UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment on
Form 8-K(A)
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): November 5, 1998
Unilab Corporation ("Unilab")
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
33-77286 95-4415490
(Commission File Number) (I.R.S. Employer
Identification Number)
18448 Oxnard Street, Tarzana, California 91356
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 996-7300
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Introductory Note:
This Amendment on Form 8-K(A) amends the current Report on Form 8-K
filed by Unilab on November 5, 1998 (the "Form 8-K") with respect to Unilab's
acquisition of substantially all of the assets of Meris Laboratories, Inc.
("Meris"). This Amendment is being filed for the purposes of providing (i)
additional information pursuant to Item 2, (ii) the consolidated historical
financial statements of the Meris business acquired (the "Meris Financial
Information") and (iii) the Unaudited Pro Forma Financial Information of Unilab
and the notes thereto (collectively, the "Pro Forma Financial Information")
Item 2. Acquisition or Disposition of Assets
(a) Acquisition
Pursuant to an Asset Purchase Agreement, dated as of September
16, 1998 (the "Asset Purchase Agreement"), by and between Meris Laboratories,
Inc., a California corporation ("Meris") and Unilab Corporation, a Delaware
corporation ("Unilab" or the "Company"), effective as of November 5, 1998 the
Company acquired substantially all of the assets of Meris (the "Meris
Acquisition"). The purchase price for the Meris Acquisition consisted of a $14
million convertible subordinated note ("the Note") and the incurrence of $2.5
million of liabilities payable to Meris in equal installments over 72 months.
The Note has an 8-year term with a $3.00 per share conversion price, and bears a
7.5% interest rate. In addition to the customer list, Unilab acquired
approximately $6.5 million of assets, the majority of which were trade accounts
receivable.
The shares of Unilab common stock into which the Note are
convertible is subject to a Registration Rights Agreement, dated November 5,
1998.
The Asset Purchase Agreement is attached as Exhibit 2.1, the
Note is attached as Exhibit 2.2 and the Registration Rights Agreement is
attached as Exhibit 2.3. Each such agreement is incorporated by reference in its
entirety herein and the description of each such Agreement contained herein is
qualified in its entirety by reference to such agreement.
(a) Source of Funds
The consideration for the Meris Acquisition consisted of the
Note, plus the incurrence of certain payments over a 72-month period. Unilab
intends to make these monthly payments from cash on hand. Unilab believes its
cash flows will be sufficient to make such payments on a timely basis.
(b) Equipment or Other Physical Property
Certain of the assets of Meris acquired by the Company
pursuant to the Asset Purchase Agreement constitute equipment or other physical
property. Such assets were used by Meris in conjunction with its clinical
laboratory testing business. The Company intends to continue substantially the
same use for such acquired assets.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits
(a) Financial Information of Business Acquired
Attached hereto as Exhibit 99.1 is the Meris
Financial Information.
(b) Pro Forma Financial Information.
Attached hereto as Exhibit 99.2 is the Pro Forma Financial
Information.
(c) Exhibits.
2.1 Asset Purchase Agreement
2.2 Note
2.3 Registration Rights Agreement
99.1 Meris Financial Information
99.2 Pro Forma Financial Information.
<PAGE>
INDEX OF EXHIBITS
Exhibits Page
Asset Purchase Agreement 2.1
Convertible Note 2.2
Registration Rights Agreement 2.3
Meris Financial Information 99.1
Pro Forma Financial Information 99.2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act 1934,
Unilab Corporation has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: January 18, 1999 UNILAB CORPORATION
By: /s/ Brian D. Urban
Name: Brian D. Urban
Title: Executive Vice President,
Chief Financial Officer and Treasurer
<PAGE>
ASSET PURCHASE AGREEMENT
By and Between
UNILAB CORPORATION,
as Buyer
and
MERIS LABORATORIES, INC.
Debtor and Debtor-in-Possession,
as Seller
Dated as of September 16, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS; INTERPRETATIONS..................................1
1.1 Definitions.................................................1
1.2 Interpretation..............................................6
ARTICLE II. PURCHASE AND SALE OF ASSETS..................................6
2.1 Purchase and Sale of Assets.................................6
(a) Leasehold Property...................................7
(b) Tangible Personal Property...........................7
(c) Inventory............................................7
(d) Accounts Receivable..................................7
(e) Computer System......................................7
(f) Books, Records and Written Materials.................7
(g) Supplier and Advertising Materials...................7
(h) Customer List........................................8
(i) Intellectual Property Rights.........................8
(j) Goodwill.............................................8
(k) Assumed Contracts....................................8
(l) Permits and Approvals................................8
(m) Prepaid Expenses.....................................8
(n) Seller's Warranties..................................8
(o) Insurance Policies and Proceeds......................8
(p) Testing Orders.......................................9
(q) Other Assets.........................................9
2.2 Excluded Assets.............................................9
(a) Cash.................................................9
(b) Retained Expenses....................................9
(c) Retained Accounts Receivable.........................9
(d) Corporate Records....................................9
(e) Claims...............................................9
(f) Certain Contracts....................................9
(g) Settlement Agreement.................................9
(h) Tax Attributes......................................10
2.3 Inspections; Warranties as to Condition....................10
2.4 Remittance Obligation......................................10
ARTICLE III. LIABILITIES................................................10
3.1 Retention of Liabilities...................................10
(a) Pre-Closing.........................................10
(b) Employees...........................................11
(c) Indebtedness........................................11
(d) Litigation..........................................11
(e) Product, Environmental and Safety-Liability.........11
(f) Taxes...............................................11
(g) Liabilities Relating to Excluded Assets.............11
(h) Government Settlement Agreement.....................11
(i) Assumed Contracts...................................12
3.2 Assumed Liabilities........................................12
(a) Assumed Contracts...................................12
(b) Repair Obligations..................................12
(c) Transferred Permits.................................12
(d) Retained Employees..................................12
ARTICLE IV. PURCHASE PRICE..............................................12
4.1 Purchase Price.............................................12
(a) Convertible Note....................................13
(b) Cash Payment........................................13
4.2 Purchase Price Adjustment..................................13
4.3 Prorations and Reimbursements..............................13
(i) Utility Charges.....................................13
(ii) Fee Payments.......................................13
(iii) Tax Payments......................................13
4.4 Transfer Taxes.............................................14
ARTICLE V. CLOSING......................................................14
5.1 Closing......................................................14
5.2 Documents to be Delivered by Seller........................14
(a) Resolutions and Actions.............................14
(b) Bankruptcy Court Orders.............................14
(c) Bill of Sale and Assignment and Assumption Agreement.14
(d) Assignment of Intellectual Property.................14
(e) Certificate Regarding Conditions....................15
(f) Incumbency Certificates.............................15
(g) Good Standing Certificates..........................15
(h) Opinion of Counsel for Seller.......................15
(i) Registration Rights Agreement.......................15
5.3 Documents to be Delivered by Buyer.........................15
(a) Resolutions.........................................15
(b) Certificate Regarding Conditions....................15
(c) Bill of Sale and Assignment and Assumption Agreement..15
(d) Convertible Note.....................................15
(e) Good Standing Certificate............................15
(f) Incumbency Certificate...............................16
(g) Opinion of Counsel for Buyer.........................16
(h) Registration Rights Agreement........................16
ARTICLE VI. REPRESENTATIONS AND WARRANTIES...............................16
6.1 Representations and Warranties of Seller....................16
(a) Organization and Standing; Power and Authority.......16
(b) Title to the Acquired Assets. Etc....................16
(c) Assumed Contracts....................................17
(d) Receivables..........................................17
(e) Regulatory Compliance................................17
(f) Brokers, Finders and Agents..........................17
(g) Intellectual Property................................18
(h) Permits..............................................18
(i) Labor Matters........................................19
(j) Environmental and Safety Compliance..................19
(k) Underground Storage Tanks............................19
(l) Approvals............................................20
(m) Books and Records....................................20
(n) Copies of Documents..................................20
(o) Investment Purpose...................................20
(p) Accredited Investor Status...........................20
(q) Reliance on Exemptions...............................20
(r) No Governmental Review...............................20
(s) Transfer or Resale...................................21
(t) Legends..............................................21
(u) No Material Misstatements............................22
(v) Litigation...........................................22
(w) Conflicts; Defaults..................................22
(x) Insurance............................................23
6.2 Representations and Warranties of Buyer.....................23
(a) Organization and Standing; Corp Power and Authority...23
(b) Conflicts; Defaults..................................23
(c) Issuance of Convertible Note.........................24
(d) SEC Documents; Financial Statements..................24
(e) No Integrated Offering...............................25
(f) Brokers, Finders and Agents..........................25
(g) Litigation...........................................25
(h) Capitalization.......................................25
(i) Absence of Certain Changes...........................26
(j) Title................................................26
(k) Insurance............................................26
(l) Permits..............................................26
ARTICLE VII. CONDITIONS TO CLOSING.......................................26
7.1 Conditions to Buyer's Obligations...........................26
(a) Sales Procedures Order...............................27
(b) Sale Order...........................................27
(c) Representations and Warranties.......................27
(d) Covenants............................................27
(e) Material Adverse Effect..............................27
(f) No Injunction........................................27
(g) Certificate of Seller................................27
(h) Hart-Scott-Rodino....................................28
(i) Berkeley Leases......................................28
(j) Leases...............................................28
(k) Other Documents......................................28
7.2 Conditions to Seller's Obligations..........................28
(a) Sales Procedures Order...............................28
(b) Sale Order...........................................28
(c) Representations and Warranties.......................28
(d) Covenants............................................28
(e) No Injunction........................................29
(f) Certificate of Buyer.................................29
(g) Hart-Scott-Rodino....................................28
(h) Other Documents......................................29
ARTICLE VIII. COVENANTS OF SELLER..........................................29
8.1 Bankruptcy Court Matters....................................29
(a) Sales Procedures Order; Sale Order...................29
(b) Objections...........................................29
(c) Appeals..............................................30
(d) Compliance with Orders...............................30
8.2 Termination Fee.............................................30
8.3 Conduct of Business.........................................30
(a) Sale of Assets.......................................30
(b) Commitments..........................................31
(c) Contract Rights, Etc.................................31
(d) Encumbrances.........................................31
(e) Representations and Warranties.......................31
8.4 Access; Information; Permits................................31
(a) Access...............................................31
(b) Current Information..................................31
8.5 Closing.....................................................32
8.6 Confidentiality.............................................32
8.7 Inventories.................................................32
8.8 No Shopping or Disclosure...................................32
8.9 HSR Act.....................................................33
8.10 Tail Insurance.............................................33
8.11 Audited Financial Statements...............................33
ARTICLE IX. COVENANTS OF BUYER...........................................33
9.1 Representations and Warranties..............................33
9.2 Confidentiality.............................................34
9.3 Closing.....................................................34
9.4 Reservation of Shares.......................................34
9.5 Financial Information.......................................34
9.6 Default in Cash Payment.....................................34
9.7 HSR Act.....................................................34
ARTICLE X. CERTAIN ADDITIONAL COVENANTS..................................35
10.1 Expenses; Bulk Sales.......................................35
10.2 Press Releases.............................................35
10.3 Employee Matters...........................................35
(a) Employee Benefits....................................35
(b) Employment at Closing................................35
(c) Employee Information.................................36
10.4 Customer List..............................................36
10.5 Further Assurances.........................................36
ARTICLE XI. INDEMNITY....................................................36
11.1 Indemnification by Buyer...................................36
11.2 Indemnification by Seller..................................37
ARTICLE XII. TERMINATION.................................................37
12.1 Termination................................................37
(a) Mutual Consent.......................................37
(b) Sellers' Misrepresentation or Breach.................37
(c) Accession Termination Event..........................37
(d) Buyer Misrepresentation or Breach....................38
(e) Failure to Consummate Sale...........................38
12.2 Effect of Termination......................................38
ARTICLE XIII. MISCELLANEOUS..............................................38
13.1 Survival...................................................38
13.2 Amendments.................................................38
13.3 Matters Relating to Accounts Receivable, Etc...............38
13.4 Entire Agreement...........................................39
13.5 Governing Law..............................................39
13.6 Notices....................................................39
13.7 Counterparts...............................................40
13.8 Assignment.................................................40
13.9 Waivers....................................................41
13.10 Third Parties.............................................41
13.11 Schedules and Exhibits....................................41
13.12 Headings..................................................41
13.13 Effective Time............................................41
13.14 Absence of Breach.........................................41
13.15. Access to Records........................................41
<PAGE>
SCHEDULES
2.1(a) Leasehold Property
2.1(b) Tangible Personal Property
2.1(i) Intellectual Property
2.1(k) Assumed Contracts
2.1(l) Permits
2.2(b) Excluded Prepaid Expenses
2.2(c) Excluded Accounts Receivable
2.2(e) Excluded Claims
6.1(b) Permitted Liens
6.1(c) Material Contracts
6.1(d) Accounts Receivable
6.1(e) Regulatory Compliance
6.1(i) Labor Matters
6.1(j) Environmental and Safety Compliance
6.1(k) Underground Storage Tanks
6.1(v) Litigation
6.2(h) Capitalization
6.2(i) Certain changes
6.2(j) Title
7.1(i) Berkeley Leases
7.1(j) Transition Leases
EXHIBITS
Exhibit A Convertible Note
Exhibit B Registration Rights Agreement
Exhibit C Sales Procedures Order
Exhibit D Agreement Not To Solicit
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of September 16, 1998,
is made by and between UNILAB CORPORATION, a Delaware corporation (the "Buyer"),
and MERIS LABORATORIES, INC., a California corporation, as debtor and debtor in
possession (the "Seller").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of providing
clinical laboratory testing services (the "Business");
WHEREAS, on November 18, 1997, Seller commenced a bankruptcy
case, Case No. LA 97-54128-ER (the "Chapter 11 Case"), under chapter 11 of
Title 11 of the United States Code, 11 U.S.C. ss.ss. 101, et seq. (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Central
District of California (the "Bankruptcy Court");
WHEREAS, Seller continues to operate its business as
debtor in possession in the Chapter 11 Case;
WHEREAS, Seller desires to sell, assign, convey, transfer and
deliver ("Transfer") upon the terms and subject to the conditions set forth in
this Agreement the Acquired Assets (as hereinafter defined) to Buyer;
WHEREAS, Buyer desires to purchase and acquire from Seller all
of Seller's right, title and interest in the Acquired Assets and in connection
therewith Buyer is willing to assume certain liabilities of the Seller relating
to the Business, all on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein contained and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto,
subject to the terms and conditions contained herein, hereby agree as follows:
ARTICLE I. DEFINITIONS; INTERPRETATIONS
1.1 Definitions. As used in this Agreement the following terms
have the indicated meanings:
"1934 Act" shall have the meaning set forth in Section 6.2(d).
"1933 Act" shall have the meaning set forth in Section 6.1(o).
"Affiliate" means any Person that directly, or indirectly
through one or more entities, controls or is controlled by, or is under control
with, the Person specified.
"Agreement" means this Asset Purchase Agreement, including the
Exhibits and Schedules hereto.
"Accession" means the receipt and log-in by the Seller or
Buyer, as the case may be, from a client of a specimen of blood, tissue or urine
for clinical laboratory testing by the Seller or Buyer, respectively. For
purposes of clarification, it is acknowledged that a single Accession may result
in multiple individual tests.
"Accession Reduction" means, with respect to any period, the
amount, if any, by which (a) the Base Average Daily Accessions exceeds (b) the
Subsequent Average Daily Accessions in respect of such period.
"Accession Reduction Percentage" means, with respect to any
period, the quotient, expressed as a percentage, equal to (a) the Accession
Reduction for such period divided by (b) the Base Average Daily Accession,
rounded down to the nearest whole number.
"Accession Termination Event" means, for any two week period
ending on or after November 2, 1998, the existence of an Accession Reduction
Percentage measured with respect to such period greater than ten (10%) percent.
"Acquired Assets" shall have the meaning set forth in
Section 2.1.
"Antitrust Division" shall have the meaning set forth in
Section 8.9.
"Assumed Contracts" shall have the meaning set forth in
Section 2.1(k).
"Assumed Liabilities" shall have the meaning set forth in
Section 3.2.
"Average Daily Accessions" means, for any period, the quotient
equal to (a) the total number of Accessions of the Seller on the Business Days
during such period divided by (b) the number of Business Days during such
period.
"Average Daily Unilab Accessions" means, for any period, the
quotient equal to (a) the total number of Accessions of the Buyer on the
Business Days during such period from customers that were, as of the date of
this Agreement, customers of Seller and not Buyer, divided by (b) the number of
Business Days during such period.
"Bankruptcy Code" shall have the meaning set forth in the
recitals.
"Bankruptcy Court" shall have the meaning set forth in the
recitals.
"Base Average Daily Accessions" means the Average Daily
Accessions for the thirty day period ending on September 19, 1998.
"Business" shall have the meaning set forth in the recitals.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized by
law to close. Notwithstanding the foregoing, the following days shall not
constitute Business Days: September 8 through 11, 1998, November 23 through 27,
1998 and December 21 through 31, 1998.
"Buyer" shall have the meaning set forth in the preamble.
"Buyer Agreements" shall have the meaning set forth in
Section 6.2(a).
"Buyer Material Adverse Effect" means an occurrence of any
event or condition that would (i) have a material adverse effect on the
transactions contemplated hereby, (ii) adversely affect the validity or
enforceability of, or the authority or ability of Buyer to perform its
obligations under, this Agreement, the Registration Rights Agreement, the
Convertible Note or any of the documents contemplated herein or (iii) have a
material adverse effect on the business, financial condition or results of
operations of Buyer and its subsidiaries taken as a whole or the use by Buyer of
its assets.
"Cash Payment" shall have the meaning set forth in Section
4.1(b).
"Chapter 11 Case" shall have the meaning set forth in the
recitals.
"Claim" shall have the meaning set forth in Section 101(5) of
the Bankruptcy Code and shall include, without limitation, any claim of any
Governmental Authority relating to any violation of any law.
"Closing" shall have the meaning set forth in Section 5.1.
"Closing Date" shall have the meaning set forth in Section 5.1.
"Common Stock" means the common stock, par value $.01 per
share, of Buyer.
"Conversion Shares" means the shares of Common Stock issued
upon conversion of the Convertible
Note.
"Convertible Note" shall have the meaning set forth in
Section 4.1(a).
"Customer List" shall have the meaning set forth in
Section 2.1(h).
"Employee Liabilities" means any payments or liabilities for
wages or compensation, and payments or liabilities relating to or arising under
severance, bonus, retirement, pension, insurance, medical, disability,
profit-sharing or deferred compensation plans or agreements, employee vacation
or health benefits, paid time off, state and federal civil rights or employment
laws, including, without limitation, the Age Discrimination in Employment Act of
1967, Title VII of the Civil Rights Act of 1964, and the Americans with
Disability Act of 1991, any employee pension, benefit or welfare plan, as
defined in the Employee Retirement Income Security Act of 1974, as amended, or
any other severance, bonus, stock option, stock appreciation, stock purchase,
retirement, insurance, pension, profit-sharing, deferred compensation or other
similar plan, agreement or arrangement.
"Employees" means any persons employed in the Business at any
time prior to the Closing Date.
"Environmental Law" shall have the meaning set forth in
Section 6.1(j).
"Excluded Assets" shall have the meaning set forth in
Section 2.2.
"FTC" shall have the meaning set forth in Section 8.9.
"Governmental Authority" means any court, any governmental
body, department, agency or instrumentality, or any other regulatory or
administrative agency or commission, domestic or foreign.
"Hazardous Materials" shall have the meaning set forth in
Section 6.1(j).
"HSR Act" shall have the meaning set forth in Section 6.1(l).
"Intellectual Property Rights" shall have the meaning set
forth in Section 2.1(i).
"Inventory" shall have the meaning set forth in Section 2.1(c).
"Leases" shall have the meaning set forth in Section 2.1(a).
"Liens" means any and all mortgages, pledges, security
interests, encumbrances, liens, offset, recoupments or charges of any kind
whatsoever.
"Permits" means licenses from a Governmental Authority,
permits, approvals, franchises, authorizations, variances, waivers or consents.
"Permitted Liens" shall have the meaning set forth in
Section 6.1(b).
"Person" means any natural person or any entity, including,
without limitation, any limited liability company, trust, corporation, joint
stock association, partnership, firm, sovereign entity, government or other
entity (including Governmental Authorities).
"Prepaid Expenses" shall have the meaning set forth in
Section 2.1(m).
"Purchase Price" shall have the meaning set forth in
Section 4.1.
"Purchase Price Reduction Amount" means, upon the occurrence
of a Purchase Price Reduction Event, the amount set forth in the chart below
opposite the actual Accession Reduction Percentage for the two week period
ending two days prior to the Closing Date:
Accession Reduction Percentage Purchase Price Reduction Amount
3% $500,000
4% 710,000
5% 920,000
6% 1,130,000
7% 1,340,000
8% 1,550,000
9% 1,760,000
10% or greater 2,000,000
"Purchase Price Reduction Event" means the existence of an
Accession Reduction Percentage, for the two week period ending two days prior to
the Closing Date, equal to or greater than three (3%) percent.
"Records" shall have the meaning set forth in Section 2.1(f).
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Closing Date, by and between Buyer and Seller substantially
in the form of Exhibit B hereto.
"Retained Employees" shall have the meaning set forth in
Section 10.3(b).
"Retained Liabilities" shall have the meaning set forth in
Section 3.1.
"Rule 144" shall have the meaning set forth in Section 6.1(s).
"Sale Order" shall have the meaning set forth in
Section 7.1(b).
"Sale Procedures Order" shall have the meaning set forth in
Section 7.1(a).
"SEC" means the United States Securities and Exchange
Commission
"SEC Documents" shall have the meaning set forth in
Section 6.2(d).
"Securities" means the Convertible Note and the Conversion
Shares.
"Seller" shall have the meaning set forth in the preamble.
"Seller Agreements" shall have the meaning set forth in
Section 6.1(a).
"Seller Material Adverse Effect" means the occurrence of any
event or condition between the date hereof and the Closing Date that (a)
constitutes a breach of the covenants set forth in Section 8.3 hereof that is
material and adverse to the results of operations, financial condition or
business of the Seller, taken as a whole, or (b) materially impairs the use or
ownership by Seller of the Acquired Assets, taken in the aggregate, or the
ability of the parties to consummate the transactions contemplated by this
Agreement.
"Subsequent Average Daily Accessions" means, for any period,
the sum of (a) the Average Daily Accessions for such period plus (b) the Average
Daily Unilab Accessions for such period .
"Termination Fee" shall have the meaning set forth in
Section 8.2.
"Transfer" shall have the meaning set forth in the recitals.
"Transferred Permits" shall have the meaning set forth in
Section 2.1(l).
"WARN" means the Worker Adjustment Retraining and Notification
Act, as amended, and any other successor statute of similar import, and
regulations thereunder, in each case as in effect from time to time.
1.2 Interpretation. In this Agreement, unless the context
otherwise requires:
(a) the singular includes the plural and vice versa;
(b) reference to any Person includes such Person's
permitted successors and assigns;
(c) reference to any agreement (including this Agreement),
document or instrument means such agreement, document or instrument as
amended or modified and in effect from time to time in accordance with
the terms thereof and, if applicable, the terms hereof;
(d) reference to any Schedule or Schedules hereto means such
Schedule or Schedules as it or they may be updated or supplemented
pursuant to Section 13.11;
(e) "hereof," "hereto" and words of similar import shall be
deemed references to this Agreement as a whole and not to any
particular Section hereof;
(f) "including" means including without limiting the
generality of any description preceding such term; and
(g) with respect to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding."
ARTICLE II. PURCHASE AND SALE OF ASSETS
2.1 Purchase and Sale of Assets. Upon the terms and subject to
the conditions contained herein, and on the basis of the representations,
warranties, covenants, obligations and agreements set forth in this Agreement,
at the Closing, Seller shall Transfer to Buyer, and Buyer shall purchase and
acquire from Seller, the following assets, properties, rights and interests of
Seller, as the same shall exist as of the Closing Date (such assets, properties,
rights and interests being hereinafter collectively called "Acquired Assets"):
(a) Leasehold Property. All leases and subleases of real and
personal property listed and described on Schedule 2.1(a) attached
hereto (the "Leases") together with Seller's interests in all leasehold
and other improvements thereon;
(b) Tangible Personal Property. All of Seller's machinery,
equipment (including laboratory equipment), tools, furniture, motor
vehicles, and other tangible personal property, including, without
limitation, all tangible personal property set forth on Schedule 2.1(b)
attached hereto;
(c) Inventory. All of Seller's inventories of products,
work-in-process, finished goods, raw materials, and testing laboratory
related materials, supplies and parts (collectively, "Inventory");
(d) Accounts Receivable. Except as set forth on Schedule
2.2(c) hereto, all accounts and notes receivable of and other
indebtedness owed to Seller on the Closing Date and any security or
collateral relating thereto, including, without limitation, any
payments due to Seller from any Governmental Authority or other Person
pursuant to any governmental or private reimbursement programs;
(e) Computer System. All computers, computer systems,
hardware, software (to the extent transferable), programs (to the
extent transferable), disks, peripherals and related items;
(f) Books, Records and Written Materials. Except as set forth
in Section 2.2(d), all of Seller's books, documents and records
(including any of such records produced by third parties for Seller),
including, without limitation, all medical case records (including,
without limitation, PAP records and slides and chain of custody
records), files, correspondence, production, inventory, accounting,
financial and employment records, technical, accounting, manufacturing
and procedural manuals, studies, reports or summaries relating to
environmental matters, invoices, forms, designs, diagrams, drawings,
data, records and any confidential or other business information which
has been reduced to writing or other medium (including computer disk)
(collectively, "Records");
(g) Supplier and Advertising Materials. All of Seller's
supplier, marketing, promotional and advertising materials, including,
without limitation, all catalogs, brochures, plans, supplier lists,
manuals, handbooks, labels and packaging;
(h) Customer List. To the extent reasonably available from
Records as they exist on the date hereof, a list of all Persons to whom
or to which Seller has provided clinical testing services, at any time
on or prior to the Closing Date (individually, a "Customer" and
collectively, the "Customers"), along with related information as to
the date, unit and dollar volume of such sales, the type of service
furnished and other relevant marketing and product information for each
Customer (the "Customer List");
(i) Intellectual Property Rights. All of Seller's intellectual
property, trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights,
inventions, licenses from a third party other than a Governmental
Authority, trade secrets, know-how and rights, to the extent
transferable (collectively "Intellectual Property Rights"), including,
without limitation, those items described in Schedule 2.1(i) attached
hereto, to the extent transferable;
(j) Goodwill. The goodwill of the Business;
(k) Assumed Contracts. All rights and benefits of Seller in,
to or under, including, without limitation, any rights of offset or
set-off, (i) the Leases listed on Schedule 2.1(a) attached hereto and
(ii) the contracts listed on Schedule 2.1(k) attached hereto (the
foregoing Leases and contracts are collectively referred to hereinafter
as the "Assumed Contracts"), each of which shall be assumed by Seller
in accordance with Section 365 of the Bankruptcy Code and assigned to
Buyer in accordance therewith;
(l) Permits and Approvals. All Permits issued to Seller by any
Governmental Authority, including, without limitation, those listed on
Schedule 2.1(l) attached hereto, to the extent transferable (the
"Transferred Permits");
(m) Prepaid Expenses. Except as set forth on Schedule 2.2(b)
or in Sections 2.2(b) and 4.3, all of Seller's rights arising from
advance payments, prepaid expenses, prepaid rents, surety accounts,
deposits and credits (including, without limitation, deposits and
credits with utilities and suppliers) (collectively, the "Prepaid
Expenses");
(n) Seller's Warranties. Except as set forth in Section
2.2(e), all of Seller's rights, Claims, credits, causes of action or
rights of set-off against third parties relating to the Acquired
Assets, including without limitation, any rights under manufacturers'
and vendors warranties;
(o) Insurance Policies and Proceeds. Except where the affected
property has been repaired or replaced by Seller prior to the Closing
Date, all policy rights and proceeds payable under any insurance policy
covering the Acquired Assets;
(p) Testing Orders. All clinical testing orders not
fully performed as of the Closing Date; and
(q) Other Assets. Except as expressly excluded in Section 2.2,
all other assets, rights and interests of every kind and description of
Seller, wherever situated and whether or not relating to the Business
or other businesses of Seller, to the extent transferable.
2.2 Excluded Assets. Notwithstanding any other provision of
this Agreement, the following rights, properties and assets (collectively, the
"Excluded Assets") are specifically excluded from Acquired Assets and shall be
retained by Seller at the Closing, as the same shall exist as of the Closing
Date;
(a) Cash. Except as expressly included in the Acquired Assets
pursuant to Section 2.1(d), (k), (m) and (o) all of Seller's cash on
hand or on deposit, certificates of deposit, time deposits, commercial
paper, treasury bills, notes and other securities or similar items,
including, without limitation, deposits that are security or collateral
for Seller's obligations to third parties;
(b) Retained Prepaid Expenses. All funds arising from any
Prepaid Expense set forth on Schedule 2.2(b) to the extent that the
Seller is entitled to or receives any return of any such Prepaid
Expense.
(c) Retained Accounts Receivable. All accounts
receivable and notes receivable set forth on Schedule 2.2(c) hereto;
(d) Corporate Records. Seller's corporate minute books and
stock transfer books and other books and records relating to the
Excluded Assets and employees of Seller other than Retained Employees
(the "Retained Records");
(e) Claims. All rights of action, Claims and causes of action
of Seller and Seller's estate listed on Schedule 2.2(e), and the
proceeds thereof, all rights of action, Claims and causes of action of
Seller and the Seller's estate arising under or out of Sections 542,
544, 545, 547, 548, 549 or 550 of the Bankruptcy Code, and the proceeds
thereof and all other rights of action or offset, Claims and causes of
action of Seller not transferable to Buyer, and the proceeds thereof;
(f) Certain Contracts. All rights and benefits of
Seller in, to and under Leases and contracts (including insurance
policies) that are not expressly included among the Acquired Assets
pursuant to Section 2.1(a), (k) and (o);
(g) Settlement Agreement. (i) All rights and benefits of
Seller in, to and under that certain Settlement Agreement, dated as of
October 7, 1997, by and among Seller, Chris C. Riedel, Marcia
Prendergast Riedel, Stephen B. Kass, Henry E. Bose, David Allison, John
P. Billingsley, John E. Swartzberg, Morgan W. Davis, Richard L. Oken,
Walter G. Woodbury, John J. DiPietro, Manish Patel, William Neeley,
Donald McGovern and Price Waterhouse LLP including, without limitation,
the proceeds payable to Seller under such Settlement Agreement, and
(ii) all rights of action, Claims and causes of action of Seller and
Seller's estate that relate to or arise out of the "Litigations," as
defined in such Settlement Agreement; and
(h) Tax Attributes. All net operating losses and other tax
attributes of Seller.
2.3 Inspections; Warranties as to Condition. Subject to
satisfaction of the conditions contained in Article VII of this Agreement, Buyer
shall accept the Acquired Assets as they exist on the Closing Date, based upon
its own inspection thereof prior to the date hereof and without reliance upon
any representations or warranties made by or on behalf of Seller other than the
representations and warranties of Seller set forth in Section 6.1 of this
Agreement.
2.4 Remittance Obligation. From and after the Closing Date,
any amount (other than on account of the Excluded Assets) received by Seller
with respect to the Acquired Assets including, without limitation, the accounts
receivable described in Section 2.1(d) shall be held in trust and remitted by
Seller to Buyer as promptly as practicable. From and after the Closing Date, any
amounts received by Buyer with respect to the Excluded Assets including, without
limitation, amounts representing any Prepaid Expenses retained by Seller under
Section 2.2(b) shall be held in trust and remitted by Buyer to Seller as
promptly as practicable. Buyer and Seller shall each be entitled to request and
receive, on reasonable advance notice, supporting documentation confirming the
accuracy of such remitted amounts.
ARTICLE III. LIABILITIES
3.1 Retention of Liabilities. Except as expressly provided in
Section 3.2 hereof, Seller shall retain, and Buyer shall not assume or be
responsible or liable with respect to, any Claims against or any liabilities or
obligations of Seller, whether or not relating to the Business, whether fixed,
contingent or otherwise, whether presently existing or arising hereafter, and
whether known or unknown (collectively, "Retained Liabilities"), including,
without limitation, the liabilities and obligations of Seller, if any, for the
following (all of which will constitute Retained Liabilities):
(a) Pre-Closing. All liabilities and obligations of Seller
relating to or based on events or conditions occurring or existing
prior to the Closing Date, whether or not in connection with, or
arising out of, the Business as operated by Seller, or the ownership,
possession or use of the Acquired Assets by Seller;
(b) Employees. Any liability, cost, expense or obligation
incurred or which has become due and payable on or prior to the Closing
Date or arising thereafter in respect of Seller's employment of or
failure to employ or to continue to employ Employees, or for any
Employee Liabilities, or Claims relating to employee health and safety,
including Claims for injury, sickness, disease or death of any person;
(c) Indebtedness. Any liability, Claim or obligation with
respect to any indebtedness, accounts payable or other liabilities of
Seller;
(d) Litigation. Any liability, Claim or obligation relating to
any litigation, legal proceeding or governmental investigation or
regulatory investigation pending on the Closing Date, or instituted
thereafter, to the extent based on events or conditions occurring or
existing in connection with, or arising out of, the activities of
Seller, or the Seller's ownership, possession or use of Seller's
property, including, without limitation, the Acquired Assets by Seller;
(e) Product, Environmental and Safety Liability. Any
liability, Claim or obligation to the extent based on events or
conditions occurring or existing prior to the Closing Date, and
relating to any of the following: (i) disputes arising out of services
rendered by Seller prior to the Closing Date, including, without
limitation, Claims for refunds, returns, personal injury and property
damage, (ii) Claims, if any, based on the transport, treatment or
disposal of Hazardous Materials by Seller prior to the Closing or (iii)
compliance or noncompliance by Seller with any laws or regulations
relating to the matters specified in clauses (i) or (ii) of this
Section 3.1(e) or to any Environmental Law;
(f) Taxes. Subject to Sections 4.3 and 4.4, any liability or
obligation of Seller for any federal, state or local taxes (or any
interest or penalties thereon), including, without limitation, (i) all
income, franchise and property taxes, including, without limitation,
taxes attributable to the sale of inventory and employee withholding,
FICA or unemployment tax obligations, and (ii) capital gain, income and
other taxes imposed on the Acquired Assets;
(g) Liabilities Relating to Excluded Assets. Any liability or
obligation to the extent relating to or based on events or conditions
occurring or existing in connection with, or arising out of, the
Excluded Assets;
(h) Government Settlement Agreement. Any liabilities and
obligations of Seller in, to and under that certain agreement dated
February 4, 1997 by and among the United States of America acting
through the Department of Justice, the Office of the Inspector General
of the United States Department of Health and Human Resources, the
State of California acting through its Department of Justice, Janice
Prendergast, Julia Silveira and Seller, including any and all
amendments, addenda, exhibits and schedules attached thereto or
incorporated therein by reference; and
(i) Assumed Contracts. Liabilities, obligations and
commitments arising or accrued under the Assumed Contracts before the
Closing Date and required to be paid pursuant to Section 365(b)(1)(A)
and (B) of the Bankruptcy Code.
3.2 Assumed Liabilities. From and after the Closing, Buyer
shall assume and agree to pay, perform and discharge when due the following, and
only the following, liabilities and obligations of Seller as of the Closing
Date, subject, in each case, to any and all Claims and defenses of Seller
(collectively, "Assumed Liabilities"):
(a) Assumed Contracts. Liabilities, obligations and
commitments of Seller under the Assumed Contracts acquired by or
assigned to Buyer pursuant to Section 2.1 arising on or after the
Closing Date;
(b) Repair Obligations. Obligations with respect to the repair
or replacement (due to events occurring prior to the Closing Date) of
Acquired Assets as to which Buyer is entitled to insurance proceeds
under Section 2.1(o);
(c) Transferred Permits. Liabilities, obligations and
commitments of Seller for the period from and after the Closing
Date under the Transferred Permits included in the Acquired Assets and
acquired by Buyer pursuant to Section 2.1; and
(d) Retained Employees. Any liability or obligation accrued
but unpaid as of the Closing Date for vacation, sick payments,
severance or other paid time off only, due to or with respect to any
Retained Employees in respect of employment with Seller prior to the
Closing Date and any liability under WARN with respect to Retained
Employees and any other employee of Seller of whom Buyer requests in
writing that Seller continue employment for any period after the
Closing Date.
ARTICLE IV. PURCHASE PRICE
4.1 Purchase Price. Subject to Section 4.2 and the other terms
and conditions hereof, in full consideration for the Transfer of the Acquired
Assets and the representations, warranties and the other undertakings of Seller
contained herein, at the time of the Closing, (i) Buyer shall assume the Assumed
Liabilities, and (ii) Buyer shall deliver and pay a total purchase price,
subject to the proration adjustments set forth in Section 4.3 and, if applicable
Section 11.2(b), of $16,520,000 (the "Purchase Price"), payable as follows:
(a) Convertible Note. Delivery by Buyer of a convertible
subordinated promissory note of Buyer in the principal amount of
$14,000,000, bearing interest on the outstanding balance thereof at the
rate of 7.5% per annum, and substantially in the form of Exhibit A
attached hereto (the "Convertible Note").
(b) Cash Payment. Delivery by Buyer to Seller of $2,520,000
(the "Cash Payment"), payable in seventy-two (72) equal monthly
installments of $35,000 and payable on the first Business Day of each
month, commencing with the first calendar month immediately following
the Closing Date.
4.2 Purchase Price Adjustment. (a) If, as of the Closing Date,
a Purchase Price Reduction Event has occurred, the amount of the Purchase Price
shall be reduced by an amount equal to the applicable Purchase Price Reduction
Amount. The Purchase Price Reduction Amount shall be applied to reduce the
installments of the Cash Payment, commencing with the first scheduled payment.
(b) In the event that Seller fails to deliver the audited
financial statements as required under Section 8.11 on or prior to the date that
is 60 days after the Closing Date, the Purchase Price shall be reduced by
$2,000,000, which reduction shall be applied by reducing the principal amount of
the Convertible Note.
4.3 Prorations and Reimbursements. The charges, payments,
taxes and assessments and other obligations in respect of the following items
shall be prorated as of the Closing Date between Seller and Buyer based on the
number of days of such relevant period before the Closing Date and the number of
days of such relevant period after the Closing Date:
(i) Utility Charges. All water, electricity and other
utility charges, if any, applicable to the Seller's place of
business to the extent that final meter readings and billings
cannot be arranged;
(ii) Fee Payments. All payments of fees, rents for periods
after the Closing (other than security deposits) or other obligations
in respect of the Transferred Permits or Assumed Contracts; and
(iii) Tax Payments. All real property taxes, personal property
taxes and similar obligations levied with respect to the Acquired
Assets or operation of the Business for a taxable period which includes
(but does not end on) the Closing Date shall be apportioned between the
Seller and Buyer; provided, however, that the amount payable by Seller
shall not take into account any increases in such taxes occurring after
the Closing Date.
Buyer and Seller shall use their reasonable best efforts to calculate all
prorations at or prior to the Closing. Upon approval by Buyer and Seller, such
calculations shall be binding and conclusive. The net amount of such prorations
shall, upon becoming known, be subtracted from the first installment or
installments of the Cash Payment if Buyer is entitled to a credit therefor, or
added to the first installment of the Cash Payment if Seller is entitled to a
credit therefor.
4.4 Transfer Taxes. To the extent applicable, the parties
agree that Seller and Buyer shall each pay fifty percent (50%) of any taxes
attributable to or resulting or arising from the transfer to Buyer of the
Acquired Assets; provided, however, that the respective parties shall remain
solely responsible for any federal, state or local taxes imposed upon them
arising out of any income or gains associated with such transfer.
ARTICLE V. CLOSING
5.1 Closing. As used in this Agreement, "Closing" shall mean
the time at which Seller consummates the Transfer of the Acquired Assets to
Buyer and Buyer assumes the Assumed Liabilities as provided herein by the
execution and delivery of the documents and instruments referred to in Section
5.2 by Seller against delivery by Buyer of the Purchase Price as provided in
Article IV and execution and delivery by Buyer of the documents and instruments
referred to in Section 5.3. In the absence of the prior termination of this
Agreement by Buyer or Seller in accordance with Article XI, the Closing shall
take place at the offices of Milbank, Tweed, Hadley & McCloy, 601 South Figueroa
Street, Los Angeles, California 90017, at 10:00 a.m. (Los Angeles time) on (a)
the later of (i) the first Business Day that is one (1) calendar week after
entry by the Bankruptcy Court of the Sale Order and (ii) the first date on which
all of the conditions set forth in Article VII hereof have been satisfied or
waived, or (b) such other date as may be mutually agreed upon by Buyer and
Seller (the "Closing Date").
5.2 Documents to be Delivered by Seller. At the Closing,
Seller shall deliver to Buyer:
(a) Resolutions and Actions. Certified copies of the
resolutions of the Board of Directors of the Seller authorizing and
approving this Agreement and all other transactions and agreements
contemplated hereby;
(b) Bankruptcy Court Orders. Certified copies of the
Sale Procedures Order and the Sale Order;
(c) Bill of Sale and Assignment and Assumption Agreement. A
bill of sale and separate assumption agreement dated as of the Closing
Date, in form and substance reasonably acceptable to Buyer transferring
the Acquired Assets to Buyer, free and clear of any and all Liens and
Claims other than Permitted Liens, and relating to the assumption of
the Assumed Liabilities;
(d) Assignment of Intellectual Property. Instruments of
assignment to Buyer of all trademarks, trade names, service marks and
patents, if any (and all applications for, and extensions and
reissuances of, any of the foregoing and rights therein), identified on
Schedule 2.1(i);
(e) Certificate Regarding Conditions. The certificate
required by Section 7.1(g);
(f) Incumbency Certificates. Incumbency Certificates of
the officers of Seller;
(g) Good Standing Certificate. A good standing certificate for
Seller from the Secretary of State of California, dated not more than
10 days prior to the Closing Date;
(h) Opinion of Counsel for Seller. The opinion of Milbank,
Tweed, Hadley & McCloy, counsel for Seller, dated the Closing Date, in
form and substance reasonably acceptable to Buyer;
(i) Registration Rights Agreement. The Registration
Rights Agreement, duly executed by Seller; and
(j) Such other documents as may be reasonably requested by
Buyer to effectuate the transactions contemplated by this Agreement.
5.3 Documents to be Delivered by Buyer. At the Closing, Buyer
shall deliver, or cause to be delivered, to Seller:
(a) Resolutions. Certified copies of the resolutions
of the Board of Directors of Buyer authorizing and approving this
Agreement and all other transactions and agreements contemplated hereby;
(b) Certificate Regarding Conditions. The certificate
required by Section 7.2(f);
(c) Bill of Sale and Assignment and Assumption Agreement. The
Bill of Sale, Assignment and Assumption Agreement referred to in
Section 5.2(c), duly executed by Buyer;
(d) Convertible Note. The Convertible Note, duly
executed by Buyer;
(e) Good Standing Certificate. A good standing certificate for
Buyer from the Secretary of State of the State of Delaware, dated not
more than 10 days prior to the Closing Date;
(f) Incumbency Certificate. An incumbency Certificate of
the officers of Buyer;
(g) Opinion of Counsel for Buyer. The opinion of Greenberg
Glusker Fields Claman & Machtinger LLP, counsel for Buyer, dated the
Closing Date, in form and substance reasonably acceptable to Seller;
(h) Registration Rights Agreement. The Registration
Rights Agreement, duly executed by Buyer; and
(i) Such other documents as may be reasonably requested by
Seller to effectuate the transactions contemplated by this Agreement.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer that:
(a) Organization and Standing; Power and Authority. Seller is
a corporation duly organized, validly existing and in good standing
under the laws of the State of California. Seller has full corporate
power and authority to own or lease, as applicable, the Acquired
Assets, to carry on the Business as now being conducted, and, subject
to the Bankruptcy Court approvals contemplated by Sections 7.1(a) and
(b), to make and perform this Agreement and, to the extent it is a
party thereto, the other agreements and instruments to be delivered at
the Closing pursuant to Section 5.2 (collectively, the "Seller
Agreements") and to consummate the transactions contemplated by this
Agreement and the Seller Agreements. Seller is the only business
enterprise, firm or corporation through which the Business is
conducted. Seller is qualified to do business and is in good standing
in the State of California and each other jurisdiction in which the
failure to so qualify as a foreign corporation would have a Seller
Material Adverse Effect. This Agreement and the Seller Agreements have
been, or upon execution and delivery thereof will be, duly executed and
delivered by Seller. This Agreement and the Seller Agreements have been
duly authorized by all necessary corporate action of Seller, and when
executed and upon approval by the Bankruptcy Court as contemplated by
Sections 7.1(a) and (b), shall constitute the valid and binding
obligations of Seller, enforceable in accordance with their respective
terms.
(b) Title to the Acquired Assets, Etc. Seller has a valid and
subsisting leasehold estate in, and the right to quiet enjoyment of,
the real property subject to the Leases. Seller has good and defensible
title to each of the Acquired Assets, and the Acquired Assets are, or
as of the Closing will be, free and clear of all Liens and Claims other
than (i) current real estate taxes or governmental charges or levies
referred to in Section 4.3(iii) which are not yet due and payable, (ii)
Liens, if any, created by Buyer, (iii) Liens relating exclusively to
the Assumed Liabilities and (iv) Liens disclosed on Schedule 6.1(b)
attached hereto. The delivery to Buyer of the instruments of transfer
of ownership contemplated by this Agreement, together with the Sale
Order, will vest good and defensible title to the Acquired Assets in
Buyer, free and clear of any and all Liens and Claims other than the
Liens and Claims referred to in clauses (i) through (iv) above (the
"Permitted Liens"). The Acquired Assets constitute all of the property
and assets of Seller used or held for use in the Business and are
adequate for the conduct of the Business as presently conducted by the
Seller.
(c) Assumed Contracts. Set forth on Schedule 6.1(c) is a list
of all Leases, contracts and agreements of Seller that are material to
the conduct of the Business or to the use or ownership of the Acquired
Assets. The Assumed Contracts, as made available to Buyer for
inspection prior to execution of this Agreement, have not been amended,
modified, terminated or rejected pursuant to Section 365 of the
Bankruptcy Code except as indicated on Schedules 2.1(a) and 2.1(k).
Seller has not received any notice of the intention of any party to
terminate any Assumed Contract except as set forth in Schedule 6.1(c).
(d) Receivables. All accounts, notes receivable and other
receivables reflected on Schedule 6.1(d) are, and all accounts and
notes receivable arising from or otherwise relating to the Business at
the Closing Date will be, valid, genuine and legal, subject to normal
and customary trade discounts, less any reserves for doubtful accounts
specified on Schedule 6.1(d). Except for receivables that are not
material, individually or in the aggregate, all accounts, notes
receivable and other receivables arising out of or relating to the
Business on the date hereof have been included in Schedule 6.1(d), and
all accounts, notes receivable and other receivables arising out of or
relating to the Business as of the Closing Date will be added to
Schedule 6.1(d) as of the Closing Date.
(e) Regulatory Compliance. Except as set forth on Schedule
6.1(e) attached hereto, Seller, with respect to the conduct of the
Business and the maintenance of the Acquired Assets, is currently in
compliance in all material respects with all applicable laws, and all
applicable regulations and orders of any Governmental Authority
(including, without limitation, immigration and naturalization,
anti-discrimination, civil rights, occupational health and safety
regulations and Environmental Laws). Except as set forth on Schedule
6.1(e) attached hereto, Seller, with respect to the Business, is not in
default under, and no event has occurred which, with the lapse of time
or action by a third party, is reasonably likely to result in default
under, the terms of any judgment, decree, order or writ of any
Governmental Authority, whether at law or in equity, as to which Seller
has received notice.
(f) Brokers, Finders and Agents. Seller is not directly or
indirectly obligated to anyone acting as a broker, finder or in any
other similar capacity in connection with this Agreement or the
transactions contemplated hereby.
(g) Intellectual Property. Schedule 2.1(i) attached hereto
sets forth a complete and correct list (with an indication of the
record owner and identifying number, if any) of all the Intellectual
Property Rights. Except as set forth on Schedule 2.1(i), none of the
Intellectual Property Rights have expired or terminated, or are
expected to expire or terminate in the near future. Except for
Intellectual Property Rights arising under licenses granted to Seller
by third parties, as to which Seller makes no representations or
warranties, none of the Intellectual Property Rights infringes on any
trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or
other similar rights of others. Except for Intellectual Property Rights
arising under licenses granted to Seller by third parties, as to which
Seller makes no representations or warranties, Seller does not have any
knowledge of any development of similar or identical trade secrets or
technical information by others. Except for Intellectual Property
Rights arising under licenses granted to Seller by third parties, as to
which Seller makes no representations or warranties, Seller does not
have any knowledge of any event, fact or circumstance relating to any
person or entity now infringing any Intellectual Property Rights or
other similar rights or any such development of similar or identical
trade secrets or technical information owned or used by Seller. There
is no claim, action or proceeding being made or brought against, or to
Seller's knowledge, being threatened against, Seller regarding any
trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions,
licenses, trade secrets or other similar rights of others, or of any
such development of similar or identical trade secrets or technical
information by others; and Seller is unaware of any facts or
circumstances which might give rise to any of the foregoing. Except for
Intellectual Property Rights arising under licenses granted to Seller
by third parties, as to which Seller makes no representations or
warranties, and except as indicated on Schedule 2.1(i), Seller, as
shown on Schedule 2.1(i), is the sole owner or has the right to use,
free and clear of any payment or other Lien, all such Intellectual
Property Rights. Except as indicated on Schedule 2.1(i), no such
Intellectual Property Rights (or any applications for or extensions or
reissuances of any of the foregoing) are owned otherwise than by
Seller.
(h) Permits. Schedule 2.1(l) sets forth a complete and correct
list of all of Seller's Permits. The Permits constitute all permits
issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct the Business and Seller has not
received any notice of proceedings relating to the revocation or
modification of any such Transferred Permit. To the best of Seller's
knowledge, no condition, event, occurrence or omission exists that
would cause the revocation or modification of any Transferred Permit,
except where such revocation or modification would not have a material
adverse effect on the consummation of the transactions contemplated
hereby or on the use by the Buyer of the Acquired Assets after the
Closing Date.
(i) Labor Matters. Seller is not a party to any currently
effective collective bargaining or other labor union contract with
respect to the Business. Except as set forth on Schedule 6.1(i)
attached hereto, there are presently no unfair labor practice
complaints or other labor controversies pending against Seller with
respect to the Business, or any strikes, slowdowns, work stoppages,
lockouts or, to Seller's knowledge, threats thereof, by or with respect
to any Employees of Seller. To Seller's knowledge, there are no union
representation questions involving persons employed by Seller or any
current activities or proceedings of any labor union (or
representatives thereof) to organize any unorganized Employees of
Seller.
(j) Environmental and Safety Compliance. Except as set forth
on Schedule 6.1(j), (i) no Hazardous Materials have been released,
disposed or discharged on, beneath or about the Seller's place of
business, (ii) Seller is and has been at all times in compliance with
all, and has no liability under applicable Environmental Laws, and
(iii) Seller has not received written notice from any Governmental
Authority that the operation of, or any of the conditions on, the
Seller's place of business, violates or has violated or could subject
Seller to liabilities, including response costs, under any
Environmental Law. As used herein, the term "Hazardous Materials" means
any hazardous, toxic or dangerous waste or material, including, without
limitation, any chemical, substance, material, waste or combination
thereof hazardous to human health or safety or to the environment and
regulated by any Environmental Law. As used herein, the term
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss.9601 et seq., and
any amendments thereto; the Resource and Conservation and Recovery Act,
42 U.S.C. ss.6901 et seq., and any amendments thereto; the Hazardous
Materials Transportation Act, 49 U.S.C. ss.1801 et seq.; and any other
similar federal, state or local statute, regulation, ordinance, order,
permit, decree, license, or any other law, requirement, common law
theory or reported decision of any state or federal court or other
Governmental Authority, as now or at any time hereafter in effect,
relating to, or imposing liability or standards of conduct concerning,
any hazardous, toxic or dangerous waste, substance or material. There
has been no environmental investigation, study, audit, test, review or
other analysis of which the Seller has knowledge in relation to any
Acquired Assets or beneath or about Seller's place of business which
have not been delivered to Buyer at least two days prior to the date
hereof.
(k) Underground Storage Tanks. Except as set forth on Schedule
6.1(k), there are no Underground Storage Tanks (as defined below)
located upon and/or serving the premises subject to the Leases.
"Underground Storage Tank" for the purposes of this Agreement shall
mean any one or combination of tanks, including appurtenant pipes,
lines, fixtures and other related equipment, used to contain an
accumulation of hazardous substances, the volume of which, including
the volume of the appurtenant pipes, lines, fixtures and other related
equipment, is ten percent (10%) or more below the ground.
(l) Approvals. Other than (i) in connection, or in compliance,
with the provisions of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), (ii) as specifically contemplated by this
Agreement, and (iii) the Bankruptcy Court orders contemplated by
Sections 7.1(a) and (b), no consents, novations, approvals, filings,
authorizations or other requirements prescribed by any law, rule,
regulation, agreement or Permit must be obtained or satisfied by Seller
for the execution, delivery or performance of this Agreement and the
Seller Agreements and for the consummation of the transactions
contemplated by this Agreement and the Seller Agreements.
(m) Books and Records. The books and records of Seller
maintained in connection with the Business (including, without
limitation, the Records) accurately record all transactions relating to
the Business except to the extent that the failure to so record would
not have a material adverse effect on the Business as acquired by
Buyer, and such books and records have been maintained consistent with
good business practices.
(n) Copies of Documents. Seller has made available to or
delivered at the request of Buyer true, correct and complete copies of
all contracts, leases, agreements and other documents listed in the
Schedules to this Agreement, and all modifications and amendments
thereto.
(o) Investment Purpose. Seller (i) is acquiring the
Convertible Note and (ii) upon conversion of the Convertible Note will
acquire the Conversion Shares then issuable for its own account and not
with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act of 1933, as amended (the "1933 Act");
provided, however, that by making the representations herein, Seller
does not agree to hold any Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption
under the 1933 Act.
(p) Accredited Investor Status. Seller is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D as
promulgated by the SEC under the 1933 Act.
(q) Reliance on Exemptions. Seller understands that the
Convertible Note is being issued to it in reliance on specific
exemptions from the registration requirements of United States federal
and state securities laws and that Buyer is relying in part upon the
truth and accuracy of, and Seller's compliance with, the
representations, warranties, agreements, acknowledgments and
understandings of Seller set forth herein in order to determine the
availability of such exemptions and the eligibility of Seller to
acquire the Convertible Note.
(r) No Governmental Review. Seller understands that no United
States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Securities or the fairness or suitability of an investment in the
Securities nor have such authorities passed upon or endorsed the merits
of the issuance of the Securities.
(s) Transfer or Resale. Seller understands that except as
provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) the
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C)
such Securities can be sold, assigned or transferred pursuant to Rule
144 promulgated under the 1933 Act (or a successor rule thereto) ("Rule
144"); (ii) any sale of the Securities made in reliance on Rule 144 may
be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of the Securities under
circumstances in which the seller (or the person through whom the sale
is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and
(iii) neither Buyer nor any other person is under any obligation to
register such securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption
thereunder.
(t) Legends. Seller understands that the certificates or other
instruments representing the Convertible Note and the Conversion Shares
shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such
certificates):
[NEITHER THIS NOTE NOR THE] [THESE] SHARES OF THE ISSUER'S COMMON STOCK
[ISSUABLE UPON CONVERSION HEREOF] HAVE [NOT] BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. [THIS NOTE HAS BEEN (AND ANY SUCH SHARES WILL BE)]
[THESE SHARES HAVE BEEN] ACQUIRED FOR THE ACCOUNT OF THE SELLER AND NOT
WITH A VIEW TOWARDS, OR FOR RESALE IN CONNECTION WITH, A PUBLIC
OFFERING AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR [THIS NOTE
OR] SUCH SHARES UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES
LAWS, OR AN EXEMPTION FROM SUCH REGISTRATION OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER THE SECURITIES ACT.
The legend set forth above shall be removed and Buyer shall
issue a certificate without such legend to the holder of any Securities
upon which it is stamped, if (i) upon a resale, any such Securities are
registered for sale under the 1933 Act, (ii) in connection with a sale
transaction, upon advice of Buyer's counsel, such sale, assignment or
transfer of any of the Securities may be made without registration
under the 1933 Act, or (iii) any of the Securities can be sold pursuant
to Rule 144 without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold.
Seller acknowledges, covenants and agrees to sell any of the Securities
represented by a certificate(s) from which the legend has been removed,
only pursuant to (i) a registration statement effective under the 1933
Act, or (ii) a sale that is exempt from registration required by
Section 5 of the 1933 Act. In the event the above legend is removed
from any of the Securities, Buyer may, upon reasonable advance notice
to the holder, require that the above legend be placed on any of the
Securities that cannot then be sold pursuant to an effective
registration statement or Rule 144(k) under the 1933 Act (or any
successor rule thereto).
(u) No Material Misstatements. No information provided by or
on behalf of Seller to Buyer contains any untrue statement of a
material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they are or were made, not misleading.
(v) Litigation. Except as set forth on Schedule 6.1(v)
attached hereto, there is no action, suit, or investigation or
proceeding pending against, or, to the best of Seller's knowledge,
threatened against or affecting, the Business or any Acquired Asset
before any court or arbitrator or any governmental body, agency or
official which, individually or in the aggregate, if determined or
resolved adversely to Seller, could reasonably be expected to have a
material adverse effect on the Business as acquired by the Buyer or
materially impair the Buyer's use of the Acquired Assets or which in
any manner challenges or seeks to prevent, enjoin, alter or materially
delay the transactions contemplated by this Agreement.
(w) Conflicts; Defaults. Neither the execution and delivery of
this Agreement or the Seller Agreements by Seller, nor, after giving
effect to the Sale Order, the performance of its obligations hereunder
and thereunder or the transactions contemplated hereby or thereby, will
(i) conflict with or result in a violation of the certificate of
incorporation or by-laws of Seller or (ii) conflict with, 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,
amendment, acceleration or cancellation of, any material agreement,
indenture, security agreement, mortgage, lease or other contract or
instrument to which Seller is a party, or result in a violation of any
law, rule, regulation, order, judgment writ, injunction or decree
applicable to Seller or by which any property or asset of Seller is
bound or affected. After giving effect to the Sale Order, Seller is not
subject to any violation of any term of or in default under its
certificate of incorporation or by-laws, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment,
law, rule, regulation, writ, injunction, decree or order or any
statute, rule or regulation of any Governmental Authority applicable to
Seller that would have a material adverse effect on the consummation of
the transactions contemplated hereby or on the use by the Buyer of the
Acquired Assets after the Closing Date.
(x) Insurance. For all periods prior to the Closing Date,
Seller is insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as is prudent and
customary in the businesses in which Seller is engaged. To the extent
that any such insurance would otherwise expire prior to the Closing
Date, Seller has no reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings,
business, properties or operations of Seller and its subsidiaries,
taken as a whole.
6.2 Representations and Warranties of Buyer. Buyer represents
and warrants, as to itself and its subsidiaries, to Seller that:
(a) Organization and Standing; Corporate Power and Authority.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full
corporate power and authority to own or lease its assets, as
applicable, to conduct its business operations, to make and perform
this Agreement, the Registration Rights Agreement and the other
agreements and instruments to be delivered at the Closing pursuant to
Section 5.3 (collectively, the "Buyer Agreements") and to consummate
the transactions contemplated hereby and thereby. The Buyer is
qualified to do business and in good standing under the laws of the
State of California, and in all other states where the failure to so
qualify would have a Buyer Material Adverse Effect. This Agreement and
the Buyer Agreements have been, or upon execution and delivery thereof
will be, duly executed and delivered by Buyer. This Agreement, the
Buyer Agreements and the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action of Buyer
and when executed and effective shall constitute the valid and binding
obligations of Buyer, enforceable in accordance with their respective
terms, subject to applicable laws affecting creditors' rights generally
and as to enforcement, to general principles of equity, regardless of
whether applied in proceedings at law or in equity.
(b) Conflicts; Defaults. Neither the execution and delivery of
this Agreement or the Buyer Agreements by Buyer, nor the performance of
its obligations hereunder and thereunder or the transactions
contemplated hereby or thereby, will (i) conflict with or result in a
violation of the certificate of incorporation or by-laws of Buyer or
(ii) conflict with, 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, amendment, acceleration or
cancellation of, any material agreement, indenture, security agreement,
mortgage, lease or other contract or instrument to which Buyer is a
party, or result in a violation of any law, rule, regulation, order,
judgment writ, injunction or decree (including federal and state
securities laws and regulations and the rules and regulations of the
principal market or exchange on which the Common Stock is traded or
listed) applicable to Buyer or by which any property or asset of Buyer
is bound or affected. Buyer is not subject to any Buyer Material
Adverse Effect as a result of a violation of any term of or in default
under its certificate of incorporation or by-laws, or any material
contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, law, rule, regulation, writ, injunction, decree or order or
any statute, rule or regulation of any Governmental Authority
applicable to Buyer. Other than in connection, or in compliance, with
the provisions of the HSR Act, and except as specifically contemplated
by this Agreement and as required under the 1933 Act (including,
without limitation, as provided in the Registration Rights Agreement),
no consents, novations, approvals, filings, authorizations or other
requirements prescribed by any law, rule, regulation, agreement or
permit must be obtained or satisfied by Buyer in order for it to
execute, deliver or perform any of its obligations under or
contemplated by this Agreement, the Registration Rights Agreement or
the Convertible Note or for the consummation of the transactions
contemplated hereby or thereby.
(c) Issuance of Convertible Note. The Convertible Note is duly
authorized and, upon issuance in accordance with the terms hereof,
shall be the legal, valid and binding obligation of the Buyer, subject
to bankruptcy, insolvency or similar laws affecting creditor rights
generally. The number of shares of Common Stock necessary to provide
for the issuance of the Conversion Shares in accordance with the terms
of this Agreement and the Convertible Note have been duly authorized
and reserved for issuance upon conversion of the Convertible Note. Upon
conversion in accordance with the Convertible Note, the Conversion
Shares will be validly issued, fully paid and nonassessable and free
from all taxes, Liens, Claims, and charges with respect to the issue
thereof, with the holders being entitled to all rights accorded to a
holder of Common Stock.
(d) SEC Documents; Financial Statements. Since December 31,
1996, Buyer has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as
amended (the "1934 Act") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and
schedules thereto and documents incorporated by reference therein being
hereinafter referred to as the "SEC Documents"). As of their respective
dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto. No other information provided by or on behalf of Buyer to
Seller or otherwise set forth in this Agreement which is not included
in the SEC Documents contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
are or were made, not misleading.
(e) No Integrated Offering. Neither the Buyer, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of the Securities under the 1933 Act or cause the issuance
of the Securities to be integrated with prior offerings by Buyer for
purposes of the 1933 Act or any applicable stockholder approval
provisions.
(f) Brokers, Finders and Agents. Buyer is not directly or
indirectly obligated to anyone as a broker, finder or in any other
similar capacity in connection with this Agreement or the transactions
contemplated hereby.
(g) Litigation. There is no action, suit, Claim, proceeding,
inquiry or investigation before or by any court, public board,
Governmental Authority, self-regulatory organization or body pending
or, to the knowledge of Buyer, threatened against or affecting Buyer or
its officers, or the Common Stock, wherein an unfavorable decision,
ruling or finding would have a Buyer Material Adverse Effect.
(h) Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 100,000,000 shares of Common
Stock, of which as of July 24, 1998, 40,674,018 shares were issued and
outstanding, and 20,000,000 shares of convertible preferred stock, of
which as of the date hereof, 364,000 shares of convertible preferred
stock were issued and outstanding. All of such outstanding shares have
been validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 6.2(h), no shares of Common Stock or preferred
stock are subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by Buyer. Except as
disclosed in Schedule 6.2(h), as of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of Buyer, or
contracts, commitments, understandings or arrangements by which Buyer
is or may become bound to issue additional shares of capital stock of
Buyer or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of Buyer and (ii)
there are no outstanding debt securities. Except as disclosed in
Schedule 6.2(h), there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the
issuance of the Securities as described in this Agreement. Buyer has
furnished to Seller true and correct copies of Buyer's certificate of
incorporation, as amended and as in effect on the date hereof, and
Buyer's by-laws, as in effect on the date hereof, and the terms of all
securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
(i) Absence of Certain Changes. As of the Closing Date, except
as expressly set forth in Schedule 6.2(i), since December 31, 1997,
there has been no event, occurrence, or omission that has resulted in
or could reasonably be expected to result in a Buyer Material Adverse
Effect. Buyer has not taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy or other
law, statute or judicial or other proceeding providing for the relief
of debtors, nor does Buyer have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings.
(j) Title. Buyer has good and defensible title to all real
property and good and marketable title to all personal property owned
by it which is material to the business of Buyer free and clear of all
Liens, Claims, encumbrances and defects except such as are described in
Schedule 6.2(j) or such as do not materially affect the value of such
property. Any real property and facilities held under lease by Buyer
are held under valid, subsisting and enforceable leases with such
exceptions as are not material.
(k) Insurance. Buyer is insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as is prudent and customary in the businesses in which Buyer is
engaged. Buyer has no reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the
earnings, business, properties or operations of Buyer and its
subsidiaries, taken as a whole.
(l) Permits. Buyer possesses all Permits issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct its business, and Buyer has not received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit. To the best of Buyer's knowledge,
no condition, event, occurrence or omission exists that would cause the
revocation or modification of any such Permit, except where such
revocation or modification would not have a Buyer Material Adverse
Effect.
ARTICLE VII. CONDITIONS TO CLOSING
7.1 Conditions to Buyer's Obligations. The obligation of Buyer
to consummate the transactions provided for by this Agreement is subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Buyer, in whole or in part, in its
sole discretion:
(a) Sale Procedures Order. The Bankruptcy Court shall have
entered an order, substantially in the form attached hereto as Exhibit
C (or as otherwise reasonably satisfactory to Buyer) ("Sale Procedures
Order"), which (i) will be in full force and effect, and (ii) will not
have been reversed, modified, amended or stayed in any respect.
(b) Sale Order. The Bankruptcy Court shall have entered an
order, in form and substance satisfactory to Buyer (the "Sale Order"),
which (i) will be in full force and effect on the Closing Date and (ii)
will not have been reversed, modified, amended or stayed in any respect
without the prior written consent of Buyer.
(c) Representations and Warranties. Each of the
representations and warranties of Seller made in Sections 6.1 and 13.14
of this Agreement, disregarding all qualifications and exceptions
contained therein relating to materiality or Seller Material Adverse
Effect, shall be true and correct both on the date hereof and as of the
Closing Date as though made again at such time with only such
exceptions as would not in the aggregate reasonably be expected to have
a material adverse effect.
(d) Covenants. Seller shall have performed and complied with
all covenants and agreements, disregarding all qualifications and
exceptions contained therein relating to materiality or Seller Material
Adverse Effect, required to be performed or complied with by it, at or
prior to the Closing Date, with only such exceptions as would not in
the aggregate reasonably be expected to have a material adverse effect.
(e) Material Adverse Effect. The absence of any Seller
Material Adverse Effect.
(f) No Injunction. No judgment, order or decree shall have
been entered by any Governmental Authority which has the effect of
enjoining or prohibiting the consummation of the transactions
contemplated by this Agreement or the Seller Agreements.
(g) Certificate of Seller. At the Closing, Seller shall have
delivered to Buyer a certificate signed by the chief executive officer
and chief financial officer of Seller, and dated the Closing Date, to
the effect that to the best of the knowledge and belief of such
officers the conditions specified in Sections 7.1(c), (d), (e) and (f)
have been fulfilled.
(h) Hart-Scott-Rodino. In connection with the HSR Act, the
waiting period specified in Section 363(b) of the Bankruptcy Code,
including any extensions thereof, shall have expired or otherwise
terminated.
(i) Berkeley Leases. Seller shall have entered into a lease
with respect to each of the properties listed on Schedule 7.1(i) for a
term of at least one year from the date hereof.
(j) Leases. Seller shall not have rejected any lease with
respect to the properties and term listed on Schedule 7.1(j). Seller
shall have entered into a sublease with Buyer for such properties with
substantially similar terms as the underlying leases.
(k) Other Documents. Seller shall have delivered the
agreements, certificates and other documents required by Sections 5.2,
and such other documents as may be reasonably necessary to effectuate
the transactions contemplated by this Agreement.
7.2 Conditions to Seller's Obligations. The obligations of
Seller to consummate the transactions provided for by this Agreement are subject
to the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Seller, in whole or in part, in its
sole discretion:
(a) Sale Procedures Order. The Bankruptcy Court
shall have entered the Sale Procedures Order.
(b) Sale Order. The Bankruptcy Court shall have entered the
Sale Order which (i) will be in full force and effect and (ii) will not
have been reversed, modified, amended or stayed in any respect without
the prior written consent of Seller.
(c) Representations and Warranties. Each of the
representations and warranties of Buyer made in Sections 6.2 and 13.14
of this Agreement, disregarding all qualifications and exceptions
contained therein relating to materiality or Buyer Material Adverse
Effect, shall be true and correct both on the date hereof and as of the
Closing Date as though made again at such time with only such
exceptions as would not in the aggregate reasonably be expected to have
a material adverse effect.
(d) Covenants. Buyer shall have performed and complied with
all covenants and agreements, disregarding all qualifications and
exceptions contained therein relating to materiality or Buyer Material
Adverse Effect, required to be performed or complied with by it, at or
prior to the Closing Date, with only such exceptions as would not in
the aggregate reasonably be expected to have a material adverse effect.
(e) No Injunction. No judgment, order or decree shall have
been entered by any Governmental Authority which has the affect of
enjoining or prohibiting the consummation of the transactions
contemplated by this Agreement or the Buyer Agreements.
(f) Certificate of Buyer. At the Closing, Buyer shall have
delivered to Seller a Certificate signed by the chief executive officer
and chief financial officer of Buyer, and dated the Closing Date, to
the effect that to the best of the knowledge of such officers the
conditions specified in Section 7.2(c), (d) and (e) have been
fulfilled.
(g) Hart-Scott-Rodino. In connection with the HSR Act, the
waiting period specified in Section 363(b) of the Bankruptcy Code,
including any extensions thereof, shall have expired or otherwise
terminated.
(h) Other Documents. Buyer shall have delivered the
agreements, certificates and other documents required by Section 5.3,
and such other documents as may be reasonably necessary to effectuate
the transactions contemplated by this Agreement.
ARTICLE VIII. COVENANTS OF SELLER
8.1 Bankruptcy Court Matters.
(a) Sale Procedures Order; Sale Order. Seller shall file with
the Bankruptcy Court (i) as soon as is reasonably practicable after the
date hereof but in no event later than September 18, 1998, a motion or
motions seeking the entry by the Bankruptcy Court of the Sale
Procedures Order, and (ii) within three Business Days after the entry
of the Sale Procedures Order (unless otherwise stayed), a motion or
motions seeking entry by the Bankruptcy Court of the Sale Order, each
such motion in a form reasonably satisfactory to Buyer. Notice of both
such motions shall be given in a manner satisfactory to Buyer, and in
any event in compliance with the Bankruptcy Code and the applicable
rules thereunder. After such filing(s), Seller shall use its reasonable
efforts to obtain entry by the Bankruptcy Court of the Sale Procedures
Order and, subject to the terms and conditions of the Sale Procedure
Order, Sale Order.
(b) Objections. In the event any objections are made to the
motion or motions for entry of the Sale Procedures Order and/or the
Sale Order, Seller shall promptly notify Buyer of such objections and
shall supply copies of such objections and Seller's responses thereto
to Buyer.
(c) Appeals. In the event an appeal is taken from the Sale
Procedures Order or Sale Order, Seller shall promptly notify Buyer of
such appeal and shall as soon as possible but in any event within three
business days provide Buyer with a copy of the related notice of
appeal. Seller shall also provide Buyer with written notice of any
motions or applications filed in connection with any appeal from the
Sale Procedures Order or Sale Order.
(d) Compliance with Orders. Seller shall comply in all
respects with the Sale Procedures Order and the Sale Order.
8.2 Termination Fee. Subject to the approval of the Bankruptcy
Court pursuant to the Sale Procedures Order, in consideration for Buyer's
efforts and expenses incurred under this Agreement, Buyer shall be entitled to
receive from Seller a termination fee equal to $500,000 (the "Termination Fee"),
in the event that a Person other than Buyer is the successful bidder and the
Bankruptcy Court approves a sale of the Acquired Assets to such Person. The
Termination Fee shall be payable immediately after the closing of the sale to
the Winning Bidder (as defined in the Sale Procedures Order) or after any
deposit made by such Winning Bidder is forfeited to the Seller, whichever is
earlier, and shall be payable solely from the consideration received by the
Seller.
8.3 Conduct of Business. Except as disclosed to and agreed to
by Buyer, during the period from the date hereof through the Closing Date, other
than in connection with the pursuit or defense, in a manner that does not have a
material adverse effect on the Business or the Acquired Assets, of Claims in the
Chapter 11 Case and related proceedings, Seller will (i) conduct and operate the
Business and the Acquired Assets (including, without limitation, the collection
of Accounts Receivable) in the ordinary and normal course (including, without
limitation, using its best efforts to preserve the beneficial relationships
between Seller and its vendors, agents, lessors, suppliers, employees and
customers), (ii) continue in force all insurance policies covering the Acquired
Assets and the Business and (iii) continue normal maintenance, marketing,
advertising, distribution and promotional expenditures in connection with the
Business. Without limiting the generality of the foregoing and except as
otherwise expressly provided in this Agreement or unless Buyer shall otherwise
consent in writing, which consent shall not be unreasonably withheld, during the
period from the date hereof through the Closing Date, Seller shall not:
(a) Sale of Assets. Sell, transfer, lease, license or
otherwise dispose of or agree to sell, transfer, lease, license or
otherwise dispose of any Acquired Assets, or permanently remove any of
the Acquired Assets from the Seller's places of business, except
Inventory sold or used or receivables collected in the ordinary and
normal course of operating the Business and consistent with the
representations, warranties, covenants, obligations and agreements set
forth in this Agreement;
(b) Commitments. Enter into any other agreements, commitments,
contracts or undertakings, except agreements, commitments, contracts or
understandings made in the ordinary and normal course of operating the
Business consistent with the representations and warranties of Seller
contained in this Agreement;
(c) Contract Rights, Etc. Reject under Section 365 of the
Bankruptcy Code, voluntarily waive or release any of its material
rights under, materially amend or otherwise materially modify any
Assumed Contracts, Intellectual Property Rights or Transferred Permits;
(d) Encumbrances. Encumber or grant or create a Lien on any of
the Acquired Assets, other than Permitted Liens or any other Lien that
by its terms expires prior to the Closing; or
(e) Representations and Warranties. Take any actions the
taking of which, or omit to take any action the omission of which,
would cause any of the representations and warranties contained in
Section 6.1 to fail to be true and correct as of the Closing as though
made at and as of the Closing Date.
8.4 Access; Information; Permits.
(a) Access. From the date hereof through the Closing Date,
Buyer and Buyer's counsel, accountants, representatives, lenders and
agents (including, without limitation, Buyer's environmental
consultants, contractors and engineers) shall have reasonable access
during normal business hours upon reasonable advance notice to all
personnel, offices, properties, books and records of Seller relating to
the Business and shall be furnished all information concerning the
business, finances, affairs and properties of Seller relating to the
Business, the Acquired Assets and the Assumed Liabilities as they may
reasonably request; provided, however, that Buyer shall not be given
access to, or provided with, Seller's formulas, production methods,
know-how and technical expertise relating to the testing services, or
any other information the disclosure of which would violate any
applicable law, contract, Permit or license of Seller, which shall be
provided to Buyer at the Closing.
(b) Current Information. The Seller will promptly (i) during
the period from the date hereof to the Closing, furnish or make
available to Buyer copies of Seller's management packages and all
operating reports and monthly, quarterly and interim financial
statements relating to the Business and otherwise prepared by Seller
(including any reports furnished to Seller's creditors), (ii) furnish
to Buyer copies of any and all Bankruptcy Court filings made or
received by the Seller in connection with the Chapter 11 Case and (iii)
notify Buyer of the receipt of any notice from any Governmental
Authority or third party alleging Seller is liable or responsible for
costs associated with the response to cleanup, stabilization or
neutralization of any environmental deficiency or that Seller is in
violation of any Environmental Law. On the first Business Day of each
week during the period from and after the date hereof to the Closing
Date, on a rolling two week basis, Seller will provide to Buyer a
written report (the "Seller Accession Report") detailing the aggregate
number of Seller's Accessions during such two week period and the
number of Seller's Accessions on each day of such two week period,
together with a calculation of the Average Daily Accession, Accession
Reduction and the Accession Reduction Percentage during such two week
period, and Buyer shall, on the first Business Day of each week during
the period from and after the date hereof to the Closing Date, on a
rolling two week basis, provide to the Seller a written report (the
"Buyer Accession Report") detailing the Average Daily Unilab
Accessions.
(c) Permits. If the Transferred Permits cannot be transferred
by the Seller to the Buyer without the approval of or other action by a
Governmental Authority, Seller shall file such notices and applications
as Buyer shall reasonably request to effectuate the transfer of the
Transferred Permits to, or reissuance of the Transferred Permits in the
name of, the Buyer and shall otherwise cooperate with the Buyer to
secure such transfer or reissuance.
8.5 Closing. Seller shall use its commercially reasonable
efforts to cause the conditions set forth in Section 7.1 to be satisfied by the
Closing Date.
8.6 Confidentiality. Subject to the requirements of applicable
law and Seller's disclosure obligations to the Bankruptcy Court, its creditors
and other parties in interest, Seller (a) will continue to abide by the terms of
that certain letter agreement regarding confidentiality between Buyer and Seller
dated January 28, 1998, which shall remain in full force and effect in
accordance with and subject to its terms, (b) will, and will cause its officers,
employees, representatives, consultants, advisors or agents, to hold in
confidence all information which remains in the possession of Seller or its
Affiliates concerning the Business and the Acquired Assets and (c) will not
release or disclose any such information to any Person other than Buyer and its
authorized representatives; provided that Seller shall be permitted to disclose
such information in response to any order or request of any court,
administrative or governmental body, and compulsory process binding upon Seller
or otherwise as required by law but only after first informing Buyer of any such
obligation, to the extent practicable, and providing Buyer with a reasonable
opportunity to protect against such disclosure.
8.7 Inventories. Prior to the Closing, Seller shall maintain
levels of all Inventory at levels consistent with current practice in the
ordinary and normal course of business of the Business.
8.8 No Shopping or Disclosure. From the date hereof through
and until the earlier of termination of this Agreement pursuant to Article XII
or the Closing, (a) Seller shall not and shall use its best efforts to cause its
officers, employees, representatives, consultants, advisors (including, without
limitation, Seller's financial advisors), affiliates or agents to not, directly
or indirectly, solicit, initiate or encourage any inquiries, proposals or offers
from any Person relating to any acquisition, directly or indirectly, of the
Acquired Assets or the Business, or any securities of, or any merger,
consolidation or business combination with, Seller, except in accordance with
the Sale Procedures Order and (b) if Seller shall receive any offer or proposal
for any of the Acquired Assets, or other written proposal or offer of the type
described above, Seller shall promptly provide Buyer with written notification
of such offer or proposal, which notification shall include the terms and
conditions of such offer or proposal and any other information relevant thereto,
including any written or other materials available to Seller in connection
therewith.
8.9 HSR Act. The Seller shall timely and promptly make all
filings which are required under the HSR Act. The Seller shall furnish to the
Buyer such necessary information and reasonable assistance as the Buyer may
reasonably request in connection with the Buyer's preparation of any filings
necessary under the provisions of the HSR Act. The Seller shall supply the Buyer
with copies of, and Buyer shall have the right to review and comment on the form
and substance of, all correspondence, filings or communications (or memoranda
setting forth the substance thereof) between the Seller or its counsel, on the
one hand, and the Federal Trade Commission (the "FTC"), the Antitrust Division
of the United States Department of Justice (the "Antitrust Division") or any
other foreign, federal, state, county or local government or any other
governmental, regulatory or administrative agency or authority or members of
their respective staffs, on the other hand, with respect to this Agreement and
the transactions contemplated hereby.
8.10 Tail Insurance. Seller shall obtain and keep in full
force and effect tail insurance that complies with the representation contained
in Section 6.1(x) for the benefit of Buyer covering errors and omissions
including, without limitation, malpractice claims, directors and officers
insurance and other professional claims, relating to the conduct by Seller of
the Business prior to the Closing.
8.11 Audited Financial Statements. The Seller shall deliver,
as soon as is practicable and in any event within 60 days after the Closing
Date, financial statements for its three fiscal years ended December 31, 1995,
December 31, 1996 and December 31, 1997, audited by independent certified public
accountants, and unaudited financial statements for the nine month periods ended
September 30, 1997 and September 30, 1998.
ARTICLE IX. COVENANTS OF BUYER
Buyer hereby covenants and agrees that:
9.1 Representations and Warranties. Buyer will not take any
actions the taking of which, or omit to take any action the omission of which,
would cause any of the representations and warranties contained in Section 6.2
to fail to be true and correct in any material respect as of the Closing as
though made at and as of the Closing Date.
9.2 Confidentiality. Subject to the requirements of applicable
law, Buyer will continue to abide by the terms of that certain letter agreement
regarding confidentiality between Buyer and Seller dated January 28, 1998, which
shall remain in full force and effect in accordance with and subject to its
terms, and will, and will cause its officers, employees, representatives,
consultants, advisors and agents to, hold in strict confidence all information
concerning the Seller which remains in possession of Buyer or its Affiliates,
the Business and the Employees; provided that any of the foregoing shall not
apply after the Closing with respect to any such documents and information
relating exclusively to the Acquired Assets and Assumed Liabilities, and
provided further that Buyer shall be permitted to disclose such information in
response to any order or request of any court, administrative or governmental
body, and compulsory process binding upon Buyer or otherwise as required by law
but only after first informing Seller of any such obligation, to the extent
practicable, and providing Seller with a reasonable opportunity to protect
against such disclosure.
9.3 Closing. Buyer will use its commercially reasonable
efforts to cause the conditions set forth in Section 7.2 to be satisfied by the
Closing Date.
9.4 Reservation of Shares. Buyer shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than the number of shares of Common Stock needed to provide
for the issuance of the Conversion Shares upon conversion of the Convertible
Note in accordance with the terms thereof.
9.5 Financial Information. Buyer agrees to send the following
to Seller during the period that Seller holds the Convertible Note: (i) within
five (5) days after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current Reports on
Form 8-K and any registration statements or amendments filed pursuant to the
1933 Act; (ii) within one (1) day after release thereof, copies of all press
releases issued by Buyer; and (iii) copies of any notices and other information
made available or given to the stockholders of Buyer generally,
contemporaneously with the making available or giving thereof to the
stockholders.
9.6 Default in Cash Payment. In the event that Buyer fails to
pay as and when due any installment of the Cash Payment pursuant to Section
4.1(b) and such failure shall remain unremedied for five Business Days after
receipt of written notice from the Seller, interest shall accrue on such
defaulted amount at the rate of 15% per annum from the date such payment was due
to the date paid.
9.7 HSR Act. The Buyer shall timely and promptly make all
filings which are required under the HSR Act. The Buyer shall furnish to the
Seller such necessary information and reasonable assistance as the Seller may
reasonably request in connection with Seller's preparation of any filings
necessary under the provisions of the HSR Act. The Buyer shall supply the Seller
with copies of all correspondence, filings or communications (or memoranda
setting forth the substance thereof) between the Buyer or its counsel, on the
one hand, and the FTC, the Antitrust Division or any other foreign, federal,
state, county or local government or any other governmental, regulatory or
administrative agency or authority or members of their respective staffs, on the
other hand, with respect to this Agreement and the transactions contemplated
hereby.
ARTICLE X. CERTAIN ADDITIONAL COVENANTS
10.1 Expenses; Bulk Sales. Except as otherwise set forth in
this Agreement, each party hereto will bear the legal, accounting and other
expenses (including brokers' commissions or finders' fees and, in the case of
Buyer, all HSR Act filing fees) incurred by such party in connection with this
Agreement, and the other agreements and transactions contemplated hereby. The
parties hereby waive compliance with the requirements of the bulk sales or bulk
transfer laws of all applicable jurisdictions in connection with the sale of the
Acquired Assets to Buyer.
10.2 Press Releases. Except as pursuant to Section 8.1, the
parties agree that neither Seller nor Buyer nor their respective Affiliates
shall issue or cause publication of any press release or other public
announcement (including to customers and employees of Seller) or public
communication with respect to this Agreement or the transactions contemplated
hereby without the consent of the other, which consent shall not be unreasonably
withheld; provided, however, that nothing herein shall prohibit any party in
consultation with the other from issuing or causing publication of any press
release, public announcement or public communication to the extent that such
party, upon advice of counsel, reasonably deems such action to be required by
law.
10.3 Employee Matters.
(a) Employee Benefits. Except as set forth in Section 3.2(d)
hereof, the parties acknowledge that Buyer shall have no liability or
obligation whatsoever with respect to Employee Liabilities, nor shall
Buyer have any obligation to provide any employee benefits to any
Employees other than to Retained Employees.
(b) Employment at Closing. Seller, acting as Buyer's agent,
shall have given any and all notices required to be given under WARN in
connection with the transactions contemplated by this Agreement as
directed by Buyer. At the Closing, Buyer intends to offer employment to
certain Employees of Seller in the Business, and on such terms and
conditions (including length of employment) as Buyer may, in its sole
discretion, determine (any such Employees who accept Buyer's offer of
employment and actually commence employment with Buyer are referred to
herein as "Retained Employees"), but Buyer shall not be under any
obligation to hire any or all Employees or any particular Employees
under this Agreement or for any other reason. Buyer shall not assume
responsibility for any Retained Employee until such employee commences
employment with Buyer. Prior to the Closing, upon reasonable prior
notice to Seller, Buyer may communicate with any of the Employees
currently employed in the Business.
(c) Employee Information. Subject to applicable legal
restrictions, prior to the Closing, Seller shall provide to Buyer, in a
timely manner, any applicable personnel records and information which
Buyer may reasonably request with respect to any Employee of Seller.
Seller shall not in any way participate in Buyer's decision to hire or
not to hire any Employee of Seller. Buyer shall provide to any Retained
Employee Forms W-2, Wage and Tax Statement, for the calendar year
ending December 31, 1998 setting forth the wages paid and taxes
withheld with respect to such Employees by the Seller and Buyer as
predecessor and successor employers, respectively, as provided by
Section 5 of Revenue Procedure 84-77.
10.4 Customer List. Within two Business Days after the date
that the Bankruptcy Court enters the Sale Procedures Order, and provided that
the Buyer has executed an Agreement Not To Solicit in the form of Exhibit D
hereto, Seller shall provide Buyer with the Customer List.
10.5 Further Assurances. From time to time after the Closing,
at Buyer's expense, Seller shall execute and deliver such documents and
instruments of conveyance and transfer and take such other action as Buyer may
reasonably request in order to consummate more effectively the purchase and sale
of the Acquired Assets as contemplated hereby and the vesting in Buyer of title
to the Acquired Assets as contemplated hereby. From time to time after the
Closing, at Seller's expense, Buyer shall execute and deliver such documents and
take such other action as Seller may reasonably request in order to consummate
more effectively the purchase and sale of the Acquired Assets as contemplated
hereby and the assumption by Buyer of the Assumed Liabilities.
ARTICLE XI. INDEMNITY
11.1 Indemnification by Buyer. (a) From and after the Closing,
Buyer shall indemnify Seller and its Affiliates and hold them harmless from and
against and in respect of any and all damages, Claims, losses, expenses,
obligations and liabilities (including, without limitation, reasonable expenses
of investigation and reasonable attorneys' fees and expenses) ("Damages")
claimed or assessed against any of them as to which any of them may be subject
in connection with (i) any misrepresentation or breach of warranty, covenant or
agreement made or to be performed by Buyer under this Agreement, (ii) the
Assumed Liabilities or (iii) the Buyer's operation of the Business following the
Closing. In the event Seller seeks to claim amounts under this Section 11.1(a),
Seller shall give reasonable written notice to Buyer and shall not settle Claims
for any such amounts without the prior written consent of Buyer, which consent
shall not be unreasonably withheld.
(b) Buyer may, at its option, elect to assume exclusive
control over any defense in respect of any and all damages, Claims, losses,
expenses, obligations and liabilities claimed or assessed against Seller or any
of its Affiliates in connection with the Assumed Liabilities. In the event that
Buyer assumes exclusive control over any defense, Seller shall only be entitled
to indemnification for any costs incurred prior to the date Buyer assumes such
defense. Seller shall, in any event, cooperate in such defense.
11.2 Indemnification by Seller. (a) From and after the
Closing, Seller shall indemnify Buyer and its Affiliates and hold them harmless
from and against and in respect of any and all Damages claimed or assessed
against any of them as to which any of them may be subject in connection with
(i) any misrepresentation or breach of warranty, covenant (other than Section
8.11) or agreement made or to be performed by Seller under this Agreement,
including, without limitation all Damages arising out of or relating to any
Environmental Law or (ii) the Retained Liabilities. In the event Buyer seeks to
claim amounts under this Section 11.2(a), Buyer shall give reasonable written
notice to Seller and shall not settle Claims for any such amounts without the
prior written consent of Seller, which consent shall not be unreasonably
withheld.
(b) Buyer shall offset and recoup any amounts to which it is
entitled under Section 11.2(a) first against the amounts otherwise payable by it
pursuant to Section 4.1(b), the Buyer's obligations under such Section 4.1(b)
being thereupon reduced and extinguished to such extent; Buyer shall not be
entitled to offset or recoup against the Convertible Note any amounts to which
it is entitled under Section 11.2(a) except to the extent that such amounts
exceed the amounts otherwise payable by it pursuant to Section 4.1(b) after
giving effect to any purchase price adjustment pursuant to Section 4.2. Buyer
shall promptly notify Seller of any offset or recoupment taken pursuant to this
Section 11.2(b).
ARTICLE XII. TERMINATION
12.1 Termination. This Agreement and the transactions
contemplated hereby may be terminated (constituting a "Termination" hereunder)
at any time prior to the Closing:
(a) Mutual Consent. By mutual written consent of Seller
and Buyer;
(b) Seller's Misrepresentation or Breach. By Buyer, if there
has been a breach by Seller of any of its representations, warranties,
covenants, obligations or agreements set forth in this Agreement or in
any writing delivered pursuant hereto by Seller, which breach results
in a Seller Material Adverse Effect;
(c) Accession Termination Event. By Buyer, if no Termination
of this Agreement has occurred for any other reason, the sale of the
Acquired Assets to the Buyer pursuant to this Agreement has not been
consummated by November 2, 1998, and an Accession Termination Event
occurs;
(d) Buyer Misrepresentation or Breach. By Seller, if there has
been a breach by Buyer of any of its representations, warranties,
covenants, obligations or agreements set forth in this Agreement or in
any writing delivered pursuant hereto by Buyer, which breach results in
a Buyer Material Adverse Effect;
(e) Failure to Consummate Sale. Automatically, if (i) after
the hearing thereon, the Bankruptcy Court declines to approve either
the Sale Procedures Order or the Sale Order or subsequent to such
approval revokes the Sale Procedures Order or (ii) the Bankruptcy Court
authorizes the sale by Seller of any of the Acquired Assets to a Person
other than Buyer, or (iii) no Termination of this Agreement has
occurred for any other reason and the sale of the Acquired Assets to
Buyer pursuant to this Agreement has not been consummated within 90
days after the date of this Agreement.
12.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 12.1, this Agreement shall thereafter become void and have
no further force and effect and all further obligations of Seller and Buyer
under this Agreement shall terminate without further liability of Seller or
Buyer, except (a) for the obligations of Seller and Buyer under this Section
12.2 and Sections 8.2, 9.2 and 10.1 and (b) subject to this Section 12.2, that
such termination shall not constitute a waiver by any party of any claim it may
have for damages caused by reason of or relieve any party from liability for,
any breach of this Agreement prior to termination under Section 12.1.
ARTICLE XIII. MISCELLANEOUS
13.1 Survival. The representations and warranties made by
Seller and Buyer in this Agreement shall survive the Closing with respect to
their accuracy as of the Closing Date until one year after the Closing Date
(except that the representations and warranties in Sections 6.1(j) and (k) shall
survive until two years after the Closing Date), after which such
representations and warranties shall terminate and expire. Notwithstanding the
preceding sentence, any representation or warranty in respect of which indemnity
may be sought under this Agreement shall survive the time at which it would
otherwise terminate pursuant to the preceding sentence, if notice of the
inaccuracy thereof giving rise to such right of indemnity shall have been given
to the party against whom such indemnity may be sought prior to such time.
13.2 Amendments. This Agreement may be amended only
by a writing executed by all of the parties hereto.
13.3 Matters Relating to Accounts Receivable, Etc. Following
the Closing, Buyer may receive and open all mail and facsimile messages
addressed to Seller and deal with the contents thereof in its discretion to the
extent that such mail or facsimiles and the contents thereof relate to the
Acquired Assets or Assumed Liabilities. Buyer agrees to deliver or cause to be
delivered to Seller all other mail.
13.4 Entire Agreement. Except as provided in Section 8.6 with
respect to that certain letter agreement regarding confidentiality between Buyer
and Seller dated January 28, 1998, this Agreement and the other agreements
expressly provided for herein set forth the entire agreement of the parties with
respect to the transactions contemplated hereby and supersede all prior
contracts, agreements, arrangements, communications and discussions,
representations and warranties, whether oral or written, between the parties.
13.5 Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the internal laws of the State of
California without regard to conflict of laws principles.
13.6 Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given (a) when received, if personally delivered, (b) upon the fifth
calendar day after being sent by registered or certified mail, return receipt
requested, postage prepaid, (c) upon being sent by telecopy, with confirmed
answerback and (d) on the first business day after being sent by established
overnight courier, to the parties at their respective addresses set forth below.
To Seller: Meris Laboratories, Inc.
1075 East Brokaw Road
San Jose, California 95131
Attn: Philip A. Tremonti
Fax No.: (408) 453-8093
With a copy to: Philip A. Tremonti
c/o PricewaterhouseCoopers
400 South Hope Street, 21st Floor
Los Angeles, California 90071-2889
Fax No.: (213) 452-7910
With a copy to: Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, California 90017
Attn: Robert Jay Moore
Fax No.: (213) 629-5063
With a copy to: Madeleine, L.L.C.
c/o Cerberus Partners
450 Park Avenue, 28th Floor
New York, New York 10022
Attn: Robert Davenport
Fax No.: (212) 891-1541
With a copy to: Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attn.: Mark A. Broude
Fax No.: (212) 593-5955
To Buyer: Unilab Corporation
401 Hackensack Avenue
Hackensack, New Jersey 07601
Attn: Mark Bibi
Fax No.: (201) 525-1331
With a copy to: Greenberg Glusker Fields Claman & Machtinger LLP
1900 Avenue of the Stars (Century City)
21st Floor
Los Angeles, California 90067
Attn: Marc Cohen
Fax No.: (310) 553-0687
With a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Donald S. Bernstein
Fax No.: (212) 450-4800
Any party by written notice to the others given in accordance with this Section
12.6 may change the address or the persons to whom notices or copies thereof
shall be directed.
13.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of which together will constitute one and the same instrument.
13.8 Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of each party hereto
(including any trustee appointed in respect of Seller under the Bankruptcy
Code), but no rights, obligations or liabilities hereunder shall be assignable
by any party without the prior written consent of the other party.
13.9 Waivers. Any waiver by any party of any violation of,
breach of or default under any provision of this Agreement or any other
agreements provided for herein, by the other party shall not be construed as, or
constitute, a continuing waiver of such provision, or waiver of any other
violation of, breach of or default under any other provision of this Agreement
or any other agreements provided for herein.
13.10 Third Parties. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any Person
other than Buyer and Seller, any rights or remedies under or by reason of this
Agreement.
13.11 Schedules and Exhibits. The Schedules and Exhibits
attached to this Agreement are incorporated herein and shall be part of this
Agreement for all purposes; provided, however, that Seller shall have the right
to update and/or supplement any or all of the Schedules by providing Buyer with
such updated and/or supplemented schedules not later than five days prior to the
Closing Date. Buyer shall have the right to review the revised Schedules for a
period of three days after receipt thereof. At any time within the three day
time period Buyer shall have the right to terminate this Agreement by notice to
Seller if the revised information would reasonably be likely to have a material
adverse effect on the business of Buyer. This notice, if given, shall specify
the information forming the basis for the decision to terminate. Seller shall
have two days after receipt of the notice to review with Buyer the information
forming the basis for the decisions and to attempt to agree on corrective
measures, if any. If the parties cannot agree on corrective measures within such
two day period, then this Agreement shall terminate. If the Agreement is not
terminated as permitted by this Section, Buyer shall be deemed to have accepted
such revisions, and the Schedules attached to this Agreement as of the date
hereof shall be deemed to be superseded by the revised Schedules.
13.12 Headings. The headings in this Agreement are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
13.13 Effective Time. This Agreement shall become effective if
and only if the Bankruptcy Court enters the Sale Procedures Order and approves
the termination fees as contained therein.
13.14 Absence of Breach. As of the date hereof, the Buyer has
no knowledge of any breach by Seller of any of its representations or warranties
set forth in this Agreement or in any writing delivered by Seller, and the
Seller has no knowledge of any breach by the Buyer of any of its representations
or warranties set forth in this Agreement or in any writing delivered by the
Buyer.
13.15. Access to Records. Buyer and Seller shall each permit
the other party reasonable access to the Records and Retained Records,
respectively, and shall permit the other party, at the requesting party's
expense, to make copies of the Records and the Retained Records and to access
any computer software or hardware containing, or permitting the processing of,
such Records or Retained Records, respectively, on reasonable notice and during
normal business hours. If Buyer or Seller wishes to destroy the Records or
Retained Records, respectively, or any material portion thereof, it shall
provide the other party with ten (10) days prior written notice and such other
party shall have the option, at its expense and upon written notice within such
ten (10) day period, to take possession of such Records or Retained Records, as
the case may be, within fifteen (15) days of its receipt of the initial notice.
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly
authorized representatives to execute this Agreement as of the date first above
written.
MERIS LABORATORIES, INC., as debtor and
debtor-in-possession
By:
Name:
Title:
UNILAB CORPORATION
By:
Name:
Title:
<PAGE>
NEITHER THIS NOTE NOR THE SHARES OF THE ISSUER'S COMMON STOCK ISSUABLE
UPON CONVERSION HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEEN
(AND ANY SUCH SHARES WILL BE) ACQUIRED FOR THE ACCOUNT OF THE HOLDER AND NOT
WITH A VIEW TOWARDS, OR FOR RESALE IN CONNECTION WITH A PUBLIC OFFERING AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THIS NOTE UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAW, OR AN EXEMPTION FROM SUCH REGISTRATION OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.
No. 1 $14,000,000
UNILAB CORPORATION
7.5% Convertible Subordinated Note Due 2006
Unilab Corporation, a Delaware corporation (the "Issuer"), for value
received, hereby promises to pay to Meris Laboratories, Inc. (the "Holder") and
its successors, transferees and assigns by wire transfer of immediately
available funds to an account (the "Bank Account") designated by the Holder by
notice to the Issuer the principal sum of fourteen million dollars ($14,000,000)
plus accrued interest, if any, on November 5, 2006 in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts.
The principal amount of this Note shall bear interest at the rate of
7.5% per annum (the "Interest Rate") payable in cash or in kind, at the Issuer's
option (other than the payment on November 4, 2006 which will be payable in
cash), semiannually commencing on May 5, 1999 and on each May 5 and November 5
until such principal sum is paid in full. The Issuer may, at its option, on each
interest payment date, in lieu of payment in cash, pay interest on this Note
through the issuance, dated as of such relevant interest payment date, of
additional Notes of like tenor, and with the same terms and restrictions as this
Note (the "Secondary Notes") in an aggregate principal amount equal to the
amount of interest that would be payable with respect to this Note if such
interest were paid in cash. The issuance of such a Secondary Note will be
considered payment of interest on this Note in accordance with the terms hereof.
Each Secondary Note issued shall bear a legend in a form substantially the same
as the legend which appears on the face hereof.
This Note is the duly authorized note of the Issuer (the "Note")
referred to in the Asset Purchase Agreement (the "Asset Purchase Agreement")
dated as of September 16, 1998 among the Issuer and the Holder. It is the
intention of the Issuer and the Holder that the terms of this Note comply with,
among other things, applicable covenants and restrictions set forth in the
Indenture (the "Indenture") dated as of March 14, 1996 between the Issuer and
Marine Midland Bank, as trustee.
<PAGE>
This Note may be transferred or assigned in whole or in part in a
minimum aggregate amount of $1,000,000, and the Issuer agrees to issue to the
Holder or any permitted transferee of the Holder from time to time a replacement
Note or Notes in the form hereof, provided that the transfer or assignment is
made in compliance with applicable securities laws, and evidence of the transfer
or assignment reasonably satisfactory to the Issuer, together with the original
Note, are delivered to the Issuer. References to "Note" shall include the Note
or Notes issued following a permitted transfer or assignment of this Note in
whole or in part to a permitted transferee or transferees and shall also include
all Secondary Notes. In addition, after delivery of an indemnity in form and
substance satisfactory to the Issuer in its reasonable discretion, the Issuer
also agrees to issue a replacement Note if this Note has been lost, stolen,
mutilated or destroyed.
The Issuer agrees to record this Note on the Register referred to
below. The Note recorded on the Register ("Registered Note") may not be
evidenced by a note other than a Registered Note and, upon the registration of
the Note, any promissory note (other than a Registered Note) evidencing the same
shall be null and void and shall be returned to the Issuer. The Note, once
recorded on the Register, may not be removed from the Register so long as it
remains outstanding and a Registered Note may not be exchanged for a note that
is not a Registered Note.
The Issuer shall maintain, or cause to be maintained, a register (the
"Register") on which it enters the name of the Holder as the registered owner of
this Note. A Registered Note may be assigned or sold in whole or in part, in a
minimum aggregate amount of $1,000,000, only by registration of such assignment
or sale on the Register (and each Registered Note shall expressly so provide).
Any assignment or sale of all or part of such Registered Note may be affected
only by registration of such assignment or sale on the Register, together with
the surrender of the Registered Note, if any, evidencing the same duly endorsed
by (or accompanied by a written instrument of assignment or sale duly executed
by) the holder of such Registered Note, whereupon, at the request of the
designated assignee(s) or transferee(s), one or more new Registered Note in the
same aggregate principal amount shall be issued to the designated assignee(s) or
transferee(s). Prior to the registration of assignment or sale of any Registered
Note, the Issuer shall treat the person in whose name such Registered Note is
registered as the owner thereof for the purpose of receiving all payments
thereon and for all other purposes.
In the event that the Holder sells participations in any Registered
Note, each in a minimum aggregate amount of $1,000,000, the Holder shall
maintain a register on which it enters the name of all participants in such
Registered Note (the "Participant Register"). A Registered Note may be
participated in whole or in part only by registration of such participation on
the Participant Register (and each Registered Note shall expressly so provide).
Any participation of such Registered Note may be effected only by the
registration of such participation on the Participant Register. No participant
will have any independent rights under this Note and any rights must be
exercised through a Holder.
<PAGE>
Any foreign person who purchases or is assigned or participates in any
portion of any Registered Note shall provide the Issuer (in the case of a
purchase or assignment) or the Holder (in the case of a participation) with a
completed Internal Revenue Service Form W-8 (Certificate of Foreign Status) or a
substantially similar form for such purchaser, participant or any other
affiliate who is a holder of beneficial interests in any Registered Note.
SECTION 1. Certain Terms Defined. For all purposes of this Note,
terms defined in this Note shall have the meaning set forth herein.
The following terms shall have the respective meanings specified
below. Terms defined in this Note include the plural as well as the
singular.
"Accreted Amount" means the principal amount of this Note or any
portion thereof plus accrued but unpaid interest thereon.
"Average Closing Price" of the Common Stock on the date of computation
means the arithmetic average of the daily volume-weighted average price of the
Common Stock, as reported on the American Stock Exchange, Inc. (the "AMEX"), or
if the Common Stock is not then listed on the AMEX, as reported by the principal
securities exchange or inter-dealer quotation system on which the Common Stock
is then traded, for the 30-Trading Day period immediately preceding the date of
computation.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Closing Price" of the Common Stock on a given Trading Day means the
daily volume-weighted average price of the Common Stock for such Trading Day, as
reported on the AMEX, or if the Common Stock is not then listed on the AMEX, as
reported by the principal securities exchange or inter-dealer quotation system
on which the Common Stock is then traded.
"Common Stock" means the common stock of the Issuer.
"Conversion Price" means three dollars ($3.00) per share, subject to
certain adjustments as described in Section 5.7.
"Debt" of any Person means at any date, without duplication, (i) all
obligations, including accrued and unpaid interest and premium, of such Person
for borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit, bankers' acceptance or other similar
instruments (or reimbursement obligations with respect thereto), (iv) all
obligations of such Person to pay the deferred purchase price of property or
services, except Trade Payables, (v) all obligations of such Person as lessee
which are capitalized in accordance with generally accepted accounting
principles, (vi) all Debt of others secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person, and (vii) all Debt
of others Guaranteed by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default
<PAGE>
"Existing Bank Debt" means any Debt incurred by the Issuer pursuant to
the Healthcare Receivables Purchase Agreement dated as of July 31, 1996 between
the Issuer and Daiwa Healthco. - 2 L.L.C.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt of such other Person (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise) or (ii) entered into for the purpose of assuring in any other manner
the obligee of such Debt for the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Issuer Conversion Date" means the date on which the Issuer first
elects to convert the Note, in whole or in part, subject to Section 5.1(a).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Note, the Issuer shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capitalized lease or
other title retention agreement relating to such asset.
"Market Disruption Event" means, with respect to the Common Stock (1) a
suspension, absence or material limitation of trading of the Common Stock on the
primary market for the Common Stock for more than two hours of trading or during
the one-half hour period preceding the close of trading in such market; (2) a
suspension or material limitation on the primary market for trading in options
contracts related to the Common Stock, if available, during the one-half hour
period preceding the close of trading in the applicable market; or (3) any
limitation pursuant to the rules of the American Stock Exchange, Section 3, Rule
117 (or any applicable rule or regulation enacted or promulgated by the AMEX,
any other self-regulatory organization or the Securities and Exchange Commission
of similar scope) on trading during significant market fluctuations. For
purposes of determining whether a Market Disruption Event has occurred: (1) a
limitation on the hours or number of days of trading will not constitute a
Market Disruption Event if it results from an announced change in the regular
business hours of the relevant exchange; and (2) a decision to permanently
discontinue trading in the relevant options contract will not constitute a
Market Disruption Event.
"Maturity Date" means November 5, 2006.
"Offer Date" means a date that is not later than the fifth Business Day
after the last day of a Premium Period as to which the Premium Period Price is
greater than the Trigger Price.
<PAGE>
"Person" means an individual, corporation, limited liability company,
partnership, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Premium" means the number represented by a fraction, the numerator of
which is the Premium Period Price and the denominator of which is the Conversion
Price.
"Premium Period" means any 30 consecutive Trading Days.
"Premium Period Price" for any Premium Period means the arithmetic
average of the 27 highest Closing Prices of the Common Stock for Trading Days
during such Premium Period.
"Redemption Date" means the date on which the Issuer exercises its
option to redeem the Note subject to the terms of Section 4.
"Redemption Price" means the product of (i) the face value of all or
the portion of the Note being redeemed and (ii) the Premium.
"Senior Debt" means (a) the Existing Bank Debt, and any refinancing or
replacement thereof or additions thereto in an aggregate principal amount not to
exceed $30,000,000 and (b) the Senior Notes, and any refinancing or replacement
thereof or additions thereto in an aggregate principal amount not to exceed
$140,000,000.
"Senior Notes" means the notes issued pursuant to the Indenture.
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by the Issuer.
"Trade Payables" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Issuer or any
Subsidiary of the Issuer in the ordinary course of business in connection with
the obtaining of materials or services.
"Trading Day" means a day which is also a Business Day, on which
trading is generally conducted (i) on the American Stock Exchange, Inc. and (ii)
on any successor exchange on which the Common Stock is listed, and on which a
Market Disruption Event has not occurred.
"Trigger Event" means the occurrence of any Change of Control event as
defined in the Indenture.
"Trigger Price" means $3.60 per share.
<PAGE>
SECTION 2. Events of Default and Remedies.
SECTION 2.1. Event of Default Defined; Acceleration of Maturity; Waiver
of Default. In case one or more of the following events ("Events of Default")
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
(a) default in the payment when due of all or any
part of the principal of or interest on the Note, which failure
to pay continues for a period of 10 calendar days after the due
date of such payment; or
(b) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Issuer in
an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Issuer or for any substantial part
of the property of the Issuer or ordering the winding up or
liquidation of the affairs of the Issuer, and such decree or
order shall remain unstayed and in effect for a period of 60
days; or
(c) the Issuer shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or consent to the entry of an order for
relief in an involuntary case under any such law, or consent to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official)
of the Issuer or for any substantial part of the property of the
Issuer, or the Issuer shall make any general assignment for the
benefit of creditors; or
(d) the Issuer shall fail to comply with the
covenant contained in Section 3.2 of this Note; or
(e) a Senior Debt Default (as described below in
Section 6.2(b)) shall have occurred;
then, and in each and every such case, the Holder, by notice in writing to the
Issuer, may declare the aggregate Accreted Amount of the Note to be due and
payable immediately, and upon any such declaration the same shall become
immediately due and payable.
<PAGE>
SECTION 2.2. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. No right or remedy herein conferred upon or reserved to the
Holder is intended to be exclusive of any other right or remedy, and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. No delay or omission of the
Holders to exercise any right or power accruing upon any Default or Event of
Default occurring and continuing as aforesaid shall impair any such right or
power or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein; and every power and remedy given by this
Note or by law may be exercised from time to time, and as often as shall be
deemed expedient, by the Holder.
SECTION 2.3. Waiver of Past Defaults. The Holders of a majority in
principal amount of the Note may waive any past Default or Event of Default
hereunder and its consequences. In the case of any such waiver, the Issuer and
the Holder shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereon. Upon any such waiver, such Default shall
cease to exist and be deemed to have been cured and not to have occurred, and
any Default or Event of Default arising therefrom shall be deemed to have been
cured, and not to have occurred for every purpose of the Note; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right consequent thereon.
SECTION 3. Covenants. The Issuer agrees that, so long as any
amount payable under this Note remains unpaid:
SECTION 3.1. Information. The Issuer shall deliver to the Holder:
(a) within five days after any officer of the Issuer
obtains actual knowledge of any Default, a certificate of the
chief financial officer or the chief accounting officer of the
Issuer setting forth the details thereof and the action which
the Issuer is taking or proposes to take with respect thereto;
(b) promptly after the Issuer has actual knowledge of
the occurrence of a Trigger Event, a certificate of an executive
officer of the Issuer, stating that such Trigger Event has
occurred; and
(c) promptly upon the filing thereof, the quarterly
and annual financial reports that the Issuer is required to file
with the Securities and Exchange Commission pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 or,
in the event the Issuer is not required to file such reports,
reports containing substantially the same information as would
be required in such reports (it being understood that the
foregoing shall not be construed to require presentation in the
manner required by such Act and the regulations thereunder so
long as the data required thereunder is so provided).
SECTION 3.2. Restriction on Senior Debt. For so long as any principal
or interest shall remain outstanding under this Note, the aggregate outstanding
amount of Senior Debt of the Issuer shall not exceed $170 million.
<PAGE>
SECTION 4. Redemption.
SECTION 4.1. Issuer's Redemption; Holder's Redemption; Maturity. (a)
Subject to the provisions of this Section 4, at the Issuer's option the Note may
be redeemed, in whole or in part, at the Redemption Price, upon notice by the
Issuer on any Offer Date (a "Redemption Offer Date"), provided that the Holder
may, within 10 Business Days after any Redemption Offer Date, exercise its right
to convert the Note or the applicable portion thereof under Section 5.1(b). If
the Holder elects to exercise such right to convert upon the Issuer's notice of
redemption, the Issuer may (in its sole discretion) within two (2) Business Days
after the Holder's election to convert, (i) redeem that portion of the amount
originally sought to be redeemed that exceeds the amount the Holder has so
elected to convert, or (ii) decline to redeem any portion of the Note, whereupon
the redemption notice shall be deemed withdrawn and shall be of no further force
or effect (provided that such failure to redeem shall not affect the Holder's
rights under Section 5 of this Note). If the Note is redeemed in part, or
converted in part pursuant to Section 5, the Issuer shall have the option to
redeem the remainder (the "Remainder") of the Note in whole or in part (a
"Remainder Redemption"), subject to the provisions of the first sentence of this
subsection.
(b) The Issuer shall repay the Note or Remainder, as the case may be,
in whole at the Maturity Date by paying to the Holder on the Maturity Date cash
in an amount equal to the Accreted Amount on the Maturity Date of the Note or
the Remainder, as the case may be.
(c) Notwithstanding Section 4.1(a), if, within 45 days after an Offer
Date, the Issuer fails to redeem or convert the Note in whole or in part (other
than as a result of the Holder's election to convert the Note) then no Offer
Date will occur, and the Issuer shall have no right to redeem the Note in whole
or in part pursuant to Section 4.1(a), until the date that is six months after
such Offer Date.
SECTION 4.2. Notice of Redemption; Subsequent Rights of Holders. (a) In
the event the Issuer shall redeem the Note or any portion thereof pursuant to
Section 4.1(a), the notice of such redemption shall be given by first class
mail, postage prepaid, mailed on the Redemption Offer Date to the Holder of the
Note at such Holder's address as the same appears on the Register. Each such
notice shall state: (i) the proposed Redemption Date (which shall be the
eleventh Business Day after the Redemption Offer Date); (ii) the aggregate
principal of Note to be redeemed and, if only a portion of the Note is to be
redeemed, the aggregate principal of Note to be redeemed from such Holder; (iii)
the Redemption Price and the Average Closing Price; (iv) the place or places
where Note is to be surrendered for payment of the redemption price; and (v)
that interest on the portion of the Note to be redeemed ceased to accrue on the
Redemption Date.
<PAGE>
(b) Notice having been mailed as aforesaid, from and after the
Redemption Date (unless default shall be made by the Issuer in providing money
for the payment of the redemption price of the Note or portion thereof called
for redemption), interest on the Note or portion thereof so called for
redemption shall cease to accrue, and all rights of the Holder of the Note
thereunder (except the right to receive from the Issuer the redemption price)
shall cease. Upon surrender in accordance with said notice of the certificate
for any Note so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors of the Issuer shall so require and the notice shall so
state), such Note (or a portion thereof, as the case may be) shall be redeemed
by the Issuer at the aforesaid Redemption Price. In case the Note is redeemed in
part, a new Note shall be issued representing the unredeemed portions of such
Note without cost to the Holder thereof.
SECTION 5. Conversion.
SECTION 5.1. Issuer's Conversion Right; Holder's Conversion Right;
Automatic Conversion. (a) Subject to the provisions of this Section 5, at
Issuer's option, the Note may be converted at the Conversion Price, in whole or
in part, upon notice by the Issuer on any Offer Date into shares of Common
Stock. If the Note is converted in part, or redeemed in part pursuant to Section
4, the Issuer shall have the option to convert the Remainder of the Note at any
future Offer Date (the "Remainder Conversion Date"), in whole or in part,
subject to the provisions of this Section 5.
(b) The Holder shall have the right at any time to convert at the
Conversion Price (i) up to seven million dollars ($7,000,000) of the outstanding
principal amount of the Note plus the principal amount of all Secondary Notes
issued with respect to $7,000,000 of the original principal amount of this Note,
computed from the date hereof through the Holder Conversion Date, into shares of
fully paid and non-assessable shares of Common Stock at any time on or before
November 5, 2002, or (ii) any or all of the outstanding balance of the Note into
shares of fully paid and non-assessable shares of Common Stock at any time on or
after November 6, 2002 (in each case, the "Holder Conversion Date").
(c) Where the Note is converted in part, the Conversion Price will be
applied to the principal amount to be converted to determine the number of
shares of Common Stock to be delivered. On conversion of this Note, the interest
attributable to the period from the last interest payment date to the date of
conversion shall be deemed to be paid in full to the Holder thereof through the
delivery of Common Stock in accordance with the foregoing provisions in exchange
for this Note. No claim for accrued interest will survive conversion of this
Note into Common Stock.
(d) Subject to the provisions of Section 6, the outstanding principal
amount of this Note shall be converted automatically, in whole and not in part,
into fully paid and non-assessable shares of Common Stock upon the occurrence of
a Trigger Event; provided, that if (i) the cash component being offered for the
Common Stock on the date of such Trigger Event is less than the Conversion Price
and (ii) the Closing Price on the date of such Trigger Event is less than the
Trigger Price, Holder may, at its option by written notice to Issuer within 5
days of the date of such Trigger Event, either (i) convert the Accreted Amount
of the Note or Remainder, as the case may be, at the Conversion Price, into
fully paid and non-assessable shares of Common Stock or, (ii) elect to not
convert the Note. Notwithstanding any provision of this Note, upon the
occurrence of a Trigger Event, any such conversion shall take place under the
terms specified by such Trigger Event, and any and all Common Stock issued as a
result of such conversion shall be subject to the same terms as all other Common
Stock issued upon the occurrence of such Trigger Event. Any conversion pursuant
to this paragraph shall occur automatically, without further action on the part
of the Holder or the Issuer.
<PAGE>
(e) Notwithstanding Section 5.1(a), if, within 45 days after an Offer
Date, the Issuer fails to redeem or convert the Note in whole or in part (other
than as a result of the Holder's election to convert the Note), then no Offer
Date will occur, and the Issuer shall have no right to convert the Note in whole
or in part pursuant to Section 5.1(a), until the date that is six months after
such Offer Date.
SECTION 5.2. Exercise Procedure. (a) In the event the Issuer shall
exercise its right to convert the Note in whole or in part pursuant to Section
5.1(a), notice of such exercise shall be given by first class mail, postage
prepaid, mailed on the Issuer Conversion Date or the Remainder Conversion Date
(as the case may be) to the Holder of the Note at such Holder's address as the
same appears on the Register. In the event the Holder shall exercise its right
to convert the Note in whole or in part pursuant to Section 5.1(b), notice of
such exercise shall be given by first class mail, postage prepaid, mailed on the
Holder Conversion Date to the Issuer at the Issuer's address on the signature
page of this Note or at such other address as the Issuer shall have previously
designated in writing to the Holder.
(b) Promptly upon (i) receipt by the Holder of written notice from the
Issuer of its exercise of its right to convert this Note in whole or in part,
(ii) mailing of notice by the Holder of the exercise of its right to convert the
Note in whole or in part, or (iii) automatic conversion of the Note pursuant to
Sections 5.1(d) or 5.1(e), the Holder shall surrender this Note at the office of
the Issuer.
(c) As promptly as practicable, and in any event within ten Business
Days, after the surrender by the Holder as aforesaid, the Issuer shall issue and
shall deliver to such Holder, a certificate or certificates for the number of
shares of Common Stock issuable upon the conversion of this Note in accordance
with the provisions of this Section 5. In case the Note is converted in part, a
new Note shall be issued representing the unconverted portions of such Note
without cost to the Holder thereof.
(d) Each conversion shall be deemed to have been effected (i) in the
case of any conversion pursuant to Section 5.1(a) or (b), on the Issuer
Conversion Date, the Remainder Conversion Date, or the Holder Conversion Date,
as the case may be; (ii) in the case of any conversion pursuant to Section
5.1(d), on the date of the Trigger Event, (iii) in the case of any conversion
pursuant to Section 5.1(e), on the Maturity Date, and the Person in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder of
record of the shares of Common Stock represented thereby at such time on such
date and such conversion shall be into the number of shares of Common Stock
determined by dividing the Accreted Amount of the Note being converted at such
time by the Conversion Price (subject to Section 5.6 as it relates to fractional
shares). All shares of Common Stock delivered upon conversion of this Note will
upon delivery be duly and validly issued and fully paid and non-assessable, free
of all Liens and charges and not subject to any preemptive rights. Upon the
conversion of this Note, the principal amount or portion thereof, as the case
may be, so converted shall no longer be deemed to be outstanding and all rights
of the Holder with respect to this Note or portion thereof surrendered for
conversion shall immediately terminate except the right to receive the Common
Stock and other amounts, if any, payable pursuant to this Section 5.
<PAGE>
SECTION 5.3. Effect of Election. (a) Upon the delivery to the Holder by
the Issuer, or to the Issuer by the Holder, of a notice of election to convert
the Note in whole, the right of the Issuer to redeem this Note shall terminate,
regardless of whether a notice of redemption has been mailed as aforesaid.
(b) The Accreted Amount of this Note shall cease to accrue in respect
of the converted portion of this Note on the date such conversion shall be
deemed to have been effected pursuant to Section 5.2(d). From and after such
date, the Holder of this Note shall participate equally and ratably with the
holders of shares of Common Stock in all dividends paid on the Common Stock as
if this Note had been converted to shares of Common Stock at such time.
SECTION 5.4. Issuance of Shares. (a) The Issuer covenants that it shall
at all times reserve and keep available, free from preemptive rights, such
number of its authorized but unissued shares of Common Stock as shall be
required for the purpose of effecting the conversion of this Note.
(b) Prior to the delivery of any securities which the Issuer shall be
obligated to deliver upon conversion of this Note, the Issuer shall comply with
respect to the issuance of such securities with all applicable federal and state
laws and regulations which require action to be taken by the Issuer.
SECTION 5.5. Taxes on Conversion. The Issuer will pay any and all
documentary, stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of this Note pursuant
hereto; provided that the Issuer shall not be required to pay any tax which may
be payable in respect of any transfer involving the issue or delivery of shares
of Common Stock in a name other than that of the Holder and no such issue or
delivery shall be made unless and until the Person requesting such issue or
delivery has paid to the Issuer the amount of any such tax or has established,
to the satisfaction of the Issuer, that such tax has been paid.
SECTION 5.6. No Fractional Shares. In connection with the conversion of
this Note or a portion hereof, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Issuer shall pay a cash adjustment in respect of
such fractional interest in an amount equal to such fractional interest.
SECTION 5.7. Anti-Dilution. (a) The terms of conversion of the
Note shall be subject to the following adjustments:
(i) If the Issuer shall declare and pay to the holders of the
Common Stock a dividend or other distribution payable in shares of
Common Stock, the Holder of the Note thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common
Stock which such Holder would have owned or been entitled to receive
after the declaration and payment of such dividend or other
distribution if such Note had been converted immediately prior to the
record date for the determination of stockholders entitled to receive
such dividend or other distribution.
<PAGE>
(ii) If the Issuer shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock, or
combine the outstanding shares of Common Stock into a lesser number of
shares, or issue by reclassification of its shares of Common Stock any
shares of the Issuer, the Conversion Price in effect immediately prior
thereto shall be adjusted so that the Holder of the Note thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock which such Holder would have owned or been
entitled to receive after the happening of any and each of the events
described above if such Note had been converted immediately prior to
the happening of each such event on the day upon which such
subdivision, combination or reclassification, as the case may be,
becomes effective.
(iii) In case the Issuer shall effect a reorganization, shall
merge with or consolidate into another corporation, or shall sell,
transfer or otherwise dispose of all or substantially all of its
property, assets or business and, pursuant to the terms of such
reorganization, merger, consolidation or disposition of assets, shares
of stock or other securities, property or assets of the Issuer, or of
its successor or transferee or an affiliate of any thereof, or cash are
to be received by or distributed to the holders of Common Stock, then
the Holder of the Note shall be given a written notice from the Issuer
informing such Holder of the terms of such reorganization, merger,
consolidation or disposition of assets and of the record date thereof
for any distribution pursuant thereto, at least ten days in advance of
such record date, and, if such record date shall precede the Maturity
Date, the Holder of the Note shall have the right thereafter to
receive, upon conversion of the Note the number of shares of stock or
other securities, property or assets of the Issuer, or of its successor
or transferee or any affiliate thereof, or cash receivable upon or as a
result of such reorganization, merger, consolidation or disposition of
assets that would have been received by a holder of the number of
shares of Common Stock equal to the number of shares the Holder of the
Note would have received had such Holder converted the Note prior to
such event at the Conversion Price immediately prior to such event. The
provisions of this subparagraph (iii) shall similarly apply to
successive reorganizations, mergers, consolidations or dispositions of
assets.
(iv) Whenever the terms of conversion shall be adjusted
pursuant to this Section 5.7, the Issuer shall forthwith obtain, and
cause to be delivered to the Holder of the Note, a certificate signed
by the principal financial or accounting officer of the Issuer, setting
forth in reasonable detail the event requiring the adjustment and the
method by which such adjustments were calculated and specifying the new
Conversion Price. In the cases referred to in subparagraph (iii), such
a certificate shall be issued describing the amount and kind of stock,
securities, property or assets or cash which shall be receivable upon
conversion of the Note after giving effect to the provisions of such
subparagraph.
(v) No adjustment to the Conversion Price shall be required
unless such adjustment would require a change of at least 1% in such
rate; provided, however, that any adjustments which by reason of this
paragraph (v) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
<PAGE>
SECTION 6. Subordination.
SECTION 6.1. Subordination to Senior Debt. The Issuer and the Holder
agree for the benefit of the Senior Debt holders that all indebtedness evidenced
by this Note, including principal, premium, if any, and interest, and all other
amounts payable to the Holder hereunder (including, for all purposes of this
Note any payment in respect of redemption or purchase or other acquisition
hereof) shall, in the manner hereinafter set forth, be subordinate and junior in
right of payment to all Senior Debt of the Issuer. All indebtedness evidenced by
this Note shall rank pari passu to all Debt of the Issuer other than Senior
Debt. Without limiting the generality of the foregoing, the Issuer and the
Holder agree that no payment shall be made in respect of the Note that would
contravene the terms of the Indenture.
SECTION 6.2. Issuer Not to Make Payments hereunder in Certain
Circumstances. Without limiting the generality of the foregoing: (a) Upon the
maturity of all or any part of the Senior Debt by lapse of time, acceleration or
otherwise, such Senior Debt shall first be paid in full, or such payment shall
be duly provided for in cash or in a manner satisfactory to the Senior Debt
holders of such superior indebtedness, before any payment by the Issuer or any
Subsidiary is made on account of the principal of or premium, if any, or
interest on the Note or to redeem the Note.
(b) In the event and during the continuation of any default in
respect of any Senior Debt, including, without limitation, any default arising
from either a default in the payment of principal or interest in respect of any
Senior Debt (each such default being referred to herein as a "Senior Debt
Default"), no payment shall be made by the Issuer on or with respect to the
principal of, or, premium, if any, or interest on, the Note or to redeem the
Note unless and until such Senior Debt Default shall have been remedied, nor
shall any such payment be made if after giving effect, as if paid, to such
payment, any Senior Debt Default would exist. In any such event, no Holder of
the Note shall demand, accept or receive, any direct or indirect payment (in
cash or property or by setoff, exercise of contractual or statutory rights or
otherwise) of or on account of the Note, notwithstanding the terms of the Note
or of any agreement or instrument which governs the Note, and no such payment
shall be due.
(c) Prior to November 5, 2006, if a default or event of default
exists under the Senior Debt, the Issuer shall not make, and no Holder of the
Note shall demand, accept or receive (in cash or property or by setoff, exercise
of contractual or statutory rights or otherwise), or shall attempt to collect or
commence any legal proceedings to collect, any direct or indirect payment on
account of the Note prior to the date such payment becomes due and payable
pursuant to the terms thereof or, if later, prior to the first date such amount
is not prohibited from being paid pursuant to this Section 6. Notwithstanding
the foregoing, the Holder shall be entitled to accept and retain any payment by
the Issuer pursuant to Section 4 hereof, or any Common Stock issuable upon
conversion of this Note, in whole and in part, pursuant to Section 5 hereof.
(d) Unless and until the earlier of (i) all principal of, premium, if
any, and interest on and all other obligations of the Issuer under, any Senior
Debt, shall have been paid in full or (ii) November 5, 2006, then:
<PAGE>
(i) the Issuer shall not make, and no Holder of the Note
shall demand, accept or receive, or shall attempt to collect or
commence any legal proceedings to collect, any direct or indirect
payment (in cash or property or by setoff, exercise of contractual or
statutory rights or otherwise) of or on account of any amount payable
on or with respect to the Note; and
(ii) no such payment shall be due;
unless such payment is not prohibited by, and is made in accordance with the
terms of, any covenant or restriction set forth in the Indenture, and the
failure to make any payment on or with respect to the Note by reason of any
covenant or restriction in the Indenture shall not constitute a breach of, or
default under, any provision applicable to the Note.
(e) Unless and until the earlier of (i) all principal of, premium, if
any, and interest on, and all other obligations of the Issuer under, the Senior
Debt shall have been paid in full or (ii) November 5, 2006, no Holder of the
Note will commence or maintain any action, suit or any other legal or equitable
proceeding against the Issuer, or join with any creditor in any such proceeding,
under any insolvency, bankruptcy, receivership, liquidation, reorganization or
other similar law, unless the holders of Senior Debt shall also join in bringing
such proceeding, provided that this Section 6.2(e) shall not prohibit a Holder
of the Note from filing a proof of claim or otherwise participating in any such
proceeding not commenced by it.
SECTION 6.3. Note Subordinated to Prior Payment of all Senior Debt on
Dissolution, Liquidation or Reorganization of Issuer. In the event of any
insolvency or bankruptcy proceedings, and any receivership, liquidation,
reorganization or other similar proceedings, relative to the Issuer or to its
creditors, in their capacity as creditors of the Issuer, or to substantially all
of its property, and in the event of any proceedings for voluntary liquidation,
dissolution or other winding up of the Issuer, whether or not involving
insolvency or bankruptcy,
(a) the holders of all Senior Debt shall first be entitled to receive
payment in full of the principal thereof, premium, if any, interest and all
other amounts payable thereon (accruing before and after the commencement of the
proceedings, whether or not allowed or allowable as a claim in such proceedings)
before the Holder of the Note is entitled to receive any payment on account of
the principal of, premium, if any, or interest on the Note; and
(b) the Note shall forthwith (notwithstanding the terms of Section
6.2) become due and payable and any payment or distribution of assets of the
Issuer of any kind or character, whether in cash, property or securities to
which the Holder of the Note would be entitled, but for the provisions of this
Section 6, shall be paid or distributed by the liquidating trustee or agent or
other person making such payment or distribution, whether the debtor, a trustee
in bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to any representative on behalf of the holders of Senior Debt, to the
extent necessary to make payment in full of all principal, premium, if any,
interest and all other amounts payable on all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
the Senior Debt.
<PAGE>
SECTION 6.4. Rights of Holders of Senior Debt; Subrogation. (a) Should
any payment or distribution or security or the proceeds of any thereof be
collected or received by the Holder of the Note in respect of the Note, and such
collection or receipt is prohibited hereunder prior to the payment in full of
the Senior Debt, such Holder will forthwith deliver the same to the holders of
the Senior Debt for the equal and ratable benefit of the holders of the Senior
Debt in precisely the form received (except for the endorsement or the
assignment of or by such Holder where necessary) for application to payment of
all Senior Debt in full, after giving effect to any concurrent payment or
distribution to the holders of Senior Debt and, until so delivered, the same
shall be held in trust by such Holder as the property of the holders of the
Senior Debt.
(b) No Holder of the Note shall be subrogated to the rights of the
holders of the Senior Debt to receive payments or distributions of assets of the
Issuer until all amounts payable with respect to the Senior Debt shall be paid
in full; and, for the purposes of such subrogation, no payments or distributions
to the Holder of the Note of any cash, property or securities to which any
Holder of the Note would be entitled except for these provisions shall, as
between the Issuer, its creditors other than the holders of the Senior Debt, and
such holders of Notes, be deemed to be a payment by the Issuer to or on account
of the Senior Debt. The provisions of this Agreement are and are intended solely
for the purpose of defining the relative rights of the holders of Note, on the
one hand, and the holders of the Senior Debt, on the other hand.
(c) Subject to the payment in full of all Senior Debt, the holders of
the Note shall be subrogated (equally and ratably with the holders of all
subordinated indebtedness of the Issuer which, by its terms, is not superior in
right of payment to the Note, and ranks on a parity with the Note) to the rights
of the holders of Senior Debt to receive payments or distributions of cash,
property or securities of the Issuer applicable to the Senior Debt until all
amounts owing on the Note shall be paid in full. For purposes of such
subrogation, no payments or distributions to the Holder of the Note of cash,
property, securities or other assets by virtue of the subrogation herein
provided which otherwise would have been made to the holders of the Senior Debt
shall, as between the Issuer, its creditors other than the holders of Senior
Debt and the Holder of the Note, be deemed to be a payment to or on account of
the Note. The Holder of the Note agrees that, in the event that all or any part
of any payment made on account of the Senior Debt is recovered from the holders
of Senior Debt as a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law, any payment or distribution received by
the Holder of the Note on account of the Note at any time after the date of the
payment so recovered, whether pursuant to the right of subrogation provided for
in this Section 6.4(c) or otherwise, shall be deemed to have been received by
such Holder of the Note in trust as the property of the holders of the Senior
Debt and such Holder shall forthwith deliver the same for the equal and ratable
benefit to the holders of the Senior Debt for application to payment of all
Senior Debt in full.
SECTION 6.5. Renewals, Extensions and Increases of Senior Debt. The
Holder of the Note by its acceptance thereof thereby waives any and all notice
of renewal, extension, accrual or increase in the amount of Senior Debt, present
or future, and agrees and consents that without notice to or assent by any
Holder of the Note:
<PAGE>
(a) except as limited by Section 3.2 hereof, the Issuer shall be
permitted to incur Senior Debt, including, without limitation, Senior Debt not
in existence on the date hereof;
(b) except as limited by Section 3.2 hereof, the obligation and
liabilities of the Issuer or any other party or parties for or upon the Senior
Debt (or any promissory note, security document or guaranty evidencing or
securing the same) may, from time to time, in whole or in part, be renewed,
extended, increased, modified, amended, accelerated, compromised, supplemented,
terminated, sold, exchanged, waived or released;
(c) any representative acting on behalf of the holders of any Senior
Debt and any holder of the Senior Debt may exercise or refrain from exercising
any right, remedy or power granted by or in connection with any agreements
relating to the Senior Debt; and
(d) any balance or balances of funds with any holder of the Senior
Debt at any time standing to the credit of the Issuer may, from time to time, in
whole or in part, be surrendered or released;
all as any representative or representatives acting on behalf of any holder of
the Senior Debt and any holder of the Senior Debt may deem advisable and all
without impairing, abridging, diminishing, releasing or affecting the
subordination of the Note to the Senior Debt provided for herein.
SECTION 6.6. Obligation of Issuer Unconditional. Nothing contained in
this Section 6 or in the Note is intended to or shall impair, as between the
Issuer, its creditors other than the holders of the Senior Debt, and the Holder
of the Note, the obligation of the Issuer, which is absolute and unconditional,
to pay to the Holder of the Note the principal of, premium, if any, and interest
on the Note, as and when the same shall become due and payable (except as
provided in this Section 6), by lapse of time, acceleration or otherwise, in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holder of the Note and other creditors of the Issuer other than
the holders of the Senior Debt, nor shall anything herein or therein prevent the
Holder of the Note (i) from taking all appropriate actions to preserve its
rights under the Note not inconsistent with the rights of the holders of the
Senior Debt under this Section 6, or (ii) from exercising all remedies otherwise
permitted by applicable law upon default under the Note, subject to the rights,
if any, under this Section 6 of the holders of the Senior Debt in respect of
cash, property or securities of the Issuer otherwise payable or delivered to
such holders upon the exercise of any such remedy.
SECTION 6.7. Miscellaneous. (a) The Holder of the Note by its
acceptance thereof thereby acknowledges and agrees that the holders of the
Senior Debt have relied upon and will continue to rely upon the subordination
provided for herein in entering into the agreements relating to Senior Debt and
in extending credit to the Issuer pursuant thereto.
<PAGE>
(b) No present or future holder of Senior Debt shall be prejudiced in
his right to enforce the subordination contained herein in accordance with the
terms hereof by any act or failure to act on the part of the Issuer or the
Holder of the Note. The subordination provisions contained herein are for the
benefit of the holders of the Senior Debt from time to time and, so long as
Senior Debt is outstanding under any agreement, may not be rescinded, canceled
or modified in any way without the prior written consent thereto of all holders
of Senior Debt.
(c) The subordination provisions hereof shall be binding upon any
Holder of the Note and upon the heirs, legal representatives, successors and
assigns of the Holder of the Note; and, to the extent that the Holder of the
Note is either a partnership or a corporation, all references herein to the
Holder of the Note shall be deemed to include any successor or successors,
whether immediate or remote, to such partnership or corporation.
SECTION 70 Modification of Note. The Note may be modified
with the written consent of the Holder. The Holder may waive compliance by
the Issuer of any provision of the Note.
SECTION 80 Miscellaneous. THIS NOTE, INCLUDING, WITHOUT LIMITATION,
THE TERMS OF SUBORDINATION SET FORTH IN SECTION 6 HEREOF, SHALL BE GOVERNED BY
AND BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE CONFLICTS OF LAW RULES OF SUCH STATE. The Holder by acceptance of
this Note agrees to be bound by the provisions of this Note. The Section
headings herein are for convenience only and shall not affect the construction
hereof.
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
duly executed as of this ____ day of November, 1998.
UNILAB CORPORATION
By:_______________________
Name:
Title:
18448 Oxnard Street
Tarzana, CA 91356
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
ARTICLE 1
REGISTRATION RIGHTS
<S> <C>
SECTION 1.01. Definitions............................................1
SECTION 1.02. Demand Registration....................................2
SECTION 1.03. Company Registration...................................4
SECTION 1.04. Obligations of the Company.............................5
SECTION 1.05. Furnishing of Information..............................7
SECTION 1.06. Expenses of Registration...............................7
SECTION 1.07. Indemnification........................................7
SECTION 1.08. Reports under 1934 Act................................11
SECTION 1.09. Lock-up Agreements....................................12
SECTION 1.10. Effect of Transfer of Registrable Securities..........12
SECTION 1.11. Limitations on Subsequent Registration Rights.........12
SECTION 1.12. Termination...........................................12
SECTION 1.13. Acknowledgements of Investor..........................13
ARTICLE 2
MISCELLANEOUS
SECTION 2.01. Legend................................................14
SECTION 2.02. Notices...............................................14
SECTION 2.03. Entire Agreement......................................15
SECTION 2.04. Amendments, Waivers and Consents......................15
SECTION 2.05. Binding Effect; Assignment............................16
SECTION 2.06. General...............................................16
SECTION 2.07. Severability..........................................16
SECTION 2.08. Counterparts..........................................16
SECTION 2.09. Specific Performance..................................16
</TABLE>
<PAGE>
UNILAB CORPORATION
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT ("Agreement") is made as of November
5, 1998 by and among UNILAB CORPORATION, a Delaware corporation ("Company") and
MERIS LABORATORIES, INC., ("Investor").
WHEREAS, the Company and Investor have entered into an Asset Purchase
Agreement dated as of September 16, 1998 ("Asset Purchase Agreement") pursuant
to which the Company is to issue to Investor a Convertible Note of the Company
(the "Note") that is convertible into a number of shares of common stock
("Common Stock") as set forth in the Note;
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Asset Purchase Agreement that the Company and Investor enter
into this Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements herein contained, the parties hereto agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1. Definitions. For the purposes of this Agreement:
(a) The terms "register," and "registered," and "registration" refer
to a registration effected by preparing and filing with the U.S. Securities and
Exchange Commission ("SEC") a registration statement or similar document in
compliance with the Securities Act of 1933, as amended ("1933 Act"), and the
automatic effectiveness or the declaration or ordering by the SEC of
effectiveness of such registration statement or document;
<PAGE>
3
(b) The term "Registrable Securities" mean the Note and the Common
Stock issuable or issued upon conversion of the Note and any Common Stock issued
as (or issuable upon the conversion or exercise of any warrant, option, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, the Common Stock issuable or issued
upon conversion of the Note; provided, however, that the Note and any shares of
Common Stock sold to the general public pursuant to a registered public offering
or pursuant to an exemption from the registration requirements of the 1933 Act
shall cease to be Registrable Securities from and after the time of such sale;
provided further that the Note, if eligible for resale pursuant to Rule 144(k)
and any shares of Common Stock, if eligible for resale pursuant to Rule 144(k)
shall cease to be Registrable Securities;
(c) The number of shares of Registrable Securities at any time shall
be the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which upon issuance would be Registrable Securities;
(d) The term "Holder" means any person now or hereafter owning or
having the right to acquire Registrable Securities; and
(e) The terms "Form S-3," "Form S-4" and "Form S-8" mean such
respective forms under the 1933 Act as in effect on the date hereof or any
successor registration forms to Form S-3, Form S-4 and Form S-8, respectively,
under the 1933 Act subsequently adopted by the SEC.
SECTION 1.2. Demand Registration. (a) Beginning 180 days after date
hereof, if the Company shall receive at any time a written request ("Demand")
from Holders holding in the aggregate in excess of 50% of the Registrable
Securities then outstanding that the Company effect the registration covering
the sale or resale of at least 50% of the Registrable Securities then
outstanding (the Holders making a Demand being referred to as the "Initiating
Holders"), then the Company shall, within five days of the receipt thereof, give
written notice of such request to all Holders and shall, subject to the
limitations of this Section 1.02, use its best efforts to effect such a
registration as soon as practicable and in any event to file within 180 days of
the receipt of such Demand a registration statement under the 1933 Act covering
all the Registrable Securities which the Initiating Holders shall have
requested, and all Registrable Securities which the Holders other than the
Initiating Holders shall in writing request within 20 days of receipt of the
notice given by the Company to be included in such registration, and use its
best efforts to have such registration statement become effective; provided,
however, that the Company shall not be obligated under this Section 1.02(a) to
effect any registration (i) pursuant to a Demand of an amount of securities that
is less than 50% of the amount of Registrable Securities outstanding as of the
date hereof, or (ii) after any registration statement pursuant to a Demand has
become effective, but only to the extent that all Registrable Securities
requested to be registered have been included in such registration.
<PAGE>
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as part of their request made pursuant to paragraph (a), and
the Company shall include such information in the written notice given pursuant
to paragraph (a). In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section
1.04(e)) enter into an underwriting agreement in a form that is customary and
otherwise reasonably acceptable to the Company with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders, who shall first consult with and obtain the consent of the
Company's Board of Directors (which shall not be unreasonably withheld)
regarding the selection of an underwriter or underwriters. Notwithstanding any
other provision of this Section 1.02, if, in the case of a registration
requested pursuant to paragraph (a), the underwriter advises the Initiating
Holders and the Company in writing that marketing factors require a limitation
of the number of shares to be underwritten, then the Company shall so advise all
Holders of Registrable Securities that would otherwise be underwritten pursuant
hereto, and the number of Registrable Securities that may be included in the
underwriting shall be allocated pro rata among all Holders thereof (including
the Initiating Holders) desiring to participate in such underwriting (according
to the number of Registrable Securities requested to be sold by each Holder). No
Registrable Securities requested by a Holder to be included in a registration
pursuant to paragraph (a) shall be excluded from the underwriting unless all
securities other than Registrable Securities are first excluded.
(c) The Company shall not be obligated to effect more than one
registration pursuant to a Demand under clause Section 1.02(a); provided that
all Registrable Securities requested to be registered are included in such
registration; provided, further, that no registration of Registrable Securities
shall be deemed to be a registration for the purpose of this paragraph (c)
unless such registration shall have become and remained effective in accordance
with Section 1.04.
<PAGE>
(d) Notwithstanding the other provisions of this Section 1.02, the
Company shall not be obligated to effect the filing of a registration statement
pursuant to this Section 1.02: (i) during the period starting on the date which
is 45 days prior to the date which the Company estimates in good faith will be
the date of filing of, and ending on the date 180 days following the effective
date of, a registration statement pertaining to the underwritten public offering
of securities for the account of the Company; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and is responding in writing to
Holder's reasonable inquiries with respect thereto to the extent permitted by
law; (ii) if the Company has furnished to the Initiating Holders within 30 days
after receipt of their Demand pursuant to Section 1.02(a) an opinion of counsel
to the Company (which counsel and opinion are reasonably satisfactory to the
Initiating Holders) to the effect that the Initiating Holders may effect the
sale and distribution of the Registrable Securities included in their request
without the registration of such securities under the 1933 Act; or (iii) if the
Company has furnished to the Initiating Holders within 30 days after receipt of
their Demand pursuant to Section 1.02(a) a certificate signed by an executive
officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for the requested registration to be effected or such
registration would require premature disclosure of material information or a
special audit of the Company, in which event the Company shall have the right to
defer such registration for a period of not more than 120 days after receipt of
the Demand of the Initiating Holders.
(e) Each registration requested pursuant to paragraph (a) shall be
effected by the filing of a registration statement on Form S-3 (or if such form
is not available, such form as the Company and its counsel deem appropriate,
consistent with SEC rules.)
(f) The Company shall be entitled to rely upon and assume the truth
and accuracy of the statements contained in a Demand, unless the Company has
actual knowledge that any such statement is untrue or unless the Company is
otherwise notified in writing by a party to this Agreement.
SECTION 1.3. Company Registration. (a) If the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its capital stock or other equity
securities (including any securities convertible into or exchangeable for equity
securities) under the 1933 Act in connection with the public offering of such
securities (other than a registration on Form S-8 or any successor form relating
solely to the sale of securities to participants in a Company stock plan, or a
registration on Form S-4 or any successor form), the Company shall, at such
time, promptly give each Holder written notice of such registration. The Company
shall request that any Holder that wants the registration statement to cover the
sale and resale of the Registrable Securities owned by such Holder (whether
issued or unissued), give notice within 20 days after the receipt by such Holder
of the notice of registration by the Company. The Company shall, subject to the
provisions of paragraph (b), use its best efforts to cause a registration
statement covering the sale or resale of all of the Registrable Securities that
each such Holder has requested to be registered to become effective under the
1933 Act. The Company shall have no obligation under this Section 1.03 to make
any offering of its securities or to complete any offering of its securities
that it proposes to make, and shall incur no liability to any Holder for its
failure to do so. If, after a request by the Company pursuant to this Section
1.03(a), a Holder does not request that the registration statement cover its
Registrable Securities, such Holder waives its registration rights pursuant to
Sections 1.02 and 1.03 of this Agreement.
<PAGE>
(b) In connection with any offering involving an underwriting of
securities being issued by the Company, the Company shall not be required under
this Section 1.03 to include any of the Holders' securities in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it, and then only in such quantity, if
any, as will not, in the reasonable opinion of the underwriters, jeopardize the
success of the offering by the Company. If the managing underwriter for the
offering shall advise the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant this Section 1.03, and the number of shares of Registrable
Securities that may be included in the underwriting shall be allocated in
accordance with paragraph (c).
(c) If the Company shall, pursuant to paragraph (b), reduce the amount
of securities to be included in an offering, such reduction shall be made as
follows: First, all securities other than those to be included by the Company
for its own account and other than those which the Holders seek to include in
the offering shall be excluded from the offering to the extent limitation on the
number of shares included in the underwriting is required; then, if further
limitation on the number of shares to be included in the underwriting is
required, the number of shares held by Holders that may be included in the
underwriting shall be reduced pro rata among the selling Holders in accordance
with the number of shares of Registrable Securities requested to be sold by each
such Holder.
SECTION 1.4. Obligations of the Company. Whenever required under this
Article 1 to use its best efforts to effect the registration of any Registrable
Securities, the Company shall:
(a) As expeditiously as reasonably possible, prepare and file with the
SEC a registration statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to become effective and,
upon the request of Holders holding a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to 135
days or until such Holders have informed the Company in writing that the
distribution of their securities has been completed;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement, and use its best efforts to cause each such amendment to
become effective, as may be necessary to comply with the provisions of the 1933
Act with respect to the disposition of all securities covered by such
registration statement;
<PAGE>
(c) Furnish to the selling Holders such reasonable number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of the Registrable Securities
covered by such registration statement that are owned by them;
(d) Use its best efforts to register or qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such states and jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such state or jurisdiction;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering; provided, further, that
each Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement, including furnishing any opinion of
counsel or entering into a lock-up agreement reasonably requested by the
managing underwriter;
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the 1933 Act,
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, promptly file such amendments and supplements which
may be required pursuant to paragraph (b) on account of such event, and use its
best efforts to cause each such amendment and supplement to become effective;
<PAGE>
(g) Furnish, at the request of any Holder of Registrable Securities
covered by such registration statement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration, if such securities are being sold through underwriters, or, if
such securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (i) an
opinion or opinions, dated such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders of Registrable
Securities covered by such registration statement and (ii) a letter dated such
date, from the independent certified public accountant of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders of Registrable Securities covered by
such registration statement;
(h) Apply for listing and use its best efforts to list the Registrable
Securities being registered on any national securities exchange on which a class
of the Company's equity securities is listed or, if the Company does not have a
class of equity securities listed on a national securities exchange, to the
extent that the securities of the Company would so qualify, apply for
qualification and use its best efforts to qualify the Registrable Securities
being registered for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc.;
(i) Without in any way limiting the types of registrations to which
this Article 1 shall apply, in the event that the Company shall effect a
registration under Rule 415 under the 1933 Act, take all necessary action,
including without limitation the filing of post-effective amendments, to permit
the Holders to include their Registrable Securities in such registration in
accordance with the terms of this Article 1; and
(j) If necessary to register the Note, the Company will issue
substitute notes ("Substitute Notes") pursuant to an indenture with terms
consistent with the provisions of the Note, this Agreement and the related
documents and qualify such indenture under the Trust Indenture Act of 1939. The
Substitute Notes will have substantially similar terms as the Note and will have
the same rate, maturity, convertibility, subordination and other economic terms
as the Note.
SECTION 1.5. Furnishing of Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Article 1 in respect of the Registrable Securities of any selling Holder that
such selling Holder shall have furnished to the Company such information as the
Company shall reasonably request regarding such selling Holder, the Registrable
Securities held by such selling Holder, and the intended method of disposition
of such securities as shall be required to effect the registration of such
selling Holder's Registrable Securities, and that such selling Holder shall have
provided the Company with such representations and warranties, covenants and
opinions as are customary for a selling stockholder in connection with the
registration of a selling stockholder's securities.
SECTION 1.6. Expenses of Registration. (a) The Company shall bear the
expenses incurred in connection with the registration, filing or qualification,
including all registration, filing and qualification fees, printing and
accounting fees, the reasonable fees and disbursements of counsel for the
Company. The Holders of any Registrable Securities shall bear and pay the fees
and disbursements of counsel or other advisors, including without limitation
accountants and financial advisors, for the selling Holders.
<PAGE>
(b) Underwriting discounts and commissions relating to the Registrable
Securities included in a registration pursuant to this Article 1 shall be borne
and paid ratably by the Holders of such Registrable Securities and, if it
participates, by the Company.
SECTION 1.7. Indemnification. In the event that any Registrable
Securities are included in a registration statement under this Article 1:
<PAGE>
(a) The Company shall indemnify and hold harmless each Holder, the
officers, directors, partners, agents and employees of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person, if
any, who controls (within the meaning of the 1933 Act or the Securities Exchange
Act of 1934, as amended ("1934 Act")) such Holder or underwriter against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject for violation of the 1933 Act, the 1934 Act or other federal or
state law, and any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage, or
liability (or action with respect thereto) insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any of the
following statements, omissions or violations (a "Violation"): (i) any untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission to state in such
registration statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or (iii) any violation by the Company of the
1933 Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state securities law in
connection with any matter relating to such registration statement; provided,
however, that the Company shall not be liable under this paragraph: (i) for
amounts paid in settlement of any loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor (ii) for any loss, claim, damage,
liability, or action (A) to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
or on behalf of such Holder, underwriter or controlling person or (B) in the
case of a sale directly by a Holder of Registrable Securities (including a sale
of such Registrable Securities through any underwriter retained by such Holder
to engage in a distribution solely on behalf of such Holder), to the extent that
it arises out of or is based on an untrue statement or alleged untrue statement
or omission or alleged omission that was contained in a preliminary prospectus
and corrected in a final or amended prospectus, and such Holder failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities to the person asserting
any such loss, claim, damage or liability in any case where such delivery is
required by the Securities Act.
(b) The Company may require, as a condition to including the
Registrable Securities held by any Holder in any registration statement pursuant
to this Section 1, that the Company shall have received an undertaking from such
Holder to indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act,
each agent and any underwriter for the Company, and any other Holder selling
securities in such registration statement or any of its directors, officers,
partners, agents or employees or any person who controls such Holder or
underwriter, against any losses, claims, damages, or liabilities (joint or
several) to which the Company or any such director, officer, controlling person,
agent, or underwriter or controlling person, or other such Holder or director,
officer or controlling person may become subject, under the 1933 Act, the 1934
Act or other federal or state law, and any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person, agent
or underwriter or controlling person, other Holder, officer, director, partner,
agent, employee, or controlling person in connection with investigating or
defending any such loss, claim, damage, or liability (or action with respect
thereto), insofar as such losses, claims, damages, liabilities or actions arise
out of or are based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by or on behalf of such Holder expressly for use
in connection with such registration; provided, however, that no Holder shall be
required under this paragraph to incur any liability (i) in excess of the amount
of net proceeds (after deduction of all underwriters' discounts and commissions)
received by such Holder in the offering giving rise to the Violation; (ii) for
any amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder (which
consent shall not be unreasonably withheld); nor (iii) in the case of a sale
directly by the Company of its securities (including a sale of such securities
through any underwriter retained by the Company to engage in a distribution
solely on behalf of the Company), in any case in which such untrue statement or
omission was contained in a preliminary prospectus and corrected in a final or
amended prospectus, and the Company failed to deliver a copy of the final or
amended prospectus at or prior to the confirmation of the sale of the securities
to the person asserting any such loss, claim, damage or liability in any case
where such delivery is required by the 1933 Act.
<PAGE>
(c) Promptly after receipt by an indemnified party pursuant to this
Section 1.07 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.07,
deliver to the indemnifying party a written notice of the commencement of such
action and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume and control the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests, as reasonably
determined by either party, between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver the
written notice required by this paragraph (c) to the indemnifying party within a
reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 1.07 to the extent of such
prejudice, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 1.07.
(d) The obligations of the Company and the Holders under this Section
1.07 shall survive the conversion, if any, of the Notes and the completion of
any offering of Registrable Securities in a registration statement, whether
under this Section 1 or otherwise.
<PAGE>
(e) If the indemnification provided for in this Section 1.07 is
unavailable to a party that would have been an indemnified party under this
Section 1.07 in respect of any losses, claims, damages or liabilities (or
actions or proceedings with respect thereto) referred to herein, then each party
that would have been an indemnifying party thereunder shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative fault of such indemnifying party on the
one hand and such indemnified party on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof). The relative fault
shall be determined by reference to, among other things, whether the Violation
relates to information supplied by such indemnifying party of such indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such Violation. The parties agree that it
would not be just and equitable if contribution pursuant to this paragraph (e)
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
preceding sentence. The amount paid or payable by a contributing party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this paragraph (e) shall include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The liability of any Holder of
Registrable Securities in respect of any contribution obligation of such Holder
(after deduction of all underwriters' discounts and commissions and all other
expenses paid by such Holder in connection with the registration in question)
arising under this paragraph (e) shall not in any event exceed an amount equal
to the net proceeds to such Holder from the disposition of the Registrable
Securities disposed of by such Holder pursuant to such registration.
SECTION 1.8. Reports under 1934 Act.
(a) Resales Under Rule 144; Form S-3 Registration. With a view to
making available to the Holders the benefits of Rule 144 under the 1933 Act
("Rule 144") and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, and with a view to making it possible for Holders to register the
Registrable Securities pursuant to a registration on Form S-3, the Company
agrees to:
(i) use its best efforts to make and keep public information
available, as those terms are understood as defined in Rule 144;
(ii) take such action, including the voluntary registration of
the Common Stock under Section 12 of the 1934 Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities;
(iii) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under
the 1933 Act and the 1934 Act; and
(iv) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (A) a written statement
by the Company as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act (at any time after it has
become subject to such reporting requirements), or as to its
qualification as a registrant whose securities may be resold pursuant
to Form S-3 (at any time after it so qualifies), (B) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (C) such other information
as may be reasonably requested in availing any Holder of any rule,
regulation or form of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
<PAGE>
(b) Resale Under Rule 144A. At all times during which the Company is
neither subject to the reporting requirements of Sections 13 or 15(d) of the
1934 Act nor exempt from reporting pursuant to Rule 12g3-2(b) under the 1934
Act, the Company shall, upon the written request of a Holder, provide in written
form to such Holder and to any prospective purchaser of Registrable Securities
designated by such Holder, all information required by Rule 144A(d)(4)(i) under
the 1933 Act ("144A Information"). With respect to each Holder, the Company's
obligations under this paragraph (b) shall at all times be contingent upon such
Holder's obtaining from a prospective purchaser an agreement to take all
reasonable precautions to safeguard the 144A Information from disclosure to
anyone other than employees of the prospective purchaser who require access to
the 144A Information for the sole purpose of evaluating its purchase of the
Company's securities.
. If reasonably requested by the Company and the managing underwriter,
the Holders shall enter into lock-up agreements pursuant to which they agree,
for a period up to of 90 days following the effective date of a registration
statement for the public offering of the Company's securities, not to offer,
sell or otherwise dispose of any Registrable Securities except the Registrable
Securities sold pursuant to such registration statement without the prior
consent of the Company and the managing underwriter.
. The transfer by a Holder of any of such Holder's Registrable
Securities or rights to acquire Registrable Securities shall, unless such
securities cease to be Registrable Securities by reason of such transfer,
constitute an assignment to such transferee of the Holder's rights under this
Agreement with respect to such Registrable Securities; provided, however, that
no Holder other than the Investor party hereto shall enjoy any rights as a
Holder under this Agreement until such time as (i) such Holder holds, after such
transfer, at least fifty percent of the Registrable Securities outstanding as of
the date hereof, and (ii) such Holder delivers to the Company a written
instrument by which such Holder agrees to be bound by the obligations and
representations imposed upon Holders under this agreement to the same extent as
if such Holder were a party hereto.
<PAGE>
. From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders holding a majority of the
Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company relating to
registration rights unless such agreement provides that, to the extent that such
agreement would allow such holder or prospective holder to include such
securities in any registration filed under this Section 1, a provision that such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of its securities will not
reduce the amount of the Registrable Securities of the Holders which would
otherwise be included.
. This agreement, and the respective rights and obligations of the
parties hereto, shall terminate at such time as there are no longer any
Registrable Securities outstanding or issuable upon the conversion or exercise
of any outstanding securities of the Company; provided, however, that the
provisions of Section 1.07 shall not terminate at that time and shall remain in
force.
. (a) Investment Purpose. Investor (i) is acquiring the Note and (ii)
upon conversion of the Note will acquire the Registrable Securities then
issuable for its own account and not with a view towards, or for resale in
connection with, the public sale or distribution thereof, except pursuant to
sales registered under or exempted from the 1933 Act.
(b) Accredited Investor Status. Investor is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D as promulgated by the SEC
under the 1933 Act.
(c) Reliance on Exemptions. Investor understands that the Note is
being issued to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
company is relying in part upon the truth and accuracy of, and Investor's
compliance with, the representations, warranties, agreements, acknowledgements
and understandings of Investor set forth herein in order to determine the
availability of such exemptions and the eligibility of Investor to acquire the
Note.
<PAGE>
(d) Transfer or Resale. Investor understands that except as otherwise
provided in this Agreement (i) the Note or Registrable Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) the Note or Registrable Securities to be
sold, assigned or transferred may be sold, assigned or transferred pursuant to
an exemption from such registration, or (C) such Note or Registrable Securities
can be sold, assigned or transferred pursuant to Rule 144; (ii) any sale of the
Note or Registrable Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any obligation to
register such securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
(e) Substitute Notes. If necessary to register the Note, Investor
agrees to accept the Substitute Notes in exchange for the Note.
ARTICLE 2
MISCELLANEOUS
. Each certificate representing Registrable Securities shall state thereon:
[NEITHER THIS NOTE NOR THE] [THESE] SHARES OF THE ISSUER'S
COMMON STOCK [ISSUABLE UPON CONVERSION HEREOF] HAVE [NOT] BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. [THIS NOTE
HAS BEEN (AND ANY SUCH SHARES WILL BE)] [THESE SHARES HAVE
BEEN] ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR [THIS NOTE OR] SUCH SHARES UNDER
THE SECURITIES ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN
EXEMPTION FROM SUCH REGISTRATION OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER THE SECURITIES ACT.
or shall bear a similar legend indicating the existence of this Agreement and
the restrictions imposed thereby.
. All notices, requests, consents and demands shall be in writing and
shall be personally delivered, mailed (registered or certified mail, return
receipt requested, postage prepaid), telecopied or sent by overnight courier
service, to the Company at:
Mark Bibi
Unilab Corporation
401 Hackensack Avenue
Hackensack, NJ 07601
Telecopier: (201) 525-1331
<PAGE>
with a copy to:
Donald S. Bernstein
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopier: (212) 450-4800
to Investor at:
Philip A. Tremonti
Meris Laboratories, Inc.
1075 East Brokaw Road
San Jose, CA 95131
Telecopier: (408) 453-8093
with a copy to:
Philip A. Tremonti
c/o PricewaterhouseCoopers
400 South Hope Street, 21st Floor
Los Angeles, California 90071-2889
Telecopier: (213) 452-7910
Robert Jay Moore
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, CA 90017
Telecopier: (213) 629-5063
Robert Davenport
c/o Cerberus Partners
450 Park Avenue, 28th Floor
New York, NY 10022
Telecopier: (212) 891-1541
Mark Broude
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Telecopier: (212) 593-5955
<PAGE>
or such other addresses as may be furnished in writing to the other parties
hereto. Unless otherwise provided herein, all such notices, requests, demands
and other communications, when personally delivered, shall be effective on
delivery; when mailed (registered or certified mail, return receipt requested,
postage prepaid), shall be effective four days after deposit in the mails
addressed as aforesaid; when telecopied, shall be effective upon confirmation of
receipt; and, when sent by overnight courier service guaranteeing next-day
delivery, shall be effective the next business day following timely delivery to
the courier.
. This Agreement constitutes the entire agreement of the parties with
respect to the matters contemplated herein. This Agreement supersedes any and
all prior understandings or agreements as to the subject matter of this
Agreement.
. Any provision in this Agreement to the contrary notwithstanding,
changes in or additions to this Agreement may be made, and compliance with any
covenant or provision herein set forth may be omitted or waived, if the Company
(i) shall obtain consent thereto in writing from the Holders holding a majority
of the Registrable Securities then outstanding and (ii) shall, in each such
case, deliver copies of such consent in writing to any Holders who did not
execute such consent. Notwithstanding the foregoing, any amendment to this
Agreement which materially adversely affects the rights or substantially
increases the obligations of one or more Holders and which does not also affect
all other Holders either to the same degree or in proportion to the amount of
Registrable Securities held by each of them shall require the consent of the
Holders holding a majority of the Registrable Securities adversely affected.
. This Agreement shall, subject to the provisions of Section 1.10, be
binding upon and inure to the benefit of the personal representatives,
successors and assigns of the respective parties hereto. The Company shall not
have the right to assign its obligations hereunder or any interest herein
without obtaining the prior written consent of the Holders holding a majority of
the Registrable Securities then outstanding, provided in accordance with Section
2.04.
. The headings contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement. In this Agreement the singular includes the plural, the plural, the
singular, the masculine gender includes the neuter, masculine and feminine
genders. This Agreement shall be governed by and construed under the laws of the
State of New York.
<PAGE>
. If any provisions of this Agreement shall be found by any court of
competent jurisdiction to be invalid or unenforceable, the parties hereby waive
such provision to the extent that it is found to be invalid or unenforceable.
Such provision shall, to the maximum extent allowable by law, be modified by
such court so that it becomes enforceable, and, as modified, shall be enforced
as any other provision hereof, all the other provisions hereof continuing in
full force and effect.
. This Agreement may be executed in counterparts, all of which
together shall constitute one and the same instrument.
. The Company and the Investor recognize that the rights of the parties
under this Agreement are unique, and, accordingly, each party shall, in addition
to such other remedies as may be available to it at law or in equity, have the
right to enforce its rights hereunder by actions for injunctive relief and
specific performance to the extent permitted by law. This Agreement is not
intended to limit or abridge any rights of the parties hereto which may exist
apart from this Agreement.
[The rest of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
UNILAB CORPORATION
By:__________________________
MERIS LABORATORIES, INC.
By:__________________________
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
* * * * *
DECEMBER 31, 1997
<PAGE>
November 12, 1998
To the Board of Directors
and Shareholders of
Meris Laboratories, Inc.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, shareholders' deficit and cash
flows present fairly, in all material respects, the financial position of Meris
Laboratories, Inc. (Debtor-in-possession) and its subsidiary, Meris, Inc. at
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles. These consolidated financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. The consolidated financial
statements of Meris Laboratories, Inc. (Debtor-in-possession) and its
subsidiary, Meris, Inc. for the year ended December 31, 1995 were audited by
other auditors whose report dated March 27, 1996 expressed an unqualified
opinion on those 976543365statements.
As discussed in Notes 1, 2, 10 and 11 to the consolidated financial
statements, on November 18, 1997, the Company filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court. On November 5, 1998, the Company sold substantially all
of its assets and ceased operations. A loss of $1.9 million has been provided in
the consolidated financial statements for the year ended December 31, 1997 to
write-down such assets to their net realizable value. The Company intends to
file a plan of reorganization under which it will liquidate and distribute the
net proceeds of the sale and any remaining assets to its creditors, subject only
to the satisfaction of certain administrative and other priority liabilities.
The consolidated financial statements do not reflect any adjustments that may be
required for the disposition of the remaining assets at amounts different from
those reflected in the financial statements or amounts which creditors may be
required to accept in settlement of obligations due them by the Company. The
Company and its directors and former officers are defendants in several
lawsuits. Plaintiffs in the lawsuits and their legal counsel have filed
bankruptcy claims in excess of $23 million. At December 31, 1997, the Company
has accrued $515,000 in costs associated with such lawsuits. The ultimate
resolution of the lawsuits cannot be determined at the present time;
accordingly, the consolidated financial statements do not include any
adjustments, beyond the accrual noted above, that might result from the outcome
of these uncertainties.
<PAGE>
<TABLE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEET
(In thousands, except per share data)
<CAPTION>
September 30 December 31
---------------------------
1 9 9 8 1 9 9 7 1 9 9 6
------------------- ---------- -----------
(UNAUDITED)
A S S E T S
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 273 $ 601 $ 552
Restricted cash 2,036 1,979 1,964
Assets held for sale 16,928 16,928 -
Accounts receivable, net of allowance for doubtful
accounts of $2,122, $5,971 and $4,346 134 914 4,687
Supplies inventory - 66 511
Prepaid expenses and other current assets 926 1,397 1,018
----------- ----------- -----------
Total current assets 20,297 21,885 8,732
Property and equipment, net - - 1,559
Intangibles, net - - 15,343
Other assets, net - - 699
----------- ----------- -----------
$ 20,297 $ 21,885 $ 26,333
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Liabilities not subject to compromise:
Secured borrowings and accrued interest after filing for
bankruptcy $ 7,155 $ 601 $ -
Note payable to former executive 1,656 1,599 1,585
Accrued litigation charges 319 515 1,776
Accounts payable and accrued expenses 1,407 805 -
Liabilities subject to compromise:
Secured borrowings and accrued interest before filing
for bankruptcy 32,274 32,274 13,167
Accrued Medicare settlement 3,350 3,350 4,250
Accounts payable 4,142 4,142 2,783
Accrued expenses 5,513 5,513 6,019
Convertible subordinated debt 11,000 11,000 10,918
----------- --------- -----------
Total current liabilities 66,816 59,799 40,498
----------- --------- -----------
Commitments and contingencies (Notes 5, 6 and 10) - - -
Shareholders' deficit:
Preferred stock, no par value: 2,000,000 shares
authorized; none issued and outstanding - - -
Common stock, no par value: 20,000,000 shares authorized;
8,043,859 shares issued and outstanding
37,171 37,171 37,171
Additional paid-in capital 826 826 826
Accumulated deficit (84,516) (75,911) (52,162)
----------- ---------- -----------
(46,519) (37,914) (14,165)
----------- --------- -----------
$ 20,297 $ 21,885 $ 26,333
=========== ========= ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Nine months
ended
September 30 Year ended December 31
-----------------------------------------
1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5
------------------ ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues $ 19,727 $ 29,903 $ 34,106 $ 42,809
----------- ----------- ----------- -----------
Costs of services:
Salaries, wages and benefits 6,763 12,507 12,227 13,626
Supplies 3,267 4,946 5,144 5,022
Other cost of services 6,341 7,208 7,197 7,964
----------- ----------- ----------- -----------
16,371 24,661 24,568 26,612
Selling, general and administrative expenses 8,351 15,785 12,019 12,221
Depreciation and amortization - 2,240 3,302 4,429
Provision for doubtful accounts 2,266 1,577 5,798 3,827
Litigation and investigation charges 990 1,241 4,072 3,400
Write-down of intangible assets 1,720 7,552 3,300
Write-off of fixed assets - 1,982 - 1,272
----------- ----------- ----------- -----------
Operating loss (8,251) (19,303) (23,205) (12,252)
Interest expense (354) (4,538) (2,786) (2,087)
Interest and other income, net - 92 159 177
----------- ----------- ----------- -----------
Net loss $ (8,605) $ (23,749) $ (25,832) $ (14,162)
=========== =========== =========== ===========
Net loss per share $ (1.07) $ (2.95) $ (3.23) $ (1.78)
========== ========== =========== ===========
Weighted average shares outstanding 8,044 8,044 8,006 7,948
=========== =========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
(In thousands, except per share data)
<CAPTION>
Additional
Common Stock Paid-in Accumulated
-------------------------
Shares Amount Capital Deficit Total
---------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 7,901 $ 36,981 $ 826 $ (12,168) $ 25,639
Issuance of common stock for option exercises
and employee stock purchase plan
81 155 - - 155
Net loss - - - (14,162) (14,162)
--------- ----------- ------ ----------- ----------
Balance at December 31, 1995 7,982 37,136 826 (26,330) 11,632
Issuance of common stock for option exercises
and employee stock purchase plan
62 35 - - 35
Net loss - - - (25,832) (25,832)
--------- ----------- ------ ----------- ----------
Balance at December 31, 1996 8,044 37,171 826 (52,162) (14,165)
Net loss - - - (23,749) (23,749)
--------- ----------- ------ ----------- ----------
Balance at December 31, 1997 8,044 37,171 826 (75,911) (37,914)
Net loss (unaudited) - - - (8,605) (8,605)
--------- ----------- ------ ----------- ----------
Balance at September 30, 1998 (unaudited) 8,044 $ 37,171 $ 826 $ (84,516) $ (46,519)
========= =========== ====== =========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Nine months ended
September 30 Year ended December 31
---------------------------------------------
1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5
----------------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operations:
Net loss $ (8,605) $ (23,749) $ (25,832) $ (14,162)
Items not requiring the current use of cash:
Depreciation and amortization - 2,240 3,302 4,429
Amortization of debt discount and issue costs - 446 531 414
Provision for doubtful accounts - - - 3,827
Provision for litigation and investigation charges - - 3,282 4,357
Write-down of intangible assets - 1,720 7,552 3,300
Write-down of property and equipment - 1,982 - 1,272
-
Gain on sale of property and equipment - (13) (71) -
Compensation expense related to loan forgiveness,
charge for unrealizable note receivable, and
discounted stock options - - - 700
Changes in items affecting operations:
Restricted cash (57) (14) (380) 546
Accounts receivable 780 521 6,584 (4,493)
Income tax refund receivable - - 384 -
Supplies inventory 66 (28) 238 (60)
Prepaid expenses and other current assets 471 (404) (447) 152
Other assets - 175 (97) (36)
Accounts payable - 1,359 963 1,401
Accrued expenses 870 384 (159) 233
Accrued litigation and investigation charges (196) (2,161) (779) (1,374)
---------- ----------- ----------- -----------
Cash provided by (used in) operating activities (6,671) (17,542) (4,929) 506
---------- ----------- ----------- -----------
Investments:
Cash expenditures for customer lists and other assets
related to acquisitions - - (920) (2,525)
Proceeds from notes receivable - 160 104 -
Purchase of property and equipment (21) (1,999) (334) (684)
Proceeds from sale of property and equipment - 13 99 60
---------- ----------- ----------- -----------
Cash used for investing activities (21) (1,826) (1,051) (3,149)
---------- ----------- ----------- -----------
Financing:
Issuance of common stock, net - - 35 155
Proceeds from bank borrowings 6,554 19,707 5,510 2,000
Payments on bank borrowings - - - (343)
Principal payments on capital leases (190) (290) (503) (527)
Reduction in distribution payable to related parties - - - (267)
---------- ----------- ----------- -----------
Cash provided by financing activities 6,364 19,417 5,042 1,018
---------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (328) 49 (938) (1,625)
Cash and cash equivalents at beginning of period 601 552 1,490 3,115
---------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 273 $ 601 $ 552 $ 1,490
========== -=========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
Nine months ended
September 30 Year ended December 31
---------------------------------------------
1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5
----------------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid - capital leases $ 12 $ 28 $ 35 $ 41
========== =========== =========== ===========
Interest paid - borrowing $ - $ - $ 451 $ 1,855
========== =========== =========== ===========
Income taxes paid $ - $ - $ - $ 114
========== =========== =========== ===========
Supplemental disclosure of non-cash investing and financing activities:
Capital lease obligations incurred for acquisition of
property and equipment $ - $ 219 $ 247 $ 198
========== =========== =========== ===========
Reduction in consulting agreements related to
acquisition $ - $ - $ - $ 273
========== =========== =========== ===========
Accrued transaction costs related to acquisitions $ - $ - $ - $ 290
========== =========== =========== ===========
<FN>
See accompanying notes to consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Organization:
Meris Laboratories, Inc. (the "Company") was incorporated in California
on November 14, 1990 to effect the reorganization of Meris Laboratories, Ltd.
Bay Area, a California limited partnership (the "Partnership"). This
reorganization of entities under common control has been accounted for on the
historical cost basis. The consolidated financial statements of the Company and
its subsidiary, Meris, Inc., include the financial position, results of
operations and cash flows for the Company. The Company provides complete
out-patient laboratory services and operates in only one industry segment within
the State of California.
Petition for relief under Chapter 11
On November 18, 1997 the Company ("Debtor") filed a voluntary petition
for relief under Chapter 11 of Title 11 of the United States Code in the United
States Bankruptcy Court for the Central District of California. Under Chapter
11, certain claims against the Debtor in existence prior to the filing of the
petition for relief under the federal bankruptcy laws are stayed while the
Debtor continues business operations as Debtor-in-possession. Such claims are
reflected in the December 31, 1997 and September 30, 1998 balance sheets as
"liabilities subject to compromise."
On September 16, 1998 the Company signed a definitive agreement with
Unilab Corporation ("Unilab") whereby the Company would sell substantially all
of its assets to Unilab. The agreement was approved on October 28, 1998 by the
United States Bankruptcy Court in Los Angeles, California (see Note 11). The
Company consummated the sale on November 5, 1998 and ceased operations. A loss
of $1,982,000 has been provided in the consolidated financial statements for the
year ended December 31, 1997, to write-down such assets to their net realizable
values. The Company plans to file a plan of reorganization under which it will
distribute all of the net proceeds of the sale and any remaining assets to its
creditors, subject only to the satisfaction of certain administrative and other
priority liabilities.
NOTE 2 - Summary of significant accounting policies:
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and Meris, Inc. All significant intercompany accounts and transactions
have been eliminated.
Basis of presentation
The consolidated financial statements have been prepared on a going
concern basis except that, for the period from November 18, 1997 to December 31,
1997, interest totaling approximately $800,000 has not been accrued on
indebtedness outstanding as of November 18, 1997, the date on which the Company
filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy
Code. As discussed in the second and third paragraphs of Note 1, the Company has
sold substantially all of its assets and ceased operations, and intends to file
a plan of reorganization under which it will liquidate and distribute the net
proceeds of the sale and any remaining assets. The consolidated financial
statements do not reflect any adjustments that may be required for the
disposition of the remaining assets in amounts different from those reflected in
the consolidated financial statements or in amounts which creditors may be
required to accept in settlement of obligations due them by the Company.
Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized upon performance of laboratory services.
Revenues are based on amounts billed or billable for services rendered, net of
price adjustments made with third-party payors by contract or otherwise. Certain
laboratory services are provided pursuant to managed care contracts which
provide for the payment of capitated fees rather than individual fees for tests
actually performed. The Company periodically evaluates such contracts to
ascertain their overall profitability. Such evaluations include both expected
capitated fees and identifiable referral revenues. Contract losses, if any, are
recognized as soon as they are identified. No such accruals were provided at
December 31, 1997 and 1996.
Laboratory services billed to Medicare comprised approximately 22.5%,
22.9%, and 19.1% of net revenues for the years ended December 31, 1997, 1996,
and 1995, respectively, and approximately 29.3% and 20.8% of outstanding net
accounts receivable at December 31, 1997 and 1996, respectively.
Expense recognition
All costs are expensed as incurred.
Financial instruments
Financial instruments which subject the Company to concentration of
credit risk consist primarily of accounts receivable. The primary payors are
individual patients, government agencies, insurance companies and, to a lesser
extent, physician clients. The Company provides an allowance for doubtful
accounts based on historical experience and current factors. The carrying value
of all other financial instruments is not presently determinable, since they may
be subject to compromise upon liquidation of the company.
Cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Concentration of credit risk
The Company places its cash and temporary cash investments with high
credit quality institutions. At December 31, 1997 and throughout the year, such
investments were in excess of FDIC insurance limits.
Restricted cash
The Company purchased a certificate of deposit in the amount of
$1,585,000 representing the full amount to satisfy the Company's obligations
owing to a former executive pursuant to and in connection with a promissory note
dated October 28, 1992. The Company is holding the balance in a separate account
pending the outcome of the litigation. The interest on the certificate of
deposit is also being held in a restricted account.
The Company deposited $379,000 to perfect its appeal in a legal action,
in which the courts awarded judgments totaling $253,000 against the Company and
in favor of the former employee.
Supplies inventory
Supplies inventory is stated at the lower of cost, determined on a
first-in, first-out basis, or market.
Assets held for sale
On October 28, 1998, the Company sold substantially all of its assets,
including accounts receivable, property and equipment, and intangible assets
(see Note 1). As a result, the Company has reported such assets at their net
realizable values under the caption, "Assets held for sale" at December 31, 1997
and September 30, 1998. The loss on the sale of such assets has been reflected
in the results of operations for the year ended December 31, 1997.
A summary of assets held for sale is as follows:
December 31
1 9 9 7
------------------
(in thousands)
Accounts receivable, net $ 3,252
Supplies inventory 473
Prepaid expenses and other current assets 25
Property and equipment, net:
Laboratory equipment 689
Furniture, fixtures and equipment 12
Vehicles 219
Leasehold improvements 1,883
Intangibles, net:
Covenant not-to-compete 283
Customer lists 11,612
Goodwill 462
-----------
18,910
Less - valuation reserve (1,982)
Net realizable value of assets held for sale $ 16,928
===========
Property and equipment
Property and equipment is recorded at cost. Property and equipment,
other than leasehold improvements, is depreciated using the straight-line method
over the estimated useful lives of the assets, generally three to five years.
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the remaining lease term or the estimated useful
lives of the improvements. The costs of assets sold or retired and the related
accumulated depreciation and amortization are eliminated from the accounts and a
gain or loss is included in operations.
<PAGE>
Intangible assets
Intangible assets are stated at cost and include acquisition-related
assets such as customer lists, covenants not-to-compete and goodwill.
Amortization of acquisition-related assets is computed using the straight-line
method over the estimated useful lives of the assets. Customer lists are
amortized over ten to sixteen years. Goodwill is amortized over twenty years.
Impairment of goodwill and intangible assets is measured on the basis
of anticipated undiscounted cash flows for each asset. Based upon the Company's
analysis, an impairment loss of $1,720,000, $7,552,000 and $3,300,000 was
charged to operations for the years ended December 31, 1997, 1996, and 1995,
respectively.
Debt issuance costs
Debt issuance costs are amortized using the interest method over the
estimated term of the related debt.
Income taxes
A deferred income tax liability or asset, net of valuation allowance,
is established for the expected future consequences resulting from the
differences between the financial reporting and income tax basis of assets and
liabilities and from net operating loss and tax credit carryforwards. Deferred
income tax expense or benefit represents the net change during the year in the
deferred income tax liability or asset.
Loss per share
In 1997, the Company adopted Statement of Financial Accounting Standard
No. 128, "Earnings Per Share." This standard requires that both basic earnings
or loss per share and diluted earnings or loss per share be presented. All prior
period per share amounts have been restated, following the new standard
requirements. Diluted loss per share excludes the effect of convertible debt,
stock options, and warrants (See Notes 4 and 9), because their effect would have
been antidilutive.
Reclassifications
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1997 presentation. Such reclassifications had no
effect on previously reported results of operations or retained earnings.
<PAGE>
NOTE 3 - Balance sheet detail:
December 31
1996
------------------
(in thousands)
Property and equipment consisted of:
Laboratory and computer equipment $ 9,798
Furniture, fixtures and office equipment 2,154
Vehicles 1,249
Leasehold improvements 907
----------
14,108
Less - accumulated depreciation and amortization (12,549)
----------
$ 1,559
Amount relating to capitalized leases, which are
included in property
equipment above $ 982
Less - accumulated amortization (778)
----------
$ 204
Intangibles consisted of:
Customer lists $ 1,720
Covenants not-to-compete 21,997
Goodwill 1,485
Consulting agreements 50
----------
25,252
Less - accumulated amortization (9,909)
----------
$ 15,343
Other assets consisted of:
Note receivable $ 182
Deferred debt issuance costs, net 363
Other 154
----------
$ 699
NOTE 4 - Unsecured senior subordinated debt:
On November 14 and December 5, 1994, the Company completed a private
placement consisting of the sale of $11,000,000 of unsecured convertible senior
subordinated debentures (the "Debentures"). The Debentures carry a 10% interest
rate and require interest to be paid monthly. In addition, the Debentures mature
three years from the date of issue and are convertible sixty days from the date
of issuance, at the option of the holders, into 3,055,555 shares of the
Company's common stock at a conversion price based on certain antidilution
provisions of the Debenture agreement. The Board of Directors has resolved to
reserve an aggregate of 3,055,555 shares of the Company's common stock for
issuance upon conversion of the Debentures, provided that the number of shares
reserved for issuance may be subject to change in the event of any further
adjustment in the conversion price of the Debentures.
The Company defaulted on the November 14, 1997 principal payoff of $11
million and is still in default. The Company has not paid interest relating to
the subordinated debt of approximately $1,705,000 and $735,000 at December 31,
1997 and 1996, respectively. The unpaid interest is reflected on the balance
sheets as accrued expenses under "liabilities subject to compromise."
Through December 31, 1997, the Company incurred $1,021,000 related to
the issuance and registration of the Debentures which is being amortized over
the three-year term of the Debentures. At December 31, 1997, debt issue cost was
fully amortized.
NOTE 5 - Secured borrowings:
On September 20, 1996 a bank with whom the Company had a line of credit
agreement sold its rights and claims under the agreement to an unrelated party,
who in turn assigned all such rights to an affiliate of the unrelated party
("Lender").
On November 18, 1996, the Company entered into an agreement with the
Lender (the "Second Amended Agreement") which provided, among other things, that
the Company would repay the Lender $12,770,874, on demand, at an interest rate
of 15% per annum. Interest is capitalized and added to the outstanding principal
evidenced by issuance of Payment-In-Kind ("PIK") notes, payable on demand of the
Lender. The Company granted a security interest in substantially all of the
assets of the Company. The proceeds from the loan were used to repay the
outstanding balance under the bank line of credit in the amount of $8,202,461
and certain other obligations, including a facility fee to the Lender in the
amount of $1,242,332. The remaining proceeds were used for working capital
purposes. The Second Amended Agreement calls for an anniversary fee equal to 2%
of the average balance of the loans outstanding during the first year, a fee
equal to 3% of the average balance of the loans outstanding during the second
year, and a fee equal to 4% of the average balance of the loans outstanding
during the third year. In conjunction with the Second Amended Agreement, the
Company issued to the Lender a warrant to purchase an aggregate of 800,000
shares of common stock of the Company at $0.01 per share. The warrant was
exercisable immediately and expires on November 18, 2006.
The Second Amended Agreement allowed the Company to borrow, at the
Lender's sole discretion, and not more frequently than once every 28 days,
additional borrowings of not less than $250,000 per borrowing. The Lender
extended twenty one additional demand notes ("Interim Funding Agreements") to
the Company during the period February 3, 1997 through November 12, 1997,
totaling $13,750,000, with interest accrued thereon at an interest rate of 24.9%
per annum.
On November 18, 1997, the Company filed a voluntary petition for relief
under Chapter 11 of Title 11 of the United States Bankruptcy Code. The Company
owed the Lender pre-petition obligations in the aggregate amount of $32,273,665,
consisting of $31,891,132 of principal and interest (including capitalized
interest) related to the Second Amended Agreement, and $382,534 for unreimbursed
costs, expenses, fees and other charges the Company owed to the Lender pursuant
to the Second Amended Agreement dated November 18, 1996 and the twenty one
Interim Funding Agreements.
On November 18, 1997, the Company and the Lender signed a Loan and
Security Agreement ("DIP Loan Agreement") whereby the Lender provided the
Company with a $5,000,000 credit facility to provide operating capital while the
Company continued as Debtor-in-possession. The DIP Loan Agreement allowed the
Company to borrow minimum increments of $250,000, not more frequently than once
every 14 days, at an interest rate of 12% per annum. The DIP Loan Agreement
required a nonrefundable commitment fee of $100,000, payable from the proceeds
of the loans, and expired June 3, 1998, which was subsequently extended until
December 31, 1998 (see Note 11).
As the debt owed to the Lender by the Company is impaired
(undersecured) under the plan of liquidation (see Note 11), the debt is
reflected on the balance sheets at December 31, 1997 and September 30, 1998 as
"liabilities subject to compromise."
<PAGE>
NOTE 6 - Lease commitments:
The Company leases various laboratories, Patient Service Centers and
office facilities under non-cancelable operating lease agreements which expire
at various times through the year 2002. The leases generally require the Company
to pay property taxes, maintenance expense and certain insurance. Certain of the
lease agreements require escalation of the minimum rental based upon factors
defined in the leases. Total rent expense under operating leases amounted to
approximately $3,090,000, $2,655,000 and $2,686,000 in 1997, 1996 and 1995,
respectively.
Minimum future lease payments under non-cancelable operating leases
subject to compromise are as follows:
Fiscal year
1998 $ 699,600
1999 699,600
2000 699,600
2001 699,600
2002 233,200
---------------
$ 3,031,600
NOTE 7 - Transactions with related parties:
One member of the Board of Directors of the Company received
approximately $86,000 and $154,000 for consulting and legal services rendered to
the Company during 1997 and 1996, respectively.
NOTE 8 - Income taxes:
The provision for income taxes is as follows:
Year ended December 31
------------------------------------------
1 9 9 7 1 9 9 6 1 9 9 5
------------ ---------- -----------
Current tax expense $ - $ - $ -
Deferred tax expense - - -
------------ ----------- ----------
Total $ - $ - $ -
============ =========== ==========
<PAGE>
The net deferred income tax asset comprises:
December 31
------------------------------
1 9 9 7 1 9 9 6
------------ ----------
Net operating loss carryforwards $ 20,141 $ 13,026
Alternative minimum tax credit carryforwards 122 122
Temporarily nondeductible reserves and allowances 1,293 1,963
Bad debt reserves 4,412 3,443
Loss on sale of assets 813 -
Depreciation and amortization 2,234 2,355
----------- -----------
29,015 20,909
Valuation allowance (29,015) (20,909)
----------- -----------
$ - $ -
=========== ===========
Changes in the valuation allowance for the years ended December 31, 1997 and
1996 are due to uncertainty regarding the ultimate realization of the gross
deferred tax assets based on the Company's recent operating results. Differences
between the Company's benefit for income taxes and that computed by applying the
federal statutory rate applied to the Company's loss before income taxes are as
follows:
December 31
----------------------------
1997 1996 1995
------- ------- ------
Federal statutory rate (35.0)% (35.0)% (35.0)%
State income taxes, net of federal tax benefit (6.5)% (6.5)% (6.5)%
Deferred tax assets not recognized 41.5% 41.5% 41.5%
----- ----- -----
0.0% 0.0% 0.0%
====== ====== ======
At December 31, 1997 and 1996, the Company had federal and state net
operating loss carryforwards of approximately $82 million and $54 million,
respectively. The federal and state net operating losses will begin to expire in
the years ending December 31, 2003 and 1999, respectively.
NOTE 9 - Employee benefit plans:
1991 Employee Stock Purchase Plan:
In May 1991, the Company adopted the 1991 Employee Stock Purchase Plan
(the "Purchase Plan") under which 225,000 shares of common stock have been
reserved for issuance. The Purchase Plan provides for sequential offering
periods, generally of six months. At the end of each offering period, shares may
be purchased by participants at 85% of the market value at the beginning or end
of the offering period. Shares are to be purchased from payroll deductions which
are limited to 10% of base compensation. A total of 49,841 shares of common
stock were issued under the Purchase Plan during the year ended December 31,
1996 and no shares of common stock were issued in 1997.
Amended and restated 1991 Stock Option Plan:
In February 1991, the Company adopted the 1991 Stock Option Plan (the
"Option Plan"), which was amended and restated. The Option Plan, which expires
in February 2001, provides for incentive as well as nonstatutory stock options
to be granted to employees and consultants of the Company. The Board of
Directors may terminate the Option Plan at any time at its discretion.
A Committee of the Board determines the terms of options granted under
the Option Plan. Options granted generally vest over four years and will be
adjusted for certain changes in capitalization of the Company. In addition, the
outstanding options issued under the Option Plan will terminate within a period
set by the Board after termination of employment.
The Option Plan also provides for automatic grants of non-qualified
stock options to directors who are not employees of the Company (the "Outside
Directors"). Under these provisions, as amended by the Board in November 1992,
each Outside Director on August 20, 1991 received an option to purchase 10,000
shares of common stock. Additionally, each Outside Director on November 23, 1992
(other than Outside Directors receiving options on August 20, 1991) received on
such date an option to purchase 10,000 shares of common stock, and each new
Outside Director receives an option to purchase 10,000 share upon his or her
election or appointment to the Board. In addition, beginning with the fifth
annual meeting of shareholders following the initial 10,000 share option grant,
each Outside Director will receive an option to purchase 2,500 shares on the
date of each annual meeting at which he or she is elected the Board. All options
granted to Outside Directors will have an exercise price equal to 100% of the
fair market value at the date of grant and will vest ratably over four years
commencing on the first anniversary of the date of grant.
Options under the Option Plan are generally granted at prices ranging
from 85% to 110% of the fair market value of the stock at the date of grant.
Except as discussed below, no options have been granted at exercise prices less
than 100% of such fair market value at the date of grant. In December 1991, an
Executive was granted, in connection with his employment with the Company, an
option to purchase 150,000 shares of common stock at an exercise price of $8.00
per share. The last reported sale price of the Company's common stock on such
date was $14.00 per share. In October 1993, the Executive irrevocably terminated
the option to the extent of 100,000 unvested shares. Accordingly, the Company
ceased recognizing compensation associated with this option effective September
30, 1993. There is no commitment to grant the Executive any additional options.
The Company recorded $122,000 of compensation expense during the year ended
December 31, 1993 related to this stock option grant.
The Company applies the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for its
stock option plan. Accordingly, no compensation cost has been recognized for the
plan for the years ended December 31, 1997, 1996, and 1995. Certain information
related to the Company's stock option plan was not available for the years ended
December 31, 1997 and 1996. Consequently, the effect of the Company's adoption
of Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), was not calculated. However, the
increase in net loss would not be material to the financial statements.
<PAGE>
A summary of the status of the Company's stock option plan as of
December 31, 1997 and 1996 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1997 1996
------------------------------------ ----------------------------------
Range of Range of
Number of Exercise Number of Exercise
Shares Prices Shares Prices
--------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 2,092,089 $.73-$4.38 1,450,579 $ .73-$4.38
Granted 1,211,709 $1.00-$1.50
Exercised (12,150)
Canceled or expired (389,176) - (558,049) -
----------- ------------- ----------- ------------
Outstanding at end of year 1,702,913 $.73-$4.38 2,092,089 $ .73-$4.38
=========== ========== =========== ============
</TABLE>
Employee savings and retirement plan
In January 1992, the Company adopted the 401(k) Retirement Plan of
Meris Laboratories, Inc. (the "Plan"), a savings and investment plan, as allowed
under Section 401(k) of the Internal Revenue Code (the "Code"). Under the terms
of the Plan, eligible participants may contribute up to 15% of their eligible
earnings to the Plan, not to exceed the amount allowed under the Code. Under the
Plan Agreement, the Company may make contributions at the discretion of the
Board of Directors. As of December 31, 1997, no contributions have been made to
the Plan by the Company.
NOTE 10 - Contingencies:
The Company and its directors and former officers are defendants in
several lawsuits. Plaintiffs in the lawsuits and their legal counsel have filed
bankruptcy claims in excess of $23 million. At December 31, 1997, the Company
has accrued $515,000 in costs associated with such lawsuits. The ultimate
resolution of the lawsuits cannot be determined at the present time;
accordingly, the consolidated financial statements do not include any
adjustments, beyond the accrual noted above, that might result from the outcome
of the lawsuits.
In February 1997, the Company entered into a settlement agreement with
the U.S. Department of Justice and Department of Health and Human Services
related to certain Medicare and other billing practices. Under the terms of the
settlement, the Company agreed to pay $4.25 million in monthly installments of
$100,000. This obligation is reflected in the consolidated balance sheet as
accrued Medicare settlement, under liabilities subject to compromise. The
Company has made no payments since it filed for bankruptcy.
NOTE 11 - Subsequent events:
Amendment to DIP Loan Agreement
On November 23, 1998, the Company and the Lender amended the terms of
the DIP Loan Agreement to extend the terms of the agreement from June 3, 1998 to
December 31, 1998 and to increase the amount of funds available to the Company
from $5 million to $9.5 million.
<PAGE>
Plan of liquidation
On September 16, 1998, the Company signed a definitive agreement with
Unilab whereby Unilab would acquire substantially all of the assets of the
Company. The purchase price of $16,928,000 consisted of the following: an
eight-year convertible subordinated note in the amount of $14 million, bearing
interest at a rate of 7.5% per annum, with a $3.00 per share conversion price
plus $2,520,000 in cash payable in seventy-two equal monthly installments; and
the assumption of certain liabilities totaling approximately $408,000. The
agreement was approved on October 28, 1998 by the U.S. Bankruptcy Court in Los
Angeles, California, and Unilab took possession of the acquired assets on
November 5, 1998.
The Company intends to file a plan of liquidation under which it will
distribute all of the net proceeds of the sale to its creditors, subject to the
satisfaction of certain administrative and other priority liabilities.
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF UNILAB
The Unaudited Pro Forma Statements of Operations of Unilab Corporation ("Unilab"
or the "Company") for the nine months ended September 30, 1998 and the year
ended December 31, 1997 and the Unaudited Pro Forma Balance Sheet of Unilab at
September 30, 1998 which are set forth below, give effect to the acquisition of
Meris Laboratories, Inc. ("Meris") based upon the assumptions set forth below
and in the notes to such statements. The unaudited pro forma financial
information assumes that the acquisition of Meris was completed January 1, 1998
and January 1, 1997 for the Unaudited Pro Forma Statements of Operations for the
nine months ended September 30, 1998 and the year ended December 31, 1997
respectively, and September 30, 1998 for the Unaudited Pro forma Balance Sheet
at September 30, 1998. The unaudited pro forma financial information presented
is based upon the respective historical financial statements of Unilab and Meris
and should be read in conjunction with such financial statements and related
notes thereto. Unilab believes that the accompanying unaudited pro forma
financial information contains all adjustments necessary to fairly present the
results of operations of Unilab for the nine months ended September 30, 1998 and
the year ended December 31, 1997 and the financial position of Unilab as of
September 30, 1998 as if , in the case of (i) the Unaudited Pro Forma Balance
Sheet, the acquisition of Meris had occurred as of September 30, 1998 and (ii)
the Unaudited Pro Forma Statements of Operations for the nine months ended
September 30, 1998 and the year ended December 31, 1997 as if the acquisition of
Meris was completed January 1, 1998 and January 1, 1997 respectively. The pro
forma financial information presented does not purport to be indicative of the
financial position or operating results which would have been achieved had the
acquisition of Meris taken place at the dates indicated and should not be
construed as representative of Unilab's financial position or results of
operations for any future period or date.
<PAGE>
<TABLE>
Unilab
Unaudited Pro Forma Balance Sheet
September 30, 1998
(in thousands)
<CAPTION>
Acquisition Pro Forma Pro Forma
ASSETS Unilab of Meris Adjustments Unilab
--------------- ---------------- --- ----------------------- ---- ------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,901 $19,901
Accounts receivable, net 40,395 3,252 (a) 43,647
Inventory or supplies 2,776 473 (a) (298)(c) 2,951
Prepaid expenses and other current
assets 1,581 25 (a) 1,606
- ---------------------------------------- --------------- ---------------- --- ----------------------- ---- ------------------
Total current assets 64,653 3,750 (298) 68,105
Property and equipment, net 11,510 2,803 (a) (2,630)(c) 11,683
Goodwill, net 42,750 9,990 4,352 57,092 (d)
Other intangible assets, net 2,284 283 (a) 2,567
Other assets 6,446 6,446
- ----------------------------------------
=============== ================ === ======================= ==== ==================
$127,643 $16,826 $1,424 $145,893
=============== ================ === ======================= ==== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,344 $1,344
Accounts payable and accrued
liabilities 15,560 420 (b) 1,424 (c) 17,404
Accrued payroll and benefits 7,791 306 (a) 8,097
- ---------------------------------------- --------------- ---------------- --- ---------------------- ----- -------------------
Total current liabilities 24,695 726 1,424 26,845
Long-term debt, net of current portion 123,450 14,000 (b) 137,450
Other liabilities 2,043 2,100 (b) 4,143
- ---------------------------------------- --------------- ---------------- --- ---------------------- ----- -------------------
150,188 16,826 1,424 168,438
Shareholder's Equity (Deficit)
Convertible preferred stock 4 4
Common stock 407 407
Additional paid-in capital 228,308 228,308
Accumulated deficit (251,264) (251,264)
- ---------------------------------------- --------------- ---------------- --- ---------------------- ----- -------------------
Total shareholder's equity (deficit) ( 22,545) ( 22,545)
- ----------------------------------------
=============== ================ === ====================== ===== ===================
$127,643 $ 16,826 $ 1,424 $ 145,893
=============== ================ === ====================== ===== ===================
<FN>
See Notes to Unaudited Pro Forma Balance Sheet
</FN>
</TABLE>
<PAGE>
Unilab
Notes to Unaudited Pro Forma Balance Sheet
(a) On September 16, 1998, Unilab and Meris signed an asset purchase agreement
whereby Unilab acquired substantially all of the assets of Meris. The
agreement was approved on October 28, 1998 by the United States Bankruptcy
Court in Los Angeles, California, and Unilab took possession of the
acquired net assets on November 5, 1998. This adjustment reflects the net
assets acquired by Unilab, consisting principally of accounts receivable,
inventory of supplies, security deposits primarily on leased facilities,
fixed assets, covenants not-to-compete and vacation pay liability, at the
value recorded in Meris' accounting records at September 30, 1998.
(b) Adjustment to reflect the purchase price for the acquired net assets of
Meris noted in (a) above, consisting of a convertible subordinated
promissory note in the principal amount of $14.0 million, bearing interest
on the outstanding balance at a rate of 7.5% per annum, and $2.52 million
in cash payable in seventy-two equal monthly installments.
(c) Adjustment to reflect the disposition of fixed assets, the writedown of
unusable supplies inventory, and an accrual of approximately $1.4 million
in costs (primarily severance, disposition of operating leases, and payment
of attorney fees and other closing costs) expected to be incurred in
connection with the integration of the acquired Meris operations with those
of Unilab and the closing of the asset purchase agreement.
(d) The acquisition of the net assets of Meris is expected to result in
approximately $14.3 million of additional goodwill.
<PAGE>
<TABLE>
Unilab
Unaudited Pro Forma Statement of Operations
Nine Months Ended September 30, 1998
(in thousands, except per share amounts)
<CAPTION>
Acquisition of Pro Forma Pro Forma
Unilab Meris Adjustments Unilab
--------------- ----------------- ----------------- ------ ----------------
<S> <C> <C> <C> <C>
Revenue $162,046 $ 19,727 $181,773
- -------------------------------------------------- --------------- ----------------- ----------------- ------ ----------------
Direct Laboratory and Field Expenses:
Salaries, wages and benefits 49,645 6,763 (2,409)(a) 53,999
Supplies 22,585 3,267 (601)(a) 25,251
Other operating expenses 39,404 9,597 (3,513)(a) 45,488
- -------------------------------------------------- --------------- ----------------- ----------------- ------ ----------------
111,634 19,627 (6,523) 124,738
Amortization and depreciation 5,774 - 580 (a) 6,354
Selling, general and administrative expenses 24,990 8,351 (4,758)(a) 28,583
- -------------------------------------------------- --------------- ----------------- ----------------- ------ ----------------
Total operating expenses 142,398 27,978 159,675
- -------------------------------------------------- --------------- ----------------- ----------------- ------ ----------------
Operating income (loss) 19,648 (8,251) 22,098
Other expenses:
Interest, net 10,068 354 434 (b) 10,856
- -------------------------------------------------- --------------- ----------------- ----------------- ------ ----------------
Income (loss) before income taxes 9,580 (8,605) 11,242
Tax provision - - -
- -------------------------------------------------- --------------- ----------------- ----------------- ------ ----------------
Net income (loss) $ 9,580 $ (8,605) $ 11,242
Preferred stock dividends 99 - 99
================================================== =============== ================= ================= ====== ================
Net income (loss) available to common
stockholders $ 9,481 $ (8,605) $11,143
================================================== =============== ================= ================= ====== ================
Earnings per share:
Basic $0.22 $0.27
Diluted $0.22 $0.26
<FN>
See Notes to Unaudited Pro Forma Statement of Operations
</FN>
</TABLE>
<PAGE>
<TABLE>
Unilab
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1997
(in thousands, except per share amounts)
<CAPTION>
Acquisition Pro Forma Pro Forma
Unilab of Meris Adjustments Unilab
------------- ------------------ ------------------ ----- ----------------
<S> <C> <C> <C> <C>
Revenue $214,001 $ 29,903 $243,904
- ------------------------------------------------- ------------- ------------------ ------------------ ----- ----------------
Direct Laboratory and Field Expenses:
Salaries, wages and benefits 69,094 12,507 (4,929) (a) 76,672
Supplies 29,858 4,946 (1,024) (a) 33,780
Other operating expenses 56,990 13,728 (6,682) (a) 64,036
- ------------------------------------------------- ------------- ------------------ ------------------ ----- ----------------
- ------------------------------------------------- ------------- ------------------ ------------------ ----- ----------------
155,942 31,181 (12,635) 174,488
Amortization and depreciation 8,885 2,240 (1,467) (a) 9,658
Selling, general and administrative expenses 34,570 15,785 (11,574) (a) 38,781
- ------------------------------------------------- ------------- ------------------ ------------------ ----- ----------------
Total operating expenses 199,397 49,206 222,927
- ------------------------------------------------- ------------- ------------------ ------------------ ----- ----------------
Operating income (loss) 14,604 (19,303) 20,977
Other expenses:
Interest, net 14,068 4,446 (3,396) (b) 15,118
- ------------------------------------------------- ------------- ------------------ ------------------ ----- ----------------
Income (loss) before income taxes 536 (23,749) 5,859
Tax provision - - -
- ------------------------------------------------- ------------- ------------------ ------------------ ----- ----------------
Net income (loss) $ 536 $(23,749) $ 5,859
Preferred stock dividends 138 - 138
================================================= ============= ================== ================== ===== ================
Net income (loss) available to common
stockholders $ 398 $(23,749) $ 5,721
================================================= ============= ================== ================== ===== ================
Earnings per share:
Basic $0.01 $0.14
Diluted $0.01 $0.14
<FN>
See Notes to Unaudited Pro Forma Statement of Operations
</FN>
</TABLE>
<PAGE>
Unilab
Notes to Unaudited Pro Forma Statement of Operations
(a) Adjustment to reflect the expected efficiencies or synergy savings expected
to be obtained in connection with the integration of the acquired Meris
operations with those of Unilab, primarily related to the disposition of
fixed assets and operating leases and the reduction in employee headcount
and closure of facilities due to the overlap of operations between Unilab
and Meris. The integration of operations is expected to be completed
within two months after the acquisition date (such acquisition date is
assumed to be January 1, 1997, for the pro forma statements of operations
for the year ended December 31, 1997, and January 1, 1998, for the pro
forma statement of operations for the nine months ended September 30,
1998), after which time most of the efficiencies/synergy savings are
expected to be achieved (certain sales and billing costs, which are
estimated to approximate $0.5 million, are expected to remain for
approximately four additional months to assist in the collection of Meris
accounts receivable and transition of client accounts.) During the
anticipated two month integration period, the Company expects to incur
approximately a $1.2 million operating loss on the acquired operations,
and such operating loss has been included in this pro forma adjustment.
(b) Adjustment to reflect the change in interest expense associated with the
additional interest expense from the issuance of the $14.0 million
convertible subordinated note, bearing interest on the outstanding balance
at a rate of 7.5% per annum, in connection with the acquisition of Meris
and the elimination of the Meris historical interest expense.
