appearances
and the preparation of disclosure documents in connection therewith.
(c) At any time prior to consummation of the Merger, the proceeds of the
subordinated debt financing in connection with the Merger may be closed into
escrow such that such proceeds are held by a newly formed corporation (the
"EscrowCo") formed at the direction of Kelso (such closing, an "Escrow
Closing"). At or immediately prior to such Escrow Closing, the Company shall
pay to EscrowCo an amount in dollars (the "Breakage Amount") sufficient to
cover (i) accrued interest on the EscrowCo Debt (as defined below) from the
Escrow Closing to and including the Termination Date (as defined in Section
7.1(d)), net of income earned by EscrowCo from investing the proceeds of the
subordinated debt financing in Permitted Investments (as defined below) to be
determined by the Company and Merger Sub prior to the deposit of the Breakage
Amount with EscrowCo and (ii) any repayment premium applicable thereto in the
event that this Agreement is terminated by the parties in accordance with its
terms or the Merger is not consummated by the date specified by the terms of
the EscrowCo Debt. At or immediately prior to the Effective Time and subject
to consummation of the Merger, (i) the Surviving Corporation shall assume the
indebtedness of EscrowCo plus any accrued and unpaid interest thereon (the
"EscrowCo Debt") and receive the proceeds held by EscrowCo and (ii) EscrowCo
shall be released from all obligations with respect thereto. In the event that
this Agreement is terminated by the parties in accordance with its terms or
the Merger is not consummated by the date specified by the terms of the
EscrowCo Debt, the EscrowCo Debt (plus any applicable repayment premium) shall
be repaid in full by EscrowCo. With respect to any such repayment of the
EscrowCo Debt (plus any applicable repayment premium), Merger Sub shall
promptly reimburse the Company for one-half of the excess of the Breakage
Amount over any portion of such amount returned to the Company by EscrowCo.
The parties hereto agree that (i) any applicable repayment premium shall in no
event exceed 1% of the principal amount of the EscrowCo Debt, (ii) placement
agent fees or discounts or commitments shall be payable with respect to the
EscrowCo Debt only at the Effective Time and (iii) EscrowCo shall invest the
proceeds of its borrowings in Permitted Investments. In the event that the
proceeds of the subordinated debt financing are invested in Permitted
Investments such that the Breakage Amount is less than the amount, which when
added to such proceeds, is not enough to repay in full the EscrowCo Debt (plus
any applicable repayment premium), the Company and Merger Sub shall each pay
one-half of such shortfall to EscrowCo to enable it to pay such amount to the
applicable debtholders. As used herein, "Permitted Investments" shall mean
United States treasury securities (without regard to maturity) and investments
in time deposits, certificates of deposit or money market deposits maturing
within 90 days of the date of acquisition thereof and entitled to U.S. Federal
deposit insurance for the full amount thereof or issued by a bank or trust
company which is organized under the laws of the United States or any state
thereof having capital in excess of $500 million.
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(d) If Kelso or any of its affiliates are required to provide additional
equity financing to the Company or the Surviving Corporation pursuant to the
terms of any bank credit agreement or any other agreement with other sources
of financing or in connection with any refinancing of indebtedness of the
Surviving Corporation, Kelso or any such affiliate or any other persons in
connection therewith shall be entitled to purchase Common Stock of the
Surviving Corporation in connection therewith for an amount per share not
greater than the Cash Election Price, subject to adjustment by reason of any
stock split, dividend or similar transaction after the Effective Time.
SECTION 5.12. Recapitalization. Each of the Company and Merger Sub shall use
all reasonable best efforts to cause the transactions contemplated by this
Agreement, including the Merger, to be accounted for as a recapitalization and
such accounting treatment to be accepted by their respective accountants and
by the SEC, and each of the Company and Merger Sub agrees that it shall take
no action that would reasonably be likely to cause such accounting treatment
not to be obtained.
ARTICLE VI.
CONDITIONS OF MERGER
SECTION 6.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the following conditions:
(a) Stockholder Approval. The Merger and this Agreement shall have been
approved and adopted by the requisite vote of the stockholders of the
Company.
(b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) No Challenge. No statute, rule, regulation, judgment, writ, decree,
order or injunction shall have been promulgated, enacted, entered or
enforced, and no other action shall have been taken, by any government or
governmental, administrative or regulatory authority or by any court of
competent jurisdiction, that in any of the foregoing cases has the effect
of making illegal or directly or indirectly restraining, prohibiting or
restricting the consummation of the Merger.
(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order, and any material "blue-sky" and other
state securities laws applicable to the registration and qualification of
the Company Common Stock following the Merger shall have been complied with
in all material respects.
SECTION 6.2. Additional Conditions to Obligation of the Company to Effect
the Merger. The obligation of the Company to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the additional
following conditions, unless waived by the Company:
(a) Performance of Obligations of Merger Sub. Merger Sub shall have
performed in all material respects its agreements contained in this
Agreement required to be performed on or prior to the Effective Time and
the Company shall have received a certificate of the President or Chief
Executive Officer or a Vice President of Merger Sub to that effect.
(b) Representations and Warranties of Merger Sub. The representations and
warranties of Merger Sub contained in this Agreement that are qualified by
a reference to materiality shall be true and correct when made and on and
as of the Effective Time as if made on and as of such time (except for
those representations and warranties of Merger Sub that are so qualified
and relate to a particular date which representations and warranties shall
be true and correct in all respects as of such date), and the
representations and warranties of Merger Sub contained in this Agreement
that are not so qualified shall be true and correct in all material
respects when made and on and as of the Effective Time as if made on and as
of such time (except for those representations and warranties of Merger Sub
that are not so qualified and relate to a particular date which
representations and warranties shall be true and correct in all material
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respects as of such date). The Company shall have received a certificate of
the President or Chief Executive Officer or a Vice President of Merger Sub
to the foregoing effects.
(c) Solvency Letter. The Solvency Letter shall have been delivered to the
Company.
SECTION 6.3. Additional Conditions to Obligations of Merger Sub to Effect
the Merger. The obligations of Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the additional
following conditions, unless waived by Merger Sub:
(a) Performance of Obligations of the Company. The Company shall have
performed in all material respects its agreements contained in this
Agreement required to be performed on or prior to the Effective Time, and
Merger Sub shall have received a certificate of the President or Chief
Executive Officer or a Vice President of the Company to that effect.
(b) Representations and Warranties of the Company. The representations
and warranties of the Company contained in this Agreement that are
qualified by a reference to materiality or Material Adverse Effect shall be
true and correct when made and on and as of the Effective Time as if made
on and as of such time (except for those representations and warranties of
the Company that are so qualified and relate to a particular date which
representations and warranties shall be true and correct in all respects as
of such date), and the representations and warranties of the Company
contained in this Agreement that are not so qualified shall be true and
correct in all material respects when made and on and as of the Effective
Time as if made on and as of such time (except for those representations
and warranties of the Company that are not so qualified and relate to a
particular date which representations and warranties shall be true and
correct in all material respects as of such date). Merger Sub shall have
received a certificate of the President or Chief Executive Officer or a
Vice President of the Company to the foregoing effects.
(c) The Company shall have received aggregate proceeds of $310,000,000 in
Debt Financing as follows: (i) proceeds of Debt Financing other than
subordinated debt financing on terms consistent with the terms specified
and described in the Commitment Letters delivered to the Company and
otherwise reasonably satisfactory to Merger Sub and (ii) proceeds of
subordinated debt financing on terms satisfactory to Merger Sub (it being
agreed that the terms specified and described in the Bridge Financing
Letter are satisfactory to Merger Sub); provided that the foregoing shall
be subject to the second sentence of Section 5.11, including the provisos
thereto; and provided further that if an Escrow Closing has occurred with
respect to an amount as great as that set forth in the Bridge Financing
Letter (or such lesser amount as necessary to provide, when taken together
with the Debt Financing under the Commitment Letters, $310,000,000) and if
the Surviving Corporation shall have assumed the EscrowCo Debt and received
the proceeds held by EscrowCo and EscrowCo shall have been released
therefrom in accordance with the terms thereof, the condition set forth in
clause (ii) shall be deemed satisfied.
(d) The Company shall have obtained and provided to Merger Sub copies of
evidence with respect thereto the consents of third parties listed on
Schedule 6.3(d), the terms of which consents shall be reasonably
satisfactory to Merger Sub.
(e) No suit, action or proceeding by any governmental or regulatory
authority shall have been commenced or threatened in writing that is
reasonably likely to have a Material Adverse Effect.
(f) At the Effective Time, all Options issued and outstanding under the
Options Plans or otherwise shall either (i) have been cashed out and
cancelled or (ii) remain outstanding to acquire shares of Common Stock of
the Surviving Corporation on terms acceptable to Merger Sub, in all cases
in accordance with Section 1.10(a) hereof.
(g) Merger Sub shall have received a copy of the Solvency Letter.
(h) From and after the Effective Time, after giving effect to the Merger
(i) the Meris Note shall not be convertible into shares of Company Common
Stock and (ii) there shall be no shares of Company Common Stock outstanding
in respect of which the Meris Note shall have been converted (other than
any Retained Shares with respect thereto).
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(i) All notices, applications, approvals, consents, and waivers
("Approvals") required to be furnished to or obtained from any governmental
or regulatory authority or accreditation or certification agency, including
any Approvals in respect of Permits, provider numbers, and program
participation rights possessed by the Company, necessary in order for the
Company to conduct its business following the consummation of the
transactions contemplated by this Agreement in all material respects in the
manner as such business, taken as a whole, was conducted prior to the
Effective Time shall have been obtained or furnished and any applicable
waiting period or periods shall have expired (or, if there be no time limit
for waiver or objection, a notice of no-objection or equivalent with
respect thereto shall have been received by the Company).
(j) No suit, action, claim, proceeding or investigation shall have been
commenced or be pending by or before any court, arbitration panel or
governmental, administrative or regulatory authority, or shall have been,
to the Company's knowledge, threatened by any governmental, administrative
or regulatory authority, nor shall any qui tam action have been filed or,
to the Company's knowledge, threatened, relating to any billing or claims
made or submitted by the Company of or to any governmental, regulatory or
administrative authority (including any federal or state healthcare or
health benefit program) or any insurance carrier, health maintenance or
other managed care organization, independent physician association or any
other third party payor which, in the case of any of the foregoing taken
separately or together, in the reasonable judgment of Merger Sub either (i)
materially adversely affects the value of the equity of the Company to
Parent, or the controlling stockholder of Merger Sub or (ii) presents a
risk reasonably unacceptable to Merger Sub of subjecting the Company to a
material liability or a material amount of damages or, on a going-forward
basis, imposing material limitations on the Company's business and/or
methods of operation (including any limitations on the Company's ability to
be reimbursed by any governmental, regulatory or administrative authority,
including any federal or state healthcare or health benefit program).
(k) A majority in principal amount of the Senior Notes shall have been
accepted for payment pursuant to the Debt Offer and the Indenture
Amendments shall have become effective and be in full force and effect.
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1. Termination. This Agreement may be terminated at any time
before the Effective Time:
(a) By mutual written consent of the Boards of Directors of Merger Sub
and the Company; or
(b) By either Merger Sub or the Company, if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree or ruling the parties hereto shall use their
best efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement; or
(c) By either Merger Sub or the Company, if the stockholders of the
Company fail to approve the Merger upon the taking of a vote at a duly held
meeting of the stockholders or at any adjournment thereof; or
(d) By Merger Sub if, without any material breach by Merger Sub of its
obligations under this Agreement, the Merger shall not have been
consummated on or before November 30, 1999 (the "Termination Date"); or
(e) By the Company if, without any material breach by the Company of its
obligations under this Agreement, the Merger shall not have been
consummated on or before the Termination Date; or
(f) By the Company (i) if there shall be a material breach of any of
Merger Sub's representations, warranties or covenants hereunder, which
breach shall not be cured within ten days of written notice thereof to
Merger Sub or (ii) at any time prior to the approval of this Agreement by
the stockholders of the
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Company and upon five business days notice to Merger Sub, for the purpose
of entering into an agreement with respect to an unsolicited written
proposal for an alternative Acquisition Transaction, provided that
(1) prior to any such termination, the Company shall disclose to Merger Sub
the terms of such unsolicited written proposal and, if requested by Merger
Sub, negotiate in good faith with Merger Sub for such five business day
period with a view to determining whether Merger Sub would be willing to
propose a revised transaction to the Company, (2) after consultation with
its financial advisors and outside legal counsel, the Board of Directors
believes in good faith that (A) such third party proposal would, if
consummated, result in a transaction that provides a higher price to its
shareholders, from a financial point of view, than the transactions
contemplated by this Agreement and any revised proposal by Merger Sub and
(B) failing to take such action would create a reasonable possibility of a
breach of its fiduciary duties, (3) such agreement is entered into
concurrently with the exercise of this termination right, and (4) the
Company shall have paid to Merger Sub the fee described in Section 7.2(b)
hereto;
(g) By Merger Sub, if there shall be a material breach of any of the
Company's representations, warranties or covenants hereunder, which breach
shall not be cured within ten days of written notice thereof to the
Company; or
(h) By Merger Sub, if (i) the Board of Directors shall withdraw, modify,
or change its recommendation or approval in respect of this Agreement in a
manner adverse to Merger Sub, (ii) the Board of Directors shall have
recommended any proposal other than by Merger Sub in respect of an
Acquisition Transaction or failed to reject and, if applicable, recommend
against any such proposal, (iii) a Stock Acquisition Date shall have
occurred pursuant to the Rights Agreement of the Company (as in effect on
the date of this Agreement) or (iv) any of the actions or events described
in Section 4.2(m) hereof shall occur without the prior written consent of
Merger Sub, whether or not such consent is required.
SECTION 7.2. Effect of Termination.
(a) In the event of termination of this Agreement as provided in Section
7.1 hereof, this Agreement shall forthwith become void and there shall be
no liability on the part of Merger Sub or the Company, except (i) as set
forth in Sections 5.5, 7.2(b) and 8.3 hereof and (ii) nothing herein shall
relieve any party from liability for any breach of this Agreement other
than as provided in Section 7.2(b).
(b) (i) If (a) Merger Sub shall have terminated this Agreement pursuant
to Section 7.1(h)(i), (ii) or (iv) or (ii) the Company shall have
terminated this Agreement pursuant to Section 7.1(f)(ii), then in any such
case the Company shall promptly, but in no event later than two business
days after the date of such termination, pay Kelso (as defined in Section
8.8) (x) a termination fee of $10,000,000 (the "Fee") plus (y) an amount,
not in excess of $1,500,000, equal to Kelso's actual and reasonably
documented out-of-pocket expenses directly attributable to the negotiation
and execution of this Agreement and the consummation of the transactions
contemplated hereby including the financing thereof ("Transaction
Expenses"), which amounts shall be payable by wire transfer to such account
as Kelso may designate in writing to the Company (the "Fee Account").
(ii) If (a) this Agreement is terminated pursuant to Section 7.1(c),
7.1(d)(provided that the condition in Section 6.1(a) shall not have been
satisfied at the time of such termination), 7.1(e) or 7.1(g)(as a result of
a breach of Section 4.3) and (b) at any time after the date of this
Agreement and at or before the date of such termination a proposal with
respect to an alternative Acquisition Transaction shall have been publicly
announced or disclosed, or disclosed to the Board of Directors or any
committee thereof, then in any such case the Company shall promptly, but in
no event later than two business days after such termination, pay Kelso a
termination fee of $4 million plus the Transaction Expenses, which amounts
shall be payable by wire transfer to the Fee Account. If, within twelve
months after the date the Company first becomes obligated to make the
payment referred to in the immediately preceding sentence, the Company
enters into an agreement with respect to an alternative Acquisition
Transaction that provides a higher price to the Company's stockholders,
from a financial point of view, than the transactions contemplated by this
Agreement, then, in any such case, the Company shall promptly, but in no
event later than two business
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days after the execution of such agreement with respect to such Alternative
Transaction, pay Kelso an additional termination fee of $6 million, which
amount shall be payable by wire transfer to the Fee Account.
(iii) If (a) this Agreement is terminated pursuant to Section
7.1(d)(but the condition in Section 6.1(a) shall have been satisfied at the
time of such termination) or 7.1(h)(iii), (b) at any time after the date of
this Agreement and at or before the date of such termination a proposal
with respect to an alternative Acquisition Transaction shall have been
publicly announced or disclosed, or disclosed to the Board of Directors or
any committee thereof, and (c) within twelve months after the date of such
termination the Company shall have entered into an agreement with respect
to an alternative Acquisition Transaction that provides a higher price to
the Company's stockholders, from a financial point of view, than the
transactions contemplated by this Agreement, then in any such case the
Company shall promptly, but in no event later than two business days after
the execution of such agreement with respect to such Alternative
Transaction, pay Kelso the Fee plus the Transaction Expenses, which amounts
shall be payable by wire transfer to the Fee Account.
(iv) If this Agreement is terminated pursuant to Section 7.1(g)(with
respect to breaches of covenants other than in Section 4.3), then in such
case the Company shall promptly, but in no event later than two business
days after such termination, pay Kelso the Transaction Expenses, which
amount shall be payable by wire transfer to the Fee Account.
(v) No fees or Transaction Expenses shall be paid pursuant to this
Section 7.2(b) if Merger Sub shall be in material breach of its obligations
hereunder. If this Agreement is terminated by Merger Sub pursuant to
Section 7.1(g) as a result of a breach by the Company of Section 4.3 and
the Company becomes obligated to pay Parent a termination fee under this
Section 7.2(b) with respect to such termination, Merger Sub's sole and
exclusive remedy for such breach shall be the amounts payable by the
Company under this Section 7.2(b) with respect thereto.
ARTICLE VIII.
GENERAL PROVISIONS
SECTION 8.1. Non-Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or the termination of this Agreement pursuant to Section
7.1, as the case may be, except that the agreements set forth in Article I and
Sections 5.8, 5.9 and 8.8 shall survive the Effective Time indefinitely and
those set forth in Sections 5.5(b), 5.5(c), 7.2(b) and 8.3 and in the fifth,
sixth and seventh sentences of Section 5.11(c) shall survive termination
indefinitely.
SECTION 8.2. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made (i) as of the date delivered or sent by facsimile if delivered
personally or by facsimile, and (ii) on the third business day after deposit
in the U.S. mail, if mailed by registered or certified mail (postage prepaid,
return receipt requested), in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice, except that notices of changes of address shall be effective upon
receipt):
(a) if to Merger Sub:
UC Acquisition Sub, Inc.
c/o Kelso & Company
320 Park Avenue
New York, New York 10022
Attention: James J. Connors II
Facsimile: (212) 223-2379
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With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Lou R. Kling, Esq.
Facsimile: (212) 735-2000
(b) if to the Company:
Unilab Corporation
401 Hackensack Avenue
Hackensack, New Jersey 07601
Attention: Mark L. Bibi, Esq.
Facsimile: (201) 525-1331
With a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Steven J. Gartner, Esq.
Facsimile: (212) 728-8111
SECTION 8.3. Expenses. Except as expressly set forth in Section 7.2(b), all
fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
fees, costs and expenses.
SECTION 8.4. Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" of a Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person;
(b) "control" (including the terms "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of stock, as trustee or executor, by contract
or credit arrangement or otherwise; and
(c) "Person" means an individual, corporation, partnership, association,
trust or any unincorporated organization.
SECTION 8.5. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
maximum extent possible.
SECTION 8.7. Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the Confidentiality Agreement constitute the entire agreement and
supersede any and all other prior agreements and undertakings, both written
and oral, among the parties, or any of them, with respect to the subject
matter hereof and, except as otherwise expressly provided herein (including
without limitation Section 5.8), this Agreement is not intended to
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confer upon any other Person any rights or remedies hereunder, except that
Kelso shall be a beneficiary of Sections 7.2(b) and 8.8 hereof and shall be
entitled to enforce such provisions.
SECTION 8.8. Fees, etc. At the Closing, the Surviving Corporation shall
enter into (or shall succeed by operation of law to, if Merger Sub had
theretofore entered into), the Kelso Agreements (as hereafter defined). As
used herein, the "Kelso Agreements" shall mean one or more agreements, copies
of which shall be provided to the Company by Merger Sub prior to the Effective
Time, which provide for (i) a fee (the amount of which shall be determined by
Kelso) not to exceed $6 million to be paid by the Surviving Corporation to
Kelso & Co., L.P. ("Kelso") at the Effective Time, (ii) financial advising
fees (the amount of which shall be determined by Kelso) not to exceed $600,000
per annum, to be paid annually to Kelso by the Surviving Corporation and
(iii) indemnification by the Surviving Corporation of Kelso and certain
related parties with respect to the transactions contemplated hereby,
including the financing of the Merger and any services to be provided by Kelso
or any related party to the Surviving Corporation on a going forward basis.
SECTION 8.9. Assignment. This Agreement shall not be assigned by operation
of law or otherwise, except that Merger Sub may assign all or any of its
rights hereunder to any affiliate of Merger Sub provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
SECTION 8.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed entirely within that State.
SECTION 8.11. Amendment. This Agreement may be amended by the parties hereto
by action taken by Merger Sub, and by action taken by or on behalf of the
Board of Directors at any time before the Effective Time; provided, however,
that, after approval of the Merger by the stockholders of the Company, no
amendment may be made which would reduce the amount or change the type of
consideration into which each Share will be converted upon consummation of the
Merger. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.12. Waiver. At any time before the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only as against such party and
only if set forth in an instrument in writing signed by such party.
SECTION 8.13. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, Merger Sub and the Company have caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
UNILAB CORPORATION
By: /s/ David C. Weavil
----------------------------------
Name: David C. Weavil
Title: Chief Executive Officer
UC ACQUISITION SUB, INC.
By: /s/ Frank J. Loverro
----------------------------------
Name: Frank J. Loverro
Title: Vice-President
A-36
<PAGE>
APPENDIX B
[LETTERHEAD OF BT ALEX. BROWN INCORPORATED]
May 24, 1999
The Board of Directors
Unilab Corporation
18448 Oxnard Street
Tarzana, California 91356
Members of the Board:
BT Alex. Brown Incorporated ("BT Alex. Brown") has acted as financial
advisor to Unilab Corporation ("Unilab") in connection with the proposed
transaction involving Unilab, Kelso Investment Associates VI L.P. and KEP VI LLC
(collectively, "Kelso") pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") to be entered into between UC Acquisition Sub, Inc., a wholly owned
subsidiary of Kelso ("Merger Sub"), and Unilab, which provides, among other
things, for the merger of Merger Sub with and into Unilab (the "Merger"). As set
forth more fully in the Merger Agreement, as a result of the Merger, each
outstanding share of the common stock, par value $0.01 per share, of Unilab (the
"Unilab Common Stock") will be converted into either (i) the right to retain, at
the election of the holder thereof, one share of the common stock of the
surviving corporation (the "Stock Consideration") or (ii) the right to receive
$5.85 in cash (the "Cash Consideration" and, together with the Stock
Consideration, the "Common Stock Merger Consideration"), subject to certain
proration procedures (as to which we express no opinion) more fully specified in
the Merger Agreement; provided that, the aggregate number of shares of Unilab
--------
Common Stock to be converted into the Stock Consideration at the effective time
of the Merger will be equal to the Parent Equity Number (as defined in the
Merger Agreement), multiplied by 0.07 and divided by 0.93. The Merger Agreement
provides for the possible restructuring of the Merger in order to achieve
recapitalization accounting treatment as a merger in which each share of Unilab
Common Stock outstanding immediately prior to the effective time of the Merger
would be converted into the right to receive only the Cash Consideration. The
Merger Agreement further provides that each outstanding share of convertible
preferred stock, par value $0.01 per share, of Unilab will be converted into the
right to receive $5.75 in cash, plus all dividends accrued through the effective
time of the Merger.
You have requested BT Alex. Brown's opinion as to the fairness, from a
financial point of view, of the Common Stock Merger Consideration to the holders
of Unilab Common Stock.
In connection with BT Alex. Brown's role as financial advisor to
Unilab, and in arriving at its opinion, BT Alex. Brown has reviewed certain
publicly available financial and other information concerning Unilab and certain
internal analyses and other information furnished to or discussed with it by
Unilab and its advisors. BT Alex. Brown has also held discussions with members
of the senior management of Unilab and Kelso regarding the business and
prospects of Unilab. In addition, BT Alex. Brown has (i) reviewed the reported
prices and trading activity for Unilab Common Stock, (ii) compared certain
financial and stock market information for Unilab with similar information for
certain other companies whose securities are publicly traded, (iii) reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part, (iv) reviewed the terms of a draft of the Merger
Agreement dated May 24, 1999, and (v) performed such other studies and analyses
and considered such other factors as it deemed appropriate. In connection with
its engagement, BT Alex. Brown was authorized to approach, and held discussions
with, third parties to solicit indications of interest with respect to the
acquisition of Unilab.
B-1
<PAGE>
Board of Directors
Unilab Corporation
May 24, 1999
Page 2
BT Alex. Brown has not assumed responsibility for independent
verification of, and has not independently verified, any information, whether
publicly available or furnished to it, concerning Unilab, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, BT Alex. Brown has assumed and relied upon the accuracy and
completeness of all such information and BT Alex. Brown has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities, of Unilab. With respect to the financial forecasts and projections
made available to BT Alex. Brown and used in its analyses, BT Alex. Brown has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of Unilab as to the matters covered
thereby. In rendering its opinion, BT Alex. Brown expresses no view as to the
reasonableness of such forecasts and projections or the assumptions on which
they are based. BT Alex. Brown's opinion is necessarily based upon economic,
market and other conditions as in effect on, and the information made available
to it as of, the date hereof.
For purposes of rendering its opinion, BT Alex. Brown has assumed
that, in all respects material to its analysis, the representations and
warranties of Unilab and Merger Sub contained in the Merger Agreement are true
and correct, Unilab and Merger Sub will each perform all of the covenants and
agreements to be performed by it under the Merger Agreement and all conditions
to the obligations of each of Unilab and Merger Sub to consummate the Merger
will be satisfied without any waiver thereof. BT Alex. Brown has also assumed
that all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the Merger will be obtained and
that in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which either Unilab or Merger Sub is a
party or is subject or by which it is bound, no limitations, restrictions or
conditions will be imposed or amendments, modifications or waivers made that
would have a material adverse effect on Unilab or materially reduce the
contemplated benefits of the Merger to Unilab. In addition, you have informed BT
Alex. Brown, and accordingly for purposes of rendering its opinion BT Alex.
Brown has assumed, that the Merger will be recorded as a recapitalization for
financial reporting purposes and that the final terms of the Merger Agreement
will not vary materially from those set forth in the draft reviewed by BT Alex.
Brown. BT Alex. Brown is expressing no opinion as to the price at which the
common stock of the surviving corporation will trade or otherwise be
transferable at any time.
This opinion is addressed to, and for the use and benefit of, the
Board of Directors of Unilab and is not a recommendation to any stockholder as
to the form of Common Stock Merger Consideration to be elected by such
stockholder or how such stockholder should vote with respect to matters relating
to the proposed Merger. This opinion is limited to the fairness, from a
financial point of view, of the Common Stock Merger Consideration to the holders
of Unilab Common Stock, and BT Alex. Brown expresses no opinion as to the merits
of the underlying decision by Unilab to engage in the Merger.
BT Alex. Brown, as a customary part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes. We have
acted as financial advisor to Unilab in connection with the Merger and will
receive a fee for our services, a significant portion of which is contingent
upon the consummation of the Merger and a portion of which is payable upon
delivery of this opinion. As you are aware, an affiliate of BT Alex. Brown will
participate in the financing of the Merger, for which services such affiliate
will receive compensation. BT Alex. Brown and its affiliates have in the past
provided financial services to Unilab and affiliates of Kelso unrelated to the
proposed Merger, for which services BT Alex. Brown and its affiliates have
received
B-2
<PAGE>
Board of Directors
Unilab Corporation
May 24, 1999
Page 3
compensation. In the ordinary course of business, BT Alex. Brown and its
affiliates may actively trade or hold the securities and other instruments and
obligations of Unilab for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities, instruments or obligations.
Based upon and subject to the foregoing, it is BT Alex. Brown's
opinion that, as of the date of this letter, the Common Stock Merger
Consideration is fair, from a financial point of view, to the holders of Unilab
Common Stock.
Very truly yours,
[LOGO OF BT ALEX. BROWN INCORPORATED]
BT ALEX. BROWN INCORPORATED
B-3
<PAGE>
APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation,
who has otherwise complied with subsection (d) of this section and who has
neither voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S)228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of
a nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or
more shares, or fractions thereof, solely of stock of a corporation, which
stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251 (g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders.
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation
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of the certificates representing such stock. The Court's decree may be
enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of
any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 339, L.
'98, eff. 7-1-98.)
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UNILAB CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD AT 10:00 A.M., LOCAL TIME, ON
NOVEMBER 23, 1999.
The undersigned hereby appoints David C. Weavil, Brian D. Urban and Mark L.
Bibi, and each of them as Proxies, each with full power of substitution, to
represent and to vote as designated herein all the shares of Common Stock of
Unilab Corporation (the "Company") held of record by the undersigned as of
October 4, 1999, at the Special Meeting of Stockholders to be held at 10:00
a.m., local time on November 23, 1999, at the Hilton New York, 1335 Avenue of
the Americas, New York, New York 10019, or any adjournment or adjournments
thereof.
<PAGE>
PROPERLY EXECUTED PROXIES WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED. IF NO SUCH DIRECTIONS ARE GIVEN, SUCH PROXIES WILL BE VOTED "FOR"
PROPOSAL 1.
1. To approve and adopt the Agreement and Plan of Merger dated as of May 24,
1999, as amended on July 8, 1999, July 30, 1999 and August 10, 1999, by
and among UC Acquisition Sub, Inc. and the Company and the transactions
contemplated thereby, including the merger of UC Acquisition Sub, Inc.
with and into the Company.
For [_] Against [_]Abstain [_]
2. In his discretion, the Proxy is authorized to vote upon such other
business as may properly come before the Special Meeting.
Please be sure to sign and date this Proxy below.
Date: ____, 1999
Signature ______
Signature ______
(When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If stockholder is a corporation, corporate
name should be signed by an authorized officer and the corporate seal affixed.
If stockholder is a partnership, please sign in partnership name by authorized
persons. For joint accounts, each joint owner should sign.)
PLEASE MARK, SIGN, DATE AND MAIL YOUR PROXY CARD TODAY.
