<PAGE>
As filed with the Securities and Exchange Commission on December 30, 1999
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
REGISTRATION STATEMENT
ON
FORM S-4
UNDER
THE SECURITIES ACT OF 1933
----------------
UNILAB CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 8071 95-4415490
(Primary standard (I.R.S. employer
(State or other industrial identification number)
jurisdiction) classification code
number)
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18448 Oxnard Street
Tarzana, CA 91356
(818) 996-7300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Mark L Bibi, Esq.
Executive Vice President, Secretary and General Counsel
Unilab Corporation
401 Hackensack Avenue, 9th Floor
Hackensack, NJ 07601
(201) 525-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copy to:
Gregory A. Fernicola, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
(212) 735-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
----------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount Of
Securities to be To Be Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price Fee
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4% Senior
Subordinated Notes due
2009 (the "Notes")... $155,000,000 97.268% $150,765,400 $39,802
- ---------------------------------------------------------------------------------
</TABLE>
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. The +
+securities covered by this prospectus may not be sold until the registration +
+statement, of which this prospectus forms a part, filed with the Securities +
+and Exchange Commission is declared effective. This prospectus is not an +
+offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where such an offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED DECEMBER 30, 1999
PROSPECTUS
Offer to Exchange All 12 3/4 Senior Subordinated Notes Due 2009
for 12 3/4 Senior Subordinated Notes due 2009, Which Have Been Registered
Under the Securities Act of 1933, As Amended, of
[LOGO OF UNILAB] UNILAB CORPORATION
The Exchange Offer will expire at 5:00 P.M.,
New York City time, on , 2000, unless extended.
------------
Terms of the Exchange Offer:
. We will exchange all outstanding Old Notes that are validly tendered and
not withdrawn prior to the expiration of the Exchange Offer.
. You may withdraw tenders of Old Notes at any time prior to the expiration
of the Exchange Offer.
. We believe that the exchange of Old Notes will not be a taxable exchange
for U.S. federal income tax purposes but you should see "Material Federal
Income Tax Considerations" beginning on page 115 for more information.
. We will not receive any proceeds from the Exchange Offer.
. The terms of the New Notes are substantially identical to the outstanding
Old Notes, except that the New Notes are registered under the Securities
Act and the transfer restrictions and registration rights relating to the
Old Notes do not apply to the New Notes.
------------
A discussion of risks that should be considered by holders prior to tendering
their Old Notes is set forth under "Risk Factors" beginning on page 14.
------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
------------
The date of this prospectus is December , 1999
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements regarding, among other
things, our financial condition and business strategy. You can identify these
statements by the fact that they do not relate strictly to historical or
current facts. They use words like "believe," "may," "will," "expect,"
"intend," "plan," "anticipate," "estimate" or "continue" and other words and
terms of similar meaning. These forward-looking statements are based on
current expectations about future events. While we believe these expectations
are reasonable, such forward-looking statements are inherently subject to
risks, uncertainties and assumptions, including the following, among other
things:
. potential adverse actions by governmental or other third-party payors,
including Medicare and Medicaid;
. the importance of managed care providers in California;
. extensive and frequently changing governmental regulation of the
clinical laboratory testing industry;
. government investigations of our marketing and billing practices;
. complexities in billing for laboratory testing services;
. difficulties in integrating any acquired businesses;
. technological changes leading to the development of cost-effective
point-of-care testing that reduces the need for independent laboratory
testing services;
. our dependence upon key members of our management team;
. intense competition in the industry; and
. our exposure to professional liability and other litigation.
i
<PAGE>
PROSPECTUS SUMMARY
In this prospectus, "Unilab Finance" refers to Unilab Finance Corp., "UC
Acquisition" refers to UC Acquisition Sub, Inc. and, unless otherwise
indicated, "Unilab," "we," "our" and "us" refer to Unilab Corporation.
Currently, we do not have any subsidiaries. Unless stated otherwise, all our
pro forma information in this prospectus give effect to (1) the
recapitalization and (2) the recent acquisitions of substantially all of the
assets of Meris Laboratories, Inc. and Physicians Clinical Laboratories, Inc.,
which operated under the name Bio-Cypher Laboratories, in each case as of the
dates or at the beginning of the periods specified and as further described in
the "Unaudited Pro Forma Financial Statements" section. Both the
recapitalization and the recent acquisitions are described below in this
summary in more detail. Unless stated otherwise, aggregate employee data in
this prospectus are adjusted to reflect the number of "full-time equivalent"
employees. The number of full-time equivalent employees is calculated by
aggregating the number of payroll hours worked by all employees and dividing
the total by a standard 40-hour work week. The following summary highlights
selected information from this prospectus and may not contain all of the
information that is important to you. For a more complete understanding of this
offering, you are encouraged to read this entire document and the documents
incorporated by reference into this prospectus.
Unilab Corporation
We are the largest independent clinical laboratory testing company in
California, providing comprehensive laboratory testing services to physicians,
managed care groups, hospitals and other health care providers. We perform over
1,000 different tests which help physicians diagnose, evaluate, monitor and
treat disease by measuring the presence, concentrations or composition of
chemical and cellular components in human body fluids and tissue. These tests
range from simple tests, such as glucose monitoring, to highly specialized
ones, such as those designed to measure HIV infection. On a pro forma basis, we
believe our revenues in California for the year ended December 31, 1998
represented approximately 25% of the California independent clinical laboratory
testing market, or more than twice the annual sales of the next largest
independent clinical laboratory in California. On a pro forma basis, for the
nine months ended September 30, 1999, we would have generated revenue of $232.0
million.
We operate our fully integrated collection and processing system 365 days a
year, 24 hours a day. Patient specimens are collected daily from clients'
offices or our own collection stations known as patient service centers.
Specimens are then transported to either full-service or short turn around time
("STAT") laboratories. STAT laboratories are local facilities where we can
quickly perform an abbreviated line of routine tests for customers that require
emergency or time-sensitive testing services. Once the specimens are received
at the laboratories, each specimen and related test request form is checked for
completeness, bar coded and entered into our computer system for testing and
billing purposes. Laboratory technicians then perform the requested tests, with
results generally available to clients the next morning electronically.
The clinical laboratory testing industry is essential to America's health
care delivery system because physicians must rely on accurate testing
information to properly assess and remedy their patients' health conditions. We
believe that the U.S. clinical laboratory testing market accounts for
approximately 3%, or approximately $30 billion, of the nation's total annual
healthcare expenditures. The clinical laboratory testing industry in the United
States is composed of three segments: (1) laboratories located in hospitals,
(2) laboratories located in physicians' offices and laboratories owned by
physicians and (3) independent clinical laboratories. Management believes that
the California clinical laboratory testing market is approximately $4.0 billion
in size and is the largest in the nation. Despite significant industry
consolidation, the clinical laboratory testing market nationally, and
particularly in California, remains highly fragmented. We directly compete in
the approximately $1.2-$1.4 billion independent clinical laboratory testing
sector within California.
1
<PAGE>
Recent Acquisitions
We have acquired and integrated six companies in the past five years.
Recently we completed two acquisitions which have in large part served to
increase our market share from approximately 15% to approximately 25% of
California's independent clinical laboratory testing market. In reviewing the
merits of a potential acquisition, our management develops a highly detailed
integration plan by examining the target's existing operations and assessing
the ongoing requirements of the combined businesses. The actual results and
timing of an integration are closely monitored against the plan.
Meris Acquisition. In November 1998, we acquired substantially all of the
assets of Meris Laboratories, Inc., an independent laboratory which was based
in San Jose, California. Meris was one of our principal competitors in the
California clinical laboratory testing market. We acquired Meris primarily to
expand our market penetration in the Marin County, Berkeley and Newport Beach
regions, increase utilization of our existing San Jose laboratory and eliminate
redundant costs. Following the acquisition, we reduced employees formerly
employed by Meris from approximately 450 to 220. In addition, we closed Meris'
main testing center which processed approximately 3,200 specimens per day and
reduced the number of STAT laboratories and patient service centers from
approximately 85 to 55. As a result, we estimate that we were able to eliminate
over $19 million of annual expenses, generating an EBITDA margin on the
incremental revenue of approximately 32%, while retaining a substantial
majority of Meris' clients and improving service levels. Within approximately
two months of completing the acquisition, we had substantially integrated the
Meris business and realized most of the significant synergies planned in the
consolidation.
Bio-Cypher Acquisition. In May 1999, we acquired substantially all of the
assets of Physicians Clinical Laboratories, Inc., an independent laboratory
which operated under the name Bio-Cypher Laboratories and was headquartered in
Sacramento, California. Bio-Cypher was one of our principal competitors in the
California independent clinical laboratory testing market, with a majority of
Bio-Cypher's revenue being generated from the greater Sacramento area. We
acquired Bio-Cypher to increase our market share, rationalize excess capacity
and capture other synergies from the combination. We expect to realize
significant cost savings by eliminating Bio-Cypher's main testing laboratory,
which currently processes over 8,500 specimens per day, reducing employees from
approximately 855 to 350 and consolidating redundant STAT laboratories and
patient service centers from approximately 180 to 50. We have completed an
expansion program in our Sacramento laboratory to accommodate the increased
volume from the Bio-Cypher acquisition. We believe that annual cost savings
from the Bio-Cypher acquisition will exceed approximately $26 million. We fully
integrated the Bio-Cypher business in September 1999.
Through the acquisitions of Meris and Bio-Cypher, we significantly expanded
our annual specimen levels and revenues and were able to benefit from
substantial operating synergies. The following table sets forth certain
estimated statistics of our stand-alone business as of October 31, 1998 (prior
to the Meris and Bio-Cypher acquisitions), the Meris and Bio-Cypher businesses
immediately prior to their respective acquisitions and our pro forma statistics
reflecting base business growth through June 30, 1999, both acquisitions and
all acquisition-related synergies.
<TABLE>
<CAPTION>
Bio- Net Pro forma
Unilab Meris Cypher Adjustments Unilab
--------- ------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Principal laboratories..... 3 1 1 (2) 3
STAT laboratories.......... 31 9 14 (14) 40
Patient service centers.... 222 76 166 (159) 305
Employees.................. 2,320 450 855 (675) 2,950
Annual specimens........... 8,500,000 840,000 2,250,000 410,000 12,000,000
Specimens per day.......... 32,500 3,200 8,500 1,400 45,600
Specimens per employee per
day....................... 14.0 7.1 9.9 15.5
</TABLE>
2
<PAGE>
Competitive Strengths
We attribute our leading position in the California independent clinical
laboratory testing market and our significant opportunities for continued
profitable growth to the following competitive strengths:
Market Leader in California. We are the largest independent clinical
laboratory testing company in California with a market share of approximately
25%, more than twice that of our next largest competitor. Our strong regional
presence and reputation for superior customer service and support make us the
preferred provider of laboratory testing services to physicians and other
customers seeking superior patient access and service reliability. We currently
serve approximately 40,000 customers and have approximately 150 managed care
contracts, covering approximately 3.8 million managed care lives.
Superior Regional Infrastructure. Our fully integrated and expansive field-
service network gives us a unique competitive advantage in California's
clinical laboratory testing market by offering greater geographic coverage and
convenience to our clients and their patients. We currently operate more
client-support facilities than any of our competitors in California. We will
operate three full-service laboratories (in Los Angeles, San Jose and
Sacramento), approximately 305 conveniently located patient service centers and
40 strategically located STAT laboratories. Our 420 courier routes and 36
courier hubs will continue to provide rapid collection, processing and
distribution services to clients. We assess the characteristics of each
geographic territory to customize professional service routes that ensure
proper specimen collection and report distribution which enable us to offer
highly effective services to the different needs of rural and high traffic
urban areas in California.
Low Cost Provider. We enjoy cost advantages gained through economies of scale
and efficient processes. Our management believes our cost per specimen is the
lowest in the California market. We have created a fully integrated collection,
testing, distribution and operating system which is characterized by a high
degree of operating leverage, allowing us to expand testing capacity at a very
low incremental cost. Meris and Bio-Cypher historically had average costs per
specimen of approximately $43.00 and $27.00, respectively. Following the
acquisitions, Meris has, and Bio-Cypher is expected to have, average costs per
specimen of approximately $21.00 and $16.00, respectively. Our management
expects these average cost per specimen reductions to generate annual cost
savings of approximately $45 million. Our management believes that we have the
capacity to process approximately 60,000 specimens per day, allowing an
increase of approximately 32.0% over the current level of 45,600 specimens per
day, without the need for significant additional operating expenses or capital
expenditures. This operating leverage should enable us to experience cash flow
growth while achieving our market share growth objectives.
Comprehensive Testing Services. We are able to provide our customers with
"one-stop-shopping" by offering a full spectrum of testing services to the
medical community. We perform approximately 99% of ordered tests, including
most esoteric tests, in-house. The balance is referred to subcontracted
specialty laboratories. We maintain a policy of expanding our testing menu only
when there is sufficient volume and economic justification. Accordingly,
favorable partnering relationships with several other laboratories facilitate
our ability to optimize our in-house test menu under a "make versus buy" cost-
based analysis. We believe that new testing procedures such as amplified DNA
probes for chlamydia and gonorrhea testing and emerging cytology (PAP smear)
technology offer two examples of possible additional future revenue growth from
technology. Conversion from non-amplified to amplified probes not only provides
for more specific and definitive test results, but also provides for a higher
level of reimbursement. Conversion to the newer emerging PAP smear technology
provides similar benefits both to the patient and to us. Our management
believes that increased marketing support of both of these new technologies
will have a positive effect on future revenue.
Reputation for Quality. Clinical laboratory testing is an essential element
in the delivery of quality healthcare service because physicians use laboratory
tests to assist in detecting, diagnosing, evaluating, monitoring and treating
diseases and other medical conditions. Approximately 70% of total healthcare
3
<PAGE>
expenditures in the United States are determined on the basis of laboratory
test results. We employ a quality assurance program for all of our laboratories
and facilities designed to ensure that specimens are collected and tested, and
client, patient and test information is reported, billed and filed in a timely
and accurate manner. Each of our three full-service laboratories has earned
full accreditation by the College of American Pathology. Over the past four
years, our accuracy rates, as determined by the College of American Pathology,
have increased from 99.2% in 1994 to over 99.5% in 1998. Our management
believes that our accuracy rates are among the highest in the industry.
Proven and Committed Management Team with Substantial Local Market
Knowledge. We have a proven management team with extensive experience in the
California clinical laboratory testing industry, including significant
expertise in identifying, effecting and integrating acquisitions within the
California market. We have strengthened our existing management team with the
addition of Robert E. Whalen, who became our President and Chief Executive
Officer on November 23, 1999. Mr. Whalen was previously an Executive Vice
President of Laboratory Corporation of America and National Health
Laboratories. Mr. Whalen has over 20 years of experience in the clinical
laboratory testing industry, with over 10 of those years in California. David
C. Weavil, our former Chairman, President and Chief Executive Officer, is
expected to continue to have an active role in management and planning and will
remain Chairman. Our five most senior executives collectively have over 80
years of clinical laboratory testing experience. Moreover, approximately 70% of
our 200 employees in supervisory or managerial roles have been employed at our
company for five years or more. Upon completion of the recapitalization, our
management team will own or have the opportunity to acquire through a stock
option plan up to 15% of our common stock.
Business Strategy
Our overall goal is to continue to be recognized as the preeminent
independent clinical laboratory testing organization in California. To
accomplish this goal, we employ the following business strategies:
Maintain Customer Satisfaction through Superior Service Quality. We achieve a
high level of customer satisfaction through superior customer service and seek
to maintain what our management believes is our reputation as the highest
quality provider of clinical laboratory testing services in California. Our 75-
member sales and service staff is responsible for visiting existing and
prospective accounts regularly to educate them about our capabilities and
general laboratory issues and, in the case of existing accounts, to identify
ways to improve existing services. We also operate a customer service hotline
to assist customers with service issues and billing inquiries. Doctors can
receive patient test results via an automated telephone system 24 hours a day.
To ensure the integrity of our tests, we standardized and automated our
collection, testing and billing processes. Such standardized controls and
techniques include utilizing specialized pouches and preprinted requisition
forms for proper processing, as well as utilizing computer bar coding and log-
in techniques for proper testing and billing. Our goal is to remain the
provider of choice in California and to utilize our established brand name and
reputation for quality to compete on factors other than price.
Continue to Improve Terms of Contracts. We have a company-wide policy to
partner with our customers, especially managed care customers, in an effort to
effect greater correlation between price and service levels based on the
following three strategies: (1) increase "at risk" capitation rates to achieve
greater coverage of incremental testing costs; (2) reduce our incurred costs
that do not add value to patient care and (3) restructure contracts to exclude
some non-core "premium" services, such as PAP smears and esoteric tests, from
the "at risk" capitation rate. For example, we restructured a major contract in
early 1998 by increasing the capitation rate by more than 50%, with an
additional 50% step-up beginning in 1999. In addition, we passed all expenses
associated with six supporting STAT laboratories and 10 patient service centers
to the customer, expenses which would have previously been included in the
capitation rate. In 1997, we repriced over 70% of our managed care contracts
with a 50% average price increase and in 1998 we repriced 40% of our managed
care contracts with a 30% average price increase. We have established this
partnering approach as a longer-term strategy and have instituted a quarterly
contract-specific review process to achieve this goal.
4
<PAGE>
Grow Market Share through Refocused Sales and Marketing Efforts. We intend to
intensify our sales and marketing activities. We believe there are significant
opportunities to gain market share from other commercial laboratories. To
accomplish this, we intend to have a clearer delineation between sales and
service activities. We also believe there are considerable opportunities to
increase our hospital reference testing business and enter into laboratory
management agreements with hospitals, a segment which is largely unpenetrated
by us. Hospital laboratories account for approximately $2.0 billion of the
approximately $4.0 billion California clinical laboratory testing market. We
will also expand our effort to reduce client turnover through reorganized
sales, service and marketing functions. We intend to dedicate existing sales
force personnel to focus solely on these opportunities.
Maximize Operating Efficiencies. Although we have realized significant
expense reductions over the past two years, management believes there are
significant additional cost savings that can be attained over the near term.
For example, we expect to achieve further cost reductions through test menu
consolidations, continued process and workflow scheduling improvements and
consolidations of patient service centers and STAT laboratories. Our management
also expects to reduce expenses for lab subcontracting, overtime and supplies.
In addition, our management team expects to reduce our bad debt expense through
an increased emphasis on correct billing information.
Pursue Selected Acquisitions. In addition to seeking to maximize internal
growth, we will continue to opportunistically pursue selected acquisition
opportunities. We believe that independent laboratories with annual revenues of
less than $20 million make up over 40% of the California independent clinical
laboratory testing market. We believe that our expansive service network and
operating discipline effectively position us to be a logical consolidator
within the fragmented California market. In evaluating potential acquisition
targets, we will continue to focus on financially and ethically sound
businesses with one or more of the following characteristics: overlapping
field-service networks for highly synergistic "fold-in" acquisitions, such as
the Meris and Bio-Cypher acquisitions; strong geographic presence in regions
where we may desire to attain greater market share and quality customer bases
possessing favorable pricing characteristics.
The Recapitalization
On May 24, 1999, we entered into an agreement with UC Acquisition, which is
owned by affiliates of Kelso & Company, under which UC Acquisition merged with
and into our company. The merger was completed on November 23, 1999. With the
completion of the merger, 93.0% of our common stock is owned by the Kelso
affiliates and designees and management. The remaining 7.0% of our common stock
is held by a limited number of investors.
This merger was a part of our recapitalization. The other principal features
of the recapitalization included:
. the conversion into cash of approximately 44.8 million shares of our
common stock at $5.85 per share, the conversion into cash of 364,000
shares of our preferred stock at $5.75 per share and the accelerated
vesting and either the cancellation or retention of outstanding stock
options, for total cash consideration of up to $280.6 million; and
. the retirement of $144.5 million of our existing debt, consisting of
$119.5 million of 11% senior notes due 2006 and $25.0 million of 7.5%
notes.
5
<PAGE>
We financed the recapitalization with:
. a new common equity investment of $139.5 million from funds provided by
the affiliates and designees of Kelso and a $11.1 million equity
rollover from certain existing shareholders of approximately 1.9 million
shares of our currently outstanding stock into approximately 7.4% of our
post-merger common stock;
. approximately $31.3 million of cash from us;
. a new senior bank credit facility consisting of $160.0 million in term
loans and $2.0 million of borrowings under a $25.0 million revolving
credit facility; and
. $150.8 million from the issuance of the Old Notes.
In addition, if our ratio of net total debt to EBITDA (as defined in a
capital call agreement) for the year 2000 is greater than 5.0 times, the Kelso
affiliates that control us will be required, pursuant to the capital call
agreement, to make (or cause their designees to make) an equity investment of
up to $50.0 million to the extent necessary for us to reduce the ratio to 5.0
times. The indenture governing the Notes will contain a covenant requiring us
to receive such equity investment to the extent required by the new credit
facility.
The following table sets forth the expected sources and uses of funds in
connection with the recapitalization, as if it had occurred on September 30,
1999:
<TABLE>
<CAPTION>
Sources of Funds: Amount
- ----------------- -------------
(in millions)
<S> <C>
Cash(1)................... $ 31.3
Revolving credit facili-
ty(1).................... 2.0
Term loans................ 160.0
The Notes................. 150.8
Common equity invest-
ment(2).................. 150.6
------
Total sources of funds.. $494.7
======
</TABLE>
- --------
(1) Our cash on hand increased by the time our merger with UC Acquisition was
completed so that we did not have to borrow any funds under the revolving
credit facility.
<TABLE>
<CAPTION>
Use of Funds: Amount
- ------------- -------------
(in millions)
<S> <C>
Merger consideration(3)... $291.7
Repayment of existing
debt(4).................. 144.5
Estimated fees and ex-
penses................... 58.5
------
Total uses of funds..... $494.7
======
</TABLE>
(2) Includes $139.5 million from the Kelso affiliates and designees and a
retained common equity interest of $11.1 million (valued at the $5.85 per
share merger price).
(3) Includes cash merger consideration of $280.6 million and retained equity
interest of $11.1 million. The cash merger consideration will be used to
liquidate our current outstanding common and preferred stock that is not
part of the retained interest, including the shares of common stock that
were issued upon conversion of a $14.0 million 7.5% convertible
subordinated note issued in connection with the Meris acquisition.
(4) Gives effect to the tendering of 99.6% of the senior notes in a tender
offer completed on November 23, 1999.
Our common stock is currently listed on the American Stock Exchange under the
symbol "ULB." With the completion of the merger, we anticipate that our common
stock will no longer be listed.
For more information on the recapitalization, see "The Recapitalization"
section.
6
<PAGE>
The Exchange Offer
On September 28, 1999, Unilab Finance issued and sold $155,000,000 aggregate
principal amount of 12 3/4% senior subordinated notes (the "Old Notes") in an
offering exempted from registration under the Securities Act. Concurrently with
the closing of the offering, Unilab Finance deposited the net proceeds of the
offering with an escrow agent. As part of our recapitalization, we assumed the
obligations of Unilab Finance under the Old Notes and related indenture on
November 23, 1999 and used the escrowed funds deposited by Unilab Finance to
finance our recapitalization and related transactions. In this exchange offer,
you may exchange your outstanding Old Notes for New Notes which have
substantially the same terms. You should read the discussion under the headings
"The Exchange Offer" and "Description of Notes" for further information
regarding the New Notes to be issued in the exchange offer.
Securities Offered........ We are offering up to $155,000,000 aggregate
principal amount of new 12 3/4 senior subordinated
notes due 2009 which have been registered under the
Securities Act (the "New Notes"). The form and
terms of the New Notes are identical in all
material respects to those of the Old Notes. The
New Notes, however, will not contain certain
transfer restrictions, registration rights and
liquidated damages provisions relating to the Old
Notes. The Old Notes may be exchanged for New Notes
under the exchange offer described in this
prospectus under the headings "The Exchange Offer"
and "Exchange Offer; Registration Rights."
Tenders; Expiration Date;
Withdrawal of Tender..... The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 2000, unless we extend
it. If you decide to exchange your Old Notes for
New Notes, you must acknowledge that you are not
engaging in, and do not intend to engage in, a
distribution of the New Notes. You may withdraw any
Old Notes that you tendered for exchange at any
time prior to 5:00 p.m., New York City time, on
, 2000. If we decide for any reason not to
accept any Old Notes you have tendered for
exchange, those notes will be returned to you
without cost promptly after the expiration or
termination of the exchange offer. See "The
Exchange Offer--Terms of the Exchange Offer; Period
for Tendering Old Notes" and "The Exchange Offer--
Withdrawal Rights."
Certain Conditions to the
Exchange Offer........... The exchange offer is subject to customary
conditions, which we may waive. Please read the
section "The Exchange Offer--Certain Conditions to
the Exchange Offer" of this prospectus for more
information regarding conditions to the exchange
offer.
Material Federal Tax
Considerations........... Your exchange of Old Notes for New Notes to be
issued in the exchange offer will not result in any
gain or loss to you for federal income tax
purposes. See "Material Federal Income Tax
Considerations" in this prospectus.
Use of Proceeds........... We will not receive any cash proceeds from the
exchange offer.
7
<PAGE>
Exchange Agent............ HSBC Bank USA is the Exchange Agent. The address
and telephone number of the Exchange Agent appear
in "The Exchange Offer--Exchange Agent" section.
Consequences of Not
Exchanging Old Notes..... If you do not exchange your Old Notes in the
exchange offer, your Old Notes will continue to be
subject to the restrictions on transfer set forth
in the legend on the certificate for your Old
Notes. In general, you may offer or sell your Old
Notes only if they are registered under, offered or
sold under an exemption from, or offered or sold in
a transaction not subject to, the Securities Act
and applicable state securities laws. We do not
currently intend to register the Old Notes under
the Securities Act. If your Old Notes are not
tendered and accepted in the exchange offer, it may
become more difficult for you to sell or transfer
your Old Notes. Under certain circumstances,
however, certain holders of Old Notes, including
holders who are not permitted to participate in the
exchange offer or who may not freely resell New
Notes received in the exchange offer, may require
us to file and cause to become effective, a shelf
registration statement which would cover resales of
Old Notes by such holders. See "The Exchange
Offer--Consequences of Exchanging or Failing to
Exchange Old Notes" and "Exchange Offer;
Registration Rights."
8
<PAGE>
Description of the New Notes
The terms of the New Notes and the Old Notes are identical in all material
respects, except:
. the New Notes will have been registered under the Securities Act;
. the New Notes will not contain transfer restrictions and registration
rights that relate to the Old Notes; and
. the New Notes will not contain provisions relating to the payment of
liquidated damages to be made to the holders of the Old Notes under
circumstances related to the timing of the exchange offer.
Where we refer to "Notes" in this prospectus, we are referring to both Old
Notes and New Notes. The summary below describes the principal terms of the
Notes. Some of the terms and conditions described below are subject to
important limitations and exceptions. The "Description of the Notes" section of
this prospectus contains a more detailed description of the terms and
conditions of the Notes.
Securities Offered........ We are offering up to $155,000,000 aggregate
principal amount of 12 3/4% senior subordinated
notes due 2009 which have been registered under the
Securities Act.
Maturity.................. October 1, 2009.
Interest Rate............. 12 3/4% per year, calculated using a 360-day year.
Interest Payment Dates.... April 1 and October 1 beginning on April 1, 2000.
Interest will accrue from the issue date of the
Notes.
Ranking................... The Old Notes are, and the New Notes will be,
unsecured senior subordinated obligations of ours
and will rank junior to all of our existing and
future senior debt. Because the Notes are
subordinated, in the event of bankruptcy,
liquidation or dissolution, holders of Notes will
not receive any payment until holders of senior
debt have been paid in full. As of September 30,
1999, after giving effect to the recapitalization
after giving effect to the tendering of 99.6% of
the senior notes in the tender offer completed on
November 23, 1999, we estimate that we would have
had $166.6 million of senior debt, excluding
approximately $23.0 million that we expect to have
available to borrow under our new credit facility.
Optional Redemption....... We cannot redeem the Notes until October 1, 2004,
except as described below in connection with an
equity offering. At any time on or after October 1,
2004, we may redeem some or all of the Notes at the
redemption prices listed in the "Description of the
Notes" section under the heading "Optional
Redemption," plus accrued interest.
Optional Redemption After
Equity Offerings......... At any time, which may be more than once, before
October 1, 2002, we can choose to redeem up to 35%
of the outstanding Notes with money that we raise
in one or more equity offerings, as long as:
. we pay 112.75% of the face amount of the
Notes, plus accrued interest;
. we redeem the Notes within 90 days of
completing the equity offering; and
9
<PAGE>
. at least 65% of the aggregate principal
amount of Notes issued remains outstanding
afterwards.
Change of Control Offer... If a change of control of our company occurs, each
holder of the Notes will have the opportunity to
sell their Notes to us at 101% of their face
amount, plus accrued interest.
We might not be able to pay you the required price
for Notes you wish to sell at the time of a change
of control, because:
. we might not have enough funds at that time;
or
. the terms of our senior debt may prevent us
from paying.
Asset Sale Proceeds....... If we or any of our restricted subsidiaries engage
in asset sales, we generally must either re-invest
the net cash proceeds from such sales in our
business within a specified period of time, prepay
senior debt or make an offer to purchase a
principal amount of the Notes equal to the excess
net cash proceeds from such asset sales. The
purchase price of the Notes will be 100% of their
principal amount, plus accrued interest.
Certain Indenture
Provisions............... The indenture governing the Notes contains
covenants that, among other things, limit our
ability and the ability of some or all of our
subsidiaries to:
. incur additional debt;
. pay dividends or distributions on our
capital stock or repurchase our capital
stock;
. issue preferred stock of subsidiaries;
. make certain investments;
. create liens on any assets to secure debt;
. enter into transactions with affiliates;
. merge or consolidate with another company;
and
. transfer and sell assets.
These covenants are subject to a number of
important limitations and exceptions.
Risk Factors.............. Investing in the Notes involves substantial risks.
See the "Risk Factors" section for a description of
certain of the risks you should consider before
investing in the Notes.
Executive Offices
Unilab Corporation is a Delaware corporation with principal executive offices
located at 18448 Oxnard Street, Tarzana, California 91356. Our main phone
number is (818) 996-7300.
10
<PAGE>
Summary Pro Forma Financial Data
The summary pro forma financial data set forth below have been derived from,
and should be read in conjunction with, the unaudited pro forma financial
statements, including the accompanying notes, appearing elsewhere in this
prospectus. See "Unaudited Pro Forma Financial Statements." The summary pro
forma statement of operations data give effect to both the recapitalization and
the Meris and Bio-Cypher acquisitions as if they had occurred on the first day
of the relevant period and the summary pro forma balance sheet gives effect to
the recapitalization as if it had occurred on September 30, 1999. The summary
unaudited pro forma financial data are presented for illustrative purposes only
and are not necessarily indicative of the operating results or financial
position that would have occurred if the recapitalization and recent
acquisitions had been consummated on the dates indicated, nor are they
necessarily indicative of future operating results or financial position.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, 1998 September 30, 1999
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Statement of Operations Data:
Revenue................................. $296,951 $232,021
Gross profit (1)........................ 75,384 67,450
Selling, general and administrative
expense................................ 60,067 33,977
Operating income........................ 4,572 25,561
Interest, net........................... 37,468 27,930
Net income (loss)....................... $(32,616) $ 9,523
Other Financial Data:
Depreciation and amortization........... 10,745 7,912
Capital expenditures (2)................ 3,595 5,188
Gross margin (1)........................ 25.4% 29.1%
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, 1999
----------------------
(dollars in thousands)
<S> <C> <C>
Balance Sheet
Data:
Cash and cash
equivalents.. $ --
Accounts
receivable,
net......... 55,830
Total
assets...... 186,675
Total debt... 317,358
Shareholders'
equity
(deficit)... (163,132)
</TABLE>
- --------
(1) Excludes depreciation and amortization.
(2) Our historical capital expenditures were $3,005,000 and $4,903,00 for the
year ended December 31, 1998 and the nine months ended September 30, 1999,
respectively. Meris' historical capital expenditures were $21,000 for the
nine months ended September 30, 1998, during which time Meris was in
bankruptcy. Bio-Cypher's historical capital expenditures were $569,000 and
$285,000 for the year ended December 31, 1998 and the approximate four-
month period ended May 9, 1999, respectively. Pro forma capital
expenditures are presented for illustrative purposes only and are not
necessarily indicative of the capital expenditures that would have been
incurred if the recapitalization and recent acquisitions had been
consummated on the dates indicated. For further information on capital
expenditures, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--
Following the Recapitalization."
11
<PAGE>
Summary Historical Financial Data
The summary financial data for each of the fiscal years in the three-year
period ended December 31, 1998 have been derived from our audited financial
statements. Such information is contained in and should be read in conjunction
with the audited financial statements and accompanying notes included in this
prospectus.
The summary financial data for the nine months ended September 30, 1998 and
1999 have been derived from our unaudited interim financial statements, which
in the opinion of management include all adjustments, consisting only of normal
recurring adjustments, which we consider necessary for a fair presentation of
our financial position and results of operations for these periods. Operating
results for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the full year. The nine
month data should be read in conjunction with our unaudited financial
statements for the nine months ended September 30, 1998 and 1999 included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------- --------------------------
1996 1997 1998 1998 1999
-------- -------- -------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue............... $205,217 $214,001 $217,370 $ 162,046 $ 213,496
Direct laboratory and
field expenses....... 154,172 155,942 152,007 111,634 147,133
Legal, acquisition and
restructuring related
charges.............. 70,595 -- -- -- 600
Selling, general and
administrative
expense.............. 41,801 34,570 33,530 24,990 29,323
Operating income
(loss)............... (72,842) 14,604 24,241 19,648 29,251
Third party interest,
net.................. (13,401) (14,068) (13,538) (10,068) (11,244)
Related party
interest, net........ 1,279 -- -- -- --
Loss on sale of
promissory note...... 4,529 -- -- -- --
Income (loss) before
income taxes and
extraordinary item... (89,493) 536 10,703 9,580 18,007
Income tax benefit.... -- -- -- -- 11,904
Income (loss) before
extraordinary item... (89,493) 536 10,703 9,580 29,911
Extraordinary item.... 3,451 -- -- -- --
Net income (loss)..... $(92,944) $ 536 $ 10,703 $ 9,580 $ 29,911
Other Financial Data:
EBITDA(1)............. $ 9,244 $ 23,489 $ 31,833 $ 25,422 $ 37,040
Depreciation and
amortization......... 11,491 8,885 7,592 5,774 7,189
Capital expenditures.. 3,948 1,935 3,005 2,335 4,903
Ratio of earnings to
fixed charges(2)..... --(3) 1.03x 1.60x 1.73x 2.17x
<CAPTION>
As of September 30, 1999
--------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and restricted cash....... $ 31,250
Accounts receivable, net......................... 55,830
Total assets..................................... 213,400
Total debt....................................... 162,541
Shareholders' equity............................. 12,036
</TABLE>
- --------
(1) "EBITDA" is defined as net income (loss) before interest expense, income
taxes, depreciation and amortization, non-recurring charges and
extraordinary items. EBITDA is not a measure of performance under GAAP.
While EBITDA should not be considered in isolation or as a substitute for
net income, cash
12
<PAGE>
flows from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or
liquidity, management understands that EBITDA is customarily used as a
criteria in evaluating health care companies. Moreover, substantially all of
our financing agreements contain covenants in which EBITDA is used as a
measure of financial performance. Excludes non-recurring charges of $70.6
million for 1996 and $0.6 million for the first nine months of 1999.
(2) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes plus fixed charges.
Fixed charges include interest expense on all debt, amortization of
deferred financing costs and one-third of rental expense on operating
leases representing that portion of rental expense deemed to be
attributable to interest.
(3) Earnings were insufficient to cover fixed charges in 1996 by $89,493.
13
<PAGE>
RISK FACTORS
You should carefully consider the following factors in addition to the other
information in this prospectus before investing in the Notes.
Our substantial debt could adversely affect our financial health and prevent
us from fulfilling the obligations under the New Notes.
As a result of the recapitalization, we will have a significant amount of
debt. After giving effect to the recapitalization as if it had occurred on
September 30, 1999, we would have had approximately $317.4 million of debt
(excluding unused commitments of approximately $23.0 million under the new
credit facility). See "The Recapitalization" and the "Unaudited Pro Forma
Financial Statements" sections for more information on the recapitalization and
its pro forma effects on our financial condition and results of operations.
Our substantial debt could have important consequences to you. For example,
it could:
. make it more difficult for us to satisfy our obligations with respect to
the New Notes;
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to obtain additional financing for future working
capital, capital expenditures, acquisitions and other general corporate
requirements;
. increase our vulnerability to interest rate fluctuations because the
interest on the debt under the new credit facility will be at variable
rates;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow for operations and other purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
. place us at a competitive disadvantage compared to our competitors that
have less debt.
Despite substantial levels of debt, we may still be able to incur even more
debt. This could further exacerbate the risks described above.
We may be able to incur substantial additional debt in the future. The terms
of the indenture do not fully prohibit us from doing so, and our new credit
facility will likely permit additional borrowings. In particular, we expect
that at least $23.0 million of the revolving credit facility under the new
credit facility will be undrawn on the date of the merger. If new debt is added
to our current debt levels, the related risks that we now face could intensify.
We will require a significant amount of cash to service our debt. Our ability
to generate cash depends on many factors, many of which are beyond our control.
Our ability to make payments on and to refinance our debt, including the New
Notes, and to fund planned capital expenditures and acquisitions will depend on
our ability to generate cash in the future. This, to some extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. We cannot assure you that our business
will generate sufficient cash flow from operations, that currently anticipated
cost savings and operating improvements will be realized on schedule or that
future borrowings will be available to us under the new credit facility in an
amount sufficient to enable us to service our debt, including the Notes, or to
fund our other liquidity needs. In order to pay the principal amount of the
Notes at maturity, we may need to refinance all or a portion of our debt,
including the New Notes, on or before maturity. We cannot assure you that we
will be able to refinance any of our debt, including the new credit facility
and the New Notes, on commercially reasonable terms or at all.
14
<PAGE>
Your right to receive payments on the Notes is junior to our existing debt
and possibly to all of our future borrowings.
The New Notes will rank behind all of our existing senior debt including all
borrowings under the new credit facility and all other future debt, except any
future debt that expressly provides that it is not senior in right of payment
to the New Notes. As a result, upon any distribution to our creditors in a
bankruptcy, liquidation or reorganization or similar proceeding relating to us
or our property, the holders of our senior debt will be entitled to be paid in
full in cash before any payment may be made with respect to the Notes.
In addition, all payments on the Notes can be blocked in the event of a
payment default on senior debt and may be blocked for up to 180 of 360
consecutive days in the event of certain non-payment defaults on senior debt.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us, holders of the Notes will participate with trade
creditors and holders of our other obligations that are not senior debt in the
assets remaining after we have paid all of the senior debt. However, because
the indenture requires that amounts otherwise payable to holders of the Notes
in a bankruptcy or similar proceedings be paid to holders of senior debt
instead, holders of the Notes may receive less, ratably, than holders of trade
payables and other obligations that are not senior debt in any such
proceedings. In any of these cases, we may not have sufficient funds to pay all
of our creditors, and holders of Notes may receive less, ratably, than the
holders of senior debt.
Assuming the recapitalization had been completed on September 30, 1999, the
Notes would have been junior to approximately $166.6 million of senior debt and
approximately $23.0 million would have been available for borrowing as
additional senior debt under the new credit facility. We will be permitted to
borrow substantial additional debt, including senior debt, in the future under
the terms of the indenture.
Our new credit facility and the indenture governing the New Notes will
contain various covenants which limit the discretion of our management in the
operations of our business.
Our new credit facility and the indenture governing the New Notes will
contain various provisions that limit our management's discretion by
restricting our ability to:
. incur additional debt;
. pay dividends or distributions on our capital stock or repurchase our
capital stock;
. issue preferred stock of subsidiaries;
. make certain investments;
. create liens to secure debt;
. enter into transactions with affiliates;
. merge or consolidate with another company; and
. transfer and sell assets.
In addition, the new credit facility will require us to meet specified
financial ratios.
If we fail to comply with the restrictions of the new credit facility or the
indenture governing the New Notes or any other subsequent financing agreements,
a default may occur. This default may allow the creditors, if the agreements so
provide, to accelerate the related debt as well as any other debt to which a
cross-acceleration or cross-default provision applies. In addition, the lenders
may be able to terminate any commitments they had made to supply us with
further funds. See "Description of New Credit Facility" and "Description of the
Notes".
15
<PAGE>
Federal and state laws allow courts, under specific circumstances, to void
debts and require creditors to return payments received from debtors.
Our incurrence of debt, including the New Notes and borrowings under the new
credit facility, and the subsequent transfer of a portion of those proceeds to
our shareholders to pay the cash consideration in our merger with UC
Acquisition, may be subject to review under relevant federal and state
fraudulent conveyance statutes in the case of either:
. a bankruptcy, reorganization or rehabilitation case or similar
proceeding; or
. a lawsuit by or on behalf of any of our creditors that are not paid on
time.
Under these fraudulent conveyance statutes, a court could invalidate some or
all of the debt related to our recapitalization, including the Notes, as a
fraudulent conveyance, or could render the Notes junior to our debt to
existing or future creditors, if the court found that, at the time of the
recapitalization, either (1) we incurred the debt and paid the cash
consideration in the merger with the intent of hindering, delaying or
defrauding current or future creditors or (2) we both:
. received less than reasonably equivalent value or fair consideration in
the recapitalization; and
. were found to be one or more of the following:
(1) insolvent or rendered insolvent by reason of the recapitalization,
including the incurrence of the related debt;
(2) a company engaged in a business or transaction for which its assets
constituted unreasonably small capital;
(3) a company intending to incur, or believing that it would incur,
obligations beyond its ability to pay as these obligations matured;
or
(4) a defendant in an action for money damages, or a company that had a
judgment for money damages docketed against it, if, in either case,
after final judgment the judgment is unsatisfied.
As a condition to the consummation of the merger of our company and UC
Acquisition, our directors are entitled to receive an independent opinion as
to the solvency of the company after the recapitalization. Such opinion is
not, however, binding on a court.
Governmental and other third-party payors have been taking steps to lower
the cost of health care services. As a result, we have received reduced
payments from them for our services and other changes which reduce our
revenues and profitability.
The health care industry has been undergoing significant change as third
party payors, such as Medicare, Medicaid and insurers, increase their efforts
to control the cost of health care services. We have historically derived
approximately 25%-30% of our revenue from tests performed for beneficiaries of
Medicare and Medicaid. As a result of payors' cost-cutting efforts, the
amounts we receive through reimbursements for our testing services have been
reduced. In addition, payors have limited the number and types of tests that
they will fully reimburse in particular medical circumstances. We expect
additional efforts in the future by payors to reduce health care costs.
Because the law generally requires clinical laboratories to accept Medicare
and Medicaid reimbursement amounts as payment in full, when these payors
unilaterally reduce the fees they are willing to pay for our services, we
usually have no choice but to accept the reduced payments. Cost-cutting
efforts by Medicare, Medicaid, insurers and other payors have had and may
continue to have a material adverse effect on our revenues and profitability.
The importance of the managed care sector could have a negative impact on
our profitability.
We believe that California has the highest enrollment rate in managed care
plans of any state in the United States with approximately 40% of the
population covered at the end of 1998. As a result, delivery of health care
16
<PAGE>
to participants in managed care plans has become integral to the healthcare
delivery system throughout the state. We may experience declines in average
revenue per patient specimen processed as managed care organizations maintain
or strengthen their presence in the California health care insurance market.
The importance of the managed care sector presents challenges that could have a
material adverse effect on our financial condition, results of operations and
cash flow. These challenges include:
. Shift Toward Capitated Payment Contracts. Managed care organizations
generally negotiate for capitated payment contracts for a substantial
portion of their business. Under these contracts, clinical laboratories
receive a fixed monthly fee per individual enrolled with the managed
care organization for all laboratory tests performed during the month.
Capitated payment contracts shift the risk and cost of additional
testing from the managed care organization to the clinical laboratory.
Approximately 30%-35% of our volume and approximately 10%-15% of our
revenue in 1998 were generated from capitated agreements with managed
care organizations.
. Responsibility for Charges for Out-of-Network Tests. Recently, managed
care organizations have begun to make their principal laboratory
providers responsible for all the costs of clinical laboratory testing
services provided to the members of the managed care organization. Under
these arrangements, the principal laboratory provider is responsible for
charges for tests performed by other laboratory providers even though
the principal laboratory has no control over the physicians who
ultimately determine where to send the specimens for testing.
. History of Aggressive Pricing. Agreements with managed care
organizations have historically been priced aggressively due to the
expectation that a laboratory will capture not only the testing covered
under the contract, but also additional higher priced fee-for-service
business from non-managed care patients of participating physicians. As
the number of patients under managed care organizations increases,
however, there is less fee-for-service business available to potentially
offset the lower margin managed care business. Furthermore, physicians
are increasingly affiliated with more than one managed care
organization, and, therefore, a clinical laboratory might receive
little, if any, additional higher priced fee-for-service testing from
them.
We cannot assure you that we will be able to maintain our arrangements with
managed care providers or that even if such arrangements are maintained they
will not be negotiated in a manner that would have a material adverse effect
upon our financial condition, results of operations and cash flow.
The clinical laboratory testing industry is subject to extensive, complex and
frequently changing governmental regulation, which can have adverse effects
upon us.
The clinical laboratory testing industry is subject to extensive and complex
governmental regulation, which is frequently changing. We are subject to
extensive governmental regulation at both the federal and state levels in the
following areas, among others:
. reimbursements from government payors;
. licensing/certification requirements and quality assurance for clinical
laboratories and personnel;
. health care billing and fraud and abuse;
. environmental protection; and
. occupational safety.
We expect that in some of these areas governmental regulation will increase
or become more burdensome. Generally, increased governmental regulation raises
costs. Adverse consequences of our failure to meet governmental requirements in
these areas include civil and criminal penalties, exclusion from participation
in government health care programs such as Medicare and Medicaid and
prohibitions or restrictions on the use of our laboratories. Existing or future
governmental regulation could have a material adverse effect on our business,
financial condition, results of operations or prospects. For more information
on governmental regulation of
17
<PAGE>
California's clinical laboratory testing industry, see the "Business" section
under the heading "Governmental Regulation".
Some of our marketing and billing practices have been subject to federal and
state investigations and related legal claims, which can result in civil and
criminal penalties and changes in the conduct of our business.
Over the past several years, some of our marketing and billing practices have
been the subject of federal and California investigations which resulted in
agreements by us with federal and California governmental agencies to pay two
settlements in an aggregate amount of $6.7 million since 1993. Although we were
not required to change our practices as a result of these government
settlements, we voluntarily implemented a more formal compliance program to
review our billing procedures and other compliance matters. Since 1993, we also
have entered into settlements with three insurance companies for an aggregate
amount of $825,000.
In November 1999, we reached a settlement with a group of thirteen insurance
companies regarding claims by the insurance companies that we over-billed them
in the early to mid-1990s in connection with several chemistry profile tests
that were previously the subject of a settlement agreement with the government.
We paid $600,000 in the settlement. Such amount has been reflected as a charge
in the statement of operations for the second quarter of 1999.
In May 1999, we learned of a new federal investigation under the False Claims
Act relating to our billing practices for four types of medical tests we
perform. We are in the process of gathering and voluntarily submitting
documentation to the Department of Justice regarding the two tests with respect
to which they have requested information. We cannot at this time assess what
the result of the investigation might be. Remedies available to the government
include civil and criminal penalties and exclusion from participation in
federal health care programs such as Medicare and Medicaid. Application of
these remedies could have a material adverse effect upon our business,
financial condition, results of operations or prospects. For more information
about governmental investigations, see the "Business" section under the heading
"Legal Proceedings" and "Governmental Investigations."
The complexities of billing may affect our revenues and cash flow.
Billing for laboratory testing services is complicated. Laboratories must
bill various payors, such as patients, insurance companies, Medicare, Medicaid,
doctors and employer groups, all of which have different requirements. Most of
our bad debt expense is the result of several non-credit related issues,
primarily missing or incorrect billing information on requisitions.
Among many other factors complicating billing are:
. pricing differences between our fee schedules and those of the payors;
. disputes between payors as to which party is responsible for payment;
. disparity in coverage among various carriers; and
. assuring adherence to specific compliance and procedures.
Difficulties with the integration of any new acquisitions may impose
substantial costs and delays and cause other problems for us.
As a part of our business strategy, we will continue to pursue selected
acquisition opportunities that will enable us to generate revenue growth as
well as additional operating efficiencies. Acquisitions involve a number of
risks, including:
. the assimilation of new operations and personnel;
. integration of each company's respective equipment, service offerings,
networks and technologies and financial and information systems;
. coordination of geographically separated facilities and work forces;
18
<PAGE>
. coordination of the company's respective sales, marketing and service
development efforts; and
. maintenance of standards, controls, procedures and policies.
The process of integrating the operations of the acquired companies,
including their personnel, could cause the interruption of our business and
operations activities, including those of the acquired companies. Employees who
may be key to the integration effort or our ongoing operations may choose not
to continue to work for us following the closing of the acquisitions. Further,
the process of integration may require a disproportionate amount of the time
and attention of our management, which may distract management's attention from
the day to day responsibilities of running the business, and financial and
other resources.
Any interruption or deterioration in services may result in a customer's
decision to stop using us for clinical laboratory testing. Most clinical
laboratory testing is performed under arrangements that are terminable at will
or on short notice. It is possible that we may not realize all or any of the
anticipated benefits of an acquisition, either at all or in a timely manner. If
that happens and we incur significant costs, it could have a material adverse
impact on our business.
Technology changes may lead to the development of cost-effective point-of-
care testing equipment and product that will negatively impact our testing
volume and revenues.
The clinical laboratory testing industry is faced with changing technology
and introduction of new products. Technology changes may lead to the
development of more cost-effective point-of-care testing equipment and product
that can be performed by physicians in their offices without requiring the
services of clinical laboratories. Development of such technology could
negatively impact our testing volume and revenues.
With the completion of the recapitalization, affiliates of Kelso control our
company.
With the completion of the recapitalization, affiliates and designees of
Kelso own approximately 93% of our outstanding common stock. The Kelso
affiliates are able to elect all of our directors, appoint new management and
approve any action requiring the approval of our shareholders, including
amendment of our certificate of incorporation and mergers or sales of
substantially all of the company's assets. The directors elected by the Kelso
affiliates are able to make decisions affecting our capital structure,
including decisions to issue additional capital stock, implement stock
repurchase programs and declare dividends. The interests of Kelso and its
affiliates could conflict with your interests. For example, if we encounter
financial difficulties or are unable to pay our debts as they mature, the
interests of our equity holders might conflict with your interests as a
Noteholder. In addition, our equity holders may have an interest in pursuing
acquisitions, divestitures, financings or other transactions, that, in their
judgment, could enhance their equity investments, even though such transactions
might involve risks to the holders of the New Notes. For information concerning
the composition of our management team following the recapitalization, see the
"Management" section.
Loss of key members of our management team could negatively impact our
business prospects.
Our success is dependent in part on the efforts of some key members of our
management team. The loss of their services could materially adversely affect
our business, financial condition, results of operations or prospects. We do
not currently maintain key person life insurance on any of our key employees.
We operate in an intensively competitive environment which could cause us to
lower prices and could result in reduced revenues and profit margins.
The independent clinical laboratory testing industry in the United States and
in California is highly fragmented and is characterized by intense competition.
According to government data, there are about 4,500 independent clinical
laboratories in the United States, approximately 600 of which we believe are
located in California. These independent clinical laboratories fall into two
categories. The first are the smaller, local
19
<PAGE>
laboratories that generally offer fewer tests and services and have less
capital than the larger laboratories. These laboratories seek to differentiate
themselves by maintaining a close working relationship with their physician
clients by providing a high level of personal and localized services.
The second group, which includes laboratories such as Unilab, consists of the
larger regional or national laboratories that provide a broader range of tests
and services. In California, our two largest independent clinical laboratory
competitors are Quest Diagnostics Incorporated and Laboratory Corporation of
America. Quest recently acquired SmithKline Beecham Clinical Laboratories,
Inc., which had been one of our principal competitors.
We compete primarily on the basis of the following: (1) service capability
and convenience offered by our facilities, including accessibility of PSCs and
local STAT testing availability; (2) size and scope of testing services
performed; (3) accuracy, timeliness and consistency in reporting test results;
(4) reputation in the medical community and (5) pricing of the laboratory's
testing services. To successfully compete in the California clinical testing
market, we may be required to increase our operating costs, cut prices and take
other measures that could have an adverse effect on our financial condition,
results of operations and cash flow, which in turn could cause covenant
breaches under the terms of our debt. See the "Business" section under the
heading "The Clinical Laboratory Industry" and "Competition" for more
information on competition in the California clinical testing industry.
Professional liability litigation can be costly to defend and result in large
damage awards which our insurance may not adequately cover or which may make it
more expensive or difficult for us to insure in the future.
As a provider of clinical laboratory testing services, we are subject to
lawsuits involving negligence and other similar legal claims. These lawsuits
could be costly to defend and involve claims for substantial damages. These
kinds of suits could also have an adverse effect on our client base. We
maintain insurance which we believe to be adequate to cover our exposure to
professional liability claims. However, we cannot assure you that our current
insurance is adequate or that in the future we will be able to adequately
insure at an acceptable cost.
Our failure or the failure by third-parties to successfully address the Year
2000 problem could adversely affect us.
There is a widespread concern that many existing computer programs that use
only the last two digits to refer to a year will not properly recognize a year
that begins with the digits "20" instead of "19." If not corrected, many
computer applications could fail, create erroneous results, or cause
unanticipated systems failures, among other problems. Our failure or the
failure by one or more of our significant vendors, government payors or
insurance company payors to address successfully year 2000 issues could have a
material adverse effect on our results of operations and financial condition.
In September 1998, the General Accounting Office reported that "the Health Care
Financing Administration and its contractors are severely behind schedule in
repairing, testing and implementing the mission-critical systems supporting
Medicare" and concluded that "it is highly unlikely that all of the Medicare
systems will be compliant in time to ensure the delivery of uninterrupted
benefits and services into the Year 2000." If Medicare or other payor systems
do not become Year 2000 compliant in time, our cash collections could be
significantly delayed. See the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section under the heading "Year
2000" for more information about our Year 2000 compliance efforts.
The original issue discount may present unfavorable tax and other legal
consequences to you.
The Notes will be deemed to have been issued to you at a discount for federal
income tax purposes. Original issue discount, which is the difference between
the stated redemption price of the Notes at maturity and the issue
20
<PAGE>
price of the Notes, will accrue from the issue date of the Notes and be
includable in a holder's gross income as it accrues. See "Material Federal
Income Tax Considerations."
If a bankruptcy case under the U.S. Bankruptcy Code were commenced by or
against us after the issuance of the Notes, the claim of a holder of Notes
could be limited to exclude the amount of unamortized original issue discount,
as of the relevant date, if the bankruptcy court determined that it was
"unmatured interest."
We may not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture.
Upon the occurrence of specific kinds of change of control events, we will be
required to offer to repurchase all outstanding New Notes. However, the new
credit facility will not allow such repurchase. In any event, it is possible
that we will not have sufficient funds at the time of the change of control to
make the required repurchase of New Notes. In addition, some important
corporate events would not constitute a "Change of Control" under the
indenture. See "Description of the Notes--Repurchase at the Option of Holders".
21
<PAGE>
THE RECAPITALIZATION
On May 24, 1999 UC Acquisition, a Delaware corporation owned by Kelso
Investment Associates VI, L.P. and KEP VI, LLC, affiliates of Kelso, entered
into a merger agreement providing for, among other things, the merger of UC
Acquisition with and into our company. The merger was part of the
recapitalization. Both the merger and the recapitalization were consummated on
November 23, 1999. The principal features of the recapitalization, including
the merger of UC Acquisition and our company, are described in this section.
Merger Agreement
Under the terms of the merger agreement, all but approximately 1.9 million
shares of our common stock, approximately 7.4% of our post-merger shares
outstanding, were converted into the right to receive $5.85 per share in cash.
In addition to the conversion of our common stock in the merger, the vesting of
all our options was accelerated and either cancelled in exchange for the value
of such options determined with reference to the $5.85 merger price or
converted into options for post-merger shares of our common stock. The 364,000
outstanding shares of our convertible preferred stock were converted into cash
at the liquidation preference of $5.75 per share. The aggregate cash
consideration in the merger is $280.6 million, assuming that the 1.9 million
shares remain outstanding at UC Acquisition's election and that all our options
are cancelled for cash value.
Holders of approximately 4.1% of our previously outstanding shares of common
stock agreed to retain their equity interest in the company. As a result, these
holders now own the remaining 7.4% of our post-merger shares.
Debt Repayment
As part of the recapitalization, we repaid $144.5 million of debt, consisting
of $119.5 million of the senior notes and $25.0 million of 7.5% notes issued in
connection with the recently completed acquisition of Bio-Cypher. We retired
the senior notes through a cash tender offer for them which was commenced on
September 1, 1999 and which we completed on the same date as the consummation
of UC Acquisition's merger with our company. In the tender offer, we offered to
purchase senior notes at a premium over their face amount plus accrued and
unpaid interest to the date of payment.
Fees and Expenses
Fees and expenses associated with the recapitalization were approximately
$58.5 million. That amount includes accrued interest; severance costs; fees and
expenses relating to the financings; financial advisory fees; fees, expenses
and purchase premium for the senior notes tender; legal and accounting
expenses; and printing costs.
Sources of Funds
In addition to the net proceeds from the sale of the Old Notes offered, we
financed the recapitalization with:
. a new common equity investment of $139.5 million from funds provided by
the Kelso affiliates and designees of Kelso;
. approximately $31.3 million of cash from us; and
. $162.0 million of borrowings under the new credit facility, consisting
of a six year $50.0 million A term loan, a seven year $110.0 million B
term loan and borrowings of $2.0 million under a six year $25.0 million
revolving credit facility.
22
<PAGE>
Equity Commitment
Under a capital call agreement, if our ratio of net total debt to EBITDA (as
defined in the capital call agreement) for the year 2000 is greater than 5.0
times, the Kelso affiliates that control us after the recapitalization will be
required to make (or cause their designees to make) an equity investment of up
to $50.0 million to the extent necessary for us to reduce the ratio to 5.0
times. The indenture governing the Notes contains a covenant requiring us to
receive such equity investment to the extent required by the new credit
facility. For a more detailed description of the new credit facility and the
capital call agreement, see "Description of New Credit Facility."
The following table sets forth the expected sources and uses of funds in
connection with the recapitalization, as if it had occurred on September 30,
1999:
<TABLE>
<CAPTION>
Sources of Funds: Amount
- ----------------- -------------
(in millions)
<S> <C>
Cash(1)................... $ 31.3
Revolving credit
facility(1).............. 2.0
Term loans................ 160.0
The Notes................. 150.8
Common equity
investment(2)............ 150.6
------
Total sources of funds.. $494.7
======
- --------
</TABLE>
(1) Our cash on hand increased by the time our merger with UC Acquisition was
completed so that we did not have to borrow any funds under the revolving
credit facility.
<TABLE>
<CAPTION>
Uses of Funds: Amount
- -------------- -------------
(in millions)
<S> <C>
Merger consideration(3)... $291.7
Repayment of existing
debt(4).................. 144.5
Estimated fees and
expenses................. 58.5
------
Total uses of funds..... $494.7
======
</TABLE>
(2) Includes $139.5 million from the Kelso affiliates and designees and a
retained common equity interest of $11.1 million (valued at the $5.85 per
share merger price).
(3) Includes cash merger consideration of $280.6 million and retained equity
interest of $11.1 million. The cash merger consideration will be used to
liquidate our current outstanding common and preferred stock that is not
part of the retained interest, including the shares of common stock that
were issued upon conversion of a $14.0 million 7.5% convertible
subordinated note issued in connection with the Meris acquisition.
(4) Gives effect to the tendering of 99.6% of the senior notes in a tender
offer completed on November 23, 1999.
23
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The proceeds from
the offering of the Old Notes were approximately $150.8 million, before
deducting commissions and expenses related to the offering. The proceeds from
the offering of the Old Notes were released to us. We have used and will use
the net proceeds from the offering to fund a portion of the financing for our
recapitalization and related transactions, including:
. payments in respect of our capital stock and options for our common
stock;
. repayment of most of our existing debt; and
. payment of transaction-related fees and expenses.
For further discussion of the estimated sources and uses of funds related to
our recapitalization, see "The Recapitalization."
24
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999 on
a historical basis and on a pro forma basis after giving effect to our
recapitalization. This table should be read in conjunction with "Use of
Proceeds," "Unaudited Pro Forma Financial Statements," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
financial statements and the related notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of September 30,
1999
----------------------
Historical As Adjusted
---------- -----------
(dollars in thousands)
<S> <C> <C>
Cash, cash equivalents and restricted cash............... $ 31,250 $ --
======== ========
Debt:
New credit facility (1)................................ $ -- $161,977
Capital lease obligations.............................. 4,128 4,128
11% senior notes due 2006 (2).......................... 119,413 488
The Notes, net of discount............................. -- 150,765
7.5% notes (3)......................................... 25,000 --
7.5% convertible subordinated note (4)................. 14,000 --
-------- --------
Total debt........................................... 162,541 317,358
-------- --------
Shareholders' equity (deficit):
Convertible preferred stock............................ 4 --
Common stock........................................... 420 257
Additional paid-in capital............................. 231,973 149,614
Accumulated deficit.................................... (220,361) (313,003)
-------- --------
Total shareholders' equity (deficit)................. 12,036 (163,132)
-------- --------
Total capitalization................................. $174,577 $154,226
======== ========
</TABLE>
- --------
(1) Consists of a six year $50.0 million A term loan, a seven year $110.0
million B term loan and approximately $2.0 million of borrowings under a
six year $25.0 million revolving credit facility. Our cash on hand
increased by the time our merger with UC Acquisition was completed so that
we did not have to borrow any funds under the revolving credit facility. If
our ratio of net total debt to EBITDA (as defined in a capital call
agreement) for the year 2000 is greater than 5.0 times, the Kelso
affiliates that will control us after the recapitalization will be
required, pursuant to the capital call agreement, to make (or cause their
designees to make) an equity investment of up to $50.0 million to the
extent necessary for us to reduce the ratio to 5.0 times. For a more
detailed description of the new credit facility and the capital call
agreement, see "Description of New Credit Facility."
(2) Assumes that 99.6% of the senior notes are tendered.
(3) Issued in connection with the Bio-Cypher acquisition.
(4) Issued in connection with the Meris acquisition.
25
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements have been derived by
the application of pro forma adjustments to our historical financial statements
included in this prospectus. The pro forma statements of operations for the
nine months ended September 30, 1999 and the year ended December 31, 1998 give
effect to the merger of UC Acquisition and our company and related transactions
constituting our recapitalization, including our assumption of Unilab Finance's
obligations under the Old Notes and related indenture and our receipt of the
proceeds from the offering of the Old Notes, and the Meris and Bio-Cypher
acquisitions as if such transactions had been consummated on the first day of
the relevant period. The pro forma balance sheet gives effect to the
recapitalization as if such transaction had occurred on September 30, 1999. The
adjustments are described in the accompanying notes. The pro forma financial
statements should not be considered indicative of actual results that would
have been achieved had the recapitalization and the acquisitions of Meris and
Bio-Cypher been consummated on the dates indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The pro forma financial statements should be read in
conjunction with our, Meris', and Bio-Cypher's historical financial statements
and the notes thereto included elsewhere in this prospectus.
On November 23, 1999, UC Acquisition Sub, Inc. merged with and into our
company, and our company continued as the surviving corporation. UC Acquisition
Sub, Inc. was organized for the purposes of the merger and has not carried on
any activities to date other than those incident to its formation and the
transactions contemplated by the related merger agreement. Also upon closing of
the merger, we assumed Unilab Finance's obligations under the Old Notes and
related indenture and received the proceeds from the offering of the Old Notes
held in escrow.
Because the pro forma adjustments to our historical financial statements to
reflect and account for the merger of UC Acquisition and our company and
related transactions were applied as a recapitalization, the historical basis
of assets and liabilities were not affected by the transaction. The pro forma
financial data gives effect to the tendering of 99.6% of the senior notes in
the tender offer that was completed on November 23, 1999 at a repurchase price
of approximately $1,128.0 per $1,000 principal amount of senior notes plus
accrued and unpaid interest.
26
<PAGE>
UNILAB CORPORATION UNAUDITED PRO FORMA BALANCE SHEET
(dollars in thousands)
September 30, 1999
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Unilab Adjustments Unilab
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 25,753 $ (25,753)(a) $ --
Restricted cash......................... 5,497 (5,497)(a) --
Accounts receivable, net................ 55,830 55,830
Inventory of supplies................... 3,970 3,970
Prepaid expenses and other current
assets................................. 2,346 2,346
--------- --------- ---------
Total current assets.................. 93,396 (31,250) 62,146
Property and equipment, net............... 13,009 13,009
Deferred tax asset........................ 16,558 16,558
Goodwill, net............................. 83,347 83,347
Other intangible assets, net.............. 1,922 1,922
7,761 (a)
(3,036)(d)
Other assets.............................. 5,168 (200)(e) 9,693
--------- --------- ---------
$ 213,400 $ (26,725) $ 186,675
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......... $ 1,763 $ 1,100 (f) $ 2,863
Accounts payable and accrued liabilities.. 23,236 (7,775)(a) 15,461
Accrued payroll and benefits.............. 10,336 10,336
--------- --------- ---------
Total current liabilities............. 35,335 (6,675) 28,660
(143,925)(a)
312,742 (a)
(14,000)(b)
Long-term debt, net of current portion.... 160,778 (1,100)(f) 314,495
(727)(a)
Other liabilities......................... 5,251 2,128 (e) 6,652
--------- --------- ---------
201,364 148,443 349,807
Shareholders' Equity (Deficit):
Convertible preferred stock............... 4 (4)(b) --
(401)(b)
Common stock.............................. 420 238 (c) 257
(221,621)(b)
Additional paid-in capital................ 231,973 139,262 (c) 149,614
(24,900)(a)
(17,818)(a)
(44,560)(b)
(3,036)(d)
Accumulated deficit....................... (220,361) (2,328)(e) (313,003)
--------- --------- ---------
Total shareholders' equity (deficit).. 12,036 (175,168) (163,132)
--------- --------- ---------
$ 213,400 $ (26,725) $ 186,675
========= ========= =========
</TABLE>
See accompanying notes to unaudited pro forma balance sheet.
27
<PAGE>
UNILAB CORPORATION
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(a) The recapitalization provides and utilizes the following sources and uses
of funds (dollars in thousands):
Sources of Funds:
<TABLE>
<S> <C>
Borrowings under the revolving credit facility...................... $ 1,977
Borrowings under the term loan facilities........................... 160,000
The Notes........................................................... 150,765
--------
Total debt...................................................... 312,742
Cash equity investment.............................................. 139,500
--------
Total sources of funds.......................................... $452,242
========
Uses of Funds:
Payment for historical common stock for $5.85 per share(1) ......... $262,009
Payment for outstanding Unilab stock options(2)..................... 16,484
Payment of historical preferred stock, 364,000 shares outstanding,
for $5.75 per share................................................ 2,093
--------
Total merger consideration...................................... 280,586
Repurchase of existing 99.6% of senior notes at book value.......... 118,925
Repurchase of existing note issued in connection with the Bio-Cypher
acquisition at book value.......................................... 25,000
--------
Total repurchase of existing debt at book value................. 143,925
Debt retirement premium(3).......................................... 17,818
Payment of accrued interest......................................... 7,775
Payment of deferred compensation liabilities........................ 727
New credit facility deferred fees................................... 3,238
The Notes deferred fees............................................. 4,523
--------
Total deferred financing fees(4)................................ 7,761
Estimated transaction costs(5)...................................... 24,900
Decrease in balance sheet cash and cash equivalents................. (25,753)
Decrease in balance sheet restricted cash........................... (5,497)
--------
Total uses of funds............................................. $452,242
========
</TABLE>
- --------
(1) The amount associated with the conversion to cash of the common stock is
calculated as follows:
<TABLE>
<S> <C>
Total common shares outstanding.............................. 42,016,236
Conversion of $14.0 million convertible subordinated note
into common shares.......................................... 4,666,667
------------
46,682,903
Rollover equity interest..................................... (1,895,000)
------------
Common shares converted to cash.............................. 44,787,903
Cash purchase price per share................................ $ 5.85
------------
$262,009,233
============
</TABLE>
(2) The pro forma financial statements have been prepared on the basis that the
holders of our stock options will have the vesting of all options
accelerated and will receive the excess of $5.85 over the exercise price of
the stock options multiplied by the total number of shares of common stock
subject to such options. The total cost consideration to be paid to holders
of our stock options will be approximately $16.5 million. Alternatively, it
may be determined by UC Acquisition and such holders of our stock options
that such options may remain outstanding, possibly on amended terms but
with the same aggregate spread.
28
<PAGE>
(3) To reflect estimated debt retirement premium and the write-off of
unamortized original issue discount of $17.8 million, comprised of $13.5
million related to our currently outstanding $120.0 million (face value)
senior notes (assuming 99.6% of noteholders tender their notes in the
tender offer) and $3.8 million related to the $25.0 million 7.5% notes
issued in connection with the Bio-Cypher acquisition.
(4) To reflect the estimated financing fees associated with the new credit
facility and the Notes. Such amount will be recorded as debt issuance costs
and will be amortized over the expected life of the debt to be issued.
(5) Estimated costs associated with the recapitalization, including financial
advisory fees, other financing fees and expenses, the dealer manager fee on
the senior notes tender offer, legal and accounting fees and severance
costs.
(b) To reflect our payments for historical common and preferred stock in
accordance with the merger agreement (in thousands):
<TABLE>
<S> <C>
Payment for common and preferred stock (including
consideration for Unilab stock options)..................... $ 280,586
=========
Purchase price is allocated as follows:
Convertible preferred stock.................................. $ (4)
Common stock................................................. (401)
Conversion of $14.0 million convertible subordinated note.... (14,000)
Additional paid-in capital................................... (221,621)
Accumulated deficit.......................................... (44,560)
---------
$(280,586)
=========
</TABLE>
(c) To reflect an equity contribution to UC Acquisition by the Kelso
affiliates, Kelso Investment Associates VI, L.P. and KEP VI, LLC, and
designees of Kelso in the amount of $139.5 million in respect of which they
will receive 23,846,154 shares of recapitalized common stock. A portion of
such investment may instead be made by third parties, subject to the Kelso
affiliates retaining a 75% ownership interest on a primary basis.
(d) To reflect the write-off of $3.0 million of deferred financing costs
associated with the repurchase of the senior notes.
(e) The aggregate adjustment of $2.3 million is comprised of the following:
. Compensation expense of $2.1 million related to the immediate vesting,
at a change of control, of phantom common stock units under our
supplemental executive retirement plan; and
. compensation expense of $200,000 related to the forgiveness of a
$150,000 loan by us to one of our directors in connection with his
efforts in effecting the recapitalization and forgiveness of a loan for
$50,000 to an executive, effective upon a change of control.
(f) To reclassify borrowings under the new credit facility to short term debt
for scheduled principal repayments due within the first year.
29
<PAGE>
UNILAB CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Historical Historical
Meris Bio-Cypher
Jan 1- Dec 1, 1997- Pro
Historical Nov 5, Nov 30, Pro Forma Forma
Unilab 1998 (a) 1998 (b) Adjustments (c) Unilab (r)
---------- ---------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenue................. $217,370 $22,008 $ 57,573 $ -- $296,951
Cost of services........ 152,007 21,745 47,815 -- 221,567
(473)(g)
624 (i)
(3,357)(l)
Depreciation and amorti-
zation................. 7,592 -- 4,667 1,692 (m) 10,745
Selling, general and ad-
ministrative expense... 33,530 9,386 16,551 600 (e) 60,067
Writedown of intangi-
bles................... -- -- 44,727 (44,727)(p) --
-------- ------- -------- -------- --------
Total operating ex-
penses............... 193,129 31,131 113,760 (45,641) 292,379
-------- ------- -------- -------- --------
Operating income
(loss)................. 24,241 (9,123) (56,187) 45,641 4,572
868 (d)
20,298 (f)
(427)(j)
889 (k)
Other expenses: (9,529)(n)
Interest, net........... 13,538 427 9,529 1,875 (o) 37,468
Other................... -- -- (280) -- (280)
-------- ------- -------- -------- --------
Income (loss) before in-
come taxes............. 10,703 (9,550) (65,436) 31,667 (32,616)
Tax provision........... -- -- -- -- --
-------- ------- -------- -------- --------
Net income (loss)....... 10,703 (9,550) (65,436) 31,667 (32,616)
======== ======= ======== ======== ========
Preferred stock divi-
dends.................. 131 -- -- (131)(h) --
Net income (loss)
available to common
stockholders........... $ 10,572 $(9,550) $(65,436) $ 31,798 $(32,616)
======== ======= ======== ======== ========
Ratio of earnings to
fixed charges (r)...... 1.60x --
======== ========
</TABLE>
See accompanying notes to unaudited pro forma statements of operations.
30
<PAGE>
UNILAB CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Historical Bio- Pro Forma
Cypher Jan. 1- Pro Forma Unilab
Historical Unilab May 9, 1999 (b) Adjustments (c) (r)
----------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
Revenue................. $213,496 $18,525 $ -- $232,021
Cost of services........ 147,133 17,438 -- 164,571
Legal charge............ 600 -- (600)(q) --
(355)(g)
(848)(l)
Depreciation and
amortization........... 7,189 1,315 611 (m) 7,912
Selling, general and
administrative
expense................ 29,323 4,204 450 (e) 33,977
Writedown of fixed
assets................. -- 1,331 (1,331)(p) --
-------- ------- -------- --------
Total operating
expenses........... 184,245 24,288 (2,073) 206,460
-------- ------- -------- --------
Operating income
(loss)................. 29,251 (5,763) 2,073 25,561
920 (d)
15,090 (f)
Other expenses: (3,682)(n)
Interest, net......... 11,244 3,682 676 (o) 27,930
Other................. -- 12 -- 12
-------- ------- -------- --------
Income (loss) before
income taxes......... 18,007 (9,457) (10,931) (2,381)
Tax benefit........... 11,904 -- -- 11,904
-------- ------- -------- --------
Net income (loss)..... 29,911 (9,457) (10,931) 9,523
======== ======= ======== ========
Preferred stock
dividends.............. 99 -- (99)(h) --
Net income (loss)
available to common
stockholders........... $ 29,812 $(9,457) $(10,832) $ 9,523
======== ======= ======== ========
Ratio of earnings to
fixed charge (r)....... 2.17x --
======== ========
</TABLE>
See accompanying notes to unaudited pro forma statements of operations
31
<PAGE>
UNILAB CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(a) On September 16, 1998, we signed an asset purchase agreement with Meris
for us to acquire substantially all the assets of Meris. The agreement was
approved on October 28, 1998 by the United States Bankruptcy Court in Los
Angeles, California, and we completed the acquisition of Meris on November 5,
1998. The results of operations of Meris for the period from January 1 through
November 5, 1998 have been included in our pro forma statement of operations
for the year ended December 31, 1998. The results of operations of Meris since
November 5, 1998 have been included in our historical results of operations.
(b) On April 5, 1999, we signed an asset purchase agreement with Bio-Cypher
for us to acquire substantially all of the assets of Bio-Cypher. The
acquisition of Bio-Cypher was completed on May 10, 1999. Bio-Cypher's results
for the period from January 1, 1999 through May 9, 1999 and for the twelve
months ended November 30, 1998 have been included in our pro forma statements
of operations for the nine months ended September 30, 1999 and the year ended
December 31, 1998, respectively. The results of Bio-Cypher since May 9, 1999
have been included in our historical results of operations.
(c) The pro forma adjustments to the statements of operations exclude:
. $24.9 million of estimated fees and expenses to be incurred in
connection with the recapitalization transaction;
. the write-off of $3.0 million of deferred financing costs associated
with the repurchase of our existing senior notes;
. the estimated $17.8 million of fees payable for the early retirement of
existing debt;
. $16.5 million of employee compensation expenses relating to the exercise
of stock options; and
. $2.3 million of deferred compensation expenses and forgiveness of loans
either effective upon a change of control or payable due to certain
individual's efforts in connection with effecting the recapitalization.
Such amounts represent non-recurring expenses which we anticipate will be
recorded in the statement of operations for the period including the
recapitalization.
(d) Represents the elimination of interest income on overnight deposits.
(e) Represents annual financial advisory fees paid to Kelso.
32
<PAGE>
(f) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
New credit facility:
Revolving credit facility(1)........... $ 180 $ 135
A term loan(2)......................... 4,562 3,422
B term loan(3)......................... 10,862 8,146
The Notes(4)........................... 19,763 14,822
Commitment fee(5)...................... 115 86
Capital lease obligations.............. 819 502
------- -------
Cash interest expense.................. 36,301 27,113
Amortization of debt financing
costs(6).............................. 946 710
Amortization of discount on Notes(7)... 221 107
------- -------
Pro forma interest expense............. 37,468 27,930
Less: historical interest expense on
debt repaid(8)........................ (14,406) (12,164)
Less: pro forma interest expense on
debt related to the Meris acquisition
(see footnote (k) below).............. (889) --
Less: pro forma interest expense on
debt related to the Bio-Cypher
acquisition (see footnote (o) below).. (1,875) (676)
------- -------
Total adjustment....................... $20,298 $15,090
======= =======
</TABLE>
- --------
(1) Represents interest on the drawn portion of the $25.0 million revolving
credit facility using an assumed interest rate of 9.125%.
(2) Represents interest on the $50.0 million A term loan using an assumed
interest rate of 9.125%.
(3) Represents interest on the $110.0 million B term loan using an interest
rate of 9.875%.
(4) Represents interest on $155.0 million of the Notes at an interest rate of
12.75%.
(5) Represents a 0.5% commitment fee on the unused portion of the revolving
credit facility.
(6) Represents amortization of deferred financing costs of $7.8 million over
the term of the related debt.
(7) Represents amortization of original issue discount of $4.2 million over the
term of the Notes using the effective interest rate method.
(8) Represents the elimination of historical interest expense paid or payable
in cash.
A 0.125% increase or decrease in the assumed weighted average interest rate
applicable to the new credit facility would change the pro forma interest
expense and income before taxes as follows:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1998 September 30, 1999
----------------- ------------------
(dollars in thousands)
<S> <C> <C>
Revolving credit facility............... $ 2 $ 2
A term loan............................. 63 47
B term loan............................. 138 103
---- ----
Total................................. $203 $152
==== ====
</TABLE>
(g) Represents the elimination of the historical deferred financing
amortization expense associated with our existing senior notes.
(h) To eliminate dividends on preferred stock redeemed as part of the
recapitalization.
(i) To reflect additional amortization expense for the period from January 1
through November 5, 1998 associated with the goodwill and other intangible
assets recorded in connection with the acquisition of Meris.
(j) To reflect the elimination of the historical interest expense incurred by
Meris.
33
<PAGE>
(k) To reflect interest expense for the period from January 1 through
November 5, 1998 associated with the issuance of a $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.
(l) To reflect the elimination of the historical amortization expense
incurred by Bio-Cypher.
(m) To reflect additional amortization expense associated with the goodwill
and other intangible assets recorded in connection with the acquisition of Bio-
Cypher.
(n) To reflect the elimination of the historical interest expense incurred by
Bio-Cypher.
(o) To reflect the interest expense associated with the issuance of the $25.0
million notes, bearing interest on the outstanding balance at a rate of 7.5%
per annum, in connection with the acquisition of Bio-Cypher.
(p) To reflect the elimination of the non-recurring charges recorded by Bio-
Cypher to write-down intangible assets and goodwill for the permanent decline
in value below Bio-Cypher's previous unamortized historical cost and the write-
down of fixed assets to fair market value.
(q) To reflect the elimination of a non-recurring legal charge of $0.6
million recorded by us for the estimated settlement amount regarding claims by
a group of insurance companies in connection with our billing practices.
(r) For purposes of determining the pro forma ratio of earnings to fixed
charges, earnings are defined as income before income taxes plus fixed charges.
Fixed charges include interest expense on all debt, amortization of deferred
financing costs and one-third of rental expense on operating leases
representing that portion of rental expense deemed to be attributable to
interest. Earnings would have been insufficient to cover fixed charges by
$32,616 and $2,381 for year ended December 31, 1998 and the nine months ended
September 30, 1999, respectively.
34
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data for each of the fiscal years in the
five-year period ended December 31, 1998 have been derived from our audited
financial statements. Such information is contained in and should be read in
conjunction with the audited financial statements and accompanying notes
included in this prospectus or incorporated by reference in our Annual Reports
on Form 10-K, as amended, for such years.
The selected financial data for the nine months ended September 30, 1998 and
1999 have been derived from our unaudited interim financial statements, which
in the opinion of management include all adjustments, consisting only of normal
recurring adjustments, which we consider necessary for a fair presentation of
our financial position and results of operations for these periods. Operating
results for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the full year. The nine
month data should be read in conjunction with our unaudited financial
statements for the nine months ended September 30, 1998 and 1999 included
elsewhere in this prospectus.
The variations in the year-to-year and nine-month period to nine-month period
comparisons are due primarily to the acquisition of substantially all of the
assets of Bio-Cypher Laboratories, effective May 10, 1999, the acquisition of
substantially all of the assets of Meris Laboratories, effective November 5,
1998, the acquisition of MLN Holding Acquisition Co., effective May 16, 1995
and the acquisition of Premier Laboratory Services, Inc., effective January 24,
1994. In addition, see notes 4, 5 and 7 of the notes to the audited financial
statements included elsewhere in this prospectus for a more detailed discussion
of the legal and acquisition related charges, restructuring charges and loss on
sale of promissory note recorded in 1996. In addition, see note 5 to our
unaudited nine-month financial statements included elsewhere in this prospectus
for a more detailed discussions of the legal charge recorded during the nine
months ended September 30, 1999.
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue................ $151,820 $189,042 $205,217 $214,001 $217,370 $162,046 $213,496
Direct laboratory and
field expenses........ 102,715 132,877 154,172 155,942 152,007 111,634 147,133
Legal, acquisition and
restructuring related
charges............... 1,282(1) 4,400(2) 70,595 -- -- -- 600
Selling, general and
administrative
expense............... 31,187 37,612 41,801 34,570 33,530 24,990 29,323
Operating income
(loss)................ 9,137 4,539 (72,842) 14,604 24,241 19,648 29,251
Third party interest,
net................... (5,059) (8,994) (13,401) (14,068) (13,538) (10,068) (11,244)
Related party interest,
net................... (133) 661 1,279 -- -- -- --
Loss on sale of equity
investment/promissory
note.................. -- 36,499(3) 4,529 -- -- -- --
Income (loss) before
income taxes and
extraordinary item.... 4,515 (40,043) (89,493) 536 10,703 9,580 18,007
Income tax benefit..... -- -- -- -- -- -- 11,904
Income (loss) before
extraordinary item.... 4,515 (40,043) (89,493) 536 10,703 9,580 29,911
Extraordinary item..... -- 1,732 3,451 -- -- -- --
Net income (loss)...... $ 4,515 $(41,775) $(92,944) $ 536 $ 10,703 $ 9,580 $ 29,911
Other Financial Data:
EBITDA(4).............. $ 17,918 $ 18,553 $ 9,244 $ 23,489 $ 31,833 $ 25,422 $ 37,040
Depreciation and
amortization.......... 7,499 9,614 11,491 8,885 7,592 5,774 7,189
Capital expenditures... 2,879 4,435 3,948 1,935 3,005 2,335 4,903
Net cash provided
(used) by operating
activities............ 4,299 (7,400) (5,128) 3,715 13,996 12,590 25,301
Net cash provided
(used) by financing
activities............ 30,483 29,055 13,786 (1,384) (1,836) (1,387) (681)
Net cash provided
(used) by investing
activities............ (34,558) (23,076) 4,352 (3,759) (3,675) (2,954) (13,507)
Ratio of earnings to
fixed charges(5)...... 1.48x -- (6) -- (6) 1.03x 1.60x 1.73x 2.17x
Balance Sheet Data:
Cash, cash equivalents
and restricted cash... $ 1,491 $ 70 $ 12,176 $ 11,652 $ 20,137 $ 19,901 $ 31,250
Accounts receivable,
net................... 27,348 40,334 37,279 36,583 41,326 40,395 55,830
Total assets........... 196,407 196,174 125,919 118,700 142,460 127,643 213,400
Total debt............. 74,119 109,154 127,872 126,096 138,376 124,794 162,541
Shareholders' equity
(deficiency).......... 95,334 56,330 (34,688) (32,283) (21,367) (22,545) 12,036
</TABLE>
35
<PAGE>
- --------
(1) Represents acquisition related charges arising from the closure of our
patient service centers and related facilities and a reduction in our
workforce in connection with the Premier acquisition.
(2) Represents a legal charge related to a settlement and legal fees paid in
connection with a lawsuit regarding our sales, marketing and distribution
of a product designed for use in connection with pap smears.
(3) Represents a loss on the sale of equity investment relating to the sale of
our 40% equity interest in a European laboratory company.
(4) "EBITDA" is defined as net income (loss) before interest expense, income
taxes, depreciation and amortization, non-recurring charges and
extraordinary items. EBITDA is not a measure of performance under generally
accepted accounting principles ("GAAP"). While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used as a criteria in
evaluating health care companies. Moreover, substantially all of our
financing agreements contain covenants in which EBITDA is used as a measure
of financial performance. Excludes non-recurring charges and extraordinary
items of $1.3 million, $42.6 million, $70.6 million and $0.6 million for
1994, 1995 and 1996 and the nine months ended September 30, 1999,
respectively.
(5) For purposes of determining the ratio of fixed charges, earnings are
defined as income before income taxes plus fixed charges. Fixed charges
include interest expense on all debt, amortization of deferred financing
costs and one-third of rental expense on operating leases representing that
portion of rental expense deemed to be attributable to interest.
(6) Earnings were insufficient to cover fixed charges in 1995 and 1996 by
$40,293 and $89,493, respectively.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are the largest clinical laboratory testing company in California,
providing comprehensive laboratory testing services to physicians, managed care
groups, hospitals and other health care providers. Our predecessor began
operations in California in the 1970s. We were originally structured as a
public company in 1988 for the purpose of receiving the Western United States
laboratory services assets (California, Colorado, Texas, Arizona) of MetPath,
Inc., a subsidiary of Corning Incorporated, in exchange for approximately 50%
of our outstanding shares. We initially operated under the name "MetWest."
Subsequently, in 1993, we completed a reorganization transaction with Corning,
in which we sold to Corning effectively all of our non-California operations in
exchange for substantially all of Corning's equity ownership in us. As a result
of this reorganization, we began operating under the name "Unilab Corporation,"
became a widely held public company, severed our relationship with Corning and
focused almost exclusively on the California marketplace.
In the early 1990s, the clinical laboratory testing industry in California
was affected by changes in government regulation, price competition and the
increased penetration of managed care. As a result of these factors, our
profitability was negatively impacted both by changes in testing volume and
reimbursement levels and the mix of payors for our services. Government
regulation focusing on health care cost containment has historically reduced
testing volumes and reimbursement rates and added costs to clinical
laboratories by increasing the complexity of billing and adding new regulatory
requirements. In response to these changes, in 1997 we implemented a strategy
to maintain testing volumes, increase prices and decrease costs. Once these
strategies were in place, we began to implement an in-market acquisition
strategy to leverage our fixed costs by increasing capacity utilization.
We derive our revenues from payments for clinical laboratory testing services
made by the government, managed care organizations, insurance companies,
physicians, hospitals, employers and patients. In recent years, there has been
a significant shift away from traditional fee-for-service health care to
managed health care, as employers and other payors of health care costs
aggressively move the populations they control into lower cost plans. The
growth and consolidation of the managed care industry have created large
managed care companies that control the delivery of health care services for
millions of people, and have significant bargaining power in negotiating fees
with providers, including clinical laboratories. Managed care organizations
generally negotiate for capitated payment contracts, under which clinical
laboratories receive a fixed monthly fee per individual enrolled with the
managed care organization for all testing directed from the managed care
organization to the clinical laboratory. Some services, such as various
esoteric tests and anatomic pathology services, may be excluded from a
capitated rate and, if excluded, would be charged on a fee-for-service basis.
We expect the use of capitated agreements to continue for the foreseeable
future. We maintain an active account management process to evaluate the
profitability of our existing and new business, including capitated agreements.
Since 1997, we have sought to adjust the prices of managed care contracts,
where appropriate, to better correlate reimbursement rates with the level of
service provided.
The clinical laboratory testing industry is labor intensive given the high
degree of manual labor required in collecting, transporting and testing
specimens. In 1998, salaries, wages and benefits constituted approximately 45%
of our direct laboratory and field expenses. Supplies expenses in collecting,
transporting and testing specimens constituted approximately 20% of our direct
laboratory and field expenses in 1998. Other operating expenses accounted for
approximately 35% of our direct laboratory and field expenses in 1998. Selling,
general and administrative expenses consist principally of the costs of the
sales force, billing operations and general management and administrative
support. Costs to address Year 2000 issues have been principally included in
selling, general and administrative expenses.
37
<PAGE>
Recent Acquisitions
Meris Acquisition
On September 16, 1998, we signed a definitive agreement to acquire
substantially all of the assets of Meris Laboratories, Inc., one of the leading
regional independent laboratories in Northern California, for approximately
$16.5 million, consisting of a $14.0 million 7.5% convertible subordinated note
and the assumption of $2.5 million in additional liabilities to be paid in
equal installments of $35,000 per month over 72 months. In addition to Meris'
customer list, we acquired approximately $3.5 million of net assets, the
majority of which were trade accounts receivable. The agreement was approved on
October 28, 1998 by the United States Bankruptcy Court and we took possession
of the acquired net assets on November 5, 1998. Within approximately two months
after completing the acquisition, we had substantially integrated the Meris
business and realized much of the significant synergies available in the
consolidation.
Bio-Cypher Acquisition
On April 5, 1999, we signed a definitive agreement to acquire substantially
all of the assets of Physicians Clinical Laboratories, Inc., which operated
under the name Bio-Cypher Laboratories for approximately $37 million. Bio-
Cypher had been one of our principal competitors. The purchase price for Bio-
Cypher consisted of one million shares of our common stock, approximately $8.6
million in cash, $25 million of notes and the assumption of $4 million in
additional liabilities. In addition to Bio-Cypher's customer list, we acquired
approximately $9.6 million of assets, the majority of which were trade accounts
receivable. The transaction closed on May 10, 1999 and we have completed the
integration of the acquisition.
Results of Operations
The following table sets forth certain components of our consolidated
statement of operations data as a percentage of revenue.
<TABLE>
<CAPTION>
Nine Months
Ended
September
Year Ended December 31, 30,
------------------------- ------------
1996 1997 1998 1998 1999
------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Direct laboratory and field ex-
penses:
Salaries, wages and benefits.... 34.5% 32.3% 31.2% 30.6% 29.6%
Supplies........................ 14.0% 14.0% 14.1% 13.9% 14.4%
Other operating expenses........ 26.6% 26.6% 24.7% 24.3% 24.9%
Depreciation and amortization..... 5.6% 4.2% 3.5% 3.6% 3.4%
Selling, general and administra-
tive expenses.................... 20.4% 16.2% 15.4% 15.4% 13.7%
EBITDA(1)......................... 4.5% 11.0% 14.6% 15.7% 17.3%
</TABLE>
- --------
(1) Excludes certain non-recurring charges and extraordinary items.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenue. Revenue increased to $213.5 million for the nine month period ended
September 30, 1999 from $162.0 million for the comparable prior year period,
representing an increase of $51.5 million or 31.8%. Approximately $36.4 million
of the increase for the nine month period ended September 30, 1999 was
attributable to revenue generated from the acquisitions of Meris, effective
November 5, 1998 and Bio-Cypher, effective May 10, 1999. Exclusive of the
acquired Meris and Bio-Cypher businesses, revenue increased $15.1 million for
the period, primarily the result of increases in reimbursement levels of $8.5
million and additional specimen volume generating $6.6 million.
38
<PAGE>
We experienced a 5.1% increase, exclusive of the acquired Meris and BCL
businesses, in the average reimbursement received for each specimen processed
during the nine month period ended September 30, 1999 versus the comparable
prior year period. The increase in reimbursement levels is primarily due to
increases in rates charged to managed care clients, replacement of our most
unprofitable accounts with other better priced business and changes in test mix
to more sophisticated testing procedures for HIV and sexually transmitted and
other infectious diseases. Exclusive of the acquired Meris and Bio-Cypher
businesses, we experienced a 4.0% increase in the number of specimens processed
in the core business during the nine month period ended September 30, 1999
versus the comparable prior year period. In addition, while we have experienced
increases in volume over the prior year through acquisitions and growth in the
core business, we have experienced over the last several months greater
seasonal softness than anticipated and we have purged more business (primarily
lower priced and less profitable accounts) from the Bio-Cypher acquisition than
originally forecasted.
Salaries, Wages and Benefits. Salaries, wages and benefits increased to $63.2
million for the nine month period ended September 30, 1999 from $49.6 million
for the comparable prior year period. As a percentage of revenue, salaries,
wages and benefits decreased to 29.6% for the nine month period ended September
30, 1999 from 30.6% for the comparable prior year period. The decrease
primarily reflects the economies of scale associated with processing a
significantly higher specimen volume (25.3% volume increase during the first
nine months of 1999 including the effect of the Meris and Bio-Cypher
acquisitions) without the same corresponding increase in headcount.
Supplies. Supplies expense increased to $30.7 million for the nine month
period ended September 30, 1999 from $22.6 million for the comparable prior
year period. As a percentage of revenue, supplies expense increased to 14.4%
for the nine month period ended September 30, 1999 from 13.9% for the
comparable prior year period. The increase is attributable to bringing certain
more costly testing in-house, mandated use of more costly safety needles and
inefficiencies of running two laboratories in the Sacramento area during the
integration period of Bio-Cypher. We closed the Bio-Cypher laboratory in mid-
August, 1999.
Other Operating Expenses. Other operating expenses increased to $53.3 million
for the nine month period ended September 30, 1999 from $39.4 million for the
comparable prior year period. As a percentage of revenue, other operating
expenses increased to 24.9% for the nine month period ended September 30, 1999
from 24.3% for the comparable prior year period. The increases are attributable
to inefficiencies of running two laboratories in the Sacramento area during the
integration period of Bio-Cypher and a higher volume of testing being processed
by outside reference laboratories.
Legal Charge. We have recently settled with a group of thirteen insurance
companies regarding claims by the insurance companies that we over-billed them
in the mid-1990s in connection with several chemistry profile tests that were
previously the subject of a settlement agreement with the government. We paid
$600,000 to settle these claims, and such amount has been reflected as a charge
in the statement of operations for the second quarter of 1999.
Depreciation and Amortization. Depreciation and amortization increased to
$7.2 million for the nine month period ended September 30, 1999 from $5.8
million for the comparable prior year period. The increase was primarily due to
the additional amortization expense incurred from the goodwill recorded in
connection with the Meris and Bio-Cypher acquisitions offset by a decrease in
depreciation expense due to certain laboratory computer equipment becoming
fully depreciated in 1998.
In addition, based upon the final review of certain assets acquired in the
Meris and Bio-Cypher acquisitions, we have changed our estimate of goodwill
amortization arising from those acquisitions to a 10-year period effective July
1, 1999. The effect of the change was to increase amortization expense by $0.6
million for the nine month period ended September 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $29.3 million for the nine month period
ended September 30, 1999 from $25.0 million for the comparable prior
39
<PAGE>
year period. As a percentage of revenue, selling, general and administrative
expenses decreased to 13.7% for the nine month period ended September 30, 1999
from 15.4% for the comparable prior year period. Such decrease continued the
trend realized by us throughout 1998 and 1999 from cost reduction efforts and
also reflected the economies of scale and efficiencies gained from the Meris
and Bio-Cypher acquisitions.
EBITDA. EBITDA were $36.4 million for the nine month period ended September
30, 1999, compared to $25.4 million for the comparable prior year period.
Without the effect of the $0.6 million legal charge recorded in the second
quarter of 1999, EBITDA for the nine month period ended September 30, 1999
would have been $37.0 million or 17.3% of sales, and would have represented an
increase of approximately 46% over the comparable prior year period.
Interest Expense. Third party interest, net increased to $11.2 million for
the nine month period ended September 30, 1999 compared to $10.1 million for
the comparable prior year period. The increase was primarily due to the
additional interest expense incurred on the $14.0 million convertible
subordinated note issued in connection with the Meris acquisition and the $25.0
million subordinated note issued in connection with the Bio-Cypher acquisition.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. Revenue increased to $217.4 million for the year ended December 31,
1998 from $214.0 million for the comparable prior year period, representing an
increase of $3.4 million or 1.6%. Approximately $2.9 million of the increase
was attributable to revenue generated from the acquisition of Meris, which was
effective as of November 5, 1998. Exclusive of the acquired Meris business,
revenue increased $0.5 million, primarily the result of increases in
reimbursement levels of $6.3 million offset by decreases in specimen volume of
approximately $5.8 million.
We experienced a 3.1% increase, exclusive of the acquired Meris business, in
the average reimbursement received for each specimen processed during the year
ended December 31, 1998 versus the comparable prior year period. The increase
in reimbursement levels is primarily due to increases in rates charged to
managed care clients as we continue our strategy to only work with managed care
clients who are willing to adequately pay for the levels of service they
request and the elimination and replacement of our most unprofitable accounts
with other reasonably priced business. Exclusive of the acquired Meris
business, we experienced a 2.8% decrease in the number of specimens processed
during the year ended December 31, 1998 versus the comparable prior year
period. The decrease in volume was the effect of Medicare requirements for new
test panels which led to changes in ordering patterns among physicians, the
elimination of some under-performing accounts and the exit from small
geographical areas where we couldn't achieve significant economies of scale.
Salaries, Wages and Benefits. Salaries, wages and benefits decreased to $67.7
million for the year ended December 31, 1998 from $69.1 million for the
comparable prior year period. As a percentage of revenue, salaries, wages and
benefits were 31.2% and 32.3% for the years ended December 31, 1998 and 1997,
respectively. Such decrease primarily reflects a reduction in headcount and
tight control over the growth in wage increases.
Supplies. Supplies expense remained consistent at approximately 14.0% of
revenue for the years ended December 31, 1998 and 1997. However, supplies
expense per specimen processed increased slightly in 1998 as we started to
perform certain more costly tests in-house in late 1997 that were previously
sent to outside reference laboratories. Although we experienced a slight
increase in supplies expense related to bringing this testing in-house, we had
a positive net benefit as lab subcontracting expenses decreased by more than
10% in the year ended December 31, 1998 from the comparable prior year period.
Other Operating Expenses. Other operating expenses decreased to $53.6 million
for the year ended December 31, 1998 from $57.0 million for the comparable
prior year period. As a percentage of revenue, other operating expenses were
24.7% and 26.6% for the years ended December 31, 1998 and 1997, respectively.
Such decrease was primarily due to reductions in lab subcontracting expenses
(see explanation in preceding paragraph)
40
<PAGE>
and reductions in outside courier, automobile, telecommunication and insurance
expenses, as we evaluated all expense line items throughout 1997 and 1998 and
streamlined expenses as necessary to achieve cost efficiencies.
Depreciation and Amortization. Depreciation and amortization expense
decreased to $7.6 million for the year ended December 31, 1998 from $8.9
million for the comparable prior year period primarily due to certain non-
compete agreements and laboratory computer equipment becoming fully amortized
or depreciated in late 1997 and early 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $33.5 million for the year ended December
31, 1998 from $34.6 million for the comparable prior year period. As a
percentage of revenue, selling, general and administrative expenses were 15.4%
and 16.2% for the years ended December 31, 1998 and 1997, respectively. Such
decrease continued the trend realized by us throughout 1997 and relates to a
reduction in corporate managerial and administrative positions and streamlining
of all operating support services.
EBITDA. EBITDA was $31.8 million for the year ended December 31, 1998
compared to $23.5 million for the comparable prior year period. Without the
effect of a $1.2 million impact on EBITDA resulting from the integration period
between November 5, 1998 and late December 1998 of the Meris acquisition,
EBITDA for the year ended December 31, 1998 would have been $33.0 million.
Interest Expense. Third party interest expense, net decreased to $13.5
million for the year ended December 31, 1998 from $14.1 million for the
comparable prior year period primarily due to the repayment of capital lease
obligations.
The Company has not recognized an income tax provision for the years ended
December 31, 1998 and 1997. In 1998, the Company reduced the valuation
allowance against its deferred tax assets by $3.9 million, which offset any
potential income tax provision. In 1997, the Company did not have taxable
income. The Company has provided a valuation allowance against the entire
deferred tax asset balance of $34.8 million at December 31, 1998. The Company
believes that the valuation allowance is required since the Company has a
recent history of operating and taxable losses, had cumulative losses of $11.1
million (excluding legal, acquisition-related and restructuring charges) for
the past three years, has historically fallen short of its projected operating
results and is still integrating and has not yet fully realized the benefits
from the Meris acquisition. Based on these factors, the Company does not
believe the weight of the evidence would support the Company having sufficient
future book and taxable income to release some or all of the valuation
allowance at December 31, 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue. Revenue increased to $214.0 million for the year ended December 31,
1997 from $205.2 million for the comparable prior year period, representing an
increase of $8.8 million or 4.3%. The increase was primarily the result of
additional specimen volume generating approximately $17.6 million offset by
changes in payor mix and decreases in reimbursement levels of approximately
$8.8 million.
The $17.6 million increase in specimen volume was due to a 8.6% increase in
the number of specimens processed during the year ended December 31, 1997
versus the comparable prior year period. Such increase was primarily
attributable to growth in our core business.
We experienced a 3.9% decline in the average reimbursement received for each
specimen processed during the year ended December 31, 1997 versus the
comparable prior year period. Such decrease was primarily due to an increase in
managed care business and a general softening in reimbursement levels across
most payor groups, most notably from insurance carriers.
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While average reimbursement was down over the prior year, the average
reimbursement over the last six months of 1997 increased approximately 2.5%
over the average reimbursement in the first six months of 1997, the first time
in over two years that average reimbursement has increased over a comparable
prior period.
Salaries, Wages and Benefits. Salaries, wages and benefits decreased to $69.1
million for the year ended December 31, 1997 from $70.9 million for the
comparable prior year period. As a percentage of revenue, salaries, wages and
benefits were 32.3% and 34.5% for the years ended December 31, 1997 and 1996,
respectively. Such decrease primarily reflects a reduction in headcount,
control over the growth in wage increases and economies of scale associated
with fewer employees processing a significantly higher specimen volume.
Supplies. Supplies expense increased to $29.9 million for the year ended
December 31, 1997 from $28.6 million for the comparable prior year period. As a
percentage of revenue, supplies expense were consistent at 14.0% for the years
ended December 31, 1997 and 1996. However, on a per specimen basis, supplies
costs actually decreased 4.2% as a result of economies of scale associated with
an increased specimen volume.
Other Operating Expenses. Other operating expenses increased to $57.0 million
for the year ended December 31, 1997 from $54.7 million for the comparable
prior year period. As a percentage of revenue, other operating expenses were
consistent at 26.6% for the years ended December 31, 1997 and 1996.
During the third quarter of 1996, we recorded charges of approximately $4.9
million, primarily related to settlements reached with the U.S. Government and
certain other entities in connection with our sales, marketing and billing
practices. We agreed to pay the U.S. Government approximately $4.0 million to
conclude an investigation of certain of our billings to Medicare and certain
other governmental entities for hematology indices being billed in conjunction
with complete blood counts. We also paid the California MediCal program
approximately $160,000 in October 1996 to settle all their claims concerning
the same issue.
During the fourth quarter of 1996, we recorded charges of $65.7 million,
consisting of the write-off of goodwill and customer lists of $61.7 million and
a reserve for managerial restructuring expenses of $4.0 million. The write-off
of goodwill and customer lists principally related to two of our laboratory
operations, which had seen decreasing operating results and cash flows
throughout 1996. The $4.0 million managerial restructuring expenses related to
a reduction in headcount of approximately 25 employees, including the
resignation of our then Chairman, President and Chief Executive Officer in
January 1997.
Depreciation and Amortization. Depreciation and amortization expense
decreased to $8.9 million for the year ended December 31, 1997 from $11.5
million for the comparable prior year period. Such decrease was primarily due
to a reduction in amortization expense from the write-off of goodwill and
customer lists of $61.7 million in the fourth quarter of 1996 offset by
increased depreciation expense from approximately $4.1 million of laboratory
computer equipment and software placed into service at one of our laboratory
locations in the first quarter of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $34.6 million for the year ended December
31, 1997 from $41.8 million for the comparable prior year period. As a
percentage of revenue, selling, general and administrative expenses were 16.2%
and 20.4% for the years ended December 31, 1997 and 1996, respectively. Such
decrease related primarily to a reduction in the level of expenditures incurred
in the sales and marketing area, including revisions in incentive programs and
reduction in staffing levels and organizational and support services, and
reduction in corporate managerial and administrative positions.
EBITDA. EBITDA was $23.5 million for the year ended December 31, 1997
compared to $9.2 million for the comparable prior year period (excluding legal
and acquisition related and restructuring charges, loss on sale of promissory
note and extraordinary item).
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Interest Expense. Third party interest expense, net increased to $14.1
million for the year ended December 31, 1997 from $13.4 million for the
comparable prior year period. The increase was primarily due to the full year
effect of increased debt incurred by us under an offering of $120.0 million of
11% senior notes due 2006 in March 1996.
Related party interest income of $1.3 million for the year ended December 31,
1996 reflects interest income on a $15.0 million promissory note we received
upon the sale, effective June 30, 1995, of an equity investment. In November
1996, we sold a 100% participation interest in our rights under the $15.0
million promissory note to a third party for $11.0 million. We recorded a $4.5
million loss upon the sale, which reflected the $4.0 million loss in principal
plus the write-off of accrued and unpaid interest of $0.5 million from July 1,
1996 through the sale date.
Upon completion of the senior notes offering, we wrote off $3.5 million of
deferred financing costs related to our previous credit agreements.
Liquidity and Capital Resources
Following the Recapitalization
Our principal liquidity requirements are for working capital, consisting
primarily of accounts receivable and inventories, capital expenditures and debt
service. We will fund our liquidity needs primarily with internally generated
funds from operations and, to the extent necessary, through borrowings under
the new $25.0 million revolving credit facility.
For more information on our capital structure, including our debt
obligations, following the recapitalization, see "The Recapitalization,"
"Unaudited Pro Forma Financial Statements" and "Description of New Credit
Facility."
Capital expenditures were approximately $3.0 million and $4.9 million for the
year ended December 31, 1998 and the nine months ended September 30, 1999,
respectively, and were primarily for information technology, laboratory
equipment and expansion of our Sacramento laboratory. We expect to make
approximately $6.0 million of capital expenditures for the year ending December
31, 1999. Significant investments are expected for laboratory expansion,
information technology and laboratory equipment. We anticipate that on-going
maintenance capital expenditures will approximate 1% of revenue.
Historical
Net cash provided by operating activities was $25.3 million for the nine
months ended September 30, 1999 and reflects an improvement of $12.7 million
over the comparable prior year period when net cash provided by operating
activities was $12.6 million. The improvement in 1999 was primarily due to an
improvement in the Company's operating performance and timing of payments for
accounts payable.
Net cash used by financing activities was $0.7 million for the nine months
ended September 30, 1999, resulting primarily from scheduled principal
repayments under capital lease obligations.
Net cash used by investing activities was $13.5 million for the nine months
ended September 30, 1999, resulting from an $8.6 million cash payment in
partial consideration of the purchase price for the Bio-Cypher acquisition and
$4.9 million of fixed asset additions. We had $25.8 million of unrestricted
cash and cash equivalents at September 30, 1999.
Net cash provided by operating activities during the year ending December 31,
1998 was $14.0 million and reflects an improvement of $10.3 million over the
comparable prior year period when net cash provided by operating activities was
$3.7 million. The increase in 1998 was primarily due to the improvement in our
operating performance.
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Net cash used by financing activities was $1.8 million for the year ending
December 31, 1998, primarily resulting from scheduled principal repayments
under capital lease obligations of $1.7 million and the issuance of preferred
dividends of $0.1 million.
Net cash used by investing activities was $3.7 million for the year ended
December 31, 1998, resulting from capital expenditures of $3.0 million and
payments made on acquisitions completed in 1996 and 1995 of $0.7 million. We
expect that our capital expenditure requirements, excluding any amounts related
to acquisitions, will approximate $4.0 million in 1999.
In March 1996, we completed the offering of $120.0 million of 11% senior
notes due 2006. The proceeds from the senior notes offering were used to retire
outstanding borrowings under our then existing bank term loan and revolving
line of credit facility in the principal amount of $102.1 million, plus accrued
interest. We have not been required to make any mandatory redemption or sinking
fund payment with respect to the senior notes prior to maturity. The senior
notes are not redeemable prior to April 1, 2001, after which the senior notes
will be redeemable at any time at our option, in whole or in part, at various
redemption prices as set forth in the indenture covering such senior notes,
plus accrued and unpaid interest, if any, to the date of redemption. The
indenture governing the senior notes limits our ability to incur additional
debt, under certain circumstances.
As part of the recapitalization, on September 1, 1999 we commenced a tender
offer to repurchase and retire the senior notes. We have close the tender offer
on November 23, 1999, the same date as the closing of our merger with UC
Acquisition and other recapitalization transactions.
In connection with the acquisition of Meris, we issued a $14.0 million
convertible subordinated note, bearing interest at the rate of 7.5% and payable
on May 5 and November 5 of each year. The note is subordinated to the senior
notes and is due in November 2006. The note is convertible into our common
stock at a conversion price of $3.00 per share, subject to certain
restrictions. In addition, subject to certain restrictions, the note may be
redeemed by us. At the completion of the merger, the note was converted into
approximately 4.7 million shares of our common stock, which was then cashed out
at the $5.85 per share merger price.
In connection with the acquisition of Bio-Cypher, we issued $25.0 million of
notes bearing interest at the rate of 7.5%. As part of the recapitalization, we
have redeemed the notes.
In July 1996, we entered into an agreement with a financial institution
whereby we can sell accounts receivable up to a maximum of $20.0 million. As
collections reduce accounts receivables which have been sold, we may sell new
receivables to bring the amount sold up to a maximum of $20.0 million. As of
December 31, 1998, we had not sold any accounts receivable under this
agreement. Sales of receivables, if any, under the facility are subject to a
liquidity and debt service coverage ratio. We were in compliance with such
covenants in 1998. We allowed the agreement to terminate in July 1999.
We had $20.1 million of cash and cash equivalents on hand at December 31,
1998.
Year 2000
We have substantially completed the upgrading and modification of all our
laboratory, billing and accounting systems in order for such systems to
properly recognize and perform date calculations in the year 2000. We spent
approximately $400,000 in 1998 and another $100,000 in 1999 for additional
hardware, upgraded software and consulting time to enable us to properly
address the year 2000 issue. The total cost to fix the year 2000 issue is in
line with our original estimates. While the consequences of an incomplete or
untimely resolution of the year 2000 issue could have a significant impact on
finalizing laboratory results, properly billing the numerous different payor
groups and gathering and reporting payroll, accounting and other employee and
financial information, we believe that we have adequately resolved the year
2000 issue for our internal systems. There can be no assurance, however, that
our year 2000 compliance efforts will adequately address all year 2000-related
contingencies.
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As part of our contingency planning, we have standardized the platform and
software used to process and report laboratory results during the last several
years. In addition, we converted the last billing system not on our standard
billing platform in 1998. If a problem occurred with the laboratory hardware or
software, we might have to rely on outside reference laboratories to process
specimens until year 2000 problems were fixed. If we had to rely on another
location or outside reference laboratory to process specimens, turn-around time
on test results would be diminished and billings and cash collections from
payor groups could be significantly delayed.
We are relying upon the ability of numerous payor groups, primarily insurance
companies and government payors, to solve their year 2000 issues in order to
process our billings and make appropriate cash remittances. If such payor
groups do not properly resolve their year 2000 issues, cash collections could
be significantly delayed. In September 1998, the General Accounting Office
reported that "the Health Care Financing Administration and its contractors are
severely behind schedule in repairing, testing and implementing the mission-
critical systems supporting Medicare" and concluded that "it is highly unlikely
that all of the Medicare systems will be compliant in time to ensure the
delivery of uninterrupted benefits and services into the Year 2000." There can
be no assurance that payors or other third parties upon which we depend will
successfully address the year 2000 issue.
We send approximately 1% of our specimens to outside reference laboratories
for testing and do not believe we would have difficulty finding another
reference laboratory to perform such tests if our current main vendor
encounters difficulties with the year 2000 issue. We have asked all significant
vendors to report in writing to us on the status of their year 2000 readiness
and whether their systems will be compliant in sufficient time to satisfy our
current requirements and workflow. We review such reports regularly and makes
modifications to our own planning process, if necessary, based on the reports
received from vendors.
Seasonality
Our operations experience seasonal trends that we believe affect all clinical
laboratory companies. Testing volume generally tends to be lower during the
holiday seasons and, to a lesser extent, inclement weather. As a result,
because a substantial portion of our expenses are relatively fixed over the
short term, our operating income as a percentage of revenue tends to decrease
during the fourth quarter of each year, mainly due to the Christmas and
Thanksgiving holidays. Excluding $2.9 million of additional revenue in the
fourth quarter from the Meris acquisition, as a percentage of total 1998
revenue, we generated approximately 25.4% in the first quarter, 25.4% in the
second quarter, 24.8% in the third quarter and 24.4% in the fourth quarter.
Bad Debt Expense
Our bad debt expense as a percentage of revenue has remained stable over the
past several years, after accounting for acquisitions. The following table sets
forth our bad debt expense for each of the past three fiscal years and the nine
months ended September 30, 1998 and 1999.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Bad debt expense.............. $14,180 $15,663 $15,662 $ 11,697 $ 15,376
% of revenue................. 6.9% 7.3% 7.2% 7.2% 7.2%
</TABLE>
Inflation
Inflation was not a material factor in either revenue or operating expenses
during the periods presented.
45
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BUSINESS
General
We are the largest independent clinical laboratory testing company in
California, providing comprehensive laboratory testing services to physicians,
managed care groups, hospitals and other health care providers. We perform over
1,000 different tests which help physicians diagnose, evaluate, monitor and
treat disease by measuring the presence, concentrations or composition of
chemical and cellular components in human body fluids and tissue. These tests
range from simple tests, such as glucose monitoring, to highly specialized
ones, such as those designed to measure HIV infection. On a pro forma basis, we
believe our revenues in California for the year ended December 31, 1998
represented approximately 25% of the California independent clinical laboratory
testing market, or more than twice the annual sales of the next largest
independent clinical laboratory in California. On a pro forma basis, for the
nine months ended September 30, 1999, we would have generated revenue of $232.0
million.
We operate our fully integrated collection and processing system 365 days a
year, 24 hours a day. Patient specimens are collected daily from clients'
offices or our own collection stations known as patient service centers.
Specimens are then transported to either full-service or short turn around time
("STAT") laboratories. STAT laboratories are local facilities where we can
quickly perform an abbreviated line of routine tests for customers that require
emergency or time-sensitive testing services. Once the specimens are received
at the laboratories, each specimen and related test request form is checked for
completeness, bar coded and entered into our computer system for testing and
billing purposes. Laboratory technicians then perform the requested tests, with
results generally available to clients the next morning electronically.
The clinical laboratory testing industry is essential to America's health
care delivery system because physicians must rely on accurate testing
information to properly assess and remedy their patients' health conditions. We
believe that the U.S. clinical laboratory testing market accounts for
approximately 3%, or approximately $30 billion, of the nation's total annual
healthcare expenditures. The clinical laboratory testing industry in the United
States is composed of three segments: (1) laboratories located in hospitals,
(2) laboratories located in physicians' offices and laboratories owned by
physicians and (3) independent clinical laboratories. Our management believes
that the California clinical laboratory testing market is approximately $4.0
billion in size and is the largest in the nation. Despite significant industry
consolidation, the clinical laboratory testing market nationally, and
particularly in California, remains highly fragmented. We directly compete in
the approximately $1.2-$1.4 billion independent clinical laboratory testing
sector within California.
Competitive Strengths
We attribute our leading position in the California independent clinical
laboratory testing market and our significant opportunities for continued
profitable growth to the following competitive strengths:
Market Leader in California. We are the largest independent clinical
laboratory testing company in California with a market share of approximately
25%, more than twice that of our next largest competitor. Our strong regional
presence and reputation for superior customer service and support make us the
preferred provider of laboratory testing services to physicians and other
customers seeking superior patient access and service reliability. We currently
serve approximately 40,000 customers and has approximately 150 managed care
contracts, covering approximately 3.8 million managed care lives.
Superior Regional Infrastructure. Our fully integrated and expansive field-
service network gives us a unique competitive advantage in California's
clinical laboratory testing market by offering greater geographic coverage and
convenience to our clients and their patients. We currently operate more
client-support facilities than any of our competitors in California. Now that
the integration of Bio-Cypher is substantially completed, we operate three
full-service laboratories (in Los Angeles, San Jose and Sacramento),
approximately 305 conveniently located patient service centers and 40
strategically located STAT laboratories. Our 420 courier routes and 36 courier
hubs will continue to provide rapid collection, processing and distribution
services to clients. We assess the characteristics of each geographic territory
to customize professional service routes that
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ensure proper specimen collection and report distribution which enable us to
offer highly effective services to the different needs of rural and high
traffic urban areas in California.
Low Cost Provider. We enjoy cost advantages gained through economies of scale
and efficient processes. Our management believes our cost per specimen is the
lowest in the California market. We have created a fully integrated collection,
testing, distribution and operating system which is characterized by a high
degree of operating leverage, allowing us to expand testing capacity at a very
low incremental cost. Meris and Bio-Cypher historically had average costs per
specimen of approximately $43.00 and $27.00, respectively. Following the
acquisitions, Meris has, and Bio-Cypher is expected to have, average costs per
specimen of approximately $21.00 and $16.00, respectively. Our management
expects these average cost per specimen reductions to generate annual cost
savings of approximately $45 million. Our management believes that we have the
capacity to process approximately 60,000 specimens per day, allowing an
increase of approximately 32.0% over the current level of 45,600 specimens per
day, without the need for significant additional operating expenses or capital
expenditures. This operating leverage should enable us to experience cash flow
growth while achieving our market share growth objectives.
Comprehensive Testing Services. We are able to provide our customers with
"one-stop-shopping" by offering a full spectrum of testing services to the
medical community. We perform approximately 99% of ordered tests, including
most esoteric tests, in-house. The balance is referred to subcontracted
specialty laboratories. We maintain a policy of expanding our testing menu only
when there is sufficient volume and economic justification. Accordingly,
favorable partnering relationships with several other laboratories facilitate
our ability to optimize our in-house test menu under a "make versus buy" cost-
based analysis. We believe that new testing procedures such as amplified DNA
probes for chlamydia and gonorrhea testing and emerging cytology (PAP smear)
technology offer two examples of possible additional future revenue growth from
technology. Conversion from non-amplified to amplified probes not only provides
for more specific and definitive test results, but also provides for a higher
level of reimbursement. Conversion to the newer emerging PAP smear technology
provides similar benefits both to the patient and to us. Our management
believes that increased marketing support of both of these new technologies
will have a positive effect on future revenue.
Reputation for Quality. Clinical laboratory testing is an essential element
in the delivery of quality healthcare service because physicians use laboratory
tests to assist in detecting, diagnosing, evaluating, monitoring and treating
diseases and other medical conditions. Approximately 70% of total healthcare
expenditures in the United States are determined on the basis of laboratory
test results. We employ a quality assurance program for all of our laboratories
and facilities designed to ensure that specimens are collected and tested, and
client, patient and test information is reported, billed and filed in a timely
and accurate manner. Each of our three full-service laboratories has earned
full accreditation by the College of American Pathology. Over the past four
years, our accuracy rates, as determined by the College of American Pathology,
have increased from 99.2% in 1994 to over 99.5% in 1998. Our management
believes that our accuracy rates are among the highest in the industry.
Proven and Committed Management Team with Substantial Local Market
Knowledge. We have a proven management team with extensive experience in the
California clinical laboratory testing industry, including significant
expertise in identifying, effecting and integrating acquisitions within the
California market. We have strengthened our existing management team with the
addition of Robert E. Whalen, who became our President and Chief Executive
Officer on November 23, 1999. Mr. Whalen was previously an Executive Vice
President of Laboratory Corporation of America and National Health
Laboratories. Mr. Whalen has over 20 years of experience in the clinical
laboratory testing industry, with over 10 of those years in California. David
C. Weavil, our former Chairman, President and Chief Executive Officer, is
expected to continue to have an active role in management and planning and will
remain Chairman. Our five most senior executives collectively have over 80
years of clinical laboratory testing experience. Moreover, approximately 70% of
our 200 employees in supervisory or managerial roles have been employed at our
company for five years or more. With the completion of the recapitalization,
our management team owns or have the opportunity to acquire through a stock
option plan up to 15% of our common stock.
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Business Strategy
Our overall goal is to continue to be recognized as the preeminent
independent clinical laboratory testing organization in California. To
accomplish this goal, we employ the following business strategies:
Maintain Customer Satisfaction through Superior Service Quality. We achieve a
high level of customer satisfaction through superior customer service and seek
to maintain what management believes our reputation as the highest quality
provider of clinical laboratory testing services in California. Our 75-member
sales and service staff is responsible for visiting existing and prospective
accounts regularly to educate them about our capabilities and general
laboratory issues and, in the case of existing accounts, to identify ways to
improve existing services. We also operate a customer service hotline to assist
customers with service issues and billing inquiries. Doctors can receive
patient test results via an automated telephone system 24 hours a day. To
ensure the integrity of our tests, we standardized and automated our
collection, testing and billing processes. Such standardized controls and
techniques include utilizing specialized pouches and preprinted requisition
forms for proper processing, as well as utilizing computer bar coding and log-
in techniques for proper testing and billing. Our goal is to remain the
provider of choice in California and to utilize our established brand name and
reputation for quality to compete on factors other than price.
Continue to Improve Terms of Contracts. We have a company-wide policy to
partner with our customers, especially managed care customers, in an effort to
effect greater correlation between price and service levels based on the
following three strategies: (1) increase "at risk" capitation rates to achieve
greater coverage of incremental testing costs; (2) reduce our incurred costs
that do not add value to patient care and (3) restructure contracts to exclude
some non-core "premium" services, such as PAP smears and esoteric tests, from
the "at risk" capitation rate. For example, we restructured a major contract in
early 1998 by increasing the capitation rate by more than 50%, with an
additional 50% step-up beginning in 1999. In addition, we passed all expenses
associated with six supporting STAT laboratories and 10 patient service centers
to the customer, expenses which would have previously been included in the
capitation rate. In 1997, we repriced over 70% of our managed care contracts
with a 50% average increase in pricing and in 1998 repriced 40% of our managed
care contracts with a 30% average increase in pricing. We have established this
partnering approach as a longer-term strategy and have instituted a quarterly
contract-specific review process to achieve this goal.
Grow Market Share through Refocused Sales and Marketing Efforts. We intend to
intensify our sales and marketing activities. We believe there are significant
opportunities to gain market share from other commercial laboratories. To
accomplish this, we intend to have a clearer delineation between sales and
service activities. We also believe there are considerable opportunities to
increase our hospital reference testing business and enter into laboratory
management agreements with hospitals, a segment which is largely unpenetrated
by us. Hospital laboratories account for approximately $2.0 billion of the
approximately $4.0 billion California clinical laboratory testing market. We
will also expand our effort to reduce client turnover through reorganized
sales, service and marketing functions. We intend to dedicate existing sales
force personnel to focus solely on these opportunities.
Maximize Operating Efficiencies. Although we have realized significant
expense reductions over the past two years, management believes there are
significant additional cost savings that can be attained over the near term.
For example, we expect to achieve further cost reductions through test menu
consolidations, continued process and workflow scheduling improvements and
consolidations of patient service centers and STAT laboratories. Our management
also expects to reduce expenses for lab subcontracting, overtime and supplies.
In addition, our management team expects to reduce our bad debt expense through
an increased emphasis on correct billing information.
Pursue Selected Acquisitions. In addition to seeking to maximize internal
growth, we will continue to opportunistically pursue selected acquisition
opportunities. We believes that independent laboratories with annual revenues
of less than $20 million make up over 40% of the California independent
clinical laboratory testing market. We believe that our expansive service
network and operating discipline effectively position us to
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be a logical consolidator within the fragmented California market. In
evaluating potential acquisition targets, we will continue to focus on
financially and ethically sound businesses with one or more of the following
characteristics: overlapping field-service networks for highly synergistic
"fold-in" acquisitions, such as the Meris and Bio-Cypher acquisitions; strong
geographic presence in regions where we may desire to attain greater market
share and quality customer bases possessing favorable pricing characteristics.
The Clinical Laboratory Testing Industry
Overview and Trends
We believe the U.S. clinical laboratory testing market accounts for roughly
3% of the nation's total annual healthcare expenditures, and represents an
estimated $30 billion in annual revenue. The clinical laboratory testing
industry is essential to America's health care delivery system because
physicians must rely on accurate testing information to properly assess and
remedy their patients' health conditions. We believe the California clinical
laboratory testing market is approximately $4.0 billion in size and is the
largest in the nation. We directly compete in the approximately $1.2-$1.4
billion independent laboratory sector within California.
Even after years of industry consolidation, the clinical laboratory testing
market nationally, and particularly in California, is highly fragmented. The
market is composed of three segments: (1) laboratories located in hospitals;
(2) laboratories located in physicians' offices and physician-owned
laboratories; and (3) independent clinical laboratories. Industry sources
estimate that there are currently fewer than 4,500 independent clinical labs
in the United States, with as many as 600 located in California. We believe
that approximately 55% of clinical laboratory testing revenues in California
result from tests performed by hospitals, 15% from tests performed by
physicians in their offices and physician-owned laboratories and 30% from
tests performed by independent laboratories. We believe that the consolidation
trend of the last several years is likely to continue, resulting in fewer
independent clinical labs both nationally and in California. We also believe
that large independent clinical laboratories may be able to increase their
share of the overall clinical laboratory testing market due to their scale,
large service networks and lower cost structure. These advantages should
enable larger clinical laboratories to more effectively serve managed care
organizations and more effectively manage the costs of more stringent
regulatory requirements and more complex billing practices.
Clinical laboratory testing continues to be an integral part of the delivery
of health care services in the United States due to a number of factors,
including:
. the aging of the U.S. population, resulting in increased utilization of
testing services;
. an increase in the number of routine tests and esoteric tests due to
advances in technology and scientific knowledge;
. increased automation in testing procedures due to the development of
highly automated laboratory testing equipment which has resulted in
greater efficiencies in testing operations;
. increased awareness among physicians and the general public concerning
the importance of preventive medicine and early detection; and
. increased use of tests by physicians as protection against potential
malpractice suits.
We believe that there will be further opportunities for independent
laboratories to capture additional market share from hospital and physician
office laboratories because of the cost and service advantages which large
independent laboratories like us have with respect to high volume, non-
emergency testing. The number of clinical laboratories has declined as
physicians have exited the clinical laboratory testing business and
consolidation has occurred in the independent laboratory segment. Also,
certain recent required changes in the billing and collection of Medicare and
Medicaid payments have complicated the billing and collection process and made
such processes more expensive.
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California Market
California is the single largest state clinical laboratory testing market in
the U.S., accounting for approximately 12% of the country's laboratory testing
revenues. We believe that consolidation in California has occurred and will
continue for reasons similar to those which have caused the industry
nationwide to consolidate, such as:
. the cost of compliance with increasingly stringent regulatory
requirements;
. the cost efficiencies afforded by large-scale automation of routine
testing;
. legislative developments, such as restrictions on physician self-
referrals and ownership of laboratories;
. reductions in Medicare and other third-party reimbursements;
. the growth of HMOs and other managed care groups which require efficient
testing services from high-capacity laboratories;
. the increasing demand for sophisticated equipment and management
information systems that tend to be prohibitively expensive for small
laboratories; and
. the competition for a limited supply of qualified laboratory personnel.
We have focused on the California clinical laboratory testing market because
of: (1) its size and density, (2) the high degree of fragmentation and
prospects of continued consolidation and (3) our current leadership position
in the market and the prospects of leveraging this status across the state.
Facilities and Testing
We currently operate three full-service clinical laboratories in San Jose,
Tarzana (Los Angeles) and Sacramento, California which offer over 1,000
clinical testing procedures, ranging from routine screening to advanced
technical procedures, used in the diagnosis, monitoring and treatment of
diseases and other medical conditions. We operate 24 hours a day, 365 days a
year, utilizing a fully integrated collection and processing system. Patient
specimens are collected from client offices or our own collecting stations and
transported to full-service or STAT laboratories, where each specimen and
related test request form is checked for completeness, bar coded and entered
into our computer system for testing and billing purposes. Laboratory
technicians then perform the requested tests, with results generally available
to clients the next morning electronically. Our clinical computer program
keeps track of patients' samples, reports test results and maintains records
and billing information.
Tests performed by us measure the levels of, and analyze chemical and
cellular components in, human body fluids and tissue and are used in the
diagnosis, monitoring and treatment of disease. They include procedures in the
areas of blood chemistry, hematology, urine chemistry, tissue pathology and
cytology, among others. Commonly ordered individual tests include red and
white blood cell counts, PAP smears, blood cholesterol level tests, urinalysis
and procedures to measure blood sugar levels and to determine pregnancy.
Routine test groups include tests to determine the function of the kidney,
heart, liver and thyroid, as well as other organs, and a general health screen
that measures several important body health parameters. Many of the routine
tests are performed by automated equipment and are capable of being performed
and reported within a 24-hour period. Approximately 85% of the tests conducted
by us are considered to be routine. Laboratory technicians perform requested
tests, with results generally available to clients the next morning
electronically. We perform approximately 99% of the tests requested by our
clients, with the remaining 1% performed by third party reference laboratories
with whom we contract. On a revenue basis, approximately 6% of testing fees
collected by us are paid to third party reference laboratories or pathology
services.
We also conduct esoteric testing services. Esoteric tests generally require
complex manual techniques, a higher degree of technical skill and knowledge
and sophisticated equipment. As a consequence, esoteric tests are priced
higher than routine tests. Two examples of esoteric tests provided by us
include immunoelectrophoresis, used for the diagnosis of autoimmune disorders
and myelomas, and hepatitis markers, used for the diagnosis of
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acute hepatitis A and B and for identification of chronic carriers of these
diseases. The number of esoteric tests performed by us has been increasing as
new medical discoveries are made and testing procedures developed.
Now that the integration of Bio-Cypher is substantially completed, we will
operate an extensive distribution and collection system of approximately 420
collection routes, approximately 305 PSCs and approximately 36 courier hubs.
Courier routes are logically designed based on lab location, geographic density
and specimen volume. Strategically located full service labs and satellite
courier "hubs" serve as control centers to ensure courier routing is efficient
and tightly controlled. In addition, PSCs act as initial specimen processing
centers, effectively putting control of the specimen in our possession earlier
in the process. We believe this distribution infrastructure is integral to
providing efficient, convenient and reliable service to our clients.
Customers
We provide testing services to a broad range of health care providers. The
following factors, among others, are often used by health care providers in
selecting a laboratory: (1) service capability and convenience offered by our
facilities, including accessibility of PSCs and local STAT testing
availability; (2) size and scope of testing services performed; (3) accuracy,
timeliness and consistency in reporting test results; (4) reputation in the
medical community and (5) pricing of the laboratory's testing services. Our
primary customer types are described below:
. Physicians and Physician Groups. Physicians performing testing for their
patients who are unaffiliated with a pre-paid health plan are the
principal source of our clinical laboratory testing business. These
physicians often participate in independent physician associations
("IPAs") to achieve greater local recognition and contracting leverage.
When we provide contracted testing services to physicians who belong to
IPAs, we bill the IPA, usually under a capitated arrangement. Otherwise,
services rendered for physicians' non-managed care patients are billed
to various other payors such as insurance, client bill, Medicare or
Medicaid.
. Health Maintenance Organizations and Other Managed Care Groups. HMOs and
other managed care payors, which designate the laboratory to be used for
tests ordered by the physician, represent a substantial portion of our
business. HMOs generally select an independent laboratory based on
competitive pricing offered to high volume customers, capability of the
laboratory to effectively service incremental blocks of business, field
distribution system, including couriers and PSCs to service their
networks of physician providers, and the reputation of the laboratory in
the medical community. We believe that our services more managed care
contracts than any other lab in the California marketplace, and that we
have become a preferred lab services provider to managed care for
several reasons. First, we have a state-wide presence, which gives
managed care clients the ability to partner with one lab subcontractor
that has state-wide coverage, instead of several subcontractors with
limited geographic coverage. Second, our internal cost-efficiencies
allow us to offer competitive pricing to the cost-conscious managed care
community. Third, we possess considerable expertise in addressing the
needs and issues of managed care payors.
. Hospitals. We provide both esoteric testing for hospitals, which often
are not equipped to perform such sophisticated tests, and general
reference testing for hospitals which have reduced or eliminated their
in-hospital laboratory testing in an attempt to reduce their cost of
delivering patient care. The selection of an independent laboratory by
hospitals is usually based on reputation of the laboratory in the
medical community, type of services offered, accuracy, timeliness and
consistency of test results and competitive pricing.
. Independent Laboratories. We also provide reference testing services to
independent clinical laboratories which do not have the full range of
our testing capabilities.
. Clinics. We have arrangements with a broad network of community health
clinics across the state of California that provide preventive health
care and/or medical attention for the lower-income and indigent patient
population (frequently MediCal recipients). Under these arrangements, we
are the primary provider of testing services for patients who choose to
use these clinics.
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We believe that California has the highest enrollment rate--approximately 40%
of the population--in managed care plans of any state in the country and, as a
result, delivery of health care to participants in such plans has become
integral to the health care delivery system throughout the state. The
proliferation of managed care providers in the healthcare industry has altered
the customer base of healthcare service providers, especially in California.
From 1993 to 1994, we more than doubled our number of covered lives--i.e.,
individuals covered by contracts between pre-paid health plans and our company
for the provision of laboratory services--to over 2 million lives. During 1995,
we continued to serve a similar number of covered lives, and during the first
half of 1996, increased our managed care coverage to over 2.5 million lives.
Today, we serve approximately 3.8 million managed care lives. This business had
historically been viewed as having substantial value, in large part because of
the economies of scale inherent in its considerable volume. It was also viewed
as a competitive advantage in obtaining additional non-managed care business
generated from many of the same offices which were serving managed care
patients. Increasingly, like other major laboratory companies, we came to
recognize that the pricing received in relation to the cost of services
provided to managed care patients was disproportionately low, and we undertook
a concerted effort in 1997 to improve the situation. To this end, we
renegotiated contracts with respect to over 70% of the covered lives and
received an average price increase in excess of 50% on those renegotiated
contracts. By year-end 1998, we had once again repriced the capitation rates on
approximately 40% of our managed care lives at an average increase of greater
than 30%. For the first six months of 1999, we have repriced approximately 12%
of our managed care lives at an average increase of approximately 50%. Some of
these contracts have been restructured to exclude some non-core "premium"
services, such as PAP smears and esoteric tests from the "at risk" capitation
rate.
Payors
Tests in the clinical laboratory industry are often billed to a party other
than the physician or patient. We receive reimbursement for our services from
five sources including third party payors such as insurance companies, managed
care providers and Medicare and MediCal as well as direct payors such as
physicians, hospitals, employers and patients.
The following table set forth ranges indicating the estimated contribution of
each of our principal payor categories to our total specimen volume and our
total clinical laboratory revenue for the year ended December 31, 1998, after
giving effect to the Meris and Bio-Cypher acquisitions.
<TABLE>
<S> <C>
Specimen Volume as % of Total Volume:
Managed care-capitated............................................. 30%-35%
Medicare and Medicaid.............................................. 20%-25%
Monthly bill (physician, hospital, employer, other)................ 20%-25%
Third party fee-for-service........................................ 15%-20%
Patients........................................................... 1%-5%
Revenue as % of Total:
Managed care-capitated............................................. 10%-15%
Medicare and Medicaid.............................................. 25%-30%
Monthly bill (physician, hospital, employer, other)................ 10%-15%
Third party fee-for-service........................................ 30%-35%
Patients........................................................... 10%-15%
</TABLE>
Quality Assurance
We believe that our procedures meet or exceed the highest standards in the
industry. We have established comprehensive quality assurance programs for all
of our laboratories and other facilities to ensure that specimens are collected
and transported properly, tests are performed accurately, and client, patient
and test information are reported, billed and filed correctly. Our quality
assurance programs include:
. preventive maintenance of laboratory testing equipment;
. maintenance of high personnel standards and training which require that
only qualified personnel perform testing;
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. rigorous utilization of control specimens in order to ensure accuracy
and precision of test equipment; and
. a tightly managed collection and distribution network.
In addition, all laboratories certified by the Health Care Financing
Administration ("HCFA") for participation in the Medicare program under the
Clinical Laboratory Improvement Amendments of 1988 ("CLIA"), such as our, must
participate in basic quality assurance programs. Each of our laboratories is
licensed or has licensure pending with its respective state authorities and is
also certified by HCFA for participation in the Medicare program under CLIA.
In addition, we participate in a number of independent proficiency testing
programs. Participation in a federally recognized proficiency testing program
is a requirement of CLIA. Under these programs, an independent testing
authority submits pre-tested samples to a laboratory. These tests measure the
laboratory's test results against known proficiency test values. We also
participate in a number of proficiency programs conducted both by us on our own
and in conjunction with groups such as the College of American Pathologists
("CAP"), and state and Federal government regulatory agencies. CAP is an
independent non-governmental organization of board certified pathologists which
offers an accreditation program to which laboratories can voluntarily
subscribe. The CAP accreditation program involves both on-site inspections of
the laboratory and participation in CAP's proficiency testing program for all
categories in which the laboratory is accredited by CAP. Each of our full-
service laboratories in Sacramento, San Jose and Tarzana has earned full
accreditation by CAP. In the 1998 External Proficiency Testing Program
conducted by CAP at our three primary laboratories, the total accuracy rate for
all sections of the laboratories was 99.5%, consistent with the 1997 accuracy
rate of 99.5%, which has increased steadily since the 1994 cumulative accuracy
rate of 99.2%.
Regional Operations, Sales, Service and Marketing
As of September 30, 1999 our sales and service organization was comprised of
approximately 75 full-time sales and service employees. Sales representatives
are primarily responsible for executing focused sales initiatives established
within their regions, while service representatives are primarily responsible
for account retention and enhancing client relations, although they also have
defined selling responsibilities. We intend to more clearly delineate between
the sales and service functions. In addition, incentive compensation will be
aligned to more closely reflect either sales or service responsibilities so
that sales and service employees will specialize in their respective
disciplines. Incentive compensation paid on new sales generation, achieved by
either sales or service representatives, is designed to recognize the cost of
supporting new business and reward dedication to client support and client
retention.
Our marketing department is committed to promoting our mission of maintaining
high quality and cost-effective laboratory services that are responsive to the
values and needs of patients and physicians. We promote this mission and our
other initiatives through the creation and targeted dissemination of marketing
materials to clients and prospects by our sales and service representatives (as
well as our couriers). More specifically, our marketing initiatives and
materials address four distinct objectives:
. Enhance medical community awareness of our full spectrum of services;
. Promote and sell new services and technological advances;
. Educate clients on regulatory and compliance issues that will affect the
medical community; and
. Address customer needs and concerns about new testing procedures.
These marketing initiatives are prioritized through a collaborative effort
among senior management, sales and service employees and other relevant
departments.
Acquisitions
We have had a history of successfully acquiring and integrating companies in
the clinical laboratory testing industry in California. Over the past five
years, we have successfully acquired and integrated five
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companies in the clinical laboratory industry, including Meris in the past
year. We completed the integration of our most recently acquired company, Bio-
Cypher, in the third quarter of 1999. These acquisitions have accounted for a
substantial portion of our growth. We believe our acquisitions of substantially
all of the assets of Meris and Bio-Cypher have increased our market share from
approximately 15% to approximately 25% of California's independent clinical
laboratory testing market.
Competition
The independent clinical laboratory testing industry in the United States and
in California is highly fragmented and is characterized by intense competition.
According to HCFA, there are approximately 4,500 independent clinical
laboratories in the United States, approximately 600 of which we believe are
located in California. These independent clinical laboratories fall into two
separate categories. The first are the smaller, local laboratories that
generally offer fewer tests and services and have less capital than the larger
laboratories. These laboratories seek to differentiate themselves by
maintaining a close working relationship with their physician clients by
providing a high level of personal and localized services.
The second group, which includes laboratories such as our, consists of the
larger regional or national laboratories that provide a broader range of tests
and services. In California, our two largest independent clinical laboratory
competitors are Quest Diagnostics Incorporated and Laboratory Corporation of
America. Quest recently acquired SmithKline Beecham Clinical Laboratories,
Inc., which had been one of our principal competitors. We believe that we
currently have approximately a 25% share of the California independent clinical
laboratory testing market, more than twice that of our nearest competitor. We
expect to gain market share from hospital laboratories in the coming years. The
hospital laboratory segment accounts for approximately one half of the $4.0
billion California clinical laboratory testing market and is characterized by a
large number of primarily cost center laboratories that operate with low
volumes and quick turn around times.
We compete primarily on the basis of the following: (1) service capability
and convenience offered by our facilities, including accessibility of PSCs and
local STAT testing availability; (2) size and scope of testing services
performed; (3) accuracy, timeliness and consistency in reporting test results;
(4) reputation in the medical community and (5) pricing of the laboratory's
testing services. Competition for qualified personnel is also intensifying as
statutory requirements for the licensing of personnel become more stringent. We
believe that our extensive California facilities provide easy access to our
clients and quick reporting of results at competitive prices. It is expected
that we will be able to continue to provide the full range of required testing,
either through our own testing capabilities or by utilizing outside reference
testing services contracted from third parties.
Information Systems
Effective information systems are a key component of our continued growth and
success. The clinical laboratory testing industry has embraced technology to
continually improve the level of service to our clients. The complexity of our
business requires that we constantly evaluate our systems to ensure that they
provide the tools required to deliver laboratory results and bills in a timely
manner.
We are a company that evolved from a series of mergers and acquisitions. We
realized early on that disparate systems for core business processes across our
three regional laboratories would be a barrier to consistent client service. In
the mid-1990s, we undertook a strategy to establish a standard platform for
both the laboratory and billing systems in the company. All our regional
laboratories have been running the Antrim Lab Information System since 1996.
Antrim is a specimen tracking, test result and instrument interface laboratory
system which is prevalent throughout the industry and provides a flexible
platform to interface current and future laboratory instruments. In addition,
the Antrim system provides our clients with the tools they require to deliver
the best quality medicine for patients. We believe that Antrim offers us the
flexibility to address new technologies and features as improved testing and
new delivery options become available in the market.
We have selected the SYS billing system. In October 1998, we converted the
last regional laboratory to SYS and now all regions are running versions of
this system. By selecting this system, we can now better
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control bill submission and compliance-related issues and now has the ability
to produce programs and make changes that can be run at all locations. We are
confident that billing policies are consistent across the company.
We are running year 2000 compliant software for both the Antrim and SYS
systems. For more information on our year 2000 issues, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000."
We recently signed an agreement with Healtheon Corp., a company that provides
medical information over the Internet. We believe this contract will put us in
the forefront of the clinical laboratory testing market by allowing clients to
order lab work over the Internet. We expect that this contract will ultimately
increase the volume of work ordered electronically, increase the accuracy of
billing information, and thereby have a positive impact on our profitability.
Billing
Billing for laboratory services is complicated. Laboratories must bill
various payers, such as patients, insurance companies, Medicare, Medicaid,
doctors and employer groups, all of whom have different requirements.
Most of our bad debt expense is the result of several non-credit related
issues, primarily missing or incorrect billing information on requisitions. We
perform the requested tests and reports test results regardless of incorrect or
missing billing information. We subsequently attempt to obtain any missing
information and rectify incorrect billing information received from the health
care provider. Missing or incorrect information on requisitions slows the
billing process, creates backlogs of unbilled requisitions and generally
increases the aging of accounts receivable. Among many other factors
complicating billing are:
. pricing differences between our fee schedules and those of the payers;
. disputes between payers as to which party is responsible for payment;
. disparity in coverage among various carriers; and
. auditing for specific compliance policies and procedures.
Ultimately, if all issues are not resolved in a timely manner, the related
receivables are charged to the allowance for doubtful accounts.
Employees
As of September 30, 1999, we employed approximately 3,215 employees, none of
whom were under union contract. We believe that our relations with employees
are good.
Properties
Our corporate headquarters are located in leased offices at 18448 Oxnard
Street, Tarzana, California 91356. Our major regional laboratories are located
in the following metropolitan areas: Los Angeles (Tarzana), California; San
Jose, California; and Sacramento, California. In May 1999, we acquired the
lease for Bio-Cypher's main laboratory facility in Sacramento. Similar to
Meris, we recently closed that facility and integrated the testing from that
facility into one of our existing laboratories.
We lease our laboratory facilities and PSCs. All of the major laboratory
facilities have been built or improved for the purpose of providing clinical
laboratory testing services. We believe our facilities are suitable, adequate
and have sufficient production capacity for our operations as currently
conducted and as anticipated to be conducted. We believe that if we lost the
lease on any of our PSCs or STAT laboratories, we could find alternate space at
competitive market rates and relocate our operations to such new locations
without disruption.
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However, if we lost our lease on any of our three main laboratory facilities,
we could experience a temporary disruption in our operations until such time as
we relocate to a new facility.
Now that the integration of the Bio-Cypher acquisition is substantially
completed, we operate approximately 305 PSCs and 40 STAT laboratories. PSCs are
typically approximately 900 square feet in size and accommodate one to two
phlebotomists (technicians who draw blood), draw chairs, supplies and other
office materials. STAT laboratories are typically 3,000 square feet in size.
STAT laboratories typically accommodate about 8 personnel and contain a limited
amount of equipment to perform high volume, low cost and quick turn around time
tests such as glucose monitoring, pregnancy and complete blood count ("CBC")
blood tests, among others.
Governmental Regulation
Numerous aspects of our operations, including our testing processes, business
practices and in some instances, the amount and methods by which we are paid,
are subject to governmental regulation at the Federal, state and/or local
levels.
Federal and State Clinical Laboratory Licensing
All clinical laboratories operating in the United States, with limited
exceptions, are required to obtain Federal certification pursuant to CLIA and
its implementing regulations. The law and its implementing regulations impose,
as conditions for such certification, requirements relating to test processes,
personnel qualifications, facilities and equipment, record keeping, quality
control, quality assurance and participation in proficiency testing. The same
regulatory requirements also apply as conditions for participation in the
Medicare and Medicaid programs. CLIA regulations vary depending on the
complexity of the methodologies performed by the laboratory. Compliance is
verified by periodic on-site inspections. Sanctions for failure to meet
CLIA/Medicare certification requirements include suspension or revocation of
certification, criminal penalties, injunctive actions to close the laboratory,
civil penalties or imposition of specific plans of correction to remedy alleged
deficiencies.
Licensing requirements similar to those imposed pursuant to CLIA also apply
at the state level, with similar sanctions for noncompliance. In 1999
California received deemed equivalency status under CLIA, which is formal
recognition by the federal government that California quality requirements meet
or exceed CLIA levels. Notwithstanding compliance costs, we regard these
licensing requirements as beneficial to the industry and favorable to our
business because the CLIA certification requirements apply not only to
independent laboratories but to all clinical laboratories, with only narrow
exceptions for those facilities performing a limited number of simple
procedures. Additionally, in California specific proficiency testing
participation is required for those laboratories, like us, that perform testing
to detect the presence of the human immunodeficiency virus ("HIV").
Federal and State Billing and Fraud and Abuse Laws
General. The Federal Medicare laws impose specific billing requirements on
clinical laboratories and a wide array of Medicare/Medicaid fraud and abuse
provisions apply to those clinical laboratories participating in these
programs, including us. These laws prohibit, among other things, the submission
of false claims or false information to the programs, deceptive or fraudulent
conduct, the provision of excessive or unnecessary services or services at
excessive prices and the offer or receipt of broadly defined inducements for
the referral of Medicare, Medicaid or other federal health care program
patients or business. Penalties for violations of these Federal laws include
exclusion from participation in the Medicare/Medicaid programs, asset
forfeitures, civil penalties and criminal penalties. Civil penalties for a wide
range of offenses may be up to $10,000 per item and treble the amount claimed.
In the case of certain severe offenses, exclusion from participation in
Medicare and Medicaid is a mandatory penalty. These fraud and abuse provisions
are interpreted liberally and enforced aggressively by the various enforcing
agencies of the federal government.
Governmental Oversight. Several Federal agencies are charged with the
responsibility of investigating allegations of fraudulent and abusive conduct
by health care providers. These agencies include, without
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limitation, the Department of Justice ("DOJ"), Federal Bureau of Investigation
("FBI") and the Office of Inspector General ("OIG") of the Department of Health
and Human Services ("HHS"). Additionally, Medicare carriers and Medicaid state
agencies now have certain fraud and abuse control authority. According to
public statements by the DOJ, health care fraud has been elevated to the
second-highest priority of the DOJ, and FBI agents have been transferred from
investigating counterintelligence activities to health care provider fraud. The
OIG has been and continues to be actively involved in such investigations and
has targeted certain laboratory practices for study, investigation and
prosecution. These practices include, without limitation, (1) offering packages
of tests to physicians (referred to as "panels" or "profiles" of tests) and
"unbundling" them into several tests to obtain higher reimbursement; (2)
"upcoding" tests to realize higher reimbursement than appropriate; (3) offering
inducements to physicians (for example, providing free fax machines or
computers, free lab services to the physician, his family and staff, and the
collection of hazardous waste from the physician's office without charge) in
order to induce the physician to refer testing business (including business for
Medicare or Medicaid patients) to the lab; (4) charging for tests not actually
performed and (5) duplicate billing. Such projects culminated during the 1990's
in the industry-wide governmental "LabScam" investigations that have resulted
in approximately $800 million of aggregate settlement payments being made by a
number of independent clinical labs in the past several years. The LabScam
investigation appears to be ongoing and HHS and HCFA have announced several
anti-fraud initiatives in 1999. The 1999 HCFA anti-fraud initiative responds in
part to a recent OIG report estimating that, in 1998, 7% of Medicare claims
were billed improperly or erroneously.
Federal Legislation and Regulation. A Federal "self-referral" law commonly
referred to as the "Stark" law prohibits Medicare payments for laboratory tests
referred by physicians who, personally or through a family member, have a
financial interest, including "ownership interests" and "compensation
arrangements," in the testing laboratory. Sanctions for laboratory violations
of the prohibition include denial of Medicare payment, refunds, civil money
penalties of up to $15,000 for each service billed in violation of the
prohibition and exclusion from the Medicare program. Legislations relating to
Stark law have been proposed in Congress, but not yet adopted, which could
narrow the scope of the law's applicability.
In 1996, Congress passed and the President signed into law HIPAA, frequently
referred to as the "Kennedy-Kassebaum Act", after its principal Senatorial
sponsors. The law made major changes in federal fraud and abuse laws applicable
to health care providers. It established a new federal program designed to
coordinate federal, state and local fraud and abuse control programs. The law
permitted the DOJ and the OIG to conduct audits and investigations relating to
the delivery of health care in the United States, without limitation to
Medicare and Medicaid, and established a Fraud and Abuse Trust Fund. In May
1999, HCFA announced the engagement of a number of non-governmental health care
audit organizations to assist the government in tracking and collecting
fraudulent billings for healthcare services. HIPAA also expanded the federal
anti-kickback law so that it applies not only to situations involving Medicare
and Medicaid, but to almost all federally funded health care programs. In
addition, the law for the first time permits providers to obtain advisory
opinions from the government concerning the legality of certain contemplated
practices under the anti-kickback law; the OIG published regulations
implementing this advisory opinion mandate in February 1997 and amended those
regulations in 1998. The Kennedy-Kassebaum law also significantly increased the
penalties for certain civil violations of the Medicare law and increased the
types of offenses for which a provider could be excluded from
Medicare/Medicaid. Finally, the law established a number of new criminal
provisions applicable to health care fraud.
The Balanced Budget Act of 1997 ("BBA '97") contains numerous changes in
Medicare/Medicaid fraud and abuse provisions. BBA '97 requires permanent
exclusion from Medicare and Medicaid for persons convicted of three health
care-related crimes and a 10-year exclusion period for persons convicted of
certain offenses who have one previous conviction. The statute permits the
Secretary of HHS to refuse to enter into Medicare participation agreements with
individuals or entities that have been convicted of felonies. In addition, BBA
'97 expands the reach of Medicare/Medicaid civil money penalties to apply to
persons who arrange or contract with excluded persons for the provision of
covered services. Further, the statute includes a provision
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permitting civil money penalties of up to $50,000 per violation for certain
specified types of violations, plus damages equal to three times the total
amount offered, paid, solicited or received, for violations of the
Medicare/Medicaid anti-kickback statute. Finally, BBA '97 requires the
Secretary of HHS to issue advisory opinions regarding potential violations of
the Stark law prohibiting Medicare/Medicaid physician self-referral for
designated health services other than laboratory testing services.
It should be noted that, among the many federal provisions available to
enforcement authorities in connection with health care offenses, an especially
potent remedy is exclusion from Medicare, Medicaid and other federal health
care programs. Particularly significant is the permissive exclusion authority
of the OIG, the principal threat that has brought many clinical laboratories to
the settlement table in the LabScam operation. In December 1997, the OIG
released non-binding guidelines indicating the criteria it will use in making
permissive exclusion decisions. These criteria address the circumstances and
seriousness of the offense, the defendant's response to allegations, the
likelihood of reoccurrences of the same or similar offenses, and whether the
provider can continue participating in federal health care programs without a
real threat of bankruptcy or to its ability to provide quality care.
State Legislation and Regulation. At the state level, laboratory operations
are affected by billing requirements applicable to all laboratory testing
services and state fraud and abuse and anti-inducement laws that similarly
apply to all laboratory testing services. California, where we conduct almost
all of our business, has adopted especially stringent laws of this type,
including an expansive anti-referral law that is even broader than the federal
law (Ca. Bus. Prof. Code ss.650) and the Physician Ownership and Referral Act,
known as the "Speier Bill", which became effective January 1, 1995 and which
prohibits, under most circumstances, referrals of clinical laboratory testing
business by physicians to laboratories in which the physician has a "financial
interest". Penalties for violation of these provisions can include fines,
criminal penalties and disciplinary action against referring physicians. In
addition, California has adopted the "Calderon" law, which prohibits physicians
from "marking up" laboratory bills for lab services the physician did not
perform. We believe the Calderon law benefits independent laboratories by
reducing the financial incentives for physician-owned laboratories.
Governmental Investigations of Unilab. In August 1993, we received a subpoena
from HHS in connection with an investigation and internal review relating to
the possible submission of false or improper claims under the Medicare and
Medicaid programs. The HHS subpoena required production of a broad range of
documents, including those relating to our selling, pricing and billing
practices. The HHS subpoena concerned fourteen tests, including five tests that
were the subject of our civil claims settlements. See "Legal Proceedings--
Department of Justice Settlement". We completed production of these documents
in February 1994. We did not hear anything further on the matter thereafter.
In August 1995, we received a subpoena from HHS requesting certain
information with respect to our marketing and billing practices for CBC, a
diagnostic test which was not included in any prior subpoena of any of the
settlements entered into by us in September 1993 (the "Settlements"). See,
"Legal Proceedings--Department of Justice Settlement". We promptly completed
production of all documents in response to the HHS subpoena and cooperated
fully in the HHS investigation. We reached an agreement with the Federal
government in September 1996 to pay $4.0 million to conclude this
investigation. In addition, in October 1996, we paid the California MediCal
program approximately $160,000 to settle all their claims regarding the same
issue. The settlements did not constitute an admission by us with respect to
any allegation, issue of law or fact arising from the investigation and we
received a full civil and administrative release from all claims by the
government with respect to these billings through the date of the settlement
agreement.
In May 1999 we learned of a new federal investigation under the False Claims
Act relating to our billing practices for the following four test procedures:
(1) apolipoprotein in conjunction with coronary risk panel assessments; (2)
microscopic evaluation in conjunction with urinalysis; (3) performance of T7
index in conjunction with T3 and T4 tests; and (4) fragmenting billing of
unlisted panel codes. We are in the process of gathering and voluntarily
submitting documentation to the DOJ regarding the two tests with respect to
which the
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DOJ has requested information about. We cannot at this time assess what the
result of the investigation might be. Remedies available to the government
include civil and criminal penalties and exclusion from participation in
federal health care programs such as Medicare and Medicaid. Application of
these remedies could have a material adverse effect upon our business,
financial condition, results of operations or prospects.
Our Compliance Program. In recent years, it has been OIG's practice to
require labs that enter into government settlements with respect to marketing
and billing practices to enter into corporate integrity agreements ("CIA").
Under the CIA, the lab is required to adopt and comply with various procedures
for implementing a compliance program, including training programs, preparation
of policy and procedure manuals and dissemination of educational materials to
the workforce. OIG in 1997 proposed and publicly disseminated a Model
Compliance Plan, which it revised slightly in 1998, to serve as guidance for
laboratory compliance programs.
We were not required to enter into a CIA when we reached two government
settlements in 1993 and 1996. However, we have voluntarily adopted a compliance
program that substantially meets the guidelines described in the Model
Compliance Plan. We have established a Compliance Committee, comprised of our
senior officers. The Compliance Program is run under the supervision of the
Chief Compliance Officer, who reports directly to the Chief Executive Officer.
The Chief Compliance Officer updates the Board of Directors on compliance
matters on a regular basis.
In November 1998, we acquired substantially all of the assets of Meris
Laboratories, Inc. At that time, Meris had a CIA with the OIG arising from the
settlement of claims against Meris asserted by the United States in connection
with its LabScam investigations. As part of our purchase of the Meris assets
and in lieu of assuming the Meris CIA, we voluntarily entered into an agreement
with the OIG entitled "Compliance Program Disclosure Agreement" (the "Unilab-
Meris/OIG Agreement"). Pursuant to this Agreement we will maintain our hotline,
undertake special billing audits of the former Meris facilities, obtain new
CLIA certifications and provider numbers for the former Meris facilities, and
provide certain information to the OIG. The Unilab-Meris/OIG Agreement will
last until February 28, 2000.
In May 1999, we acquired substantially all of the assets of Bio-Cypher
Laboratories. Bio-Cypher, like Meris, was party to a CIA with the OIG,
resulting from a prior settlement of claims against Bio-Cypher arising from the
LabScam investigation. In connection with our acquisition of Bio-Cypher's
assets, and in lieu of assuming Bio-Cypher's CIA obligations, in June 1999, we
again voluntarily entered into a Compliance Program Disclosure Agreement (the
"Unilab-Bio-Cypher/OIG Agreement"). The Unilab-Bio-Cypher/OIG Agreement is
substantially similar to the Unilab-Meris/OIG Agreement and will last until
August 9, 2001.
Reimbursement
Medicare reimbursement for clinical laboratory testing services is made
pursuant to Medicare fee schedules, subject to a national limitation amount
("cap") that is based upon the median of all the Medicare fee schedules. From
the late 1980s to the 1990s, the cap on Medicare reimbursement dropped from
115% to 74% of the median of all the Medicare fee schedules. BBA '97 provides
for a freeze on fee schedule payments for 1998 through 2002. The President's
FY2000 budget proposed a reduction of the Medicare fee schedule caps to 72% of
the laboratory fee schedule medians, beginning January 1, 2000, but Congress
did not accept this proposal. In addition, an expert panel considering changes
in Medicare has proposed reinstatement of beneficiary cost sharing for
diagnostic clinical laboratory services provided to Medicare patients, although
it is not known whether the full Medicare Commission will agree to this
proposal or whether any congressional action will be taken with regard to it.
To date, Congress has not adopted any proposed legislation regarding
beneficiary cost sharing.
CPT Coding. Current Procedural Terminology ("CPT") codes form the basis for
the coding of tests billed to Medicare and Medicaid, as well as to some third-
party payors, and, thus, coding changes may substantially affect reimbursement
levels. CPT codes are periodically revised by the AMA. One of the areas of the
CPT code revision that has most affected laboratory reimbursement levels is a
change in the codes that designate panel and profile tests, so that numerous
panel codes have been eliminated entirely and those
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remaining have been given specific definitions for constituent tests for the
first time. This coding change reduced our laboratory reimbursement and the
clinical laboratory testing industry generally. Other codes have been
eliminated or superseded by new codes, and codes have been added for new,
previously uncoded procedures.
A substantial CPT revision effective as of April 1, 1998 included numerous
new and revised individual and panel test codes affecting several laboratory
specialties. The most significant changes again concern panel codes. The 1998
CPT revision replaced the 19 pre-existing multichannel chemistry profile codes
with four "clinically relevant" test panels. Effective April 1, 1998, HCFA
directed that laboratories could no longer bill Medicare for the multichannel
chemistry profiles, but must use the new "clinically relevant" panels
exclusively. This change appears to have had an adverse effect on revenues and
operating costs of the clinical laboratory testing industry, including our
company. Further changes were made in the CPT manual for 1999, including an
expansion by one test of one of the "clinically relevant" panels. It is
currently unclear what affect, if any, this change will have on us.
Environmental Compliance
As with all clinical laboratories, each of our laboratories must comply with
the provisions of numerous federal, state and local statutes and regulations
relating to public health and the environment, including: practices and
procedures regarding the proper storage and labeling of hazardous and toxic
materials or other substances associated with the operation of clinical
laboratories and the proper management of medical waste, hazardous waste and
low-level radioactive waste generated by operation of clinical laboratories;
public disclosure requirements regarding certain hazardous and toxic materials
or other substances associated with the operation of clinical laboratories;
employee training and notification; environmental protection requirements, such
as standards relating to the discharge of pollutants into the air, water and
land; emergency response and remediation or cleanup in connection with
hazardous and toxic materials or other substances associated with operation of
clinical laboratories; operation and remediation, if necessary, of underground
storage tank sites; the removal, encapsulation or disturbance of asbestos-
containing materials when such materials are in poor condition or in the event
of construction, remodeling, renovation or demolition of a building; and other
safety and health standards.
As regulated entities, our facilities are subject to compliance
investigations from numerous governmental agencies. From time to time, such
inspections have resulted in a notice of violation being issued to a laboratory
in connection with certain regulatory requirements, e.g. labeling of regulated
substances. In each such case, we have responded to the inspecting agency and
the alleged violation has been addressed without the imposition of substantial
fines or penalties. We are not aware of any past or present violation which we
believe could have a material adverse effect on us or our financial conditions
or results of operations.
Legal Proceedings
We are a party to various legal proceedings arising in the ordinary course of
our business. Although the ultimate disposition of these proceedings is not
determinable, management does not believe that adverse determinations in any or
all of such proceedings will have a material adverse effect upon our financial
condition, liquidity or results of operations.
In November 1999, we reached a settlement with a group of thirteen insurance
companies regarding claims by the insurance companies that we over-billed them
in the early to mid-1990s in connection with several chemistry profile tests
that were previously the subject of a settlement agreement with the government.
We paid $600,000 in the settlement. Such amount has been reflected as a charge
in the statement of operations for the second quarter of 1999. Since 1993, we
also have entered into settlements with three insurance companies for an
aggregate amount of $825,000.
In May of 1999 we learned of a new federal investigation under the False
Claims Act relating to our billing practices for the following four test
procedures: (1) apolipoprotein in conjunction with coronary risk panel
assessments; (2) microscopic evaluation in conjunction with urinalysis; (3)
performance of T7 index in
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conjunction with T3 and T4 tests and (4) fragmenting billing of unlisted panel
codes. We are in the process of gathering and voluntarily submitting
documentation to the DOJ regarding the two tests with respect to which the DOJ
has requested information. We cannot at this time assess what the result of the
investigation might be. Remedies available to the government include civil and
criminal penalties and exclusion from participation in federal health care
programs such as Medicare and Medicaid. Application of these remedies could
have a material adverse effect upon our business, financial condition, results
of operations or prospects.
Department of Justice Settlement
In 1991, the DOJ contacted us concerning an investigation of certain of our
sales, marketing, pricing and billing practices. During 1993, we learned that a
qui tam (whistle blower) complaint had been filed approximately two years
earlier by a former employee.
A qui tam action, under the Federal "whistle blower" statute, is a private
action brought on behalf of the U.S. government in connection with claims for
payments submitted to the U.S. The private individual(s) bringing the qui tam
action may be entitled to 15% to 30% of any amounts recovered as a consequence
of the qui tam action. By law, the DOJ is required to investigate the matters
raised by the qui tam complaint to determine whether to "intervene" (i.e.,
pursue the action itself) or to permit the private plaintiff to pursue the
action.
In September 1993, we entered into settlements pursuant to which we made
payments to the DOJ (the "DOJ Settlement") and to the State of California (the
"California Settlement" and, together with the DOJ Settlement, the
"Settlements") to settle certain civil claims relating to the investigation.
Our portion of the Settlements was approximately $2.7 million, which included
approximately $2.2 million of the DOJ Settlement and the entire $0.5 million
amount of the California Settlement.
By their terms, the Settlements reserved the rights of the government
agencies involved to pursue criminal prosecutions in connection with certain
related claims. Criminal convictions in these matters could have resulted in
mandatory exclusion of our company from Medicare and state health programs,
including Medicaid. In May 1995, we were informed by the DOJ that its criminal
investigation concerning the allegations at issue in the 1993 investigation and
in the Settlements had been closed without prosecution.
The Settlements did not constitute an admission of wrongdoing with respect to
any issue of law or fact arising from the civil action brought on behalf of the
United States, that gave rise to the DOJ investigation. The DOJ Settlement
addressed the U.S. government's contention that we submitted improper Medicare
claims for unnecessary blood tests with respect to five tests (HDL, LDL, TIBC,
PBG and serum ferritin) offered in conjunction with basic blood chemistry
profiles. The California Settlement addressed the State of California's
contention that improper Medicaid claims were submitted with respect to the
same five tests.
The government's allegations involved a series of laboratory tests conducted
at the time on a "sequential multiple analysis computer" ("SMAC") for which
Medicare reimbursed laboratories on a flat fee basis for any 19 or more blood
chemistry tests. The government alleged that some or all of the five tests that
were the subject of the investigation were added routinely to the SMAC for a
"nominal" additional price or as part of annual across-the-board price
increases to the physicians, while the fact that Medicare and Medicaid would be
billed separately for each test at retail prices often was not revealed to the
doctors. The government contended that as a result of this marketing approach,
some doctors ordered blood chemistry profiles (which covered the SMAC plus the
additional tests) even if they needed only the SMAC, not realizing that the
additional tests were being billed to Medicare and Medicaid.
We have historically made available to our clients test profiles which
provide the choice of incorporating as few or as many of these additional tests
in the basic blood chemistry profile as our physician-clients feel appropriate
for a full diagnostic evaluation. Notwithstanding such policy, the government
contended that it was not made sufficiently clear to physician-clients the
financial consequences to the Medicare program of their
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choice in ordering such tests as "add-ons" to the basic blood chemistry
profile, thereby resulting in physicians' ordering certain of these tests, and
Medicare or Medical, as the case may be, being billed for such tests, when not
medically necessary.
While the Settlements did not require any specific changes to policies or
practices with regard to these tests, we nevertheless have re-emphasized to our
clients the financial consequences to them and to third party payors of their
laboratory test choices.
CHAMPUS Settlement
In February 1994, as part of a joint settlement with MetPath related to the
same activities that were the subject of the 1993 DOJ Settlement, a payment of
$1.1 million was made by MetPath to the Office of Civilian Health and Medical
Program of the Uniformed Services ("CHAMPUS") to settle all civil claims of
CHAMPUS against MetPath and our company with respect to the same issues and
same five tests that were the subject of the DOJ Settlement and California
Settlement. Our portion of such payment was approximately $25,000, with the
remainder being paid by MetPath. As with the DOJ Settlement and California
Settlement, the CHAMPUS settlement included a reservation of rights with
respect to certain criminal prosecutions which could result in mandatory
exclusion of our company from Medicare and State health programs should any
criminal convictions result. The CHAMPUS settlement, however, does not
constitute an admission by us of any wrongdoing with respect to any issue of
law or fact arising from the civil action brought by the U.S. government that
gave rise to CHAMPUS' inquiry. We were informed in May 1995 of the government's
closure of its criminal inquiry without prosecution.
HHS Subpoenas
In August 1993, we received a subpoena from HHS in connection with an
investigation and internal review relating to the possible submission of false
or improper claims under the Medicare and Medicaid programs. The HHS subpoena
required production of a broad range of documents, including those relating to
our selling, pricing and billing practices. The HHS subpoena concerned fourteen
tests, including the five tests that were the subject of the civil claims
Settlements. We completed production of these documents in February 1994. Other
independent clinical laboratories received similar requests for production as
part of the industry-wide LabScam investigation of certain practices in the
clinical laboratory testing industry. In July 1994, we were informed that
jurisdiction for this investigation had been transferred to the United States
Attorney's Office in Newark, New Jersey. In May 1995, we were informed by the
DOJ that its criminal investigation concerning the allegations at issue in the
1993 HHS subpoena and in the Settlements had been closed without prosecution.
In August 1995, we received a subpoena from HHS requesting certain
information with respect to our marketing and billing practices for a CBC, a
diagnostic test which was not included in any prior subpoena or the subject of
any of the Settlements. We promptly completed production of all documents in
response to the HHS subpoena and cooperated fully in the HHS investigation. We
reached an agreement with the Federal government in September 1996 to pay $4.0
million to conclude this investigation. In addition, in October 1996 we paid
the California Medical program approximately $160,000 to settle all their
claims regarding the same CBC issue. The settlement did not constitute an
admission by us with respect to any allegation, issue of law or fact arising
from the investigation and we received a full civil and administrative release
from all claims by the government with respect to these billings through the
date of the settlement agreement.
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MANAGEMENT
The following table sets forth certain information regarding the directors,
executive officers and key management personnel of our company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David C. Weavil......... 48 Chairman of the Board
Robert E. Whalen........ 57 President, Chief Executive Officer and Director
Brian D. Urban.......... 37 Executive Vice President, Chief Financial Officer and Treasurer
Mark L. Bibi............ 41 Executive Vice President, Secretary and General Counsel
Ian J. Brotchie......... 59 Executive Vice President and Division President, Unilab Northern California
R. Jeffrey Lanzolatta... 46 Executive Vice President and Division President, Unilab Southern California
C. Michael Hanbury...... 35 Senior Vice President, Chief Scientific Officer
Paul T. Wertlake........ 63 Vice President, Chief Medical Officer
Michael B. Goldberg..... 52 Director
David I. Wahrhaftig..... 42 Director
</TABLE>
David C. Weavil served as Chairman, President and Chief Executive Officer of
Unilab from January 1997 to November 1999. Effective as of the
recapitalization, Mr. Weavil serves only as Chairman of the Board. He served
as Executive Vice President of Laboratory Corporation of America Holdings
("LabCorp") from the April 1995 merger of Roche Biomedical Laboratories, Inc.
("RBL") and National Health Laboratories, Inc. ("NHL"), which created LabCorp,
until December 1996. He was additionally appointed Chief Operating Officer of
LabCorp in September 1995. Previously, Mr. Weavil served as Senior Vice
President and Chief Operating Officer of RBL from 1989 to April 1995. From
1988 through 1989, Mr. Weavil was Regional Senior Vice President-Mid-Atlantic
of RBL. Prior to that, he served as Senior Vice President and Chief Financial
Officer of RBL from 1982 to 1988.
Robert E. Whalen was appointed President, Chief Executive Officer and a
director of Unilab effective as of the recapitalization. From May 1997 to
September 3, 1999, Mr. Whalen served as Executive Vice President and, from
September 1998 to September 3, 1999, as Chief Operating Officer of Scripps's
Clinic, a 320-physician multi-specialty medical group located in Southern
California. From the April 1995 merger of RBL and NHL until August 1996, Mr.
Whalen served as Executive Vice President of LabCorp. Prior to his employment
at LabCorp, Mr. Whalen held various senior level positions with NHL, which he
joined in 1976. He served as Executive Vice President of NHL from 1993 to
1995, as Senior Vice President from 1991 to 1993 and as Vice President--
Administration from 1985 to 1993. From 1979 to 1985, he was Vice President--
Division Manager of NHL. At NHL and later LabCorp, Mr. Whalen oversaw human
resources, client service and major regional laboratories in California,
Washington, Nevada and Utah. Mr. Whalen was a member of the management
committee at NHL and LabCorp.
Brian D. Urban has been Executive Vice President, Chief Financial Officer
and Treasurer of Unilab since May 1998. He served as Vice President, Chief
Financial Officer and Treasurer from September 1997 to April 1998. He was Vice
President and Controller of Unilab from November 1993 to September 1997. Mr.
Urban served as Assistant Controller of Unilab from October 1992 to November
1993. He was Manager of External Reporting of MetPath from July 1992 to
October 1992. Prior thereto, Mr. Urban was senior audit manager at Price
Waterhouse where he worked from November 1986 to July 1992.
Mark L. Bibi has been Executive Vice President, Secretary and General
Counsel of Unilab since May 1998. He served as Vice President, Secretary and
General Counsel from June 1993 through April 1998. Mr. Bibi was with the New
York City law firm of Schulte Roth & Zabel from May 1989 through June 1993.
Prior thereto, he was with the law firm of Sullivan & Cromwell, New York, New
York, from August 1985 to April 1989.
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Ian J. Brotchie has been Executive Vice President and Division President of
Unilab Northern California since May 1998. He served as Division President of
Unilab Northern California from August 1997 to April 1998. He was Division
President of Unilab San Jose from February 1994 to August 1997. He was
President of Associated Laboratories, Inc. from November 1991 to September
1995. Mr. Brotchie served as President of Lab Concepts Inc. from February 1990
to November 1991. Prior thereto, Mr. Brotchie served as Business Development
Director with SmithKline Bio-Science Laboratories in Dublin, California from
January 1989 to February 1990.
R. Jeffrey Lanzolatta has been Executive Vice President and Division
President of Unilab Southern California since May 1998. He served as Division
President of Unilab Southern California from July 1996 to April 1998. He was
Senior Vice President, Sales and Marketing of Unilab Southern California from
December 1994 to July 1996. He served as Vice President, Sales and Marketing
for Unilab from November 1993 to December 1994. He served as Vice President,
Sales and Marketing of MetWest from January 1993 to November 1993. Prior
thereto Mr. Lanzolatta served as Regional Vice President and General Manager of
MetWest's Southern California operations from July 1990 to December 1992. From
April 1990 to June 1990, Mr. Lanzolatta served as Director of Sales and
Marketing for MetWest's Northern California operations. Mr. Lanzolatta was Vice
President, Business Development of International Clinical Laboratories' Western
Operations from July 1985 through January 1989.
C. Michael Hanbury, Ph.D., Senior Vice President and Chief Scientific
Officer, has been with Unilab since April 1998. Prior to joining Unilab, from
April 1996 to April 1998, Dr. Hanbury managed Regulatory Affairs for Roche
Diagnostics, Inc., an international diagnostic company representing their
interests to the US Food and Drug Administration for a variety of molecular
diagnostic tests for infectious disease. Prior thereto, Dr. Hanbury served from
September 1994 to March 1996 as National Technical Director of an international
clinical diagnostic manufacturer and as a clinical chemist for Roche Biomedical
Labs from April 1988 to September 1994. Dr. Hanbury is a registered clinical
pathologist with over 14 years experience in laboratory testing services and in
vitro diagnostic manufacturing.
Paul T. Wertlake, M.D., has been Vice President and Chief Medical Officer of
Unilab since January 1994. Since October 1989, Dr. Wertlake has served as the
Senior Medical Officer for Southern California and Medical Director of our
Tarzana laboratory. Prior thereto, Dr. Wertlake has served in the academic,
hospital and reference laboratory sectors.
Michael B. Goldberg has been a Managing Director of Kelso since October 1991
and became a director of Unilab effective as of the recapitalization. Mr.
Goldberg served as a Managing Director and jointly managed the merger and
acquisitions department at The First Boston Corporation from 1989 to May 1991.
Mr. Goldberg was a partner at the law firm of Skadden, Arps, Slate, Meagher &
Flom from 1980 to 1989. Mr. Goldberg is a director of Consolidated Vision
Group, Inc., Endo Pharmaceuticals, Inc., Hosiery Corporation of America, Inc.
and Netspeak Corporation. Mr. Goldberg is also a director of the Phoenix House
Foundation and the Woodrow Wilson Council.
David I. Wahrhaftig has been a Managing Director of Kelso since April 1998.
Mr. Wahrhaftig has been affiliated with Kelso since 1987, and became a director
of Unilab effective as of the recapitalization. Mr. Wahrhaftig also serves as a
director of Consolidated Vision Group, Inc., Endo Pharmaceuticals, Inc. and
Humphreys, Inc.
Arrangements with Messrs. Whalen and Weavil
Whalen Employment Agreement. We expect to enter into an employment agreement
with Robert E. Whalen effective as of the time of his appointment as President
and Chief Executive Officer.
Weavil Employment Agreement and Consulting Agreement. We entered into an
employment agreement with David C. Weavil on January 20, 1997 to serve as
Chairman of the Board, President and Chief Executive Officer of Unilab.
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With the completion of the UC Acquisition merger, Mr. Weavil's employment
agreement was terminated and we entered into a five-year consulting agreement
with Mr. Weavil. Pursuant to this agreement, Mr. Weavil is entitled to an
annual consulting fee of $220,000, a seat on the board of directors and
options to purchase common stock of our company on terms that are
substantially similar to the options granted to our management and our other
employees following the merger. Mr. Weavil also received a bonus of $400,000.
We also entered into a non-competition agreement pursuant to which we
compensated Mr. Weavil for limiting his ability to compete with our company
following the completion of the merger with UC Acquisition.
We have entered into employment agreements with certain other members of our
management team.
Stock Option Plan
Following the recapitalization, we intend to grant to our management and
employees options to purchase shares of our post-merger common stock pursuant
to a new stock option plan. Although the terms of the plan have not been
finalized, we anticipate that options granted initially will have an exercise
price of $5.85 per share, will cover approximately 15% of the post-merger
shares on a primary basis and will consist of two tranches, one of which will
vest over time and one of which will vest subject to various performance
criteria which we will establish.
Other Transactions with Kelso
Under the terms of the merger agreement covering the merger of UC
Acquisition and our company we paid to Kelso a one-time fee of $6 million upon
the completion of the merger. In addition, under the merger agreement, we are
required to do the following:
. pay to Kelso annual financial advisory fees of $600,000;
. reimburse Kelso for its expenses incurred in providing us with financial
advisory services; and
. indemnify Kelso and certain related parties with respect to the
transactions contemplated by the merger, including the financing of the
merger and any services to be provided by Kelso or any related party to
us going forward.
We have already begun paying financial advisory fees to Kelso and have
already reimbursed Kelso for some expenses.
Following the recapitalization, our directors that are affiliated with Kelso
will not receive any compensation for serving on the board.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning each person believed to
be a beneficial owner of more than 5% of the outstanding shares of our common
stock and beneficial ownership of our common stock by each director, named
executive officer and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares Percentage
---------- ----------
<S> <C> <C>
Kelso Investment Associates VI, L.P.(1).............. 18,743,590 72.8%
KEP VI, LLC(1)....................................... 2,901,709 11.3%
Frank T. Nickell(1).................................. (2) (2)
Thomas R. Wall IV(1)................................. (2) (2)
George E. Matelich(1)................................ (2) (2)
Michael B. Goldberg(1)(3)............................ (2) (2)
David I. Wahrhaftig(1)(3)............................ (2) (2)
Frank K. Bynum, Jr.(1)............................... (2) (2)
Philip E. Berney(1).................................. (2) (2)
Robert E. Whalen(4)(5)............................... 50,000 0.2%
Brian D. Urban(4)(6)................................. 50,000 0.2%
All Directors and Executive Officers of Unilab as a
Group (10 persons).................................. 100,000 0.4%
</TABLE>
- --------
(1) The business address for these persons is c/o Kelso & Company, 320 Park
Avenue, 24th Floor, New York, New York 10022.
(2) Messrs. Nickell, Wall, Matelich, Goldberg, Wahrhaftig, Bynum and Berney
may be deemed to share beneficial ownership of shares of common stock
owned of record by Kelso Investment Associates VI, L.P. and KEP VI, LLC,
by virtue of their status as managing members of KEP VI, LLC and the
general partner of Kelso Investment Associates VI, L.P. Messrs. Nickell,
Wall, Matelich, Goldberg, Wahrhaftig, Bynum and Berney share investment
and voting power with respect to the shares of common stock owned by Kelso
Investment Associates VI, L.P. and KEP VI, LLC but disclaim beneficial
ownership of such shares.
(3) Messrs. Goldberg and Wahrhaftig are directors.
(4) Business address: 18448 Oxnard Street, Tarzana, California 91356.
(5) Mr. Whalen is our President and Chief Executive Officer and one of our
directors.
(6) Mr. Urban is our Executive Vice President, Chief Financial Officer and
Treasurer.
Stockholders Agreement
Upon completion of our merger with UC Acquisition, we entered into a
stockholders agreement with the Kelso affiliates which now control us, EOS
Partners, L.P., an affiliate of Pequot Capital LLC, certain additional
investors and members of management. The stockholders agreement contains
various rights and restrictions, including tag-along and drag-along rights,
rights of first refusal and restrictions on transfer, in connection with such
parties' ownership of our equity securities. Under the stockholders agreement,
management and Unilab will also have put and call rights, respectively, with
respect to shares of stock and options held by members of management in event
of termination of employment, including in the event of death, disability or
resignation. Depending on the circumstances of termination, these put and call
rights are exercisable at fair market value, based on an annual appraisal of
our stock, or at cost plus 6% annual interest.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
Upon the terms and subject to the conditions set forth in this prospectus and
in the accompanying letter of transmittal, which together constitute the
exchange offer, we will accept for exchange Old Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used in this prospectus, the term "Expiration Date" means 5:00 p.m.,
New York City time, on , 2000. However, if we, in our sole discretion,
have extended the period of time for which the exchange offer is open, the term
"Expiration Date" means the latest time and date to which we extend the
exchange offer.
As of the date of this prospectus, $155,000,000 aggregate principal amount of
the Old Notes is outstanding. This prospectus, together with the letter of
transmittal, is first being sent on or about , 2000, to all holders of
Old Notes known to us. Our obligation to accept Old Notes for exchange pursuant
to the exchange offer is subject to certain conditions as set forth under "--
Certain Conditions to the Exchange Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any Old Notes, by giving oral or written notice of
such extension to the holders of Old Notes as described below. During any such
extension, all Old Notes previously tendered will remain subject to the
exchange offer and may be accepted for exchange by us. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder as promptly as practicable after the expiration or termination
of the exchange offer.
Old Notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
We expressly reserve the right to amend or terminate the exchange offer, and
not to accept for exchange any Old Notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below under "--Certain Conditions to the Exchange Offer." We will give oral or
written notice of any (1) extension, (2) amendment, (3) non-acceptance or (4)
termination to the holders of the Old Notes as promptly as practicable on the
next business day after the previously scheduled Expiration Date. Such notice
in the case of any extension is to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on such
date.
Procedures for Tendering Old Notes
The tender to us of Old Notes by a holder of Old Notes as set forth below and
acceptance of such tender by us will constitute a binding agreement between the
tendering holder and us upon the terms and subject to the conditions set forth
in this prospectus and in the accompanying letter of transmittal. Except as set
forth below, a holder who wishes to tender Old Notes for exchange pursuant to
the exchange offer must transmit a properly completed and duly executed letter
of transmittal, including all other documents required by such letter of
transmittal, to HSBC Bank USA (the "Exchange Agent") at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date. In addition,
the Exchange Agent must receive:
. certificates for such Old Notes along with the letter of transmittal; or
. prior to the Expiration Date, a timely confirmation of book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility"), pursuant
to the procedure for book-entry transfer described below; or
. the holder must comply with the guaranteed delivery procedures described
below.
The method of delivery of Old Notes, letters of transmittal and all other
required documents is at your election and risk. If such delivery is by mail,
we recommend that you use registered mail, properly insured, with return
receipt requested. In all cases, you should allow sufficient time to assure
timely delivery. You should not send letters of transmittal or Old Notes to us.
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Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee, and who wishes to
tender, should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the letter of transmittal and delivering such
owner's Old Notes, either (1) make appropriate arrangements to register
ownership of the Old Notes in such owner's name or (2) obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange are
tendered:
. by a registered holder of the Old Notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
. for the account of an Eligible Institution (as defined below).
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a financial institution--including most banks,
savings and loan associations and brokerage houses--that is a participant in
the Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program
(collectively, "Eligible Institutions"). If Old Notes are registered in the
name of a person other than a signer of the letter of transmittal, the Old
Notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by us in our sole discretion, duly executed by the registered
holder with the signature on such Old Notes guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by us in our sole discretion. This determination shall be final and binding. We
reserve the absolute right to reject any and all tenders of any particular Old
Notes not properly tendered or to not accept any particular Old Note which
acceptance might, in our judgment or our counsel's judgment, be unlawful. We
also reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular Old Notes either before
or after the Expiration Date, including the right to waive the ineligibility of
any holder who seeks to tender Old Notes in the exchange offer. The
interpretation of the terms and conditions of the exchange offer as to any
particular Old Notes either before or after the Expiration Date, including the
letter of transmittal and the instructions to such letter of transmittal, by us
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as we shall determine. Neither we,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney. In either case, such Old Notes
must be signed exactly as the name or names of the registered holder or holders
appear on the Old Notes.
If the letter of transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
us, proper evidence satisfactory to us of their authority to so act must be
submitted.
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By tendering, each holder will represent to us that, among other things, (1)
the New Notes acquired pursuant to the exchange offer are being obtained in the
ordinary course of business of the person receiving such New Notes, (2) whether
or not such person is the holder, and (3) that neither the holder nor such
other person has any arrangement or understanding with any person to
participate in the distribution of the New Notes. In the case of a holder that
is not a broker-dealer, each such holder, by tendering, will also represent to
us that such holder is not engaged in and does not intend to engage in a
distribution of the New Notes. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of ours, or is
engaged in, or intends to engage in, or has an arrangement or understanding
with any person to participate in, a distribution of such New Notes to be
acquired pursuant to the exchange offer, such holder or any such other person
(1) could not rely on the applicable interpretations of the staff of the
Commission and (2) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus that meets the requirements of
the Securities Act in connection with any resale of such New Notes. The letter
of transmittal states that by so acknowledging and by delivering such a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the Expiration Date, all Old Notes properly
tendered, and will issue the New Notes promptly after acceptance of the Old
Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes of
the exchange offer, we shall be deemed to have accepted properly tendered Old
Notes for exchange when, as and if we have given oral or written notice to the
Exchange Agent, with written confirmation of any oral notice to be given
promptly after giving such notice.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from November 20, 1998. Accordingly, registered holders of New Notes
on the relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from September 28, 1999. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the exchange offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the exchange offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of (1) certificates for such Old Notes, or a timely Book-
Entry Confirmation of such Old Notes, into the Exchange Agent's account at the
Book-Entry Transfer Facility, (2) a properly completed and duly executed letter
of transmittal and (3) all other required documents.
If any tendered Old Notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer, or if Old Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted
or non-exchanged Old Notes will be returned without expense to the tendering
holder of such Old Notes, or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry procedures described below, such non-exchanged Old
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility, as promptly as practicable after the expiration or termination of the
exchange offer.
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Book-Entry Transfer
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the letter of transmittal or a facsimile of such
letter of transmittal, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to, and received by, the
Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the Expiration Date or there has been compliance with the guaranteed
delivery procedures described below.
Guaranteed Delivery Procedures
If a registered holder of the Old Notes desires to tender such Old Notes and
(1) the Old Notes are not immediately available, or time will not permit such
holder's Old Notes, or (2) other required documents to reach the Exchange Agent
before the Expiration Date, or (3) the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if:
. the tender is made through an Eligible Institution;
. prior to the Expiration Date, the Exchange Agent received from such
Eligible Institution a properly completed and duly executed letter of
transmittal, or a facsimile of such letter of transmittal, and Notice of
Guaranteed Delivery, substantially in the form provided by us, by
facsimile transmission, mail or hand delivery, (a) setting forth the
name and address of the holder of Old Notes and the amount of Old Notes
tendered, (b) stating that the tender is being made thereby, and (c)
guaranteeing that within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by
the letter of transmittal will be deposited by the Eligible Institution
with the Exchange Agent; and
. the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and all
other documents required by the letter of transmittal, are received by
the Exchange Agent within three NYSE trading days after the Expiration
Date.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address or, in the case of Eligible
Institutions, at the facsimile number, set forth below under""--Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice
of withdrawal must:
. specify the name of the person having tendered the Old Notes to be
withdrawn (the "Depositor");
. identify the Old Notes to be withdrawn, including the certificate number
or numbers and principal amount of such Old Notes;
. contain a statement that such holder is withdrawing his election to have
such Old Notes exchanged;
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such Old Notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the Trustee with respect to the Old Notes
register the transfer of such Old Notes in the name of the person
withdrawing the tender; and
. specify the name in which such Old Notes are registered, if different
from that of the Depositor.
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If Old Notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Old Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility, including
time of receipt, of such notices will be determined by us, whose determination
shalt be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
exchange offer. No New Notes will be issued with respect to the exchange offer
unless the Old Notes so withdrawn are validly retendered. Any Old Notes that
have been tendered for exchange, but which are not exchanged for any reason,
will be returned to the holder of such Old Notes without cost to such holder,
or, in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Notes will be credited to an
account maintained with the Book-Entry Transfer Facility for the Old Notes, as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. Properly withdrawn Old Notes may be retendered by following the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to 5:00 p.m., New York City time, on the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes and may terminate or amend the exchange offer, if at any time before the
acceptance of such Old Notes for exchange or the exchange of the New Notes for
such Old Notes, any of the following events shall occur:
. there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (1) seeking to
restrain or prohibit the making or consummation of the exchange offer or
any other transaction contemplated by the exchange offer, or assessing
or seeking any damages as a result of such transaction, or (2) resulting
in a material delay in our ability to accept for exchange or exchange
some or all of the Old Notes pursuant to the exchange offer; or any
statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
exchange offer or any of the transactions contemplated by the exchange
offer by any government or governmental authority, domestic or foreign,
or any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or
foreign, that in our sole judgment might directly or indirectly result
in any of the consequences referred to in clauses (1) or (2) above or,
in our sole judgment, might result in the holders of New Notes having
obligations with respect to resales and transfers of New Notes which are
greater than those described in the interpretation of the Commission
referred to above, or would otherwise make it inadvisable to proceed
with the exchange offer; or
. there shall have occurred:
(1) any general suspension of or general limitation on prices for, or
trading in, securities on any national securities exchange or in
the over-the-counter market;
(2) any limitation by a governmental agency or authority which may
adversely affect our ability to complete the transactions
contemplated by the exchange offer;
(3) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States or any limitation by any
governmental agency or authority which adversely affects the
extension of credit; or
(4) a commencement of a war, armed hostilities or other similar
international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the
time of the commencement of the exchange offer, a material
acceleration or worsening of such calamities; or
. any change, or any development involving a prospective change, shall
have occurred or be threatened in our business, properties, assets,
liabilities, financial condition, operations, results of operations or
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prospects and those of our subsidiaries taken as a whole that, in our sole
judgment, is or may be adverse to us, or we shall have become aware of
facts that, in our sole judgment, have or may have adverse significance
with respect to the value of the Old Notes or the New Notes; which in our
sole judgment in any case, and regardless of the circumstances, including
any action by us, giving rise to any such condition, makes it inadvisable
to proceed with the exchange offer and/or with such acceptance for exchange
or with such exchange.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition, or may be
waived by us in whole or in part at any time and from time to time in its sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any Old Notes tendered, and no
New Notes will be issued in exchange for any such Old Notes, if at such time
any stop order shall be threatened or in effect with respect to the
Registration Statement of which this prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
Exchange Agent
HSBC Bank USA has been appointed as the Exchange Agent for the exchange
offer. All executed letters of transmittal should be directed to the Exchange
Agent at the address set forth below. Questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
HSBC Bank USA, Exchange Agent
By Mail: By Hand or By Overnight Courier:
HSBC Bank USA HSBC Bank USA
140 Broadway, level A 140 Broadway, level A
New York, NY 10005 New York, NY 10005
Attention: Paulette Shaw Attention: Paulette Shaw
For Information Call:
(212) 658-5931
By Facsimile Transmission (for Eligible Institutions only):
(212) 658-2292
Attention: Corporate Trust Operations
Confirm by Telephone:
(212) 658-5931
If you deliver the letter of transmittal to an address other than as set
forth above or transmission of instructions via facsimile other than as set
forth above, then such delivery or transmission does not constitute a valid
delivery of such letter of transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the exchange offer. The estimated cash expenses to be incurred
in connection with the exchange offer will be paid by us. We estimate these
expenses in the aggregate to be approximately $500,000.
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Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated to pay
any related transfer taxes, except that holders who instruct us to register New
Notes in the name of, or request that Old Notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer taxes.
Consequences of Exchanging or Failing to Exchange Old Notes
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the exchange offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend on such
Notes as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. As discussed below in
"Exchange offer; Registration Rights," we do not currently anticipate that we
will register Old Notes under the Securities Act.
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties, we believe that New Notes issued
pursuant to the exchange offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders of such Old Notes, other
than any such holder which is an "affiliate" of ours within the meaning of Rule
405 under the Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with any person to participate in
the distribution of such New Notes. However, the Commission has not considered
the exchange offer in the context of a no-action letter. There can be no
assurance that the staff of the Commission would make a similar determination
with respect to the exchange offer as in such other circumstances. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and
does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any holder is an affiliate of ours, is engaged in or intends to engage in or
has any arrangement or understanding with respect to the distribution of the
New Notes to be acquired pursuant to the exchange offer, such holder (1) could
not rely on the applicable interpretations of the staff of the Commission and
(2) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-
dealer that receives New Notes for its own account in exchange for Old Notes
must acknowledge that such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and that it will
deliver a prospectus in connection with any resale of such New Notes. In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification, with which there has been compliance, is
available. See "Plan of Distribution."
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DESCRIPTION OF NEW CREDIT FACILITY
The new credit facility provides for the following:
(1) a six year $50.0 million A term loan to be drawn at closing to
finance in part the recapitalization and certain related costs and
expenses, and to refinance certain existing debt of our company
(2) a seven year $110.0 million B term loan to be drawn at closing to
finance in part the recapitalization and certain related costs and
expenses, and to refinance certain existing debt of our company; and
(3) a six year $25.0 million revolving credit facility, of which $2.9
million may be drawn at closing to finance part of the recapitalization and
which may include letters of credit (subject to a sub-limit to be
determined), to be used for, among other things, general corporate purposes
including working capital.
The A and B term loans will amortize in quarterly amounts based on the annual
amounts shown below:
<TABLE>
<CAPTION>
A Term Loan B Term Loan
----------- -----------
(dollars in thousands)
<S> <C> <C>
Fiscal Year 1999..................................... $ -- $ 275
Fiscal Year 2000..................................... 1,250 1,100
Fiscal Year 2001..................................... 5,625 1,100
Fiscal Year 2002..................................... 8,125 1,100
Fiscal Year 2003..................................... 10,625 1,100
Fiscal Year 2004..................................... 13,125 1,100
Fiscal Year 2005..................................... 11,250 26,675
Fiscal Year 2006..................................... -- 77,550
------- --------
Total.............................................. $50,000 $110,000
======= ========
</TABLE>
Deutsche Bank Securities Inc. has acted as lead arranger, Bankers Trust
Company has acted as administrative agent and Merrill Lynch Capital Corporation
has acted as co-arranger and syndication agent for the syndicate of lenders
providing the new credit facility.
Subject to certain limited exceptions, the new credit facility requires
mandatory repayments and mandatory reductions thereunder with the proceeds from
(1) assets sales, (2) the issuance of debt and preferred stock, (3) insurance
and condemnation claims, (4) annual excess cash flow and (5) any payments from
the Kelso affiliates and other investors pursuant to the equity investment
described in the penultimate paragraph of this section. Voluntary prepayments
of the new credit facility are permitted at any time, subject to certain notice
requirements and to the payment of certain losses and expenses suffered by the
lenders as a result of the prepayment of Eurodollar Loans (as defined in the
new credit facility) prior to the end of the applicable interest period.
The new credit facility bears interest at the sum of the (1) applicable
margin and (2) at our option, either the "Base Rate" (as defined in the new
credit facility) or the "Eurodollar Rate" (as defined in the new credit
facility). The Base Rate is the higher of (1) the rate that Bankers Trust
Company announces from time to time as its prime lending rate, as in effect
from time to time and (2) one-half of 1% in excess of the overnight federal
funds effective rate as published by the Federal Reserve Bank of New York. The
applicable interest margin is initially a percentage per annum equal to (1) in
the case of the A term loan and revolving loans maintained as (a) Base Rate
Loans (as defined in the new credit facility), 2.125%, and (b) Eurodollar
Loans, 3.125% and (2) in the case of the B term loan maintained as (a) Base
Rate Loans, 2.875%, and (b) Eurodollar Loans, 3.875%, in each case subject to
adjustments to be determined based on certain levels of financial performance.
With respect to Eurodollar Loans, (1) we may elect interest periods of 1, 2,
3 or 6 months and (2) interest is payable in arrears at the earlier of (a) the
end of an applicable interest period and (b) quarterly. With respect to Base
Rate Loans, interest is payable quarterly on the last business day of each
fiscal quarter. In each case,
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calculations of interest is based on a 360-day year and actual days elapsed.
Additionally, we are to pay a commitment fee in an amount equal to 0.50% per
annum on the daily average unused portion of the new credit facility, subject
to adjustments to be determined based on certain levels of financial
performance.
The new credit facility contains certain covenants, including, without
limitation, restrictions on:
. debt and liens;
. the sale of assets;
. mergers, acquisitions and other business combinations;
. voluntary prepayment of certain of our debt (including the Notes);
. transactions with affiliates;
. capital expenditures; and
. loans and investments, as well as prohibitions on the payment of cash
dividends to, or the repurchase on redemption of stock from,
stockholders, and various financial covenants.
The new credit facility contains customary events of default, including
payment defaults, breaches of representations and warranties, covenant
defaults, cross-default and cross-acceleration to certain other debt, certain
events of bankruptcy and insolvency, certain events under the Employee
Retirement Income Security Act of 1974, as amended, material judgments, actual
or asserted failure of any guaranty or security document supporting the new
credit facility to be in full force and effect and change of control of our
company. If such a default occurs, the lenders under the new credit facility
would be entitled to take various actions, including all actions permitted to
be taken by a secured creditor, the acceleration of amounts due under the new
credit facility and requiring that all such amounts to be immediately paid in
full.
All obligations under the new credit facility are jointly and severally
guaranteed by any of our direct and indirect domestic subsidiaries. The debt
under the new credit facility is secured by a pledge of the capital stock of
our subsidiaries, if any (but not to exceed 66 2/3 of the voting stock of
foreign subsidiaries), and a perfected lien and security interest in
substantially all of our assets (tangible and intangible) and those of our
direct and indirect subsidiaries. Our future domestic subsidiaries will be
required to guarantee the new credit facility and to secure such guarantee with
their real property and substantially all of their tangible and intangible
personal property.
If our ratio of net total debt to EBITDA (as defined in a capital call
agreement) for the year 2000 is greater than 5.0 times, the Kelso affiliates
that control our company will be required, pursuant to the capital call
agreement, to make (or cause their designees to make) an equity investment in
our company. The proceeds from the equity investment will be used to retire the
term loans under the new credit facility. To the extent all such proceeds are
not fully used to repay the term loans, the commitment under the revolving
credit facility will be reduced by an amount equal to the remaining proceeds.
The equity investment will be in an amount equal to the lesser of (a) the
amount necessary to cause the ratio of net total debt to EBITDA, after giving
effect to the equity investment, to equal 5.0 times and (b) $50.0 million.
For the purposes of the capital call agreement, net total debt is expected to
consist of our consolidated debt (net of cash and cash equivalents) plus any
debt of another person secured by our assets or those of any of our
subsidiaries and any of our contingent obligations or those of any of our
subsidiaries for debt of another person.
For the purposes of the capital call agreement, EBITDA consists of the sum of
net income; provisions for income taxes; interest expense (including all
commissions, discounts and other fees and charges owed with respect to certain
debt); depreciation expense; amortization expense; extraordinary, unusual or
nonrecurring gains, losses, income or expense and the related tax effects;
other non-cash expenses and certain acquisition-related expenses; less
extraordinary gains. Each of these items is calculated on a consolidated basis.
Under the capital call agreement the ratio of net total debt to EBITDA is
calculated on a pro forma basis in a similar manner to the calculation of the
"Consolidated Fixed Charge Coverage Ratio" in the indenture
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governing the Notes, except that in the case of the pro forma calculation under
the capital call agreement pro forma effect is also given to the closure or
discontinuation of operations of any of our facility as if it had occurred on
the first date of the test period.
The new credit facility and the capital call agreement, including the terms
and conditions described above, is subject to modification, amendment and
waiver by the parties to the respective agreements.
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DESCRIPTION OF THE NOTES
The New Notes will be issued under an indenture (the "Indenture"), dated as
of September 28, 1999, between Unilab Finance Corp. and HSBC Bank USA, as
trustee (the "Trustee"), as supplemented by the supplemental indenture thereto,
dated as of November 23, 1999 (the "Supplemental Indenture"), among Unilab
Finance, the Trustee and Unilab. Pursuant to the Supplemental Indenture, the
obligations of Unilab Finance under the Old Notes and Indenture were assumed by
Unilab upon the consummation of the recapitalization, which occurred on
November 23, 1999. References to the Notes include the New Notes unless the
context otherwise requires.
The following is a summary of the material provisions of the Indenture. It
does not include all of the provisions of the Indenture. We urge you to read
the Indenture because it defines your rights. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the "TIA"). A copy of the
Indenture may be obtained upon request from us and which is filed as an exhibit
to the registration statement to which this prospectus forms a part. You can
find definitions of certain capitalized terms used in this description under
"--Certain Definitions."
The New Notes will be our unsecured obligations, ranking subordinate in right
of payment to all our Senior Debt to the extent set forth in the Indenture.
The Trustee will authenticate and deliver the New Notes for original issue
only in exchange for a like principal amount of Old Notes.
The New Notes will be issued in fully registered form only in denominations
of $1,000 and integral multiples thereof. The Trustee will initially act as
Paying Agent and Registrar for the New Notes. The New Notes may be presented
for registration of transfer and exchange at the offices of the Registrar,
which initially will be the Trustee's corporate trust office. We may change any
Paying Agent and Registrar without notice to holders of the New Notes (the
"Holders"). We will pay principal (and premium, if any) on the New Notes at the
Trustee's corporate office in New York, New York. At our option, interest may
be paid at the Trustee's corporate trust office or by check mailed to the
registered address of Holders.
No service charge will be made for any transfer, exchange or redemption of
New Notes, except in certain circumstance for any tax or other governmental
charge that may be impose in connection therewith.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Notes.
Any Notes that remain outstanding after the completion of the exchange offer,
together with the New Notes issued in connection with the exchange offer, will
be treated as a single class of securities under the Indenture.
Holders of such Additional Notes will have the right to vote together with
Holders of Old Notes and New Notes as one class. No offering of any such
Additional Notes is being or shall be deemed to be made by this prospectus.
Interest on the New Notes will accrue at the rate of 12 3/4% per annum and will
be payable semiannually in cash on each April 1 and October 1 commencing on
April 1, 2000, to the persons who are registered Holders at the close of
business on the and immediately preceding the applicable interest payment date.
Interest on the New Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from and including the
date of issuance. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the exchange offer. Holders of the
Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of interest on such Old Notes otherwise payable on any
interest payment date and record date which occurs on or after the consummation
of the exchange offer.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
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Redemption
Optional Redemption. Except as described below, the Notes are not redeemable
before October 1, 2004. Thereafter, we may redeem the Notes at our option, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on October 1 of
the year set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004.............................................................. 106.375%
2005.............................................................. 104.250%
2006.............................................................. 102.125%
2007 and thereafter............................................... 100.000%
</TABLE>
In addition, we must pay accrued and unpaid interest on the Notes redeemed.
Optional Redemption Upon Equity Offerings. At any time, or from time to
time, on or prior to October 1, 2002, we may, at our option, use the net cash
proceeds of one or more Equity Offerings (as defined below) to redeem up to
35% of the aggregate principal amount of the Notes issued under the Indenture
(including any Additional Notes) at a redemption price equal to 112.75% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided that:
(1) at least 65% of the principal amount of Notes issued under the
Indenture (including any Additional Notes) remains outstanding immediately
after any such redemption; and
(2) We make such redemption not more than 90 days after the
consummation of any such Equity Offering.
"Equity Offering" means a sale of our Qualified Capital Stock, other than
any of our Capital Stock required to be purchased pursuant to the terms of the
Capital Call Agreement.
Selection and Notice of Redemption
In the event that we choose to redeem less than all of the Notes, selection
of the Notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed; or,
(2) on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate.
No Notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the net cash proceeds of an Equity
Offering, the Trustee will select the Notes only on a pro rata basis or on as
nearly a pro rata basis as is practicable (subject to DTC procedures). Notice
of redemption will be mailed by first-class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. On and after the redemption date, interest will cease
to accrue on Notes or portions thereof called for redemption as long as we
have deposited with the Paying Agent funds in satisfaction of the applicable
redemption price.
Escrow of Proceeds and Other Amounts
On September 28, 1999, Unilab Finance entered into an escrow agreement (the
"Escrow Agreement") with HSBC Bank USA, as escrow agent (the "Escrow Agent"),
pursuant to which Unilab Finance deposited with the Escrow Agent the net
proceeds of the offering of the Old Notes and cash or Treasury Securities (as
defined in the Escrow Agreement) (the "Escrowed Property") in an aggregate
amount sufficient to redeem in cash the Old Notes at a redemption price equal
to 101% of the offering price (i.e., 97.268% of the principal amount at
maturity) of the Old Notes plus accrued and unpaid interest to the date of
redemption (the "Initial Deposit").
Upon consummation of our recapitalization, the Escrow Agent released all
Escrowed Property to us.
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Subordination
The payment of all Obligations on or relating to the Notes is subordinated in
right of payment, to the extent described below and in the Indenture, to the
prior payment in full in cash or Cash Equivalents of all Obligations on Senior
Debt (including the Obligations with respect to the New Credit Facility).
Notwithstanding the foregoing, payments and distributions made relating to the
Notes pursuant to the trust described under "Legal Defeasance and Covenant
Defeasance" shall not be so subordinated in right of payment.
The holders of Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations due in respect of Senior Debt
(including interest after the commencement of any bankruptcy or other like
proceeding at the rate specified in the applicable Senior Debt whether or not
such interest is an allowed claim in any such proceeding) before the Holders of
Notes will be entitled to receive any payment or distribution of any kind or
character with respect to any Obligations on, or relating to, the Notes in the
event of any distribution to our creditors:
(1) in a liquidation or dissolution of our company;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the our company or our property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of our assets and liabilities.
We also may not make any payment or distribution of any kind or character
with respect to any Obligations on, or relating to, the Notes or acquire any
Notes for cash or property or otherwise if:
(1) a payment default on any Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior
Debt that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Representative of any Designated Senior Debt.
Payments on and distributions with respect to any Obligations on, or with
respect to, the Notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earliest of (x) the date on
which all nonpayment defaults are cured or waived (so long as no other
event of default exists), (y) 180 days after the date on which the
applicable Payment Blockage Notice is received or (z) the date on which the
Trustee receives notice from the Representative for such Designated Senior
Debt rescinding the Payment Blockage Notice, unless the maturity of any
Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of delivery of such initial
Payment Blockage Notice that in either case would give rise to a default
pursuant to any provisions under which a default previously existed or was
continuing shall constitute a new default for this purpose).
We must promptly notify holders of Senior Debt if payment of the Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above in the event of
our bankruptcy, liquidation or reorganization, Holders of the Notes may recover
less ratably than our creditors who are holders of Senior Debt.
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After giving effect to the Recapitalization and the financing therefor, on a
pro forma basis, and after giving effect to the tendering of 99.6% of the
senior notes in the tender offer, at September 30, 1999, the aggregate amount
of Senior Debt outstanding would have been approximately $166.6 million
(excluding unused commitments of $23.0 million under the New Credit Facility).
Change of Control
Upon the occurrence of a Change of Control, each Holder will have the right
to require that we purchase all or a portion of such Holder's Notes pursuant to
the offer described below (the "Change of Control Offer"), at a purchase price
equal to 101% of the principal amount thereof plus accrued interest to the date
of purchase.
Within 30 days following the date upon which we obtain actual knowledge that
a Change of Control occurred, we must send, by first class mail, a notice to
each Holder, with a copy to the Trustee, which notice shall govern the terms of
the Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 45 days
from the date such notice is mailed, other than as may be required by law or
stock exchange rule (the "Change of Control Payment Date"). Holders electing to
have a Note purchased pursuant to a Change of Control Offer will be required to
surrender the Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Note completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third business
day prior to the Change of Control Payment Date.
Prior to the mailing of the notice referred to above, but in any event within
30 days following the date upon which we obtain actual knowledge of any Change
of Control, we covenant to:
(1) repay in full and terminate all commitments under Indebtedness
under the New Credit Facility and all other Senior Debt the terms of which
require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the New Credit
Facility and all other such Senior Debt and to repay the Indebtedness owed
to each lender which has accepted such offer; or
(2) obtain the requisite consents under the New Credit Facility and
all other Senior Debt to permit the repurchase of the Notes as provided
below.
We shall first comply with the covenant in the immediately preceding
paragraph before we shall be required to repurchase Notes pursuant to the
provisions described below. Our failure to comply with the covenant described
in the immediately preceding paragraph may (with notice and lapse of time)
constitute an Event of Default described in clause (3) but shall not constitute
an Event of Default described in clause (2) under "Events of Default" below.
If a Change of Control Offer is made, there can be no assurance that we will
have available funds sufficient to pay the Change of Control purchase price for
all the Notes that might be delivered by Holders seeking to accept the Change
of Control Offer. In the event that we are required to purchase outstanding
Notes pursuant to a Change of Control Offer, we expect that we would seek third
party financing to the extent we do not have available funds to meet our
purchase obligations. However, there can be no assurance that we would be able
to obtain such financing.
The definition of Change of Control includes a phrase relating to the sale,
lease, exchange or other transfer of "all or substantially all" of our assets.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise definition of the phrase under
applicable law. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the our assets, and therefore it
may be unclear as to whether a Change of Control has occurred and whether the
Holders have the right to require us to repurchase such Notes.
Neither our Board of Directors nor the Trustee may waive the covenant
relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on our ability and our
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Restricted Subsidiaries to incur additional Indebtedness, to grant liens on its
property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of our company, whether favored or
opposed by our management. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Notes, and there can
be no assurance that we or the acquiring party will have sufficient financial
resources to effect such redemption or repurchase. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances,
make more difficult or discourage any leveraged buyout of our company or any of
our Subsidiaries by our management. While such restrictions cover a wide
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
We will comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of Notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the Indenture, we shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached our obligations under the
"Change of Control" provisions of the Indenture by virtue thereof.
Certain Covenants
The Indenture will contain, among others, the following covenants:
Limitation on Restricted Payments. We will not, and will not cause or permit
any of our Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock) on or in
respect our shares of our Capital Stock to holders of such Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any of
our Capital Stock or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, other than the exchange of such
Capital Stock for Qualified Capital Stock; or
(3) make any Investment (other than Permitted Investments) in any
other Person (each of the foregoing actions set forth in clauses (1), (2)
and (3) (other than the exceptions thereto) being referred to as a
"Restricted Payment");
if at the time of such Restricted Payment or immediately after giving
effect thereto:
(i) a Default or an Event of Default shall have occurred and be
continuing; or
(ii) we are not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments made subsequent to
the Issue Date shall exceed the sum of:
(w) 50% of our cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss) earned subsequent to the Issue Date and on or prior to the date
the Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus
(x) 100% of the aggregate net cash proceeds received by us from
any Person (other than our Subsidiary) from the issuance and sale
subsequent to November 23, 1999 and on or prior to the Reference Date
of our Qualified Capital Stock (including Capital Stock issued upon the
conversion of convertible Indebtedness or in exchange for outstanding
Indebtedness but excluding (A) aggregate net cash proceeds from the
sale of our Capital Stock to the extent used to repurchase or acquire
shares of our Capital Stock pursuant to clause (2)(ii) of the next
succeeding paragraph and (B) aggregate net cash proceeds from the sale
of our Capital Stock required by the terms of the Capital Call
Agreement); plus
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(y) without duplication of any amounts included in clause (iii)
(x) above, 100% of the aggregate net cash proceeds of any equity
contribution received by us (excluding any equity contribution required
to be made pursuant to the terms of the Capital Call Agreement) from a
holder of our Capital Stock subsequent to November 23, 1999; plus
(z) to the extent that any Investment (other than a Permitted
Investment) that was made after November 23, 1999 is sold for cash or
otherwise liquidated or repaid for cash, the lesser of:
(a) the net cash proceeds received with respect to such sale,
liquidation or repayment of such Investment (less the cost of such
sale, liquidation or repayment, if any) and
(b) the initial amount of such Investment, but only to the
extent not included in the calculation of Consolidated Net Income.
Any net cash proceeds included in the foregoing clauses (iii)(x) or
(iii)(y) shall not be included in clause (10)(a) or clause (10)(b)
of the definition of "Permitted Investments" to the extent actually
utilized to make a Restricted Payment under this paragraph.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of such dividend or
notice of such redemption if the dividend or payment of the redemption
price, as the case may be, would have been permitted on the date of
declaration or notice;
(2) if no Event of Default shall have occurred and be continuing as a
consequence thereof, the acquisition of any shares our Capital Stock,
either (i) solely in exchange for shares of our Qualified Capital Stock, or
(ii) through the application of net proceeds of a substantially concurrent
sale (other than to our Subsidiary) of shares of our Qualified Capital
Stock;
(3) payments for the purpose of and in an amount equal to the amount
required to permit us to redeem or repurchase shares of our Capital Stock
or options in respect thereof, in each case in connection with the
repurchase provisions under employee stock option or stock purchase
agreements or other agreements to compensate management employees or
payments in respect of any redemption, repurchase, acquisition,
cancellation or other retirement for value of shares of our Capital Stock
or options, stock appreciation or similar securities, in each case held by
our then current or former officers, directors or employees or any of our
Subsidiaries (or their estates or beneficiaries under their estates) or by
an employee benefit plan, upon death, disability, retirement or termination
of employment; provided that such redemptions, repurchases, acquisitions,
cancellations or other retirements pursuant to this clause (3) shall not
exceed $10.0 million in the aggregate after the Issue Date (which amount
shall be increased by the amount of any cash proceeds to us from (x) sales
of our Capital Stock to management employees subsequent to November 23,
1999 and (y) any "key-man" life insurance policies which are used to make
such redemptions or repurchases);
(4) the payment of fees and compensation as permitted under clauses
(1), (14) or (15) of paragraph (c) of the "Limitation on Transactions with
Affiliates" covenant;
(5) so long as no Default or Event of Default shall have occurred and
be continuing, payments not to exceed $100,000 in the aggregate, to enable
us to make payments to holders of our Capital Stock in lieu of issuance of
fractional shares of our Capital Stock;
(6) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof;
(7) Restricted Payments made pursuant to the Merger Agreement; and
(8) the distribution of Capital Stock of any of our Unrestricted
Subsidiary to holders of our Capital Stock.
In determining the aggregate amount of Restricted Payments made subsequent to
November 23, 1999 in accordance with clause (3) of the immediately preceding
paragraph:
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(1) amounts expended (to the extent such expenditure is in the form of
cash or other property other than Qualified Capital Stock) pursuant to
clauses (1) and (3) shall be included in such calculation, provided that
such expenditures pursuant to clause (3) shall not be included to the
extent of cash proceeds received by us from any "key man" life insurance
policies; and
(2) amounts expended pursuant to clauses (2), (4), (5), (6) and (7)
shall be excluded from such calculation.
Limitation on Incurrence of Additional Indebtedness. From and after November
23, 1999, we will not, and will not permit any of our Restricted Subsidiaries
to, directly or indirectly, create, incur, assume, guarantee, acquire, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "incur") any Indebtedness (other than
Permitted Indebtedness); provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time or as a consequence
of the incurrence of any such Indebtedness, we or any Guarantor may incur
Indebtedness if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, our Consolidated Fixed Charge Coverage
Ratio is greater than 2.0 to 1.0 if such incurrence is on or prior to October
1, 2001 and 2.25 to 1 if such incurrence is thereafter.
Limitation on Transactions with Affiliates. (a) From and after November 23,
1999, we will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction or series
of related transactions (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with, or for
the benefit of, any of our Affiliates (an "Affiliate Transaction"), other than
(x) Affiliate Transactions permitted under paragraph (c) below and (y)
Affiliate Transactions entered into on terms that are fair and reasonable to,
and in the best interests of, our company or such Restricted Subsidiary, as the
case may be, as determined in good faith by our Board of Directors; provided,
however, that for a transaction or series of related transactions with an
aggregate value of $5.0 million or more, at our option (i) such determination
shall be made in good faith by a majority of the disinterested members of our
Board of the Directors or (ii) our Board of Directors or any such Restricted
Subsidiary party to such Affiliate Transaction shall have received a favorable
opinion from a nationally recognized investment banking firm that such
Affiliate Transaction is fair from a financial point of view to us or such
Restricted Subsidiary; provided, further, that for a transaction or series of
related transactions with an aggregate value of $15.0 million or more, our
Board of Directors shall have received a favorable opinion from a nationally
recognized investment banking firm that such Affiliate Transaction is fair from
a financial point of view to us or such Restricted Subsidiary.
(b) The foregoing restrictions shall not apply to:
(1) reasonable fees and compensation paid to, and indemnity provided
on behalf of, our officers, directors, employees or consultants or those of
our Subsidiary as determined in good faith by our Board of Directors;
(2) transactions exclusively between or among us and any of our
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by
the Indenture;
(3) transactions effected as part of a Qualified Receivables
Transaction;
(4) any agreement as in effect as of November 23, 1999 or any
amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto so
long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on November 23, 1999;
(5) Restricted Payments permitted by the Indenture;
(6) any Permitted Investment;
(7) transactions permitted by, and complying with, the provisions of
the covenant described under "Merger, Consolidation and Sale of Assets";
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(9) the grant of stock options or similar rights to our employees and
directors and those of our Subsidiaries pursuant to Plans and employment
contracts approved by our Board of Directors;
(10) loans or advances to our officers, directors or employees or
those of our Restricted Subsidiaries not in excess of $5.0 million at any
one time outstanding;
(11) the granting or performance of registration rights under a
written registration rights agreement approved by our Board of Directors;
(12) transactions with Persons solely in their capacity as holders of
our Indebtedness or Capital Stock or the Indebtedness of our Restricted
Subsidiaries, where such Persons are treated no more favorably than holders
of our Indebtedness or Capital Stock or the Indebtedness of our Restricted
Subsidiary generally;
(13) any agreement to do any of the foregoing;
(14) the payment of fees, reimbursements, indemnifications and other
amounts pursuant to any agreements between Unilab and Kelso & Co., L.P.
with respect to the payment of investment banking and annual financial
advisory fees; and
(15) transactions entered into on November 23, 1999 in connection with
the Recapitalization and the financing therefor.
Limitation on Liens. From and after November 23, 1999, we will not, and will
not permit any of our Restricted Subsidiaries to, create, incur, assume or
suffer to exist any Liens (other than Permitted Liens) of any kind against or
upon any of their respective property or assets, or any proceeds, income or
profit therefrom which secure Senior Subordinated Indebtedness or Subordinated
Obligations, unless:
(1) in the case of Liens securing Subordinated Obligations, the Notes
are secured by a Lien on such property, assets, proceeds, income or profit
that is senior in priority to such Liens at least to the same extent that
the Notes are subordinated to Senior Debt; and
(2) in the case of Liens securing Senior Subordinated Indebtedness,
the Notes are equally and ratably secured by a Lien on such property,
assets, proceeds, income or profit.
Prohibition on Incurrence of Senior Subordinated Debt. Neither we nor any
Guarantor will incur or suffer to exist Indebtedness that is senior in right of
payment to the Notes or such Guarantor's Guarantee and subordinate in right of
payment to any other of our Indebtedness or such Guarantor, as the case may be.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. From and after November 23, 1999, we will not, and will not
permit any of our Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on or in respect of
our Capital Stock;
(2) make loans or advances or to pay any Indebtedness or other
obligation owed to us or any of our other Restricted Subsidiary; or
(3) transfer any of its property or assets to us or any of our other
Restricted Subsidiary, except for such encumbrances or restrictions
existing under or by reason of:
(a) applicable law;
(b) the Indenture or encumbrances or restrictions substantially
similar to the encumbrances and restrictions contained in the Indenture
taken as a whole;
(c) non-assignment provisions of any contract or any lease entered
into in the ordinary course of business;
(d) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to us or any of our
Restricted Subsidiary, or the properties or assets of any such
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Person, other than the Person or the properties or assets of the Person
so acquired; provided, however, that such Acquired Indebtedness was not
incurred in connection with, or in anticipation or contemplation of an
acquisition by us or any of our Restricted Subsidiary;
(e) agreements existing on November 23, 1999;
(f) the New Credit Facility;
(g) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien;
(h) restrictions imposed by any agreement to sell assets permitted
under the Indenture to any Person pending the closing of such sale;
(i) any agreement or instrument governing Capital Stock of any
Person that is acquired after the Issue Date;
(j) Indebtedness or other contractual requirements of a Receivables
Entity in connection with a Qualified Receivables Transaction; provided
that such restrictions apply only to such Receivables Entity; or
(k) an agreement effecting a refinancing, replacement or
substitution of Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (b), (d), (e) or (f) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such refinancing, replacement or substitution agreement
are no less favorable to us or the Holders in any material respect as
determined by our Board of Directors than the provisions relating to
such encumbrance or restriction contained in agreements referred to in
such clause (b), (d), (e) or (f).
Limitation on Preferred Stock of Subsidiaries. From and after November 23,
1999, we will not permit any of our Restricted Subsidiaries to issue any
Preferred Stock (other than to us or to a Restricted Subsidiary) or permit any
Person (other than us or a Restricted Subsidiary) to own any Preferred Stock
of any of our Restricted Subsidiary.
Merger, Consolidation and Sale of Assets. We will not, in a single
transaction or a series of related transactions, consolidate with or merge
with or into, or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its assets to, another Person or Persons.
From and after November 23, 1999, we will not, in a single transaction or a
series of related transactions, consolidate with or merge with or into, or
sell, assign, transfer, lease, convey or otherwise dispose of (or cause or
permit any of our Restricted Subsidiary to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of our assets to,
another Person or Persons unless:
(1) either:
(a) we shall be the surviving or continuing corporation of such
merger or consolidation; or
(b) the surviving Person is a corporation existing under the laws
of the United States, any state thereof or the District of Columbia and
such surviving Person shall expressly assume all of our obligations
under the Notes and the Indenture;
(2) immediately after giving effect to such transaction (on a pro
forma basis, including any Indebtedness incurred or anticipated to be
incurred in connection with such transaction and the other adjustments that
are referred to in the definition of "Consolidated Fixed Charge Coverage
Ratio"), we are or the surviving Person is able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance
with the "Limitation on Incurrence of Additional Indebtedness" covenant;
(3) immediately before and immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of
Default shall have occurred and be continuing; and
(4) we have or the surviving entity has, as the case may be, delivered
to the Trustee an officers' certificate and opinion of counsel, each
stating that such consolidation, merger or transfer complies with
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the Indenture, that the surviving Person agrees to be bound thereby and by
the Notes and the Registration Rights Agreement, and that all conditions
precedent in the Indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more of our
Subsidiaries, the Capital Stock of which constitutes all or substantially all
of our properties and assets, shall be deemed to be the transfer of all or
substantially all of our properties and assets.
Notwithstanding the foregoing clauses (1), (2) and (3):
(a) any of our Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to us and
(b) we may merge with an Affiliate that is (x) a corporation that has
no material assets or liabilities and which was incorporated solely for the
purpose of reincorporating us in another jurisdiction or (y) our Restricted
Subsidiary so long as all of our assets and those of our Restricted
Subsidiaries immediately prior to such transaction are owned by such
Restricted Subsidiary and its Restricted Subsidiaries immediately after the
consummation thereof.
The Indenture will provide that upon any consolidation, combination or merger
or any transfer of all or substantially all of our assets in accordance with
the foregoing, the surviving entity shall succeed to, and be substituted for,
and may exercise every right and power of, our company under the Indenture and
the Notes with the same effect as if such surviving entity had been named as
such.
Limitation on Asset Sales. From and after November 23, 1999, we will not, and
will not permit any of our Restricted Subsidiaries to, consummate an Asset Sale
unless:
(1) we or the applicable Restricted Subsidiary, as the case may be,
receive consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of (as
determined in good faith by our Board of Directors);
(2) at least 75% of the consideration received by us or such
Restricted Subsidiary, as the case may be, from such Asset Sale shall be
cash or Cash Equivalents and is received at the time of such disposition;
provided that the amount of (x) any of our or such Restricted Subsidiary's
liabilities (as shown on our or such Restricted Subsidiary's most recent
balance sheet or in the notes thereto) (other than liabilities that are by
their terms subordinated to the Notes and other than liabilities consisting
of Disqualified Capital Stock) (i) that are assumed by the transferee of
any such assets and from which we and a Restricted Subsidiaries are
unconditionally released or (ii) in respect of which neither we nor any of
our Restricted Subsidiary following such sale has any obligation and (y)
any notes or other obligations received by us or such Restricted Subsidiary
from such transferee that are promptly, but in no event more than 60 days
after receipt, converted by us or such Restricted Subsidiary into cash or
Cash Equivalents (to the extent of the cash or Cash Equivalents received),
shall be deemed to be cash for purposes of this provision; and
(3) upon the consummation of an Asset Sale, we shall apply, or cause
such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 365 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt and, in the
case of any Senior Debt or Guarantor Senior Debt under any revolving
credit facility, effect a permanent reduction in the availability under
such revolving credit facility;
(b) to reinvest in Productive Assets; or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
On the 366th day after an Asset Sale or such earlier date, if any, as our or
such Restricted Subsidiary's Board of Directors determines not to apply the Net
Cash Proceeds relating to such Asset Sale as set forth in clauses (3)(a),
(3)(b) and (3)(c) of the immediately preceding sentence (each, a "Net Proceeds
Offer Trigger
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Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(3)(a), (3)(b) and (3)(c) of the immediately preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by us or such Restricted Subsidiary to
make an offer to purchase for cash (the "Net Proceeds Offer") on a date (the
"Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at
a price in cash equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by us or any of our Restricted Subsidiary, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest, dividends or other earnings received with
respect to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10.0 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date
relating to such initial Net Proceeds Offer Amount from all Asset Sales by us
and our Restricted Subsidiaries aggregates at least $10.0 million, at which
time we or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make
a Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $10.0 million or more shall be deemed to be
a "Net Proceeds Offer Trigger Date").
Notwithstanding the immediately preceding paragraphs of this covenant, we and
our Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent that:
(1) at least 75% of the consideration for such Asset Sale constitutes
Productive Assets; and
(2) such Asset Sale is for at least fair market value (as determined
in good faith by our Board of Directors); provided that any consideration
not constituting Productive Assets received by us or any of our Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall constitute Net Cash Proceeds and shall be
subject to the provisions of the two preceding paragraphs; provided, that
at the time of entering into such transaction or immediately after giving
effect thereto, no Default or Event of Default shall have occurred or be
continuing or would occur as a consequence thereof.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering
Holders will be purchased on a pro rata basis (based on amounts tendered). A
Net Proceeds Offer shall remain open for a period of 20 business days or such
longer period as may be required by law. To the extent that the aggregate
amount of Notes tendered pursuant to a Net Proceeds Offer is less than the Net
Proceeds Offer Amount, we may use any remaining Net Proceeds Offer Amount for
general corporate purposes. Upon completion of any such Net Proceeds Offer, the
Net Proceeds Offer Amount shall be reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
Indenture, we shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the "Asset Sale"
provisions of the Indenture by virtue thereof.
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Limitation of Guarantees by Restricted Subsidiaries. We will not permit any
of our Restricted Subsidiaries, directly or indirectly, by way of the pledge of
any intercompany note or otherwise, to assume, guarantee or in any other manner
become liable with respect to any of our Indebtedness (other than: (1)
Permitted Indebtedness of our Restricted Subsidiary; (2) Indebtedness under
Currency Agreements in reliance on clause (5) of the definition of Permitted
Indebtedness; or (3) Interest Swap Obligations incurred in reliance on clause
(4) of the definition of Permitted Indebtedness), unless, in any such case:
(1) such Restricted Subsidiary executes and delivers a supplemental
indenture to the Indenture, providing a guarantee of payment of the Notes
by such Restricted Subsidiary, and
(2) (a) if any such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Senior Debt, the guarantee
or other instrument provided by such Restricted Subsidiary in respect of
such Senior Debt may be superior to such guarantee of the Notes pursuant to
subordination provisions no less favorable to the Holders of the Notes than
those contained in the Indenture and (b) if such assumption, guarantee or
other liability of such Restricted Subsidiary is provided in respect of
Indebtedness that is expressly subordinated to the Notes, the guarantee or
other instrument provided by such Restricted Subsidiary in respect of such
subordinated Indebtedness shall be subordinated to such guarantee at least
to the same extent that the Notes are subordinated to Senior Debt.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required on
the part of the Trustee or any Holder, upon:
(1) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such
Guarantee was executed and delivered pursuant to the preceding paragraph;
(2) any sale or other disposition (by merger or otherwise) to any
Person which is not our Restricted Subsidiary of all of our Capital Stock
in, or all or substantially all of the assets of, such Restricted
Subsidiary; provided that (a) such sale or disposition of such Capital
Stock or assets is otherwise in compliance with the terms of the Indenture
and (b) such assumption, guarantee or other liability of such Restricted
Subsidiary has been released by the holders of our other Indebtedness so
guaranteed.
(3) the Legal Defeasance of the Notes as described under "Legal
Defeasance and Covenant Defeasance;"
(4) such Restricted Subsidiary being designated as an Unrestricted
Subsidiary in compliance with the provisions of the Indenture.
Conduct of Business. From and after November 23, 1999, we and our Restricted
Subsidiaries will not engage in any businesses which are not the same, similar,
related or ancillary to the businesses in which we and our Restricted
Subsidiaries are engaged on the Issue Date.
Reports to Holders. The Indenture will provide that, whether or not required
by the rules and regulations of the Commission, so long as any Notes are
outstanding, we will furnish the Holders of Notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if we were required to file such Forms; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if we were required to file such reports, in each
case within the time periods specified in the Commission's rules and
regulations.
Whether or not required by the rules and regulations of the Commission, we
will file a copy of all such information and reports with the Commission for
public availability within the time periods specified in the Commission's rules
and regulations (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, we have has agreed that, for a period of two years
after the Issue Date, we will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to
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Rule 144A(d)(4) under the Securities Act if at the time of such request we are
not subject to Section 13 or 15(d) of the Exchange Act.
Capital Call Agreement. We shall have received the net cash proceeds from the
equity contribution or purchase of our Capital Stock, as the case may be, to
the extent required by, and upon the terms of, the Capital Call Agreement as in
effect on November 23, 1999.
Events of Default
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(2) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(3) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after we receive written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default
with such notice requirement but without such passage of time requirement);
(4) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any of our or any of our Restricted Subsidiary's Indebtedness (other
than a Receivables Entity), or the acceleration of the final stated
maturity of any such Indebtedness (which acceleration is not rescinded,
annulled or otherwise cured within 20 days of receipt by us or such
Restricted Subsidiary of notice of any such acceleration) if the aggregate
principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness in default for failure to pay principal at
final maturity or which has been accelerated (in each case with respect to
which the 20-day period described above has elapsed), aggregates $15.0
million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $15.0
million shall have been rendered against us or any of our Significant
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and non-
appealable; and
(6) certain events of bankruptcy affecting us or any of our
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(6) above with respect to us) shall occur and be continuing, the Trustee or the
Holders of at least 25% in principal amount of outstanding Notes may declare
the principal of and accrued interest on all the Notes to be due and payable by
notice in writing to us and the Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice"),
and the same:
(1) shall become immediately due and payable; or
(2) if there are any amounts outstanding under the New Credit
Facility, shall become immediately due and payable upon the first to occur
of an acceleration under the New Credit Facility or 5 business days after
receipt by us and the Representative under the New Credit Facility of such
Acceleration Notice but only if such Event of Default is then continuing.
If an Event of Default specified in clause (6) above with respect to us
occurs and is continuing, then all unpaid principal of, and premium, if any,
and accrued and unpaid interest on all of the outstanding Notes shall
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ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(4) if we have paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate to the effect that
such Event of Default has been cured or waived. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, we are required to provide an officers' certificate to
the Trustee promptly upon any such officer obtaining knowledge of any Default
or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
No Personal Liability of Directors, Officers, Employees and Stockholders
No of our director, officer, employee, incorporator or stockholder shall have
any liability for any of our obligations under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability.
Legal Defeasance and Covenant Defeasance
We may, at our option and at any time, elect to have its obligations and the
obligations of the Guarantors discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that we shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for:
(1) our obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments;
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(2) the rights, powers, trust, duties and immunities of the Trustee
and our obligations in connection therewith; and
(3) the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants that are described in
the Indenture ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, reorganization and
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders cash in U.S. dollars, non-callable U.S. government
obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
on the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(2) in the case of Legal Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that:
(a) we have received from, or there has been published by, the
Internal Revenue Service a ruling; or
(b) since the date of the Indenture, there has been a change in
the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default with respect to the Indenture resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the Notes
concurrently with such incurrence);
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which we or any of our
Subsidiaries is a party or by which we or any of our Subsidiaries is bound;
(6) we shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by us with the intent of preferring
the Holders over any of our other creditors or with the intent of
defeating, hindering, delaying or defrauding any of our other creditors or
others;
(7) we shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant Defeasance
have been complied with;
(8) we shall have delivered to the Trustee an opinion of counsel to
the effect that:
(a) the trust funds will not be subject to any rights of holders
of Senior Debt, including, without limitation, those arising under the
Indenture; and
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(b) assuming we have no intervening bankruptcy between the date of
deposit and the 91st day following the date of deposit and that no Holder
is our insider, after the 91st day following the date of deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above with respect to a Legal Defeasance need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (1) have become due and
payable or (2) will become due and payable on the maturity date within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in our name and at our expense.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when:
(1) either:
(a) all the Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by us and thereafter repaid to us or
discharged from such trust) have been delivered to the Trustee for
cancellation; or
(b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and we have irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes
not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of
deposit together with irrevocable instructions from us directing the
Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
(2) we have paid all other sums payable under the Indenture by us; and
(3) we have delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with.
Modification of the Indenture
From time to time, we and the Trustee, without the consent of the Holders,
may amend the Indenture for certain specified purposes, including curing
ambiguities, defects or inconsistencies, so long as such change does not, in
the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the
Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing
the fixed maturity of any Notes, or change the date on which any Notes may
be subject to redemption or reduce the redemption price therefor;
(4) make any Notes payable in money other than that stated in the
Notes;
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(5) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of Notes
to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect our obligation to
make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate a Net Proceeds Offer with respect to any
Asset Sale that has been consummated or, after such Change of Control has
occurred or such Asset Sale has been consummated, modify any of the
provisions or definitions with respect thereto; or
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders.
Governing Law
The Indenture will provide that it, the Notes and any Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
The Indenture will provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become our creditor, to obtain payments of
claims in certain cases or to realize on certain property received in respect
of any such claim as security or otherwise. Subject to the TIA, the Trustee
will be permitted to engage in other transactions; provided that if the Trustee
acquires any conflicting interest as described in the TIA, it must eliminate
such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness (1) of a Person or any of its
Subsidiaries existing at the time such Person becomes our Restricted Subsidiary
or (2) assumed in connection with the acquisition of assets from such Person,
in each case whether or not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming our Restricted
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to have
been incurred, with respect to clause (1) of the preceding sentence, on the
date such Person becomes our Restricted Subsidiary and, with respect to clause
(2) of the preceding sentence, on the date of consummation of such acquisition
of assets.
"Affiliate" means, with respect to any specified Person, any other Person who
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing. Notwithstanding the foregoing, no Person (other than us or any of
our Subsidiary) in whom a Receivables Entity makes an Investment in connection
with a Qualified Receivables Transaction shall be deemed to be our Affiliate or
any of our Subsidiaries solely by reason of such Investment.
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"Asset Acquisition" means (1) an Investment by us or any of our Restricted
Subsidiary in any other Person pursuant to which such Person shall become our
Restricted Subsidiary or a Restricted Subsidiary of any of our Restricted
Subsidiary, or shall be merged with or into our company or any of our
Restricted Subsidiary, or (2) the acquisition by us or any of our Restricted
Subsidiary of the assets of any Person (other than our Restricted Subsidiary)
which constitute all or substantially all of the assets of such Person or
comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by us or any of our
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than us or our Restricted Subsidiary of: (1) any Capital Stock of
any of our Restricted Subsidiary or (2) any of our or our Restricted
Subsidiaries' other property or assets other than in the ordinary course of
business; provided, however, that asset sales or other dispositions shall not
include:
(a) any transaction or series of related transactions for which we or
our Restricted Subsidiaries receive aggregate consideration of less than
$1.0 million;
(b) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of our assets as permitted under "Merger,
Consolidation and Sale of Assets";
(c) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(d) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the industry;
(e) the licensing of intellectual property;
(f) disposals or replacements of obsolete equipment in the ordinary
course of business;
(g) the sale, lease, conveyance, disposition or other transfer by us
or any if our Restricted Subsidiary of assets or property in transactions
constituting Investments that are not prohibited under the "Limitation on
Restricted Payments" covenant;
(h) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" to a
Receivables Entity (for the purposes of this clause (h), Purchase Money
Notes shall be deemed to be cash);
(i) transfers of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" (or a
fractional undivided interest therein) by a Receivables Entity in a
Qualified Receivables Transaction; and
(j) leases or subleases to third persons not interfering in any
material respect with our business or the business of any of ours
Restricted Subsidiaries.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Borrowing Base" means the sum (determined as of the end of the most recently
ended fiscal quarter for which our consolidated financial statements are
available) of (1) 60% of our and our Restricted Subsidiaries' Inventory and (2)
80% of our and our Restricted Subsidiaries' Receivables.
"Capital Call Agreement" means the Capital Call Agreement to be dated as of
November 23, 1999 by and among Kelso & Company, L.P., our company and Bankers
Trust Company, as agent for the lenders under the New Credit Facility.
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"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted
for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with GAAP.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances (or with respect
to foreign banks, similar instruments) maturing within one year from the
date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than $200.0
million;
(5) certificates of deposit or bankers' acceptances or similar
instruments maturing within one year from the date of acquisition thereof
issued by any foreign bank that is a lender under the New Credit Facility
having at the date of acquisition thereof combined capital and surplus of
not less than $500 million;
(6) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(7) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(6) above.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of our assets
to any Person or group of related Persons (other than one or more Permitted
Holders) for purposes of Section 13(d) of the Exchange Act (a "Group"),
together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of the Indenture);
(2) the approval by the holders of our Capital Stock of any plan or
proposal for the liquidation or dissolution of our company (whether or not
otherwise in compliance with the provisions of the Indenture);
(3) any Person or Group (other than one or more Permitted Holders)
shall become the beneficial owner, directly or indirectly, of shares
representing 50% or more of the aggregate ordinary voting power represented
by the issued and outstanding our Capital Stock; or
(4) the first day on which a majority of our Board of Directors are
not Continuing Directors.
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"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes of such Person and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or
dispositions outside the ordinary course of business);
(b) Consolidated Interest Expense; and
(c) charges attributable to the exercise of employee options
vesting upon the consummation of the Recapitalization; and
(d) Consolidated Non-cash Charges less any non-cash items
increasing Consolidated Net Income for such period, all as determined
on a consolidated basis for such Person and its Restricted Subsidiaries
in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person,
the ratio of Consolidated EBITDA of such Person during the four full fiscal
quarters (the "Four Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall
be calculated after giving effect on a pro forma basis for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness
in the ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the
case may be (and the application of the proceeds thereof), occurred on the
first day of the Four Quarter Period; and
(2) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated EBITDA
(including pro forma adjustments for cost savings ("Cost Savings
Adjustments") that we reasonably believe in good faith could have been
achieved during the Four Quarter Period as a result of such acquisition or
disposition (provided that both (i) such cost savings were identified and
quantified in an Officers' Certificate delivered to the Trustee at the time
of the consummation of the acquisition or disposition and (ii) with respect
to each acquisition or disposition completed prior to the 90th day
preceding such date of determination, actions were commenced or initiated
by us within 90 days of such acquisition or disposition to effect such cost
savings identified in such Officers' Certificate and with respect to any
other acquisition or disposition, such Officers' Certificate sets forth the
specific steps to be taken within the 90 days after such acquisition or
disposition to accomplish such cost savings) attributable to the assets
which are the subject of the Asset Acquisition or
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Asset Sale during the Four Quarter Period) occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset
Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Indebtedness or Acquired Indebtedness) occurred on
the first day of the Four Quarter Period;
(3) with respect to any such Four Quarter Period commencing prior to
the Recapitalization, the Recapitalization (including any Cost Savings
Adjustments) shall be deemed to have taken place on the first day of such
Four Quarter Period; and
(4) any asset sales or asset acquisitions (including any Consolidated
EBITDA (including any Cost Savings Adjustments) attributable to the assets
which are the subject of the asset acquisition or asset sale during the
Four Quarter Period) that have been made by any Person that has become our
Restricted Subsidiary or has been merged with or into our company or any of
our Restricted Subsidiary during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to
the Transaction Date that would have constituted Asset Sales or Asset
Acquisitions had such transactions occurred when such Person was our
Restricted Subsidiary or subsequent to such Person's merger into our
company, as if such asset sale or asset acquisition (including the
incurrence, assumption or liability for any Indebtedness or Acquired
Indebtedness in connection therewith) occurred on the first day of the Four
Quarter Period;
provided that to the extent that clause (2) or (4) of this sentence requires
that pro forma effect be given to an asset sale or asset acquisition, such pro
forma calculation shall be based upon the four full fiscal quarters immediately
preceding the Transaction Date of the Person, or division or line of business
of the Person, that is acquired or disposed for which financial information is
available. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four Quarter Period;
and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense (excluding amortization or write-off
of debt issuance costs relating to the Recapitalization and the financing
therefor or relating to retired or existing Indebtedness and amortization
or write-off of customary debt issuance costs relating to future
Indebtedness incurred in the ordinary course of business); plus
(2) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as
a decimal.
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"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of all cash and non-cash interest expense with
respect to all outstanding Indebtedness of such Person and its Restricted
Subsidiaries, including the net costs associated with Interest Swap
Obligations for such period determined on a consolidated basis in
conformity with GAAP; and
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" of ours means, for any period, the aggregate net
income (or loss) of our and our Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom:
(1) gains and losses from Asset Sales (without regard to the $1.0
million limitation set forth in the definition thereof) or abandonments or
reserves relating thereto and the related tax effects according to GAAP;
(2) gains and losses due solely to fluctuations in currency values and
the related tax effects according to GAAP;
(3) extraordinary, unusual or nonrecurring gains, losses, income or
expense, and the related tax effects;
(4) the net income (or loss) of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes our Restricted
Subsidiary or is merged or consolidated with us or any of our Restricted
Subsidiary;
(5) the net income of any of our Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation
of law or otherwise;
(6) the net loss of any Person other than our Restricted Subsidiary;
(7) the net income of any Person, other than our Restricted
Subsidiary, except to the extent of cash dividends or distributions paid to
us or to our Restricted Subsidiary by such Person unless, in the case of
any of our Restricted Subsidiary who receives such dividends or
distributions, such Restricted Subsidiary is subject to clause (5) above;
(8) non-cash compensation charges, including any arising from existing
stock options resulting from any merger or recapitalization transition; and
(9) any fees, expenses or charges related to the Recapitalization or
the transactions contemplated by the Recapitalization.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Continuing Directors" means, as of any date of determination, any member of
our Board of Directors who:
(1) was a member of such Board of Directors on November 23, 1999;
(2) was nominated for election or elected to such Board of Directors
with, or whose election to such Board of Directors was approved by, the
affirmative vote of a majority of the Continuing Directors who were members
of such Board of Directors at the time of such nomination or election; or
(3) is any designee of a Permitted Holder or was nominated by a
Permitted Holder or any designees of a Permitted Holder on the Board of
Directors.
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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect us or
any of our Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with the
lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (1) Indebtedness under or in respect of the
New Credit Facility and (2) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof, are committed to lend up to, at least $30.0 million and is
specifically designated in the instrument evidencing such Senior Debt as
"Designated Senior Debt" by us.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute a Change of
Control), matures (excluding any maturity as the result of an optional
redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof (except, in each case, upon the occurrence of a Change of
Control) on or prior to the final maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by our Board of Directors acting reasonably and in
good faith and shall be evidenced by a Board Resolution of our Board of
Directors delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means each of our Restricted Subsidiaries that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees to
be bound by the terms of the Indenture as a Guarantor; provided that any Person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor: the principal
of, premium, if any, and interest (including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
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(x) all monetary obligations of every nature of such Guarantor under,
or with respect to, the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(y) all Interest Swap Obligations of such Guarantor (and guarantees
thereof by such Guarantor); and
(z) all obligations of such Guarantor (and guarantees thereof by such
Guarantor) under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Subsidiary of such
Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation)
other than a shareholder who is also a lender (or an Affiliate of a lender)
under the New Credit Facility;
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or
owing by such Guarantor;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the holder(s)
of such obligation or their representative shall have received an officers'
certificate of our company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit indebtedness,
that the incurrence of the entire committed amount thereof at the date on
which the initial borrowing thereunder is made would not) violate such
provisions of the Indenture);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to us; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business);
(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any property or
asset of such Person, but which Obligations are not assumed by such Person,
the amount of such Obligation being deemed to be the lesser of the fair
market value of such property or asset or the amount of the Obligation so
secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
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(9) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, (x) the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Disqualified Capital Stock
as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock and (y) any transfer of accounts receivable or other
assets which constitute a sale for purposes of GAAP shall not constitute
Indebtedness hereunder.
"Interest Swap Obligations" means the obligations of any Person, pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount.
"Inventory" means goods held for sale or lease by a Person in the ordinary
course of business, net of any reserve for goods that have been segregated by
such Person to be returned to the applicable vendor for credit, as determined
in accordance with GAAP.
"Investment" by any Person in any other Person means, with respect to any
Person, any direct or indirect loan or other extension of credit (including,
without limitation, a guarantee) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, such other Person. "Investment" shall
exclude extensions of trade credit by us and our Restricted Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of our
company or such Restricted Subsidiary, as the case may be. For the purposes of
the "Limitation on Restricted Payments" covenant:
(1) we shall be deemed to have made an "Investment" equal to the fair
market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary
and the aggregate amount of Investments made subsequent to the Issue Date
shall exclude (to the extent the designation as an Unrestricted Subsidiary
was included as a Restricted Payment) the fair market value of the net
assets of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary, not to exceed the amount
of the Investment deemed made at the date of designation thereof as an
Unrestricted Subsidiary; and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by us or any of our
Restricted Subsidiaries, without any adjustments for increases or decreases
in value, or write-ups, write downs or write-offs with respect to such
Investment, reduced by the payment of dividends or distributions (including
tax sharing payments) in connection with such Investment or any other
amounts received in respect of such Investment; provided that no such
payment of dividends or distributions or receipt of any such other amounts
shall reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in
Consolidated Net Income. If we or any of our Restricted Subsidiary sells or
otherwise disposes of any Common Stock of any of our direct or indirect
Restricted Subsidiary such that, after giving effect to any such sale or
disposition, we no longer own, directly or indirectly, more than 50% of the
outstanding Common Stock of such Restricted Subsidiary, we shall be deemed
to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted
Subsidiary not sold or disposed of.
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"Issue Date" means the date of original issuance of the Notes.
"Joint Venture" means a corporation, partnership or other business entity,
other than our Subsidiary, engaged or proposed to be engaged in the same or a
similar line of business as us in which we own, directly or indirectly, not
less than 30% of the total voting power of shares of Capital Stock or other
interests (including partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
and trustees thereof, with the balance of the ownership interests being held by
one or more third parties.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest).
"Merger Agreement" means the Agreement and Plan of Merger dated as of May 24,
1999 by and between our company and UC Acquisition Sub, Inc., as amended or
supplemented from time to time.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by us or any of our Restricted Subsidiaries from such Asset Sale net
of:
(1) out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) repayment of Senior Debt or Guarantor Senior Debt that is required
to be repaid in connection with such Asset Sale; and
(4) any portion of cash proceeds which we determine in good faith
should be reserved for post-closing adjustments, it being understood and
agreed that on the day that all such post-closing adjustments have been
determined, the amount (if any) by which the reserved amount in respect of
such Asset Sale exceeds the actual post-closing adjustments payable by us
or any of our Subsidiaries shall constitute Net Cash Proceeds on such date;
provided that, in the case of the sale by us of an asset constituting an
Investment made after the Issue Date (other than a Permitted Investment),
the "Net Cash Proceeds" in respect of such Asset Sale shall not include the
lesser of (x) the cash received with respect to such Asset Sale and (y) the
initial amount of such Investment, less, in the case of clause (y), all
amounts (up to an amount not to exceed the initial amount of such
Investment) received by us with respect to such Investment, whether by
dividend, sale, liquidation or repayment, in each case prior to the date of
such Asset Sale.
"New Credit Facility" means the credit agreement dated as of November 23,
1999, between our company, the lenders party thereto in their capacities as
lenders thereunder, Deutsche Bank Securities Inc., as lead arranger, Bankers
Trust Company, as administrative agent, and Merrill Lynch Capital Corporation,
as co-arranger and syndication agent, together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (whether with the original agents and
lenders or other agents and lenders or otherwise) and whether provided under
the original New Credit Facility or one or more other credit agreements or
otherwise) (including increasing the amount of available borrowings thereunder
or adding our Subsidiaries as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
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"Obligations" means all obligations for (a) principal, premium, interest,
penalties, fees, and (b) to the extent liquidated and quantifiable at the time
of determination, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Holders" means Kelso & Company, Kelso Investment Associates VI
L.P., KEP VI LLC and their respective Affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under the Notes and the Indenture in an aggregate
principal amount not to exceed $155.0 million;
(2) Indebtedness incurred pursuant to the New Credit Facility
(including but not limited to Indebtedness in respect of letters of credit
or bankers' acceptances issued or created thereunder) in a maximum
principal amount not to exceed in the aggregate the amount equal to $185.0
million plus the amount, if any, by which the Borrowing Base exceeds the
Borrowing Base on November 23, 1999 less the amount of all repayments of
term loans and permanent commitment reductions in the revolving credit
portion of the New Credit Facility with Net Cash Proceeds of Asset Sales
applied thereto as required by the "Limitation on Asset Sales" covenant;
(3) other Indebtedness of ours and our Restricted Subsidiaries
outstanding on November 23, 1999 reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(4) our Interest Swap Obligations or that of Restricted Subsidiary
covering our Indebtedness or any of our Restricted Subsidiaries; provided
that any Indebtedness to which any such Interest Swap Obligations
correspond is otherwise permitted to be incurred under the Indenture;
provided, further, that such Interest Swap Obligations are entered into, in
our judgment, to protect us and our Restricted Subsidiaries from
fluctuations in interest rates on their respective outstanding
Indebtedness;
(5) our Indebtedness or any of our Restricted Subsidiaries under
Currency Agreements entered into, in our judgment, to protect us or such
Restricted Subsidiary from foreign currency exchange rates;
(6) intercompany Indebtedness owed by any of our Restricted Subsidiary
to us or any of our Restricted Subsidiary or by us to any of our Restricted
Subsidiary;
(7) Acquired Indebtedness of any of our Restricted Subsidiary that is
not a Guarantor to the extent we could have incurred such Indebtedness in
accordance with the Consolidated Fixed Charge Coverage Ratio of the
"Limitation on Incurrence of Additional Indebtedness" covenant on the date
such Indebtedness became Acquired Indebtedness; provided that such Acquired
Indebtedness was not incurred in connection with, or in anticipation or
contemplation of, such Person becoming our Restricted Subsidiary;
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business;
provided, however, that such Indebtedness is extinguished within five
business days of incurrence;
(9) any refinancing, modification, replacement, renewal, restatement,
refunding, deferral, extension, substitution, supplement, reissuance or
resale of existing or future Indebtedness (other than pursuant to clauses
(2), (4), (5), (6), (8), (10), (11), (12), (13), (14), (15) and (16) of
this definition), including any additional Indebtedness incurred to pay
interest or premiums required by the instruments governing such existing or
future Indebtedness as in effect at the time of issuance thereof ("Required
Premiums") and fees in connection therewith; provided that any such event
shall not (1) result in an increase in the aggregate principal amount of
Permitted Indebtedness (except to the extent such increase is a result of a
simultaneous incurrence of additional Indebtedness (A) to pay Required
Premiums and related fees or (B) otherwise permitted to be incurred under
the Indenture) and (2) create Indebtedness with a Weighted Average Life to
Maturity at the time such Indebtedness is incurred that is less than the
Weighted
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Average Life to Maturity at such time of the Indebtedness being refinanced,
modified, replaced, renewed, restated, refunded, deferred, extended,
substituted, supplemented, reissued or resold; provided that none of our
Restricted Subsidiary may refinance any Indebtedness pursuant to this
clause (9) other than its own Indebtedness;
(10) Indebtedness (including Capitalized Lease Obligations) incurred
by us to finance the purchase, lease or improvement of property (real or
personal) or equipment (whether through the direct purchase of assets or
the Capital Stock of any Person owning such assets) in an aggregate
principal amount outstanding not to exceed $15.0 million at the time of any
incurrence thereof (which amount shall be deemed not to include such
Indebtedness incurred in whole or in part under the New Credit Facility to
the extent permitted under clause (a) above);
(11) the incurrence by a Receivables Entity of Indebtedness in a
Qualified Receivables Transaction that is not recourse to us or any of our
Restricted Subsidiary (except for Standard Securitization Undertakings);
(12) Indebtedness incurred by us or any of our Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit
issued in the ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims or self-
insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(13) Indebtedness arising from our or our Restricted Subsidiary's
agreements providing for indemnification, adjustment of purchase price,
earn out or other similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or our Restricted
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition, provided that the
maximum assumable liability in respect of all such Indebtedness shall at no
time exceed the gross proceeds actually received by us and our Restricted
Subsidiaries in connection with such disposition;
(14) obligations in respect of performance and surety bonds and
completion guarantees provided by us or any of our Restricted Subsidiary in
the ordinary course of business;
(15) Indebtedness consisting of guarantees (i) by us of Indebtedness
and any other obligation or liability permitted to be incurred under the
Indenture by our Restricted Subsidiaries, and (ii) subject to the
provisions of "Limitation on Guarantees by Restricted Subsidiaries," by our
Restricted Subsidiaries of Indebtedness and any other obligation or
liability permitted to be incurred by us or our other Restricted
Subsidiaries; and
(16) our or any Restricted Subsidiary's additional Indebtedness in an
aggregate principal amount not to exceed $20.0 million at any one time
outstanding (which amount may, but need not be incurred in whole or in part
under the New Credit Facility).
"Permitted Investments" means:
(1) Investments by us or any of our Restricted Subsidiary in any or
our Restricted Subsidiary (whether existing on the Issue Date or created
thereafter) and Investments in us by any of our Restricted Subsidiary;
(2) cash and Cash Equivalents;
(3) Investments existing on November 23, 1999 and Investments made on
November 23, 1999 pursuant to the Merger Agreement;
(4) loans and advances to our and our Restricted Subsidiaries'
employees, officers and directors not in excess of $1.0 million at any one
time outstanding;
(5) accounts receivable owing to us any of our Restricted Subsidiary
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
customary trade terms;
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(6) Currency Agreements and Interest Swap Obligations entered into by
us or any of our Restricted Subsidiaries for bona fide business reasons and
not for speculative purposes, and otherwise in compliance with the
Indenture;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(8) guarantees by us or any of our Restricted Subsidiaries of
Indebtedness otherwise permitted to be incurred by us or any of our
Restricted Subsidiaries under the Indenture;
(9) Investments by us or any of our Restricted Subsidiary in a Person,
if as a result of such Investment (a) such Person becomes our Restricted
Subsidiary or (b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys all or substantially all of its assets to,
or is liquidated into, our company or our Restricted Subsidiary;
(10) additional Investments having an aggregate fair market value,
taken together with all other Investments made pursuant to this clause (10)
that are at the time outstanding, not exceeding $15.0 million at the time
of such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value), plus an amount equal to (a) 100% of the aggregate net cash
proceeds received by us from any Person (other than our Subsidiary) from
the issuance and sale subsequent to the Issue Date of our Qualified Capital
Stock (including Qualified Capital Stock issued upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness) and
(b) without duplication of any amounts included in clause (10)(a) above,
100% of the aggregate net cash proceeds of any equity contribution received
by us from a holder of our Capital Stock, that in the case of amounts
described in clause (10)(a) or (10)(b) are applied by us within 180 days
after receipt, to make additional Permitted Investments under this clause
(10) (such additional Permitted Investments being referred to collectively
as "Stock Permitted Investments");
(11) any Investment by us or our Restricted Subsidiary in a
Receivables Entity or any Investment by a Receivables Entity in any other
Person in connection with a Qualified Receivables Transaction; provided
that any Investment in a Receivables Entity is in the form of a Purchase
Money Note or an equity interest;
(12) Investments received by us or our Restricted Subsidiaries as
consideration for asset sales, including Asset Sales; provided in the case
of an Asset Sale, (a) such Investment does not exceed 25% of the
consideration received for such Asset Sale and (b) such Asset Sale is
otherwise effected in compliance with the "Limitation on Asset Sales"
covenant;
(13) Investments by us or our Restricted Subsidiaries in Joint
Ventures in an aggregate amount not in excess of $5.0 million; and
(14) that portion of any Investment where the consideration provided
by us is our Capital Stock (other than Disqualified Capital Stock).
Any net cash proceeds that are used by us or any of our Restricted
Subsidiaries to make Stock Permitted Investments pursuant to clause (10) of
this definition shall not be included in subclauses (x) and (y) of clause (iii)
of the first paragraph of the "Limitation on Restricted Payments" covenant.
"Permitted Liens" means the following types of Liens:
(1) Liens securing the Notes and the Guarantees;
(2) Liens securing Acquired Indebtedness incurred in reliance on
clause (7) of the definition of Permitted Indebtedness; provided that such
Liens do not extend to or cover any property or assets of our company or of
any of our Restricted Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such Indebtedness
became our Restricted Subsidiary Acquired Indebtedness or a Restricted
Subsidiary;
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(3) Liens existing on November 23, 1999, together with any Liens
securing Indebtedness incurred in reliance on clause (9) of the definition
of Permitted Indebtedness in order to refinance the Indebtedness secured by
Liens existing on the Issue Date; provided that the Liens securing the
refinancing Indebtedness shall not extend to property other than that
pledged under the Liens securing the Indebtedness being refinanced;
(4) Liens in favor of us on the property or assets, or any proceeds,
income or profit therefrom, of any of our Restricted Subsidiary; and
(5) other Liens securing Senior Subordinated Indebtedness; provided
that the maximum aggregate amount of outstanding obligations secured
thereby shall not at any time exceed $5.0 million.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof or any other entity.
"Plan" means any of our or our Subsidiary's employee benefit plan, retirement
plan, deferred compensation plan, restricted stock plan, health, life,
disability or other insurance plan or program, employee stock purchase plan,
employee stock ownership plan, pension plan, stock option plan or similar plan
or arrangement, or other successor plan thereof, and "Plans" shall have a
correlative meaning.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Productive Assets" means assets (including Capital Stock) of a kind used or
usable in our and our Restricted Subsidiaries' businesses as, or related to
such business, conducted on the date of the relevant Asset Sale.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from us or any of our
Subsidiary in connection with a Qualified Receivables Transaction to a
Receivables Entity, which note shall be repaid from cash available to the
Receivables Entity, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by us or any of our Subsidiaries pursuant
to which we or any of our Subsidiaries may sell, convey or otherwise transfer
to (a) a Receivables Entity (in the case of a transfer by us or any of our
Subsidiaries) and (b) any other Person (in the case of a transfer by a
Receivables Entity), or may grant a security interest in, any accounts
receivable (whether now existing or arising in the future) of ours or any of
our Subsidiaries, and any assets related thereto including, without limitation,
all collateral securing such accounts receivable, all contracts and all
guarantees or other obligations in respect of such accounts receivable,
proceeds of such accounts receivable and other assets which are customarily
transferred or in respect of which security interests are customarily granted
in connection with asset securitization transactions involving accounts
receivable.
"Recapitalization" means the transactions contemplated by the Merger
Agreement, together with the financings therefor.
"Receivable" means a right to receive payment arising from a sale or lease of
goods or services by a Person pursuant to an arrangement with another Person
pursuant to which such other Person is obligated to pay for goods or services
under terms that permit the purchase of such goods and services on credit, as
determined in accordance with GAAP.
"Receivables Entity" means our Wholly Owned Subsidiary (or another Person in
which we or any of our Subsidiary make an Investment and to which we or any of
our Subsidiary transfer accounts receivable and
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related assets) which engages in no activities other than in connection with
the financing of accounts receivable, all proceeds thereof and all rights
(contractual or other), collateral and other assets relating thereto, and any
business or activities incidental or related to such business, and which is
designated by our Board of Directors (as provided below) as a Receivables
Entity:
(1) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which:
(i) is guaranteed by us or any of our Subsidiary (excluding
guarantees of Obligations (other than the principal of, and interest on,
Indebtedness) pursuant to Standard Securitization Undertakings);
(ii) is recourse to or obligates us or any of our Subsidiary in any
way other than pursuant to Standard Securitization Undertakings; or
(iii) subjects any of our or our Subsidiaries' property or asset,
directly or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to Standard Securitization Undertakings;
(2) with which neither we nor any of our Subsidiary has any material
contract, agreement, arrangement or understanding other than on terms no
less favorable to us or such Subsidiary than those that might be obtained
at the time from Persons that are not our Affiliates, other than fees
payable in the ordinary course of business in connection with servicing
accounts receivable; and
(3) to which neither we nor any of our Subsidiary have any obligation
to maintain or preserve such entity's financial condition or cause such
entity to achieve certain levels of operating results other than through
the contribution of additional Receivables, related security and
collections thereto and proceeds of the foregoing.
Any such designation by our Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of our
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to us or our Restricted Subsidiary of any property, whether owned by
us or any of our Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by us or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
of our Indebtedness, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal
of, premium, if any, interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on, and all other amounts owing in respect of:
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(1) all of our monetary obligations of every nature under, or with
respect to, the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(2) all of our Interest Swap Obligations (and guarantees thereof by
us); and
(3) all of our obligations (and guarantees thereof by us) under
Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any of our Indebtedness to our Subsidiary;
(2) Indebtedness to, or guaranteed on behalf of, any of our or our
Subsidiary's shareholder, director, officer or employee (including, without
limitation, amounts owed for compensation) other than a shareholder who is
also a lender (or an Affiliate of a lender) under the New Credit Facility;
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or
owing by us;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the holder(s)
of such obligation or their representative shall have received an officers'
certificate of our company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit indebtedness,
that the incurrence of the entire committed amount thereof at the date on
which the initial borrowing thereunder is made would not) violate such
provisions of the Indenture);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to us; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any of our other Indebtedness.
"Senior Subordinated Indebtedness" means the Notes and any of our other
Indebtedness that specifically provides that such Indebtedness is to rank pari
passu with the Notes and is not by its express terms subordinate in right of
payment to any of our Indebtedness which is not Senior Debt.
"Significant Subsidiary", with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by us or any of our Subsidiary which are
reasonably customary in an accounts receivable transaction.
"Subordinated Obligation" means any of our Indebtedness (whether outstanding
on the Issue Date or thereafter incurred) which is expressly subordinate in
right of payment to the Notes pursuant to a written agreement.
"Subsidiary", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person; or
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(2) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means:
(1) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any of our Capital Stock of, or owns or holds any Lien on
any of our property or the property of any of our other Subsidiary that is not
a Subsidiary of the Subsidiary to be so designated; provided that:
(1) we certify to the Trustee that such designation complies with the
"Limitation on Restricted Payments" covenant; and
(2) each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of our assets or any assets of our Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if:
(1) immediately after giving effect to such designation, we are able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant; and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly Owned
Subsidiary of such Person which at the time of determination is a Restricted
Subsidiary of such Person.
"Wholly Owned Subsidiary" means any of our Restricted Subsidiary all the
outstanding voting securities of which (other than directors' qualifying shares
or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned, directly or indirectly, by us.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered
form without interest coupons. Except as described below, the New Notes
initially will be represented by a single, global Note, in definitive, fully
registered form without interest coupons (the "Global Note") and will be
deposited with the Trustee as custodian for the Depositary Trust Company
("DTC") and registered in the name of a nominee of such depositary.
DTC has advised us as follows.
. DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the
New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the Uniform Commercial Code
and a "clearing agency" registered pursuant to the provision of Section
17A of the Exchange Act.
. DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities transactions
between participants through electronic book-entry changes in accounts
of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others
such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly
or indirectly.
. Upon the issuance of the Global Note, DTC or its custodian will credit,
on its internal system, the respective principal amounts of the New
Notes represented by such Global Note to the accounts of persons who
have accounts with DTC. Ownership of beneficial interests in the Global
Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants.
Ownership of beneficial interests in the Global Note will be shown on,
and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee, with respect to interests of
participants, and the records of participants, with respect to interests
of persons other than participants.
So long as DTC or its nominee is the registered owner or holder of the Global
Note, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the New Notes represented by such Global Note for all
purposes under the Indenture and the New Notes. No beneficial owner of an
interest in the Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture. Owners of beneficial interests in the Global Note will not
(1) be entitled to have the New Notes represented by such Global Note
registered in their names, (2) receive or be entitled to receive physical
delivery of certificated Notes in definitive form and (3) be considered to be
the owners or holders of any New Notes under the Global Note. Accordingly, each
person owning a beneficial interest in the Global Note must rely on the
procedures of DTC and, if such person is not a participant, on the procedures
of the participant through which such person owns its interests, to exercise
any right of a holder of New Notes under the Global Note. We understand that
under existing industry practice, in the event an owner of a beneficial
interest in the Global Note desires to take any action that DTC, as the holder
of the Global Note, is entitled to take, DTC would authorize the participants
to take such action, and that the participants would authorize beneficial
owners owning through such participants to take such action or would otherwise
act upon the instructions of beneficial owners owning through them.
Payments of the principal of, premium, if any, and interest on the New Notes
represented by the Global Note will be made to DTC or its nominee, as the case
may be, as the registered owner thereof the Global Note. Neither we, the
Trustee, nor any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal,
premium, if any, or interest on the Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note, as shown on the records
of DTC or its nominee.
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We also expect that payments by participants to owners of beneficial interests
in the Global Note held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules. If a holder requires physical delivery of Notes
in certificated form ("Certificated Notes") for any reason, including to sell
Notes to persons in states which require physical delivery of the Notes, or to
pledge such securities, such holder must transfer its interest in a Global
Note, in accordance with the normal procedures of DTC and with the procedures
set forth in the Indenture.
Unless and until they are exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another
nominee of DTC.
Beneficial owners of New Notes registered in the name of DTC or its nominee
will be entitled to be issued, upon request, New Notes in definitive
certificated form.
DTC has advised us that DTC will take any action permitted to be taken by a
holder of Notes--including the presentation of Notes for exchange as described
below--only at the direction of one or more participants to whose account the
DTC interests in the Global Note are credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated Notes. Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such person or persons, or the
nominee of any such persons. In addition, if DTC is at any time unwilling or
unable to continue as a depositary for the Global Note, and a successor
depositary is not appointed by us within 90 days, we will issue Certificated
Notes in exchange for the Global Note.
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EXCHANGE OFFER; REGISTRATION RIGHTS
Holders of the New Notes are not entitled to any registration rights with
respect to the New Notes. Unilab Finance and the initial purchasers entered
into a registration rights agreement for the benefit of the holders of the Old
Notes. As part of the recapitalization, we entered into an assumption
agreement, dated as of November 23, 1999, with Unilab Finance whereby we
assumed the obligations of Unilab Finance under the registration rights
agreement. Pursuant to the registration rights agreement, we agreed, for the
benefit of the holders of the Old Notes, at our cost, to us our best efforts:
. to file with the SEC the exchange offer registration statement with
respect to the exchange offer for the New Notes by January 7, 2000;
. cause the exchange offer registration statement to be declared effective
under the Securities Act by May 1, 2000;
. to keep the exchange offer registration statement effective until the
closing of the exchange offer; and
. to cause the exchange offer to be consummated by June 5, 2000.
Upon the exchange offer registration statement being declared effective, we
will offer the New Notes in exchange for surrender of the Old Notes. We will
keep the exchange offer open for not less than 30 days, or longer if required
by applicable law, after the date notice of the exchange offer is mailed to
the holders of the Old Notes. For each Old Notes tendered to us pursuant to
the exchange offer and not withdrawn by the holder of such Old Note, such
holder will receive a New Note having a principal amount equal to that of the
tendered Old Note. Interest on each New Note will accrue
. from the later of (1) the last interest payment date on which interest
was paid on the Old Note surrendered in exchange therefor, or (2) if the
Old Note is surrendered for exchange on a date in a period which
includes the record date for an interest payment date to occur on or
after the date of such exchange and as to which interest will be paid,
the date of such interest payment date; or
. if no interest has been paid on such Old Note, from the issue date.
Under existing interpretations of the SEC contained in several no-action
letters to third parties, we believe that the New Notes will be freely
transferable by holders thereof (other than our affiliates) after the exchange
offer without further registration under the Securities Act, so long as each
holder that wishes to exchange its Notes for Exchange Notes represents:
. that any New Notes to be received by it will be acquired in the ordinary
course of its business;
. that at the time of the commencement of the exchange offer it has no
arrangement or understanding with any person to participate in the
distribution (within the meaning of Securities Act) of the New Notes in
violation of the Securities Act;
. that it is not an "affiliate," as defined in Rule 405 promulgated under
the Securities Act, of our company;
. if such holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, the distribution of New Notes; and
. if such holder is a broker-dealer (a "Participating Broker-Dealer"),
that will receive New Notes for its own account in exchange for Notes
that were acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any
resale of such New Notes.
We agree to make available, during the period required by the Securities
Act, a prospectus meeting the requirements of the Securities Act for use by
Participating Broker-Dealers and other persons, if any, with similar
prospectus delivery requirements for use in connection with any resale of New
Notes.
In the event that (1) any change in law or in currently prevailing
interpretations of the staff of the SEC do not permit us to effect the
exchange offer, or (2) if for any other reason the exchange offer registration
statement
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is not declared effective by May 1, 2000, or (3) the exchange offer is not
consummated by June 5, 2000, or (4) in certain circumstances, certain holders
of unregistered New Notes so request, or (4) in the case of any holder that
participates in the exchange offer, such holder does not receive New Notes on
the date of the exchange that may be sold without restriction under state and
federal securities laws, other than due solely to the status of such holder as
our affiliate within the meaning of the Securities Act, then in each case, we
will:
. promptly deliver to the holders and the trustee written notice thereof;
and
. at our sole expense, (1) as promptly as practicable, file a shelf
registration statement covering resales of the Notes, and (2) use its
best efforts to keep effective the shelf registration statement until
the earlier of two years after the issue date or such time as all of the
applicable Notes have been sold thereunder.
We will, in the event that a shelf registration statement is filed, (1)
provide to each holder of the Notes copies of the prospectus that is a part of
the shelf registration statement, (2) notify each such holder when the shelf
registration statement for the Notes has become effective and (3) take certain
other actions as are required to permit unrestricted resales of the Notes. A
holder of Notes that sells Notes pursuant to the shelf registration statement
will be (1) required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, (2) required to deliver
the prospectus to purchasers, (3) subject to certain of the civil liability
provisions under Securities Act in connection with such sales and (4) bound by
the provisions of the registration rights agreement that are applicable to such
a holder, including certain indemnification rights and obligations.
If we fail to meet the targets listed above, then liquidated damages shall
become payable in respect of the Old Notes as follows:
(1) if (A) neither the exchange offer registration statement nor the shelf
registration statement is filed with the SEC by January 7, 2000 or (B)
notwithstanding that we have consummated or will consummate an exchange
offer, we are required to file a shelf registration statement and such
shelf registration statement is not filed on or prior to the date
required by the registration rights agreement, then commencing on the
day after either such required filing date, we will required to pay
liquidated damages in an amount equal to $0.096 per week per $1,000
principal amount of the Old Notes for the first 90-day period following
the registration default so long as the registration default continues,
and for each subsequent 90-day period, this amount will increase by an
additional $0.096 per week; or
(2) if (A) neither the exchange offer registration statement nor a shelf
registration statement is declared effective by the SEC by May 1, 2000
or (B) notwithstanding that we have consummated or will consummate an
exchange offer, we are required to file a shelf registration statement
and such shelf registration statement is not declared effective by the
SEC on or prior to the 90th day following the date such shelf
registration statement was filed, then, commencing on the day after
either such required effective date, we will be required to pay
liquidated damages in an amount equal to $0.096 per week per $1,000
principal amount of the Old Notes for the first 90-day period following
the registration default so long as the registration default continues,
and for each subsequent 90-day period, this amount will increase by
$0.096 per week; or
(3) if (A) we have not exchanged New Notes for all Old Notes validly
tendered in accordance with the terms of the exchange offer by June 5,
2000 or (B) if applicable, the shelf registration statement has been
declared effective and such shelf registration statement ceases to be
effective at any time prior to the second anniversary of the issue date
of the Old Notes (other than after such time as all Notes have been
disposed of thereunder), then we will be required to pay liquidated
damages in an amount equal to $0.096 per week per $1,000 principal
amount of the Old Notes for the first 90-day period commencing on (x)
June 6, in the case of (A) above, or (y) the day such shelf
registration statement ceases to be effective, in the case of (B)
above, such liquidated damages rate increasing by an additional $0.096
per week for each subsequent 90-day period;
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provided, however, that the liquidated damages rate on the Old Notes may not
accrue under more than one of the foregoing clauses at any one time and at no
time shall the aggregate amount of liquidated damages accruing exceed $0.192
per week per $1,000 principal amount; provided, further, however, that:
. upon the filing of the exchange offer registration statement or a shelf
registration statement (in the case of clause (1) above);
. upon the effectiveness of the exchange offer registration statement or a
shelf registration statement (in the case of clause (2) above); or
. upon the exchange of New Notes for all Old Notes tendered (in the case
of clause (3) (A) above), or upon the effectiveness of the shelf
registration statement which had ceased to remain effective (in the case
of clause (3) (B) above)
liquidated damages on the Old Notes as a result of such clause (or the relevant
subclause thereof), as the case may be, shall cease to accrue.
Any amounts of liquidated damages due pursuant to clause (1), (2) or (3)
above will be payable in cash on the same original interest payment dates as
the Old Notes.
The summary in this prospectus of certain provisions of the registration
rights agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
registration rights agreement, which is filed as an exhibit to the registration
statement to which this prospectus forms a part.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal income
tax consequences of the exchange of Old Notes for New Notes pursuant to the
exchange offer and the ownership and disposition of the New Notes. This summary
applies only to a beneficial owner of an Old Note who acquired such Old Note at
the initial offering for the original offering price thereof and who acquires a
New Note pursuant to the Exchange Offer. This discussion is based on provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect. This discussion does
not address the tax consequences to subsequent purchasers of New Notes and is
limited to holders who will hold the New Notes as capital assets. Furthermore,
this discussion does not address all aspects of United States federal income
taxation that may be applicable to holders in light of their particular
circumstances, or to holders subject to special treatment under United States
federal income tax law (including, without limitation, certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities,
persons who hold Old Notes or will hold New Notes as part of a straddle, hedge,
conversion transaction or other integrated investment or persons whose
functional currency is not the United States dollar).
Each holder should consult its tax advisor as to the particular tax
consequences to such holder of the exchange of Old Notes for New Notes pursuant
to the exchange offer and the ownership and disposition of the New Notes,
including the applicability of any federal, state, local or foreign tax laws,
any changes in applicable tax laws and any pending or proposed legislation or
regulations.
United States Taxation of United States Holders
As used herein, (A) the term "United States Holder" means a beneficial owner
of a Note that is, for United States federal income tax purposes, (1) a citizen
or resident of the United States, (2) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof, (3) an estate the income of which is subject to United
States federal income taxation regardless of its source and (4) a trust (x) if
it validly elects to be treated as a United States person for United States
federal income tax purposes or (y) if a United States court is able to exercise
primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions
of such trust and (B) the term "Non-U.S. Holder" means a beneficial owner of an
Old Note or a New Note that is not a United States Holder.
Exchange Offer
The exchange of an Old Note for a New Note pursuant to the Exchange Offer
will not constitute a "significant modification" of the Old Note for United
States federal income tax purposes and, accordingly, the New Note received will
be treated as a continuation of the Old Note in the hands of such holder. As a
result, there will be no United States federal income tax consequences to a
United States Holder who exchanges an Old Note for a New Note pursuant to the
Exchange Offer and any such holder will have the same adjusted tax basis and
holding period in the New Note as it had in the Old Note immediately before the
exchange.
Payments of Interest
Stated interest payable on the New Notes generally will be included in the
gross income of a United States Holder as ordinary interest income at the time
accrued or received, in accordance with such United States Holder's method of
accounting for United States federal income tax purposes.
Original Issue Discount. For United States federal income tax purposes, the
New Notes will be issued with original issue discount ("OID") in an amount
equal to the difference between the stated redemption price at maturity of the
Notes and their issue price. United States Holders must include such OID in
gross income as ordinary interest income as it accrues under a method taking
into account an economic accrual of the discount. In general, a United States
Holder must include OID in income in advance of the receipt of the cash
representing that income regardless of the method of accounting generally used
by the United States Holder.
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The "issue price" of a New Note generally will be the initial offering price
of the Old Notes. The "stated redemption price at maturity" of a New Note
generally will be equal to the stated principal amount due at maturity of the
Old Notes.
United States Holders are required to include OID in income as it accrues in
accordance with a constant yield method based on semiannual compounding
(regardless of a holder's regular method of tax accounting). In general, the
amount of OID that is includable in income is determined by allocating to each
day in an accrual period the ratable portion of OID allocable to the accrual
period. The amount of OID that is allocable to an accrual period is generally
an amount equal to the product of the adjusted issue price of a Note at the
beginning of such accrual period (the issue price of the Notes determined as
described above, generally increased by all prior accruals of OID with respect
to the Notes) and the yield to maturity (the discount rate, which when applied
to all payments under the Notes results in a present value equal to the issue
price) less any qualified stated interest (interest that is unconditionally
payable in cash or property at least annually at a single fixed rate) allocable
to the accrual period.
Payments on Registration Default
Because the Old Notes provide for the payment of liquidated damages under
certain circumstances (see "Exchange Offer; Registration Rights"), the Old
Notes may be subject to Treasury regulations applicable to debt instruments
that provide for one or more contingent payments. We intend to take the
position that these regulations do not apply to the Old Notes because (i) the
payments of liquidated damages are not payments of interest with respect to the
Old Notes, but rather payments in the nature of liquidated damages or (ii) the
payment of liquidated damages is a "remote" or "incidental" contingency within
the meaning of such regulations. Accordingly, any such liquidated damages, if
made, should be taken into account by a United States Holder as ordinary income
at the time received or accrued in accordance with the United States Holder's
method of accounting. If the regulations were to apply to the liquidated
damages, if made, then such payments generally would be taxed as interest
income and the Old Notes would be treated as reissued at the time such
liquidated damages payments are made at the Notes then adjusted issue price
(i.e., generally, the stated principal amount of the Old Notes). In addition,
if, at the time of exchange offer, the possibility that we would be required to
make future liquidated damages payments were not a remote or incidental
contingency, a United States Holder could be required to accrue the projected
payments of liquidated damages into income on a constant yield basis, which
could result in a holder recognizing income prior to the receipt of the related
cash payment. Prospective investors should consult their tax advisors regarding
the United States federal income tax consequences of the receipt of liquidated
damages payments on the Old Notes.
Disposition of the New Notes
Upon the sale, exchange, retirement at maturity or other disposition of a New
Note (collectively, a "disposition"), a United States Holder generally will
recognize capital gain or loss equal to the difference between the amount
realized by such holder (except to the extent such amount is attributable to
accrued but unpaid interest and any unamortized OID, which will be treated as
ordinary interest income to the extent not previously included in income) and
such holder's adjusted tax basis in the New Note. A United States Holder's
adjusted tax basis in a New Note will be equal to the cost of the Note to the
holder increased by any OID included in income by the holder prior to the date
of the disposition of the New Note. Any capital gain or loss recognized by a
United States Holder upon a disposition of a New Note will be long-term capital
gain or loss if the holding period for the New Note exceeds one year at the
time of the disposition. Non-corporate taxpayers are generally subject to a
maximum regular federal income tax rate of 20% on net long-term capital gains.
The deductibility of capital losses is subject to certain limitations.
United States Taxation of Non-U.S. Holders
Payments of Interest
Subject to the discussion below under "Backup Withholding and Information
Reporting", in general, payments of interest (including any accruals of OID)
received by a Non-U.S. Holder will not be subject to
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United States federal withholding tax, provided that (1)(a) the Non-U.S. Holder
does not actually or constructively own 10% or more of the total combined
voting power of all our classes of stock entitled to vote, (b) the Non-U.S.
Holder is not a controlled foreign corporation that is related to us actually
or constructively through stock ownership, and (c) the beneficial owner of the
New Note, under penalties of perjury, either directly or through a financial
institution which holds the Note on behalf of the Non-U.S. Holder and holds
customers' securities in the ordinary course of its trade or business, provides
us or our agent with the beneficial owner's name and address and certifies,
under penalties of perjury, that it is not a United States Holder, (2) the
interest received on the Note is effectively connected with the conduct by the
Non-U.S. Holder of a trade or business within the United States and the Non-
U.S. Holder complies with certain reporting requirements; or (3) the Non-U.S.
Holder is entitled to the benefits of an income tax treaty under which the
interest is exempt from United States withholding tax and the Non-U.S. Holder
complies with certain reporting requirements. Payments of interest not exempt
from United States federal withholding tax as described above will be subject
to such withholding tax at the rate of 30% (subject to reduction under an
applicable income tax treaty). Payments of interest on a Note to a Non-U.S.
Holder generally will not be subject to United States federal income tax unless
such income is effectively connected with the conduct by such Non-U.S. Holder
of a trade or business in the United States.
Disposition of the New Notes
Subject to the discussion below under "Backup Withholding and Information
Reporting", a Non-U.S. Holder generally will not be subject to United States
federal income tax (and generally no tax will be withheld) with respect to
gains realized on the disposition of a New Note, unless (1) the gain is
effectively connected with a United States trade or business conducted by the
Non-U.S. Holder or (2) the Non-U.S. Holder is an individual who is present in
the United States for 183 or more days during the taxable year of the
disposition and certain other requirements are satisfied. In addition, an
exchange of an Old Note for a New Note pursuant to the exchange offer described
in "Exchange Offer; Registration Rights" will not constitute a taxable exchange
of the Old Note for Non-U.S. Holders. See "United States Taxation of United
States Holders--Exchange Offer."
Effectively Connected Income
If interest and other payments received by a Non-U.S. Holder with respect to
the Notes (including proceeds from the disposition of the New Notes) are
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States (or the Non-U.S. Holder is otherwise subject
to United States federal income taxation on a net basis with respect to such
holder's ownership of the Notes), such Non-U.S. Holder will generally be
subject to the rules described above under "United States Taxation of United
States Holders" (subject to any modification provided under an applicable
income tax treaty). Such Non-U.S. Holder may also be subject to the "branch
profits tax" if such holder is a corporation.
Backup Withholding and Information Reporting
Certain non-corporate United States Holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium and interest on,
and the proceeds of the disposition of, the New Notes. In general, backup
withholding will be imposed only if the United States Holder (1) fails to
furnish its taxpayer identification number ("TIN"), which, for an individual,
would be his or her Social Security number, (2) furnishes an incorrect TIN, (3)
is notified by the IRS that it has failed to report payments of interest or
dividends or (4) under certain circumstances, fails to certify, under penalty
of perjury, that it has furnished a correct TIN and has been notified by the
IRS that it is subject to backup withholding tax for failure to report interest
or dividend payments. In addition, such payments of principal and interest to
United States Holders will generally be subject to information reporting.
United States Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption, if applicable.
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Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of a New Note who provides the certification described under "United
States Taxation of Non-U.S. Holders--Payments of Interest" (and the payor does
not have actual knowledge that a certificate is false) or otherwise establishes
an exemption from backup withholding. Payments by a United States office of a
broker of the proceeds of a disposition of the New Notes generally will be
subject to backup withholding at a rate of 31% unless the Non-U.S. Holder
certifies it is a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption. In addition, if a foreign office of a foreign
custodian, foreign nominee or other foreign agent of such beneficial owner, or
if a foreign office of a foreign "broker" (as defined in applicable Treasury
regulations) pays the proceeds of the sale of a New Note to the seller thereof,
backup withholding and information reporting will not apply provided that such
nominee, custodian, agent or broker is not a "United States related person" (a
person which derives more than 50% of its gross income for certain periods from
the conduct of a trade or business in the United States or is a controlled
foreign corporation). The payment by a foreign office of a broker that is a
United States person or a United States related person of the proceeds of the
sale of New Notes will not be subject to backup withholding, but will be
subject to information reporting unless the broker has documentary evidence in
its records that the beneficial owner is not a United States person for
purposes of such backup withholding and information reporting requirements and
certain conditions are met, or the beneficial owner otherwise establishes an
exemption.
The amount of any backup withholding imposed on a payment to a holder of a
New Note will be allowed as a credit against such holder's United States
federal income tax liability and may entitle such holder to a refund, provided
that the required information is furnished to the IRS.
Recently Issued Treasury Regulations
Recently finalized treasury regulations govern information reporting and the
certification procedures regarding withholding and backup withholding on
certain amounts paid to Non-U.S. Holders after December 31, 2000. The new
Treasury regulations generally would not alter the treatment of Non-U.S.
Holders described above. The new Treasury regulations would alter the
procedures for claiming the benefits of an income tax treaty and may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of a Note. Prospective investors should consult
their tax advisors concerning the effect, if any, of such new Treasury
regulations on an investment in the New Notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. For a period of 180 days after the Expiration Date, we will
make this prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any such resale. In addition, until ,
2000--90 days from the date of this prospectus--all dealers effecting
transactions in the New Notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions
(1) in the over-the-counter market, (2) in negotiated transactions, (3) through
the writing of options on the New Notes or (4) a combination of such methods of
resale, (a) at market prices prevailing at the time of resale, (b) at prices
related to such prevailing market prices or (c) negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer, and any broker or dealer that participates in a
distribution of such New Notes, may be deemed to be an "underwriter" within the
meaning of the Securities Act. Any profit on any such resale of New Notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. We have agreed to pay all expenses incident to the Exchange Offer,
including the expenses of one counsel for the holders of the Notes, other than
commissions or concessions of any brokers or dealers. We also will indemnify
the holders of the Notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered by this prospectus will be passed upon
for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
INDEPENDENT AUDITORS
The financial statements of Unilab Corporation for the years ended December
31, 1996, 1997 and 1998 included or incorporated by reference in this
prospectus and elsewhere in this registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements of Meris for the years ended December
31, 1996 and 1997 included in this prospectus have been audited by Odenberg,
Ullakko, Muranishi & Co., independent auditors, as stated in their report which
is included herein, and are so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Physicians Clinical Laboratory, Inc.
for the year ended February 28, 1999 included in this prospectus have been
audited by Odenberg, Ullakko, Muranishi & Co., independent auditors, as stated
in their report which is included herein, and are so included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
119
<PAGE>
The consolidated financial statements of Physicians Clinical Laboratory, Inc.
for the five months ended February 28, 1998 and the seven months ended
September 30, 1997 included in this prospectus have been audited by Grant
Thornton LLP, independent auditors, as stated in their report which is included
herein, and are so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Physicians Clinical Laboratory, Inc.
for the year ended February 28, 1997 appearing in this Prospectus and
Registration Statement and included in Unilab Corporation's Current Report on
Form 8-K/A dated November 10, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon (which contains an
explanatory paragraph describing conditions that raise substantial doubt about
the Company's ability to continue as a going concern) included and incorporated
herein by reference. Such consolidated financial statements are included and
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
WHERE TO FIND MORE INFORMATION
We are subject to the information requirements of the Exchange Act. In
accordance with the Exchange Act, we file reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
filed by us with the SEC can be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 or at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public References Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains an Internet
"website" that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC at
http://www.sec.gov.
The following documents previously filed by us (File No. 0-22758) with the
SEC are incorporated in this prospectus by reference:
(1) Annual Report on Form 10-K/A for the year ended December 31, 1998;
(2) Proxy Statement, dated April 15, 1998, which was mailed to our
stockholders in connection with the Annual Meeting of Stockholders
held on May 19, 1998;
(3) Quarterly Report on Form 10-Q/A for the quarter ended March 31, 1999;
(4)Current Report on Form 8-K dated April 6, 1999;
(5)Current Report on Form 8-K dated May 11, 1999;
(6)Current Report on Form 8-K dated May 17, 1999;
(7)Current Report on Form 8-K dated May 27, 1999;
(8)Current Report on Form 8-K/A dated July 23, 1999;
(9)Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1999;
(10)Current Report on Form 8-K, dated August 13, 1999;
(11)Current Report on Form 8-K/A, dated October 25, 1999;
(12)Current Report on Form 8-K/A, dated October 26, 1999;
(13)Current Report on Form 8-K/A, dated November 10, 1999;
(14)Current Report on Form 8-K, dated November 30, 1999; and
(15)Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
120
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained
herein, or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute part of this prospectus.
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Page
Unilab Financial Statements:
Balance Sheets as of December 31, 1998 and September 30, 1999
(unaudited)............................................................. F-1
Statements of Operations for the three and nine month periods ended
September 30, 1998 and 1999 (unaudited)................................. F-2
Statements of Cash Flows for the nine months ended September 30, 1998 and
1999 (unaudited)........................................................ F-3
Notes to Financial Statements (unaudited)................................ F-4
Report of Independent Public Accountants................................. F-9
Statements of Operations for the years ended December 31, 1996, 1997 and
1998.................................................................... F-10
Balance Sheets as of December 31, 1997 and 1998.......................... F-11
Statements of Shareholders' Equity (Deficit) for the years ended December
31, 1996, 1997 and 1998................................................. F-12
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998.................................................................... F-13
Notes to Financial Statements............................................ F-14
Report of Independent Public Accountants on Schedules.................... F-30
Schedule II--Valuation and Qualifying Accounts........................... F-31
</TABLE>
<TABLE>
<S> <C>
Meris Financial Statements:
Report of Independent Accountants......................................... F-32
Consolidated Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1996 and 1997............................................... F-33
Consolidated Statements of Operations for the nine months ended September
30, 1998 (unaudited) and the years ended December 31, 1996 and 1997...... F-34
Consolidated Statements of Shareholders' Deficit for the nine months ended
September 30, 1998 (unaudited) and the years ended December 31, 1996 and
1997..................................................................... F-35
Consolidated Statements of Cash Flows for the nine months ended September
30, 1998 (unaudited) and the years ended December 31, 1996 and 1997...... F-36
Notes to Consolidated Financial Statements................................ F-38
</TABLE>
<TABLE>
<S> <C>
Physicians Clinical Laboratory, Inc. (which operated under the name Bio-
Cypher Laboratories) Financial Statements:
Report of Independent Auditors............................................ F-48
Consolidated Balance Sheets as of February 28, 1998 and 1999.............. F-51
Consolidated Statements of Operations for the year ended February 28,
1997, the seven months ended September 30, 1997, the five months ended
February 28, 1998 and the year ended February 28, 1999................... F-52
Consolidated Statements of Stockholders' Deficit for the year ended
February 28, 1997, the seven months ended September 30, 1997, the five
months ended February 28, 1998 and the year ended February 28, 1999...... F-53
Consolidated Statements of Cash Flows for the year ended February 28,
1997, the seven months ended September 30, 1997, the five months ended
February 28, 1998 and the year ended February 28, 1999................... F-54
Notes to Consolidated Financial Statements................................ F-55
</TABLE>
122
<PAGE>
UNILAB CORPORATION
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 25,753 $ 20,137
Restricted cash................................... 5,497 --
Accounts receivable, net.......................... 55,830 41,326
Inventory of supplies............................. 3,970 3,055
Prepaid expenses and other current assets......... 2,346 1,045
-------- --------
Total current assets............................ 93,396 65,563
Property and equipment, net....................... 13,009 11,277
Deferred tax asset................................ 16,558 --
Goodwill, net..................................... 83,347 56,949
Other intangible assets, net...................... 1,922 2,370
Other assets...................................... 5,168 6,301
-------- --------
$213,400 $142,460
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt................. $ 1,763 $ 1,206
Accounts payable and accrued liabilities.......... 23,236 14,533
Accrued payroll and benefits...................... 10,336 6,892
-------- --------
Total current liabilities....................... 35,335 22,631
-------- --------
Long-term debt, net of current portion............ 160,778 137,170
Other liabilities................................. 5,251 4,026
Commitments and contingencies
Shareholders' equity (deficit):
Convertible preferred stock, $.01 par value
Issued and outstanding--364 at September 30 and
December 31.................................... 4 4
Common stock, $.01 par value
Issued and outstanding--42,016 at September 30
and 40,708 at December 31...................... 420 407
Additional paid-in capital........................ 231,973 228,395
Accumulated deficit............................... (220,361) (250,173)
-------- --------
Total shareholders' equity (deficit)............ 12,036 (21,367)
-------- --------
$213,400 $142,460
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-1
<PAGE>
UNILAB CORPORATION
STATEMENTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September Nine Months Ended
30, September 30,
---------------- ------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
------- ------- -------- --------
Revenue................................. $76,210 $53,160 $213,496 $162,046
------- ------- -------- --------
Direct laboratory and field expenses:
Salaries, wages and benefits.......... 22,940 16,255 63,226 49,645
Supplies.............................. 11,307 7,480 30,653 22,585
Other operating expenses.............. 18,855 13,075 53,254 39,404
------- ------- -------- --------
53,102 36,810 147,133 111,634
Legal charge............................ -- -- 600 --
Amortization and depreciation........... 3,062 1,848 7,189 5,774
Selling, general and administrative
expenses............................... 10,120 8,132 29,323 24,990
------- ------- -------- --------
Total operating expenses............ 66,284 46,790 184,245 142,398
------- ------- -------- --------
Operating income........................ 9,926 6,370 29,251 19,648
Third party interest, net............... (3,978) (3,308) (11,244) (10,068)
------- ------- -------- --------
Income before income taxes.............. 5,948 3,062 18,007 9,580
Tax benefit............................. 11,904 -- 11,904 --
------- ------- -------- --------
Net income.............................. $17,852 $ 3,062 $ 29,911 $ 9,580
------- ------- -------- --------
Preferred stock dividends............... $ 33 $ 33 $ 99 $ 99
Net income available to common
shareholders........................... $17,819 $ 3,029 $ 29,812 $ 9,481
Earnings per share:
Basic................................... $ 0.42 $ 0.07 $ 0.72 $ 0.22
Diluted................................. $ 0.36 $ 0.07 $ 0.63 $ 0.22
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
UNILAB CORPORATION
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months
ended
September 30,
----------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................. $29,911 $ 9,580
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization and depreciation............................ 7,189 5,774
Provision for doubtful accounts.......................... 15,376 11,697
Deferred tax benefit..................................... (11,904) --
Net changes in assets and liabilities affecting operations,
net of acquisitions:
Increase in accounts receivable.......................... (21,189) (15,508)
(Increase) decrease in inventory of supplies............. (378) 35
Increase in prepaid expenses and other current assets.... (1,301) (286)
(Increase) decrease in other assets...................... 697 (147)
Increase (decrease) in accounts payable and accrued
liabilities............................................. 4,683 (820)
Increase in accrued payroll and benefits................. 2,118 1,946
Other.................................................... 99 319
------- -------
Net cash provided by operating activities................ 25,301 12,590
------- -------
Cash flows from financing activities:
Payments of third party debt............................... (835) (1,303)
Proceeds from exercise of stock options.................... 253 15
Other...................................................... (99) (99)
------- -------
Net cash used by financing activities.................... (681) (1,387)
------- -------
Cash flows from investing activities:
Capital expenditures....................................... (4,903) (2,335)
Payments for acquisitions, net of cash acquired............ (8,604) (619)
------- -------
Net cash used by investing activities.................... (13,507) (2,954)
------- -------
Net increase in cash, cash equivalents and restricted cash... 11,113 8,249
Cash, cash equivalents and restricted cash--Beginning of
Period...................................................... 20,137 11,652
------- -------
Cash, cash equivalents and restricted cash--End of Period.... $31,250 $19,901
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Management Opinion
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments which are necessary to present fairly the
financial position, results of operations and cash flows for the interim
periods reported. All such adjustments made were of a normal recurring nature.
The accompanying interim financial statements and related notes should be
read in conjunction with the financial statements of Unilab Corporation
("Unilab" or the "Company") and related notes as contained in the Annual Report
on Forms 10-K and 10K/A for the year ended December 31, 1998.
2. Net Income Per Share
Basic earnings per common share has been computed by dividing the net income
less preferred dividends by the weighted average number of common shares
outstanding for each period presented. The weighted average number of common
shares used in the calculation of basic earnings per share was 42.0 million and
40.7 million for the three months ended September 30, 1999 and 1998,
respectively and 41.4 million and 40.7 million for the nine months ended
September 30, 1999 and 1998, respectively.
Diluted earnings per share includes the effect of additional common shares
that would have been outstanding if dilutive potential common shares had been
issued plus a reduction of interest expense assuming conversion of the
convertible debt. For the three and nine month periods ended September 30,
1998, the weighted average number of dilutive stock options were 1.3 million
and 1.5 million respectively, which would have had no effect on the basic
earnings per share calculation. For the three and nine month periods ended
September 30, 1999, the weighted average number of dilutive stock options were
2.7 million and 2.3 million, respectively, and both periods include the
incremental shares from the assumed conversion of the $14.0 million
subordinated convertible note of 4.7 million, which reduced the earnings per
share calculation by $0.06 and $0.09, respectively.
Without the benefit from the reduction in the valuation allowance previously
recorded against the Company's deferred tax assets as discussed in Note 4,
basic and diluted earnings per share would have been $0.14 and $0.13 per share,
respectively, for the three month period ended September 30, 1999 and $0.43 and
$0.39 per share, respectively, for the nine month period ended September 30,
1999.
3. Acquisitions
On September 16, 1998, the Company and Meris Laboratories, Inc. ("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. The purchase price
consisted of the issuance of a $14.0 million convertible subordinated note,
$2.5 million in cash payable in seventy-two equal monthly installments and the
assumption of net assets of $3.5 million, consisting primarily of accounts
receivable. The acquisition was accounted for under the purchase method of
accounting and the statements of operations include the results of Meris since
November 5, 1998.
F-4
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The purchase price was allocated to the net assets acquired based on their
fair value at the date of acquisition, as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Accounts receivable....................................... $ 3,251
Inventory of supplies..................................... 138
Property and equipment.................................... 175
Goodwill.................................................. 14,889
Other intangible assets-non-compete agreements............ 235
Other assets.............................................. 46
-------
Assets acquired........................................... 18,734
=======
Issuance of convertible subordinated notes................ 14,000
Accrued employee benefits................................. 306
Assumed accounts payable.................................. 2,520
Liabilities associated with integration period............ 1,400
Acquisition fees, primarily legal costs................... 508
-------
Liabilities assumed or incurred........................... $18,734
=======
</TABLE>
As noted in the table above and in connection with the integration of the
acquired Meris operations with those of Unilab, the Company recorded
liabilities of $1.4 million, primarily related to severance (for the reduction
in headcount of approximately 230 employees) and other employee related
liabilities. At September 30, 1999, all significant liabilities have been paid
in connection with the integration.
On April 5, 1999, the Company and Physicians Clinical Laboratory, Inc. (doing
business as Bio-Cypher Laboratories) ("BCL") signed an asset purchase agreement
whereby Unilab acquired substantially all of the assets of BCL. The acquisition
was completed on May 10, 1999. The purchase price consisted of a $25.0 million
subordinated promissory note, the issuance of 1.0 million shares of Unilab
common stock and approximately $8.6 million of cash. In addition, Unilab
acquired $9.6 million of tangible assets, the majority of which are trade
accounts receivable, and assumed liabilities of approximately $4.3 million. The
acquisition was accounted for under the purchase method of accounting and the
statements of operations include the results of BCL since May 10, 1999.
F-5
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The purchase price was allocated to the assets acquired based on their fair
value at the date of acquisition as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Accounts receivable........................................ $ 8,691
Inventory of supplies...................................... 537
Property and equipment..................................... 358
Goodwill................................................... 33,839
-------
Assets acquired.......................................... 43,425
=======
Issuance of note........................................... 25,000
Accrued payroll and benefits............................... 1,987
Assumed accounts payable................................... 2,275
Liabilities associated with integration period............. 1,957
Acquisition fees, primarily legal costs.................... 350
Cash payment............................................... 8,606
Common stock issued........................................ 3,250
-------
Purchase Price/Liabilities assumed or incurred........... $43,425
=======
</TABLE>
As noted in the table above and in connection with the integration of the
acquired BCL operations with those of Unilab, the Company recorded liabilities
of $2.0 million, primarily related to severance (for the reduction in headcount
of over 500 employees), relocation and moving expenses and other employee
related liabilities. At September 30, 1999, approximately $1.2 million of
liabilities, expected to be paid primarily in the next six months were
outstanding.
Based upon the final review and valuation of certain assets acquired in the
Meris and BCL acquisitions, the Company has changed its estimate of goodwill
amortization arising from these acquisitions to a 10-year period effective July
1, 1999. The effect of the change was to increase amortization expense by $0.6
million and decrease net income by $0.6 million or $0.01 per diluted common
share for the three month period ended September 30, 1999 and $0.02 per diluted
common share for the nine month period ended September 30, 1999.
4. Income Taxes
The Company did not recognize an income tax provision for the three and nine
month periods ended September 30, 1999 and 1998. During these periods the
Company reduced the valuation allowance against its deferred tax assets, which
offset any potential income tax provision.
The Company establishes a valuation allowance in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". The Company continually reviews the adequacy of the
valuation allowance and recognizes the benefits from its deferred tax assets
only when an analysis of both positive and negative factors indicate that it is
more likely than not that the benefits will be realized. The Company has
approximately $29.6 million of deferred tax assets at September 30, 1999. Based
on the Company's improved operating performance in 1998 and 1999, having fully
integrated the Meris acquisition and being substantially complete with the BCL
integration, the Company believes it will have sufficient future taxable income
to reduce its valuation allowance by approximately $16.6 million at
September 30, 1999. The Company's estimate of future taxable income considers
the completion of the merger agreement, and the Company's more highly leveraged
position, as discussed in Note 7.
F-6
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Approximately $4.7 million of the tax asset recorded at September 30, 1999
reduced the amount of goodwill from certain acquisitions and the remaining
amount of the benefit was recognized as an income tax benefit in the statements
of operations for the three and nine month periods ended September 30, 1999. If
the Company does not further reduce its valuation allowance in the future, the
Company expects to have an effective tax rate of approximately 42% on a going
forward basis.
5. Legal Matters
The Company is currently in settlement negotiations with a group of insurance
companies regarding claims by the insurance companies that the Company over-
billed them in the early to mid-1990s in connection with several chemistry
profile tests that were previously the subject of a settlement agreement with
the government. While no formal settlement agreement with the insurance
companies has been executed, the Company believes that it is likely that it
will do so for a settlement amount of approximately $600,000, and such amount
has been reflected as a charge in the statement of operations for the second
quarter of 1999.
In May of 1999, Unilab learned of a new federal investigation under the False
Claims Act relating to Unilab's billing practices for the following four test
procedures: (1) apolipoprotein in conjunction with coronary risk panel
assignments; (2) microscopic evaluation in conjunction with urinalysis; (3)
performance of T7 index in conjunction with T3 and T4 tests; and (4)
fragmenting billing of unlisted panel codes. Unilab is in the process of
gathering and voluntarily submitting documentation regarding these tests to the
Department of Justice. The Company accrues for potential liabilities in matters
such as this as they become known and can be reasonably estimated. In the
Company's opinion, this investigation is not reasonably likely to have a
material adverse effect on the Company's results of operations or financial
position. However, no assurance can be given as to the ultimate outcome with
respect to such investigation. The resolution of such investigation could be
material to the Company's operating results for any particular period,
depending upon the level of income for such period.
6. Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------
1999 1998
----------- -----------
(amounts in thousands)
<S> <C> <C>
Cash paid during the period for:
Interest, net.................................... $ 6,954 $ 6,821
Income taxes..................................... 421 2
In connection with business acquisitions, liabilities were assumed as
follows:
<CAPTION>
Nine months ended
September 30,
-----------------------
1999 1998
----------- -----------
(amounts in thousands)
<S> <C> <C>
Fair value of asset acquired..................... $ 43,425 --
Cash paid........................................ 8,606 --
Value of common stock issued..................... 3,250 --
----------- ----------
Liabilities assumed.............................. $ 31,569 --
=========== ==========
</TABLE>
F-7
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Unaudited)
7. Pending Transaction
On May 25, 1999, the Company signed a definitive agreement to merge with UC
Acquisition Sub, Inc., a corporation formed by Kelso & Company ("Kelso"). Kelso
is a private investment firm based in New York. The transaction is valued at
approximately $437 million, including indebtedness of approximately $145
million which will be refinanced. Unilab will continue to operate as an
independent company under its current name.
Pursuant to a merger agreement, all but approximately 1.8 million shares of
common stock of the Company (approximately 7% of the Company's post-merger
shares outstanding) will be converted into the right to receive $5.85 per
common share in cash, with the Company's current stockholders retaining those
1.8 million shares. Unilab currently has 42.0 million shares of common stock
outstanding, excluding outstanding options and convertible securities.
Following the merger, Kelso and its affiliates are expected to own
approximately 93% of the Company's outstanding shares. Kelso and its affiliates
will invest approximately $139 million of equity in the transaction. The
transaction is structured to be accounted for as a recapitalization for
accounting purposes.
As part of the Company's refinancing of its existing indebtedness and
obtaining additional financing to pay the merger consideration, the Company
sold $155 million of 10-year notes (the "Senior Notes") in a private placement
in the Rule 144A market. Interest on the Senior Notes is 12.75% and the Company
is not required to make any mandatory redemption or sinking fund payment with
respect to the Senior Notes prior to maturity. The Senior Notes were issued at
a discounted rate of 97.268% per note. The aggregate discount on the Senior
Notes approximated $4.2 million and will be charged to operations as additional
interest expense over the life of the Senior Notes using the interest method
starting at the completion of the merger agreement. In order to complete the
Senior Notes offering, the Company was required to place in escrow $5.6
million, which represents interest expense on the Senior Notes from September
28, 1999 through January 20, 2000 (the mandatory redemption date of the Senior
Notes if the merger agreement is not finalized by January 20, 2000), offset by
the expected interest income earned on the escrow deposit. In addition, the
Company was required to place in escrow a breakage premium of 1% of the net
proceeds from the Senior Notes offering in the event the merger agreement is
not finalized. Net interest of approximately $103,000 was earned on the Senior
Notes from September 28 through September 30 and the remaining escrow balance
of approximately $5.5 million has been shown as restricted cash on the
Company's balance sheet at September 30, 1999.
The Company mailed a Proxy Statement to shareholders on October 26, 1999
asking shareholders to approve the merger agreement at a special meeting of
shareholders scheduled for November 23, 1999. The merger is subject to approval
by the Company's shareholders and other customary conditions.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Unilab Corporation
We have audited the accompanying balance sheets of Unilab Corporation (a
Delaware corporation) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unilab Corporation as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 12, 1999
F-9
<PAGE>
UNILAB CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Revenue.................... $ 217,370 $ 214,001 $ 205,217
--------------- --------------- ---------------
Direct Laboratory and Field
Expenses:
Salaries, wages and
benefits................ 67,742 69,094 70,869
Supplies................. 30,671 29,858 28,631
Other operating
expenses................ 53,594 56,990 54,672
--------------- --------------- ---------------
152,007 155,942 154,172
Legal and acquisition
related charges........... -- -- 4,940
Restructuring charges...... -- -- 65,655
Amortization and
depreciation.............. 7,592 8,885 11,491
Selling, general and
administrative expenses... 33,530 34,570 41,801
--------------- --------------- ---------------
Total Operating
Expenses.............. 193,129 199,397 278,059
--------------- --------------- ---------------
Operating Income (Loss).... 24,241 14,604 (72,842)
Other Income (Expenses):
Third party interest,
net..................... (13,538) (14,068) (13,401)
Related party interest,
net..................... -- -- 1,279
Loss on sale of
promissory note......... -- -- (4,529)
--------------- --------------- ---------------
Total Other Income
(Expenses)............ (13,538) (14,068) (16,651)
--------------- --------------- ---------------
Income (Loss) Before Income
Taxes and Extraordinary
Item...................... 10,703 536 (89,493)
Tax Provision.............. -- -- --
--------------- --------------- ---------------
Income (Loss) Before
Extraordinary Item........ 10,703 536 (89,493)
Extraordinary Item--loss on
early extinguishment of
debt...................... -- -- 3,451
--------------- --------------- ---------------
Net Income (Loss).......... $ 10,703 $ 536 $ (92,944)
--------------- --------------- ---------------
Preferred Stock Dividends.. 131 138 144
Net Income (Loss) Available
to Common Shareholders.... $ 10,572 $ 398 $ (93,088)
=============== =============== ===============
Basic Earnings Per Share:
Income (Loss) Before
Extraordinary Item........ $ 0.26 $ 0.01 $ (2.43)
Extraordinary Item......... -- -- (0.10)
Net Income (Loss).......... $ 0.26 $ 0.01 $ (2.53)
=============== =============== ===============
Diluted Earnings Per Share:
Income (Loss) Before
Extraordinary Item........ $ 0.25 $ 0.01 $ (2.43)
Extraordinary Item......... -- -- (0.10)
Net Income (Loss).......... $ 0.25 $ 0.01 $ (2.53)
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
UNILAB CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
Assets --------- --------
(amounts in
thousands, except
per share data)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................ $ 20,137 $ 11,652
Accounts receivable, net of allowance for doubtful
accounts
of $10,813 and $9,819 in 1998 and 1997, respectively.... 41,326 36,583
Inventory of supplies.................................... 3,055 2,811
Prepaid expenses and other current assets................ 1,045 1,295
--------- --------
Total Current Assets................................... 65,563 52,341
--------- --------
Property and Equipment, net.............................. 11,277 13,160
Goodwill, net of accumulated amortization of $7,754
and $6,368 in 1998 and 1997, respectively............... 56,949 43,699
Other Intangible Assets, net............................. 2,370 2,731
Other Assets............................................. 6,301 6,769
--------- --------
$ 142,460 $118,700
========= ========
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt........................ $ 1,206 $ 1,811
Accounts payable and accrued liabilities................. 14,533 15,678
Accrued payroll and benefits............................. 6,892 6,302
--------- --------
Total Current Liabilities.............................. 22,631 23,791
--------- --------
Long-Term Debt, net of current portion................... 137,170 124,285
Other Liabilities........................................ 4,026 2,907
Commitments and Contingencies
Shareholders' Equity (Deficit):
Convertible preferred stock, $.01 par value; Authorized--
20,000 shares;
Issued and Outstanding--364 at December 31, 1998 and
1997
Liquidation preference--$2,093.......................... 4 4
Common stock, $.01 par value; Voting--Authorized--100,000
shares;
Issued and Outstanding--40,708 and 40,578 at December
31, 1998 and 1997, respectively......................... 407 406
Additional paid-in capital............................... 228,395 228,052
Accumulated deficit...................................... (250,173) (260,745)
--------- --------
Total Shareholders' Equity (Deficit)................... (21,367) (32,283)
--------- --------
$ 142,460 $118,700
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
UNILAB CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Voting Non-Voting Convertible Total
Common Stock Common Stock Preferred Stock Additional Shareholders'
-------------- -------------- ------------------ Paid-In Accumulated Equity
Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit)
------ ------ ------ ------ ------- ------- ---------- ----------- -------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1995................... 35,052 $351 1,050 $ 10 400 $ 4 $224,020 $(168,055) $ 56,330
Issuance of shares in
connection with a prior
acquisition............ 413 4 -- -- -- -- 996 -- 1,000
Restricted shares issued
to employees........... 100 1 -- -- -- -- 350 -- 351
Issuance of shares for
Company's 401(k) plan
matching
contributions.......... 434 4 -- -- -- -- 544 -- 548
Issuance of shares to
certain executives in
lieu of monthly cash
compensation........... 164 2 -- -- -- -- 108 -- 110
Issuance of shares to a
consultant for services
rendered............... 50 1 -- -- -- -- 43 -- 44
Issuance of shares to
certain Board Directors
for services rendered.. 22 -- -- -- -- -- 17 -- 17
Conversion of non-voting
common stock to voting
common stock........... 1,050 10 (1,050) (10) -- -- -- -- --
Issuance of preferred
stock dividend--$0.36
per share.............. -- -- -- -- -- -- -- (144) (144)
Net loss................ -- -- -- -- -- -- -- (92,944) (92,944)
------ ---- ------ ---- ------- ------- -------- ---------- --------
Balances, December 31,
1996................... 37,285 $373 -- $-- 400 $ 4 $226,078 $ (261,143) $(34,688)
Restricted shares issued
to employees........... 15 -- -- -- -- -- 237 -- 237
Restricted shares
forfeited by
employees.............. (20) -- -- -- -- -- (45) -- (45)
Issuance of shares for
Company's 401(k) plan
matching
contributions.......... 29 -- -- -- -- -- 49 -- 49
Issuance of shares to
certain Board Directors
for services rendered.. 84 1 -- -- -- -- 63 -- 64
Conversion of preferred
stock to common stock.. 36 -- -- -- (36) -- -- -- --
Issuance of shares at
$0.625 upon exercise of
stock options.......... 75 1 -- -- -- -- 46 -- 47
Issuance of shares to
the Company's former
CEO in connection with
CEO's resignation...... 500 5 -- -- -- -- 214 -- 219
Shares sold to the
Company's former CEO
pursuant to transition
agreements in
connection with CEO's
resignation............ 533 5 -- -- -- -- 295 -- 300
Shares sold to Company's
current CEO pursuant to
an employment
agreement.............. 1,143 12 -- -- -- -- 488 -- 500
Issuance of shares to
Company's current CEO
as bonus pursuant to an
employment agreement... 229 2 -- -- -- -- 98 -- 100
Shares sold to a Board
Director pursuant to
the 1997 Directors'
Stock Purchase Plan.... 500 5 -- -- -- -- 276 -- 281
Issuance of shares to
employees as special
year-end bonus......... 169 2 -- -- -- -- 253 -- 255
Issuance of preferred
stock dividend--$0.36
per share.............. -- -- -- -- -- -- -- (138) (138)
Net income.............. -- -- -- -- -- -- -- 536 536
------ ---- ------ ---- ------- ------- -------- ---------- --------
Balances, December 31,
1997................... 40,578 $406 -- $-- 364 $ 4 $228,052 $ (260,745) $(32,283)
Issuance of shares to
certain Board Directors
for services rendered.. 72 1 -- -- -- -- 159 -- 160
Issuance of shares at
$0.63--$2.19 upon
exercise of options.... 19 -- -- -- -- -- 15 -- 15
Issuance of shares for
Company's 401(k) plan
matching
contributions.......... 14 -- -- -- -- -- 25 -- 25
Restricted shares issued
to employees........... 17 -- -- -- -- -- 132 -- 132
Issuance of shares to
part-time employees as
special bonus.......... 8 -- -- -- -- -- 12 -- 12
Issuance of preferred
stock dividend--$0.36
per share.............. -- -- -- -- -- -- -- (131) (131)
Net income.............. -- -- -- -- -- -- -- 10,703 10,703
------ ---- ------ ---- ------- ------- -------- ---------- --------
Balances, December 31,
1998................... 40,708 $407 -- $-- 364 $ 4 $228,395 $ (250,173) $(21,367)
------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
UNILAB CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1998 1997 1996
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).............................. $ 10,703 $ 536 $ (92,944)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Amortization and depreciation................ 7,592 8,885 11,491
Provision for doubtful accounts.............. 15,662 15,663 14,180
Loss on sale of promissory note.............. -- -- 4,529
Write-off of goodwill and customer lists..... -- -- 61,645
Extraordinary item--loss on early
extinguishment of debt...................... -- -- 3,451
Net changes in assets and liabilities affecting
operations, net of acquisitions:
Increase in Accounts receivable.............. (17,154) (14,967) (11,125)
Increase in Inventory of supplies............ (106) (207) (243)
Decrease in Prepaid expenses and other
current assets.............................. 250 407 117
(Increase) decrease in Other assets.......... (112) (1,107) 229
Increase (decrease) in Accounts payable and
accrued liabilities......................... (4,047) (7,221) 1,112
Increase in Accrued payroll and benefits..... 800 816 1,504
Other........................................ 408 910 926
-------- -------- ---------
Net cash provided (used) by operating
activities.................................... 13,996 3,715 (5,128)
-------- -------- ---------
Cash Flows From Financing Activities:
Borrowings under third party debt.............. -- -- 123,490
Payments of third party debt................... (1,720) (1,776) (104,772)
Financing costs under the Senior Notes and
Receivables Financing......................... -- -- (4,932)
Proceeds from the sale of stock................ -- 581 --
Proceeds from exercise of options.............. 15 47 --
Other.......................................... (131) (236) --
-------- -------- ---------
Net cash provided (used) by financing
activities.................................... (1,836) (1,384) 13,786
-------- -------- ---------
Cash Flows From Investing Activities:
Capital expenditures........................... (3,005) (1,935) (3,948)
Payments for acquisitions, net of cash
acquired...................................... (670) (1,824) (2,700)
Net cash proceeds from sale of equity
investment and promissory note................ -- -- 11,000
-------- -------- ---------
Net cash provided (used) by investing
activities.................................... (3,675) (3,759) 4,352
-------- -------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents................................... 8,485 (1,428) 13,010
Cash and Cash Equivalents--Beginning of Year... 11,652 13,080 70
-------- -------- ---------
Cash and Cash Equivalents--End of Year......... $ 20,137 $ 11,652 $ 13,080
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Description of the Company and Significant Accounting Policies
a. Description of the Company
Unilab Corporation ("Unilab" or the "Company") provides clinical laboratory
testing services to physicians, managed-care organizations, hospitals and other
health care providers primarily in the State of California.
b. Inventory of Supplies
Inventories, which consist principally of purchased clinical laboratory
supplies, are valued at the lower of cost (first-in, first-out) or market.
c. Revenue Recognition
Revenue is recognized at the time the service is provided. The Company's
revenue is based on amounts billed or billable for services rendered, net of
contractual adjustments and other arrangements made with third-party payors to
provide services at less than established billing rates.
In addition, certain laboratory services are provided pursuant to managed
care contracts which provide for the payment of capitated fees (a fixed monthly
fee per individual enrolled with a managed care plan for some or all laboratory
tests performed during the month) rather than individual fees for tests
actually performed. Revenue under capitated arrangements is recognized monthly
when billed or when due under the terms of the related contracts.
d. Use of Estimates
The preparation of the financial statements requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from these estimates.
The most significant estimates with regards to these financial statements
relate to accounts receivable and insurance reserves.
The Company's net accounts receivable balance is determined after deductions
for contractual adjustments, which are estimated based on established billing
rates made with third party payors, and an allowance for doubtful accounts,
which primarily is based on the aging of the accounts and historical collection
experience. In addition, the Company accrues for both asserted and unasserted
claims arising from workers' compensation (1994 and 1995 only) and automobile
liability losses (1994 through 1997 only). The estimate of the liability for
unasserted claims arising from unreported incidents is based on an analysis of
historical claims experience.
e. Fair Value of Financial Instruments and Concentration of Credit Risk
The carrying amount reported in the balance sheets for cash, accounts
receivable, accounts payable and accrued liabilities approximates fair value
because of the immediate or short-term maturity of these financial instruments.
The fair value of the Company's $120.0 million of senior notes approximates
$125.4 million based on quotes from brokers. The Company believes that its non-
bank indebtedness approximates fair value based on current yields for debt
instruments of similar quality and terms.
Concentration of credit risk with respect to accounts receivable are limited
due to the diversity of the Company's client base. However, the Company
provides services to certain patients covered by various third-party payors,
including the Federal and California Medicare/Medicaid programs. Revenue, net
of contractual allowances, from direct billings under Federal and California
Medicare/Medicaid programs during each of the years ended December 31, 1998,
1997 and 1996 approximated 25-30% of revenue.
F-14
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
f. Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-
line method over the estimated useful lives of the related assets. Buildings
are depreciated over 28 years, laboratory and computer equipment are generally
depreciated over 7 and 3 years, respectively, and furniture and fixtures are
depreciated over 5 years. Leasehold improvements are amortized using the
straight-line method over the remaining term of the related lease. Major
repairs which extend the life or add value to equipment are capitalized and
depreciated over their remaining useful life.
g. Goodwill
Goodwill represents the excess of cost over the fair value of net tangible
and identifiable intangible assets acquired and is amortized using the
straight-line method. Goodwill is amortized over 40 years for acquisitions
completed prior to January 1, 1995 and over 20 years for acquisitions after
that date. The Company continually evaluates whether events and circumstances
have occurred that indicate the remaining estimated useful life of goodwill
might warrant revision or that the remaining balance of goodwill and other
long-lived assets may not be recoverable. When factors indicate that goodwill
and other long-lived assets should be evaluated for possible impairment, the
Company uses an estimate of undiscounted future net cash flows over the
remaining life of goodwill to determine if impairment has incurred. Assets are
grouped at the lowest level for which there are identifiable cash flows that
are largely independent from other asset groups. The Company uses discounted
future expected net cash flows to determine the amount of impairment loss.
h. Other Intangible Assets
Customer lists and covenants not to compete are recorded at cost and are
amortized utilizing the straight-line method over the estimated lives of the
assets, generally 10 years for customer lists and 3-5 years for covenants not
to compete. The cost of other intangible assets is evaluated periodically and
adjusted, if necessary, if later events and circumstances indicate that a
permanent decline in value below the current unamortized historical cost has
occurred.
i. Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the basis for
financial reporting purposes and the basis for tax purposes, in accordance with
Statement of Financial Accounting Standards No. 109 ("FAS 109"), "Accounting
for Income Taxes".
j. Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share",
which requires the disclosure of a basic and diluted earnings per share. The
implementation of FAS 128 had no impact on the calculation of earnings per
share previously reported for the year ended December 31, 1996.
Basic earnings per common share has been computed by dividing the net income
(loss) less preferred dividends by the weighted average number of common shares
outstanding for each period presented. The weighted average number of common
shares used in the calculation of basic earnings per share was 40.7 million,
39.9 million and 36.8 million for the years ended December 31, 1998, 1997, and
1996, respectively.
Diluted earnings per share includes the effect of additional common shares
that would have been outstanding if dilutive potential common shares had been
issued plus a reduction of interest expense assuming conversion of the
convertible debt. No dilutive securities existed in 1996. In 1997, the weighted
average number of dilutive stock options were 0.6 million, which had no effect
on the basic earnings per share calculation. In 1998, the weighted average
number of dilutive stock options were 1.4 million and the incremental shares
from the assumed conversion of the $14.0 million subordinated convertible note
were 0.7
F-15
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
million, which reduced the earnings per share calculation by $0.01. The assumed
conversion of the convertible preferred stock is excluded from the calculation
since its effect would be immaterial.
Options to purchase 2.1 and 2.9 million shares of common stock at prices
ranging from $2.63 to $6.88 and $1.19 to $6.88 were outstanding at December 31,
1998 and 1997, respectively, but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average market price for the year of the Company's common shares.
k. Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents.
2. Property and Equipment, Net and Other Intangible Assets
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Buildings................................................... $ 3,166 $ 3,166
Leasehold improvements...................................... 5,564 5,236
Laboratory and other equipment.............................. 30,053 29,700
Furniture and fixtures...................................... 3,459 3,391
------- -------
42,242 41,493
Less accumulated depreciation and amortization.............. 30,965 28,333
------- -------
$11,277 $13,160
======= =======
</TABLE>
Depreciation expense was approximately $5.0 million in 1998, $6.0 million in
1997 and $5.0 million in 1996.
Other intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
------ ------
(in
thousands)
<S> <C> <C>
Customer lists................................................ $7,675 $7,675
Covenants not to compete...................................... 235 300
------ ------
7,910 7,975
Less accumulated amortization................................. 5,540 5,244
------ ------
$2,370 $2,731
====== ======
</TABLE>
Amortization expense for goodwill, other intangible assets and certain other
deferred costs was approximately $2.6 million in 1998, $2.9 million in 1997 and
$6.5 million in 1996.
3. Acquisitions
On September 16, 1998, the Company and Meris Laboratories, Inc. ("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. The purchase price
consisted of the issuance of a
F-16
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
$14.0 million convertible subordinated note, $2.5 million in cash payable in
seventy-two equal monthly installments and the assumption of net assets of $3.5
million, consisting primarily of accounts receivable. The acquisition was
accounted for under the purchase method of accounting and the statements of
operations include the results of Meris since November 5, 1998.
The purchase price was allocated to the net assets acquired based on their
fair value at the date of acquisition, as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Accounts receivable........................................ $ 3,251
Inventory of supplies...................................... 138
Property and equipment..................................... 175
Goodwill................................................... 14,889
Other intangible assets-non-compete agreements............. 235
Other assets............................................... 46
-------
Assets Acquired........................................... 18,734
=======
Issuance of convertible subordinated notes................. 14,000
Accrued employee benefits.................................. 306
Assumed accounts payable................................... 2,520
Liabilities associated with integration period............. 1,400
Acquisition fees, primarily legal costs.................... 508
-------
Liabilities assumed or incurred........................... $18,734
=======
</TABLE>
As noted in the table above and in connection with the integration of the
acquired Meris operations with those of Unilab, the Company recorded
liabilities of $1.4 million, primarily related to severance (for the reduction
in headcount of approximately 230 employees) and other employee related
liabilities. At December 31, 1998, approximately $1.3 million of liabilities,
expected to be paid in the first six months of 1999, were outstanding.
The following unaudited pro forma results of operations for the years ended
December 31, 1998 and 1997 (in thousands except per share data) have been
prepared as if the acquisition of Meris occurred on January 1, 1997:
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
Revenue................................................... $239,649 $243,904
Net Income................................................ 16,371 5,859
Net income available to common shareholders............... 16,263 5,721
Earnings per share:
Basic................................................... 0.40 0.14
Diluted................................................. 0.37 0.14
</TABLE>
The historical financial results of Unilab for 1998 and 1997 have been
adjusted primarily for the historical results of Meris, an increase in interest
expense due to the additional debt incurred to purchase Meris, an increase in
amortization of goodwill and cost savings from the integration of the Meris
operations into Unilab.
The unaudited pro forma information presented above does not purport to be
indicative of the results that actually would have been obtained if the
combined operations had been conducted during the periods presented or of
future operations of the combined operations.
F-17
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
4. Restructuring Charges
During the fourth quarter of 1996, the Company recorded charges of $65.7
million, consisting of the write-off of goodwill and customer lists of $61.7
million, and a reserve for managerial restructuring expenses, consisting
primarily of severance related expenses, of $4.0 million. The write-off of
goodwill and customer lists principally related to two of the Company's
laboratory operations, which had seen decreasing operating results and cash
flows throughout 1996.
The $4.0 million managerial restructuring expenses related primarily to a
reduction in headcount of approximately 25 employees, including the resignation
of the Company's then Chairman, President and Chief Executive Officer in
January 1997. Most affected employees were terminated in late December through
mid January. At December 31, 1998, approximately $0.5 million of liabilities
were outstanding and such amount is expected to be paid in 1999.
5. Legal and Acquisition Related Charges
During the third quarter of 1996, the Company recorded charges of $4.9
million, primarily related to settlements reached with the United States
("U.S.") Government, and certain other entities in connection with the
Company's sales, marketing and billing practices. The Company agreed to pay the
U.S. Government approximately $4.0 million to conclude an investigation of
certain of Unilab's billings to Medicare and certain other governmental
entities for hematology indices being billed in conjunction with complete blood
counts. The Company has remaining payments to the U.S. Government of $500,000
due March 1, 1999 and approximately $324,000 due on September 1, 1999. All
deferred payments to the U.S. Government bear interest at approximately 5.2
percent. In addition, Unilab paid the California MediCal program approximately
$160,000 in October 1996 to settle all their claims concerning the same issue.
6. Income Taxes
For the years ended December 31, 1998, 1997 and 1996, income (loss) before
income taxes consisted of domestic earnings (losses) and no provision for
Federal or State income taxes was recorded.
A reconciliation between the actual income tax expense and income taxes
computed by applying the statutory Federal income tax rate to earnings before
income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended December
31,
------------------------
1998 1997 1996
------- ----- --------
(in thousands)
<S> <C> <C> <C>
Computed income taxes at U.S. statutory rate...... $ 3,746 $ 188 $(31,601)
Amortization and write-off of goodwill and
intangible assets disallowed for income tax
purposes......................................... 420 420 1,140
Capital and operating losses with no tax benefit.. -- -- 30,461
Change in valuation allowance..................... (4,166) -- --
Other............................................. -- (608) --
------- ----- --------
$ -- $ -- $ --
======= ===== ========
</TABLE>
F-18
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
Temporary differences and carryforwards, excluding the capital loss
carryforward discussed below, which give rise to deferred tax assets are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Bad debt reserve......................................... $ 2,972 $ 2,563
Intangible assets........................................ 9,807 11,752
Property and equipment................................... 383 383
Accrued liabilities...................................... 1,408 2,254
Net operating loss carryforwards......................... 21,166 21,761
-------- --------
35,736 38,713
Valuation allowance...................................... (35,736) (38,713)
-------- --------
$ -- $ --
======== ========
</TABLE>
The realization of the deferred tax assets at December 31, 1998 is dependent
upon the Company having future taxable income. A valuation allowance has been
provided against the entire deferred tax asset balance at December 31, 1998 and
1997. Approximately $4.0 million of benefit, if any, to be recorded from the
recognition of the deferred tax assets would reduce the amount of goodwill
recorded from certain acquisitions.
In addition, the Company has a capital loss of approximately $36.5 million
from the sale of an equity investment in 1995. The capital loss can only be
utilized by the Company to the extent it offsets capital gains generated. A
valuation allowance has also been entirely provided against the available
capital loss at December 31, 1998 and 1997.
The Company has net operating loss and capital loss carryforwards for tax
purposes in the U.S. which are available to offset future taxable income
through 2012 and 2000, respectively. At December 31, 1998, available net
operating loss and capital loss carryforwards for U.S. tax purposes were
approximately $62.0 million and $36.5 million, respectively. Net operating loss
carryforwards for California state tax purposes were approximately $31.0
million.
7. Loss on Sale of Promissory Note
In November 1996, the Company sold a 100% participation interest in its
rights under a $15.0 million promissory note (which the Company received upon
the sale of an equity investment in 1995) to a third party for $11.0 million.
The Company recorded a $4.5 million loss upon the sale, which reflected the
$4.0 million loss in principal plus the write-off of accrued and unpaid
interest from July 1, 1996 through the sale date of $0.5 million.
F-19
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
8. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Senior Notes, interest at 11.0 percent payable semi-
annually................................................ $119,344 $119,253
Convertible subordinated note, interest at 7.5 percent
payable semi-annually................................... 14,000 --
Obligation under capital lease collateralized by land and
building with interest due through 2004................. 2,867 3,054
Obligations under capital leases collateralized by
equipment with interest due through 2000................ 2,165 3,789
-------- --------
138,376 126,096
Less -- current portion.................................. 1,206 1,811
-------- --------
$137,170 $124,285
======== ========
</TABLE>
In March 1996, the Company completed an offering of $120.0 million of senior
notes (the "Senior Notes"). The proceeds from the Senior Notes offering were
used to retire outstanding borrowings under the Company's then existing bank
term loan and revolving line of credit facility in the principal amount of
$102.1 million, plus accrued interest. Interest on the Senior Notes is 11% and
is payable on April 1st and October 1st of each year. The Senior Notes are due
April 2006 and the Company is not required to make any mandatory redemption or
sinking fund payment with respect to the Senior Notes prior to maturity.
In connection with the Senior Notes offering and the accounts receivable
financing discussed below, the Company incurred approximately $5.0 million of
financing costs. The debt financing costs are deferred and amortized, using the
interest method, over the term of the related debt. Upon completion of the
Senior Notes offering, the Company wrote off $3.5 million of deferred financing
costs related to the Company's previous credit facility in the first quarter of
1996. The $3.5 million charge has been shown as an extraordinary loss from the
early extinguishment of debt in the statement of operations.
The Senior Notes were issued at a discount of 99.242% per note. The aggregate
discount on the Senior Notes approximated $0.9 million and is charged to
operations as additional interest expense over the life of the Senior Notes
using the interest method. At December 31, 1998, the unamortized discount
approximated $0.7 million.
The Senior Notes are not redeemable prior to April 1, 2001, after which the
Senior Notes will be redeemable at any time at the option of the Company, in
whole or in part, at various redemption prices as set forth in the indenture
covering such Senior Notes (the "Indenture"), plus accrued and unpaid interest,
if any, to the date of redemption. In addition, at any time prior to April 1,
1999, the Company may redeem up to $42.0 million in aggregate principal amount
of the Senior Notes with the net proceeds of one or more public offerings of
common stock of the Company, at a redemption price of 110% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the redemption
date.
In the event of a change in control, as defined in the Indenture, holders of
the Senior Notes will have the right to require the Company to purchase their
Notes, in whole or in part, at a price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase.
F-20
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
The Notes are general unsecured obligations of the Company and rank pari
passu in right of payment with all unsubordinated indebtedness of the Company.
In addition, the Indenture limits the ability of the Company to incur
additional indebtedness, under certain circumstances.
In connection with the acquisition of Meris (see Note 3), the Company issued
a $14.0 million convertible subordinated note, bearing interest at the rate of
7.5%, payable in cash or in kind, at the Company's option (other than the
interest payment due in November 2006, which will be payable in cash). Interest
is payable on May 5 and November 5 of each year. The note is subordinated to
the Senior Notes and is due in November 2006.
The note is convertible into the Company's common stock at a conversion price
of $3.00 per share; however, the holder of such note cannot exercise its
conversion right unless the Company's average stock price during the thirty day
trading period preceding an offer to convert is equal to or greater than $3.60
a share (the "Offer Date"). The holder of the note can convert up to one-half
of the note during the first four years; any outstanding balance after November
2002 may be converted by the holder through the maturity date. The Company, at
its option, can force conversion of the note, in whole or in part, at any Offer
Date.
In addition, at the Company's option, the note may be redeemed, in whole or
in part, at any Offer Date; provided that the holder of such note may exercise
its conversion right to the extent noted in the preceding paragraph rather than
being redeemed. The redemption price would equal the face value of the note
being redeemed times a premium percentage (the average stock price during the
specified period divided by $3.00). If the note has not been converted or
redeemed prior to maturity, the remaining note balance will be paid in cash at
the then outstanding principal amount of the note. In the event of a change in
control, as defined in the note, the outstanding principal amount of the note
shall be automatically converted into shares of the Company's common stock.
In July 1996, the Company entered into an agreement with a financial
institution whereby it can sell accounts receivable up to a maximum of $20.0
million. As collections reduce accounts receivables which have been sold, the
Company may sell new receivables to bring the amount sold up to a maximum of
$20.0 million.
As of December 31, 1998, the Company had not sold any accounts receivable
under this agreement. Sales of receivables, if any, under the facility are
subject to a liquidity and debt service coverage ratio. The Company was in
compliance with such covenants in 1998. The termination date for the agreement
is July 1999. If the facility terminates prior to July 1999 for any reason, the
Company is obligated to pay a $200,000 early termination fee. A commitment fee
of 1/2 percent is required on the unused portion of the available facility. The
Company retains collection and administrative responsibilities on the
receivables sold as agent for the purchaser. In addition, accounts receivable
sold, if any, will be reflected as a reduction of accounts receivable in the
balance sheet. The full amount of the allowance for doubtful accounts will be
retained because the Company will retain substantially the same risk of credit
loss as if the receivables had not been sold.
At December 31, 1998, future scheduled principle payments of long-term debt
are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
<S> <C>
1999................................ $ 1,206
2000................................ 1,557
2001................................ 442
2002................................ 562
2003................................ 706
Thereafter.......................... 133,903
--------
$138,376
========
</TABLE>
F-21
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
9. Capital Shares, Stock Options and Warrants
a. Convertible Preferred Stock
As of December 31, 1998, the Company has authorized 20,000,000 shares of
preferred stock at $.01 par value. The Board of Directors of the Company will
determine, among other things, the number of shares, voting rights, dividend
rates, liquidation preferences, and redemption and conversion privileges of
each series of such preferred stock. As of December 31, 1998, 18,600,000 shares
for which no series has been designated were authorized and unissued.
The Company has 364,000 shares of convertible preferred stock outstanding at
December 31, 1998. Holders of the convertible preferred stock are entitled to
receive, when and as declared by the Board of Directors of the Company,
cumulative dividends at an annual rate of $0.36 per share, payable semiannually
on June 30 and December 30 in each year. The convertible preferred stock is
convertible on a share for share basis into shares of the Company's common
stock, at the holder's option, at any time from and after November 10, 1996.
36,000 shares of preferred shares were converted into common stock during 1997.
In addition, the convertible preferred stock has a liquidation preference of
$5.75 per share and the Company has the right at its sole option to redeem the
shares any time after November 10, 1998, in whole or in part, at a redemption
price of $5.75 per share plus an amount equal to all declared and unpaid
dividends thereon to the redemption date.
b. Non-Voting Common Stock
At the Company's May 1996 annual meeting of stockholders, an amendment to the
Company's Certificate of Incorporation was approved and adopted by stockholders
permitting the holder of all the 1,050,000 outstanding shares of the Company's
non-voting common stock to convert such shares into regular voting common
stock. In July 1996, all of the outstanding shares of non-voting stock were
converted into shares of the Company's voting common stock on a share for share
basis.
c. Restricted Stock
The Company granted 17,000 restricted shares, 15,000 restricted shares and
99,500 restricted shares of common stock to certain employees at no cost in
1998, 1997 and 1996, respectively. The outstanding restricted shares vest
ratably each year on their anniversary date and become fully vested after a
period of two to five years. The cost of the restricted shares based on the
shares fair market value at the award dates, is charged to shareholders' equity
and subsequently amortized against earnings over the vesting period. At
December 31, 1998, 260,834 restricted shares were outstanding and approximately
$132,000, $192,000 and $351,000 was amortized to expense in 1998, 1997 and
1996, respectively.
d. Stock Options
Employee Stock Option Plan
In 1996, the Company's shareholders approved the adoption of the Unilab
Corporation Stock Option and Performance Incentive Plan (the "1996 Option
Plan") which effectively replaced and superseded both the Stock Option Program
for Key Executives (the "Key Executive Plan") and a stock option plan for the
benefit of a broad base of Company employees (the "1995 Option Plan"). The 1995
Option Plan was amended to discontinue grants under that plan. The 1996 Option
Plan provides one comprehensive plan for all employees and all future grants to
employees will be made under the 1996 Option Plan.
Under the terms of the 1996 Option Plan, incentive stock options, non-
statutory stock options, reload options or rights, stock appreciation rights,
restricted or unrestricted shares of Unilab stock, performance shares or units
and tax offset payments can be granted to any of the Company's employees, with
limited exceptions, and options for a maximum of 4,000,000 shares of the
Company's common stock may be granted. No employee may receive annual awards of
or relating to more than 250,000 shares of Unilab common stock.
F-22
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
The 1996 Option Plan is administered by a committee of the Board of Directors
(the "Administrator"). The number of options or awards granted, exercise price,
vesting and term will be determined by the Administrator. At December 31, 1998,
and 1997, 3,016,999 and 2,202,334 options, respectively, were outstanding under
the aggregate of the 1996 Option Plan, the 1995 Option Plan and the Key
Executive Plan.
Stock Program for Directors
In April 1997, the Company reserved 1,500,000 shares under a plan whereby
members of the Company's Board of Directors may purchase common shares at the
then current market price of the shares (the "1997 Directors Stock Purchase
Plan"). 500,000 shares were purchased in 1997 and 1,000,000 shares remain
outstanding under the 1997 Directors Stock Purchase Plan at December 31, 1998.
In 1996, the Company's shareholders approved the adoption of the Unilab
Corporation Non-Employee Directors Stock Plan (the "1996 Directors Plan"),
which effectively replaced the Stock Option Program for Directors (the "1995
Directors Plan").
Under the terms of the 1996 Directors Plan, each outside director will
receive an annual option grant of 10,000 shares and an additional annual option
grant of 10,000 shares will be awarded to each outside director who serves as
the chairman of a committee or committees of the Board of Directors. 50 percent
of options granted under the 1996 Directors Plans are exercisable immediately
and 50 percent are exercisable in one year.
At December 31, 1998 and 1997, 255,000 and 200,000 options, respectively,
were outstanding under the aggregate of the 1996 and 1995 Directors Plans.
Other
Prior to the adoption of the 1996 Option Plan and the 1996 Directors Plan,
the Company's Board of Directors also authorized the grant of nonqualified
stock options to individuals.
Information regarding the Company's stock option plans and nonqualified stock
options as of December 31, 1996, 1997 and 1998, and changes during the years
ending on those dates is summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Average Exercise
Shares Price
--------- --------
<S> <C> <C>
December 31, 1995........................................ 3,478,500 $5.40
Granted................................................ 681,500 2.11
Exercised.............................................. -- --
Forfeited.............................................. (280,500) 5.56
--------- -----
December 31, 1996........................................ 3,879,500 $4.73
Granted................................................ 1,751,000 0.62
Exercised.............................................. (75,000) 0.63
Forfeited.............................................. (999,166) 4.76
--------- -----
December 31, 1997........................................ 4,556,334 $3.21
Granted................................................ 949,500 2.00
Exercised.............................................. (19,500) 0.79
Forfeited.............................................. (170,835) 4.05
--------- -----
December 31, 1998........................................ 5,315,499 $2.94
--------- -----
</TABLE>
In addition, 105,000 options were repriced from a weighted average price of
$5.16 to $2.19 during 1996. The options outstanding at December 31, 1998 expire
in various years through the year 2008. Options exercisable at December 31,
1998, 1997 and 1996 were 3,804,997, 2,940,907 and 3,049,255, respectively.
F-23
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
The weighted average fair value of options granted during 1998, 1997 and 1996
were $1.55, $0.55 and $1.90, respectively. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1998, 1997
and 1996, respectively: risk-free interest rates of 5.8 percent, 6.9 percent
and 6.1 percent; expected lives of 9.08 years, 9.09 years, 8.49 years; expected
volatility of 64.2 percent, 91.7 percent and 95.6 percent and no dividends
would be issued during the option terms.
Information about stock options outstanding at December 31, 1998, is
summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Weighted-
Average Weighted
Number Remaining Average
Range of Outstanding Contracted Exercise
Exercise Prices at 12/31/98 Life Price
--------------- ----------- ---------- --------
<S> <C> <C> <C>
$0.438 to $2.0 2,124,250 7.8 years $0.90
$2.063 to $4.0 1,117,333 8.1 years $2.16
$4.125 to $6.875 2,073,916 5.2 years $5.46
---------
5,315,499 6.9 years $2.94
=========
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Weighted-
Number Average
Range of Exercisable Exercise
Exercise Prices at 12/31/98 Price
--------------- ----------- ---------
<S> <C> <C>
$0.438 to $2.0 1,277,415 $0.84
$2.063 to $4.0 468,666 $2.26
$4.125 to $6.875 2,058,916 $5.47
---------
3,804,997 $3.52
=========
</TABLE>
The Company accounts for its stock option plans under Accounting Principle
Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which
no compensation cost has been recognized. Had compensation cost for the
Company's stock option plans been determined consistent with Statement of
Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation", the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
Years Ended December
31,
------------------------
1998 1997 1996
------- ------ --------
(in thousands)
<S> <C> <C> <C>
Net income (loss)
As Reported..................................... $10,703 $ 536 $(92,944)
Pro Forma....................................... $ 9,423 $ (508) $(94,391)
Net income (loss) per diluted share
As Reported..................................... $ 0.25 $ 0.01 $ (2.53)
Pro Forma....................................... $ 0.22 $(0.01) $ (2.57)
</TABLE>
Because the FAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting compensation cost may not be
representative of that to be expected in future years.
F-24
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
e. Stockholder Protection Rights Plan
In February 1994, the Company adopted a stockholder Protection Rights Plan,
which was amended and restated in February 1996 ("Rights Plan"). Pursuant to
the Rights Plan, a dividend of one Right for each outstanding share of the
Company's common stock was issued to shareholders of record on March 15, 1994.
Under certain conditions, each Right may be exercised to purchase one one-
hundredth of a share of Series A Junior Participating Preferred Stock at a
price of $22.50 for each share of common stock held. The Rights are exercisable
until 10 days after a person or group acquires 15% or more of the Company's
common stock or announces a tender or exchange offer, the consummation of which
would result in ownership by such person or group of 15% or more of the
Company's common stock. If thereafter, a person or group acquires 15% or more
of Unilab's outstanding Common Stock, each Right will entitle its holder (other
than such person or members of such group) to purchase, at the Right's then-
current purchase price, in lieu of one one-hundredth of a share of Preferred
Stock, a number of shares of Unilab's Common Stock having a market value of
twice the Right's purchase price. In addition, should Unilab be acquired in a
merger or other business combination, 50% or more of its assets or earning
power is sold or transferred, or a reclassification or recapitalization of the
Company occurs that has the effect of increasing by more than 1% the
proportionate ownership of Unilab's stock by the acquiring person, then, each
Right will entitle its holder to purchase, at the Right's then-current purchase
price, a number of the acquiring company's shares of common stock having a
market value at that time of twice the Right's purchase price.
The Rights may be redeemed prior to becoming exercisable by the Company,
subject to approval of the Board of Directors, for one cent per Right in
accordance with the provisions of the Rights Plan. The Rights expire on March
15, 2004. The Company has reserved 1,000,000 shares of Series A Junior
Participating Preferred Stock for issuance upon exercise of the Rights.
10. Related Party Transactions
The Company sold 533,333 shares, valued at $0.3 million at the time of
issuance, to its former CEO pursuant to transition agreements between the
former CEO and the Company in connection with the CEO's resignation in January
1997. The Company extended a $0.5 million loan to its current CEO for the
purchase of 1.1 million shares of the Company's common stock in January 1997.
The CEO repaid $250,000 of the loan during 1997 and the remaining $250,000 is
due in January 2002. The loan bears interest at 6% and is payable quarterly. In
addition, in 1997, the Company sold 500,000 shares, valued at approximately
$0.3 million at the time of issuance, to a director of the Company pursuant to
the 1997 Directors Stock Purchase Plan. Each of these transactions were
consummated at the then prevailing market price of the Company's common stock.
The Company guaranteed a loan of $0.4 million at December 31, 1998 made by a
bank to an executive of the Company. The loan was used to purchase a residence
and such residence serves as collateral for the Company's guarantee.
11. Commitments and Contingencies
Property and equipment leased under capital leases is as follows:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Building.................................................... $ 3,100 $ 3,100
Laboratory and other equipment.............................. 5,638 7,283
Less--Accumulated amortization.............................. 4,934 5,158
Net leased property under capital leases.................... $ 3,804 $ 5,225
</TABLE>
F-25
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
As of December 31, 1998, future minimum rental payments required under
capital and operating leases that have initial or remaining noncancelable terms
in excess of one year are approximately as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
1999....................................................... $1,854 $ 9,696
2000....................................................... 2,039 5,720
2001....................................................... 782 4,163
2002....................................................... 822 2,616
2003....................................................... 863 2,067
Thereafter................................................. 594 1,772
------ -------
Total minimum lease payments............................... $6,954 $26,034
-------
Less: Amount representing interest......................... 1,922
------
Present value of net minimum lease payments................ $5,032
======
</TABLE>
Rental expense for operating leases was approximately $10.8 million, $10.2
million and $9.6 million in 1998, 1997 and 1996, respectively.
The Company has employment agreements with its principal officers and certain
other key employees. Such agreements expire at various dates through November
10, 1999 and automatically renew for successive one or two year periods,
depending on the employee, until one of the parties gives notice of termination
in accordance with the agreement. The agreements also provide for annual
bonuses for certain officers and key employees, dependent upon the achievement
of certain performance objectives. In addition, the agreements for certain
employees provide for annual deferred compensation equal to 8% of the
employees' cash compensation (inclusive of bonuses) for the year. The aggregate
commitment under these agreements, excluding bonuses and any deferred
compensation related thereto, is approximately $2.2 million. The Company may
terminate the employment agreements without cause on specified advance notice
by providing severance pay equal to one to two times, depending on the
employee, the current base salary plus certain other benefits.
In addition, the employment agreements grant these employees the right to
receive two times their annual salary and bonus, plus continuation of certain
benefits and acceleration of certain stock options, if there is a change in
control of the Company (as defined) and a termination of such employees or
certain other events within two years thereafter. The maximum contingent
liability upon a change in control, excluding any bonus, deferred compensation,
continuation of benefits or acceleration of stock options, is approximately
$3.5 million.
The Company is party to certain legal proceedings considered incidental to
its business. Although the ultimate disposition of these legal proceedings is
not determinable, management does not believe that the ultimate outcome of such
legal proceedings will have a material adverse effect upon the financial
condition, liquidity or results of operations of the Company.
12. Benefit Plans
The Company provides a savings plan under Section 401(k) of the Internal
Revenue Code covering most employees. The expense related to Company
contributions to the plan totaled approximately $0.3 million, $0.1 million and
$0.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Effective January 1, 1995, the Company contributions, which were
previously made in cash, were made in shares of Unilab common stock. From
September 1, 1996 to September 30, 1997, the Company discontinued its matching
contributions. Effective October 1, 1997, the Company partially re-instated its
matching contributions. Such contributions were made in shares of Unilab common
stock. Effective January 1, 1998, the Company made Company contributions in
cash, which were used to purchase Company common stock by the plan's trustee.
F-26
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
Effective January 1, 1995, the Company adopted the Unilab Corporation
Executive Retirement Plan (the "SERP"), an unfunded defined contribution plan,
for the benefit of designated key employees. The benefit earned each year is
issued into participants' account through memorandum shares, which represent
rights to receive stock of the Company at a future date. The SERP limits the
aggregate number of shares issued annually to 200,000 shares and the memorandum
shares granted each year vest ratably over a three-year period. As of December
31, 1998, 457,195 memorandum shares were outstanding, of which 308,415 were
vested at December 31, 1998. The benefit formula to determine amounts earned by
participants is primarily based on the employee's final five-year average
compensation and years of service. Compensation expense is recorded each year
for the amount of shares that vest and changes in the price of the Company's
common stock. Pension (income) expense for the SERP was approximately $407,000,
$271,000 and ($153,000) in 1998, 1997 and 1996, respectively. At December 31,
1998, the accumulated obligation recognized as a liability in the balance sheet
was approximately $732,000. The weighted average discount rate and rate of
increase in future compensation levels used in determining the present value of
benefit obligations were 6.0% and 3.8% in 1998, 6.6% and 3.8% in 1997 and 6.1%
and 3.8% in 1996.
13. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest...................................... $ 13,419 $ 14,063 $ 12,139
Income taxes.................................. 2 1 9
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Restricted shares of common stock issued to
employees.................................... 32 16 107
Shares issued for Company's 401(k) plan
matching contributions....................... 25 49 548
Shares issued to certain Board Directors and a
consultant for services rendered............. 160 64 61
Payment of purchase price for a prior
acquisition in common shares................. -- -- 1,000
In connection with business acquisitions,
liabilities were assumed as follows:
Fair value of assets acquired................. $ 18,734 $ -- $ --
Liabilities assumed........................... $ 18,734 $ -- $ --
</TABLE>
During 1997, the Company issued 500,000 shares, valued at $0.2 million at the
time of issuance, to the Company's former CEO in connection with the CEO's
resignation. In 1997, the Company also issued 228,571 shares, valued at $0.1
million at the time of issuance, to the Company's current CEO as a bonus
pursuant to an employment agreement. In addition, the Company issued in 1997
approximately 169,000 shares, valued at $0.3 million at the time of issuance,
to all full-time employees as a special year-end bonus. In the fourth quarter
of 1996, the Company wrote off $61.7 million of goodwill and customer lists.
F-27
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
14. Quarterly Financial Data (unaudited)
Summarized unaudited quarterly financial data for 1998 and 1997 (in
thousands, except per share data) is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue................................... $54,530 $54,356 $53,160 $55,324
Direct laboratory and field expenses:
Salaries, wages and benefits............ 16,823 16,567 16,255 18,097
Supplies................................ 7,613 7,492 7,480 8,086
Other operating expenses................ 13,129 13,200 13,075 14,190
Total................................. 37,565 37,259 36,810 40,373
Amortization and depreciation............. 1,985 1,941 1,848 1,818
Selling, general and administrative
expenses................................. 8,534 8,324 8,132 8,540
Operating income.......................... 6,446 6,832 6,370 4,593
Net income................................ 3,072 3,446 3,062 1,123
Net income available to common
shareholders............................. 3,039 3,413 3,029 1,091
Per common share data-diluted:
Net income.............................. $ 0.07 $ 0.08 $ 0.07 $ 0.03
Price Range:
High.................................... 3.00 3.125 2.625 2.375
Low..................................... 1.688 2.375 1.75 1.625
<CAPTION>
Year Ended December 31, 1997
--------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue................................... $53,033 $54,027 $54,238 $52,703
Direct laboratory and field expenses:
Salaries, wages and benefits............ 17,820 17,352 17,174 16,748
Supplies................................ 7,551 7,616 7,488 7,203
Other operating expenses................ 13,982 14,593 14,649 13,766
Total................................. 39,353 39,561 39,311 37,717
Amortization and depreciation............. 2,153 2,312 2,210 2,210
Selling, general and administrative
expenses................................. 9,155 8,539 8,491 8,385
Operating income.......................... 2,372 3,615 4,226 4,391
Net income (loss)......................... (1,135) 54 691 926
Net income (loss) available to common
shareholders............................. (1,171) 18 655 896
Per common share data-diluted:
Net income (loss)....................... $ (0.03) $ 0.00 $ 0.02 $ 0.02
Price Range:
High.................................... 0.875 1.125 1.813 2.125
Low..................................... 0.438 0.563 1.125 1.50
</TABLE>
F-28
<PAGE>
UNILAB CORPORATION
NOTES TO FINANCIAL STATEMENTS
Fourth Quarter--1998
Effective November 5, 1998, the Company acquired substantially all of the
assets of Meris. During the integration period between November 5, 1998 and
late December 1998, the Company estimates that the Meris operations had a
negative $1.2 million impact on operating profit for the quarter.
Fourth Quarter 1998 and 1997
Testing volume generally tends to be lower during the holiday seasons. As a
result, because a substantial portion of the Company's expenses are relatively
fixed over the short term, the Company's operating income as a percentage of
revenue tends to decrease during the fourth quarter, mainly due to the
Christmas and Thanksgiving holidays.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Unilab Corporation
We have audited in accordance with generally accepted auditing standards, the
balance sheets as of December 31, 1998 and 1997, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1998 included in Unilab Corporation's
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 12, 1999. Our audits were made
for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedule listed in Item 14a(2) for the years ended December 31,
1998, 1997 and 1996 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Los Angeles, California
February 12, 1999
F-30
<PAGE>
Schedule II
UNILAB CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
<CAPTION>
Balance Charged
at to Costs Balance
Beginning and End of
of Period Expenses Deductions Period
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1996;
Allowance for doubtful accounts........ $ 8,454 $ 14,180 $ (13,296) $ 9,338
FOR THE YEAR ENDED DECEMBER 31, 1997;
Allowance for doubtful accounts........ $ 9,338 $ 15,663 $ (15,182) $ 9,819
FOR THE YEAR ENDED DECEMBER 31, 1998;
Allowance for doubtful accounts........ $ 9,819 $ 15,662 $ (14,668) $ 10,813
</TABLE>
F-31
<PAGE>
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.
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.
Odenberg, Ullakko, Muranishi & Co.
San Francisco, California
November 12, 1998
F-32
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31
September 30, ------------------
1998 1997 1996
------------- -------- --------
(Unaudited)
<S> <C> <C> <C>
ASSETS
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
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine months
ended Years ended December 31
September 30, ------------------------
1998 1997 1996
------------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Net revenues.......................... $19,727 $ 29,903 $ 34,106
------- ----------- -----------
Costs of services:
Salaries, wages and benefits........ 6,763 12,507 12,227
Supplies............................ 3,267 4,946 5,144
Other cost of services.............. 6,341 7,208 7,197
------- ----------- -----------
16,371 24,661 24,568
Selling, general and administrative
expenses............................. 8,351 15,785 12,019
Depreciation and amortization......... -- 2,240 3,302
Provision for doubtful accounts....... 2,266 1,577 5,798
Litigation and investigation charges.. 990 1,241 4,072
Write-down of intangible assets....... -- 1,720 7,552
Write-off of fixed assets............. -- 1,982 --
------- ----------- -----------
Operating loss........................ (8,251) (19,303) (23,205)
Interest expense...................... (354) (4,538) (2,786)
Interest and other income, net........ -- 92 159
------- ----------- -----------
Net loss.............................. $(8,605) $ (23,749) $ (25,832)
======= =========== ===========
Net loss per share.................... $ (1.07) $ (2.95) $ (3.23)
======= =========== ===========
Weighted average shares outstanding... 8,044 8,044 8,006
======= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(In thousands, except per share data)
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
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)
===== ======= ==== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine months
ended Years ended December 31,
September 30, --------------------------
1998 1997 1996
------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Operations:
Net loss........................... $(8,605) $ (23,749) $ (25,832)
Items not requiring the current use
of cash:
Depreciation and amortization.... -- 2,240 3,302
Amortization of debt discount and
issue costs..................... -- 446 531
Provision for doubtful accounts.. -- -- --
Provision for litigation and
investigation charges........... -- -- 3,282
Write-down of intangible assets.. -- 1,720 7,552
Write-down of property and
equipment....................... -- 1,982 --
Gain on sale of property and
equipment....................... -- (13) (71)
Compensation expense related to
loan forgiveness, charge for
unrealizable note receivable,
and discounted stock options.... -- -- --
Changes in items affecting
operations:
Restricted cash................ (57) (14) (380)
Accounts receivable............ 780 521 6,584
Income tax refund receivable... -- -- 384
Supplies inventory............. 66 (28) 238
Prepaid expenses and other
current assets................ 471 (404) (447)
Other assets................... -- 175 (97)
Accounts payable............... -- 1,359 963
Accrued expenses............... 870 384 (159)
Accrued litigation and
investigation charges......... (196) (2,161) (779)
------- ------------ ------------
Cash provided by (used in)
operating activities.......... (6,671) (17,542) (4,929)
Investments:
Cash expenditures for customer
lists and other assets related to
acquisitions...................... -- -- (920)
Proceeds from notes receivable..... -- 160 104
Purchase of property and
equipment......................... (21) (1,999) (334)
Proceeds from sale of property and
equipment......................... -- 13 99
------- ------------ ------------
Cash used for investing
activities...................... (21) (1,826) (1,051)
------- ------------ ------------
Financing:
Issuance of common stock, net...... -- -- 35
Proceeds from bank borrowings...... 6,554 19,707 5,510
Payments on bank borrowings........ -- -- --
Principal payments on capital
leases............................ (190) (290) (503)
Reduction in distribution payable
to related parties................ -- -- --
------- ------------ ------------
Cash provided by financing
activities...................... 6,364 19,417 5,042
------- ------------ ------------
Increase (decrease) in cash and cash
equivalents......................... (328) 49 (938)
Cash and cash equivalents at
beginning of period................. 601 552 1,490
------- ------------ ------------
Cash and cash equivalents at end of
period.............................. $ 273 $ 601 $ 552
======= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years
ended
Nine months December
ended 31,
September 30, ---------
1998 1997 1996
------------- ---- ----
(Unaudited)
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid--capital leases........................ $ 12 $ 28 $ 35
==== ==== ====
Interest paid--borrowing............................. $-- $-- $451
==== ==== ====
Income taxes paid.................................... $-- $-- $--
==== ==== ====
Supplemental disclosure of non-cash investing and
financing activities:
Capital lease obligations incurred for acquisition of
property and equipment.............................. $-- $219 $247
==== ==== ====
Reduction in consulting agreements related to
acquisition......................................... $-- $-- $--
==== ==== ====
Accrued transaction costs related to acquisitions.... $-- $-- $--
==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<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.
F-38
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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% and
22.9% of net revenues for the years ended December 31, 1997 and 1996,
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.
F-39
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<CAPTION>
December 31,
1997
--------------
(in thousands)
<S> <C>
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
=======
</TABLE>
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
F-40
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 and $7,552,000 was charged to
operations for the years ended December 31, 1997 and 1996, 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
effective 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.
F-41
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3--Balance sheet detail:
<TABLE>
<CAPTION>
December 31,
1996
--------------
(in thousands)
<S> <C>
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 and 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
=======
</TABLE>
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."
F-42
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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."
F-43
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1998.......................................................... $ 699,600
1999.......................................................... 699,600
2000.......................................................... 699,600
2001.......................................................... 699,600
2002.......................................................... 233,200
----------
$3,031,600
==========
</TABLE>
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:
<TABLE>
<CAPTION>
Years ended
December 31,
-------------
1997 1996
------ ------
<S> <C> <C>
Current tax expense............................................ $ -- $ --
Deferred tax expense........................................... -- --
------ ------
Total........................................................ $ -- $ --
====== ======
</TABLE>
The net deferred income tax asset comprises:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
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)
-------- --------
$ -- $ --
======== ========
</TABLE>
F-44
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Federal statutory rate....................................... (35.0)% (35.0)%
State income taxes, net of federal tax benefit............... (6.5)% (6.5)%
Deferred tax assets not recognized........................... 41.5% 41.5%
------ ------
0.0% 0.0%
====== ======
</TABLE>
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
F-45
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-46
<PAGE>
MERIS LABORATORIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Physicians Clinical Laboratory,
Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of
Physicians Clinical Laboratory, Inc. and its subsidiary at February 28, 1999,
and the results of their operations and their cash flows for the fiscal year
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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 audit provides a reasonable basis for the
opinion expressed above. The consolidated financial statements of Physicians
Clinical Laboratory, Inc. and its subsidiary for the five month period ended
February 28, 1998, the seven month period ended September 30, 1997, and the
fiscal year ended February 28, 1997 were audited by other auditors whose
reports dated August 31, 1998 and May 9, 1997 on those statements included an
explanatory paragraph expressing substantial doubt about the Company's ability
to continue as a going concern.
As discussed in Note 17, the Company consummated on May 9, 1999 the sale of
its business and substantially all of its assets and ceased operations. The
Company used part of the net sales proceeds to repay its line of credit, and
plans to liquidate and distribute the remaining sales proceeds to its Senior
Secured Note holder. 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. As discussed in Note 14, the Company is a defendant in several
lawsuits. At February 28, 1999, the Company has not recorded a liability for
amounts which may be payable as a result of 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 that might result from the outcome of these uncertainties.
Odenberg, Ullakko, Muranishi & Co.
San Francisco, California
July 16, 1999
F-48
<PAGE>
REPORT OF INDEPENDENT CERTIFICATE PUBLIC ACCOUNTANTS
To the Stockholders
Physicians Clinical Laboratory, Inc.
We have audited the accompanying consolidated balance sheet of Physicians
Clinical Laboratory, Inc.(a Delaware corporation) and subsidiaries as of
February 28,1 998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the five month period ended
February 28, 1998 and the seven month period ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Physicians
Clinical Laboratory, Inc. and subsidiaries as of February 28, 1998 and the
consolidated results of their operations and their cash flows for the five
month period ended February 28, 1998 and the seven month period ended September
30, 1997 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Physicians Clinical Laboratory, Inc. will continue as a going concern. As
more fully described in Notes 1 and 3 to the consolidated financial statements,
the Company has suffered recurring losses from operations and is in default of
loan covenants, which raises substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
On April 5, 1999, as discussed in note 17 to the consolidated financial
statements, the Company entered into an agreement to sell the business and
substantially all assets.
As more fully described in Notes 1 and 2 to the consolidated financial
statements, effective October 3, 1997, the Company emerged from bankruptcy. In
accordance with an American Institute of Certified Public Accountants'
Statement of Position, the Company has adopted "fresh start" reporting whereby
its assets, liabilities and new capital structure have been adjusted to reflect
estimated fair values as of September 30, 1997. As a result, the consolidated
financial statements for periods subsequent to September 30, 1997 reflect this
basis of reporting and are not comparable to the Company's pre-reorganization
consolidated financial statements.
Grant Thornton LLP
Sacramento, California
August 31, 1998, except for
Notes 3 and 5 as to which the
date is October 29, 1998 and
except for Note 17 as to which
the date is April 5, 1999
F-49
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders of Physicians Clinical Laboratory, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' deficit and cash flows of Physicians Clinical Laboratory, Inc.
for the year ended February 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Physicians Clinical Laboratory, Inc. for the year ended February 28, 1997, in
conformity with generally accepted accounting principles.
The financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. As more fully described in the
accompanying financial statements and notes, the Company has incurred recurring
operating losses. In addition, the Company has not complied with certain
covenants of loan agreements with financial institutions. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effects that may result from the outcome of this uncertainty.
Ernst & Young LLP
Sacramento, California
May 9, 1997
F-50
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 420,718 $ 190,013
Current assets held for sale..................... 12,390,000 --
Trade accounts receivable, net of allowance for
doubtful accounts of $2,245,986, including
$476,642 from related parties................... -- 10,931,708
Supplies inventory............................... -- 1,180,920
Prepaid costs and other assets................... 524,540 394,474
------------ ------------
Total current assets........................... 13,335,258 12,697,115
Equipment and leasehold improvements, less
accumulated depreciation and amortization of
$594,972.......................................... -- 2,531,448
Assets held for sale............................... 21,657,940 --
Reorganization value in excess of amounts allocable
to identifiable assets, less accumulated
amortization of $1,571,000........................ -- 24,012,605
Other long-term assets............................. 444,231 424,131
------------ ------------
$ 35,437,429 $ 39,665,299
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt........... $ 56,697,329 $ 48,360,853
Line of credit................................... 4,658,014 4,517,766
Accounts payable................................. 7,589,316 5,117,344
Accrued payroll and vacation..................... 1,982,977 2,216,057
Accrued interest................................. 3,619,627 2,730,411
Other accrued expenses........................... 2,672,686 3,293,075
------------ ------------
Total current liabilities...................... 77,219,949 66,235,506
Long-term debt, less current installments.......... 9,210,040 2,346,173
------------ ------------
Total liabilities.............................. 86,429,989 68,581,679
------------ ------------
Commitments and contingencies (Notes 11, 12, and
14)............................................... -- --
Stockholders' deficit:
Preferred stock, par value $0.01 per share--20
million shares authorized; none issued or
outstanding..................................... -- --
Common stock, par value $0.01 per share--50
million shares authorized; 2.5 million shares
issued and outstanding.......................... 25,000 25,000
Additional paid-in capital....................... 22,775,000 22,775,000
Accumulated deficit.............................. (73,792,560) (51,716,380)
------------ ------------
Total stockholders' deficit.................... (50,992,560) (28,916,380)
------------ ------------
$ 35,437,429 $ 39,665,299
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-51
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------- ---------------------------
Fiscal year Five months Seven months Fiscal year
ended ended ended ended
February 28, February 28, September February 28,
1999 1998 30, 1997 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net revenue:
Net revenue from third parties..................................... $ 53,404,926 $ 25,432,951 $ 39,466,458 $ 60,422,858
Net revenue from related parties................................... 2,166,905 740,462 856,377 2,407,989
------------ ------------ ------------ -------------
Total net revenue................................................ 55,571,831 26,173,413 40,322,835 62,830,847
Direct laboratory costs.............................................. 24,096,059 9,839,627 15,775,669 23,117,090
------------ ------------ ------------ -------------
Gross profit..................................................... 31,475,772 16,333,786 24,547,166 39,713,757
Laboratory support costs............................................. 18,553,460 7,328,075 11,233,414 20,013,962
------------ ------------ ------------ -------------
Laboratory profit................................................ 12,922,312 9,005,711 13,313,752 19,699,795
Selling, general and administrative.................................. 15,785,249 7,093,342 10,652,308 24,880,448
Provision for doubtful accounts...................................... 4,223,393 2,245,986 2,908,004 8,843,252
Reorganization charges............................................... -- 503,470 1,982,032 1,558,820
Depreciation and amortization........................................ 3,668,861 2,170,769 2,910,593 9,698,163
Write-down of intangibles and equipment and leasehold improvements... 1,330,673 45,327,000 -- 59,371,934
------------ ------------ ------------ -------------
Operating loss................................................... (12,085,864) (48,334,856) (5,139,185) (84,652,822)
Interest expense..................................................... (9,878,333) (3,568,405) (10,491,718) (15,838,895)
Interest income...................................................... 31,466 1,634 8 21,855
Nonoperating income (expense), net................................... 144,551 185,247 (2,294,285) (1,708,848)
------------ ------------ ------------ -------------
Loss before income taxes and extraordinary items................. (21,788,180) (51,716,380) (17,925,180) (102,178,710)
Provision for state income taxes..................................... 288,000 -- -- --
------------ ------------ ------------ -------------
Loss before extraordinary items.................................. (22,076,180) (51,716,380) (17,925,180) (102,178,710)
Fresh start adjustment............................................... -- -- 60,053,472 --
Gain on extinguishment of debt, net of taxes
of $0............................................................... -- -- 121,128,723 3,500,000
------------ ------------ ------------ -------------
Net (loss) income................................................ $(22,076,180) $(51,716,380) $163,257,015 $ (98,678,710)
============ ============ ============ =============
Loss per common share basic and diluted.............................. $ (8.83) $ (20.69) * *
============ ============
Weighted average common shares outstanding........................... 2,500,000 2,500,000 * *
============ ============
</TABLE>
- --------
* Loss per share amount as it relates to the predecessor company is not
meaningful due to the reorganization.
See accompanying notes to consolidated financial statements.
F-52
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
---------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at February 29,
1996................... 6,033,087 $60,331 $15,536,906 $(80,209,821) $(64,612,584)
Net loss............... -- -- -- (98,678,710) (98,678,710)
Proceeds from exercise
of capital
stock options......... 38,332 383 33,896 -- 34,279
---------- ------- ----------- ------------ ------------
Balance at February 28,
1997................... 6,071,419 60,714 15,570,802 (178,888,531) (163,257,015)
Net income--Predecessor
Company............... -- -- -- 163,257,015 163,257,015
Issuance of stock for
debt.................. 2,500,000 25,000 22,775,000 -- 22,800,000
Retired under plan of
reorganization........ (6,071,419) (60,714) 60,714 -- --
Fresh start
adjustments........... -- -- (15,631,516) 15,631,516 --
---------- ------- ----------- ------------ ------------
Balance at September 30,
1997................... 2,500,000 25,000 22,775,000 -- 22,800,000
Net loss--Reorganized
Company............... -- -- -- (51,716,380) (51,716,380)
---------- ------- ----------- ------------ ------------
Balance at February 28,
1998................... 2,500,000 25,000 22,775,000 (51,716,380) (28,916,380)
Net loss............... -- -- -- (22,076,180) (22,076,180)
---------- ------- ----------- ------------ ------------
Balance at February 28,
1999................... 2,500,000 $25,000 $22,775,000 $(73,792,560) $(50,992,560)
========== ======= =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-53
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------- --------------------------
Fiscal year Five months Seven months Fiscal year
ended ended ended ended
February 28, February 28, September February 28,
1999 1998 30, 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operations:
Net (loss) income................................................... $(22,076,180) $(51,716,380) $163,257,015 $(98,678,710)
Items not requiring current use of cash:
Fresh start adjustments............................................ -- -- (60,087,877) --
Gain on debt extinguishment........................................ -- -- (121,128,723) --
Write-down of equipment and leasehold improvements................. 1,330,673 -- -- --
Medicare/MediCal settlement in debt................................ -- -- 2,100,000 --
Interest payments made in kind..................................... 6,798,000 -- -- --
Depreciation, amortization and write down of intangible and other
assets............................................................ 3,668,861 47,497,769 2,910,593 69,070,097
Provision for doubtful accounts.................................... 2,151,034 2,245,986 2,908,004 8,843,252
Amortization of debt discount...................................... 1,427,000 588,000 -- --
Net changes in operating assets and liabilities.................... 1,032,249 (1,879,888) 7,511,988 19,626,940
------------ ------------ ------------ ------------
Cash used in operating activities................................. (5,668,363) (3,264,513) (2,529,000) (1,138,421)
------------ ------------ ------------ ------------
Investments:
Increase in intangible assets in connection with acquisitions....... -- -- -- (1,632,968)
Net acquisitions and disposals of equipment and leasehold
improvements....................................................... (569,237) (79,189) (194,655) 366,613
------------ ------------ ------------ ------------
Cash used in investing activities................................. (569,237) (79,189) (194,655) (1,266,355)
------------ ------------ ------------ ------------
Financing:
Borrowings of debt.................................................. 7,000,000 4,517,766 4,556,818 5,443,182
Payments of debt.................................................... (531,695) (3,082,155) (235,575) 536,016
Gain on extinguishment of debt...................................... -- -- -- (3,500,000)
Proceeds from issuance of common stock.............................. -- -- -- 34,279
------------ ------------ ------------ ------------
Cash provided by financing activities............................. 6,468,305 1,435,611 4,321,243 2,513,477
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents................. 230,705 (1,908,091) 1,597,588 108,701
Cash and cash equivalents, beginning of period....................... 190,013 2,098,104 500,516 391,815
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period............................. $ 420,718 $ 190,013 $ 2,098,104 $ 500,516
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-54
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--REORGANIZATION:
Physicians Clinical Laboratory, Inc. and subsidiary ("PCL" or the "Company")
provides clinical laboratory services in the State of California. The Company
is a "hybrid" among clinical laboratory companies in that it serves both as a
traditional reference laboratory for office based physician-clients and as an
independent clinical laboratory for regional acute care hospitals. PCL
operates within the health care industry which is undergoing significant
changes such as managed care (including capitated payment arrangements),
proposed federal and state health care reform measures, third party payor
reimbursement decreases (including Medicare, MediCal and private insurance),
industry consolidation and increasing regulation of laboratory operations.
On November 8, 1996, the Company and all of its then subsidiaries filed a
petition for relief under Chapter 11 of the Federal Bankruptcy Laws in the
United States Bankruptcy Court. The Bankruptcy court confirmed the Company's
Second amended Plan of Reorganization (Plan) on April 18, 1997 and the Company
emerged from bankruptcy on October 3, 1997, the effective date of the Plan.
During the period from November 8, 1996 through October 3, 1997, the Company
operated as debtor-in-possession. The plan reflects the results of
negotiations among the parties-in-interest and Nu-Tech Bio-Med, Inc. ("Nu-
Tech"), which resulted inNu-Tech's investment of $14.8 million into the
Company in return for the majority of new common stock.
The Company received approval from the Bankruptcy Court to pay or otherwise
honor certain of its prepetition obligations, including employee wages. Credit
arrangements entered into subsequent to theChapter 11 filings are described
below:
Under the plan, holders of claims and interests were settled as follows:
. Nu-Tech received 890,000 shares (35.6%) of the reorganized Company's
common stock in exchange for its holdings of senior secured debts.
. Nu-Tech received 425,000 shares (17%) of the reorganized Company's common
stock as a result of the purchase of Medical Science Institute (MSI) by
the Company from Nu-Tech (see Note 16).
. Senior Lenders received $55 million in new senior secured promissory
notes and 952,500 shares (38.1%) of the reorganized Company's common
stock.
. The holders of the Company's Subordinated Debentures received 232,500
shares (9.3%) of the reorganized Company's common stock.
. The Company's general unsecured creditors received a pro rata share of
$2.45 million in cash, plus a $400,000 non-interest bearing note due
October, 1998.
. Priority tax claims received deferred cash payments payable in quarterly
installments over 6 years plus interest.
. The Debtor-in-Possession financing facility was forgiven in full.
. The Company's existing stockholders received warrants to purchase up to
5% of the shares of the reorganized Company's common stock at a price of
$13.30 per share.
. All previously outstanding stock options and warrants were cancelled.
In accordance with the Plan, effective October 3, 1997, all previous wholly-
owned subsidiaries were merged into the Company and the Certificate of
Incorporation of the Company was amended whereby the authorized number of
shares of common stock was changed to 50,000,000 shares with a par value of
$.01 per share. Each original outstanding share of common stock of the Company
was cancelled.
F-55
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Upon consummation of the Plan, the Company recognized an extraordinary gain
on debt discharge of approximately $121 million, which represented forgiveness
of debt, reduced by the estimated fair value of common stock and new debt
issued under the Plan. There was no tax expense recorded on the gain due to the
net operating loss carryforwards available at September 30, 1997. The Company's
new senior debt was stated at the present value of amounts to be paid,
determined at estimated current interest rates on October 3, 1997. This
adjustment to present value resulted in an aggregate carrying amount for the
senior debt which is less than the aggregate principal amount thereof, and will
result in the amortization of the difference into interest expense over the
term of the debt.
NOTE 2--FRESH START REPORTING:
The Company has accounted for the reorganization using the principles of
fresh start accounting, as required by Statement of Position 90-7 ("SOP 90-7"),
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,
issued by the American Institute of Certified Public Accountants. Fresh start
accounting is required because pre-reorganization stockholders received less
than 50% of the new common stock and the reorganization value of the assets of
the reorganized Company is less that the total of all post-petition liabilities
and allowed claims.
Under the principles of fresh start accounting, the Company's total assets
were recorded at their assumed reorganization value, with the reorganization
value allocated to identifiable assets on the basis of their estimated fair
value. Accordingly, the Company's property and equipment and other assets were
reduced by approximately $10.8 million. In addition, the Company's accumulated
deficit of approximately $76 million was eliminated. The excess of the
reorganization value over the value of identifiable assets is reported as
"reorganization value in excess of amounts allocable to identifiable assets".
The total reorganization value was determined in consideration of several
factors. The methodology employed involved estimation of the Company's
enterprise value (the market value of stockholders' equity and the Company's
debt), taking into account the new investment by Nu-Tech and market rates for
similar debt instruments. This resulted in an estimated reorganization value of
approximately $87 million, of which the reorganization value in excess of
amounts allocable to identifiable assets was approximately $71 million. The
excess reorganization value will be amortized over 15 years.
For accounting purpose, the effects of the Plan and fresh start accounting
have been recorded as of September 30, 1997. Accordingly, all financial
statements for any period prior to September 30, 1997 are referred to as
"Predecessor Company" as they reflect the periods prior to the implementation
of fresh start accounting and are not comparable to the financial statements
for periods after the implementation of fresh start accounting.
F-56
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effect of the Plan and the implementation of fresh start accounting on
the Company's consolidated balance sheet as of September 30, 1997 was as
follows:
<TABLE>
<CAPTION>
Pre-Fresh
Start Balance Reorganized
Sheet Confirmation Fresh-Start Balance Sheet
September 30, of Plan Debt Fair Value September 30,
1997 Discharge(a) Adjustments(b) 1997
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash.................. $ 575,692 $ 1,556,817 $ (34,405) $ 2,098,104
Accounts receivable,
net.................. 13,220,958 -- (4,267,201) 8,953,757
Inventory and other
assets............... 2,483,683 -- (448,264) 2,035,419
------------- ------------- ----------- -----------
Total current
assets............. 16,280,333 1,556,817 (4,749,870) 13,087,280
Equipment and
improvements, net.... 8,879,962 -- (5,827,934) 3,052,028
Reorganization value.. -- -- 70,910,605 70,910,605
Other assets.......... 687,139 -- (279,329) 407,810
------------- ------------- ----------- -----------
$ 25,847,434 $ 1,556,817 $60,053,472 $87,457,723
============= ============= =========== ===========
Liabilities and
stockholders' equity
(deficit)
Current liabilities:
Current portion of
debt................. $ 1,255,132 $ -- $ -- $ 1,255,132
Accounts payable and
accruals............. 11,056,542 -- -- 11,056,542
Note payable to
creditors............ -- 2,850,000 -- 2,850,000
Debtor-in-possession
borrowings........... 8,243,182 (8,243,182) -- --
Note payable to
related party........ 5,000,000 (5,000,000) -- --
------------- ------------- ----------- -----------
Total current
liabilities........ 25,554,856 (10,393,182) -- 15,161,674
Long-term debt........ 2,240,377 47,255,672 -- 49,496,049
Liabilities subject to
compromise........... 179,234,396 (179,234,396) -- --
------------- ------------- ----------- -----------
Total liabilities... 207,029,629 (142,371,906) -- 64,657,723
Stockholders' equity
(deficit)............ (181,182,195) 143,928,723 60,053,472 22,800,000
------------- ------------- ----------- -----------
$ 25,847,434 $ 1,556,817 $60,053,472 $87,457,723
============= ============= =========== ===========
</TABLE>
- --------
(a) To record the settlement of liabilities, the issuance of new debt and the
issuance of new stock pursuant to the Plan.
(b) To record the adjustments to state assets and liabilities at their
estimated fair value, including the establishment of reorganization value
in excess of amounts allocable to identifiable assets.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation
The consolidated financial statements as of and for the five months ended
February 28, 1998 are presented for the Company after the consummation for the
Plan. As discussed above, these statements were prepared under the principles
of fresh start accounting and are not comparable to the statements of prior
periods.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. In May 1999, the Company sold its
business operations and substantially all of it assets (see Note 17). The
Company used part of the net sales proceeds to repay its line of credit, and
plans to liquidate and distribute the remaining sales proceeds to its Senior
Secured Note holder.
F-57
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidation
The accompanying consolidated financial statements include the accounts of
Physicians Clinical Laboratory, Inc. and its subsidiary (Physicians Clinical
Laboratory, Inc. and its subsidiary are collectively referred to hereinafter as
the "Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
Cash equivalents
Cash and cash equivalent include cash in bank and on hand and liquid
investments with original maturities of three months or less. Included in cash
is restricted cash of $70,018 at February 28, 1999 under the line of credit
(see Note 6).
Concentration of credit risk
The Company places its cash and temporary cash investments with high credit
quality institutions. At February 28, 1999, and throughout the year, such
investments were in excess of FDIC insurance limits.
Supplies inventory
Supplies inventory is stated at cost, which approximates market value, on a
first-in, first-out (FIFO) basis. Supplies inventory consists primarily of
clinical laboratory supplies.
Equipment and leasehold improvements
As a result of the adoption of fresh start accounting, equipment and
leasehold improvements were adjusted to their estimated fair value as of
September 30, 1997 and historical accumulated depreciation and amortization was
eliminated. All equipment and leasehold improvements purchased after the
reorganization are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, except for leasehold improvements which are being
amortized over the life of the lease. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation or amortization are
removed from the accounts and any resulting gain or loss is recognized in
operations for the period. The cost of maintenance and repairs is charged to
income as incurred, significant renewals and betterments are capitalized. The
estimated useful lives of equipment and leasehold improvements are as follows:
<TABLE>
<CAPTION>
Estimated
Useful
Lives
----------
<S> <C>
Leasehold improvements................. 5-12 years
Laboratory equipment................... 5-20 years
Computer equipment..................... 5-12 years
Furniture and fixtures................. 5-12 years
Automobiles............................ 1-5 years
</TABLE>
Excess reorganization value
Excess reorganization value is being amortized on a straight line basis over
15 years. Amortization expense was approximately $2,382,000 for the twelve
months ended February 28, 1999 and $1,571,000 for the five months ended
February 28, 1998.
F-58
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of assets held for sale at February 28, 1999 is as follows:
<TABLE>
<S> <C>
Trade accounts receivable, net of allowance for doubtful accounts
of $4,397,020.................................................... $ 9,148,414
Supplies inventory................................................ 1,469,253
Prepaid expenses and other current assets......................... 225,000
Equipment, net of accumulated depreciation and amortization of
$1,458,739:
Equipment....................................................... 875,912
Furniture and fixtures.......................................... 106,780
Vehicles........................................................ 65,585
Capital leases.................................................. 79,522
Reorganization value in excess of amounts allocable to
identifiable assets, less amortization of $3,950,362............. 21,633,243
Other long-term assets............................................ 444,231
-----------
34,047,940
Less current portion.............................................. 12,390,000
-----------
Assets held for sale.............................................. $21,657,940
===========
</TABLE>
Debt issuance cost
Costs incurred in connection with the issuance of the convertible
subordinated debentures, notes payable to banks and lines of credit are
deferred and amortized over the life of the related debt using an effective
interest rate method. In fiscal 1996, the debt issuance costs related to the
bank debt and the Convertible Subordinated Debentures was expensed due to
defaults with covenants in the lending agreement and the Indenture.
Earnings (loss) per share
Basic and diluted loss per common share is based upon the weighted average
number of common shares outstanding during the period. Diluted loss per common
share excludes the options and warrants to purchase common stock, since their
effect would be antidilutive.
Amounts for the predecessor company are not presented as the data is not
meaningful due to the Company's reorganization.
Reorganization charges
Reorganization charges consist primarily of professional fees incurred as
part of the Chapter 11 bankruptcy.
Direct laboratory and laboratory support costs
Direct laboratory costs consist of labor costs, supplies expense, reference
and pathology fees, utilities and other expenses. Included in reference and
pathology fees are charges from related parties of approximately $180,000,
$200,000, and $326,920 for fiscal 1999, 1998, and 1997, respectively.
Laboratory support costs consist of patient service center costs, courier
costs, laboratory administration expenses, customer service costs, materials
management costs and management service charges from related parties.
Management service charges from related parties were approximately $190,000,
$200,000 and $405,419 for fiscal 1999, 1998, and 1997, respectively.
F-59
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Repairs and maintenance expense
Repairs and maintenance expense were $473,530, $605,965 and $908,795 in
fiscal 1999, 1998, and 1997, respectively.
Stock based compensation
In 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". In accordance with the provisions of the pronouncement, the
Company elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its employee stock option plans. There is no compensation
expense recognized for qualified stock options with an exercise price equal to
the fair value of the shares at the date of grant. For certain non-qualified
stock options granted to employees, the Company recognizes as compensation
expense the excess of the market value of the common stock issuable upon
exercise of such options over the aggregate price of such options.
Income taxes
The liability method is used to account for income taxes. Deferred tax assets
and liabilities are determined based on differences between financial reporting
and income tax bases of assets, liabilities and net operating loss
carryforwards. Deferred tax assets are reduced by a valuation allowance to
reflect the uncertainty associated with their ultimate realization.
Accounts receivable and revenue recognition
Revenues are recognized when services are performed. The Company's revenue is
based on amounts billed or billable for services rendered, net of contractual
adjustments and other arrangements made with third-party payors to provide
services at less than established rates. Revenues under capitated agreements
are recognized monthly as earned. Expenses are accrued on a monthly basis as
services are provided.
As a result of the adoption of fresh start accounting, trade accounts
receivable were adjusted to their estimated fair value as of September 30, 1997
and the allowance for doubtful accounts was eliminated at that date.
Due to the significant changes occurring in the health care industry related
to managed care, billing system/process challenges and accounts receivable
collection problems, it is reasonably possible that the Company's estimate of
the net realizable value of accounts receivable will change in the near term.
No estimate can be made of a range of amounts of loss that are reasonably
possible.
Services under government programs represent approximately 34%, 30% and 33%
of net revenue for fiscal 1999, 1998, and 1997, respectively. The Company's
primary concentration of credit risk is accounts receivable, which consist of
amounts owed by various governmental agencies, insurance companies and private
patients. Significant concentrations of gross accounts receivable at February
28, 1999 and 1998 reside in receivables from governmental agencies of 62% and
55%, respectively.
Fair values of financial instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate the
value.
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued liabilities approximate fair value
because of the immediate or short-term maturities of these financial
instruments. As of February 28, 1999, the Company's carrying value of debt
approximates fair value based on similar debt instruments available.
F-60
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 4--EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements at February 28, 1998 consist of the
following:
<TABLE>
<S> <C>
Equipment..................................................... $1,845,219
Automobile.................................................... 9,813
Furniture and fixtures........................................ 304,238
Leasehold improvements........................................ 967,150
----------
3,126,420
Less--accumulated depreciation and amortization............... 594,972
----------
$2,531,448
==========
</TABLE>
Depreciation expense relating to equipment, and leasehold improvements
charged to operations was $1,301,010, $3,510,363, and $4,967,068 for fiscal
1999, 1998 and 1997, respectively. The Company wrote off all leasehold
improvements at February 28, 1999, because the related leases were terminated
in early fiscal 2000.
NOTE 5--LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
February 28,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
Senior Secured Notes due in 2004, with a face amount
of $55,000,000, net of unamortized discount of
$5,984,000 at February 28, 1999 and $7,411,200 at
February 28, 1998, plus capitalized interest of
$6,798,000 and $0 at February 28, 1999 and 1998,
respectively, currently in default................... $55,813,800 $47,588,000
Notes payable to the Senior Secured Note holder, due
and payable in June 2001............................. 7,000,000 --
Note payable to the United States government, bearing
interest monthly at the 30-day Treasury Bill rate
(5.6% at February 28, 1999 and 1998), principal due
in monthly installments of $25,000 through July 2003
(see Note 14)........................................ 1,375,000 1,650,000
Note payable to the Internal Revenue Service, bearing
interest at 9%, principal and interest due in monthly
installments of $5,301 through May 2002.............. 174,577 237,915
Note payable to the Employment Development Department
bearing interest at 10%, principal and interest due
in monthly installments of $616 through November 1,
2002................................................. 26,288 37,386
Notes payable to Ford Credit Corp., bearing interest
at 10.95%, principal and interest due monthly,
through December 2003................................ 590,148 --
Note payable to the Internal Revenue Service, bearing
interest at 8%, principal and interest due in
quarterly installments of $18,418 through December
2003................................................. 250,077 255,672
Capital lease obligations (see Note 8)................ 677,479 938,053
----------- -----------
65,907,369 50,707,026
Less--current installments............................ 56,697,329 48,360,853
----------- -----------
$ 9,210,040 $ 2,346,173
=========== ===========
</TABLE>
F-61
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As provided by the Plan of Reorganization, the Company issued $55 million in
Senior Secured Notes, due in September 2004, to a group of senior lenders who
are also significant stockholders. The Notes have been recorded at their
present value of $47 million, based upon an estimated discount rate of 15%. The
difference between the present value and the aggregate principal amount will be
amortized into interest expense over the term of the debt. For the first two
years after issuance, the Notes bear interest at the rate of either 10% in cash
or 12% in kind (increase to principal), at the option of the Company. The
Company may not elect interest payments in kind once a cash interest payment
has been made. After two years, the Notes will bear interest at the rate of 11%
in cash, which rate will be increased by 1% per annum through maturity.
Interest is payable semi-annually. Interest on overdue payments will be at 1%
over the then applicable interest rate.
The Notes may be redeemed at the Company's option upon certain notice. The
Company is obligated to offer to repurchase the Notes upon the occurrence of a
change of control, upon certain defined asset sales, or upon consummation of an
underwritten public offering of its capital stock. All redemptions are at 100%
of principal plus accrued interest, except upon a change of control at 101% of
principal accrued interest. Under a registration rights agreement, at any time
after December 31, 1998, the holders of a majority of then outstanding Notes
have one right to request the Company to effect the registration of these Notes
under the Securities Act, subject to certain exceptions.
The Notes are collateralized by a first priority security interest in all
assets of the Company, including capital stock of its subsidiary, under a
Security Agreement and Pledge Agreement. Under an intercreditor and
subordination agreement, the security interests in the Company's receivables
are subordinated to Daiwa Healthco-2 LLC (see Note 6).
Each of the agreements contains certain financial covenants and restrictions.
The Company was in violation of certain covenants in fiscal 1999 and does not
expect to be in compliance subsequent to fiscal year end, which constitutes an
event of default. The lender has the right to accelerate payment of the debt,
and accordingly, the debt has been classified as current portion of long-term
debt.
In fiscal 1997, in connection with a credit facility entered into by the
Predecessor Company, the Company recognized an extraordinary gain of $3.5
million when one of its largest stockholders repaid a portion of the Company's
debt which was in default and guaranteed by a stockholder.
In fiscal 1999, a significant stockholder, who is also a significant holder
of Senior Secured Notes, loaned the Company $7 million for working capital. The
loan bears interest at 15% per annum, payable semi-annually, and matures in
June 2001. The Company has the option to pay interest in cash or by addition to
principal. The loan is senior to the $55 million in Senior Secured Notes and is
subordinated to the Daiwa credit facility. In connection with and as additional
consideration for the loan, Nu-Tech sold a portion of its shares to the lender
and amended the Stockholders' Agreement (see Note 13). In connection with the
loan, the Stockholders' Agreement was amended to modify certain corporate
governance rights previously granted to Nu-Tech.
Maturities of long-term debt, excluding capital lease obligations, in each of
the next five fiscal years are as follows:
<TABLE>
<S> <C>
2000.......................................................... $56,448,785
2001.......................................................... 651,344
2002.......................................................... 7,568,424
2003.......................................................... 386,337
2004.......................................................... 175,000
Thereafter.................................................... --
-----------
$65,229,890
===========
</TABLE>
F-62
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 6--LINE OF CREDIT:
At February 28, 1999, the Company had a $10 million line of credit, under
which it could borrow up to 85% of eligible accounts receivable, subject to
certain adjustments. Interest is payable monthly at the LIBOR Rate plus 3%,
which interest rate will increase by 2% after an event of default. The
effective interest rate was 9.95% on February 28, 1999. The Agreement also
provides for a monthly non-utilization fee equal to 1/2% on the unused maximum
available and upon early termination, a fee of $200,000. The loan is
collateralized by a first priority lien on all healthcare receivables and
certain bank accounts. The line of credit agreement contained financial and
other covenants, and the Company was not in compliance with certain covenants.
In May 1999, the Company repaid the borrowings under the line of credit (see
Note 17).
NOTE 7--INCOME TAXES:
The expense for income taxes consists of the following:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------- --------------------------
Fiscal year Five months Seven months Fiscal year
ended ended ended ended
February 28, February 28, September 30, February 28,
1999 1998 1997 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Current:
Federal.................. $ -- $-- $-- $--
State.................... 288,000 -- -- --
-------- --- --- ---
288,000 -- -- --
Deferred................... -- -- -- --
-------- --- --- ---
$288,000 $-- $-- $--
======== === === ===
</TABLE>
The effective tax rate and statutory federal income tax rates are reconciled
as follows:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
------------------------- --------------------------
Fiscal year Five months Seven months Fiscal year
ended ended ended ended
February 28, February 28, September 30, February 28,
1999 1998 1997 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Federal statutory income
tax rate................ (34.0)% (34.0)% 34.0 % (34.0)%
State franchise taxes,
net of federal income
tax benefit............. (4.8)% (6.1)% 6.1 % (6.1)%
Change in a valuation
allowance............... 40.1 % 9.9 % (27.6)% 40.1 %
Reorganization value..... -- 29.3 % (12.5)% --
Other.................... -- 0.9 % -- --
----- ----- ----- -----
1.3 % 0.0 % 0.0 % 0.0 %
===== ===== ===== =====
</TABLE>
At February 28, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $30 million. The loss
carryforwards expire between fiscal 1998 and 2013 for federal income tax
purposes. As a result of emerging from bankruptcy and the change in ownership,
approximately $5.3 million of the net operating loss carryforwards will be
subject to an annual limitation regarding their utilization against taxable
income in future periods. Under fresh start accounting, realization of these
pre-effective date net operating loss carryforwards, if any, will be recorded
first as a reduction to excess reorganization value, then to additional paid in
capital.
F-63
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
February 28,
-----------------
1999 1998
---- ------------
<S> <C> <C>
Current:
Accrued expenses.................................... $ (382,489)
Bad debt............................................ (3,371,865)
Prepaid expenses.................................... (158,673)
Other............................................... $-- 455,544
--- ------------
Total current deferred (assets) liabilities....... -- (3,457,483)
Valuation allowance................................... -- 3,457,483
--- ------------
Net current deferred (assets) liabilities......... -- --
--- ------------
Non-current:
Amortization........................................ (25,290,782)
Depreciation........................................ (1,068,831)
Net operating loss.................................. -- (4,448,792)
--- ------------
Total non-current deferred (assets) liabilities... -- (30,808,405)
Valuation allowance................................... -- 30,808,405
--- ------------
Net non-current deferred (assets) liabilities..... -- --
--- ------------
Total net deferred (assets) liabilities............... $-- $ --
=== ============
</TABLE>
The Company has not filed its federal and state income tax returns for fiscal
1997 and subsequent years. The Company's deferred tax assets and liabilities as
of February 28, 1999 are not determinable. However, they would be fully offset
by a valuation allowance.
NOTE 8--LEASES:
The Company is obligated under capital leases for certain computer and
laboratory equipment that expire at various dates during the next five years.
Equipment under capital leases was $482,073, and related accumulated
amortization was $402,551 and $128,612 as of February 28, 1999 and 1998,
respectively.
The Company also leases its laboratories and patient service centers under
operating leases expiring over various terms. Many of the monthly lease
payments are subject to increases based on the Consumer Price Index from the
base year.
The Company also leases remote draw station space, several automobiles and
other equipment, which have been classified as operating leases and which
expire over the next 5 years. Many of the draw station leases have renewal
options and monthly lease payments subject to annual increases.
F-64
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of February 28, 1999
are:
<TABLE>
<CAPTION>
Capital Operating
Fiscal years ended February 28, leases leases
------------------------------- -------- ----------
<S> <C> <C>
2000................................................ $318,020 $2,043,534
2001................................................ 259,939 1,048,527
2002................................................ 216,616 626,918
2003................................................ -- 486,540
2004................................................ -- 380,815
Thereafter.......................................... -- 18,836
-------- ----------
Total minimum lease payments........................ 794,575 $4,605,170
==========
Less--amounts representing interest................. 116,829
--------
Present value of net minimum capital lease
payments........................................... $677,746
========
</TABLE>
Rental expense under operating leases was $4,398,950, $4,480,602, and
$6,113,445 for fiscal 1999, 1998, and 1997, respectively.
NOTE 9--RELATED PARTY TRANSACTIONS:
The Company provides laboratory and computer services to certain of its
stockholders (and their affiliated entities). Laboratory and computer service
charges are billed to and paid by the stockholders at negotiated rates. Under
the Plan of Reorganization in fiscal 1998 (see Note 1), these former
stockholders no longer own stock and hold only warrants.
<TABLE>
<CAPTION>
Fiscal years ended February 28,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory and computer service
revenue from stockholders (warrant
holders)............................ $2,166,905 $1,596,839 $2,407,989
========== ========== ==========
</TABLE>
Amounts due from stockholders (warrant holders) and included in accounts
receivable were as follows:
<TABLE>
<CAPTION>
February 28,
-----------------
1999 1998
-------- --------
<S> <C> <C>
Amounts due from stockholders (warrant holders)........ $337,368 $476,642
======== ========
</TABLE>
The Company received management services from Diagnostic Pathology Medical
Group, Inc. ("DPMG"), a former stockholder (warrant holder) of the Company. The
services of certain management personnel were provided to the Company for
management fees at a cost of $0, $0 and $104,010 in fiscal 1999, 1998, and
1997, respectively.
The Company occasionally uses the specialized laboratory services of one of
its owners and several of its owners' stockholders. These owners only hold
warrants in 1998 and 1999. Most of these services are billed to the Company at
negotiated discounts from the billing entities' customary charges. Amounts
billed to the Company were as follows:
<TABLE>
<CAPTION>
Fiscal years ended
February 28,
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Billings from stockholders (warrant
holders)................................... $190,000 $200,000 $326,920
======== ======== ========
</TABLE>
F-65
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company also leases draw station space and purchases other services and
various supplies from several of its prior stockholders (warrant holders). The
total amount paid by the Company for these items was $0, $0, and $26,691 for
fiscal 1999, 1998, and 1997 respectively.
At various times the Company has loaned its former President and CEO funds
totaling approximately $350,000. During the fiscal year ended February 28,
1998, the Company released the former President from all payment obligations
under the loans.
NOTE 10--EMPLOYEE BENEFIT PLAN:
As of January 1, 1989, the Company adopted a 401(k) profit sharing plan under
which employees may contribute between 1% and 20% of their annual compensation
to the Plan. A minimum of 90 days of service is required prior to participation
in the Plan by an employee. On April 30, 1990, the plan was amended to provide
that the Company would contribute 50% of employee contributions up to 6% of
their annual gross compensation for those employees who have at least one full
year of service. The Company contribution to the 401(k) plan was discontinued
effective December 31, 1995.
NOTE 11--STOCK OPTION PLANS AND WARRANTS:
Stock option plans
All options outstanding at the petition date and the related plans have been
cancelled under the Plan of Reorganization (see Note 1).
Effective with the Company's reorganization, a new stock option plan was put
into place. Under an employment agreement effective September 30, 1997, the
Company granted the president a 10 year option to purchase 200,000 shares of
common stock at an exercise price of $.25, which option is fully vested and
exercisable immediately. The option provides for payment of the option price in
cash or pursuant to a cashless exercise, and is subject to the same anti-
dilution provisions under the new warrants discussed below. The option is not
transferable except in limited circumstances and will terminate one year after
termination of the optionee's employment, except where such shares have not
been registered. The Company is obligated to register the shares upon any
appropriate filing and the expiration date will extend to the date of such
registration. Management estimated the market value of the stock to be less
than the exercise price and, accordingly, no compensation cost has been
recognized.
Had compensation cost for the plan been determined based on the fair value of
the option at the grant date consistent with the method of Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation,
the Company's net loss and loss per share would not have been changed
materially for the five month period ended February 28, 1998 and the fiscal
year ended February 28, 1999.
The fair value of the option grant is estimated on the date of grant using
the Black-Scholes options--pricing model with the following assumptions used:
expected volatility 80%, risk-free interest rate 6%, no dividend yield and
expected life of 5 years.
Stock options outstanding at February 28, 1999 and 1998 was 200,000.
F-66
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Additional information regarding stock options:
<TABLE>
<CAPTION>
February 28
---------------
1999 1998
------- -------
<S> <C> <C>
Authorized shares......................................... 200,000 200,000
Shares available for granting............................. 200,000 200,000
Exercisable shares........................................ 200,000 200,000
</TABLE>
Warrants
All warrants outstanding at the bankruptcy's effective date have been
canceled under the Plan of Reorganization (see Note 1).
Pursuant to the Plan of Reorganization and a Warrant Agreement, the Company
issued warrants to prior stockholders for the purchase of an aggregate of
131,579 shares of common stock. The exercise price under the warrants is $13.30
per share and the warrants expire October 3, 2002. The agreement includes anti-
dilution provisions for the adjustment of number of shares and exercise price
upon the occurrence of certain events.
NOTE 12--EMPLOYMENT AGREEMENTS:
Reorganized company
Effective September 30, 1997, the Company entered into an employment
agreement with its new president and CEO with a term of three years at a base
salary of $104,000 annually through October 31, 1997 and $208,000 annually
thereafter through September 30, 2000. Other benefits typical of such
agreements are also provided. The Company may terminate the agreement before
the end of its term for cause. The Company may also terminate the agreement
without any cause by providing severance pay equal to the base salary for the
unexpired portion of the agreement plus one year. The Company is obligated to
pay the base salary for the unexpired portion of the agreement upon the death,
disability or reduction in title or duties of the executive. In early fiscal
2000, the Company terminated the CEO and recorded severance payments under the
employment agreement totaling approximately $300,000.
NOTE 13--STOCKHOLDERS' EQUITY (DEFICIT):
Stock registration rights
Effective with the Plan of Reorganization, the Company entered into a Common
Stock Registration Rights Agreement with the stockholders who received Senior
Secured Notes. The agreement provides these holders with the right for one
demand upon the Company, after the earlier of 30 months from the date of the
agreement or six months after a registration statement for an underwritten
public offering becomes effective, for the filing of a stock registration
statement with respect to their shares. The Company is liable for liquidated
damages in the event of a default.
Stockholders agreement
Effective with the Plan of Reorganization, Nu-Tech entered into a
Stockholders Agreement with certain of the stockholders who received Senior
Secured Notes. The agreement provides for restrictions on transfers of stock
and rights to acquire additional shares pro rata to their holdings if
additional shares are issued or transferred by the Company. The agreement also
provides rights to Nu-Tech to designate 3 members of the 5 member board of
directors and the other stockholders to designate 2 members, as long as certain
ownership percentage is maintained. Corporate governance provisions include
limitations on certain issuance of securities, merger or sale, capital
expenditures, issuance of debt, or modifications to the certificate of
incorporation,
F-67
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
bylaws or the president's employment agreement without at least one vote of a
director designated by the stockholder group.
The agreement was amended in fiscal 1999 in conjunction with a working
capital loan to the Company (see Note 5). The agreement as amended provides the
lender stockholder with the right to elect the majority of the board and
provides Nu-Tech the rights under the corporate governance provisions above. In
addition, Nu-Tech has granted to the lender stockholder an exclusive option to
purchase Nu-Tech's shares of the Company for a price of $10 million. The option
is exercisable upon certain actions of the board, subject to Nu-Tech
stockholder approval. The amended agreement also has a buy-sell provision at
defined prices.
Certificate of Incorporation
The Certificate of Incorporation provides the same purchase rights as under
the original Stockholders Agreement to all stockholders who received Senior
Secured Notes. The Company shall reserve shares of common stock for issuance
under the rights. The purchase rights terminate upon an initial public
offering.
NOTE 14--LEGAL PROCEEDINGS:
On or about January 22, 1997, Taylor R. McKeeman, the Company's former Vice
President for Laboratory Operations, filed a Request for Payment of
Administrative Expense with respect to a prepetition Separation Agreement
between the Company and Mr. McKeeman. Under the Separation Agreement, Mr.
McKeeman is entitled to receive a severance payment in the event he is
terminated after a "Change in Control" occurs, as such term is defined in the
Separation Agreement. This request was denied by order of the Bankruptcy Court,
entered on March 19, 1997, because (i) no Change in Control occurred prior to
the termination of Mr. McKeeman's employment and (ii) any claim of Mr. McKeeman
against the Company's bankruptcy estate arising out of the Separation Agreement
constitutes a prepetition claim. Mr. McKeeman filed a notice of appeal on or
about March 5, 1997. On February 2, 1998, the Bankruptcy Court dismissed Mr.
McKeeman's appeal.
On June 9, 1998, Richard M. Brooks, the Company's former Senior Vice-
President and Chief Financial Officer, filed an Amended Proof of Administrative
Claim and Request for Payment Based Upon Post-Petition Torts seeking in excess
of $3,000,000 in damages for (a) the allegedly tortuous termination of Brook's
employment with the Company and (b) allegedly defamatory statements made by the
Company's chief executive officer about Brooks. The Company filed its Debtors'
Objection to and Motion for Summary Judgment of Mr. Brooks' Amended Proof of
Claim. On August 12, 1998, the Court denied the motion. The matter is currently
in discovery stages. The Company believes the claim has no merit and intends to
defend vigorously against the matter; however, the outcome cannot be predicted.
If Mr. Brooks were to prevail on either part of this Claim, the Company would
incur an administrative expense claim against its Chapter 11 estate in an
amount which would be fixed by the Bankruptcy Court. It is reasonably possible
the outcome could have a material financial impact on the Company.
On December 11, 1998, Arnold N. Oldre, M.D., Inc. filed a lawsuit asserting a
breach of contract and seeking approximately $200,000 in damages. The Company
is currently responding to a document production request. However, the Company
recently informed the plaintiff that the Company does not intend to contest the
action. The Company has not recorded a liability for any amounts that may be
paid in connection with resolving this lawsuit.
In the ordinary course of business, two related complaints have been filed
against the Company with the Department of Fair Employment and Housing (DFEH)
and the Equal Employment Opportunity Commission by former employees alleging
wrongful termination and discrimination. The Company has denied all
allegations.
F-68
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
One complaint has been closed by the DFEH for lack of probable cause. It is not
possible to estimate the outcome of these complaints.
In the ordinary course of business, several lawsuits have been filed against
employees of the Company, and the Company has filed suit against former
employees of the Company which resulted in countersuits against the Company,
relating to alleged violations of employee agreements not to compete. In the
opinion of management, based upon advice of counsel, the ultimate outcome of
these lawsuits will not have a material impact on the Company.
Regulatory investigation
In April of 1997, the Company received a subpoena to furnish certain
documents to the United States Department of Defense ("DOD") with respect to
the Company's Civilian Health and Medical Program of Uniformed Services
("CHAMPUS") billing practices. In late May 1997, the Company was notified that
its Medicare and MediCal billing practices also were undergoing review by the
United States Department of Health and Human Services ("HHS"), and in early
June of 1997, the Company received a subpoena to furnish certain documents to
HHS in connection with such review. The Company cooperated with DOD and HHS in
such investigations and in August 1997 entered into a settlement agreement,
which was approved by the Bankruptcy Court in September 1997. Under the
settlement, the Company agreed to pay $2 million to the United States, $200,000
immediately and the balance over six years (see Note 5). The Company also
entered into a 5 year corporate integrity agreement with HHS to provide for an
internal corporate compliance plan. The settlement releases the Company and its
president from civil and criminal liability. Should the Company default on any
provisions under the agreement, the government may offset any remaining unpaid
balance against monies due the Company under any government program and may
exclude the Company from participation in the Medicare and State health care
programs.
Subsequent to reaching agreement with the United States, the Company proposed
and reached a settlement with the State of California with respect to billing
practices under the MediCal program. The terms of the agreement are similar to
the agreement with the United States except the Company paid $100,000 in cash
to the state.
NOTE 15--ACQUISITIONS:
In February 1997, the Company purchased 100% of the common stock of MSI from
Nu-Tech for $7,643,183. The Company accounted for the transaction using the
purchase method of accounting and included MSI in the accompanying financial
statements at February 28, 1997. There is no operating activity of MSI included
in the statement of operations of the Company for the year ended February 28,
1997. Under the Plan of Reorganization, MSI was legally merged into the Company
effective October 3, 1997.
Pro forma results of operations are as follows for the fiscal year ended
February 28, 1997 (unaudited):
<TABLE>
<S> <C>
Net revenue................................................. $ 75,125,077
Net loss.................................................... (102,004,130)
Net loss per common share................................... *
</TABLE>
- --------
* Loss per share amount relates to the predecessor company and is not
meaningful due to the reorganization (see Note 1).
F-69
<PAGE>
PHYSICIANS CLINICAL LABORATORY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
NOTE 16--STATEMENT OF CASH FLOWS:
Statement of cash flows
Net changes in operating assets and liabilities consist of the following:
<TABLE>
<CAPTION>
Reorganized Company Predecessor Company
-------------------------- --------------------------
Fiscal year Five months Seven months Fiscal year
ended ended ended ended
February 28, February 28, September 30, February 28,
1999 1998 1997 1997
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Increase in accounts
receivable............. $ (367,740) $(4,223,937) $(6,176,108) $(4,640,852)
Net decrease (increase)
in supplies inventory,
prepaid costs, deposits
and other assets....... (1,107,730) 443,704 551,923 (1,257,077)
Increase in accounts
payable and accrued
expenses............... 3,307,719 1,900,345 13,136,173 25,524,869
----------- ----------- ----------- -----------
Net change in operating
assets and
liabilities............ $ 1,832,249 $(1,879,888) $ 7,511,988 $19,626,940
=========== =========== =========== ===========
Cash paid for interest.. $ 764,117 $ 249,994 $ -- $ 26,277
=========== =========== =========== ===========
</TABLE>
Supplemental disclosure of cash flow information is as follows:
Non-cash transactions consist of the following:
Year ended February 28, 1997:
Gain on extinguishment of debt paid by a related party of $3.5
million.
Note payable to related party resulting from MSI acquisition of $5
million.
Year ended February 28, 1998:
Issuance of stock for debt under the Plan of Reorganization (see
Note 1).
NOTE 17--SUBSEQUENT EVENT SALE OF BUSINESS:
On April 5, 1999, the Company entered into an Asset Purchase Agreement for
the sale of its business and substantially all assets to Unilab Corp. for a
total purchase price of approximately $40 million. The purchase price includes
approximately $9 million cash, one million shares of the common stock of
Unilab, assumption of approximately $3 million in liabilities, and a note for
$25 million. The note has a 7.5% interest rate, with $10 million annual
principal payments, which may be paid in cash or in shares of Unilab common
stock, at Unilab's option, at a $3.00 per share conversion price for 75% of the
note, with the balance converting at then-current market price. The stock is
subject to a registration rights agreement. The agreement also provides for the
repayment of outstanding borrowings under the Company's line of credit (see
Note 6) prior to closing.
As a result of the agreement, the Company reevaluated the recoverability of
the excess reorganization value based upon an estimated loss on the sale,
including costs of disposal. The Company recorded an additional write-down of
$10.6 million, resulting in a total write-down of excess reorganization value
of approximately $45.3 million.
The sale of the Company's business and assets was consummated on May 9, 1999.
The Company has used part of the net sales proceeds to repay its line of
credit, and plans to liquidate and distribute the remaining sales proceeds to
its Senior Secured Note holder.
F-70
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on unauthorized information. This prospectus does not offer to sell
or buy any shares in any jurisdiction where it is unlawful. The information in
this prospectus is current as of , 2000. However, you should realize
that our affairs may have changed since the date of this prospectus.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements............................................... i
Prospectus Summary....................................................... 1
Risk Factors............................................................. 14
The Recapitalization..................................................... 22
Use of Proceeds.......................................................... 24
Capitalization........................................................... 25
Unaudited Pro Forma Financial Statements................................. 26
Selected Historical Financial Data....................................... 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 46
Management............................................................... 63
Security Ownership of Certain Beneficial Owners and Management........... 66
The Exchange Offer....................................................... 67
Description of New Credit Facility....................................... 74
Description of the Notes................................................. 77
Book-Entry; Delivery and Form............................................ 110
Exchange Offer; Registration Rights...................................... 112
Material Federal Income Tax Considerations............................... 115
Plan of Distribution..................................................... 119
Legal Matters............................................................ 119
Independent Auditors..................................................... 119
Where to Find More Information........................................... 120
Index to Financial Statements............................................ 122
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$155,000,000
[LOGO OF UNILAB]
12 3/4% Senior Subordinated
Notes due 2009
----------------
PROSPECTUS
----------------
, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes and empowers
the Registrant to indemnify the directors, officers, employees and agents of
the Registrant against liabilities incurred in connection with, and related
expenses resulting from, any claim, action or suit brought against any such
person as a result of his relationship with the Registrant, provided that such
persons acted in good faith and in a manner such person reasonably believed to
be in, and not opposed to, the best interests of the Registrant in connection
with the acts or events on which such claim, action or suit is based. The
finding of either civil or criminal liability on the part of such persons in
connection with such acts or events is not necessarily determinative of the
question of whether such persons have met the required standard of conduct and
are, accordingly, entitled to be indemnified. The foregoing statements are
subject to the detailed provisions of Section 145 of the General Corporation
Law of the State of Delaware.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), provides for indemnification, to
the fullest extent permitted by the provisions of the General Corporation Law
of the State of Delaware, of all persons whom it may indemnify pursuant
thereto. The Certificate of Incorporation also provides that the
indemnification provided by such section shall not limit or exclude any rights,
indemnities or limitations of liability to which any person may be entitled
whether as a matter of law, under the Registrant's Amended and Restated By-
laws, by agreement, vote of the stockholders or disinterested directors of the
Registrant or otherwise.
In accordance with Section 1-2(b)(7) of the General Corporation Law of the
State of Delaware, the Certificate of Incorporation limits the personal
liability of the directors of the Registrant to the fullest extent permitted by
such Section 102(b)(7).
The Registrant also maintains standard forms of officers' and directors'
liability insurance policies.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. The following is a list of Exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
2.1 Asset Purchase Agreement, dated as of September 16, 1998, by and
between Unilab Corporation (the "Company"), as Buyer, and Meris
Laboratories, Inc. Debtor and Debtor-in-Possession, as Seller
(Incorporated by reference to Exhibit 2.1 to the Company's Amendment
on Form 8-K/A dated January 18, 1999).
2.2 Registration Rights Agreement, dated November 5, 1998, by and between
the Company and Meris Laboratories, Inc. (Incorporated by reference
to Exhibit 2.3 to the Company's Amendment on Form 8-K/A dated
January 18, 1999).
2.3 Asset Purchase Agreement, dated as of April 5, 1999, by and between
the Company, as Buyer, and Physicians Clinical Laboratories, Inc.
doing business as Bio-Cypher Laboratories, as Seller (Incorporated
as Exhibit 2.1 to the Company's Current Report on Form 8-K dated May
10, 1999).
2.4 Registration Rights Agreement by and between the Company and
Physicians Clinical Laboratories, Inc. doing business as Bio-Cypher
Laboratories, the Investor (Incorporated as Exhibit 2.3 to the
Company's Current Report on Form 8-K dated May 10, 1999).
2.5 Agreement and Plan of Merger, dated as of May 24, 1999, as amended
between the Company and UC Acquisition Sub, Inc. (Incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated May 24, 1999).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
2.6 Letter agreement, dated as of July 8, 1999, between the Company and UC
Acquisition Sub, Inc. (Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated July 8, 1999).
2.7 Letter agreement, dated as of July 30, 1999, between the Company and
UC Acquisition Sub, Inc. (Incorporated by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K dated July 8, 1999).
2.8 Letter agreement, dated as of August 10, 1999, between the Company and
UC Acquisition Sub, Inc. (Incorporated by reference to Exhibit 2.3 to
the Company's Current Report on Form 8-K dated July 8, 1999).
3.1 Amended and Restated Certificate of Incorporation of the Company
(Incorporated by Reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, dated November 30, 1993).
3.2 Amendment to the Company's Certificate of Incorporation, dated May 14,
1996 (Incorporated by Reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30, 1996,
dated August 6, 1996).
3.3 Second Amended and Restated By-laws of the Company, as amended as of
February 27, 1996 (Incorporated by Reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated March 19, 1996).
4.1 Indenture, dated as of September 28, 1999, between Unilab Finance
Corp. and HSBC Bank USA relating to the Company's 12 3/4% Senior
Subordinated Notes Due 2009 (the "Indenture").*
4.2 Supplemental Indenture, dated as of November 23, 1999, among the
Company, Unilab Finance Corp. and HSBC Bank USA, amending the
Indenture.*
4.3 Assumption Agreement, dated as of November 23, 1999, between the
Company and Unilab Finance Corp.*
4.4 Credit Agreement, dated as of November 23, 1998, among the Company and
the several lenders named therein.*
4.5 Capital Call Agreement, dated as of November 23, 1999, by and among
Kelso & Company, L.P., the Company, and Bankers Trust Company.*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality
of securities being registered.*
10.1 Consulting Agreement, dated as of September 17, 1997, between the
Company and Richard A. Michaelson (Incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.2 Employment Agreement, dated as of January 20, 1997 between David C.
Weavil and the Company (Incorporated by Reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K, dated March 21, 1997).
10.3 Amendment to Employment Agreement, dated November 23, 1999, by and
between, the Company and David C. Weavil.*
10.4 Consulting Agreement, dated December 1, 1999, by and between David C.
Weavil and the Company.*
10.5 Non Compete Agreement, dated November 23, 1999, by and among the
Company, UC Acquisition Sub, Inc., and David C. Weavil.*
10.6 Letter Agreement, dated January 20, 1997, between Andrew H. Baker and
the Company (Incorporated by Reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K, dated March 21, 1997).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.7 Consulting Agreement, dated as of January 20, 1997, between the
Company and Hartill Ltd. (Incorporated by Reference to Exhibit 10.24
to the Company's Annual Report on Form 10-K, dated March 21, 1997).
10.8 Form of Key Management Personnel Employment Agreement (Incorporated by
Reference to Exhibit No. 10.5 to Amendment No. 1, dated December 23,
1993, to the Company's Form S-1 Registration Statement dated November
30, 1993).
10.9 Stockholders Agreement, dated as of November 23, 1999, among the
Company, Kelso Investment Associates VI, LLC KEP VI, LLC and certain
other stockholders of the Company.*
12.1 Statement re: Computation of Ratios.*
21.1 List of Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Odenberg, Ullakko, Muranishi & Co.*
23.3 Consent of Grant Thornton LLP.*
23.4 Consent of Ernst & Young LLP.*
23.6 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (appears in
Exhibit 5.1).*
24.1 Powers of attorney (included on signature page to registration
statement).*
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of HSBC
Bank USA on Form T-1.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Clients.*
99.4 Form of Letter to Brokers, Dealers, Trust Companies and Other
Nominees.*
</TABLE>
- --------
*Filed herewith
**The Company has no subsidiaries.
(b) Financial Statement Schedules.
II. Valuation and Qualifying Accounts (included on page F- of the prospectus
which forms a part of this registration statement).
Item 22. Undertakings.
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
II-3
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) For purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions referred to in Item 20 of this
registration statement, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(6) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in Hackensack, State of
New Jersey on the 30th day of December, 1999.
UNILAB CORPORATION
/s/ Mark L. Bibi
By: _________________________________
Mark L. Bibi
Executive Vice President, Secretary
and
General Counsel
Each person who signature appears below constitutes and appoints Mark L. Bibi
and Brian D. Urban, and each of them individually without the others, as his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments to this Registration Statement, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary fully to all intents and purposes
as he might or could do in person thereby raffling and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by the virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on its behalf by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <C> <S>
/s/ David C. Weavil Chairman of the Board December 30, 1999
____________________________________
David C. Weavil
/s/ Robert E. Whalen President, Chief Executive December 30, 1999
____________________________________ Officer and Director
Robert E. Whalen (Principal Executive
Officer)
/s/ Brian D. Urban Executive Vice President, December 30, 1999
____________________________________ Chief Financial Officer and
Brian D. Urban Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ Michael B. Goldberg Director December 30, 1999
____________________________________
Michael B. Goldberg
/s/ David I. Wahrhaftig Director December 30, 1999
____________________________________
David I. Wahrhaftig
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
2.1 Asset Purchase Agreement, dated as of September 16, 1998, by and
between Unilab Corporation (the "Company"), as Buyer, and Meris
Laboratories, Inc. Debtor and Debtor-in-Possession, as Seller
(Incorporated by reference to Exhibit 2.1 to the Company's Amendment
on Form 8-K/A dated January 18, 1999).
2.2 Registration Rights Agreement, dated November 5, 1998, by and between
the Company and Meris Laboratories, Inc. (Incorporated by reference
to Exhibit 2.3 to the Company's Amendment on Form 8-K/A dated January
18, 1999).
2.3 Asset Purchase Agreement, dated as of April 5, 1999, by and between
the Company, as Buyer, and Physicians Clinical Laboratories, Inc.
doing business as Bio-Cypher Laboratories, as Seller (Incorporated as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated May 10,
1999).
2.4 Registration Rights Agreement by and between the Company and
Physicians Clinical Laboratories, Inc. doing business as Bio-Cypher
Laboratories, the Investor (Incorporated as Exhibit 2.3 to the
Company's Current Report on Form 8-K dated May 10, 1999).
2.5 Agreement and Plan of Merger, dated as of May 24, 1999, as amended
between the Company and UC Acquisition Sub, Inc. (Incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated May 24, 1999).
2.6 Letter agreement, dated as of July 8, 1999, between the Company and UC
Acquisition Sub, Inc. (Incorporated by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K dated July 8, 1999).
2.7 Letter agreement, dated as of July 30, 1999, between the Company and
UC Acquisition Sub, Inc. (Incorporated by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K dated July 8, 1999).
2.8 Letter agreement, dated as of August 10, 1999, between the Company and
UC Acquisition Sub, Inc. (Incorporated by reference to Exhibit 2.3 to
the Company's Current Report on Form 8-K dated July 8, 1999).
3.1 Amended and Restated Certificate of Incorporation of the Company
(Incorporated by Reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1, dated November 30, 1993).
3.2 Amendment to the Company's Certificate of Incorporation, dated May 14,
1996 (Incorporated by Reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30, 1996,
dated August 6, 1996).
3.3 Second Amended and Restated By-laws of the Company, as amended as of
February 27, 1996 (Incorporated by Reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated March 19, 1996).
4.1 Indenture, dated as of September 28, 1999, between Unilab Finance
Corp. and HSBC Bank USA relating to the Company's 12 3/4% Senior
Subordinated Notes Due 2009 (the "Indenture").*
4.2 Supplemental Indenture, dated as of November 23, 1999, among the
Company, Unilab Finance Corp. and HSBC Bank USA, amending the
Indenture.*
4.3 Assumption Agreement, dated as of November 23, 1999, between the
Company and Unilab Finance Corp.*
4.4 Credit Agreement, dated as of November 23, 1998, among the Company and
the several lenders named therein.*
4.5 Capital Call Agreement, dated as of November 23, 1999, by and among
Kelso & Company, L.P., the Company, and Bankers Trust Company.*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding legality
of securities being registered.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
10.1 Consulting Agreement, dated as of September 17, 1997, between the
Company and Richard A. Michaelson (Incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.2 Employment Agreement, dated as of January 20, 1997 between David C.
Weavil and the Company (Incorporated by Reference to Exhibit 10.12 to
the Company's Annual Report on Form 10-K, dated March 21, 1997).
10.3 Amendment to Employment Agreement, dated November 23, 1999, by and
between, the Company and David C. Weavil.*
10.4 Consulting Agreement, dated December 1, 1999, by and between David C.
Weavil and the Company.*
10.5 Non Compete Agreement, dated November 23, 1999, by and among the
Company, UC Acquisition Sub, Inc., and David C. Weavil.*
10.6 Letter Agreement, dated January 20, 1997, between Andrew H. Baker and
the Company (Incorporated by Reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K, dated March 21, 1997).
10.7 Consulting Agreement, dated as of January 20, 1997, between the
Company and Hartill Ltd. (Incorporated by Reference to Exhibit 10.24
to the Company's Annual Report on Form 10-K, dated March 21, 1997).
10.8 Form of Key Management Personnel Employment Agreement (Incorporated by
Reference to Exhibit No. 10.5 to Amendment No. 1, dated December 23,
1993, to the Company's Form S-1 Registration Statement dated November
30, 1993).
10.9 Stockholders Agreement, dated as of November 23, 1999, among the
Company, Kelso Investment Associates VI, LLC KEP VI, LLC and certain
other stockholders of the Company.*
12.1 Statement re: Computation of Ratios.*
21.1 List of Subsidiaries of the Company.**
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Odenberg, Ullakko, Muranishi & Co.*
23.3 Consent of Grant Thornton LLP.*
23.4 Consent of Ernst & Young LLP.*
23.6 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (appears in
Exhibit 5.1).*
24.1 Powers of attorney (included on signature page to registration
statement).*
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 of HSBC
Bank USA on Form T-1.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Clients.*
99.4 Form of Letter to Brokers, Dealers, Trust Companies and Other
Nominees.*
</TABLE>
- --------
*Filed herewith
**The Company has no subsidiaries.
<PAGE>
Exhibit 4.1
-----------
================================================================================
UNILAB FINANCE CORP.
(to be assumed by UNILAB CORPORATION),
as Issuer,
and
HSBC BANK USA,
as Trustee
INDENTURE
Dated as of September 28, 1999
up to $300,000,000
12 3/4% Senior Subordinated Notes due 2009
================================================================================
1
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
<S> <C>
310(a)(1)........................................................................................7.10
(a)(2)......................................................................................7.10
(a)(3)......................................................................................N.A.
(a)(4)......................................................................................N.A.
(a)(5)................................................................................7.08; 7.10
(b)............................................................................7.08; 7.10; 13.02
(c).........................................................................................N.A.
311(a) ........................................................................................7.11
(b).........................................................................................7.11
(c).........................................................................................N.A.
312(a)...........................................................................................2.05
(b)........................................................................................13.03
(c)........................................................................................13.03
313(a)...........................................................................................7.06
(b)(1)......................................................................................7.06
(b)(2)......................................................................................7.06
(c)..................................................................................7.06; 13.02
(d).........................................................................................7.06
314(a)..............................................................................4.08; 4.10; 13.02
(b).........................................................................................N.A.
(c)(1)........................................................................7.02; 13.04; 13.05
(c)(2)........................................................................7.02; 13.04; 13.05
(c)(3)......................................................................................N.A.
(d).........................................................................................N.A.
(e)........................................................................................13.05
(f).........................................................................................N.A.
315(a)........................................................................................7.01(b)
(b).........................................................................................7.05
(c).........................................................................................7.01
(d)................................................................................6.05; 7.01(c)
(e).........................................................................................6.11
316(a)(last sentence)............................................................................2.09
(a)(1)(A)...................................................................................6.05
(a)(1)(B)...................................................................................6.04
(a)(2)......................................................................................9.05
(b).........................................................................................6.07
(c).........................................................................................9.05
317(a)(1)........................................................................................6.08
(a)(2)......................................................................................6.09
(b).........................................................................................2.04
318(a)..........................................................................................13.01
(c)........................................................................................13.01
- ---------------------
N.A. means not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
Section 1.1 Definitions.......................................................................1
-----------
Section 1.2 Incorporation by Reference of TIA................................................31
---------------------------------
Section 1.3 Rules of Construction............................................................32
---------------------
ARTICLE II
THE SECURITIES
Section 2.1 Form and Dating..................................................................32
---------------
Section 2.2 Execution and Authentication.....................................................33
----------------------------
Section 2.3 Registrar and Paying Agent.......................................................34
--------------------------
Section 2.4 Paying Agent To Hold Assets in Trust.............................................35
------------------------------------
Section 2.5 Holder Lists.....................................................................35
------------
Section 2.6 Transfer and Exchange............................................................35
---------------------
Section 2.7 Replacement Securities...........................................................36
----------------------
Section 2.8 Outstanding Securities...........................................................36
----------------------
Section 2.9 Treasury Securities..............................................................37
-------------------
Section 2.10 Temporary Securities.............................................................37
--------------------
Section 2.11 Cancellation.....................................................................37
------------
Section 2.12 Defaulted Interest...............................................................37
------------------
Section 2.13 CUSIP Number.....................................................................38
------------
Section 2.14 Restrictive Legends..............................................................38
-------------------
Section 2.15 Deposit of Moneys................................................................38
-----------------
Section 2.16 Book-Entry Provisions for Global Securities......................................38
--------------------------------------------
Section 2.17 Special Transfer Provisions......................................................40
---------------------------
ARTICLE III
REDEMPTION
Section 3.1 Notices to Trustee...............................................................42
------------------
Section 3.2 Selection of Securities To Be Redeemed...........................................43
--------------------------------------
Section 3.3 Notice of Redemption.............................................................43
--------------------
Section 3.4 Effect of Notice of Redemption...................................................44
------------------------------
Section 3.5 Deposit of Redemption Price......................................................44
---------------------------
Section 3.6 Securities Redeemed in Part......................................................45
---------------------------
ARTICLE IV
COVENANTS
Section 4.1 Payment of Securities............................................................45
---------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.2 Maintenance of Office or Agency..................................................45
-------------------------------
Section 4.3 Limitation on Restricted Payments................................................45
---------------------------------
Section 4.4 Limitation on Incurrence of Additional Indebtedness..............................49
----------------------------------------------------
Section 4.5 Corporate Existence..............................................................49
-------------------
Section 4.6 Payment of Taxes and Other Claims................................................49
---------------------------------
Section 4.7 Maintenance of Properties and Insurance..........................................50
---------------------------------------
Section 4.8 Compliance Certificate; Notice of Default........................................50
-----------------------------------------
Section 4.9 Compliance with Laws.............................................................51
--------------------
Section 4.10 Reports to Holders...............................................................51
------------------
Section 4.11 Waiver of Stay, Extension or Usury Laws..........................................52
---------------------------------------
Section 4.12 Limitations on Transactions with Affiliates......................................52
--------------------------------------------
Section 4.13 Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries.....54
-----------------------------------------------------------------------------
Section 4.14 Limitation on Liens..............................................................55
-------------------
Section 4.15 Change of Control................................................................56
-----------------
Section 4.16 Limitation on Asset Sales........................................................58
-------------------------
Section 4.17 Prohibition on Incurrence of Senior Subordinated Debt............................62
-----------------------------------------------------
Section 4.18 Conduct of Business..............................................................62
-------------------
Section 4.19 Limitation of Guarantees by Restricted Subsidiaries..............................62
----------------------------------------------------
Section 4.20 Limitation on Preferred Stock of Subsidiaries....................................63
----------------------------------------------
Section 4.21 Capital Call Agreement...........................................................63
----------------------
ARTICLE V
SUCCESSOR CORPORATION
Section 5.1 Merger, Consolidation and Sale of Assets.........................................64
----------------------------------------
Section 5.2 Successor Corporation Substituted for the Company................................65
--------------------------------------------------
Section 5.3 Merger, Consolidation and Sale of Assets of Any Guarantor........................66
----------------------------------------------------------
Section 5.4 Successor Corporation Substituted for Guarantor..................................66
-----------------------------------------------
ARTICLE VI
DEFAULT AND REMEDIES
Section 6.1 Events of Default................................................................66
-----------------
Section 6.2 Acceleration ....................................................................68
------------
Section 6.3 Other Remedies...................................................................69
--------------
Section 6.4 Waiver of Past Defaults..........................................................69
-----------------------
Section 6.5 Control by Majority..............................................................69
-------------------
Section 6.6 Limitation on Suits..............................................................69
-------------------
Section 6.7 Rights of Holders To Receive Payment.............................................70
------------------------------------
Section 6.8 Collection Suit by Trustee.......................................................70
--------------------------
Section 6.9 Trustee May File Proofs of Claim.................................................71
--------------------------------
Section 6.10 Priorities.......................................................................71
----------
Section 6.11 Undertaking for Costs............................................................72
---------------------
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VII
TRUSTEE
<S> <C> <C>
Section 7.1 Duties of Trustee................................................................72
-----------------
Section 7.2 Rights of Trustee................................................................73
-----------------
Section 7.3 Individual Rights of Trustee.....................................................74
----------------------------
Section 7.4 Trustee's Disclaimer.............................................................75
--------------------
Section 7.5 Notice of Default................................................................75
-----------------
Section 7.6 Reports by Trustee to Holders....................................................75
-----------------------------
Section 7.7 Compensation and Indemnity.......................................................75
--------------------------
Section 7.8 Replacement of Trustee...........................................................77
----------------------
Section 7.9 Successor Trustee by Merger, Etc.................................................78
--------------------------------
Section 7.10 Eligibility; Disqualification....................................................78
-----------------------------
Section 7.11 Preferential Collection of Claims Against Company. ..............................78
----------------
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.1 Termination of the Company's Obligations.........................................78
----------------------------------------
Section 8.2 Legal Defeasance and Covenant Defeasance.........................................80
----------------------------------------
Section 8.3 Conditions to Legal Defeasance or Covenant Defeasance. ..........................81
------------------------------------------------------
Section 8.4 Application of Trust Money.......................................................83
--------------------------
Section 8.5 Repayment to the Company.........................................................83
------------------------
Section 8.6 Reinstatement....................................................................84
-------------
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Without Consent of Holders.......................................................84
--------------------------
Section 9.2 With Consent of Holders..........................................................85
-----------------------
Section 9.3 Effect on Senior Debt............................................................86
---------------------
Section 9.4 Compliance with TIA..............................................................86
-------------------
Section 9.5 Revocation and Effect of Consents................................................86
---------------------------------
Section 9.6 Notation on or Exchange of Securities............................................87
-------------------------------------
Section 9.7 Trustee To Sign Amendments, Etc..................................................87
--------------------------------
ARTICLE X
SUBORDINATION OF SECURITIES..........................................87
Section 10.1 Securities Subordinated to Senior Debt...........................................88
--------------------------------------
Section 10.2 Suspension of Payment When Senior Debt Is in Default. ...........................88
-----------------------------------------------------
Section 10.3 Securities Subordinated to Prior Payment of All Senior Debt on
Dissolution, Liquidation or Reorganization of Company............................89
-----------------------------------------------------
Section 10.4 Payments May Be Paid Prior to Dissolution. ......................................91
------------------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
Section 10.5 Holders To Be Subrogated to Rights of Holders of Senior Debt. ...................91
-------------------------------------------------------------
Section 10.6 Obligations of the Company Unconditional.........................................92
----------------------------------------
Section 10.7 Notice to Trustee................................................................92
-----------------
Section 10.8 Reliance on Judicial Order or Certificate of Liquidating Agent...................93
--------------------------------------------------------------
Section 10.9 Trustee's Relation to Senior Debt................................................93
---------------------------------
Section 10.10 Subordination Rights Not Impaired by Acts or Omissions of the
--------------------------------------------------------------
Company or Holders of Senior Debt. ..............................................93
---------------------------------
Section 10.11 Securityholders Authorize Trustee To Effectuate Subordination of Securities......94
---------------------------------------------------------------------------
Section 10.12 This Article Ten Not To Prevent Events of Default. ..............................94
--------------------------------------------------
Section 10.13 Trustee's Compensation Not Prejudiced............................................95
-------------------------------------
ARTICLE XI
GUARANTEE OF SECURITIES
Section 11.1 Unconditional Guarantee..........................................................95
-----------------------
Section 11.2 Limitations on Guarantees........................................................96
-------------------------
Section 11.3 Execution and Delivery of Guarantee..............................................96
-----------------------------------
Section 11.4 Release of a Guarantor...........................................................97
----------------------
Section 11.5 Waiver of Subrogation............................................................98
---------------------
Section 11.6 Immediate Payment................................................................98
-----------------
Section 11.7 No Set-Off.......................................................................98
----------
Section 11.8 Obligations Absolute.............................................................99
--------------------
Section 11.9 Obligations Continuing...........................................................99
----------------------
Section 11.10 Obligations Not Reduced..........................................................99
-----------------------
Section 11.11 Obligations Reinstated...........................................................99
----------------------
Section 11.12 Obligations Not Affected........................................................100
------------------------
Section 11.13 Waiver..........................................................................101
------
Section 11.14 No Obligation To Take Action Against the Company. ..............................101
-------------------------------------------------
Section 11.15 Dealing with the Company and Others.............................................101
-----------------------------------
Section 11.16 Default and Enforcement.........................................................102
-----------------------
Section 11.17 Amendment, Etc..................................................................102
--------------
Section 11.18 Acknowledgment..................................................................102
--------------
Section 11.19 Costs and Expenses..............................................................102
------------------
Section 11.20 No Merger or Waiver; Cumulative Remedies........................................103
----------------------------------------
Section 11.21 Survival of Obligations.........................................................103
-----------------------
Section 11.22 Guarantee in Addition to Other Obligations. ....................................103
-------------------------------------------
Section 11.23 Severability....................................................................103
------------
Section 11.24 Successors and Assigns..........................................................103
----------------------
ARTICLE XII
SUBORDINATION OF GUARANTEES
Section 12.1 Guarantee Obligations Subordinated to Guarantor Senior Debt. ...................104
------------------------------------------------------------
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
Section 12.2 Suspension of Guarantee Obligations When Guarantor Senior Debt Is in Default....104
-----------------------------------------------------------------------------
Section 12.3 Guarantee Obligations Subordinated to Prior Payment of All
-----------------------------------------------------------
Guarantor Senior Debt on Dissolution, Liquidation or Reorganization of
----------------------------------------------------------------------
Such Guarantor..................................................................105
--------------
Section 12.4 Payments May Be Paid Prior to Dissolution. .....................................106
------------------------------------------
Section 12.5 Holders of Guarantee Obligations To Be Subrogated to Rights of Holders of
--------------------------------------------------------------------------
Guarantor Senior Debt. .........................................................107
---------------------
Section 12.6 Obligations of the Guarantors Unconditional. ...................................107
--------------------------------------------
Section 12.7 Notice to Trustee...............................................................107
-----------------
Section 12.8 Reliance on Judicial Order or Certificate of Liquidating Agent..................108
---------------------------------------------------------------
Section 12.9 Trustee's Relation to Guarantor Senior Debt. ...................................108
--------------------------------------------
Section 12.10 Subordination Rights Not Impaired by Acts or Omissions of the
--------------------------------------------------------------
Guarantors or Holders of Guarantor Senior Debt. ................................109
----------------------------------------------
Section 12.11 Holders Authorize Trustee To Effectuate Subordination of Guarantee Obligations..109
-------------------------------------------------------------------------------
Section 12.12 This Article Twelve Not To Prevent Events of Default. ..........................110
-----------------------------------------------------
Section 12.13 Trustee's Compensation Not Prejudiced...........................................110
-------------------------------------
ARTICLE XIII
MISCELLANEOUS
Section 13.1 TIA Controls....................................................................110
------------
Section 13.2 Notices.........................................................................110
-------
Section 13.3 Communications by Holders with Other Holders. ..................................112
---------------------------------------------
Section 13.4 Certificate and Opinion as to Conditions Precedent. ............................112
---------------------------------------------------
Section 13.5 Statements Required in Certificate or Opinion. .................................112
----------------------------------------------
Section 13.6 Rules by Trustee, Paying Agent, Registrar. .....................................113
------------------------------------------
Section 13.7 Legal Holidays..................................................................113
--------------
Section 13.8 Governing Law...................................................................113
-------------
Section 13.9 No Adverse Interpretation of Other Agreements. .................................113
----------------------------------------------
Section 13.10 No Recourse Against Others......................................................113
---------------------------
Section 13.11 Successors......................................................................114
----------
Section 13.12 Duplicate Originals.............................................................114
-------------------
Section 13.13 Severability....................................................................114
------------
</TABLE>
Exhibit A -Form of Note
Exhibit B -Form of Exchange Note
Exhibit C -Form of Legends
Exhibit D -Form of Certificate To Be Delivered in Connection
with Transfers to Non-QIB Accredited Investors
Exhibit E -Form of Certificate To Be Delivered in Connection
with Transfers Pursuant to Regulation S
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
v
<PAGE>
INDENTURE dated as of September 28, 1999 between UNILAB FINANCE CORP., a
Delaware corporation (the "Issuer"), as Issuer, and HSBC BANK USA, a New York
------
trust company and banking corporation, as Trustee (the "Trustee").
-------
The Company has duly authorized the creation of an issue of 12 3/4% Senior
Subordinated Notes due 2009 and, to provide therefor, the Company has duly
authorized the execution and delivery of this Indenture. All things necessary
to make the Securities, when duly issued and executed by the Company and
authenticated and delivered hereunder, the valid and binding obligations of the
Company and to make this Indenture a valid and binding agreement of the Company
have been done.
Each party hereto agrees as follows for the benefit of each other party and
for the equal and ratable benefit of the Holders of the Securities:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 Definitions.
-----------
"Acquired Indebtedness" means Indebtedness (1) of a Person or any
---------------------
of its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or (2) assumed in connection with the acquisition of
assets from such Person, in each case whether or not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such acquisition. Acquired Indebtedness
shall be deemed to have been incurred, with respect to clause (1) of the
preceding sentence, on the date such Person becomes a Restricted Subsidiary of
the Company and, with respect to clause (2) of the preceding sentence, on the
date of consummation of such acquisition of assets.
"Affiliate" means, with respect to any specified Person, any other
---------
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing. Notwithstanding the foregoing, no Person (other than the Company or
any Subsidiary of the Company) in whom a Receivables Entity makes an Investment
in connection with a Qualified Receivables Transaction shall be deemed to be an
Affiliate of the Company or any of its Subsidiaries solely by reason of such
Investment.
"Affiliate Transaction" has the meaning set forth in Section 4.12.
---------------------
"Agent" means any Registrar, Paying Agent or co-Registrar.
-----
<PAGE>
"Asset Acquisition" means (1) an Investment by the Company or any
-----------------
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (2) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprise any division or line of business of
such Person or any other properties or assets of such Person other than in the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
----------
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of the Company of:
(1) any Capital Stock of any Restricted Subsidiary of the Company; or (2) any
other property or assets of the Company or any Restricted Subsidiary of the
Company other than in the ordinary course of business; provided, however, that
asset sales or other dispositions shall not include:
(a) any transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of
less than $1.0 million;
(b) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under
Section 5.01;
(c) the sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in
connection with the compromise or collection thereof;
(d) the factoring of accounts receivable arising in the ordinary
course of business pursuant to arrangements customary in the industry;
(e) the licensing of intellectual property;
(f) disposals or replacements of obsolete equipment in the ordinary
course of business;
(g) the sale, lease, conveyance, disposition or other transfer by the
Company or any Restricted Subsidiary of assets or property in transactions
constituting Investments that are not prohibited under Section 4.03;
(h) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" to a
---------------------------------
Receivables Entity (for the purposes of this clause (h), Purchase Money
Notes shall be deemed to be cash);
2
<PAGE>
(i) transfers of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" (or a
---------------------------------
fractional undivided interest therein) by a Receivables Entity in a
Qualified Receivables Transaction; and
(j) leases or subleases to third Persons not interfering in any
material respect with the business of the Company or any of its Restricted
Subsidiaries.
"Assumption" means the assumption by Unilab of the obligations of the
----------
Issuer under this Indenture, the Securities, the Registration Rights Agreement,
the Purchase Agreement and the Escrow Agreement pursuant to the terms of the
Escrow Agreement.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
--------------
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
------------------
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Borrowing Base" means the sum (determined as of the end of the most
--------------
recently ended fiscal quarter for which consolidated financial statements of the
Company are available) of (1) 60% of Inventory of the Company and its Restricted
Subsidiaries and (2) 80% of Receivables of the Company and its Restricted
Subsidiaries.
"Business Day" means any day other than a Saturday, Sunday or any
------------
other day on which banking institutions in the City of New York are required or
authorized by law or other governmental action to be closed.
"Capital Call Agreement" means the Capital Call Agreement to be dated
----------------------
on or about the Effective Date by and among Kelso & Company, L.P., the Company
and Bankers Trust Company, as agent for the lenders under the New Credit
Facility.
"Capital Stock" means:
-------------
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and
3
<PAGE>
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the
----------------------------
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means:
----------------
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's");
--- -------
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances (or with respect to
foreign banks, similar instruments) maturing within one year from the date
of acquisition thereof issued by any bank organized under the laws of the
United States of America or any state thereof or the District of Columbia
or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $200.0 million;
(5) certificates of deposit or bankers' acceptances or similar
instruments maturing within one year from the date of acquisition thereof
issued by any foreign bank that is a lender under the New Credit Facility
having at the date of acquisition thereof combined capital and surplus of
not less than $500.0 million;
(6) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(7) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(6) above.
4
<PAGE>
"Change of Control" means the occurrence of one or more of the
-----------------
following events:
(1) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all of the
assets of the Company to any Person or group of related Persons (other than
one or more Permitted Holders) for purposes of Section 13(d) of the
Exchange Act (a "Group"), together with any Affiliates thereof (whether or
-----
not otherwise in compliance with the provisions of this Indenture);
(2) the approval by the holders of Capital Stock of the Company of
any plan or proposal for the liquidation or dissolution of the Company
(whether or not otherwise in compliance with the provisions of this
Indenture);
(3) any Person or Group (other than one or more Permitted Holders)
shall become the beneficial owner, directly or indirectly, of shares
representing 50% or more of the aggregate ordinary voting power represented
by the issued and outstanding Capital Stock of the Company; or
(4) the first day on which a majority of the Board of Directors of
the Company are not Continuing Directors.
"Change of Control Date" has the meaning set forth in Section 4.15.
----------------------
"Change of Control Offer" has the meaning set forth in Section 4.15.
-----------------------
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.15.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" of any Person means any and all shares, interests or
------------
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means (i) prior to the Effective Date, the Issuer, and (ii)
-------
from and after the Effective Date, Unilab, until a successor replaces it and,
thereafter, means the successor and, for purposes of any provision contained
herein and required by the TIA, each other obligor on the indenture securities.
"Consolidated EBITDA" means, with respect to any Person, for any
-------------------
period, the sum (without duplication) of:
(1) Consolidated Net Income; and
5
<PAGE>
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes of such Person and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other
than income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions outside the
ordinary course of business);
(b) Consolidated Interest Expense;
(c) charges attributable to the exercise of employee options
vesting upon the consummation of the Recapitalization; and
(d) Consolidated Non-cash Charges less any non-cash items
increasing Consolidated Net Income for such period,
all as determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending prior to the date of the
---- --------------
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
-----------
Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period.
- ----
In addition to and without limitation of the foregoing, for purposes of this
definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
--- -----
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness
in the ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the
case may be (and the application of the proceeds thereof), occurred on the
first day of the Four Quarter Period; and
(2) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated EBITDA
(including pro forma adjustments for cost savings ("Cost Savings
--- ----- ------------
Adjustments") that the Company reasonably believes in good faith could have
-----------
been achieved during
6
<PAGE>
the Four Quarter Period as a result of such acquisition or disposition
(provided that both (i) such cost savings were identified and quantified in
an Officers' Certificate delivered to the Trustee at the time of the
consummation of the acquisition or disposition and (ii) with respect to
each acquisition or disposition completed prior to the 90th day preceding
such date of determination, actions were commenced or initiated by the
Company within 90 days of such acquisition or disposition to effect such
cost savings identified in such Officers' Certificate and with respect to
any other acquisition or disposition, such Officers' Certificate sets forth
the specific steps to be taken within the 90 days after such acquisition or
disposition to accomplish such cost savings) attributable to the assets
which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any
time subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such
Indebtedness or Acquired Indebtedness) occurred on the first day of the
Four Quarter Period;
(3) with respect to any such Four Quarter Period commencing
prior to the Recapitalization, the Recapitalization (including any Cost
Savings Adjustments) shall be deemed to have taken place on the first day
of such Four Quarter Period; and
(4) any asset sales or asset acquisitions (including any
Consolidated EBITDA (including any Cost Savings Adjustments) attributable
to the assets which are the subject of the asset acquisition or asset sale
during the Four Quarter Period) that have been made by any Person that has
become a Restricted Subsidiary of the Company or has been merged with or
into the Company or any Restricted Subsidiary of the Company during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date that would have
constituted Asset Sales or Asset Acquisitions had such transactions
occurred when such Person was a Restricted Subsidiary of the Company or
subsequent to such Person's merger into the Company, as if such asset sale
or asset acquisition (including the incurrence, assumption or liability for
any Indebtedness or Acquired Indebtedness in connection therewith) occurred
on the first day of the Four Quarter Period;
provided that to the extent that clause (2) or (4) of this sentence requires
- --------
that pro forma effect be given to an asset sale or asset acquisition, such pro
--- ----- ---
forma calculation shall be based upon the four full fiscal quarters immediately
- -----
preceding the Transaction Date of the Person, or division or line of business of
the Person, that is acquired or disposed for which financial information is
available. If such Person or any of its Restricted Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Restricted Subsidiary of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness.
7
<PAGE>
Furthermore, in calculating "Consolidated Fixed Charges" for purposes
of determining the denominator (but not the numerator) of this "Consolidated
Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four Quarter Period;
and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for
--------------------------
any period, the sum, without duplication, of:
(1) Consolidated Interest Expense (excluding amortization or write-off
of debt issuance costs relating to the Recapitalization and the financing
therefor or relating to retired or existing Indebtedness and amortization
or write-off of customary debt issuance costs relating to future
Indebtedness incurred in the ordinary course of business); plus
(2) the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person (other than dividends paid in
Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and
the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as
a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, the sum of, without duplication:
(1) the aggregate of all cash and non-cash interest expense with
respect to all outstanding Indebtedness of such Person and its Restricted
Subsidiaries, including the net costs associated with Interest Swap
Obligations for such period determined on a consolidated basis in
conformity with GAAP; and
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
8
<PAGE>
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" of the Company means, for any period, the
-----------------------
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom:
- --------
(1) gains and losses from Asset Sales (without regard to the $1.0
million limitation set forth in the definition thereof) or abandonments or
reserves relating thereto and the related tax effects according to GAAP;
(2) gains and losses due solely to fluctuations in currency values and
the related tax effects according to GAAP;
(3) extraordinary, unusual or nonrecurring gains, losses, income or
expense, and the related tax effects;
(4) the net income (or loss) of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary of the Company or is merged or consolidated with the Company or
any Restricted Subsidiary of the Company;
(5) the net income of any Restricted Subsidiary of the Company to the
extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation
of law or otherwise;
(6) the net loss of any Person other than a Restricted Subsidiary of
the Company;
(7) the net income of any Person, other than a Restricted Subsidiary
of the Company, except to the extent of cash dividends or distributions
paid to the Company or to a Restricted Subsidiary of the Company by such
Person unless, in the case of a Restricted Subsidiary of the Company who
receives such dividends or distributions, such Restricted Subsidiary is
subject to clause (5) above;
(8) non-cash compensation charges, including any arising from existing
stock options resulting from any merger or recapitalization transition; and
(9) any fees, expenses or charges related to the Recapitalization or
the transactions contemplated by the Recapitalization.
"Consolidated Non-cash Charges" means, with respect to any Person, for
-----------------------------
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net Income
of such Person and its Restricted Subsidiaries for such period, determined on
9
<PAGE>
a consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Continuing Directors" means, as of any date of determination, any
--------------------
member of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the Effective Date;
(2) was nominated for election or elected to such Board of Directors
with, or whose election to such Board of Directors was approved by, the
affirmative vote of a majority of the Continuing Directors who were members
of such Board of Directors at the time of such nomination or election; or
(3) is any designee of a Permitted Holder or was nominated by a
Permitted Holder or any designees of a Permitted Holder on the Board of
Directors.
"Covenant Defeasance" has the meaning set forth in Section 8.02.
-------------------
"Currency Agreement" means any foreign exchange contract, currency
------------------
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
sequestrator or similar official under any Bankruptcy Law.
"Deadline Date" means December 30, 1999.
-------------
"Default" means an event or condition the occurrence of which is, or
-------
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" shall mean The Depository Trust Company, New York, New
----------
York, or a successor thereto registered under the Exchange Act or other
applicable statute or regulation.
"Designated Senior Debt" means (1) Indebtedness under or in respect
----------------------
of the New Credit Facility and (2) any other Indebtedness constituting Senior
Debt which, at the time of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $30.0 million and is specifically
designated in the instrument evidencing such Senior Debt as "Designated Senior
Debt" by the Company.
"Disqualified Capital Stock" means that portion of any Capital Stock
--------------------------
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event (other than an event which would
constitute a Change of
10
<PAGE>
Control), matures (excluding any maturity as the result of an optional
redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of the
holder thereof (except, in each case, upon the occurrence of a Change of
Control) on or prior to the final maturity date of the Securities.
"Effective Date" means the effective date of the Assumption.
--------------
"Equity Offering" means a sale of Qualified Capital Stock of the
---------------
Company, other than any Capital Stock of the Company required to be purchased
pursuant to the terms of the Capital Call Agreement.
"Escrow Agent" means the Escrow Agent from time to time under the
------------
Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement dated as of September
----------------
28, 1999 between the Company and HSBC Bank USA, as escrow agent thereunder, as
amended from time to time.
"Escrowed Property" has the meaning ascribed thereto in the Escrow
-----------------
Agreement.
"Event of Default" has the meaning set forth in Section 6.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor statute or statutes thereto.
"Exchange Securities" means Securities issued (i) in exchange for
-------------------
Securities in the form of Exhibit A hereto pursuant to the terms of the
Registration Rights Agreement or, in the case of Securities issued after the
Issue Date, any other registration rights agreement or (ii) in the form of
Exhibit B hereto.
"fair market value" means, with respect to any asset or property, the
-----------------
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in
----
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"Global Security" shall mean one or more IAI Global Securities,
---------------
Regulation S Global Securities and Rule 144A Global Securities.
11
<PAGE>
"Guarantee Obligations" has the meaning set forth in Section 12.01.
---------------------
"Guarantees" means the guarantees of the Securities by the
----------
Guarantors.
"Guarantor" means each of the Company's Restricted Subsidiaries that
---------
in the future executes a supplemental indenture in which such Restricted
Subsidiary agrees to be bound by the terms of this Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall cease
- --------
to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of this Indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor: the
---------------------
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on, and all other amounts owing in respect of:
(x) all monetary obligations of every nature of such Guarantor under,
or with respect to, the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(y) all Interest Swap Obligations of such Guarantor (and guarantees
thereof by such Guarantor); and
(z) all obligations of such Guarantor (and guarantees thereof by such
Guarantor) under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not
include:
(1) any Indebtedness of such Guarantor to a Subsidiary of such
Guarantor;
12
<PAGE>
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation)
other than a shareholder who is also a lender (or an Affiliate of a lender)
under the New Credit Facility;
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or
owing by such Guarantor;
(6) that portion of any Indebtedness incurred in violation of Section
4.04 (but, as to any such Obligation, no such violation shall be deemed to
exist for purposes of this clause (6) if the holder(s) of such Obligation
or their representative shall have received an Officers' Certificate of the
Company to the effect that the incurrence of such Indebtedness does not
(or, in the case of revolving credit indebtedness, that the incurrence of
the entire committed amount thereof at the date on which the initial
borrowing thereunder is made would not) violate Section 4.04);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"IAI Global Security" means a permanent global security in registered
-------------------
form representing the aggregate principal amount of Securities held by
Institutional Accredited Investors which are not QIBs.
"incur" has the meaning set forth in Section 4.04.
-----
"Indebtedness" means with respect to any Person, without duplication:
------------
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations
13
<PAGE>
under any title retention agreement (but excluding trade accounts payable
and other accrued liabilities arising in the ordinary course of business);
(5) all Obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any property or
asset of such Person, but which Obligations are not assumed by such Person,
the amount of such Obligation being deemed to be the lesser of the fair
market value of such property or asset or the amount of the Obligation so
secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference
and its maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, (x) the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital Stock
and (y) any transfer of accounts receivable or other assets which constitute a
sale for purposes of GAAP shall not constitute Indebtedness hereunder.
"Indenture" means this Indenture, as amended or supplemented from
---------
time to time in accordance with the terms hereof.
"Initial Purchasers" means Deutsche Bank Securities Inc. and Merrill
------------------
Lynch, Pierce, Fenner & Smith Incorporated.
"Institutional Accredited Investor" or "IAI" means an institution
--------------------------------- ---
that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment
---------------------
of interest on the Securities.
"Interest Swap Obligations" means the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person, whereby, directly or
indirectly,
14
<PAGE>
such Person is entitled to receive from time to time periodic payments
calculated by applying either a floating or a fixed rate of interest on a stated
notional amount in exchange for periodic payments made by such other Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount.
"Inventory" means goods held for sale or lease by a Person in the
---------
ordinary course of business, net of any reserve for goods that have been
segregated by such Person to be returned to the applicable vendor for credit, as
determined in accordance with GAAP.
"Investment" by any Person in any other Person means, with respect to
----------
any Person, any direct or indirect loan or other extension of credit (including,
without limitation, a guarantee) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such Person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, such other Person. "Investment" shall
exclude extensions of trade credit by the Company and its Restricted
Subsidiaries on commercially reasonable terms in accordance with normal trade
practices of the Company or such Restricted Subsidiary, as the case may be. For
the purposes of Section 4.03:
(1) the Company shall be deemed to have made an "Investment" equal to
the fair market value of the net assets of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary and the aggregate amount of Investments made subsequent to the
Issue Date shall exclude (to the extent the designation as an Unrestricted
Subsidiary was included as a Restricted Payment) the fair market value of
the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary, not to
exceed the amount of the Investment deemed made at the date of designation
thereof as an Unrestricted Subsidiary; and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by the Company or
any of its Restricted Subsidiaries, without any adjustments for increases
or decreases in value, or write-ups, writedowns or write-offs with respect
to such Investment, reduced by the payment of dividends or distributions
(including tax sharing payments) in connection with such Investment or any
other amounts received in respect of such Investment; provided that no such
--------
payment of dividends or distributions or receipt of any such other amounts
shall reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in
Consolidated Net Income. If the Company or any Restricted Subsidiary of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, more than 50% of the outstanding Common Stock of
such Restricted Subsidiary, the Company shall be deemed to have made an
Invest-
15
<PAGE>
ment on the date of any such sale or disposition equal to the fair market
value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
"Issue Date" means September 28, 1999, the date of original issuance
----------
of any Securities under this Indenture.
"Issuer" means Unilab Finance Corp., a Delaware corporation.
------
"Joint Venture" means a corporation, partnership or other business
-------------
entity, other than a Subsidiary of the Company, engaged or proposed to be
engaged in the same or a similar line of business as the Company in which the
Company owns, directly or indirectly, not less than 30% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers and trustees thereof, with the
balance of the ownership interests being held by one or more third parties.
"Legal Defeasance" has the meaning set forth in Section 8.02.
----------------
"Lien" means any lien, mortgage, deed of trust, pledge, security
----
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Mandatory Redemption Date" means (a) January 20, 2000, if the
-------------------------
Assumption has not occurred on or prior to the Deadline Date or (b) the 20th day
(of if such day is not a Business Day, the first Business Day thereafter)
following the termination of the Merger Agreement, on or prior to the Deadline
Date, for any reason.
"Mandatory Redemption Price" means 101% of the offering price (i.e.,
-------------------------- ---
97.268% of the principal amount at maturity) of the Securities plus accrued and
unpaid interest up to but not including the Mandatory Redemption Date.
"Maturity Date" means October 1, 2009.
-------------
"Merger Agreement" means the Agreement and Plan of Merger dated as of
----------------
May 24, 1999 by and between Unilab and UC Acquisition, as amended or
supplemented from time to time.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
-----------------
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Restricted Subsidiaries from
such Asset Sale net of:
(1) out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking
fees and sales commissions);
16
<PAGE>
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) repayment of Senior Debt or Guarantor Senior Debt that is
required to be repaid in connection with such Asset Sale; and
(4) any portion of cash proceeds which the Company determines in good
faith should be reserved for post-closing adjustments, it being understood
and agreed that on the day that all such post-closing adjustments have been
determined, the amount (if any) by which the reserved amount in respect of
such Asset Sale exceeds the actual post-closing adjustments payable by the
Company or any of its Subsidiaries shall constitute Net Cash Proceeds on
such date; provided that, in the case of the sale by the Company of an
--------
asset constituting an Investment made after the Issue Date (other than a
Permitted Investment), the "Net Cash Proceeds" in respect of such Asset
Sale shall not include the lesser of (x) the cash received with respect to
such Asset Sale and (y) the initial amount of such Investment, less, in the
case of clause (y), all amounts (up to an amount not to exceed the initial
amount of such Investment) received by the Company with respect to such
Investment, whether by dividend, sale, liquidation or repayment, in each
case prior to the date of such Asset Sale.
"Net Proceeds Offer" has the meaning set forth in Section 4.16.
------------------
"Net Proceeds Offer Amount" has the meaning set forth in Section
-------------------------
4.16.
"Net Proceeds Offer Payment Date" has the meaning set forth in
-------------------------------
Section 4.16.
"Net Proceeds Offer Trigger Date" has the meaning set forth in
-------------------------------
Section 4.16.
"New Credit Facility" means the credit agreement to be dated on or
-------------------
about the Effective Date, between the Company, the lenders party thereto in
their capacities as lenders thereunder, Deutsche Bank Securities Inc., as lead
arranger, Bankers Trust Company, as administrative agent, and Merrill Lynch
Capital Corporation, as co-arranger and syndication agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (whether with the
original agents and lenders or other agents and lenders or otherwise) and
whether provided under the original New Credit Facility or one or more other
credit agreements or otherwise) (including increasing the amount of available
borrowings thereunder or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the
17
<PAGE>
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Non-payment Default" has the meaning set forth in Section 10.02.
-------------------
"Non-U.S. Person" has the meaning assigned to such term in Regulation
---------------
S.
"Obligations" means all obligations for (a) principal, premium,
-----------
interest, penalties, fees, and (b) to the extent liquidated and quantifiable at
the time of determination, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
-------
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, or the Secretary of such Person.
"Officers' Certificate" means a certificate signed by two Officers of
---------------------
the Company.
"Opinion of Counsel" means a written opinion from legal counsel,
------------------
which opinion and counsel are reasonably acceptable to the Trustee.
"Participants" has the meaning set forth in Section 2.16.
------------
"Paying Agent" has the meaning set forth in Section 2.03.
------------
"Payment Blockage Notice" has the meaning set forth in Section 10.02.
-----------------------
"Payment Blockage Period" has the meaning set forth in Section 10.02.
-----------------------
"Payment Default" has the meaning set forth in Section 10.02.
---------------
"Permitted Holders" means Kelso & Company, Kelso Investment
-----------------
Associates VI L.P., KEP VI LLC and their respective Affiliates.
"Permitted Indebtedness" means, without duplication, each of the
----------------------
following:
(1) Indebtedness under the Securities and this Indenture in an
aggregate principal amount not to exceed $155.0 million;
(2) Indebtedness incurred pursuant to the New Credit Facility
(including but not limited to Indebtedness in respect of letters of credit
or bankers' acceptances issued or created thereunder) in a maximum
principal amount not to exceed in the aggregate the amount equal to $185.0
million plus the amount, if any, by which the Borrowing Base exceeds the
Borrowing
18
<PAGE>
Base on the Effective Date less the amount of all repayments of term loans
and permanent commitment reductions in the revolving credit portion of the
New Credit Facility with Net Cash Proceeds of Asset Sales applied thereto
as required by Section 4.16;
(3) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Effective Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(4) Interest Swap Obligations of the Company or any Restricted
Subsidiary of the Company covering Indebtedness of the Company or any of
its Restricted Subsidiaries; provided that any Indebtedness to which any
--------
such Interest Swap Obligations correspond is otherwise permitted to be
incurred under this Indenture; provided, further, that such Interest Swap
-------- -------
Obligations are entered into, in the judgment of the Company, to protect
the Company and its Restricted Subsidiaries from fluctuations in interest
rates on their respective outstanding Indebtedness;
(5) Indebtedness of the Company or any of its Restricted Subsidiaries
under Currency Agreements entered into, in the judgment of the Company, to
protect the Company or such Restricted Subsidiary from foreign currency
exchange rates;
(6) intercompany Indebtedness owed by any Restricted Subsidiary of the
Company to the Company or any Restricted Subsidiary of the Company or by
the Company to any Restricted Subsidiary;
(7) Acquired Indebtedness of any Restricted Subsidiary of the Company
that is not a Guarantor to the extent the Company could have incurred such
Indebtedness in accordance with the Consolidated Fixed Charge Coverage
Ratio of Section 4.04 on the date such Indebtedness became Acquired
Indebtedness; provided that such Acquired Indebtedness was not incurred in
--------
connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of the Company;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds in the ordinary course of business; provided,
--------
however, that such Indebtedness is extinguished within five Business Days
-------
of incurrence;
(9) any refinancing, modification, replacement, renewal, restatement,
refunding, deferral, extension, substitution, supplement, reissuance or
resale of existing or future Indebtedness (other than pursuant to clauses
(2), (4), (5), (6), (8), (10), (11), (12), (13), (14), (15) and (16) of
this definition), including any additional Indebtedness incurred to pay
interest or premiums required by the instruments governing such existing or
future Indebtedness as in effect at the time of issuance thereof ("Required
--------
Premiums") and fees in
19
<PAGE>
connection therewith; provided that any such event shall not (1) result in
--------
an increase in the aggregate principal amount of Permitted Indebtedness
(except to the extent such increase is a result of a simultaneous
incurrence of additional Indebtedness (A) to pay Required Premiums and
related fees or (B) otherwise permitted to be incurred under this
Indenture) of the Company and its Restricted Subsidiaries and (2) create
Indebtedness with a Weighted Average Life to Maturity at the time such
Indebtedness is incurred that is less than the Weighted Average Life to
Maturity at such time of the Indebtedness being refinanced, modified,
replaced, renewed, restated, refunded, deferred, extended, substituted,
supplemented, reissued or resold; provided that no Restricted Subsidiary of
--------
the Company may refinance any Indebtedness pursuant to this clause (9)
other than its own Indebtedness;
(10) Indebtedness (including Capitalized Lease Obligations) incurred by
the Company to finance the purchase, lease or improvement of property (real
or personal) or equipment (whether through the direct purchase of assets or
the Capital Stock of any Person owning such assets) in an aggregate
principal amount outstanding not to exceed $15.0 million at the time of any
incurrence thereof (which amount shall be deemed not to include such
Indebtedness incurred in whole or in part under the New Credit Facility to
the extent permitted under clause (a) above);
(11) the incurrence by a Receivables Entity of Indebtedness in a
Qualified Receivables Transaction that is not recourse to the Company or
any Restricted Subsidiary of the Company (except for Standard
Securitization Undertakings);
(12) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims;
(13) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case, incurred or assumed in connection with the disposition of any
business, assets or a Restricted Subsidiary of the Company, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose
of financing such acquisition, provided that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and its Restricted
Subsidiaries in connection with such disposition;
(14) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
20
<PAGE>
(15) Indebtedness consisting of guarantees (i) by the Company of
Indebtedness and any other obligation or liability permitted to be incurred
under this Indenture by Restricted Subsidiaries of the Company, and (ii)
subject to the provisions of Section 4.19 by Restricted Subsidiaries of the
Company of Indebtedness and any other obligation or liability permitted to
be incurred by the Company or other Restricted Subsidiaries of the Company;
and
(16) additional Indebtedness of the Company or any Restricted Subsidiary
in an aggregate principal amount not to exceed $20.0 million at any one
time outstanding (which amount may, but need not, be incurred in whole or
in part under the New Credit Facility).
"Permitted Investments" means:
---------------------
(1) Investments by the Company or any Restricted Subsidiary of the
Company in any Restricted Subsidiary of the Company (whether existing on
the Issue Date or created thereafter) and Investments in the Company by any
Restricted Subsidiary of the Company;
(2) cash and Cash Equivalents;
(3) Investments existing on the Effective Date and Investments made on
the Effective Date pursuant to the Merger Agreement;
(4) loans and advances to employees, officers and directors of the
Company and its Restricted Subsidiaries not in excess of $1.0 million at
any one time outstanding;
(5) accounts receivable owing to the Company or any Restricted
Subsidiary created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary
-------- -------
trade terms as the customary trade terms;
(6) Currency Agreements and Interest Swap Obligations entered into by
the Company or any of its Restricted Subsidiaries for bona fide business
reasons and not for speculative purposes, and otherwise in compliance with
this Indenture;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(8) guarantees by the Company or any of its Restricted Subsidiaries of
Indebtedness otherwise permitted to be incurred by the Company or any of
its Restricted Subsidiaries under this Indenture;
21
<PAGE>
(9) Investments by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
all or substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary of the Company;
(10) additional Investments having an aggregate fair market value, taken
together with all other Investments made pursuant to this clause (10) that
are at the time outstanding, not exceeding $15.0 million at the time of
such Investment (with the fair market value of each Investment being
measured at the time made and without giving effect to subsequent changes
in value), plus an amount equal to (a) 100% of the aggregate net cash
proceeds received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale subsequent to the Issue Date of
Qualified Capital Stock of the Company (including Qualified Capital Stock
issued upon the conversion of convertible Indebtedness or in exchange for
outstanding Indebtedness) and (b) without duplication of any amounts
included in clause (10)(a) above, 100% of the aggregate net cash proceeds
of any equity contribution received by the Company from a holder of the
Company's Capital Stock, which in the case of amounts described in clause
(10)(a) or (10)(b) are applied by the Company within 180 days after
receipt, to make additional Permitted Investments under this clause (10)
(such additional Permitted Investments being referred to collectively as
"Stock Permitted Investments");
----------------------------
(11) any Investment by the Company or a Restricted Subsidiary of the
Company in a Receivables Entity or any Investment by a Receivables Entity
in any other Person in connection with a Qualified Receivables Transaction;
provided that any Investment in a Receivables Entity is in the form of a
--------
Purchase Money Note or an equity interest;
(12) Investments received by the Company or its Restricted Subsidiaries
as consideration for asset sales, including Asset Sales; provided in the
--------
case of an Asset Sale, (a) such Investment does not exceed 25% of the
consideration received for such Asset Sale and (b) such Asset Sale is
otherwise effected in compliance with Section 4.16;
(13) Investments by the Company or its Restricted Subsidiaries in Joint
Ventures in an aggregate amount not in excess of $5.0 million; and
(14) that portion of any Investment where the consideration provided by
the Company is Capital Stock of the Company (other than Disqualified
Capital Stock).
22
<PAGE>
(15) Any net cash proceeds that are used by the Company or any of its
Restricted Subsidiaries to make Stock Permitted Investments pursuant to
clause (10) of this definition shall not be included in subclauses (x) and
(y) of clause (iii) of the first paragraph of Section 4.03.
"Permitted Liens" means the following types of Liens:
---------------
(1) Liens securing the Securities and the Guarantees;
(2) Liens securing Acquired Indebtedness incurred in reliance on clause
(7) of the definition of Permitted Indebtedness; provided that such Liens
--------
do not extend to or cover any property or assets of the Company or of any
of its Restricted Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Restricted Subsidiary of
the Company;
(3) Liens existing on the Effective Date, together with any Liens
securing Indebtedness incurred in reliance on clause (9) of the definition
of "Permitted Indebtedness" in order to refinance the Indebtedness secured
----------------------
by Liens existing on the Issue Date; provided that the Liens securing the
--------
refinancing Indebtedness shall not extend to property other than that
pledged under the Liens securing the Indebtedness being refinanced;
(4) Liens in favor of the Company on the property or assets, or any
proceeds, income or profit therefrom, of any Restricted Subsidiary; and
(5) other Liens securing Senior Subordinated Indebtedness; provided that
--------
the maximum aggregate amount of outstanding obligations secured thereby
shall not at any time exceed $5.0 million.
"Person" means an individual, partnership, limited liability company,
------
corporation, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof or any other entity.
"Physical Securities" shall have the meaning provided in Section
-------------------
2.01.
"Plan" means any employee benefit plan, retirement plan, deferred
----
compensation plan, restricted stock plan, health, life, disability or other
insurance plan or program, employee stock purchase plan, employee stock
ownership plan, pension plan, stock option plan or similar plan or arrangement
of the Company or any Subsidiary of the Company, or other successor plan
thereof, and "Plans" shall have a correlative meaning.
-----
"Preferred Stock" of any Person means any Capital Stock of such Person
---------------
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
23
<PAGE>
"principal" of any Indebtedness (including the Securities) means the
---------
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Placement Legend" shall have the meaning provided in Exhibit
------------------------ -------
C.
- -
"Productive Assets" means assets (including Capital Stock) of a kind
-----------------
used or usable in the businesses of the Company and its Restricted Subsidiaries
as, or related to such business, conducted on the date of the relevant Asset
Sale.
"Purchase Money Note" means a promissory note of a Receivables Entity
-------------------
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Receivables Transaction
to a Receivables Entity, which note shall be repaid from cash available to the
Receivables Entity, other than amounts required to be established as reserves
pursuant to agreements, amounts paid to investors in respect of interest,
principal and other amounts owing to such investors and amounts owing to such
investors and amounts paid in connection with the purchase of newly generated
receivables.
"Qualified Capital Stock" means any Capital Stock that is not
-----------------------
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
----------------------------- ---
specified in Rule 144A under the Securities Act.
"Qualified Receivables Transaction" means any transaction or series of
---------------------------------
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any of its Subsidiaries may sell, convey or
otherwise transfer to (a) a Receivables Entity (in the case of a transfer by the
Company or any of its Subsidiaries) and (b) any other Person (in the case of a
transfer by a Receivables Entity), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of the
Company or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Recapitalization" means the transactions contemplated by the Merger
----------------
Agreement, together with the financings therefor.
"Receivable" means a right to receive payment arising from a sale or
----------
lease of goods or services by a Person pursuant to an arrangement with another
Person pursuant to which such other Person is obligated to pay for goods or
services under terms that permit the purchase of such goods and services on
credit, as determined in accordance with GAAP.
24
<PAGE>
"Receivables Entity" means a Wholly Owned Subsidiary of the Company
------------------
(or another Person in which the Company or any Subsidiary of the Company makes
an Investment and to which the Company or any Subsidiary of the Company
transfers accounts receivable and related assets) which engages in no activities
other than in connection with the financing of accounts receivable, all proceeds
thereof and all rights (contractual or other), collateral and other assets
relating thereto, and any business or activities incidental or related to such
business, and which is designated by the Board of Directors of the Company (as
provided below) as a Receivables Entity:
(1) no portion of the Indebtedness or any other Obligations
(contingent or otherwise) of which:
(i) is guaranteed by the Company or any Subsidiary of the Company
(excluding guarantees of Obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization
Undertakings);
(ii) is recourse to or obligates the Company or any Subsidiary of
the Company in any way other than pursuant to Standard Securitization
Undertakings; or
(iii) subjects any property or asset of the Company or any
Subsidiary of the Company, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings;
(2) with which neither the Company nor any Subsidiary of the Company
has any material contract, agreement, arrangement or understanding other
than on terms no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons that are not
Affiliates of the Company, other than fees payable in the ordinary
course of business in connection with servicing accounts receivable; and
(3) to which neither the Company nor any Subsidiary of the Company
has any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating
results other than through the contribution of additional Receivables,
related security and collections thereto and proceeds of the foregoing.
Any such designation by the Board of Directors of the Company shall
be evidenced to the Trustee by filing with the Trustee a Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"Record Date" means the applicable Record Date specified in the
-----------
Securities, whether or not any such date is a Business Day.
25
<PAGE>
"Redemption Date," when used with respect to any Security to be
---------------
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
----------------
redeemed, means the price fixed for such redemption, payable in immediately
available funds, pursuant to this Indenture and the Securities.
"Reference Date" has the meaning set forth in Section 4.03.
--------------
"Registrar" has the meaning set forth in Section 2.03.
---------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of the Issue Date among the Issuer and the Initial
Purchasers.
"Regulation S" means Regulation S under the Securities Act.
------------
"Regulation S Global Security" has the meaning set forth in Section
----------------------------
2.01.
"Representative" means the indenture trustee or other trustee, agent
--------------
or representative in respect of any Designated Senior Debt or Guarantor Senior
Debt; provided that if, and for so long as, any Designated Senior Debt lacks
--------
such a representative, then the Representative for such Designated Senior Debt
shall at all times constitute the holders of a majority in outstanding principal
amount of such Designated Senior Debt in respect of any Designated Senior Debt.
"Responsible Officer" means, when used with respect to the Trustee,
-------------------
any officer in the Corporate Trust Office of the Trustee with direct
responsibility for the administration of this Indenture or to whom any corporate
trust matter is referred because of such officer's knowledge of and familiarity
with the particular subject.
"Restricted Payment" has the meaning set forth in Section 4.03.
------------------
"Restricted Period" has the meaning set forth in Section 2.01.
-----------------
"Restricted Security" means a Security that constitutes a "Restricted
-------------------
Security" within the meaning of Rule 144(a)(3) under the Securities Act;
provided, however, that the Trustee shall be entitled to request and
- -------- -------
conclusively rely on an Opinion of Counsel with respect to whether any Security
constitutes a Restricted Security.
"Restricted Subsidiary" of any Person means any Subsidiary of such
---------------------
Person which at the time of determination is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
---------
26
<PAGE>
"Rule 144A Global Security" has the meaning set forth in Section
-------------------------
2.01.
"Sale and Leaseback Transaction" means any direct or indirect
------------------------------
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such property.
"Securities" means, collectively, the Company's 12 3/4% Senior
----------
Subordinated Notes due 2009 issued in accordance with Section 2.02 (whether on
the Issue Date or thereafter), including any Exchange Securities, treated as a
single class of securities under this Indenture, as amended or supplemented from
time to time in accordance with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, or
--------------
any successor statute or statutes thereto.
"Securityholder" or "Holder" means the Person in whose name a
-------------- ------
Security is registered on the Registrar's books.
"Senior Debt" means the principal of, premium, if any, and interest
-----------
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Securities. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(1) all monetary obligations of every nature of the Company under, or
with respect to, the New Credit Facility, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(2) all Interest Swap Obligations of the Company (and guarantees
thereof by the Company); and
(3) all obligations of the Company (and guarantees thereof by the
Company) under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
27
<PAGE>
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Company to a Subsidiary of the Company;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of the Company or any Subsidiary of the
Company (including, without limitation, amounts owed for compensation)
other than a shareholder who is also a lender (or an Affiliate of a lender)
under the New Credit Facility;
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or
owing by the Company;
(6) that portion of any Indebtedness incurred in violation of Section
4.04 (but, as to any such obligation, no such violation shall be deemed to
exist for purposes of this clause (6) if the holder(s) of such obligation
or their representative shall have received an officers' certificate of the
Company to the effect that the incurrence of such Indebtedness does not
(or, in the case of revolving credit indebtedness, that the incurrence of
the entire committed amount thereof at the date on which the initial
borrowing thereunder is made would not) violate Section 4.04);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Company.
"Senior Subordinated Indebtedness" means the Securities and any other
--------------------------------
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Securities and is not by its express terms
---- -----
subordinate in right of payment to any Indebtedness of the Company which is not
Senior Debt.
"Significant Subsidiary," with respect to any Person, means any
----------------------
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the
Exchange Act.
"Standard Securitization Undertakings" means representations,
------------------------------------
warranties, covenants and indemnities entered into by the Company or any
Subsidiary of the Company which are reasonably customary in an accounts
receivable transaction.
28
<PAGE>
"Subordinated Obligation" means any Indebtedness of the Company
-----------------------
(whether outstanding on the Issue Date or thereafter incurred) which is
expressly subordinate in right of payment to the Securities pursuant to a
written agreement.
"Subsidiary", with respect to any Person, means:
----------
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or
indirectly, owned by such Person.
"TIA" means the Trust Indenture act of 1939 (15 U.S.C. (S)(S) 77aaa-
---
77bbbb), as amended, as in effect on the date of the execution of this Indenture
until such time as this Indenture is qualified under the TIA, and thereafter as
in effect on the date on which this Indenture is qualified under the TIA, except
as otherwise provided in Section 9.03.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"UC Acquisition" means UC Acquisition Sub, Inc., a Delaware
--------------
corporation.
"Unilab" means Unilab Corporation, a Delaware corporation.
------
"Unrestricted Securities" means one or more Securities in the form set
-----------------------
forth in Exhibit B that do not and are not required to bear the Private
---------
Placement Legend, including, without limitation, the Exchange Securities.
"Unrestricted Subsidiary" of any Person means:
-----------------------
(1) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any other Subsidiary of the Company that is not
a Subsidiary of the Subsidiary to be so designated; provided that:
--------
29
<PAGE>
(1) the Company certifies to the Trustee in an Officers' Certificate
that such designation complies with Section 4.03; and
(2) each Subsidiary to be so designated and each of its Subsidiaries
has not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of the assets of the Company or any of its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be
a Restricted Subsidiary only if:
30
<PAGE>
(1) immediately after giving effect to such designation, the Company
is able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with Section 4.04; and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations of, and
---------------------------
obligations guaranteed by, the United States of America for the payment of which
the full faith and credit of the United States of America is pledged and which
are not callable or redeemable at the issuer's option.
"U.S. Legal Tender" means 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.
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly
----------------------------------
Owned Subsidiary of such Person which at the time of determination is a
Restricted Subsidiary of such Person.
"Wholly Owned Subsidiary" means any Restricted Subsidiary of the
-----------------------
Company all the outstanding voting securities of which (other than directors'
qualifying shares or an immaterial amount of shares required to be owned by
other Persons pursuant to applicable law) are owned, directly or indirectly, by
the Company.
Section 1.2 Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities.
--------------------
"indenture security holder" means a Holder or a Securityholder.
-------------------------
31
<PAGE>
"indenture to be qualified" means this Indenture.
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee.
----------------- ---------------------
"obligor" on the indenture securities means the Company, any
-------
Guarantor or any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
Section 1.3 Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE II
THE SECURITIES
Section 2.1 Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto and the Exchange Notes
---------
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit B. The Securities may have notations, legends or endorsements
---------
required by law, stock exchange rule or usage. The Company shall approve the
form of the Securities and any notation, legend or endorsement on them. Each
Security shall be dated the date of its issuance and show the date of its
authentication.
The terms and provisions contained in the Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent
32
<PAGE>
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent Global Securities in
registered form, substantially in the form set forth in Exhibit A, deposited
---------
with the Trustee, as custodian for the Depository, duly executed by the Company
and authenticated by the Trustee as hereinafter provided, and shall bear the
legends set forth in S ection 2.14 (the "Rule 144A Global Security"). Securities
-------------------------
offered and sold in reliance on Regulation S shall be issued initially in the
form of one or more Global Securities in registered form, substantially in the
form set forth in Exhibit A, deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided, and shall bear the legends set forth in Exhibit C (the
"Regulation S Global Security"). The aggregate principal amount of the Global
----------------------------
Securities may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Through and including the 40th day after the later of the
commencement of the Offering and the Issue Date (the "Restricted Period"),
-----------------
beneficial interests in the Regulation S Global Security may be held only
through Euroclear and Cedel (as indirect participants in The Depository Trust
Company), unless transferred to a Person that takes delivery through a Rule 144A
Global Security in accordance with Section 2.16.
Securities issued in exchange for interests in the Global
Securities pursuant to Section 2.16 may be issued in the form of permanent
certificated Securities in registered form (the "Physical Securities") and shall
-------------------
bear the Private Placement Legend. All Securities offered and sold in reliance
on Regulation S shall remain in the form of a Global Security until the
consummation of the Exchange Offer pursuant to the Registration Rights
Agreement.
Section 2.2 Execution and Authentication.
----------------------------
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Securities for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Security was an Officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall nevertheless be valid.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
33
<PAGE>
The Trustee shall authenticate Securities for original issue on
the initial Issue Date in the aggregate principal amount of $155,000,000 upon a
written order of the Company in the form of an Officers' Certificate. In
addition, the Trustee shall authenticate Securities for original issue after the
initial Issue Date in the aggregate principal amount of up to $155,000,000 upon
a written order of the Company in the form of an Officers' Certificate. Each
such Officers' Certificate shall specify the amount of Securities to be
authenticated and the date on which the Securities are to be authenticated. The
aggregate principal amount of Securities outstanding at any time may not exceed
$300,000,000, except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
Section 2.3 Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
---------
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
------------
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company may also from time to time designate one
or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
-------- -------
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, for such purposes. The
Company may act as its own Registrar, Paying Agent or Calculation Agent except
that for the purposes of Articles Three and Eight and Sections 4.15 and 4.16,
neither the Company nor any Affiliate of the Company shall act as Paying Agent.
The Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company, upon notice to the Trustee, may have one or more co-
Registrars and one or more additional paying agents reasonably acceptable to
the Trustee. The term "Paying Agent" includes any additional paying agent. The
Company initially appoints the Trustee as Registrar and Paying Agent until such
time as the Trustee has resigned or a successor has been appointed.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee, in advance, of the name and address of any such Agent. If the
Company fails to maintain a Registrar or Paying Agent, the Trustee shall act as
such.
34
<PAGE>
Section 2.4 Paying Agent To Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee
to agree in writing that, subject to Article Four and Article Twelve, each
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
assets held by the Paying Agent for the payment of principal of, or interest on,
the Securities (whether such assets have been distributed to it by the Company
or any other obligor on the Securities), and shall notify the Trustee of any
Default by the Company (or any other obligor on the Securities) in making any
such payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund. The Company at any
time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
Section 2.5 Holder Lists.
------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
Section 2.6 Transfer and Exchange.
---------------------
Subject to Sections 2.16 and 2.17, when Securities are presented
to the Registrar or a co-Registrar with a request to register the transfer of
such Securities or to exchange such Securities for an equal principal amount of
Securities of other authorized denominations, the Registrar or co-Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transaction are met; provided, however, that the
-------- -------
Securities surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company and the Registrar or co-Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's or co-Registrar's request. No service
charge shall be made for any registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith. The Registrar or
co-Registrar shall not be required to register the transfer of or exchange of
any Security (i) during a period beginning at the opening of business 15 days
before the mailing of a notice of redemption of Securities and ending at the
close of business on the day of such
35
<PAGE>
mailing, (ii) selected for redemption in whole or in part pursuant to Article
Three, except the unredeemed portion of any Security being redeemed in part, and
(iii) during a Change of Control Offer or an Net Proceeds Offer if such Security
is tendered pursuant to such Change of Control Offer or Net Proceeds Offer and
not withdrawn.
Any Holder of a beneficial interest in a Global Security shall, by
acceptance of such beneficial interest, agree that transfers of beneficial
interests in such Global Securities may be effected only through a book entry
system maintained by the Holder of such Global Security (or its agent), and that
ownership of a beneficial interest in the Security shall be required to be
reflected in a book entry system.
Section 2.7 Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for its
reasonable out-of-pocket expenses in replacing a Security pursuant to this
Section 2.07, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
Section 2.8 Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because the Company or
any one of its Affiliates holds the Security (subject to the provisions of
Section 2.09).
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a protected purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07. If the principal amount of any Security is considered paid under Section
4.01, it ceases to be outstanding and interest ceases to accrue.
If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S.
Government Obligations sufficient to pay all of the principal and interest due
on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
36
<PAGE>
Section 2.9 Treasury Securities.
-------------------
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company, any of its Subsidiaries or any of their
respective Affiliates shall be disregarded, except that, for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Securities that the Trustee knows or has
reason to know are so owned shall be disregarded.
Section 2.10 Temporary Securities.
--------------------
Until definitive Securities are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Until
such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as definitive Securities. Notwithstanding the foregoing,
so long as the Securities are represented by a Global Security, such Global
Security may be in typewritten form.
Section 2.11 Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee, or at the direction of the Trustee, the Registrar or the
Paying Agent (other than the Company or a Subsidiary), and no one else, shall
cancel and, unless otherwise requested by the written direction of the Company,
shall dispose of all Securities surrendered for registration of transfer,
exchange, payment or cancellation in accordance with customary procedures.
Subject to Section 2.07, the Company may not issue new Securities to replace
Securities that it has paid or delivered to the Trustee for cancellation. If
the Company shall acquire any of the Securities, such acquisition shall not
operate as a redemption or satisfaction of the Indebtedness represented by such
Securities unless and until the same are surrendered to the Trustee for
cancellation pursuant to this Section 2.11.
Section 2.12 Defaulted Interest.
------------------
If the Company defaults in a payment of interest on the
Securities, it shall, unless the Trustee fixes another record date pursuant to
Section 6.10, pay the defaulted interest, plus (to the extent lawful) any
interest payable on the defaulted interest, in any lawful manner. The Company
may pay the defaulted interest to the Persons who are Holders on a subsequent
special record date, which date shall be the fifteenth day next preceding the
date fixed by the Company for the payment of defaulted interest or the next
succeeding Business Day if such date is not a Business Day. At least 15 days
before any such subsequent special record date, the Company shall mail to each
Holder, with a copy to the Trustee, a notice that states the subse-
37
<PAGE>
quent special record date, the payment date and the amount of defaulted
interest, and interest payable on such defaulted interest, if any, to be paid.
Section 2.13 CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number,
and if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided, however, that any such notice
-------- -------
may state that no representation is made as to the correctness or accuracy of
the CUSIP number printed in the notice or on the Securities, and that reliance
may be placed only on the other identification numbers printed on the
Securities. The Company shall promptly notify the Trustee of any change in the
CUSIP number.
Section 2.14 Restrictive Legends.
-------------------
Each Global Security and Physical Security that constitutes a
Restricted Security or is sold in compliance with Regulation S shall bear the
Private Placement Legends on the face thereof until after the second anniversary
of the later of the Issue Date and the last date on which the Company or any
Affiliate of the Company was the owner of such Security (or any predecessor
security) (or such shorter period of time as permitted by Rule 144(k) under the
Securities Act or any successor provision thereunder) (or such longer period of
time as may be required under the Securities Act or applicable state securities
laws in the opinion of counsel for the Company, unless otherwise agreed by the
Company and the Holder thereof).
Section 2.15 Deposit of Moneys.
-----------------
Prior to 9:00 a.m. New York City time on each Interest Payment
Date, Maturity Date, Redemption Date, Change of Control Payment Date and Net
Proceeds Offer Payment Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change
of Control Payment Date or Net Proceeds Offer Payment Date, as the case may be,
in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of
Control Payment Date or Net Proceeds Offer Payment Date, as the case may be.
Section 2.16 Book-Entry Provisions for Global Securities.
--------------------------------------------
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be
delivered to the Trustee as custodian for such Depository and (iii) bear
legends as set forth in Exhibit C.
---------
Members of, or participants in, the Depository ("Participants")
------------
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depository, or the Trustee as its custodian, or
under the Global Security, and the Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of the
Global Security for all
38
<PAGE>
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depository or impair, as between the Depository and Participants, the
operation of customary practices governing the exercise of the rights of a
Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in the Global
Securities may be transferred or exchanged for Physical Securities in
accordance with the rules and procedures of the Depository and the
provisions of Section 2.17. In addition, Physical Securities shall be
transferred to all beneficial owners in exchange for their beneficial
interests in Global Securities if (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for any Global
Security and a successor Depository is not appointed by the Company within
90 days of such notice or (ii) an Event of Default has occurred and is
continuing and the Registrar has received a written request from the
Depository or the Trustee to issue Physical Securities.
(c) In connection with any registration of transfer or exchange of a
portion of the beneficial interest in a Global Security to beneficial
owners pursuant to paragraph (b), the Registrar shall (if one or more
Physical Securities are to be issued) reflect on its books and records the
date and a decrease in the principal amount of such Global Security in an
amount equal to the principal amount of the beneficial interest in the
Global Security to be transferred, and the Company shall execute, and the
Trustee shall authenticate and deliver, one or more Physical Securities of
authorized denominations in an aggregate principal amount equal to the
principal amount of the beneficial interest in the Global Security so
transferred.
(d) In connection with the transfer of a Global Security as an entirety
to beneficial owners pursuant to paragraph (b) of this Section 2.16, such
Global Security shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute and the Trustee shall upon
written instructions from the Company authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its
beneficial interest in such Global Security, an equal aggregate principal
amount of Physical Securities of authorized denominations.
(e) Any Physical Security constituting a Restricted Security delivered
in exchange for an interest in a Global Security pursuant to paragraph (b)
or (c) of this Section 2.16 shall, except as otherwise provided by Section
2.17, bear the Private Placement Legend.
(f) The Holder of any Global Security may grant proxies and otherwise
authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
39
<PAGE>
Section 2.17 Special Transfer Provisions.
---------------------------
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. Persons. The following additional provisions shall apply with
respect to the registration of any proposed transfer of a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to
any Non-U.S. Person:
(i) the Registrar shall register the transfer of any
Restricted Security, whether or not such Security bears the Private
Placement Legend, if (x) the requested transfer is after the second
anniversary of the Issue Date; provided, however, that neither the Company
-------- -------
nor any Affiliate of the Company has held any beneficial interest in such
Security, or portion thereof, at any time on or prior to the second
anniversary of the Issue Date or (y) (1) in the case of a transfer to an
Institutional Accredited Investor which is not a QIB (excluding Non-U.S.
Persons), the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit D hereto and any legal
---------
opinions and certifications required thereby and (2) in the case of a
transfer to a Non-U.S. Person, the proposed transferor has delivered to the
Registrar a certificate substantially in the form of Exhibit E hereto;
---------
(ii) if the proposed transferee is a Participant and the Securities to
be transferred consist of Physical Securities which after transfer are to
be evidenced by an interest in the IAI Global Security or Regulation S
Global Security, as the case may be, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall register
the transfer and reflect on its books and records the date and an increase
in the principal amount of the IAI Global Security or Regulation S Global
Security, as the case may be, in an amount equal to the principal amount of
Physical Securities to be transferred, and the Registrar shall cancel the
Physical Securities so transferred; and
(iii) if the proposed transferor is a Participant seeking to transfer
an interest in a Global Security, upon receipt by the Registrar of (x)
written instructions given in accordance with the Depository's and the
Registrar's procedures and (y) the appropriate certificate, if any,
required by clause (y) of paragraph (i) above, the Registrar shall register
the transfer and reflect on its books and records the date and (A) a
decrease in the principal amount of the Global Security from which such
interests are to be transferred in an amount equal to the principal amount
of the Securities to be transferred and (B) an increase in the principal
amount of the IAI Global Security or
40
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the Regulation S Global Security, as the case may be, in an amount equal to
the principal amount of the Securities to be transferred.
(b) Transfers to QIBs. The following provisions shall apply with respect to
-----------------
the registration of any proposed transfer of a Restricted Security to a
QIB:
(i) the Registrar shall register the transfer of any Restricted
Security, whether or not such Security bears the Private Placement Legend,
if (x) the requested transfer is after the second anniversary of the Issue
Date; provided, however, that neither the Company nor any Affiliate of the
-------- -------
Company has held any beneficial interest in such Security, or portion
thereof, at any time on or prior to the second anniversary of the Issue
Date or (y) such transfer is being made by a proposed transferor who has
checked the box provided for on the form of Security stating, or has
otherwise advised the Company and the Registrar in writing, that the sale
has been made in compliance with the provisions of Rule 144A to a
transferee who has signed the certification provided for on the form of
Security stating, or has otherwise advised the Company and the Registrar in
writing, that it is purchasing the Security for its own account or an
account with respect to which it exercises sole investment discretion and
that it and any such account is a QIB within the meaning of Rule 144A, and
is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A;
(ii) if the proposed transferee is a Participant and the Securities to
be transferred consist of Physical Securities which after transfer are to
be evidenced by an interest in the Rule 144A Global Security, upon receipt
by the Registrar of written instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall register
the transfer and reflect on its book and records the date and an increase
in the principal amount of the Rule 144A Global Security in an amount equal
to the principal amount of Physical Securities to be transferred, and the
Registrar shall cancel the Physical Securities so transferred; and
(iii) if the proposed transferor is a Participant seeking to transfer
an interest in the IAI Global Security or the Regulation S Global Security,
upon receipt by the Registrar of written instructions given in accordance
with the Depository's and the Registrar's procedures, the Registrar shall
register the transfer and reflect on its books and records the date and (A)
a decrease in the principal amount of the IAI Global Security or the
Regulation S Global
41
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Security, as the case may be, in an amount equal to the principal amount of
the Securities to be transferred and (B) an increase in the principal
amount of the 144A Global Security in an amount equal to the principal
amount of the Securities to be transferred.
(c) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(d) Private Placement Legend. Upon the registration of transfer, exchange
------------------------
or replacement of Securities not bearing the Private Placement Legend, the
Registrar or co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon the registration of transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Registrar or co-Registrar
shall deliver only Securities that bear the Private Placement Legend unless (i)
there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory
to the Company and the Trustee to the effect that neither such legend nor the
related restrictions on transfer are required in order to maintain compliance
with the provisions of the Securities Act or (ii) such Security has been sold
pursuant to an effective registration statement under the Securities Act.
(e) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain in accordance with its customary procedure
copies of all letters, notices and other written communications received
pursuant to Section 2.16 or this Section 2.17. The Company shall have the right
to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
ARTICLE III
REDEMPTION
Section 3.1 Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to paragraph 6
or paragraph 7 of the Securities or if the Company is required to redeem
Securities pursuant to paragraph 8 of the Securities, it shall notify the
Trustee in writing of the Redemption Date, the Redemption Price and the
principal amount of Securities to be redeemed. If the Company is required to
redeem the Securities pursuant to paragraph
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8 of the Securities the Company shall also so notify the Escrow Agent
concurrently with its notification to the Trustee. The Company shall give notice
of redemption pursuant to paragraphs 6 or 7 of the Securities to the Paying
Agent and Trustee at least 30 days but not more than 60 days before the
Redemption Date (unless a shorter notice shall be agreed to by the Trustee in
writing), together with an Officers' Certificate stating that such redemption
will comply with the conditions contained herein. In the case of a redemption
pursuant to paragraph 8 of the Securities, the Company shall give notices to the
Trustee and the Escrow Agent provided for in this Section promptly after the
occurrence of the event triggering the requirement to redeem the Securities.
Section 3.2 Selection of Securities To Be Redeemed.
--------------------------------------
In the event that less than all of the Securities are to be
redeemed at any time, selection of such Securities for redemption will be made
by the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which such Securities are listed or, if such
Securities are not then listed on a national securities exchange, on a pro rata
--- ----
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Securities of a principal amount of $1,000 or less
- -------- -------
shall be redeemed in part; and provided, further, that if a partial redemption
-------- -------
is made with the net cash proceeds of an Equity Offering, selection of the
Securities or portions thereof for redemption shall be made by the Trustee only
on a pro rata basis or on as nearly a pro rata basis as is practicable (subject
--- ----
to the procedures of the Depository), unless such method is otherwise
prohibited.
Section 3.3 Notice of Redemption.
--------------------
In the case of a redemption pursuant to paragraph 6 or paragraph 7
of the Securities, at least 30 days but not more than 60 days before a
Redemption Date, the Company shall mail a notice of redemption by first class
mail, postage prepaid, to each Holder whose Securities are to be redeemed at its
registered address. In the case of a redemption pursuant to paragraph 8 of the
Securities, the Company shall mail a notice of redemption by first class mail,
postage prepaid, to each Holder of Securities at its registered address on the
date it delivers the notice to the Trustee pursuant to Section 3.01. At the
Company's request, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense. Each notice for redemption shall
identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest, if
any, to be paid;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price plus accrued interest, if
any;
43
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(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price upon
surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption; and
(8) the Paragraph of the Securities pursuant to which the
Securities are to be redeemed.
The notice, if mailed in a manner herein provided, shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption in whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 3.4 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section
3.03, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price plus accrued interest, if any. Upon surrender
to the Trustee or Paying Agent, such Securities called for redemption shall be
paid at the Redemption Price (which shall include accrued interest thereon to
the Redemption Date), but installments of interest, the maturity of which is on
or prior to the Redemption Date, shall be payable to Holders of record at the
close of business on the relevant Record Dates.
Section 3.5 Deposit of Redemption Price.
---------------------------
On or before 9:00 a.m. New York time on the Redemption Date, the
Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Redemption Price plus accrued interest, if any, of all Securities to be
redeemed on that date.
If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such Redemption Price plus accrued
interest, if any, interest on the Securities to be redeemed will cease to accrue
on and
44
<PAGE>
after the applicable Redemption Date, whether or not such Securities are
presented for payment.
Section 3.6 Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part only,
the Trustee shall upon written instruction from the Company authenticate for the
Holder a new Security or Securities in a principal amount equal to the
unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
Section 4.1 Payment of Securities.
---------------------
The Company shall pay the principal of and interest on the
Securities in the manner provided in the Securities. An installment of principal
of or interest on the Securities shall be considered paid on the date it is due
if the Trustee or Paying Agent holds on that date U.S. Legal Tender designated
for and sufficient to pay the installment. Interest on the Securities will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Section 4.2 Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City
of New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 13.02.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
The Company hereby initially designates the Corporate Trust Office
of the Trustee located in the Borough of Manhattan, The City of New York, as
such office of the Company in accordance with Section 2.03.
Section 4.3 Limitation on Restricted Payments.
---------------------------------
Prior to the Effective Date, the Company shall not make any
Restricted Payment or any Permitted Investment except to the extent necessary to
consummate the Recapitalization, the Assumption and the transactions
contemplated
45
<PAGE>
thereby, including any Investments deemed to exist by virtue of the Escrow
Agreement. The foregoing shall not prohibit the Company from paying a dividend
or otherwise distributing to the holders of its Capital Stock an amount equal to
the excess of the Escrowed Property over the Mandatory Redemption Price.
From and after the Effective Date, the Company shall not, and shall
not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock) on or in
respect of shares of Capital Stock of the Company to holders of such
Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase
or acquire shares of any class of such Capital Stock, other than the
exchange of such Capital Stock for Qualified Capital Stock; or
(3) make any Investment (other than Permitted Investments) in any
other Person (each of the foregoing actions set forth in clauses (1), (2)
and (3) (other than the exceptions thereto) being referred to as a
"Restricted Payment"); if at the time of such Restricted Payment or
------------------
immediately after giving effect thereto:
(i) a Default or an Event of Default shall have occurred and
be continuing;
(ii) the Company is not able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance
with Section 4.04; or
(iii) the aggregate amount of Restricted Payments made
subsequent to the Issue Date shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if
cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned subsequent to the Issue Date and
on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting
---------------
period); plus
(x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company)
from the issuance and sale subsequent to the Effective Date and on
or prior to the Reference Date of Qualified Capital Stock of the
Company (including Capital Stock issued upon the conversion of
convertible Indebtedness or in exchange for outstanding
Indebtedness but excluding (A) aggregate net cash proceeds from
the sale of Capital Stock of the Company to the
46
<PAGE>
extent used to repurchase or acquire shares of Capital Stock of
the Company pursuant to clause (2)(ii) of the next succeeding
paragraph and (B) aggregate net cash proceeds from the sale of
Capital Stock of the Company required by the terms of the Capital
Call Agreement); plus
(y) without duplication of any amounts included in clause
(iii)(x) above, 100% of the aggregate net cash proceeds of any
equity contribution received by the Company (excluding any equity
contribution required to be made pursuant to the terms of the
Capital Call Agreement) from a holder of the Company's Capital
Stock subsequent to the Effective Date; plus
(z) to the extent that any Investment (other than a Permitted
Investment) that was made after the Effective Date is sold for
cash or otherwise liquidated or repaid for cash, the lesser of:
(a) the net cash proceeds received with respect to such
sale, liquidation or repayment of such Investment (less the cost
of such sale, liquidation or repayment, if any) and
(b) the initial amount of such Investment, but only to
the extent not included in the calculation of Consolidated Net
Income. Any net cash proceeds included in the foregoing clauses
(iii)(x) or (iii)(y) shall not be included in clause (10)(a) or
clause (10)(b) of the definition of "Permitted Investments" to
---------------------
the extent actually utilized to make a Restricted Payment under
this paragraph.
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit:
(1) the payment of any dividend or the consummation of any
irrevocable redemption within 60 days after the date of declaration of such
dividend or notice of such redemption if the dividend or payment of the
redemption price, as the case may be, would have been permitted on the date
of declaration or notice;
(2) if no Event of Default shall have occurred and be continuing as a
consequence thereof, the acquisition of any shares of Capital Stock of the
Company, either (i) solely in exchange for shares of Qualified Capital
Stock of the Company, or (ii) through the application of net proceeds of a
substantially concurrent sale (other than to a Subsidiary of the Company)
of shares of Qualified Capital Stock of the Company;
(3) payments for the purpose of and in an amount equal to the amount
required to permit the Company to redeem or repurchase shares of its
Capital Stock or options in respect thereof, in each case in connection
with the repurchase provisions under employee stock option or stock
purchase
47
<PAGE>
agreements or other agreements to compensate management employees or
payments in respect of any redemption, repurchase, acquisition,
cancellation or other retirement for value of shares of Capital Stock of
the Company or options, stock appreciation or similar securities, in each
case held by then current or former officers, directors or employees of the
Company or any of its Subsidiaries (or their estates or beneficiaries under
their estates) or by an employee benefit plan, upon death, disability,
retirement or termination of employment; provided that such redemptions,
--------
repurchases, acquisitions, cancellations or other retirements pursuant to
this clause (3) shall not exceed $10.0 million in the aggregate after the
Issue Date (which amount shall be increased by the amount of any cash
proceeds to the Company from (x) sales of its Capital Stock to management
employees subsequent to the Effective Date and (y) any "key-man" life
insurance policies which are used to make such redemptions or repurchases);
(4) the payment of fees and compensation as permitted under clause (1),
(14) or (15) of paragraph (c) of Section 4.12;
(5) so long as no Default or Event of Default shall have occurred and be
continuing, payments not to exceed $100,000 in the aggregate, to enable the
Company to make payments to holders of its Capital Stock in lieu of
issuance of fractional shares of its Capital Stock;
(6) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the exercise
price thereof;
(7) Restricted Payments made pursuant to the Merger Agreement; and
(8) the distribution of Capital Stock of an Unrestricted Subsidiary of
the Company to holders of Capital Stock of the Company.
In determining the aggregate amount of Restricted Payments made
subsequent to the Effective Date in accordance with clause (3) of the
immediately preceding paragraph:
(1) amounts expended (to the extent such expenditure is in the form of
cash or other property other than Qualified Capital Stock) pursuant to
clauses (1) and (3) shall be included in such calculation, provided that
--------
such expenditures pursuant to clause (3) shall not be included to the
extent of cash proceeds received by the Company from any "key man" life
insurance policies; and
(2) amounts expended pursuant to clauses (2), (4), (5), (6) and (7)
shall be excluded from such calculation.
48
<PAGE>
Section 4.4 Limitation on Incurrence of Additional Indebtedness.
----------------------------------------------------
Prior to the Effective Date, the Company shall not incur any
Indebtedness except the following:
(1) the Securities in an aggregate principal amount not to exceed
$155.0 million; and
(2) Indebtedness of the Company that is not secured by a Lien on
any assets, property or Capital Stock owned by the Company or any of its
Subsidiaries, the proceeds of which Indebtedness are used solely for
deposit (or the purchase of marketable direct obligations issued by the
United States Government to be deposited) with the Escrow Agent in an
amount not to exceed the amount necessary, together with net proceeds to
the Company of the issuance of the Securities, to enable the Company to
make the Initial Deposit.
From and after the Effective Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, acquire, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, "incur") any Indebtedness (other than Permitted Indebtedness);
-----
provided, however, that if no Default or Event of Default shall have occurred
- -------- -------
and be continuing at the time or as a consequence of the incurrence of any such
Indebtedness, the Company or any Guarantor may incur Indebtedness if on the date
of the incurrence of such Indebtedness, after giving effect to the incurrence
thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater
than 2.0 to 1.0 if such incurrence is on or prior to October 1, 2001 and 2.25 to
1.0 of such incurrences is thereafter.
Section 4.5 Corporate Existence.
-------------------
Except as otherwise permitted by Article Five, the Company shall
do or cause to be done all things necessary to preserve and keep in full force
and effect its corporate existence and the corporate, partnership or other
existence of each of its Restricted Subsidiaries in accordance with the
respective organizational documents of each such Restricted Subsidiary and the
rights (charter and statutory) and material franchises of the Company and each
of its Restricted Subsidiaries; provided, however, that the Company shall not be
-------- -------
required to preserve any such right, franchise or corporate existence with
respect to each such Restricted Subsidiary if the Board of Directors of the
Company shall determine that the loss thereof is not, and will not be, adverse
in any material respect to the Holders.
Section 4.6 Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed upon it or any of its
Subsidiaries or upon the income, profits or property of it or any of its
Restricted Subsidiaries and (b) all lawful claims for labor, materials and
supplies which, in each case, if unpaid,
49
<PAGE>
might by law become a material liability or Lien upon the property of it or any
of its Restricted Subsidiaries; provided, however, that the Company shall not be
-------- -------
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, (i) the applicability or validity is
being contested in good faith by appropriate proceedings and for which
appropriate provision has been made or (ii) where the failure to effect such
payment or discharge is not adverse in any material respect to the Holders.
Section 4.7 Maintenance of Properties and Insurance.
---------------------------------------
(a) The Company shall cause all material properties owned by or
leased by it or any of its Restricted Subsidiaries used or useful to the
conduct of its business or the business of any of its Restricted
Subsidiaries to be maintained and kept in normal condition, repair and
working order and supplied with all necessary equipment and shall cause to
be made all repairs, renewals, replacements, and betterments thereof, all
as in its judgment may be necessary, so that the business carried on in
connection therewith may be properly and advantageously conducted at all
times; provided, however, that nothing in this Section 4.07 shall prevent
-------- -------
the Company or any of its Restricted Subsidiaries from discontinuing the
use, operation or maintenance of any of such properties, or disposing of
any of them, if such discontinuance or disposal is, in the judgment of the
Board of Directors of the Company or any such Restricted Subsidiary,
desirable in the conduct of the business of the Company or any such
Restricted Subsidiary, and if such discontinuance or disposal is not
adverse in any material respect to the Holders; provided, further, that
-------- -------
nothing in this Section 4.07 shall prevent the Company or any of its
Restricted Subsidiaries from discontinuing or disposing of any properties
to the extent otherwise permitted by this Indenture.
(b) The Company shall maintain, and shall cause its Restricted
Subsidiaries to maintain, insurance with responsible carriers against such
risks and in such amounts, and with such deductibles, retentions, self-
insured amounts and co-insurance provisions, as are customarily carried by
similar businesses of similar size, including property and casualty loss,
workers' compensation and interruption of business insurance.
Section 4.8 Compliance Certificate; Notice of Default .
-----------------------------------------
(a) The Company shall deliver to the Trustee, within 120 days
after the close of each fiscal year (which on the date hereof is December
31) an Officers' Certificate stating that a review of the activities of the
Company has been made under the supervision of the signing officers with a
view to determining whether it has kept, observed, performed and fulfilled
its obligations under this Indenture and further stating, as to each such
Officer signing such certificate, that to the best of such Officer's
knowledge, the Company during such preceding fiscal year has kept,
observed, performed and fulfilled each and every such covenant and no
Default or Event of Default occurred during such year and at the date of
such certificate there is no Default or Event of Default that has occurred
and is continuing or, if such signers do
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<PAGE>
know of such Default or Event of Default, the certificate shall describe
its status with particularity. The Officers' Certificate shall also notify
the Trustee should the Company elect to change the manner in which it fixes
its fiscal year end.
(b) The annual financial statements delivered pursuant to Section
4.10 shall be accompanied by a written report of the Company's independent
accountants (who shall be a firm of established national reputation) that
in conducting their audit of such financial statements nothing has come to
their attention that would lead them to believe that the Company has
violated any provisions of Article Four, Five or Six of this Indenture
insofar as they relate to accounting matters or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly
to any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall deliver to the Trustee, forthwith upon
becoming aware of any Default or Event of Default, an Officers' Certificate
specifying the Default or Event of Default and describing its status with
particularity.
Section 4.9 Compliance with Laws.
--------------------
The Company shall comply, and shall cause each of its Subsidiaries
to comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States, all states and municipalities thereof, and of
any governmental department, commission, board, regulatory authority, bureau,
agency and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
for such noncompliances as would not in the aggregate have a material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries taken as a whole.
Section 4.10 Reports to Holders.
------------------
Whether or not required by the rules and regulations of the
Commission, so long as any Securities are outstanding, the Company shall furnish
the Holders of Securities:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms; and
(2) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such
reports,
in each case within the time periods specified in the Commission's rules and
regulations.
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In addition, following the consummation of the exchange offer
contemplated by the Registration Rights Agreement, whether or not required by
the rules and regulations of the Commission, the Company shall file a copy of
all such information and reports with the Commission for public availability
within the time periods specified in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, for a period of two years after the Issue Date, the Company shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act if at the time of such request the Company
is not subject to Section 13 or 15(d) of the Exchange Act.
Section 4.11 Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of and/or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture, and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
Section 4.12 Limitations on Transactions with Affiliates.
--------------------------------------------
(a) Prior to the Effective Date, the Company shall not enter into
or permit to exist any Affiliate Transactions other than to the extent
necessary to consummate the Recapitalization, the Assumption and the
transactions contemplated thereby.
(b) From and after the Effective Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of
related transactions (including, without limitation, the purchase, sale,
lease or exchange of any property or the rendering of any service) with, or
for the benefit of, any of its Affiliates (an "Affiliate Transaction"),
---------------------
other than (x) Affiliate Transactions permitted under paragraph (c) below
and (y) Affiliate Transactions entered into on terms that are fair and
reasonable to, and in the best interests of, the Company or such Restricted
Subsidiary, as the case may be, as determined in good faith by the
Company's Board of Directors; provided, however, that for a transaction or
-------- -------
series of related transactions with an aggregate value of $5.0 million or
more, at the Company's option (i) such determination shall be made in good
faith by a majority of the disinterested members of the Board of the
Directors of the Company or (ii) the Board of Directors of the Company or
any such Restricted Subsidiary party to such Affiliate Transaction shall
have received a favorable opinion from a nationally recognized investment
52
<PAGE>
banking firm that such Affiliate Transaction is fair from a financial point
of view to the Company or such Restricted Subsidiary; provided, further,
that for a transaction or series of related transactions with an aggregate
value of $15.0 million or more, the Board of Directors of the Company shall
have received a favorable opinion from a nationally recognized investment
banking firm that such Affiliate Transaction is fair from a financial point
of view to the Company or such Restricted Subsidiary.
(c) The foregoing restrictions shall not apply to:
(1) reasonable fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees or consultants of the Company
or any Subsidiary of the Company as determined in good faith by the
Company's Board of Directors;
(2) transactions exclusively between or among the Company and any of
its Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by
--------
this Indenture;
(3) transactions effected as part of a Qualified Receivables
Transaction;
(4) any agreement as in effect as of the Effective Date or any
amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto so
long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Effective Date;
(5) Restricted Payments permitted by this Indenture;
(6) any Permitted Investment;
(7) transactions permitted by, and complying with, the provisions of
Article 5 hereof;
(8) any payment, issuance of securities or other payments, awards or
grants, in cash or otherwise, pursuant to, or the funding of, employment
arrangements and Plans approved by the Board of Directors of the Company;
(9) the grant of stock options or similar rights to employees and
directors of the Company and its Subsidiaries pursuant to Plans and
employment contracts approved by the Board of Directors of the Company;
(10)loans or advances to officers, directors or employees of the
Company or its Restricted Subsidiaries not in excess of $5.0 million at any
one time outstanding;
53
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(11) the granting or performance of registration rights under a
written registration rights agreement approved by the Board of Directors of
the Company;
(12) transactions with Persons solely in their capacity as holders of
Indebtedness or Capital Stock of the Company or any of its Restricted
Subsidiaries, where such Persons are treated no more favorably than holders
of Indebtedness or Capital Stock of the Company or such Restricted
Subsidiary generally;
(13) any agreement to do any of the foregoing;
(14) the payment of fees, reimbursements, indemnifications and other
amounts pursuant to any agreements between the Company and Kelso & Co.,
L.P. with respect to the payment of investment banking and annual financial
advisory fees; and
(15) transactions entered into on the Effective Date in connection
with the Recapitalization and the financing therefor.
Section 4.13 Limitation on Dividend and Other Payment Restrictions Affecting
---------------------------------------------------------------
Subsidiaries.
- ------------
From and after the Effective Date, the Company shall not, and shall
not permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on or in respect of
its Capital Stock;
(2) make loans or advances or to pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary of the
Company; or
(3) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of:
(a) applicable law;
(b) this Indenture or encumbrances or restrictions substantially
similar to the encumbrances and restrictions contained in this
Indenture taken as a whole;
(c) non-assignment provisions of any contract or any lease entered
into in the ordinary course of business;
54
<PAGE>
(d) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to the Company or any
Restricted Subsidiary of the Company, or the properties or assets of any
such Person, other than the Person or the properties or assets of the
Person so acquired; provided, however, that such Acquired Indebtedness was
-------- -------
not incurred in connection with, or in anticipation or contemplation of, an
acquisition by the Company or the Restricted Subsidiary;
(e) agreements existing on the Effective Date;
(f) the New Credit Facility;
(g) restrictions on the transfer of assets subject to any Lien
permitted under this Indenture imposed by the holder of such Lien;
(h) restrictions imposed by any agreement to sell assets permitted
under this Indenture to any Person pending the closing of such sale;
(i) any agreement or instrument governing Capital Stock of any
Person that is acquired after the Issue Date;
(j) Indebtedness or other contractual requirements of a
Receivables Entity in connection with a Qualified Receivables Transaction;
provided that such restrictions apply only to such Receivables Entity; or
--------
(k) an agreement effecting a refinancing, replacement or
substitution of Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (b), (d), (e) or (f) above; provided,
--------
however, that the provisions relating to such encumbrance or restriction
-------
contained in any such refinancing, replacement or substitution agreement
are no less favorable to the Company or the Holders in any material respect
as determined by the Board of Directors of the Company than the provisions
relating to such encumbrance or restriction contained in agreements
referred to in such clause (b), (d), (e) or (f).
Section 4.14 Limitation on Liens.
-------------------
Prior to the Effective Date, the Company shall not create, incur,
assume or suffer to exist any Lien of any kind against or upon any of its
property or assets, or any proceeds, income or profit therefrom which secure any
Indebtedness other than as contemplated by the Escrow Agreement.
From and after the Effective Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, create, incur, assume or
suffer to exist any Liens (other than Permitted Liens) of any kind against or
upon any of their
55
<PAGE>
respective property or assets, or any proceeds, income or profit therefrom which
secure Senior Subordinated Indebtedness or Subordinated Obligations, unless:
(1) in the case of Liens securing Subordinated Obligations, the
Securities are secured by a Lien on such property, assets, proceeds, income
or profit that is senior in priority to such Liens at least to the same
extent that the Securities are subordinated to Senior Debt; and
(2) in the case of Liens securing Senior Subordinated
Indebtedness, the Securities are equally and ratably secured by a Lien on
such property, assets, proceeds, income or profit.
Section 4.15 Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer to purchase (the "Change of Control Offer"), and shall
-----------------------
purchase, on a Business Day (the "Change of Control Payment Date") as
------------------------------
described below, all of the then outstanding Securities at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the Change of Control Payment Date. The Change
of Control Offer shall remain open for at least 20 Business Days and until
the close of business on the Change of Control Payment Date.
(b) Prior to the mailing of the notice referred to below, but in
any event within 30 days following the date upon which the Company obtains
actual knowledge of any Change of Control, the Company covenants to (i)
repay in full and terminate all commitments under Indebtedness under the
New Credit Facility and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate
all commitments under all Indebtedness under the New Credit Facility and
all other such Senior Debt and to repay the Indebtedness owed to each
lender which has accepted such offer or (ii) obtain the requisite consents
under the New Credit Facility and all other Senior Debt to permit the
repurchase of the Securities as provided below. The Company shall first
comply with the covenant in the immediately preceding sentence before it
shall be required to repurchase Securities pursuant to the provisions
described below. The Company's failure to comply with the covenant
described in the second preceding sentence (and any failure to send the
notice referred to in clause (c) below because same is prohibited by the
second preceding sentence) may (with notice and lapse of time) constitute
an Event of Default described in clause (c) of Section 6.01 but shall not
constitute an Event of Default described in clause (b) of Section 6.01.
(c) Within 30 days following the date upon which the company
obtains actual knowledge that a Change of Control occurred (the "Change of
--------
Control Date"), the Company shall send, by first class mail, a notice to
------------
each
56
<PAGE>
Holder, with a copy to the Trustee, which notice shall govern the terms of
the Change of Control Offer. The notice to the Holders shall contain all
instructions and materials necessary to enable such Holders to tender
Securities pursuant to the Change of Control Offer. Such notice shall
state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Securities tendered and not withdrawn will be
accepted for payment;
(2) the purchase price (including the amount of accrued interest) and
the Change of Control Payment Date, which shall be a Business Day, that is
not earlier than 30 days or later than 45 days from the date such notice is
mailed;
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day prior to
the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price plus accrued interest, if any, of all
Securities so tendered and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof being purchased by the
57
<PAGE>
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price plus accrued interest,
if any, and upon written order of the Company the Trustee shall promptly
authenticate and mail to such Holders new Securities equal in principal amount
to any unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed by the Company to the Holder thereof. For
purposes of this Section 4.15, the Trustee shall act as the Paying Agent.
Any amounts remaining with the Paying Agent after the purchase of
Securities pursuant to a Change of Control Offer shall be returned by the
Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer. To the extent
the provisions of any securities laws or regulations conflict with the
provisions of this Section 4.15, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.15 by virtue thereof.
Section 4.16 Limitation on Asset Sales.
-------------------------
Prior to the Effective Date, the Company shall not consummate an
Asset Sale except to the extent necessary to consummate the Recapitalization and
the transactions contemplated by the Escrow Agreement including the Assumption
and related release to Unilab of the Escrowed Property.
From and after the Effective Date, the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless:
(1) the Company or the applicable Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of
(as determined in good faith by the Company's Board of Directors);
(2) at least 75% of the consideration received by the Company or
such Restricted Subsidiary, as the case may be, from such Asset Sale shall
be cash or Cash Equivalents and is received at the time of such
disposition; provided that the amount of (x) any liabilities (as shown on
--------
the Company's or such Restricted Subsidiary's most recent balance sheet or
in the notes thereto) of the Company or such Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the Notes and
other than liabilities consisting of Disqualified Capital Stock) (i) that
are assumed by the transferee of any such assets and from which the Company
and its Restricted Subsidiaries are unconditionally released or (ii) in
respect of which neither the Company nor any Restricted Subsidiary
following such sale has any obligation and (y) any
58
<PAGE>
notes or other obligations received by the Company or such Restricted
Subsidiary from such transferee that are promptly, but in no event more
than 60 days after receipt, converted by the Company or such Restricted
Subsid iary into cash or Cash Equivalents (to the extent of the cash or
Cash Equiva lents received), shall be deemed to be cash for purposes of
this provision; and
(3) upon the consummation of an Asset Sale, the Company shall apply,
or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 365 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt and, in
the case of any Senior Debt or Guarantor Senior Debt under any
revolving credit facility, effect a permanent reduction in the avail
ability under such revolving credit facility;
(b) to reinvest in Productive Assets; or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
On the 366th day after an Asset Sale or such earlier date, if any, as
the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in clauses (3)(a), (3)(b) and (3)(c) of the immediately preceding sentence
(each, a "Net Pro ceeds Offer Trigger Date"), such aggregate amount of Net Cash
--------------------------------
Proceeds which have not been applied on or before such Net Proceeds Offer
Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of the
immediately preceding sentence (each a "Net Proceeds Offer Amount") shall be
-------------------------
applied by the Company or such Restricted Subsidiary to make an offer to
purchase for cash (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
------------------ ------------------
Payment Date") not less than 30 nor more than 45 days following the applicable
- ------------
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
--- ----
amount of Notes equal to the Net Proceeds Offer Amount at a price in cash equal
to 100% of the principal amount of the Securities to be purchased, plus accrued
and unpaid interest thereon, if any, to the date of purchase; provided, however,
-------- -------
that if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest, dividends or other earnings received with respect to any such
non-cash consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accor dance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less
than $10.0 million, the application of the Net Cash Proceeds constituting such
Net Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such
time as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds
59
<PAGE>
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Company
and its Restricted Subsidiaries aggregates at least $10.0 million, at which time
the Company or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make a
Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $10.0 million or more shall be deemed to be a
Net Proceeds Offer Trigger Date).
Notwithstanding the immediately preceding paragraphs of this Section
4.16, the Company and its Restricted Subsidiaries shall be permitted to
consummate an Asset Sale without complying with such paragraphs to the extent
that:
(1) at least 75% of the consideration for such Asset Sale constitutes
Productive Assets; and
(2) such Asset Sale is for at least fair market value (as determined
in good faith by the Company's Board of Directors); provided that any
--------
consider ation not constituting Productive Assets received by the Company
or any of its Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds and shall be subject to the provisions of the two preceding
paragraphs; provided, that at the time of entering into such transaction or
--------
immediately after giving effect thereto, no Default or Event of Default
shall have occurred or be continuing or would occur as a consequence
thereof.
Notice of each Net Proceeds Offer pursuant to this Section 4.16 shall
be mailed or caused to be mailed, by first class mail, by the Company within 30
days following the applicable Net Proceeds Offer Trigger Date to all Holders at
their last registered addresses, with a copy to the Trustee. A Net Proceeds
Offer shall remain open for a period of 20 Business Days or such longer period
as may be required by law. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Net Proceeds Offer and shall state the following terms:
(1) that the Net Proceeds Offer is being made pursuant to this
Section 4.16 and that all Securities tendered will be accepted for payment;
provided, however, that if the principal amount of Securities tendered in
-------- -------
the Net Proceeds Offer exceeds the aggregate amount of Net Proceeds Offer
Amount, the Company shall select the Securities to be purchased on a pro
rata basis;
(2) the purchase price (including the amount of accrued interest, if
any) and the purchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed, other than as may
be required by applicable law);
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(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor, any
Security accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Offer Payment Date;
(5) that Holders electing to have a Security purchased pursuant to
the Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Net Proceeds Offer Payment
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the second Business Day prior to the
Net Proceeds Offer Payment Date, a facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Security the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Security purchased; and
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount at maturity equal to the unpur
chased portion of the Securities surrendered.
On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Net Proceeds Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price, plus accrued interest, if any, of all
Securities to be pur chased and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to the Holders of Securities so accepted payment in an amount
equal to the purchase price, plus accrued interest, if any, thereon set forth in
the notice of such Net Proceeds Offer. Any Security not so accepted shall be
promptly mailed by the Company to the Holder thereof. For purposes of this
Section 4.16, the Trustee shall act as the Paying Agent.
To the extent that the aggregate amount of Notes tendered pursuant to
a Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may
use any remaining Net Proceeds Offer Amount for general corporate purposes. Upon
completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall
be reset at zero.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with this Section
4.16, the Company shall
61
<PAGE>
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.16 by virtue
thereof.
Section 4.17 Prohibition on Incurrence of Senior Subordinated Debt.
-----------------------------------------------------
Neither the Company nor any Guarantor shall incur or suffer to exist
Indebtedness that is senior in right of payment to the Securities or such
Guarantor's Guarantee and subordinate in right of payment to any other
Indebtedness of the Company or such Guarantor, as the case may be.
Section 4.18 Conduct of Business.
-------------------
Prior to the Effective Date, the Company shall not engage in any
business operations other than those in connection with the issuance of the
Securities, the Escrow Agreement and the Recapitalization.
From and after the Effective Date, the Company and its Restricted
Subsidiaries shall not engage in any businesses which are not the same, similar,
related or ancillary to the businesses in which the Company and its Restricted
Subsidiaries are engaged on the Issue Date.
Section 4.19 Limitation of Guarantees by Restricted Subsidiaries.
----------------------------------------------------
The Company shall not permit any of its Restricted Subsidiaries,
directly or indirectly, by way of the pledge of any intercompany note or
otherwise, to assume, guarantee or in any other manner become liable with
respect to any Indebt edness of the Company (other than: (1) Permitted
Indebtedness of a Restricted Subsidiary of the Company; (2) Indebtedness under
Currency Agreements in reliance on clause (5) of the definition of Permitted
Indebtedness; or (3) Interest Swap Obligations incurred in reliance on clause
(4) of the definition of Permitted Indebted ness), unless, in any such case:
(1) such Restricted Subsidiary executes and delivers a supplemental
indenture to the Indenture, providing a guarantee of payment of the
Securities by such Restricted Subsidiary, and
(2) (a) if any such assumption, guarantee or other liability of such
Restricted Subsidiary is provided in respect of Senior Debt, the guarantee
or other instrument provided by such Restricted Subsidiary in respect of
such Senior Debt may be superior to such guarantee of the Securities
pursuant to subordination provisions no less favorable to the Holders of
the Securities than those contained in this Indenture and (b) if such
assumption, guarantee or other liability of such Restricted Subsidiary is
provided in respect of Indebtedness that is expressly subordinated to the
Securities, the guarantee or other instrument provided by such Restricted
Subsidiary in respect of such
62
<PAGE>
subordinated Indebtedness shall be subordinated to such guarantee at least
to the same extent that the Securities are subordinated to Senior Debt.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Securities shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon:
(1) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such
Guaran tee was executed and delivered pursuant to the preceding paragraph;
(2) any sale or other disposition (by merger or otherwise) to any
Person which is not a Restricted Subsidiary of the Company of all of the
Company's Capital Stock in, or all or substantially all of the assets of,
such Restricted Subsidiary; provided that (a) such sale or disposition of
--------
such Capital Stock or assets is otherwise in compliance with the terms of
the Indenture and (b) such assumption, guarantee or other liability of such
Restricted Subsidiary has been released by the holders of the other
Indebted ness of the Company so guaranteed.
(3) the Legal Defeasance of the Securities pursuant to Section 8.02;
or
(4) such Restricted Subsidiary being designated as an Unrestricted
Subsidiary pursuant to the provisions of this Indenture.
Section 4.20 Limitation on Preferred Stock of Subsidiaries.
----------------------------------------------
From and after the Effective Date, the Company shall not permit any of
its Restricted Subsidiaries to issue any Preferred Stock (other than to the
Company or to a Restricted Subsidiary of the Company) or permit any Person
(other than the Company or a Restricted Subsidiary of the Company) to own any
Preferred Stock of any Restricted Subsidiary of the Company.
Section 4.21 Capital Call Agreement.
----------------------
The Company shall have received the net cash proceeds from the equity
contribution or purchase of its Capital Stock, as the case may be, to the extent
required by, and upon the terms of, the Capital Call Agreement as in effect on
the Effective Date.
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ARTICLE V
SUCCESSOR CORPORATION
Section 5.1 Merger, Consolidation and Sale of Assets.
----------------------------------------
(a) Except for the Assumption and the related release of the Escrowed
Property, prior to the Effective Date, the Company shall not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the Company's assets to another
Person or Per sons.
From and after the Effective Date, the Company shall not, in a single
transaction or a series of related transactions, consolidate with or merge with
or into, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets to, another Person or Persons unless:
(1) either:
(a) the Company shall be the surviving or continuing corpora tion of
such merger or consolidation; or
(b) the surviving Person is a corporation existing under the laws of
the United States, any state thereof or the District of Columbia and
such surviving Person shall expressly assume all the obligations of
the Company under the Securities and this Indenture;
(2) immediately after giving effect to such transaction (on a pro
---
forma basis, including any Indebtedness incurred or anticipated to be
-----
incurred in connection with such transaction and the other adjustments that
are re ferred to in the definition of "Consolidated Fixed Charge Coverage
Ratio"), the Company or the surviving Person is able to incur at least
$1.00 of addi tional Indebtedness (other than Permitted Indebtedness) in
compliance with Section 4.04;
(3) immediately before and immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of
Default shall have occurred and be continuing; and
(4) the Company or the surviving entity, as the case may be, has
delivered to the Trustee an Officers' Certificate and Opinion of Counsel,
each stating that such consolidation, merger or transfer complies with this
Inden ture, that the surviving Person agrees to be bound thereby and by
the Securi
64
<PAGE>
ties and the Registration Rights Agreement, and that all conditions
precedent in this Indenture relating to such transaction have been
satisfied.
(b) For purposes of the foregoing paragraph (a), the transfer (by
lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of
one or more Subsidiaries of the Company, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of
the properties and assets of the Company.
(c) Notwithstanding clauses (1), (2) and (3) of the foregoing para
graph (a):
(a) any Restricted Subsidiary of the Company may consolidate with,
merge into or transfer all or part of its properties and assets to the
Company and
(b) the Company may merge with an Affiliate that is (x) a
corporation that has no material assets or liabilities and which was
incorporated solely for the purpose of reincorporating the Company in
another jurisdiction or (y) a Restricted Subsidiary of the Com pany
so long as all assets of the Company and the Restricted Sub sidiaries
immediately prior to such transaction are owned by such Restricted
Subsidiary and its Restricted Subsidiaries immediately after the
consummation thereof.
(d) Upon the execution and delivery by Unilab to the Trustee of a
supplemental indenture substantially in the form of Exhibit A to the Escrow
---------
Agreement and compliance with the provisions of Section 9.07, pursuant to
which Unilab assumes the Issuer's obligations under this Indenture and the
Securities, Unilab shall be the successor Company under this Indenture and
the Securities and shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer hereunder and thereunder and
the Issuer shall be discharged from all obligations and covenants under
this Indenture and the Securities.
Section 5.2 Successor Corporation Substituted for the Company.
--------------------------------------------------
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with Section
5.01 in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Securities with the same effect as if such Surviving
Entity had been named as such.
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Section 5.3 Merger, Consolidation and Sale of Assets of Any Guarantor.
----------------------------------------------------------
The Company shall not permit any Guarantor (other than any Guarantor
whose Guarantee is to be released in accordance with the terms of the Guarantee
and this Indenture in connection with any transaction complying with the
provisions of Section 4.16) to consolidate with or merge with or into another
Person or Persons unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) is a corporation,
partnership, trust or limited liability company organized and existing under the
laws of the United States or any State thereof or the District of Columbia; (ii)
such entity assumes by supplemental indenture all of the obligations of the
Guarantor on the Guarantee; (iii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (iv) immediately after giving effect to such transac tion and
the use of any net proceeds therefrom on a pro forma basis, the Company could
--- -----
satisfy the provisions of clause (2) of Section 5.01(a). Any merger or consoli
dation of a Guarantor with and into the Company (with the Company being the
surviving entity) or another Guarantor that is a Wholly Owned Restricted
Subsidiary of the Company need only comply with clause (4) of Section 5.01(a).
Section 5.3 Successor Corporation Substituted for Guarantor.
------------------------------------------------
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of any Guarantor in accordance with Section
5.03, in which such Guarantor is not the continuing corporation, the successor
Person formed by such consolidation or into which such Guarantor is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, such Guarantor under
this Indenture with the same effect as if such surviving entity has been named
as such, and the predeces sor company, in the case of a conveyance, transfer or
lease, shall be released from the obligation to pay the principal of and
interest of the Securities.
ARTICLE VI
DEFAULT AND REMEDIES
Section 6.1 Events of Default.
-----------------
Each of the following shall be an "Event of Default":
----------------
(a) the failure to pay interest on any Securities when the same
becomes due and payable and the default continues for a period of 30 days
(whether or not such payment shall be prohibited by Article Ten or Article
Twelve of this Indenture);
(b) the failure to pay the principal on any Securities, when such
principal becomes due and payable, at maturity, upon redemption or other
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wise (including the failure to make a payment to purchase Securities
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer on
the date specified for such payment in the applicable offer to purchase and
the failure to pay the Mandatory Redemption Price if required) (whether or
not such payment shall be prohibited by Article Ten or Article Twelve of
this Inden ture);
(c) a default in the observance or performance of any other cove nant
or agreement contained in this Indenture, which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Securities (except in the case of a default with respect to Article 5
hereof, which shall constitute an event of default with such notice
requirement but without such passage of time requirement);
(d) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary (other than
a Receivables Entity) of the Company, or the acceleration of the final
stated maturity of any such Indebtedness (which acceleration is not
rescinded, annulled or otherwise cured within 20 days of receipt by the
Company or such Restricted Subsidiary of notice of any such acceleration)
if the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated (in each case
with respect to which the 20-day period described above has elapsed),
aggregates $15.0 million or more at any time;
(e) one or more judgments in an aggregate amount in excess of $15.0
million shall have been rendered against the Company or any of its
Significant Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(f) the Company or any of its Significant Subsidiaries (i) com mences
a voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (ii) consents to the entry of a judgment, decree or order for
relief against it in an involuntary case or proceeding under any Bankruptcy
Law, (iii) consents to the appointment of a custodian of it or for
substantially all of its property, (iv) consents to or acquiesces in the
institution of a bank ruptcy or an insolvency proceeding against it, (v)
makes a general assignment for the benefit of its creditors or (vi) takes
any corporate action to authorize or effect any of the foregoing; or
(g) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any of its Significant
Subsidiar
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ies in an involuntary case or proceeding under any Bankruptcy Law, which
shall (i) approve as properly filed a petition seeking reorganization,
arrange ment, adjustment or composition in respect of the Company or any of
its Significant Subsidiaries, (ii) appoint a Custodian of the Company or
any of its Significant Subsidiaries or for substantially all of any of its
property or (iii) order the winding-up or liquidation of its affairs; and
such judgment, decree or order shall remain unstayed and in effect for a
period of 60 consec utive days.
Section 6.2 Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
either clause (f) or (g) of Section 6.01 above with respect to the Company)
shall occur and be continuing, the Trustee or the Holders of at least 25% in
principal amount of outstanding Securities may declare the principal of and
accrued interest on all the Securities to be due and payable by notice in
writing to the Company and the Trustee specifying the respective Event of
Default and that it is a "notice of accelera tion" (the "Acceleration Notice"),
-------------------
and the same (i) shall become immediately due and payable or (ii) if there are
any amounts outstanding under the New Credit Facility, shall become immediately
due and payable upon the first to occur of an acceleration under the New Credit
Facility or 5 Business Days after receipt by the Company and the Representative
under the New Credit Facility of such Acceleration Notice but only if such Event
of Default is then continuing. If an Event of Default specified in either
clause (f) or (g) of Section 6.01 above with respect to the Company occurs and
is continuing, then all unpaid principal of, and premium, if any, and accrued
and unpaid interest on all of the outstanding Securities shall ipso facto become
---- -----
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
At any time after a declaration of acceleration with respect to the
Securities as described in the preceding paragraph, the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disburse ments and advances and all
other amounts due to the Trustee under Section 7.07 and (v) in the event of the
cure or waiver of an Event of Default of the type described in either clause (f)
or (g) of Section 6.01, the Trustee shall have received an Officers' Certificate
to the effect that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
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Section 6.3 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 6.4 Waiver of Past Defaults.
-----------------------
Subject to Sections 2.09, 6.07 and 9.02, the Holders of not less than
a majority in principal amount of the outstanding Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a Default in the payment of principal of or interest on any Security as
specified in clauses (a) and (b) of Section 6.01. The Company shall deliver to
the Trustee an Officers' Certificate stating that the requisite percentage of
Holders have consented to such waiver and attaching copies of such consents.
When a Default or Event of Default is waived, it is cured and ceases.
Section 6.5 Control by Majority.
-------------------
The Holders of not less than a majority in principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. Subject to Section 7.01, however, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture, that the
Trustee deter mines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
--------
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfac tory to it in its sole discretion against any loss or expense caused
by taking such action or following such direction.
Section 6.6 Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
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(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense;
(4) the Trustee does not comply with the request within 45 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 45-day period the Holder or Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
Section 6.7 Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforce ment of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
Section 6.8 Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of principal or interest specified
in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest and fees remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
--- -----
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel and
any other amounts due the Trustee under Section 7.07.
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Section 6.9 Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, disburse
ments and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company, its
creditors or its property and shall be entitled and empowered to collect and
receive any monies or other property payable or deliverable on any such claims
and to distribute the same, and any Custodian in any such judicial proceedings
is hereby authorized by each Securityholder to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Securityholders, to pay to the Trustee any amount due to it for
the reasonable compensation, ex penses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
Section 6.10 Priorities.
----------
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: Subject to Articles Ten and Twelve, to Holders for interest
accrued on the Securities, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for interest;
Third: Subject to Articles Ten and Twelve, to Holders for principal
amounts due and unpaid on the Securities, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Securities
for principal; and
Fourth: to the Company or, if applicable, the Guarantors, as their
respective interests may appear.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
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Section 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
ARTICLE VII
TRUSTEE
Section 7.1 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are specifi cally
set forth herein or in the TIA and no duties, covenants, respon
sibilities or obligations shall be implied in this Indenture against
the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correct
ness of the opinions expressed therein, upon certificates (including
Officers' Certificates) or opinions (including Opinions of Counsel)
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the require
ments of this Indenture.
(c) Notwithstanding anything to the contrary herein, the Trustee may
not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.01.
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(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or to take or omit to take
any action under this Indenture or take any action at the request or
direction of Holders if it shall have reasonable grounds for believing that
repayment of such funds is not assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Section 7.01.
(f) The Trustee shall not be liable for interest on any money re
ceived by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) In the absence of bad faith, negligence or willful misconduct on
the part of the Trustee, the Trustee shall not be responsible for the
application of any money by any Paying Agent other than the Trustee.
Section 7.2 Rights of Trustee.
-----------------
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and an Opinion of Counsel, which shall conform to
the provisions of Section 13.05. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent (other
than an agent who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
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(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate (including any Offi
cers' Certificate), statement, instrument, opinion (including any Opinion
of Counsel), notice, request, direction, consent, order, bond, debenture,
or other paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it may
see fit and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled, upon reasonable notice to the Company,
to examine the books, records, and premises of the Company, personally or
by agent or attorney.
(h) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(i) The permissive rights of the Trustee to do things enumerated in
this Indenture shall not be construed as duties.
(j) The Trustee shall not be charged with knowledge of any Default or
Event of Default with respect to the Securities unless either (1) a
Responsi ble Officer of the Trustee shall have actual knowledge of such
Default or Event of Default or (2) written notice of such Default or Event
of Default shall have been given to the Trustee by the Company or by any
Holder of the Securities.
Section 7.3 Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
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Section 7.4 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representa tion
as to the validity or adequacy of this Indenture, any Guarantee or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in this Indenture or any document issued in connection with the sale of
Securities or any statement in the Securities other than the Trustee's
certificate of authentication. The Trustee makes no representations with
respect to the effectiveness or adequacy of this Indenture.
Section 7.5 Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and the
Trustee receives actual notice of such Default or Event of Default, the Trustee
shall mail to each Securityholder notice of the uncured Default or Event of
Default within 60 days after such Default or Event of Default occurs. Except in
the case of a Default or an Event of Default in payment of principal of, or
interest on, any Secu rity, including an accelerated payment and the failure to
make payment on the Change of Control Payment Date pursuant to a Change of
Control Offer or the Net Proceeds Offer Payment Date pursuant to a Net Proceeds
Offer, the Trustee may withhold the notice if and so long as the Board of
Directors, the executive commit tee, or a trust committee of directors and/or
Responsible Officers, of the Trustee in good faith determines that withholding
the notice is in the interest of the Securityholders.
Section 7.6 Reports by Trustee to Holders.
-----------------------------
Within 60 days after each May 15, beginning with the first May 15
following the date of this Indenture, the Trustee shall, to the extent that any
of the events described in TIA (S) 313(a) occurred within the previous twelve
months, but not otherwise, mail to each Securityholder a brief report dated as
of such date that complies with TIA (S) 313(a). The Trustee also shall comply
with TIA (S)(S) 313(b), 313(c) and 313(d).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the Commission and each securities
exchange, if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any securities exchange or of any delisting thereof and the Trustee shall
comply with TIA (S) 313(d).
Section 7.7 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company
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shall reimburse the Trustee upon request for all reasonable disbursements,
expenses and advances (including reasonable fees and expenses of counsel)
incurred or made by it in addition to the compensation for its services, except
any such disbursements, expenses and advances as may be attributable to the
Trustee's negligence, bad faith or willful misconduct. Such expenses shall
include the reasonable fees and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee and its agents, employ ees,
officers, stockholders and directors for, and hold them harmless against, any
loss, liability or expense incurred by them except for such actions to the
extent caused by any negligence, bad faith or willful misconduct on their part,
arising out of or in connection with the acceptance or administration of this
trust, including the reasonable costs and expenses of defending themselves
against or investigating any claim or liability in connection with the exercise
or performance of any of the Trustee's rights, powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee or any of its agents, employees, officers, stockholders and directors
for which it may seek indemnity. The Company may, subject to the approval of
the Trustee, defend the claim and the Trustee shall cooperate in the defense.
The Trustee and its agents, employees, officers, stockhold ers and directors
subject to the claim may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel; provided, however, that the
-------- -------
Company will not be required to pay such fees and expenses if, subject to the
approval of the Trustee, it assumes the Trustee's defense and there is no
conflict of interest between the Company and the Trustee and its agents,
employees, officers, stockholders and directors subject to the claim in
connection with such defense as reasonably determined by the Trustee. The
Company need not pay for any settle ment made without its written consent. The
Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a senior claim prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee. The
obligations of the Company and the Guarantors under this Section shall not be
subordinated to the payment of Senior Debt pursuant to Article Ten or Article
Twelve except assets or money held in trust to pay principal of or interest on
particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (f) or (g) of Section 6.01 occurs, such expenses and
the compensation for such services shall be paid to the extent allowed under any
Bank ruptcy Law.
Notwithstanding any other provision in this Indenture, the foregoing
provisions of this Section 7.07 shall survive the resignation or removal of the
Trustee, the satisfaction and discharge of this Indenture or the appointment of
a successor Trustee.
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Section 7.8 Replacement of Trustee.
----------------------
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee
and may appoint a successor Trustee. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appoint
ment to the retiring Trustee and to the Company. Immediately after that, the
retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.07, all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
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Section 7.9 Successor Trustee by Merger, Etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or trans
fers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided that such
--------
corporation shall be otherwise qualified and eligible under this Article Seven.
Section 7.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirement of TIA (S)(S) 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. In addition, if the Trustee
is a corporation included in a bank holding company system, the Trustee,
independently of the bank holding company, shall meet the capital requirements
of TIA (S) 310(a)(2). The Trustee shall comply with TIA (S) 310(b); provided,
--------
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
- -------
any indenture or indentures under which other securities, or certificates of
interest or participation in other securities, of the Company are outstanding,
if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met.
The provisions of TIA (S) 310 shall apply to the Company and any other obligor
of the Securities.
Section 7.12 Preferential Collection of Claims Against Company.
----------------
The Trustee, in its capacity as Trustee hereunder shall comply with
TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A
Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to
the extent indicated.
ARTICLE VIII
DISCHARGE OF INDENTURE; DEFEASANCE
Section 8.1 Termination of the Company's Obligations.
----------------------------------------
The Company may terminate its obligations under the Securities and
this Indenture, except those obligations referred to in the penultimate
paragraph of this Section 8.01, if all Securities previously authenticated and
delivered (other than destroyed, lost or stolen Securities which have been
replaced or paid or Securities for whose payment U.S. Legal Tender has
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.05) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or if:
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(a) either (i) pursuant to Article Three, the Company shall have
given notice to the Trustee and mailed a notice of redemption to each
Holder of the redemption of all of the Securities in accordance with the
provisions hereof or (ii) all Securities have otherwise become due and
payable hereun der;
(b) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee, under
the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the benefit
of the Holders of that purpose, U.S. Legal Tender in such amount as is
sufficient without consider ation of reinvestment of such interest, to pay
principal of, premium, if any, and interest on the outstanding Securities
to maturity or redemption; provided that the Trustee shall have been
--------
irrevocably instructed to apply such U.S. Legal Tender to the payment of
said principal, premium, if any, and interest with respect to the
Securities and provided, further, that from and after the time of deposit,
-------- -------
the money deposited shall not be subject to the rights of holders of Senior
Debt or Guarantor Senior Debt, if any, pursuant to the provisions of
Article Ten or Twelve, as the case may be;
(c) no Default or Event of Default with respect to this Indenture or
the Securities shall have occurred and be continuing on the date of such
deposit or shall occur as a result of such deposit and such deposit will
not result in a breach or violation of, or constitute a default under, this
Indenture, the New Credit Facility, any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which it is bound;
(d) the Company shall have paid all other sums payable by it
hereunder; and
(e) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
prece dent providing for or relating to the termination of the Company's
obligations under the Securities and this Indenture have been complied
with. Such Opinion of Counsel shall also state that such satisfaction and
discharge does not result in a default under the New Credit Facility or any
other material agreement or instrument then known to such counsel that
binds or affects the Company.
Subject to the next sentence and notwithstanding the foregoing
paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01,
4.02, 7.07, 8.05 and 8.06 shall survive until the Securities are no longer
outstanding pursuant to the last paragraph of Section 2.08. After the
Securities are no longer outstanding, the Company's obligations in Sections
7.07, 8.05 and 8.06 shall survive.
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After such delivery or irrevocable deposit, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
the Securities and this Indenture except for those surviving obligations
specified above.
Section 8.2 Legal Defeasance and Covenant Defeasance.
----------------------------------------
(a) The Company may, at its option by Board Resolution of the
Company, at any time, elect to have either paragraph (b) or (c) below be
applied to all outstanding Securities upon compliance with the conditions
set forth in Section 8.03.
(b) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (b), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.03, be deemed to have
been discharged from its obligations and the Guarantors shall be deemed to
have been discharged from their obligations with respect to all outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance
----------------
means that the Company shall be deemed to have paid and discharged the
entire Indebted ness represented by the outstanding Securities, which
shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.04 hereof and the other Sections of this Indenture referred to in
(i) and (ii) below, and to have satisfied all its other obligations under
such Securities and this Indenture (and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
the same), and Holders of the Securities and any amounts deposited under
Section 8.03 hereof shall cease to be subject to any obligations to, or the
rights of, any holder of Senior Debt under Article Ten or Guarantor Senior
Debt under Article Twelve or other wise, except for the following
provisions, which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Securities to receive
solely from the trust fund described in Section 8.04 hereof, and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Securities when such payments are
due, (ii) the Company's obligations with respect to such Securi ties under
Article Two and Section 4.02 hereof, (iii) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and the Company's obliga
tions in connection therewith and (iv) this Article Eight. Subject to
compli ance with this Article Eight, the Company may exercise its option
under this paragraph (b) notwithstanding the prior exercise of its option
under paragraph (c) hereof.
(c) Upon the Company's exercise under paragraph (a) hereof of the
option applicable to this paragraph (c), the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.03 hereof, be
released from its obligations under the covenants contained in Sections
4.03, 4.04 and Sections 4.12 through 4.21 and Article Five hereof with
respect to the out standing Securities on and after the date the
conditions set forth below are
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satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall
-------------------
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of
any thereof) in connection with such covenants, but shall continue to be
deemed "outstanding" for all other purposes hereunder (it being understood
that such Securities shall not be deemed outstanding for accounting
purposes) and Holders of the Securities and any amounts deposited under
Section 8.03 hereof shall cease to be subject to any obligations to, or the
rights of, any holder of Senior Debt under Article Ten or Guarantor Senior
Debt, if any, under Article Twelve or otherwise. For this purpose, such
Covenant Defeasance means that, with respect to the outstanding Securities,
the Com pany may omit to comply with and shall have no liability in respect
of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein
to any such cove nant or by reason of any reference in any such covenant to
any other provi sion herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
6.01(c) hereof, but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby. In addition,
upon the Company's exercise under paragraph (a) hereof of the option
applicable to this paragraph (c), subject to the satisfaction of the
conditions set forth in Section 8.03 hereof, Sections 6.01(c), 6.01(d) and
6.01(e) shall not constitute Events of Default.
Section 8.3 Conditions to Legal Defeasance or Covenant Defeasance.
------------------------------------------------------
The following shall be the conditions to the application of either
Section 8.02(b) or 8.02(c) hereof to the outstanding Securities:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, U.S. Legal Tender or U.S. Government Obliga
tions or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay the principal of, premium, if any, and interest on the
Securities on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(b) in the case of an election under Section 8.02(b) hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm
that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
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(c) in the case of an election under Section 8.02(c) hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of
the proceeds of which will be used to defease the Securities pursuant to
this Article Eight concurrently with such incurrence);
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under this Indenture or
any other material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
prece dent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with;
(h) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that (i) the trust funds will not be subject to any
rights of holders of Senior Debt, including, without limitation, those
arising under this Indenture, and (ii) assuming no intervening bankruptcy
or insolvency of the Company between the date of deposit and the 91st day
following the deposit and that no Holder is an insider of the Company,
after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable Bankruptcy Law.
Notwithstanding the foregoing, the Opinion of Counsel required by
clause (b) above of this Section 8.03 with respect to a Legal Defeasance need
not be delivered if all Securities not theretofore delivered to the Trustee for
cancellation (i) have become due and payable or (ii) will become due and payable
on the Maturity Date within one year under arrangements satisfactory to the
Trustee for the giving of
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notice of redemption by the Trustee in the name, and at the expense, of the Com
pany.
Section 8.4 Application of Trust Money.
--------------------------
The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or
U.S. Government Obligations deposited with it pursuant to this Article Eight,
and shall apply the deposited U.S. Legal Tender and the money from U.S.
Government Obligations in accordance with this Indenture to the payment of
principal of and interest on the Securities. The Trustee shall be under no
obligation to invest said U.S. Legal Tender or money paid in respect of U.S.
Government Obligations.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.03 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request any U.S. Legal Tender or U.S. Government Obligations held by it as pro
vided in Section 8.03 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, are in excess of the amount thereof that would
then be required to be deposited to effect an equivalent Legal Defeasance or
Covenant Defeasance.
Section 8.5 Repayment to the Company.
------------------------
Subject to this Article Eight, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess U.S. Legal Tender or U.S.
Government Obligations held by them at any time and thereupon shall be relieved
from all liability with respect to such money. The Trustee and the Paying Agent
shall pay to the Company upon request any money held by them for the payment of
principal or interest that remains unclaimed for two years; provided that the
--------
Trustee or such Paying Agent, before being required to make any payment, may at
the expense of the Company cause to be published once in a newspaper of general
circulation in the City of New York or mail to each Holder entitled to such
money notice that such money remains unclaimed and that after a date specified
therein which shall be at least 30 days from the date of such publication or
mailing any unclaimed balance of such money then remaining will be repaid to the
Company. After payment to the Company, Holders entitled to such money must look
to the Company for payment as general creditors unless an applicable law
designates another Person.
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Section 8.6 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or money received in respect of U.S. Government Obligations in accordance
with this Article Eight by reason of any legal proceeding or by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities, and each Guarantor's obligation under its
Guarantee shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Eight until such time as the Trustee or Paying Agent is
permitted to apply all such U.S. Legal Tender or money received in respect of
U.S. Government Obligations in accordance with this Article Eight; provided that
--------
if the Company has made any payment of interest on or principal of any
Securities because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the U.S. Legal Tender or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Without Consent of Holders.
--------------------------
Subject to Section 9.03, the Company, the Guarantors and the Trustee,
as applicable, together, may amend or supplement this Indenture, the Securities
or the Guarantees without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to evidence the succession in accordance with Article Five hereof
of another Person to the Company and the assumption by any such successor
of the covenants of the Company herein and in the Securities;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any other change that does not adversely affect the
rights of any Securityholders hereunder in any material respect;
(5) to comply with any requirements of the Commission in connec tion
with the qualification of this Indenture under the TIA; or
(6) to add or release any Guarantor pursuant to the terms of this
Indenture;
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provided that the Company has delivered to the Trustee an Opinion of Counsel and
- --------
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
Section 9.2 With Consent of Holders.
-----------------------
Subject to Sections 6.07 and 9.03, the Company, the Guarantors and the
Trustee, as applicable, together, with the written consent of the Holder or
Holders of at least a majority in aggregate principal amount of the outstanding
Securities, may amend or supplement this Indenture, the Securities or the
Guarantees, without notice to any other Securityholders. Subject to Sections
6.07 and 9.03, the Holder or Holders of a majority in aggregate principal amount
of the outstanding Securities may waive compliance by the Company with any
provision of this Indenture, the Securities or the Guarantees without notice to
any other Securityholder. Without the consent of each Securityholder affected,
however, no amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, may:
(1) reduce the amount of Securities whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or change or have the effect of changing the
time for payment of interest, including default interest, on any
Securities;
(3) reduce the principal of or change or have the effect of changing
the fixed maturity of any Securities, or change the date on which any
Securi ties may be subject to redemption or reduce the redemption price
therefor;
(4) make any Securities payable in money other than that stated in
the Securities;
(5) make any change in provisions of this Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such Security on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
the Securities to waive Defaults or Events of Default;
(6) after the Company's obligation to purchase Securities arises
thereunder, amend, change or modify in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the
event of a Change of Control or make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated, or modify any of
the provisions or definitions with respect thereto;
(7) make any change to paragraph 8 of the Securities which would
adversely affect the rights of any of the Holders to receive the Mandatory
Redemption Price; or
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(8) modify or change any provision of this Indenture or the related
definitions affecting the subordination or ranking of the Securities or any
Guarantee in a manner which adversely affects the Holders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Com pany to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
Section 9.3 Effect on Senior Debt.
---------------------
No amendment of, or supplement or waiver to, this Indenture shall
adversely affect the rights of any holder of Senior Debt or Guarantor Senior
Debt under Article Ten or Article Twelve, as the case may be, of this Indenture,
without the consent of such holder.
Section 9.4 Compliance with TIA.
-------------------
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture, the Securities or the
Guarantees shall comply with the TIA as then in effect.
Section 9.5 Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then notwithstanding the last
sentence of the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to revoke any consent previously given, whether or not such
Persons
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continue to be Holders after such record date. No such consent shall be valid or
effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subse quent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
--------
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
Section 9.6 Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Company may require the Holder of the Security to deliver it to the Trustee.
The Company shall provide the Trustee with an appropriate notation on the
Security about the changed terms and cause the Trustee to return it to the
Holder at the Company's expense. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenti cate a new Security that reflects the changed terms.
Failure to make the appropriate notation or issue a new Security shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.7 Trustee To Sign Amendments, Etc.
--------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
--------
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amend ment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and constituted the legal, valid and binding obligations of the
Company enforceable in accordance with its terms. Such Opinion of Counsel shall
be at the expense of the Company.
ARTICLE X
SUBORDINATION OF SECURITIES
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Section 10.1 Securities Subordinated to Senior Debt.
--------------------------------------
Anything herein to the contrary notwithstanding, the Company, for
itself and its successors, and each Holder, by his or her acceptance of
Securities, agrees that the payment of all Obligations owing to the Holders in
respect of the Securities is subordinated, to the extent and in the manner
provided in this Article Ten, to the prior payment in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, of all Obligations on Senior Debt (including the
Obligations with respect to the New Credit Facility). Notwithstanding the
foregoing, payments and distributions made relating to the Securities pursuant
to the trust described under Article Eight shall not be so subordi nated in
right of payment.
This Article Ten shall constitute a continuing offer to all Persons
who become holders of, or continue to hold, Senior Debt, and such provisions are
made for the benefit of the holders of Senior Debt and such holders are made
obligees hereunder and any one or more of them may enforce such provisions.
Section 10.2 Suspension of Payment When Senior Debt Is in Default.
-----------------------------------------------------
(a) If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of
any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Senior Debt
(a "Payment Default"), then no payment or distribution of any kind or
---------------
character shall be made by or on behalf of the Company or any other Person
on its or their behalf with respect to any Obligations on or relating to
the Securities or to acquire any of the Securities for cash or property or
otherwise.
(b) If any other event of default (other than a Payment Default)
occurs and is continuing with respect to any Designated Senior Debt (as
such event of default is defined in the instrument creating or evidencing
such Designated Senior Debt) permitting the holders of such Designated
Senior Debt then outstanding to accelerate the maturity thereof (a "Non-
---
payment Default") and if the Representative for the respective issue of
---------------
Designated Senior Debt gives notice of the event of default to the Trustee
stating that such notice is a payment blockage notice (a "Payment Blockage
----------------
Notice"), then, unless and until all events of default have been cured or
------
waived or have ceased to exist or the Trustee receives notice thereof from
the Representative for the respective issue of Designated Senior Debt
terminating the Payment Blockage Period, during the 180 days after the
delivery of such Payment Blockage Notice (the "Payment Blockage Period"),
-----------------------
neither the Company nor any other Person on its behalf shall (x) make any
payment of any kind or character with respect to any Obligations on or with
respect to the Securities or (y) acquire any of the Securities for cash or
property or otherwise. Not - withstanding anything herein to the contrary,
(x) in no event will a Payment Blockage Period extend beyond 180 days from
the date the applicable
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Payment Blockage Notice is received by the Trustee and (y) only one such
Payment Blockage Period may be commenced within any 360 consecutive days.
For all purposes of this Section 10.02(b), no event of default which
existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Debt shall be, or be
made, the basis for the commencement of a second Payment Blockage Period by
the Representative of such Designated Senior Debt whether or not within a
period of 360 consecutive days, unless such event of default shall have
been cured or waived for a period of not less than 90 consecutive days (it
being acknowledged that any subsequent action, or any breach of any
financial covenants for a period commencing after the date of commencement
of such Payment Blockage Period that, in either case, would give rise to an
event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of
default for this purpose).
(c) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohib
ited by the foregoing provisions of this Section 10.02, such payment shall
be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Senior Debt (pro rata to such holders on the basis of
the respective amount of Senior Debt held by such holders) or their
respective Representa tives, as their respective interests may appear.
The Trustee shall be entitled to rely on information regarding amounts then
due and owing on the Senior Debt, if any, received from the holders of
Senior Debt (or their Representa tives) or, if such information is not
received from such holders or their Representatives, from the Company and
only amounts included in the information provided to the Trustee shall be
paid to the holders of Senior Debt.
Nothing contained in this Article Ten shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Section 6.02 or to pursue any rights or
remedies hereunder; provided that all Senior Debt thereafter due or declared to
--------
be due shall first be paid in full in cash or Cash Equivalents before the
Holders are entitled to receive any payment of any kind or character with
respect to Obligations on the Securities.
Section 10.3 Securities Subordinated to Prior Payment of All Senior Debt on
--------------------------------------------------------------
Dissolution, Liquidation or Reorganization of Company.
- ------------------------------------------------------
(a) Upon any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors
upon any total or partial liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors or marshaling of
assets of the Com pany or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations due or to
become due upon all Senior Debt shall first be paid in full in cash or Cash
Equivalents, or such payment duly
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provided for to the satisfaction of the holders of Senior Debt, before any
payment or distribution of any kind or character is made on account of any
Obligations on or relating to the Securities, or for the acquisition of any
of the Securities for cash or property or otherwise. Upon any such
dissolution, winding-up, liquidation, reorganization, receivership or
similar proceeding, any payment or distribution of assets of the Company of
any kind or charac ter, whether in cash, property or securities, to which
the Holders of the Securities or the Trustee under this Indenture would be
entitled, except for the provisions hereof, shall be paid by the Company or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the Holders or by the
Trustee under this Indenture if received by them, directly to the holders
of Senior Debt (pro rata to such holders on the basis of the respective
amounts of Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant
to which any of such Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of Senior Debt
remaining unpaid until all such Senior Debt has been paid in full in cash
or Cash Equivalents after giving effect to any concurrent pay ment,
distribution or provision therefor to or for the holders of Senior Debt.
(b) To the extent any payment of Senior Debt (whether by or on behalf
of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set
aside or required to be paid to any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person under any bankruptcy,
insolvency, receivership, fraudulent conveyance or similar law, then, if
such payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Debt or part thereof originally intended to be satisfied shall be deemed to
be reinstated and outstanding as if such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, shall be received by any Holder when such
payment or distribution is prohibited by this Section 10.03, such payment
or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Senior Debt (pro rata to such
holders on the basis of the respective amount of Senior Debt held by such
holders) or their respective Representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Debt may have been
issued, as their respective interests may appear, for application to the
payment of Senior Debt remaining unpaid until all such Senior Debt has been
paid in full in cash or Cash Equivalents, after giving effect to any
concurrent payment, distribution or provision therefor to or for the
holders of such Senior Debt.
(d) The consolidation of the Company with, or the merger of the
Company with or into, another Person or the liquidation or dissolution of
the
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Company following the conveyance or transfer of all or substantially all of
its assets, to another Person upon the terms and conditions provided in
Article Five hereof and as long as permitted under the terms of the Senior
Debt shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section if such other Person shall,
as a part of such consoli dation, merger, conveyance or transfer, assume
the Company's obligations hereunder in accordance with Article Five hereof.
Section 10.4 Payments May Be Paid Prior to Dissolution.
------------------------------------------
Nothing contained in this Article Ten or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Sections
10.02 and 10.03, from making payments at any time for the purpose of making
payments of principal of and interest on the Securities, or from depositing with
the Trustee any moneys for such payments, or (ii) in the absence of actual
knowledge by the Trustee that a given payment would be prohibited by Section
10.02 or 10.03, the application by the Trustee of any moneys deposited with it
for the purpose of making such payments of principal of, and interest on, the
Securities to the Holders entitled thereto unless at least two Business Days
prior to the date upon which such payment would otherwise become due and payable
a Responsible Officer shall have actually received the written notice provided
for in the first sentence of Section 10.02(b) or in Section 10.07 (provided
--------
that, notwithstanding the foregoing, the Holders receiving any payments made in
contravention of Section 10.02 and/or 10.03 (and the respec tive such payments)
shall otherwise be subject to the provisions of Section 10.02 and Section
10.03). The Company shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of the Company, although
any delay or failure to give any such notice shall have no effect on the
subordination provisions contained herein.
Section 10.5 Holders To Be Subrogated to Rights of Holders of Senior Debt.
-------------------------------------------------------------
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt, the Holders of the Securities shall be subrogated to the rights of
the holders of Senior Debt to receive payments or distributions of cash,
property or securities of the Company applicable to the Senior Debt until the
Securities shall be paid in full; and, for the purposes of such subrogation, no
such payments or distribu tions to the holders of the Senior Debt by or on
behalf of the Company, or by or on behalf of the Holders by virtue of this
Article Ten, which otherwise would have been made to the Holders shall, as
between the Company and the Holders, be deemed to be a payment by the Company to
or on account of the Senior Debt, it being under stood that the provisions of
this Article Ten are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior Debt,
on the other hand.
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Section 10.6 Obligations of the Company Unconditional.
----------------------------------------
Nothing contained in this Article Ten or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as among the Company, its
credi tors other than the holders of Senior Debt, and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders the principal of and any interest on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders and creditors of the Company
other than the holders of the Senior Debt, nor shall anything herein or therein
prevent the Holder of any Security or the Trustee on its behalf from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
Section 10.7 Notice to Trustee.
-----------------
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities pursuant to the provisions of this
Article Ten, although any delay or failure to give any such notice shall have no
effect on the subordination provisions contained herein. Regardless of anything
to the contrary contained in this Article Ten or elsewhere in this Indenture,
the Trustee shall not be charged with knowledge of the existence of any default
or event of default with respect to any Senior Debt or of any other facts which
would prohibit the making of any payment to or by the Trustee unless and until
the Trustee shall have received notice in writing from the Company, or from a
holder of Senior Debt or a Represen tative therefor and, prior to the receipt
of any such written notice, the Trustee shall be entitled to assume (in the
absence of actual knowledge by a Responsible Officer to the contrary) that no
such facts exist. The Trustee shall be entitled to rely on the delivery to it
of any notice pursuant to this Section 10.07 to establish that such notice has
been given by a holder of Senior Debt (or a Representative thereof).
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amounts of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article Ten, and if such evidence is not furnished the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
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Section 10.8 Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Company referred to
in this Article Ten, the Trustee, subject to the provisions of Article Seven
hereof, and the Holders of the Securities shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which any
insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation,
reorganization or similar case or proceeding is pending, or upon a certificate
of the receiver, trustee in bankruptcy, liquidating trustee, assignee for the
benefit of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or the Holders of the Securi ties, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt and other Indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
Ten.
Section 10.9 Trustee's Relation to Senior Debt.
---------------------------------
The Trustee and any agent of the Company or the Trustee shall be
entitled to all the rights set forth in this Article Ten with respect to any
Senior Debt which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of Senior Debt and nothing in
this Indenture shall deprive the Trustee or any such agent of any of its rights
as such holder.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform or to observe only such of its covenants and obligations as are
specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt.
Whenever a distribution is to be made or a notice given to holders or
owners of Senior Debt, the distribution may be made and the notice may be given
to their Representative, if any.
Section 10.10 Subordination Rights Not Impaired by Acts or Omissions of the
-------------------------------------------------------------
Company or Holders of Senior Debt.
---------------------------------
No right of any present or future holders of any Senior Debt to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing para
graph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination
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provided in this Article Ten or the obligations hereunder of the Holders of the
Securities to the holders of the Senior Debt, do any one or more of the
following: (i) change the manner, place or terms of payment or extend the time
of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement
in any manner Senior Debt, or any instrument evidencing the same or any
agreement under which Senior Debt is outstanding; (ii) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Debt; (iii) release any Person liable in any manner for the payment or
collection of Senior Debt; and (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
Section 10.11 Securityholders Authorize Trustee To Effectuate Subordination of
----------------------------------------------------------------
Securities.
----------
Each Holder of Securities by its acceptance of them authorizes and
expressly directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate, as between the holders of Senior Debt
and the Holders of Securities, the subordination provided in this Article Ten,
and appoints the Trustee its attorney-in-fact for such purposes, including, in
the event of any dissolution, winding-up, liquidation or reorganization of the
Company (whether in bankruptcy, insolvency, receivership, reorganization or
similar proceedings or upon an assign ment for the benefit of credits or
otherwise) tending towards liquidation of the business and assets of the
Company, the filing of a claim for the unpaid balance of its Securities and
accrued interest in the form required in those proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Senior Debt or their
Representative are or is hereby authorized to have the right to file and are or
is hereby authorized to file an appropriate claim for and on behalf of the
Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Debt or their Representative to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee or the holders
of Senior Debt or their Representative to vote in respect of the claim of any
Holder in any such proceeding.
Section 10.12 This Article Ten Not To Prevent Events of Default.
--------------------------------------------------
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Ten will not be
construed as preventing the occurrence of an Event of Default.
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Section 10.13 Trustee's Compensation Not Prejudiced.
-------------------------------------
Nothing in this Article Ten will apply to amounts due to the Trustee
pursuant to other sections of this Indenture.
ARTICLE XI
GUARANTEE OF SECURITIES
Section 11.1 Unconditional Guarantee.
-----------------------
Each Guarantor, by execution of a Guarantee, will jointly and
severally, unconditionally and irrevocably guarantee, on a senior subordinated
basis (such guarantees to be referred to herein as a "Guarantee") to each Holder
---------
of a Security authenticated and delivered by the Trustee and to the Trustee and
its successors and assigns, irrespective of the validity and enforceability of
this Inden ture, the Securities or the obligations of the Company or any other
Guarantors to the Holders or the Trustee hereunder or thereunder, that: (a) the
principal of, premium, if any, and interest on the Securities shall be duly and
punctually paid in full when due, whether at maturity, upon redemption at the
option of Holders pursuant to the provisions of the Securities relating thereto,
by acceleration or otherwise, and interest on the overdue principal and (to the
extent permitted by law) interest, if any, on the Securities and all other
obligations of the Company or the Guarantors to the Holders or the Trustee
hereunder or thereunder (including amounts due the Trustee under Section 7.07
hereof) and all other obligations shall be promptly paid in full or performed,
all in accordance with the terms hereof and thereof; and (b) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at maturity, by
acceleration or otherwise. Failing payment when due of any amount so
guaranteed, or failing performance of any other obligation of the Company to the
Holders under this Indenture or under the Securities, for whatever reason, each
Guarantor shall be obligated to pay, or to perform or cause the performance of,
the same immediately. An Event of Default under this Indenture or the Securities
shall constitute an event of default under the Guarantee, and shall entitle the
Holders of Securities to accelerate the obligations of the Guarantors hereunder
in the same manner and to the same extent as the obligations of the Company.
Each Guarantor, by execution of a Guarantee, will agree that its
obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Securities or this Indenture, the absence of
any action to enforce the same, any waiver or consent by any Holder of the
Securities with respect to any provisions hereof or thereof, any release of any
other Guarantor, the recovery of any judgment against the Company, any action to
enforce the same, whether or not a Guarantee is affixed to any particular
Security, or any other circumstance which
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might otherwise constitute a legal or equitable discharge or defense of a
Guarantor. Each of the Guarantors hereby waives the benefit of diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding first
against the Company, protest, notice and all demands whatsoever and covenants
that its Guarantee shall not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture and this Guarantee. Each
Guarantee is a guarantee of payment and not of collection. If any Holder or the
Trustee is required by any court or otherwise to return to the Company or to any
Guarantor, or any custodian, trustee, liquidator or other similar official
acting in relation to the Company or such Guaran tor, any amount paid by the
Company or such Guarantor to the Trustee or such Holder, each such Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor further agrees that, as between it, on the one hand, and the
Holders of Securities and the Trustee, on the other hand, (a) subject to this
Article Eleven, the maturity of the obligations guaranteed by its Guarantee may
be accelerated as provided in Article Six hereof for the purposes of its
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such accelera tion in respect of the obligations guaranteed thereby, and (b) in
the event of any acceleration of such obligations as provided in Article Six
hereof, such obligations (whether or not due and payable) shall forthwith become
due and payable by the Guarantors for the purpose of their Guarantees.
No stockholder, officer, director, employee or incorporator, past,
present or future, or any Guarantor, as such, shall have any personal liability
under any Guarantee by reason of his, her or its status as such stockholder,
officer, director, employee or incorporator.
Section 11.2 Limitations on Guarantees.
-------------------------
The obligations of each Guarantor under its Guarantee are limited to
the maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor (including without limitation, its guarantee of
Obliga tions pursuant to the New Credit Facility and any other Guarantor Senior
Debt) and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
this Indenture, will result in the obligations of such Guarantor under its
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Guarantor in an
amount pro rata, based on the net assets of each Guarantor, determined in
--- ----
accordance with GAAP.
Section 11.3 Execution and Delivery of Guarantee.
-----------------------------------
To further evidence the Guarantee set forth in Section 11.01, each
Guarantor will agree that a notation of such Guarantee, substantially in the
form of Exhibit F hereto, shall be endorsed on each Security authenticated and
---------
delivered by
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the Trustee. Such Guarantee shall be executed on behalf of each Guarantor by
either manual or facsimile signature of one Officer of each Guarantor who shall
have been duly authorized to so execute by all requisite corporation action. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Security.
Each Guarantor, by its execution of a Guarantee, will agree that its
Guarantee set forth in Section 11.01 shall remain in full force and effect
notwith standing any failure to endorse on each Security a notation of such
Guarantee.
If an Officer of a Guarantor whose signature is on a Guarantee no
longer holds that office at the time the Trustee authenticates the Security on
which such Guarantee is endorsed or at any time thereafter, such Guarantor's
Guarantee of such Security shall nevertheless be valid.
Section 11.4 Release of a Guarantor.
----------------------
(a) Upon the sale or disposition of all of the Capital Stock of a
Guarantor by the Company, in a transaction or series of related
transactions that either (i) does not constitute an Asset Sale or (ii)
constitutes an Asset Sale the Net Cash Proceeds of which are applied in
accordance with Section 4.16, or upon the consolidation or merger of a
Guarantor with or into any Person in compliance with Article Five (in each
case, other than to the Company or an Affiliate of the Company), or if any
Guarantor is dissolved or liquidated in accordance with this Indenture,
such Guarantor's Guarantee will be automatically discharged and released
from all obligations under this Article Eleven without any further action
required on the part of the Trustee or any Holder. Any Guarantor not so
released or the entity surviving such Guarantor, as applicable, shall
remain or be liable under its Guarantee as provided in this Article Eleven.
(b) The Trustee shall deliver an appropriate instrument evidencing
the release of a Guarantor upon receipt of a request by the Company or such
Guarantor accompanied by an Officers' Certificate and an Opinion of Counsel
certifying as to the compliance with this Section 11.04; provided, however,
-------- -------
that the legal counsel delivering such Opinion of Counsel may rely as to
matters of fact on one or more Officers' Certificates of the Company.
Except as set forth in Articles Four and Five and this Section 11.04,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Guarantor with or into the Company or another
Guaran tor or shall prevent any sale or conveyance of the property of a
Guarantor as an entirety or substantially as an entirety to the Company or
another Guarantor.
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Section 11.5 Waiver of Subrogation.
---------------------
Until this Indenture is discharged and all of the Securities are
discharged and paid in full, each Guarantor, by its execution of a Guarantee,
will irrevocably waive and agree not to exercise any claim or other rights which
it may then have or thereafter acquire against the Company that arise from the
existence, payment, performance or enforcement of the Company's obligations
under the Securities or this Indenture and such Guarantor's obligations under
its Guarantee and this Indenture, in any such instance including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, and any right to participate in any claim or remedy of the
Holders against the Company, whether or not such claim, remedy or right arises
in equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Guarantor in violation of the preceding sentence and any
amounts owing to the Trustee or the Holders of Securities under the Securities,
this Indenture, or any other document or instrument delivered under or in
connection with such agreements or instruments, shall not have been paid in
full, such amount shall have been deemed to have been paid to such Guarantor for
the benefit of, and held in trust for the benefit of, the Trustee or the Holders
and shall forthwith be paid to the Trustee for the benefit of itself or such
Holders to be credited and applied to the obligations in favor of the Trustee or
the Holders, as the case may be, whether matured or unmatured, in accordance
with the terms of this Indenture. Each Guaran tor, by its execution of a
Guarantee, will acknowledge that it will receive direct and indirect benefits
from the financing arrangements contemplated by this Indenture and that the
waiver set forth in this Section 11.05 is knowingly made in contemplation of
such benefits.
Section 11.6 Immediate Payment.
-----------------
Each Guarantor, by its execution of a Guarantee, will agree to make
immediate payment to the Trustee on behalf of the Holders of all Obligations
owing or payable to the respective Holders upon receipt of a demand for payment
therefor by the Trustee to such Guarantor in writing.
Section 11.7 No Set-Off.
----------
Each payment to be made by a Guarantor hereunder and under its
Guarantee in respect of the Obligations shall be payable in the currency or
currencies in which such Obligations are denominated, and shall be made without
set-off, counterclaim, reduction or diminution of any kind or nature.
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Section 11.8 Obligations Absolute.
--------------------
The obligations of each Guarantor hereunder and under its Guaran tee
are and shall be absolute and unconditional and any monies or amounts expressed
to be owing or payable by each Guarantor hereunder or thereunder which may not
be recoverable from such Guarantor on the basis of a Guarantee shall be
recoverable from such Guarantor as a primary obligor and principal debtor in
respect thereof.
Section 11.9 Obligations Continuing.
----------------------
The obligations of each Guarantor hereunder and under its Guaran tee
shall be continuing and shall remain in full force and effect until all the
Obliga tions have been paid and satisfied in full. Each Guarantor, by its
execution of a Guarantee, will agree with the Trustee that it will from time to
time deliver to the Trustee suitable acknowledgments of this continued liability
hereunder and under any other instrument or instruments in such form as counsel
to the Trustee may advise and as will prevent any action brought against it in
respect of any default hereunder being barred by any statute of limitations now
or hereafter in force and, in the event of the failure of a Guarantor so to do,
it, by its execution of a Guarantee, will irrevocably appoint the Trustee the
attorney and agent of such Guarantor to make, execute and deliver such written
acknowledgment or acknowledgments or other instruments as may from time to time
become necessary or advisable, in the judgment of the Trustee on the advice of
counsel, to fully maintain and keep in force the liability of such Guarantor
hereunder and under its Guarantee.
Section 11.10 Obligations Not Reduced.
-----------------------
The obligations of each Guarantor hereunder and under its Guaran tee
shall not be satisfied, reduced or discharged solely by the payment of such
principal, premium, if any, interest, fees and other monies or amounts as may at
any time prior to discharge of this Indenture pursuant to Article Eight be or
become owing or payable under or by virtue of or otherwise in connection with
the Securities or this Indenture.
Section 11.11 Obligations Reinstated.
----------------------
The obligations of each Guarantor hereunder and under its Guaran tee
shall continue to be effective or shall be reinstated, as the case may be, if at
any time any payment which would otherwise have reduced the obligations of any
Guarantor hereunder and under its Guarantee (whether such payment shall have
been made by or on behalf of the Company or by or on behalf of a Guarantor) is
rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy,
liquidation or reorganization of the Company or any Guarantor or otherwise, all
as though such payment had not been made. If demand for, or acceleration of the
time for, payment by the Company is stayed upon the insolvency, bankruptcy,
liquidation or reorgani zation of the Company, all such Indebtedness otherwise
subject to demand for
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payment or acceleration shall nonetheless be payable by each Guarantor as
provided herein and under its Guarantee.
Section 11.12 Obligations Not Affected.
------------------------
The obligations of each Guarantor hereunder and under its Guaran tee
shall not be affected, impaired or diminished in any way by any act, omission,
matter or thing whatsoever, occurring before, upon or after any demand for
payment hereunder (and whether or not known or consented to by any Guarantor or
any of the Holders) which, but for this provision, might constitute a whole or
partial defense to a claim against any Guarantor hereunder and under its
Guarantee or might operate to release or otherwise exonerate any Guarantor from
any of its obligations hereunder and under its Guarantee or otherwise affect
such obligations, whether occasioned by default of any of the Holders or
otherwise, including, without limitation:
(a) any limitation of status or power, disability, incapacity or
other circumstance relating to the Company or any other Person, including
any insolvency, bankruptcy, liquidation, reorganization, readjustment,
composi tion, dissolution, winding-up or other proceeding involving or
affecting the Company or any other Person;
(b) any irregularity, defect, unenforceability or invalidity in
respect of any indebtedness or other obligation of the Company or any other
Person under this Indenture, the Securities or any other document or
instrument;
(c) any failure of the Company, whether or not without fault on its
part, to perform or comply with any of the provisions of this Indenture or
the Securities, or to give notice thereof to a Guarantor;
(d) the taking or enforcing or exercising or the refusal or neglect
to take or enforce or exercise any right or remedy from or against the
Company or any other Person or their respective assets or the release or
discharge of any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the
Company or any other Person;
(f) any change in the time, manner or place of payment of, or in any
other term of, any of the Securities, or any other amendment, variation,
supplement, replacement or waiver of, or any consent to departure from, any
of the Securities or this Indenture, including, without limitation, any
increase or decrease in the principal amount of or premium, if any, or
interest on any of the Securities;
(g) any change in the ownership, control, name, objects, businesses,
assets, capital structure or constitution of the Company or a Guarantor;
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(h) any merger or amalgamation of the Company or a Guarantor with any
Person or Persons;
(i) the occurrence of any change in the laws, rules, regulations or
ordinances of any jurisdiction by any present or future action of any
govern mental authority or court amending, varying, reducing or otherwise
affecting, or purporting to amend, vary, reduce or otherwise affect, any of
the Obliga tions or the obligations of a Guarantor under its Guarantee;
and
(j) any other circumstance, including release of the Guarantor
pursuant to Section 11.04 (other than by complete, irrevocable payment)
that might otherwise constitute a legal or equitable discharge or defense
of the Company under this Indenture or the Securities or of a Guarantor in
respect of its Guarantee hereunder.
Section 11.13 Waiver.
------
Without in any way limiting the provisions of Section 11.01 hereof,
each Guarantor, by its execution of a Guarantee, will waive notice of acceptance
hereof, notice of any liability of any Guarantor hereunder, notice or proof of
reliance by the Holders upon the obligations of any Guarantor hereunder, and
diligence, presentment, demand for payment on the Company, protest, notice of
dishonor or non-payment of any of the Obligations, or other notice or
formalities to the Company or any Guarantor of any kind whatsoever.
Section 11.14 No Obligation To Take Action Against the Company.
-------------------------------------------------
Neither the Trustee nor any other Person shall have any obligation to
enforce or exhaust any rights or remedies or to take any other steps under any
security for the Obligations or against the Company or any other Person or any
property of the Company or any other Person before the Trustee is entitled to
demand payment and performance by any or all Guarantors of their liabilities and
obligations under their Guarantees or under this Indenture.
Section 11.15 Dealing with the Company and Others.
-----------------------------------
The Holders, without releasing, discharging, limiting or otherwise
affecting in whole or in part the obligations and liabilities of any Guarantor
hereun der and without the consent of or notice to any Guarantor, may
(a) grant time, renewals, extensions, compromises, concessions,
waivers, releases, discharges and other indulgences to the Company or any
other Person;
(b) take or abstain from taking security or collateral from the
Company or from perfecting security or collateral of the Company;
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(c) release, discharge, compromise, realize, enforce or otherwise
deal with or do any act or thing in respect of (with or without
consideration) any and all collateral, mortgages or other security given by
the Company or any third party with respect to the obligations or matters
contemplated by this Indenture or the Securities;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or from
any security upon such part of the Obligations as the Holders may see fit
or change any such application in whole or in part from time to time as the
Holders may see fit; and
(f) otherwise deal with, or waive or modify their right to deal with,
the Company and all other Persons and any security as the Holders or the
Trustee may see fit.
Section 11.16 Default and Enforcement.
-----------------------
If any Guarantor fails to pay in accordance with Section 11.06 hereof,
the Trustee may proceed in its name as trustee hereunder in the enforcement of
the Guarantee of any such Guarantor and such Guarantor's obligations thereunder
and hereunder by any remedy provided by law, whether by legal proceedings or
otherwise, and to recover from such Guarantor the obligations.
Section 11.17 Amendment, Etc.
--------------
No amendment, modification or waiver of any provision of this
Indenture relating to any Guarantor or consent to any departure by any Guarantor
or any other Person from any such provision will in any event be effective
unless it is signed by such Guarantor and the Trustee.
Section 11.18 Acknowledgment.
--------------
Each Guarantor, by its execution of a Guarantee, will acknowledge
communication of the terms of this Indenture and the Securities and consents to
and approves of the same.
Section 11.19 Costs and Expenses.
------------------
Each Guarantor shall pay on demand by the Trustee any and all costs,
fees and expenses (including, without limitation, legal fees on a solicitor and
client basis) incurred by the Trustee, its agents, advisors and counsel or any
of the Holders in enforcing any of their rights under any Guarantee.
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Section 11.20 No Merger or Waiver; Cumulative Remedies.
----------------------------------------
No Guarantee shall operate by way of merger of any of the obliga
tions of a Guarantor under any other agreement, including, without limitation,
this Indenture. No failure to exercise and no delay in exercising, on the part
of the Trustee or the Holders, any right, remedy, power or privilege hereunder
or under this Indenture or the Securities, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder or under this Indenture or the Securities preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges in the Guarantee and
under this Indenture, the Securities and any other document or instrument
between a Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
Section 11.21 Survival of Obligations.
-----------------------
Without prejudice to the survival of any of the other obligations of
each Guarantor hereunder, the obligations of each Guarantor under Section 11.01
shall survive the payment in full of the Obligations and shall be enforceable
against such Guarantor without regard to and without giving effect to any
defense, right of offset or counterclaim available to or which may be asserted
by the Company or any Guarantor.
Section 11.22 Guarantee in Addition to Other Obligations.
-------------------------------------------
The obligations of each Guarantor under its Guarantee and this
Indenture are in addition to and not in substitution for any other obligations
to the Trustee or to any of the Holders in relation to this Indenture or the
Securities and any guarantees or security at any time held by or for the benefit
of any of them.
Section 11.23 Severability.
------------
Any provision of this Article Eleven which is prohibited or unen
forceable in any jurisdiction shall not invalidate the remaining provisions and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction
unless its removal would substantially defeat the basic intent, spirit and
purpose of this Indenture and this Article Eleven.
Section 11.24 Successors and Assigns.
----------------------
Each Guarantee shall be binding upon and inure to the benefit of each
Guarantor and the Trustee and the other Holders and their respective successors
and permitted assigns, except that no Guarantor may assign any of its
obligations hereunder or thereunder.
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ARTICLE XII
SUBORDINATION OF GUARANTEES
Section 12.1 Guarantee Obligations Subordinated to Guarantor Senior Debt.
----------------------
Anything herein to the contrary notwithstanding, each Guarantor, by
execution of a Guarantee, jointly and unconditionally will, for itself and its
succes sors, and each Holder, by his or her acceptance of Guarantees, will
agree that the payment of all Obligations owing to the Holders in respect of its
Guarantee (collec tively, as to any Guarantor, its "Guarantee Obligations") is
---------------------
subordinated, to the extent and in the manner provided in this Article Twelve,
to the prior payment in full in cash or Cash Equivalents, or such payment duly
provided for to the satisfaction of the holders of Guarantor Senior Debt, of all
Obligations on Guarantor Senior Debt of such Guarantor.
This Article Twelve shall constitute a continuing offer to all Persons
who become holders of, or continue to hold, Guarantor Senior Debt, and such
provisions are made for the benefit of the holders of Guarantor Senior Debt and
such holders are made obligees hereunder and any one or more of them may enforce
such provisions.
Section 12.2 Suspension of Guarantee Obligations When Guarantor Senior Debt Is
-----------------------------------------------------------------
in Default.
----------
(a) If any default occurs and is continuing in the payment when due,
whether at maturity, upon any redemption, by declaration or otherwise, of
any principal of, interest on, unpaid drawings for letters of credit issued
in respect of, or regularly accruing fees with respect to, any Guarantor
Senior Debt, then no payment of any kind or character shall be made by or
on behalf of such Guarantor or any other Person on its behalf with respect
to any Guarantee Obligations or to acquire any of the Securities for cash
or property or otherwise and until such Payment Default shall have been
cured or waived or shall have ceased to exist or such Guarantor Senior Debt
shall have been discharged or paid in full in cash or Cash Equivalents.
(b) At any time while any Payment Blockage Period is in existence,
neither any Guarantor nor any other Person on any Guarantor's behalf shall
(x) make any payment of any kind or character with respect to any Obliga
tions on its Guarantee or (y) acquire any of the Securities for cash or
other wise.
(c) In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee or any Holder when such payment is prohib
ited by the foregoing provisions of this Section 12.02, such payment shall
be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Guarantor Senior Debt (pro rata to such holders on the
basis of the
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respective amount of Guarantor Senior Debt held by such holders) or their
respective Representatives, as their respective interests may appear. The
Trustee shall be entitled to rely on information regarding amounts then due
and owing on the Guarantor Senior Debt, if any, received from the holders
of Guarantor Senior Debt (or their Representatives) or, if such information
is not received from such holders or their Representatives, from a
Guarantor and only amounts included in the information provided to the
Trustee shall be paid to the holders of Guarantor Senior Debt.
Section 12.3 Guarantee Obligations Subordinated to Prior Payment of All
----------------------------------------------------------
Guarantor Senior Debt on Dissolution, Liquidation or
----------------------------------------------------
Reorganization of Such Guarantor.
---------------------------------
(a) Upon any payment or distribution of assets of any Guarantor of
any kind or character, whether in cash, property or securities, to
creditors upon any total or partial liquidation, dissolution, winding-up,
reorganization, assignment for the benefit of creditors or marshaling of
assets of such Guar antor or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to such Guarantor or its
property, whether volun tary or involuntary, all Obligations due or to
become due upon all Guarantor Senior Debt shall first be paid in full in
cash or Cash Equivalents, or such payment duly provided for to the
satisfaction of the holders of Guarantor Senior Debt, before any payment or
distribution of any kind or character is made on account of any Guarantee
Obligations or for the acquisition of any of the Securities for cash or
property or otherwise. Upon any such dissolu tion, winding-up,
liquidation, reorganization, receivership or similar proceed ing, any
payment or distribution of assets of such Guarantor of any kind or
character, whether in cash, property or securities, to which the Holders or
the Trustee under this Indenture would be entitled, except for the
provisions hereof, shall be paid by such Guarantor or by any receiver,
trustee in bank ruptcy, liquidating trustee, agent or other Person making
such payment or distribution, or by the Holders or by the Trustee under
this Indenture if received by them, directly to the holders of Guarantor
Senior Debt (pro rata to such holders on the basis of the respective
amounts of Guarantor Senior Debt held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant
to which any of such Guaran tor Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of
Guarantor Senior Debt remaining unpaid until all such Guarantor Senior Debt
has been paid in full in cash or Cash Equivalents after giving effect to
any concurrent payment, distribution or provision therefor to or for the
holders of Guarantor Senior Debt.
(b) To the extent any payment of Guarantor Senior Debt (whether by or
on behalf of a Guarantor, as proceeds of security or enforcement of any
right of setoff or otherwise) is declared to be fraudulent or preferential,
set aside or required to be paid to any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person under any bankruptcy,
insolvency,
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receivership, fraudulent conveyance or similar law, then, if such payment
is recovered by, or paid over to, such receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person, the Guarantor Senior
Debt or part thereof originally intended to be satisfied shall be deemed to
be reinstated and outstanding as if such payment had not occurred.
(c) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of any Guarantor of any kind or character, whether
in cash, property or securities, shall be received by any Holder when such
payment or distribution is prohibited by this Section 12.03, such payment
or distribution shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Guarantor Senior Debt (pro rata
to such holders on the basis of the respective amount of Guarantor Senior
Debt held by such holders) or their respective Representatives, or to the
trustee or trustees under any indenture pursuant to which any of such
Guarantor Senior Debt may have been issued, as their respective interests
may appear, for application to the payment of Guarantor Senior Debt
remaining unpaid until all such Guarantor Senior Debt has been paid in full
in cash or Cash Equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Guarantor
Senior Debt.
(d) The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another Person or the liquidation or dissolution of
a Guarantor following the conveyance or transfer of all or substantially
all of its assets, to another Person upon the terms and conditions provided
in Article Five hereof and as long as permitted under the terms of the
Guarantor Senior Debt shall not be deemed a dissolution, winding-up,
liquidation or reorgani zation for the purposes of this Section if such
other Person shall, as a part of such consolidation, merger, conveyance or
transfer, assumes the Guarantee of such Guarantor hereunder in accordance
with Article Five hereof.
Section 12.4 Payments May Be Paid Prior to Dissolution.
------------------------------------------
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) any Guarantor, except under the conditions described
in Sections 12.02 and 12.03, from making payments at any time for the purpose of
making payments on Guarantee Obligations, or from depositing with the Trustee
any moneys for such payments, or (ii) in the absence of actual knowledge by the
Trustee that a given payment would be prohibited by Section 12.02 or 12.03, the
application by the Trustee of any moneys deposited with it for the purpose of
making such payments on Guarantee Obligations to the Holders entitled thereto
unless at least two Business Days prior to the date upon which such payment
would otherwise become due and payable a Responsible Officer shall have actually
received the written notice provided for in the first sentence of Section
10.02(b) or in Section 12.07 (provided that, notwithstanding the foregoing, the
--------
Holders receiving any payments made in contravention of Sections 12.02 and/or
12.03 (and the respective such payments) shall otherwise be subject to the
provisions of Section 12.02 and Section 12.03).
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Each Guarantor shall give prompt written notice to the Trustee of any
dissolution, winding-up, liquidation or reorganization of such Guarantor,
although any delay or failure to give any such notice shall have no effect on
the subordination provisions contained herein.
Section 12.5 Holders of Guarantee Obligations To Be Subrogated to Rights of
--------------------------------------------------------------
Holders of Guarantor Senior Debt.
---------------------------------
Subject to the payment in full in cash or Cash Equivalents of all
Guarantor Senior Debt, the Holders of Guarantee Obligations of any Guarantor
shall be subrogated to the rights of the holders of Guarantor Senior Debt of
such Guaran tor to receive payments or distributions of cash, property or
securities of such Guarantor applicable to such Guarantor Senior Debt until all
amounts owing on or in respect of the Guarantee Obligations shall be paid in
full; and, for the purposes of such subrogation, no such payments or
distributions to the holders of such Guarantor Senior Debt by or on behalf of
such Guarantor, or by or on behalf of the Holders by virtue of this Article
Twelve, which otherwise would have been made to the Holders shall, as between
such Guarantor and the Holders, be deemed to be a payment by such Guarantor to
or on account of such Guarantor Senior Debt, it being understood that the
provisions of this Article Twelve are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
Guarantor Senior Debt, on the other hand.
Section 12.6 Obligations of the Guarantors Unconditional.
--------------------------------------------
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Guarantees is intended to or shall impair, as among the
Guaran tors, their creditors other than the holders of Guarantor Senior Debt,
and the Holders, the obligation of the Guarantors, which is absolute and
unconditional, to pay to the Holders all amounts due and payable under the
Guarantees as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders and creditors of the Guarantors other than the holders of the Guarantor
Senior Debt, nor shall anything herein or therein prevent any Holder or the
Trustee on its behalf from exercising all remedies other wise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
in respect of cash, property or securities of the Guarantors received upon the
exercise of any such remedy.
Section 12.7 Notice to Trustee.
-----------------
Each Guarantor shall give prompt written notice to the Trustee of any
fact known to such Guarantor which would prohibit the making of any payment to
or by the Trustee in respect of the Guarantees pursuant to the provisions of
this Article Twelve, although any delay or failure to give any such notice shall
have no effect on the subordination provisions contained herein. Regardless of
anything to the contrary contained in this Article Twelve or elsewhere in this
Indenture, the Trustee shall not be charged with knowledge of the existence of
any default or event
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of default with respect to any Guarantor Senior Debt or of any other facts which
would prohibit the making of any payment to or by the Trustee unless and until
the Trustee shall have received notice in writing from a Guarantor, or from a
holder of Guarantor Senior Debt or a Representative therefor and, prior to the
receipt of any such written notice, the Trustee shall be entitled to assume (in
the absence of actual knowledge of a Responsible Officer to the contrary) that
no such facts exist. The Trustee shall be entitled to rely on the delivery to it
of any notice pursuant to this Section 12.07 to establish that such notice has
been given by a holder of Senior Debt (or a trustee thereof).
In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Guarantor Senior Debt to participate in any payment or distribution pursuant to
this Article Twelve, the Trustee may request such Person to furnish evidence to
the reasonable satisfaction of the Trustee as to the amounts of Guarantor Senior
Debt held by such Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts pertinent to the
rights of such Person under this Article Twelve, and if such evidence is not
furnished the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
Section 12.8 Reliance on Judicial Order or Certificate of Liquidating Agent.
---------------------------------------------------------------
Upon any payment or distribution of assets of a Guarantor referred to
in this Article Twelve, the Trustee, subject to the provisions of Article Seven
hereof, and the Holders shall be entitled to rely upon any order or decree made
by any court of competent jurisdiction in which any insolvency, bankruptcy,
receiver ship, dissolution, winding-up, liquidation, reorganization or similar
case or proceed ing is pending, or upon a certificate of the trustee in
bankruptcy, liquidating trustee, receiver, assignee for the benefit of
creditors, agent or other Person making such payment or distribution, delivered
to the Trustee or the Holders, for the purpose of ascertaining the Persons
entitled to participate in such payment or distribution, the holders of the
Guarantor Senior Debt and other Indebtedness of such Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Twelve.
Section 12.9 Trustee's Relation to Guarantor Senior Debt.
--------------------------------------------
The Trustee and any agent of a Guarantor or the Trustee shall be
entitled to all the rights set forth in this Article Twelve with respect to any
Guarantor Senior Debt which may at any time be held by it in its individual or
any other capacity to the same extent as any other holder of Guarantor Senior
Debt and nothing in this Indenture shall deprive the Trustee or any such agent
of any of its rights as such holder.
With respect to the holders of Guarantor Senior Debt, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are
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specifically set forth in this Article Twelve, and no implied covenants or
obligations with respect to the holders of Guarantor Senior Debt shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Guarantor Senior Debt.
Whenever a distribution is to be made or a notice given to holders or
owners of Guarantor Senior Debt, the distribution may be made and the notice may
be given to their Representative, if any.
Section 12.10 Subordination Rights Not Impaired by Acts or Omissions of the
-------------------------------------------------------------
Guarantors or Holders of Guarantor Senior Debt.
-----------------------------------------------
No right of any present or future holders of any Guarantor Senior Debt
to enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of any Guarantor
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by any Guarantor with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or otherwise be charged
with.
Without in any way limiting the generality of the foregoing para
graph, the holders of Guarantor Senior Debt may, at any time and from time to
time, without the consent of or notice to the Trustee, without incurring
responsibility to the Trustee or the Holders of the Securities and without
impairing or releasing the subordination provided in this Article Twelve or the
obligations hereunder of the Holders of the Securities to the holders of
Guarantor Senior Debt, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Guarantor Senior Debt, or otherwise amend or supplement in any manner
Guarantor Senior Debt, or any instrument evidencing the same or any agreement
under which Guarantor Senior Debt is outstanding; (ii) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Guarantor Senior Debt; (iii) release any Person liable in any manner for the
payment or collection of Guarantor Senior Debt; and (iv) exercise or refrain
from exercising any rights against the Guarantors and any other Person.
Section 12.11 Holders Authorize Trustee To Effectuate Subordination of
--------------------------------------------------------
Guarantee Obligations.
---------------------
Each Holder of Guarantee Obligations by its acceptance of them
authorizes and expressly directs the Trustee on its behalf to take such action
as may be necessary or appropriate to effectuate, as between the holders of
Guarantor Senior Debt and the Holders, the subordination provided in this
Article Twelve, and appoints the Trustee its attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of any Guarantor (whether in bankruptcy, insolvency,
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of credits or otherwise) tending towards liquida tion of the
business and assets of any Guarantor, the filing of a claim for the unpaid
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balance under its Guarantee Obligations and accrued interest in the form
required in those proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Guarantor Senior Debt
or their Representative are or is hereby authorized to have the right to file
and are or is hereby authorized to file an appropriate claim for and on behalf
of the Holders of said Guarantee Obligations. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Guarantee Obligations or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Guarantor Senior Debt or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
Section 12.12 This Article Twelve Not To Prevent Events of Default.
----------------------------------------------------
The failure to make a payment on account of principal of or interest
on the Guarantees by reason of any provision of this Article Twelve will not be
construed as preventing the occurrence of an Event of Default.
Section 12.13 Trustee's Compensation Not Prejudiced.
-------------------------------------
Nothing in this Article Twelve will apply to amounts due to the
Trustee pursuant to other sections of this Indenture.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required or deemed to be included in this
Indenture by the TIA, such required or deemed provision shall control.
Section 13.2 Notices.
-------
Any notices or other communications required or permitted hereun der
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company or a Guarantor:
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Unilab Corporation
18448 Oxnard Street
Tarzana, CA 91356
Attention: Chief Financial Officer
Telephone: (818) 996-7300
Facsimile: (818) 757-3809
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022-3897
Attention: Gregory A. Fernicola, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
if to the Trustee:
HSBC Bank USA
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Administration
Telephone: (212) 658-6433
Facsimile: (212) 658-6425
with a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, NY 10022
Attention: Eric M. Hellige, Esq.
Telephone: (212) 326-0846
Facsimile: (212) 326-0806
Each of the Company, any Guarantors and the Trustee by written notice
to each other such Person may designate additional or different addresses for
notices to such Person. Any notice or communication to the Company, any Guaran
tors and the Trustee, shall be deemed to have been given or made as of the date
so delivered if personally delivered; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
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Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 13.3 Communications by Holders with Other Holders.
---------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture, the
Securities or the Guarantees. The Company, the Guarantors, the Trustee, the
Registrar and any other Person shall have the protection of TIA (S) 312(c).
Section 13.4 Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company or any Guarantor to the
Trustee to take any action under this Indenture, the Company or such Guaran tor
shall furnish to the Trustee at the request of the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed or effected by the Company, if any, provided for
in this Inden ture relating to the proposed action have been complied
with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, any and all such conditions precedent have been complied with.
Section 13.5 Statements Required in Certificate or Opinion.
----------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certifi cate required by Section 4.08, shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
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informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided,
--------
however, that with respect to matters of fact an Opinion of Counsel may
-------
rely on an Officers' Certificate or certificates of public officials.
Section 13.6 Rules by Trustee, Paying Agent, Registrar.
------------------------------------------
The Trustee, Paying Agent or Registrar may make reasonable rules for
its functions.
Section 13.7 Legal Holidays.
--------------
If a payment date is not a Business Day, payment may be made on the
next succeeding day that is a Business Day.
Section 13.8 Governing Law.
-------------
THIS INDENTURE, THE SECURITIES AND THE GUARAN TEES WILL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to
submit to the jurisdiction of the courts of the State of New York in any action
or proceeding arising out of or relating to this Indenture, the Securities or
the Guarantees.
Section 13.9 No Adverse Interpretation of Other Agreements.
----------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of the Company, any Guarantor or any of their Subsidiar
ies. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
Section 13.10 No Recourse Against Others.
---------------------------
A director, officer, employee, stockholder or incorporator, as such,
of the Company or any of its subsidiaries shall not have any liability for any
obliga tions of the Company under the Securities, this Indenture or the
Guarantees or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Securityholder by accepting a Security
waives and releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Securi ties.
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Section 13.11 Successors.
----------
All agreements of the Company and the Guarantors in this Inden ture,
the Securities and the Guarantees shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
Section 13.12 Duplicate Originals.
-------------------
All parties may sign any number of copies of this Indenture. Each
signed copy or counterpart shall be an original, but all of them together shall
repre sent the same agreement.
Section 13.13 Severability.
------------
In case any one or more of the provisions in this Indenture, in the
Securities or in the Guarantees shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
114
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed all as of the date first written above.
UNILAB FINANCE CORP.,
as Issuer
By: /S/ James J. Connors, II
------------------------
Name:
Title:
By:
------------------------
Name:
Title:
HSBC BANK USA,
as Trustee
By: /S/ Frank Gordino
------------------------
Name:
Title:
S-1
<PAGE>
EXHIBIT A
---------
THIS SECURITY IS ISSUED WITH ORIGINAL ISSUE DIS COUNT FOR PURPOSES OF
SECTION 1271 et. seq. OF THE INTERNAL REVENUE CODE. FOR EACH $1,000 PRINCIPAL
AMOUNT AT MATURITY OF THIS SECURITY, THE ISSUE PRICE IS $972.68. THE ISSUE DATE
OF THIS SECURITY IS SEPTEMBER 28, 1999 AND THE YIELD TO MATURITY IS 13.25%
UNILAB FINANCE CORP.
12 3/4% Senior Subordinated Note
due October 1, 2009
CUSIP No.
No. $
UNILAB FINANCE CORP., a Delaware corporation (the "Com pany", which
term includes any successor corporation), for value received promises to pay to
CEDE & CO. or registered assigns, the principal sum of on
October 1, 2009.
Interest Payment Dates: April 1 and October 1, commencing April 1,
2000.
Record Dates: March 15 and September 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: September 28, 1999
UNILAB FINANCE CORP.
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 12 3/4% Senior Subordinated Notes due 2009
described in the within-mentioned Indenture.
HSBC BANK USA,
as Trustee
By:
---------------------------
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
UNILAB FINANCE CORP.
12 3/4% Senior Subordinated Note
due October 1, 2009
1. Interest.
--------
UNILAB FINANCE CORP., a Delaware corporation (the "Com pany"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on April 1
and October 1 of each year (the "Interest Payment Date"), commencing April 1,
2000. Interest on this Security will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from September 28,
1999. Interest on this Security will be computed on the basis of a 360-day year
of twelve 30-day months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by this Security plus 2% and on overdue install
ments of interest (without regard to any applicable grace periods) to the extent
lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
--------------------------
Initially, HSBC Bank USA (the "Trustee") will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar or co-Registrar.
A-4
<PAGE>
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
September 28, 1999 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Securities of the Company
designated as its 12 3/4% Senior Subordinated Notes due 2009 (the "Securities").
The Securities are treated as a single class of securities under the Indenture
unless otherwise specified in the Indenture. Capitalized terms herein are used
as defined in the Indenture unless otherwise defined herein. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such
time as the Indenture is qualified under the TIA, and thereafter as in effect on
the date on which the Indenture is qualified under the TIA. Notwithstanding
anything to the contrary herein, the Securities are subject to all such terms,
and Holders of Securities are referred to the Indenture and the TIA for a
statement of them. The Securities are general obligations of the Company
limited in aggregate principal amount to $300,000,000.
5. Subordination.
-------------
The Securities are subordinated in right of payment, in the manner and
to the extent set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Debt of the Company, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed or
guaranteed. Each Holder by his acceptance hereof agrees to be bound by such
provisions and autho rizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purposes.
6. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after October 1, 2004, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount) if redeemed during the
twelve-month period commencing on October 1 of the years set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
Year Percentage
---- ----------
2004................................... 106.375%
2005................................... 104.250%
2006................................... 102.125%
2007 and thereafter.................... 100.000%
A-5
<PAGE>
7. Optional Redemption upon Equity Offerings.
------------------------------------------
At any time, or from time to time, on or prior to October 1, 2002, the
Company may, at its option, use the net cash proceeds of one or more Equity
Offerings to redeem up to 35% of the aggregate principal amount of the
Securities issued under the Indenture at a redemption price equal to 112.75% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the date of redemption; provided that at least 65% of the original principal
--------
amount of Securities issued under the Indenture remains outstanding immediately
after any such redemp tion. In order to effect the foregoing redemption with
the net cash proceeds of any Equity Offering, the Company shall make such
redemption not more than 90 days after the consummation of any such Equity
Offering.
As used in the preceding paragraph, "Equity Offering" means a sale of
Qualified Capital Stock of the Company, other than any Capital Stock of the Com
pany required to be purchased pursuant to the terms of the Capital Call
Agreement.
8. Mandatory Redemption.
--------------------
In the event that (i) the Assumption is not consummated on or prior to
December 30, 1999 or (ii) the Merger Agreement is terminated on or prior to
December 30, 1999, for any reason, the Company shall redeem all the Securities
at the applicable Mandatory Redemption Price at the redemption date on (a)
January 20, 2000, in the event that the Assumption is not consummated on or
prior to December 30, 1999, or (b) the 20th day (or if such day is not a
Business Day, the next following Business Day) following the termination of the
Merger Agreement.
9. Notice of Redemption.
--------------------
Notice of redemption pursuant to paragraph 6 or paragraph 7 will be
mailed at least 30 days but not more than 60 days before the Redemption Date and
notice of redemption pursuant to paragraph 8 will be mailed promptly after the
occurrence of the event triggering such redemption, in each case to each Holder
of Securities to be redeemed at such Holder's registered address. Securities in
denomi nations of $1,000 may be redeemed only in whole. The Trustee may select
for redemption portions (equal to $1,000 or any integral multiple thereof) of
the princi pal of Securities that have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of redemp
tion that relates to such Security shall state the portion of the principal
amount thereof to be redeemed. A new Security in a principal amount equal to
the unre deemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption.
A-6
<PAGE>
10. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
11. Limitation on Asset Sales.
-------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
12. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in denomina
tions of $1,000 and integral multiples of $1,000. A Holder shall register the
transfer of or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities or portions thereof selected for redemption, except the unredeemed
portion of any security being redeemed in part.
13. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
14. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such funds shall cease.
15. Discharge Prior to Redemption or Maturity.
-----------------------------------------
The Company may be discharged from its obligations under the Indenture
and the Securities except for certain provisions thereof, and may be discharged
from obligations to comply with certain covenants contained in the Indenture and
the Securities, in each case upon satisfaction of certain conditions specified
in the Indenture.
A-7
<PAGE>
16. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the Commission in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
17. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and its Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to sell assets, to
permit restrictions on dividends and other payments by Restricted Subsidiaries
of the Company to the Company, to consolidate, merge or sell all or
substantially all of its assets or to engage in transactions with affiliates.
The limitations are subject to a number of important qualifications and
exceptions. The Company must annually report to the Trustee on compliance with
such limitations.
18. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
19. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
A-8
<PAGE>
20. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such,
of the Company or any Subsidiary of the Company shall have any liability for any
obligation of the Company under the Securities or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Securities.
21. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
22. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
23. Governing Law.
-------------
This Security shall be governed by, and construed in accordance with,
the laws of the State of New York without giving effect to applicable principles
of conflicts of laws to the extent that the application of the laws of another
jurisdiction would be required thereby.
24. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
25. Registration Rights.
-------------------
Pursuant to the Registration Rights Agreement, the Company will be
obligated to consummate an exchange offer pursuant to which the Holder of this
Security shall have the right to exchange this Security for a 12 3/4% Senior
Subordi nated Note due 2009 of the Company which shall have been registered
under the Securities Act, in like principal amount and having terms identical in
all material respects as this Security. The Holders shall be entitled to
receive liquidated damages in the event such exchange offer is not consummated
or the Securities are not offered
A-9
<PAGE>
for resale and upon certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement.
26. Indenture.
---------
Each Holder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time. Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
UNILAB CORPORATION, 401 Hackensack Avenue, 9th Floor, Hackensack, NJ 07601,
Attention: Office of General Counsel.
A-10
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or
transferee)
- -------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint _______________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: _________________ Signed: _________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: _______________________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the Commission
of the effectiveness of a registration statement under the Securities Act of
1933, as amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) to September 28, 2001 the undersigned confirms that it has
not utilized any general solicitation or general advertising in connection with
the transfer:
[Check One]
---------
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under the Securities Act
of 1933, as amended; or
(3) ___ to an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as
amended) that has fur nished to the Trustee a signed letter containing
certain representations and agreements (the form of which letter can
be obtained from the Trustee); or
(4) ___ outside the United States to a "foreign purchaser" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as amended;
or
(5) ___ pursuant to the exemption from registration provided by Rule 144 under
<PAGE>
the Securities Act of 1933, as amended; or
(6) ___ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(7) ___ pursuant to another available exemption from the registration
statement requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Security
is not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[] The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register
any of the Securities evidenced by this certificate in the name of any person
other than the registered Holder thereof; provided, however, that if item (3),
-------- -------
(4), (5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Securities, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4) and other information as the Trustee or the Company have
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of l933, as amended.
If none of the foregoing items are checked, the Trustee or Registrar
shall not be obligated to register this Security in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
been satisfied.
Dated:____________________ Signed:______________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:__________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the under signed's foregoing representations in order to claim the
exemption from registration
2
<PAGE>
provided by Rule 144A.
Dated:_____________________ __________________________________________
NOTICE: To be executed by an executive
officer
3
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount: $___________
Dated: _________________ Signed: _________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: ______________________________________
Participant in a recognized Signature Guarantee
Medallion Program (or other signature guarantor
program reasonably acceptable to the Trustee)
<PAGE>
EXHIBIT B
---------
THIS SECURITY IS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR PURPOSES OF
SECTION 1271 et. seq. OF THE INTERNAL REVENUE CODE. FOR EACH $1,000 PRINCIPAL
AMOUNT AT MATURITY OF THIS SECURITY, THE ISSUE PRICE IS $972.68. THE ISSUE DATE
OF THIS SECURITY IS SEPTEMBER 28, 1999 AND THE YIELD TO MATURITY IS 13.25%
UNILAB CORPORATION
12 3/4% Senior Subordinated Note
due October 1, 2009
CUSIP No.
No. $
UNILAB CORPORATION, a Delaware corporation (the "Company", which term
includes any successor corporation), for value received promises to pay to CEDE
& CO. or registered assigns, the principal sum of on
October 1, 2009.
Interest Payment Dates: April 1 and October 1, commencing April 1, 2000.
Record Dates: March 15 and September 15.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: September 28, 1999
UNILAB CORPORATION
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
B-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 12 3/4% Senior Subordinated Notes due 2009 described
in the within-mentioned Indenture.
HSBC BANK USA,
as Trustee
By:__________________________
Authorized Signatory
B-3
<PAGE>
(REVERSE OF SECURITY)
UNILAB CORPORATION
12 3/4% Senior Subordinated Note
due October 1, 2009
1. Interest.
--------
UNILAB CORPORATION, a Delaware corporation (the "Company"), promises to
pay interest on the principal amount of this Security at the rate per annum
shown above. The Company will pay interest semi-annually on April 1 and October
1 of each year (the "Interest Payment Date"), commencing April 1, 2000. Interest
on this Security will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from September 28, 1999. Interest
on this Security will be computed on the basis of a 360-day year of twelve 30-
day months.
The Company shall pay interest on overdue principal from time to time on
demand at the rate borne by this Security plus 2% and on overdue installments of
interest (without regard to any applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
--------------------------
Initially, HSBC Bank USA (the "Trustee") will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-Registrar
without notice to the Holders. The Company or any of its Subsidiaries may,
subject to certain exceptions, act as Registrar or co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
B-4
<PAGE>
September 28, 1999 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Securities of the Company
designated as its 12 3/4% Senior Subordinated Notes due 2009 (the "Securities").
The Securities are treated as a single class of securities under the Indenture
unless otherwise specified in the Indenture. Capitalized terms herein are used
as defined in the Indenture unless otherwise defined herein. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. (S)(S)
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture until such
time as the Indenture is qualified under the TIA, and thereafter as in effect on
the date on which the Indenture is qualified under the TIA. Notwithstanding
anything to the contrary herein, the Securities are subject to all such terms,
and Holders of Securities are referred to the Indenture and the TIA for a
statement of them. The Securities are general obligations of the Company
limited in aggregate principal amount to $300,000,000.
5. Subordination.
-------------
The Securities are subordinated in right of payment, in the manner and to
the extent set forth in the Indenture, to the prior payment in full in cash or
Cash Equivalents of all Senior Debt of the Company, whether outstanding on the
date of the Indenture or thereafter created, incurred, assumed or guaranteed.
Each Holder by his acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on his behalf, to take such action
as may be necessary or appropriate to effectuate the subordination provided for
in the Indenture and appoints the Trustee his attorney-in-fact for such
purposes.
6. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after October 1, 2004, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount) if redeemed during the
twelve-month period commencing on October 1 of the years set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
Year Percentage
---- ----------
2004......................................... 106.375%
2005......................................... 104.250%
2006......................................... 102.125%
2007 and thereafter.......................... 100.000%
7. Optional Redemption upon Equity Offerings.
------------------------------------------
At any time, or from time to time, on or prior to October 1, 2002, the
Company may, at its option, use the net cash proceeds of one or more Equity
Offerings to redeem up to 35% of the aggregate principal amount of the
Securities
B-5
<PAGE>
issued under the Indenture at a redemption price equal to 112.75% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the date of redemption; provided that at least 65% of the original principal
--------
amount of Securities issued under the Indenture remains outstanding immediately
after any such redemp tion. In order to effect the foregoing redemption with the
net cash proceeds of any Equity Offering, the Company shall make such redemption
not more than 90 days after the consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a sale of
Qualified Capital Stock of the Company, other than any Capital Stock of the Com
pany required to be purchased pursuant to the terms of the Capital Call
Agreement.
8. Notice of Redemption.
--------------------
Notice of redemption pursuant to paragraph 6 or paragraph 7 will be
mailed at least 30 days but not more than 60 days before the Redemption Date to
each Holder of Securities to be redeemed at such Holder's registered address.
Securities in denominations of $1,000 may be redeemed only in whole. The
Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000.
If any Security is to be redeemed in part only, the notice of redemption
that relates to such Security shall state the portion of the principal amount
thereof to be redeemed. A new Security in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Security. On and after the Redemption Date,
interest will cease to accrue on Securities or portions thereof called for
redemption.
9. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be required
to offer to purchase all of the outstanding Securities at a purchase price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, thereon to the date of repurchase.
10. Limitation on Asset Sales.
-------------------------
The Company is, subject to certain conditions, obligated to make an offer
to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
11. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000. A Holder shall register the
transfer of or exchange Securities in accordance with the Indenture. The
Registrar may require a
B-6
<PAGE>
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as permitted by the Indenture. The Registrar
need not register the transfer of or exchange any Securities or portions thereof
selected for redemption, except the unredeemed portion of any security being
redeemed in part.
12. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
13. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
two years, the Trustee and the Paying Agent will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such funds shall cease.
14. Discharge Prior to Redemption or Maturity.
-----------------------------------------
The Company may be discharged from its obligations under the Indenture
and the Securities except for certain provisions thereof, and may be discharged
from obligations to comply with certain covenants contained in the Indenture and
the Securities, in each case upon satisfaction of certain conditions specified
in the Indenture.
15. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the Commission in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
16. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things, limit
the ability of the Company and its Restricted Subsidiaries to make restricted
pay ments, to incur indebtedness, to create liens, to sell assets, to permit
restrictions on dividends and other payments by Restricted Subsidiaries of the
Company to the
B-7
<PAGE>
Company, to consolidate, merge or sell all or substantially all of its assets or
to engage in transactions with affiliates. The limitations are subject to a
number of important qualifications and exceptions. The Company must annually
report to the Trustee on compliance with such limitations.
17. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
18. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Securities and may otherwise deal with the
Company, its Subsidiaries or their respective Affiliates as if it were not the
Trustee.
19. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such, of
the Company or any Subsidiary of the Company shall have any liability for any
obligation of the Company under the Securities or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Securities.
20. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
21. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a Security
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
B-8
<PAGE>
22. Governing Law.
-------------
This Security shall be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to applicable principles of
conflicts of laws to the extent that the application of the laws of another
jurisdiction would be required thereby.
23. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
24. Indenture.
---------
Each Holder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time. Capitalized terms used herein and not defined herein have the meanings
ascribed thereto in the Indenture.
The Company will furnish to any Holder of a Security upon written request
and without charge a copy of the Indenture. Requests may be made to: UNILAB
CORPORATION, 401 Hackensack Avenue, 9th Floor, Hackensack, NJ 07601, Attention:
Office of General Counsel.
B-9
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or
transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint _______________________________________ agent to
transfer this Security on the books of the Company. The agent may substitute
another to act for him.
Dated: _________________ Signed: __________________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: ________________________________________________
Participant in a recognized Signature Guarantee Me
dallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount: $___________
Dated: _________________ Signed: ______________________________
(Sign exactly as name
appears on the other
side of this Security)
Signature Guarantee: ________________________________________________
Participant in a recognized Signature Guarantee Me
dallion Program (or other signature guarantor program
reasonably acceptable to the Trustee)
B-11
<PAGE>
EXHIBIT C
---------
FORM OF LEGENDS
Each Global Note and Physical Note that constitutes a Restricted Security
or is sold in compliance with Regulation S shall bear the following legend (the
"Private Placement Legend") on the face thereof until after the second
------------------------
anniversary of the Issue Date, unless otherwise agreed by the Issuer and the
Holder thereof:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A
U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (C) IT IS AN
ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT (AN "ACCREDITED INVESTOR")), (2) AGREES THAT IT WILL NOT
WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR
OTHERWISE TRANSFER THIS SECU RITY EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH
TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-
DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAIN ING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY
(THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS
SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), (F) IN ACCOR DANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UN DER THE SECURITIES ACT AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS SECURITY WITHIN
C-1
<PAGE>
TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED
TRANSFEREE IS AN ACCREDITED INVESTOR, OR, IF THE TRANSFER IS PURSUANT TO
CLAUSE (E) OR (F) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FUR NISH
TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICA TIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Each Global Security authenticated and delivered hereunder shall also
bear the following legend:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECU RITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR AN OTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHO RIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAY MENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS RE QUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTA TIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONG
FUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIM
C-2
<PAGE>
ITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR
TO A SUCCESSOR THEREOF OR SUCH SUCCES SOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCOR DANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE
INDENTURE.
C-3
<PAGE>
EXHIBIT D
---------
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
[ ], [ ]
HSBC Bank USA
140 Broadway, 12th Floor
New York, NY 10005
Ladies and Gentlemen:
In connection with our proposed purchase of 12 3/4% Senior Subordinated
Notes due 2009 (the "Notes") of UNILAB FINANCE CORP., a Delaware corpora tion
(the "Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated September 21, 1999, relating to the Securities and such
other information as we deem necessary in order to make our investment decision.
We acknowledge that we have read and agreed to the matters stated in the section
entitled "Transfer Restrictions" of such Offering Memorandum, including the
restrictions on duplication and circulation of the Offering Memorandum.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture
relating to the Securi ties (the "Indenture") as described in the Offering
Memorandum and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act"), and all applicable State securities laws.
3. We understand that the offer and sale of the Securities have not been
registered under the Securities Act, and that the Securities may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Securities, we will do so only (i) to the
Company or any of its subsidiaries, (ii) inside the United States in accordance
with Rule 144A under the Securities Act to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act), (iii) inside the United States
to an institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
the Trustee (as defined in the Indenture) a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Securities (the form of which letter can be obtained from the Trustee), (iv)
outside the United States in accordance with Rule 904 of Regulation S
promulgated under the Securities Act to non-U.S. persons, (v) pursuant to the
exemption from registra
D-1
<PAGE>
tion provided by Rule 144 under the Securities Act (if available), or (vi)
pursuant to an effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing any of the Securities from us
a notice advising such purchaser that resales of the Securities are restricted
as stated herein.
4. We are not acquiring the Securities for or on behalf of, and will not
transfer the Securities to, any pension or welfare plan (as defined in Section 3
of the Employee Retirement Income Security Act of 1974), except as permitted in
the section entitled "Transfer Restrictions" of the Offering Memorandum.
5. We understand that, on any proposed resale of any Securities, we will
be required to furnish to the Trustee and the Company such certification, legal
opinions and other information as the Trustee and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for our account or for
one or more accounts (each of which is an institutional "accredited investor")
as to each of which we exercise sole investment discretion.
D-2
<PAGE>
You, the Company, the Trustee and others are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a copy hereof to
any inter ested party in any administrative or legal proceeding or official
inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:_______________________
Name:
Title:
D-3
<PAGE>
EXHIBIT E
---------
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-----------------------------
[ ], [ ]
HSBC Bank USA
140 Broadway, 12th Floor
New York, NY 10005
Re: Unilab Finance Corp. (the "Company")
12 3/4% Senior Subordinated Notes due
2009 (the "Securities")
-------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $[ ] aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the U.S. Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the transferee was
outside the United States or we and any person acting on our behalf reason
ably believed that the transferee was outside the United States, or (b) the
transaction was executed in, on or through the facilities of a designated
off-shore securities market and neither we nor any person acting on our
behalf knows that the transaction has been pre-arranged with a buyer in the
United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regula
tion S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions applicable
to the Securities.
You, the Company and counsel for the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a copy hereof to
any interested party in any administrative or legal proceedings or official
inquiry with
E-1
<PAGE>
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:____________________________
Authorized Signature
E-2
<PAGE>
EXHIBIT F
---------
GUARANTEE
---------
For value received, each of the undersigned hereby unconditionally
guarantees, as principal obligor and not only as a surety, to the Holder of this
Security the cash payments in United States dollars of principal of, premium, if
any, and interest on this Security in the amounts and at the times when due and
interest on the overdue principal, premium, if any, and interest, if any, of
this Security, if lawful, and the payment or performance of all other
obligations of the Company under the Indenture (as defined below) or the
Securities, to the Holder of this Security and the Trustee, all in accordance
with and subject to the terms and limitations of this Security, Article Eleven
of the Indenture and this Guarantee. This Guarantee will become effective in
accordance with Article Eleven of the Indenture and its terms shall be evidenced
therein. The validity and enforceability of any Guarantee shall not be affected
by the fact that it is not affixed to any particular Security.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Indenture dated as of September 28, 1999, between Unilab
Finance Corp., a Delaware corporation, as issuer (the "Company") and HSBC Bank
USA, as trustee (the "Trustee"), as amended or supplemented (the "Indenture").
The obligations of the undersigned to the Holders of Securities and to
the Trustee pursuant to this Guarantee and the Indenture are expressly set forth
in Article Eleven of the Indenture and reference is hereby made to the Indenture
for the precise terms of the Guarantee and all of the other provisions of the
Indenture to which this Guarantee relates.
This Guarantee is subordinated in right of payment, in the manner and
to the extent set forth in Article Twelve of the Indenture, to the prior payment
in full in cash or Cash Equivalents of all Guarantor Senior Debt of the
Guarantors, whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed or guaranteed.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CON STRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. The undersigned Guarantor hereby agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Guarantee.
This Guarantee is subject to release upon the terms set forth in the
Indenture.
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be duly
executed.
F-1
<PAGE>
Date:
[GUARANTOR]
By:____________________________
Name:
Title:
F-2
<PAGE>
Exhibit 4.2
-----------
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE, dated as of November 23, 1999, among Unilab
Corporation, a Delaware corporation ("Unilab"), Unilab Finance Corp., a Delaware
------
corporation ("Unilab Finance"), and HSBC Bank USA, as trustee under the
--------------
Indenture referred to below (the "Trustee").
-------
W I T N E S S E T H :
-------------------
WHEREAS, Unilab Finance and the Trustee heretofore executed and delivered
an Indenture, dated as of September 28, 1999 (as heretofore amended and
supplemented, the "Indenture"), providing for the issuance of the 12 3/4%
---------
Senior Subordinated Notes due 2009 (the "Securities") (capitalized terms used
----------
herein but not otherwise defined have the meanings ascribed thereto in the
Indenture);
WHEREAS, Section 5.01(d) of the Indenture provides that upon the execution
and delivery by Unilab to the Trustee of this Supplemental Indenture, Unilab
shall be the successor Company under the Indenture and the Securities and shall
succeed to, and be substituted for, and may exercise every right and power of,
Unilab Finance under the Indenture and the Securities and Unilab Finance shall
be discharged from all obligations and covenants under the Indenture and the
Securities;
WHEREAS, Section 9.01(2) of the Indenture provides that the Company and the
Trustee may amend the Indenture and the Securities without notice to or consent
of any Holders of the Securities in order to comply with Article Five of the
Indenture; and
WHEREAS, this Supplemental Indenture has been duly authorized by all
necessary corporate action on the part of each of Unilab and Unilab Finance.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, Unilab,
Unilab Finance and the Trustee mutually covenant and agree for the equal and
ratable benefit of the Holders as follows:
ARTICLE I
Assumption by Successor Company
-------------------------------
<PAGE>
Section 1.1 Assumption of the Securities. Unilab hereby expressly
----------------------------
assumes and agrees promptly to pay, perform and discharge when due each and
every debt, obligation, covenant and agreement incurred, made or to be paid,
performed or discharged by Unilab Finance under the Indenture and the
Securities.
Unilab hereby agrees to be bound by all the terms, provisions and
conditions of the Indenture and the Securities and that it shall be the
successor Company and shall succeed to, and be substituted for, and may exercise
every right and power of, Unilab Finance, as the predecessor Company, under the
Indenture and the Securities.
Section 1.2 Discharge of Unilab Finance. Unilab Finance is hereby
---------------------------
expressly discharged from all debts, obligations, covenants and agreements under
the Indenture and the Securities.
Section 1.3 Trustee's Acceptance. The Trustee hereby accepts this
--------------------
Supplemental Indenture and agrees to perform the same under the terms and
conditions set forth in the Indenture.
ARTICLE II
Miscellaneous
-------------
Section 2.1 Effect of Supplemental Indenture. Upon the execution and
--------------------------------
delivery of this Supplemental Indenture by Unilab, Unilab Finance and the
Trustee, the Indenture shall be supplemented in accordance herewith, and this
Supplemental Indenture shall form a part of the Indenture for all purposes, and
every Holder of Securities heretofore or hereafter authenticated and delivered
under the Indenture shall be bound thereby.
Section 2.2 Indenture Remains in Full Force and Effect. Except as
------------------------------------------
supplemented hereby, all provisions in the Indenture shall remain in full force
and effect.
Section 2.3 Indenture and Supplemental Indenture Construed Together.
-------------------------------------------------------
This Supplemental Indenture is an indenture supplemental to and in
implementation of the Indenture, and the Indenture and this Supplemental
Indenture shall henceforth be read and construed together.
Section 2.4 Confirmation and Preservation of Indenture. The Indenture as
------------------------------------------
supplemented by this Supplemental Indenture is in all respects confirmed and
preserved.
Section 2.5 Conflict with Trust Indenture Act. If any provision of this
---------------------------------
Supplemental Indenture limits, qualifies or conflicts with any provision of the
TIA that is required
2
<PAGE>
under the TIA to be part of and govern any provision of this Supplemental
Indenture, the provision of the TIA shall control. If any provision of this
Supplemental Indenture modifies or excludes any provision of the TIA that may be
so modified or excluded, the provision of the TIA shall be deemed to apply to
the Indenture as so modified or to be excluded by this Supplemental Indenture,
as the case may be.
Section 2.6 Severability. In case any provision in this Supplemental
------------
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 2.7 Benefits of Supplemental Indenture. Nothing in this
----------------------------------
Supplemental Indenture or the Securities, express or implied, shall give to any
Person, other than the parties hereto and thereto and their successors hereunder
and thereunder and the Holders of the Securities, any benefit of any legal or
equitable right, remedy or claim under the Indenture, this Supplemental
Indenture or the Securities.
Section 2.8 Successors. All agreements of Unilab in this Supplemental
----------
Indenture shall bind its successors. All agreements of the Trustee in this
Supplemental Indenture shall bind its successors.
Section 2.9 Certain Duties and Responsibilities of the Trustee. In
--------------------------------------------------
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture and the Securities relating to the
conduct or affecting the liability or affording protection to the Trustee,
whether or not elsewhere herein so provided.
Section 2.10 Governing Law. This Supplemental Indenture shall be
-------------
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.
Section 2.11 Multiple Originals. The parties may sign any number of
------------------
copies of this Supplemental Indenture, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 2.12 Headings. The Article and Section headings herein are
--------
inserted for convenience of reference only, are not intended to be considered a
part hereof and shall not modify or restrict any of the terms or provisions
hereof.
Section 2.13 The Trustee. The Trustee shall not be responsible in any
-----------
manner for
3
<PAGE>
or in respect of the validity or sufficiency of this Supplemental Indenture or
for or in respect of the recitals contained herein, all of which are made by
Unilab and Unilab Finance.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first written above.
UNILAB CORPORATION
By: /S/ Mark L. Bibi
----------------
Name:
Title:
UNILAB FINANCE CORP.
By: /S/ James J. Connors, II
------------------------
Name:
Title:
HSBC BANK USA,
as Trustee
By: /S/ Frank Gordino
-----------------
Name:
Title:
<PAGE>
Exhibit 4.3
-----------
ASSUMPTION AGREEMENT
ASSUMPTION AGREEMENT, dated as of November 23, 1999, between Unilab
Corporation, a Delaware corporation ("Unilab"), and Unilab Finance Corp., a
------
Delaware corporation ("Unilab Finance").
--------------
W I T N E S S E T H :
-------------------
WHEREAS, Unilab Finance and HSBC Bank USA, as trustee (the "Trustee")
-------
executed and delivered an Indenture, dated as of September 28, 1999 (as
heretofore amended and supplemented, the "Indenture"), providing for the
---------
issuance of the 12 3/4% Senior Subordinated Notes due 2009 (the "Securities");
----------
WHEREAS, concurrently herewith, Unilab is executing and delivering to the
Trustee, pursuant to Section 5.01(d) of the Indenture, a Supplemental Indenture,
dated as of the date hereof, pursuant to which Unilab is assuming Unilab
Finance's obligations under the Indenture and the Securities;
WHEREAS, Unilab Finance is a party to each of (i) the Purchase Agreement,
dated September 21, 1999 (the "Purchase Agreement"), among Unilab Finance and
------------------
Deutsche Bank Securities Inc. and Merrill, Lynch, Pierce, Fenner & Smith
Incorporated (collectively, the "Initial Purchasers"), (ii) the Registration
------------------
Agreement, dated as of September 28, 1999 (the "Registration Rights Agreement"),
-----------------------------
among Unilab Finance and the Initial Purchasers and (iii) the Escrow Agreement,
dated as of September 28, 1999 (the "Escrow Agreement" and, together with the
----------------
Purchase Agreement and Registration Rights Agreement, the "Assigned
--------
Agreements"), between Unilab Finance and HSBC Bank USA, as escrow agent;
WHEREAS, Unilab Finance, pursuant to this Assumption Agreement, desires to
assign all of its right, title and interest to, and liabilities and obligations
under, the Assigned Agreements to Unilab and Unilab desires to assume all of
Unilab Finance's right, title and interest thereto and liabilities and
obligations thereunder; and
WHEREAS, this Assumption Agreement has been duly authorized by all
necessary corporate action on the part of each of Unilab and Unilab Finance.
<PAGE>
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, Unilab and
Unilab Finance mutually covenant and agree:
ARTICLE I
Assignment and Assumption
-------------------------
Section 1.1 Assignment. Unilab Finance hereby grants, assigns, conveys,
----------
sets over and delivers to Unilab and its successors and assigns all of its
right, title and interest to, and liabilities and obligations under, the
Assigned Agreements, to have and hold unto Unilab and its successors and assigns
forever.
Section 1.2 Assumption. In consideration of the assignment made herein to
----------
Unilab, Unilab hereby agrees to assume, pay, perform and observe all covenants,
agreements, liabilities and obligations of Unilab Finance under the Assigned
Agreements. As provided in each of the Assigned Agreements, Unilab Finance
shall be released and discharged from and shall not be responsible to any person
for the discharge or performance of any duty or obligation pursuant to or in
connection with the Assigned Agreements and Unilab shall be substituted in lieu
of Unilab Finance as a party to each of the Assigned Agreements.
Section 1.3 Further Assurances. Each of Unilab Finance and Unilab shall
------------------
execute such additional documents and instruments and take such further action
as may be reasonably required or desirable to carry out the provisions hereof.
ARTICLE II
Miscellaneous
-------------
Section 2.1 Severability. In case any provision in this Assumption
------------
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 2.2 Governing Law. This Assumption Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby.
2
<PAGE>
Section 2.3 Multiple Originals. The parties may sign any number of copies
------------------
of this Assumption Agreement, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
Section 2.4 Headings. The Article and Section headings herein are inserted
--------
for convenience of reference only, are not intended to be considered a part
hereof and shall not modify or restrict any of the terms or provisions hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assumption
Agreement to be duly executed as of the date first written above.
UNILAB CORPORATION
By: /S/ Mark L. Bibi
-------------------------------
Name:
Title:
UNILAB FINANCE CORP.
By: /S/ James J. Connors, II
-------------------------------
Name:
Title:
<PAGE>
================================================================================
CREDIT AGREEMENT
among
UNILAB CORPORATION,
VARIOUS LENDING INSTITUTIONS,
BANKERS TRUST COMPANY,
AS ADMINISTRATIVE AGENT
and
MERRILL LYNCH CAPITAL CORPORATION,
AS SYNDICATION AGENT
____________________________________
Dated as of November 23, 1999
____________________________________
$185,000,000
DEUTSCHE BANK SECURITIES INC. MERRILL LYNCH CAPITAL CORPORATION
LEAD ARRANGER
AND CO-ARRANGER
BOOK MANAGER
[LOGO OF DEUTSCHE BANK] [LOGO OF MERRILL LYNCH]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit............................. 1
1.01 Commitments............................................. 1
1.02 Minimum Borrowing Amounts, etc.......................... 3
1.03 Notice of Borrowing..................................... 3
1.04 Disbursement of Funds................................... 4
1.05 Register................................................ 5
1.06 Conversions............................................. 5
1.07 Pro Rata Borrowings..................................... 5
1.08 Interest................................................ 6
1.09 Interest Periods........................................ 6
1.10 Increased Costs, Illegality, etc........................ 7
1.11 Compensation............................................ 9
1.12 Change of Lending Office................................ 10
1.13 Replacement of Lenders.................................. 10
SECTION 2. Letters of Credit...................................... 11
2.01 Letters of Credit....................................... 11
2.02 Minimum Stated Amount................................... 12
2.03 Letter of Credit Requests; Notices of Issuance.......... 12
2.04 Agreement to Repay Letter of Credit Drawings............ 12
2.05 Letter of Credit Participations......................... 13
2.06 Increased Costs......................................... 15
SECTION 3. Fees; Commitments...................................... 16
3.01 Fees.................................................... 16
3.02 Voluntary Reduction of Commitments...................... 16
3.03 Mandatory Adjustments of Commitments, etc............... 17
SECTION 4. Payments............................................... 17
4.01 Voluntary Prepayments................................... 17
4.02 Mandatory Prepayments................................... 18
4.03 Method and Place of Payment............................. 24
4.04 Net Payments............................................ 24
SECTION 5. Conditions Precedent................................... 26
5.01 Conditions Precedent to Loans on the Initial Borrowing
Date.................................................... 26
5.02 Conditions Precedent to All Credit Events............... 32
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
SECTION 6. Representations, Warranties and Agreements............. 32
6.01 Company Status.......................................... 32
6.02 Company Power and Authority............................. 33
6.03 No Violation............................................ 33
6.04 Litigation.............................................. 33
6.05 Use of Proceeds; Margin Regulations..................... 33
6.06 Governmental Approvals.................................. 34
6.07 Investment Company Act.................................. 34
6.08 Public Utility Holding Company Act...................... 34
6.09 True and Complete Disclosure............................ 34
6.10 Financial Condition; Financial Statements............... 35
6.11 Security Interests...................................... 35
6.12 Tax Returns and Payments................................ 36
6.13 Compliance with ERISA................................... 36
6.14 Subsidiaries............................................ 37
6.15 Patents, etc............................................ 37
6.16 Environmental Matters................................... 37
6.17 Properties.............................................. 38
6.18 Labor Relations......................................... 38
6.19 Senior Subordinated Notes............................... 39
6.20 Existing Indebtedness................................... 39
SECTION 7. Affirmative Covenants.................................. 39
7.01 Information Covenants................................... 39
7.02 Books, Records and Inspections.......................... 41
7.03 Insurance............................................... 42
7.04 Payment of Taxes........................................ 42
7.05 Consolidated Corporate Franchises....................... 42
7.06 Compliance with Statutes, etc........................... 42
7.07 ERISA................................................... 42
7.08 Good Repair............................................. 43
7.09 End of Fiscal Years; Fiscal Quarters.................... 43
7.10 Use of Proceeds......................................... 43
7.11 Additional Security; Further Assurances................. 44
7.12 Compliance with Environmental Laws...................... 44
7.13 Interest Rate Agreements................................ 45
7.14 Year 2000 Compliance.................................... 45
SECTION 8. Negative Covenants..................................... 45
8.01 Changes in Business..................................... 45
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc.. 46
8.03 Liens................................................... 47
8.04 Indebtedness............................................ 49
8.05 Capital Expenditures.................................... 50
8.06 Advances, Investments and Loans......................... 50
8.07 Prepayments of Indebtedness, etc........................ 51
8.08 Dividends............................................... 51
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
8.09 Transactions with Affiliates............................ 52
8.10 Interest Coverage Ratio................................. 53
8.11 Total Leverage Ratio.................................... 54
8.12 Issuance of Stock....................................... 54
8.13 Limitation on Certain Restrictions on Subsidiaries...... 55
8.14 Limitation on Creation of Subsidiaries and Permitted
Joint Ventures.......................................... 55
SECTION 9. Events of Default...................................... 55
9.01 Payments................................................ 55
9.02 Representations, etc.................................... 55
9.03 Covenants............................................... 56
9.04 Default Under Other Agreements.......................... 56
9.05 Bankruptcy, etc......................................... 56
9.06 ERISA................................................... 57
9.07 Security Documents...................................... 57
9.08 Guaranty................................................ 57
9.09 Judgments............................................... 57
9.10 Capital Call Agreement.................................. 57
SECTION 10. Definitions........................................... 58
SECTION 11. The Administrative Agent.............................. 83
11.01 Appointment............................................ 83
11.02 Nature of Duties....................................... 83
11.03 Lack of Reliance on the Administrative Agent........... 84
11.04 Certain Rights of the Administrative Agent............. 84
11.05 Reliance............................................... 84
11.06 Indemnification........................................ 84
11.07 The Administrative Agent in its Individual Capacity.... 85
11.08 Holders................................................ 85
11.09 Resignation by the Administrative Agent................ 85
11.10 Syndication Agent...................................... 86
SECTION 12. Miscellaneous......................................... 86
12.01 Payment of Expenses, etc............................... 86
12.02 Right of Setoff........................................ 86
12.03 Notices................................................ 87
12.04 Benefit of Agreement................................... 87
12.05 No Waiver; Remedies Cumulative......................... 89
12.06 Payments Pro Rata...................................... 89
12.07 Calculations; Computations............................. 90
12.08 Governing Law; Submission to Jurisdiction; Venue;
Waiver of Jury Trial.................................. 90
12.09 Counterparts........................................... 91
12.10 Effectiveness.......................................... 91
12.11 Headings Descriptive................................... 91
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
12.12 Amendment or Waiver; etc............................... 91
12.13 Survival............................................... 93
12.14 Domicile of Loans...................................... 93
12.15 Confidentiality........................................ 93
12.16 Register............................................... 93
ANNEX I - Commitments
ANNEX II - Lender Addresses
ANNEX III - Litigation
ANNEX IV - Existing Indebtedness
ANNEX V - Tax Matters
ANNEX VI - Properties
ANNEX VII - Insurance Policies
ANNEX VIII - Existing Liens
ANNEX IX - Affiliate Transactions
EXHIBIT A - Form of Notice of Borrowing
EXHIBIT B-1 - Form of A Term Note
EXHIBIT B-2 - Form of B Term Note
EXHIBIT B-3 - Form of Revolving Note
EXHIBIT B-4 - Form of Swingline Note
EXHIBIT C - Form of Letter of Credit Request
EXHIBIT D - Form of Section 4.04(b)(ii) Certificate
EXHIBIT E-1 - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
EXHIBIT E-2 - Form of Opinion of White & Case LLP
EXHIBIT F - Form of Officers' Certificate
EXHIBIT G - Form of Security Agreement
EXHIBIT H - Form of Capital Call Agreement
EXHIBIT I - Form of Solvency Certificate
EXHIBIT J - Form of Consent Letter
EXHIBIT K - Form of Assignment Agreement
EXHIBIT L - Form of Guaranty
EXHIBIT M - Form of Pledge Agreement
</TABLE>
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of November 23, 1999, among UNILAB
CORPORATION (the "Borrower"), a Delaware corporation, the lending institutions
listed from time to time on Annex I hereto (each, a "Lender" and, collectively,
the "Lenders"), BANKERS TRUST COMPANY, as Administrative Agent (the
"Administrative Agent") and MERRILL LYNCH CAPITAL CORPORATION, as Syndication
Agent (the "Syndication Agent"). Unless otherwise defined herein, all
capitalized terms used herein and defined in Section 10 are used herein as so
defined.
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower and the Lenders desire to enter into this
Agreement to provide for the credit facilities described herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 Commitments. Subject to and upon the terms and conditions
-----------
herein set forth, each Lender severally agrees to make a loan or loans (each, a
"Loan" and, collectively, the "Loans") to the Borrower, which Loans shall be
drawn, to the extent such Lender has a commitment under such Facility, under the
A Term Facility, the B Term Facility and the Revolving Facility, as set forth
below:
(a) Loans under the A Term Facility (each, an "A Term Loan" and,
collectively, the "A Term Loans") (i) shall be made pursuant to a single
drawing on the Initial Borrowing Date, (ii) may be incurred and maintained
as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided
--------
that all A Term Loans outstanding as part of the same Borrowing shall
unless specifically provided herein, consist of A Term Loans of the same
Type and (iii) shall not exceed in aggregate principal amount for any A
Term Lender at the time of incurrence thereof the A Term Commitment of such
A Term Lender in effect on such date. Once repaid, A Term Loans borrowed
hereunder may not be reborrowed.
(b) Loans under the B Term Facility (each a "B Term Loan" and,
collectively, the "B Term Loans") (i) shall be made pursuant to a single
drawing on the Initial Borrowing Date, (ii) may be incurred and maintained
as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided
--------
that all B Term Loans outstanding as part of the same Borrowing shall
unless specifically provided herein, consist of B Term Loans of the same
Type and (iii) shall not exceed in aggregate principal amount for any B
Term Lender at the time of incurrence thereof the B Term Commitment of such
B Term Lender in effect on such date. Once repaid, B Term Loans borrowed
hereunder may not be reborrowed.
(c) Loans under the Revolving Facility (each, a "Revolving Loan"
and, collectively, the "Revolving Loans") (i) shall be made at any time and
from time to time on and after the Initial Borrowing Date and prior to the
Revolving Loan Maturity Date, (ii) except as hereinafter provided, may, at
the option of the Borrower, be incurred and maintained as, and/or converted
into, Base Rate Loans or Eurodollar Loans, provided that all
--------
<PAGE>
Revolving Loans made as part of the same Borrowing shall, unless otherwise
specifically provided herein, consist of Revolving Loans of the same Type,
(iii) may be repaid and reborrowed in accordance with the provisions hereof
and (iv) shall not exceed for any RC Lender at any time outstanding that
aggregate principal amount which, when combined with the aggregate
outstanding principal amount of all other Revolving Loans of such Lender
and such Lender's Adjusted RC Percentage of the sum of (x) the Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (y) the outstanding
principal amount of Swingline Loans (exclusive of Swingline Loans which are
repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans) at such time, equals (1) if such
RC Lender is a Non-Defaulting Lender, the Adjusted Revolving Commitment of
such RC Lender at such time and (2) if such RC Lender is a Defaulting
Lender, the Revolving Commitment of such RC Lender at such time.
(d) Subject to and upon the terms and conditions herein set forth,
BTCo in its individual capacity agrees to make at any time and from time to
time after the Initial Borrowing Date and prior to the Swingline Expiry
Date, a loan or loans to the Borrower (each, a "Swingline Loan", and,
collectively, the "Swingline Loans"), which Swingline Loans (i) shall be
made and maintained as Base Rate Loans, (ii) may be repaid and reborrowed
in accordance with the provisions hereof, (iii) shall not exceed in
aggregate principal amount at any time outstanding, when combined with the
aggregate principal amount of all Revolving Loans made by Non-Defaulting
Lenders then outstanding and the Letter of Credit Outstandings (exclusive
of Unpaid Drawings relating to the Letters of Credit which are repaid with
the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of such Swingline Loans) at such time, an amount equal to the
Adjusted Total Revolving Commitment then in effect (after giving effect to
any reductions to the Adjusted Total Revolving Commitment on such date) and
(iv) shall not exceed in aggregate principal amount at any time outstanding
the Maximum Swingline Amount. BTCo will not make a Swingline Loan after it
has received written notice from the Borrower or the Required Lenders
stating that a Default or an Event of Default exists until such time as
BTCo shall have received a written notice of (i) rescission of such notice
from the party or parties originally delivering the same or (ii) a waiver
of such Default or Event of Default from the requisite Lenders hereunder.
(e) On any Business Day, BTCo may, in its sole discretion, give
notice to the RC Lenders that its outstanding Swingline Loans shall be
funded with a Borrowing of Revolving Loans (provided that each such notice
shall be deemed to have been automatically given upon the occurrence of a
Default or an Event of Default under Section 9.05 or upon the exercise of
any of the remedies provided in the last paragraph of Section 9), in which
case a Borrowing of Revolving Loans constituting Base Rate Loans (each such
Borrowing, a "Mandatory Borrowing") shall be made on the immediately
succeeding Business Day by all RC Lenders pro rata based on each RC
--- ----
Lender's Adjusted RC Percentage, and the proceeds thereof shall be applied
directly to repay BTCo for such outstanding Swingline Loans. Each RC
Lender hereby irrevocably agrees to make Base Rate Loans upon one Business
Day's notice pursuant to each Mandatory Borrowing in the amount and in the
manner specified in the preceding sentence and on
-2-
<PAGE>
the date specified in writing by BTCo notwithstanding (i) that the amount
of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount
otherwise required hereunder, (ii) whether any conditions specified in
Section 5.02 are then satisfied, (iii) whether a Default or an Event of
Default has occurred and is continuing, (iv) the date of such Mandatory
Borrowing and (v) any reduction in the Total Revolving Commitment or the
Adjusted Total Revolving Commitment after any such Swingline Loans were
made. In the event that any Mandatory Borrowing cannot for any reason be
made on the date otherwise required above (including, without limitation,
as a result of the commencement of a proceeding under the Bankruptcy Code
in respect of the Borrower), each RC Lender (other than BTCo) hereby agrees
that it shall forthwith purchase from BTCo (without recourse or warranty)
such assignment of the outstanding Swingline Loans as shall be necessary to
cause the RC Lenders to share in such Swingline Loans ratably based upon
their respective Adjusted RC Percentages, provided that all interest
--------
payable on the Swingline Loans shall be for the account of BTCo until the
date the respective assignment is purchased and, to the extent attributable
to the purchased assignment, shall be payable to the RC Lender purchasing
same from and after such date of purchase.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount
-------------------------------
of each Borrowing under a Facility shall not be less than the Minimum Borrowing
Amount for such Facility. The aggregate principal amount of each Borrowing of
Swingline Loans shall not be less than $100,000. More than one Borrowing may be
incurred on any day, provided that at no time shall there be outstanding more
--------
than ten Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever the Borrower desires to
-------------------
incur Loans under any Facility (excluding Borrowings of Swingline Loans and
Mandatory Borrowings), it shall give the Administrative Agent at its Notice
Office, prior to 10:00 A.M. (New York time), at least three Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Eurodollar Loans and at least one Business Day's prior written
notice (or telephonic notice promptly confirmed in writing) of each Borrowing of
Base Rate Loans to be made hereunder. Each such notice (each, a "Notice of
Borrowing") shall be in the form of Exhibit A and shall specify (i) the Facility
pursuant to which such Borrowing is being made, (ii) the aggregate principal
amount of the Loans to be made pursuant to such Borrowing, (iii) the date of
Borrowing (which shall be a Business Day) and (iv) whether the respective
Borrowing shall consist of Base Rate Loans or (to the extent permitted)
Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Lender
written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing, of such Lender's proportionate share thereof and of the
other matters covered by the Notice of Borrowing.
(b) (i) Whenever the Borrower desires to make a Borrowing of
Swingline Loans hereunder, it shall give BTCo, prior to 10:00 A.M. (New York
time) on the day such Swingline Loan is to be made, written notice (or
telephonic notice promptly confirmed in writing) of each Swingline Loan to be
made hereunder. Each such notice shall specify in each case (x) the date of
such Borrowing (which shall be a Business Day) and (y) the aggregate principal
amount of the Swingline Loan to be made pursuant to such Borrowing.
-3-
<PAGE>
(ii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(e), with the Borrower irrevocably agreeing, by its incurrence of
any Swingline Loan, to the making of Mandatory Borrowings as set forth in such
Section 1.01(e).
(c) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent, BTCo (in the case of a Borrowing of Swingline Loans) or
the respective Letter of Credit Issuer (in the case of the issuance of Letters
of Credit), as the case may be, may prior to receipt of written confirmation act
without liability upon the basis of such telephonic notice, believed by the
Administrative Agent, BTCo or such Letter of Credit Issuer in good faith to be
from an Authorized Officer of the Borrower. In each such case, the Borrower
hereby waives the right to dispute the Administrative Agent's, BTCo's or any
Letter of Credit Issuer's record of the terms of such telephonic notice (except
in the case of gross negligence or bad faith).
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New York
---------------------
time) on the date specified in each Notice of Borrowing or each notice described
in Section 1.03(b)(i) or (ii), each Lender with a Commitment under the
respective Facility will make available its pro rata share of each Borrowing
--- ----
requested to be made on such date (or in the case of Swingline Loans, BTCo shall
make available the full amount thereof) in the manner provided below. All such
amounts shall be made available to the Administrative Agent in immediately
available funds at the Payment Office and the Administrative Agent will promptly
make available to the Borrower by depositing to its account at the Payment
Office the aggregate of the amounts so made available in the type of funds
received. Unless the Administrative Agent shall have been notified by any
Lender prior to the date of Borrowing that such Lender does not intend to make
available to the Administrative Agent its portion of the Borrowing or Borrowings
to be made on such date, the Administrative Agent may assume that such Lender
has made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not in
fact made available to the Administrative Agent by such Lender and the
Administrative Agent has made available same to the Borrower, the Administrative
Agent shall be entitled to recover such corresponding amount from such Lender.
If such Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify the Borrower, and the Borrower shall immediately pay such corresponding
amount to the Administrative Agent. The Administrative Agent shall also be
entitled to recover on demand from such Lender or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Administrative Agent to the
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Lender,
the overnight Federal Funds Effective Rate or (y) if paid by the Borrower, the
then applicable rate of interest, calculated in accordance with Section 1.08,
for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
the Borrower may have against any Lender as a result of any default by such
Lender hereunder.
-4-
<PAGE>
1.05 Register. (a) The Borrower's obligation to pay the principal
--------
of, and interest on, the Loans made to it by each Lender shall be set forth in
the Register maintained by the Administrative Agent pursuant to Section 12.16
and, if requested by any Lender, shall be evidenced by a promissory note (each a
"Note" and collectively, the "Notes") (i) if A Term Loans, substantially in the
form of Exhibit B-1 with blanks appropriately completed in conformity herewith,
(ii) if B Term Loans, substantially in the form of Exhibit B-2 with blanks
appropriately completed in conformity herewith, (iii) if Revolving Loans,
substantially in the form of Exhibit B-3 with blanks appropriately completed in
conformity herewith and (iv) if Swingline Loans, by a promissory note
substantially in the form of Exhibit B-4, with blanks appropriately completed in
conformity herewith.
(b) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of its Notes (if any), endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation, or any error in any such notation, shall not affect the
Borrower's obligations in respect of such Loans.
1.06 Conversions. The Borrower shall have the option to convert on
-----------
any Business Day all or a portion at least equal to the applicable Minimum
Borrowing Amount of the outstanding principal amount of the Loans owing (other
than Swingline Loans, which at all times shall be maintained as Base Rate Loans)
pursuant to a single Facility into a Borrowing or Borrowings pursuant to such
Facility of another Type of Loan, provided that (i) except as otherwise provided
--------
in Section 1.10(b), Eurodollar Loans may be converted into Base Rate Loans only
on the last day of an Interest Period applicable thereto and no partial
conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding
principal amount of the Eurodollar Loans made pursuant to such Borrowing to less
than the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may
only be converted into Eurodollar Loans (x) if no Default or Event of Default is
in existence on the date of the conversion, unless the Required Lenders
otherwise agree and (y) if prior to the Syndication Date, on the first day of a
PSD Interest Period and (iii) Borrowings of Eurodollar Loans resulting from this
Section 1.06 shall be limited in number as provided in Section 1.02. Each such
conversion shall be effected by the Borrower giving the Administrative Agent at
its Notice Office, prior to 10:00 A.M. (New York time), at least three Business
Days' (or two Business Days', in the case of a conversion into Base Rate Loans)
prior written notice (or telephonic notice promptly confirmed in writing) (each,
a "Notice of Conversion") specifying the Loans to be so converted, the Type of
Loans to be converted into and, if to be converted into a Borrowing of
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Lender prompt notice of any such proposed
conversion affecting any of its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Loans under this
-------------------
Agreement (other than Swingline Loans) shall be made by the Lenders pro rata on
--- ----
the basis of their Term Commitments or Revolving Commitments, as the case may
be, except that Mandatory Borrowings of Revolving Loans shall be made by the RC
Lenders on the basis of their Adjusted RC Percentage. It is understood that no
Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder and that each Lender shall be obligated to
make the Loans provided to be made by it hereunder, regardless of the failure of
any other Lender to fulfill its commitments hereunder.
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1.08 Interest. (a) The unpaid principal amount of each Base Rate
--------
Loan shall bear interest from the date of the Borrowing thereof until the
earlier of (i) the maturity (whether by acceleration or otherwise) of such Base
Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan
pursuant to Section 1.06 at a rate per annum which shall at all times be the
Applicable Margin plus the Base Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall bear
interest from the date of the Borrowing thereof until the earlier of (i) the
maturity (whether by acceleration or otherwise) of such Eurodollar Loan and (ii)
the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section
1.06, 1.09 or 1.10(b), as applicable, at a rate per annum which shall at all
times be the Applicable Margin plus the relevant Eurodollar Rate.
(c) All overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount (which
other amounts are overdue more than five days) payable hereunder shall bear
interest at a rate per annum equal to the Base Rate in effect from time to time
plus the sum of (i) 2% and (ii) the Applicable Margin, provided that no Loan
--------
shall bear interest after maturity (whether by acceleration or otherwise) at a
rate per annum less than 2% plus the rate of interest applicable thereto at
maturity. Interest which accrues under this Section 1.08(c) shall be payable on
demand.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each March, June, September and December, (ii) in respect of
each Eurodollar Loan, on the last day of each Interest Period applicable thereto
and, in the case of an Interest Period in excess of three months, on each date
occurring at three month intervals after the first day of such Interest Period
and (iii) in respect of each Loan, on any prepayment or conversion (other than
the prepayment or conversion of any Revolving Loan that is a Base Rate Loan) on
the amount prepaid or converted, at maturity (whether by acceleration or
otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Administrative Agent, upon determining the interest rate for
any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify
the Borrower and the Lenders thereof.
1.09 Interest Periods. (a) At the time the Borrower gives a Notice
----------------
of Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 10:00 A.M. (New York time) on the third
Business Day prior to the expiration of an Interest Period applicable to a
Borrowing of Eurodollar Loans, it shall have the right to elect by giving the
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of the Borrower, be a one, two, three or six month
period. Notwithstanding anything to the contrary contained above:
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<PAGE>
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;
(ii) the initial Interest Period for any Borrowing of Eurodollar
Loans shall commence on the date of such Borrowing (including the date of
any conversion from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Borrowing shall commence on
the day on which the next preceding Interest Period expires;
(iii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iv) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period would
--------
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(v) subject to the foregoing clauses (i) through (iv), inclusive,
only a one month Interest Period shall be available to be selected prior to
the Syndication Date, with all Term Loans constituting Eurodollar Loans
during such period to be outstanding pursuant to a single Borrowing and all
Revolving Loans constituting Eurodollar Loans during such period to be
outstanding pursuant to a single Borrowing, with all such Borrowings to
commence and end on the same day;
(vi) no Interest Period for a Borrowing under a Facility shall
extend beyond the respective Maturity Date for such facility;
(vii) no Interest Period with respect to any Borrowing of A Term
Loans or B Term Loans shall be elected that would extend beyond any date
upon which a Scheduled Repayment is required to be made if, after giving
effect to the selection of such Interest Period, the aggregate principal
amount of such A Term Loans or B Term Loans, as the case may be, maintained
as Eurodollar Loans with Interest Periods ending after such date would
exceed the aggregate principal amount of such A Term Loans or B Term Loans,
as the case may be, permitted to be outstanding after such Scheduled
Repayment; and
(viii) no Interest Period may be elected at any time when a Default
or an Event of Default is then is existence unless the Required Lenders
otherwise agree.
(b) If upon the expiration of any Interest Period, the Borrower
has failed to (or may not) elect a new Interest Period to be applicable to the
respective Borrowing of Eurodollar Loans as provided above, the Borrower shall
be deemed to have elected to convert such Borrowing into a Borrowing of Base
Rate Loans effective as of the expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that (x)
---------------------------------
in the case of clause (i) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Lender
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<PAGE>
shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any Interest
Period that, by reason of any changes arising after the date of this
Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loans (other than any increased cost or reduction in the
amount received or receivable resulting from the imposition of or a change
in the rate of taxes, assessments or similar charges) because of (x) any
change since the Effective Date in any applicable law, governmental rule,
regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule,
regulation, guideline or order) (such as, for example, but not limited to,
a change in official reserve requirements, but, in all events, excluding
reserves required under Regulation D to the extent included in the
computation of the Eurodollar Rate) and/or (y) other circumstances
affecting such Lender, the interbank Eurodollar market or the position of
such Lender in such market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loan has become unlawful by compliance by such Lender in good faith with
any law, governmental rule, regulation, guideline or order (or would
conflict with any such governmental rule, regulation, guideline or order
not having the force of law but with which such Lender customarily complies
even though the failure to comply therewith would not be unlawful), or has
become impracticable as a result of a contingency occurring after the
Effective Date which materially and adversely affects the interbank
eurodollar market;
then, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on such date and (y) within ten Business
Days of the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and (except in the case of clause (i)) to
the Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in
the case of clause (i) above, Eurodollar Loans shall no longer be available
until such time as the Administrative Agent notifies the Borrower and the
Lenders that the circumstances giving rise to such notice by the Administrative
Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given
by the Borrower with respect to Eurodollar Loans which have not yet been
incurred shall be deemed rescinded by the Borrower, (y) in the case of clause
(ii) above, the Borrower shall pay to such Lender, upon written demand therefor,
such additional amounts (in the form of an increased rate of, or a different
method of calculating, interest or otherwise as such Lender in its sole
discretion shall determine) as shall be required to compensate such Lender for
such increased costs or reductions in amounts receivable hereunder (a written
notice as to the additional amounts owed to such Lender, showing the basis for
the calculation thereof, submitted to the Borrower by such Lender shall, absent
manifest error, be final and conclusive and binding upon all parties hereto) and
(z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section 1.10(b) as promptly as possible and, in any event,
within the time period required by law.
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<PAGE>
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii), the
Borrower shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, cancel said Borrowing by giving the Administrative
Agent telephonic notice (confirmed promptly in writing) thereof on the same date
that the Borrower was notified by a Lender pursuant to Section 1.10(a)(ii) or
(iii), or (ii) if the affected Eurodollar Loan is then outstanding, upon at
least three Business Days' notice to the Administrative Agent, require the
affected Lender to convert each such Eurodollar Loan into a Base Rate Loan,
provided that if more than one Lender is affected at any time, then all affected
- --------
Lenders must be treated the same pursuant to this Section 1.10(b).
(c) If any Lender shall have determined that after the Effective
Date, the adoption or effectiveness of any applicable law, rule, official
directive or guideline (whether or not having the force of law) or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender or any corporation controlling such Lender
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on such Lender's or such
corporation's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender or such
corporation could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy), then from time to time, within 15
days after demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender or such corporation for such reduction. Each Lender, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 1.10(c), will give prompt written notice thereof to the
Borrower, which notice shall set forth the basis of the calculation of such
additional amounts, although the failure to give any such notice shall not
release or diminish any of the Borrower's obligations to pay additional amounts
pursuant to this Section 1.10(c) upon the subsequent receipt of such notice.
1.11 Compensation. (a) The Borrower shall compensate each Lender,
------------
upon its written request (which request shall set forth the basis for requesting
such compensation), for all reasonable losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
such Lender to fund its Eurodollar Loans but excluding in any event the loss of
anticipated profits) which such Lender may sustain: (i) if for any reason
(other than a default by such Lender or the Administrative Agent) a Borrowing of
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or
deemed withdrawn pursuant to Section 1.10(a)); (ii) if any prepayment, repayment
or conversion of any of its Eurodollar Loans occurs on a date which is not the
last day of an Interest Period applicable thereto; (iii) if any prepayment of
any of its Eurodollar Loans is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Eurodollar Loans when required by the terms
of this Agreement or (y) an election made pursuant to Section 1.10(b).
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<PAGE>
(b) Notwithstanding anything in this Agreement to the contrary, to
the extent any notice required by Section 1.10(a)(ii) or (iii), 1.10(c), 2.06 or
4.04 is given by any Lender more than 90 days after such Lender obtained, or
reasonably should have obtained, knowledge of the occurrence of the event giving
rise to the additional costs of the type described in such Section, such Lender
shall not be entitled to compensation under Section 1.10, 2.06 or 4.04 for any
amounts incurred or accruing prior to the giving of such notice to the Borrower.
1.12 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c), 2.06 or 4.04 with respect to such Lender, it will, if requested
by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender) to designate another lending office for any Loans
affected by such event, provided that such designation is made on such terms
--------
that such Lender and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such Section. Nothing in this Section 1.12 shall
affect or postpone any of the obligations of the Borrower or the right of any
Lender provided in Section 1.10, 2.06 or 4.04.
1.13 Replacement of Lenders. (x) Upon the occurrence of any event
----------------------
giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c),
Section 2.06 or Section 4.04 with respect to any Lender which results in such
Lender charging to the Borrower increased costs in excess of those being
generally charged by the other Lenders, (y) if a Lender becomes a Defaulting
Lender and/or (z) in the case of a refusal by a Lender to consent to a proposed
change, waiver, discharge or termination with respect to this Agreement which
has been approved by the Required Lenders as provided in Section 12.12(b), the
Borrower shall have the right, if no Default or Event of Default then exists (or
in the case of preceding clause (z), no Default or Event of Default will exist
after giving effect to such replacement), to replace such Lender (the "Replaced
Lender") with one or more other Eligible Transferee or Transferees, none of whom
shall constitute a Defaulting Lender at the time of such replacement
(collectively, the "Replacement Lender") reasonably acceptable to the
Administrative Agent, provided that (i) at the time of any replacement pursuant
--------
to this Section 1.13, the Replacement Lender shall enter into one or more
Assignment Agreements pursuant to Section 12.04(b) (and with all fees payable
pursuant to said Section 12.04(b) to be paid by the Replacement Lender) pursuant
to which the Replacement Lender shall acquire all of the Commitments and
outstanding Loans of, and in each case participations in Letters of Credit and
Swingline Loans by the Replaced Lender and, in connection therewith, shall pay
to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A)
an amount equal to the principal of, and all accrued interest on, all
outstanding Loans of the Replaced Lender, (B) an amount equal to all Unpaid
Drawings that have been funded by (and not reimbursed to) such Replaced Lender,
together with all then unpaid interest with respect thereto at such time and (C)
an amount equal to all accrued, but theretofore unpaid, Fees owing to the
Replaced Lender pursuant to Section 3.01 and (y) the respective Letter of Credit
Issuer an amount equal to such Replaced Lender's RC Percentage of any Unpaid
Drawing (which at such time remains an Unpaid Drawing) to the extent such amount
was not theretofore funded by such Replaced Lender, and (ii) all obligations of
the Borrower owing to the Replaced Lender (other than those specifically
described in clause (i) above in respect of which the assignment purchase price
has been, or is concurrently being, paid) shall be paid in full to such Replaced
Lender concurrently with such replacement. Upon the execution of the respective
Assignment Agreements, the payment of amounts referred to in clauses (i) and
(ii) above, the
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<PAGE>
recordation of the assignment in the Register as provided in Section 12.16 and,
if so requested by the Replacement Lender, delivery to the Replacement Lender of
the appropriate Note or Notes executed by the Borrower, the Replacement Lender
shall become a Lender hereunder and the Replaced Lender shall cease to
constitute a Lender hereunder, except with respect to indemnification provisions
applicable to the Replaced Lender under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.01 and 12.06), which shall
survive as to such Replaced Lender.
SECTION 2. Letters of Credit.
-----------------
2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions herein set forth, the Borrower may request that a Letter of Credit
Issuer at any time and from time to time on or after the Initial Borrowing Date
and prior to the date which is thirty Business Days prior to the Revolving Loan
Maturity Date issue, for the account of the Borrower and in support of (i) trade
obligations of the Borrower and/or its Subsidiaries, if any (each such letter of
credit a "Trade Letter of Credit" and, collectively, the "Trade Letters of
Credit") and/or (ii) workers' compensation, insurance programs or such other
obligations of the Borrower that are reasonably acceptable to the Administrative
Agent (each such letter of credit, a "Standby Letter of Credit" and,
collectively, the "Standby Letters of Credit" and together with the Trade
Letters of Credit the "Letters of Credit") and, subject to and upon the terms
and conditions herein set forth, such Letter of Credit Issuer agrees to issue
from time to time, irrevocable letters of credit issued on a sight basis, in
such form as may be approved by such Letter of Credit Issuer and the
Administrative Agent. All Letters of Credit shall be denominated in U.S.
dollars.
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued, the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed either (x) $5,000,000 or (y) when added to the aggregate principal amount
of all Revolving Loans made by Non-Defaulting Lenders and all Swingline Loans
then outstanding, the Adjusted Total Revolving Commitment at such time and (ii)
(x) each Standby Letter of Credit shall have an expiry date occurring not later
than one year after such Letter of Credit's date of issuance, provided that any
--------
such Letter of Credit may be extendible for successive periods of up to 12
months on terms acceptable to the Letter of Credit Issuer and in no event shall
any Standby Letter of Credit have an expiry date occurring later than five
Business Days prior to the Revolving Loan Maturity Date and (y) each Trade
Letter of Credit shall have an expiry date occurring no later than the earlier
of (a) 180 days after the issuance thereof or (b) 30 days prior to the Revolving
Loan Maturity Date.
(c) Notwithstanding the foregoing, in the event a Lender Default
exists, no Letter of Credit Issuer shall be required to issue any Letter of
Credit unless such Letter of Credit Issuer has entered into arrangements
satisfactory to it, the Administrative Agent and the Borrower to eliminate such
Letter of Credit Issuer's risk with respect to the participation in Letters of
Credit of the Defaulting Lender or Lenders, including by cash collateralizing
such Defaulting Lender's or Lenders' Revolving Percentage of the Letter of
Credit Outstandings.
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2.02 Minimum Stated Amount. The initial Stated Amount of each Letter
---------------------
of Credit shall be not less than $100,000 or such lesser amount acceptable to
the respective Letter of Credit Issuer.
2.03 Letter of Credit Requests; Notices of Issuance. (a) Whenever
----------------------------------------------
it desires that a Letter of Credit be issued, the Borrower shall give the
Administrative Agent and Letter of Credit Issuer written notice (including by
way of facsimile transmission) in the form of Exhibit C hereto prior to 1:00
P.M. (New York time) at least three Business Days (or such shorter period as may
be acceptable to the Letter of Credit Issuer) prior to the proposed date of
issuance (which shall be a Business Day) (each, a "Letter of Credit Request"),
which Letter of Credit Request shall include any documents that such Letter of
Credit Issuer customarily requires in connection therewith.
(b) Each Letter of Credit Issuer shall, promptly after each issuance
of or amendment to a Standby Letter of Credit by it, give the Administrative
Agent, each RC Lender and the Borrower written notice of the issuance of or
amendment to each Standby Letter of Credit, accompanied by a copy to the
Administrative Agent of such issuance or amendment. If any RC Lender so
requests, the Administrative Agent will provide such RC Lender with copies of
any Standby Letter of Credit or amendments thereto.
(c) In the event that the Letter of Credit Issuer is other than the
Administrative Agent, such Letter of Credit Issuer will send by facsimile
transmission to the Administrative Agent, promptly on the first Business Day of
each week, its daily maximum amount available to be drawn under the Trade
Letters of Credit issued by such Letter of Credit Issuer for the previous week.
The Administrative Agent shall deliver to each Lender upon each calendar month
end, and upon each Trade Letter of Credit fee payment, a report setting forth
the daily maximum amount available to be drawn for all Letter of Credit Issuers
during such period.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
--------------------------------------------
hereby agrees to reimburse the respective Letter of Credit Issuer, by making
payment to the Administrative Agent at the Payment Office, for any payment or
disbursement made by such Letter of Credit Issuer under any Letter of Credit
(each such amount so paid or disbursed until reimbursed, an "Unpaid Drawing")
immediately after, and in any event on the date on which the Borrower is
notified by such Letter of Credit Issuer of such payment or disbursement with
interest on the amount so paid or disbursed by such Letter of Credit Issuer, to
the extent not reimbursed prior to 1:00 P.M. (New York time) on the date of such
payment or disbursement, from and including the date paid or disbursed to but
not including the date such Letter of Credit Issuer is reimbursed therefor at a
rate per annum which shall be the Applicable Margin for Revolving Loans
maintained as Base Rate Loans plus the Base Rate as in effect from time to time
(plus an additional 2% per annum if not reimbursed by the third Business Day
after the date of such notice of payment or disbursement), such interest also to
be payable on demand.
(b) The Borrower's obligation under this Section 2.04 to reimburse
each Letter of Credit Issuer with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower may have or have had against such Letter of Credit Issuer,
the Administrative Agent or any Lender, including, without limitation,
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any defense based upon the failure of any drawing under a Letter of Credit to
conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such drawing; provided,
--------
however, that the Borrower shall not be obligated to reimburse such Letter of
- -------
Credit Issuer for any wrongful payment made by such Letter of Credit Issuer
under a Letter of Credit as a result of acts or omissions which are judicially
determined by a court of competent jurisdiction to constitute willful misconduct
or gross negligence on the part of such Letter of Credit Issuer.
2.05 Letter of Credit Participations. (a) Immediately upon the
-------------------------------
issuance by any Letter of Credit Issuer of any Letter of Credit, such Letter of
Credit Issuer shall be deemed to have sold and transferred to each other RC
Lender, and each such RC Lender (each, a "Participant") shall be deemed
irrevocably and unconditionally to have purchased and received from such Letter
of Credit Issuer, without recourse or warranty, an undivided interest and
participation, to the extent of such Participant's Adjusted RC Percentage, in
such Letter of Credit, each substitute letter of credit, each drawing made
thereunder and the obligations of the Borrower under this Agreement with respect
thereto (although the Letter of Credit Fee shall be payable directly to the
Administrative Agent for the account of the RC Lenders as provided in Section
3.01(b) and the Participants shall have no right to receive any portion of any
Facing Fees) and any security therefor or guaranty pertaining thereto. Upon any
change in the Revolving Commitments or Adjusted RC Percentages of the RC Lenders
pursuant to Sections 1.13 or 12.04(b) or upon a Lender Default, it is hereby
agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic adjustment to the participations pursuant
to this Section 2.05 to reflect the new Adjusted RC Percentages of the assigning
and assignee RC Lender or of all RC Lenders, as the case may be.
(b) In determining whether to pay under any Letter of Credit, the
respective Letter of Credit Issuer shall not have any obligation relative to the
Participants other than to determine that any documents required to be delivered
under such Letter of Credit have been delivered and that they substantially
comply on their face with the requirements of such Letter of Credit. Any action
taken or omitted to be taken by any Letter of Credit Issuer under or in
connection with any Letter of Credit if taken or omitted in the absence of gross
negligence or willful misconduct, as determined by a court of competent
jurisdiction, shall not create for such Letter of Credit Issuer any resulting
liability.
(c) In the event that any Letter of Credit Issuer makes any payment
under any Letter of Credit and the Borrower shall not have reimbursed such
amount in full to such Letter of Credit Issuer pursuant to Section 2.04(a), such
Letter of Credit Issuer shall promptly notify the Administrative Agent, and the
Administrative Agent shall promptly notify each Participant of such failure, and
each Participant shall promptly and unconditionally pay to the Administrative
Agent for the account of such Letter of Credit Issuer, the amount of such
Participant's Adjusted RC Percentage of such payment in U.S. dollars and in same
day funds; provided, however, that no Participant shall be obligated to pay to
-------- -------
the Administrative Agent its Adjusted RC Percentage of such unreimbursed amount
for any wrongful payment made by such Letter of Credit Issuer under a Letter of
Credit as a result of acts or omissions judicially determined by a court of
competent jurisdiction to constitute willful misconduct or gross negligence on
the part of such Letter of Credit Issuer. If the Administrative Agent so
notifies any Participant required to fund an Unpaid Drawing under a Letter of
Credit prior to 11:00 A.M. (New York time) on any
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Business Day, such Participant shall make available to the Administrative Agent
for the account of the respective Letter of Credit Issuer such Participant's
Adjusted RC Percentage of the amount of such payment on such Business Day in
same day funds. If and to the extent such Participant shall not have so made its
Adjusted RC Percentage of the amount of such Unpaid Drawing available to the
Administrative Agent for the account of such Letter of Credit Issuer, such
Participant agrees to pay to the Administrative Agent for the account of such
Letter of Credit Issuer, forthwith on demand such amount, together with interest
thereon, for each day from such date until the date such amount is paid to the
Administrative Agent for the account of any Letter of Credit Issuer at the
overnight Federal Funds Effective Rate. The failure of any Participant to make
available to the Administrative Agent for the account of any Letter of Credit
Issuer its Adjusted RC Percentage of any Unpaid Drawing under any Letter of
Credit shall not relieve any other Participant of its obligation hereunder to
make available to the Administrative Agent for the account of such Letter of
Credit Issuer its Adjusted RC Percentage of any payment under any Letter of
Credit on the date required, as specified above, but no Participant shall be
responsible for the failure of any other Participant to make available to the
Administrative Agent for the account of such Letter of Credit Issuer such other
Participant's Adjusted RC Percentage of any such payment.
(d) Whenever any Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of such Letter of Credit Issuer any payments from the Participants
pursuant to clause (c) above, such Letter of Credit Issuer shall pay to the
Administrative Agent and the Administrative Agent shall promptly pay to each
Participant which has paid its Adjusted RC Percentage thereof, in U.S. dollars
and in same day funds, an amount equal to such Participant's Adjusted RC
Percentage of the principal amount thereof and interest thereon accruing at the
overnight Federal Funds Effective Rate after the purchase of the respective
participations.
(e) The obligations of the Participants to make payments to the
Administrative Agent for the account of the respective Letter of Credit Issuer
with respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever (provided that no Participant shall be required to make payments
--------
resulting from the Administrative Agent's gross negligence or willful misconduct
as judicially determined by a court of competent jurisdiction) and shall be made
in accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right
which the Borrower or any of its Subsidiaries, if any, may have at any time
against a beneficiary named in a Letter of Credit, any transferee of any
Letter of Credit (or any Person for whom any such transferee may be
acting), the Administrative Agent, any Letter of Credit Issuer, any Lender
or other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the Borrower and the
beneficiary named in any such Letter of Credit);
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<PAGE>
(iii) any draft, certificate or other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
(v) the occurrence of any Default or Event of Default.
(f) To the extent any Letter of Credit Issuer is not indemnified by
the Borrower, the Participants will reimburse and indemnify the Letter of Credit
Issuer, in proportion to their respective "percentages" of the Total Revolving
Commitment, for and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, costs, expenses or disbursements
of whatsoever kind or nature which may be imposed on, asserted against or
incurred by such Letter of Credit Issuer in performing its respective duties in
any way relating to or arising out of its issuance of Letters of Credit;
provided that no Participants shall be liable for any portion of such
- --------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Letter of Credit Issuer's
gross negligence or willful misconduct, as judicially determined by a court of
competent jurisdiction.
2.06 Increased Costs. If at any time after the Effective Date, the
---------------
adoption or effectiveness of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Letter of Credit
Issuer or any Participant with any request or directive (whether or not having
the force of law) by any such authority, central bank or comparable agency shall
either (i) impose, modify or make applicable any reserve, deposit, capital
adequacy or similar requirement against Letters of Credit issued by such Letter
of Credit Issuer or such Participant's participation therein, or (ii) shall
impose on such Letter of Credit Issuer or any Participant any other conditions
affecting this Agreement, any Letter of Credit or such Participant's
participation therein; and the result of any of the foregoing is to increase the
cost to such Letter of Credit Issuer or such Participant of issuing, maintaining
or participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Letter of Credit Issuer or such Participant
hereunder (other than any increased cost or reduction in the amount received or
receivable resulting from the imposition of or a change in the rate of taxes or
similar charges), then, upon demand to the Borrower by such Letter of Credit
Issuer or such Participant (a copy of which notice shall be sent by the Letter
of Credit Issuer or such Participant to the Administrative Agent), the Borrower
shall pay to such Letter of Credit Issuer or such Participant such additional
amount or amounts as will compensate the Letter of Credit Issuer or such
Participant for such increased cost or reduction. A certificate submitted to
the Borrower by such Letter of Credit Issuer or such Participant, as the case
may be (a copy of which certificate shall be sent by such Letter of Credit
Issuer or such Participant to the Administrative Agent), setting forth the basis
for the determination of such additional amount or amounts necessary to
compensate such Letter of Credit Issuer or such Participant as aforesaid shall
be conclusive and binding on the Borrower absent manifest error, although the
failure to deliver any such certificate shall not release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this Section 2.06
upon the subsequent receipt thereof.
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<PAGE>
SECTION 3. Fees; Commitments.
-----------------
3.01 Fees. (a) The Borrower agrees to pay to the Administrative
----
Agent a commitment commission ("Commitment Commission") for the account of each
Non-Defaulting Lender with a Revolving Commitment for the period from and
including the Initial Borrowing Date to, but not including, the date the Total
Revolving Commitment has been terminated, computed at a rate per annum for each
day equal to Applicable Margin on the daily average of such Lender's Unutilized
Revolving Commitment. Such Commitment Commission shall be due and payable in
arrears on each Quarterly Payment Date and on the date upon which the Total
Revolving Commitment is terminated.
(b) The Borrower agrees to pay to the Administrative Agent for the
account of each Non-Defaulting Lender with a Revolving Commitment pro rata on
--- ----
the basis of its respective Adjusted RC Percentage, a fee in respect of each
Letter of Credit (the "Letter of Credit Fee") computed at a rate per annum for
each day equal to the Applicable Margin for Revolving Loans maintained as
Eurodollar Loans on the daily Stated Amount of such Letter of Credit. Accrued
Letter of Credit Fees shall be due and payable quarterly in arrears on each
Quarterly Payment Date and on the date after the Total Revolving Commitment is
terminated on which no Letters of Credit remain outstanding.
(c) The Borrower agrees to pay to each Letter of Credit Issuer a fee
in respect of each Letter of Credit issued by it (the "Facing Fee") computed at
the rate of 0.25% per annum on the daily Stated Amount of such Letter of Credit,
provided that in no event shall the annual Facing Fee be less than $500 per year
- --------
per Letter of Credit. Accrued Facing Fees shall be due and payable quarterly in
arrears on each Quarterly Payment Date and on the date after the Total Revolving
Commitment is terminated on which no Letters of Credit remain outstanding.
(d) The Borrower agrees to pay directly to the Letter of Credit
Issuer upon each issuance of, payment under, and/or amendment of, a Letter of
Credit issued by such Letter of Credit Issuer such amount as shall at the time
of such issuance, payment or amendment be the administrative charge which such
Letter of Credit Issuer is customarily charging for issuances of, payments under
or amendments of, letters of credit issued by it.
(e) The Borrower shall pay (or cause to be paid) to each Agent, for
its own account and/or for distribution to the Lenders such fees as may be
agreed to from time to time between the Borrower and such Agent, when and as
due.
(f) All computations of Fees shall be made in accordance with Section
12.07(b).
3.02 Voluntary Reduction of Commitments. (a) Upon at least two
----------------------------------
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Lenders), the
Borrower shall have the right, without premium or penalty, to terminate or
partially reduce the Total Unutilized Revolving Commitment, provided that (x)
--------
any such termination shall apply to proportionately and permanently reduce the
Revolving Commitment of each Lender, (y) no such reduction shall reduce any Non-
Defaulting Lender's Revolving Commitment to an amount that is less than the sum
of (A) the outstanding Revolving Loans of
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<PAGE>
such Lender plus (B) such Lender's Adjusted RC Percentage of (i) outstanding
Swingline Loans and (ii) Letter of Credit Outstandings and (z) any partial
reduction pursuant to this Section 3.02 shall be in the amount of at least
$1,000,000.
(b) In the event of a refusal by a Lender to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Lenders as (and to the
extent) provided in Section 12.12(b), the Borrower may, subject to its
compliance with the requirements of Section 12.12(b), upon five Business Days'
prior written notice to the Administrative Agent at the Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Lenders)
terminate the entire Revolving Commitment of such Lender, so long as (A) all
Loans, together with accrued and unpaid interest, Fees and all other amounts,
owing to such Lender are repaid concurrently with the effectiveness of such
termination pursuant to Section 3 (at which time Annex I shall be deemed
modified to reflect such changed amounts), and (B) the consents required under
Section 12.12(b) in connection therewith shall be obtained at such time, such
Lender shall no longer constitute a "Lender" for purposes of this Agreement,
except with respect to indemnifications under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.06, 4.04, 12.01 and 12.06), which shall
survive as to such repaid Lender.
3.03 Mandatory Adjustments of Commitments, etc. (a) The Total
------------------------------------------
Commitment shall terminate on November 30, 1999 if the Initial Borrowing Date
has not yet occurred.
(b) The Total A Term Loan Commitment and Total B Term Loan Commitment
shall terminate in its entirety on the Initial Borrowing Date (after giving
effect to the making of A Term Loans and B Term Loans on such date).
(c) The Total Revolving Commitment (and the Revolving Commitment of
each RC Lender) shall terminate in its entirety on the earlier of (i) the
Revolving Loan Maturity Date and (ii) unless the Required Lenders otherwise
agree, the date on which any Change of Control occurs.
(d) The Total Revolving Commitment shall be reduced at the time of
any mandatory repayment of Term Loans pursuant to Section 4.02(A)(d), (e), (f),
(g), (h) or (i) if Term Loans were then outstanding, in an amount, if any, by
which the amount of such repayment (determined as if an unlimited amount of Term
Loans were then outstanding) exceeds the aggregate amount of Term Loans then
outstanding.
(e) Each reduction of the Total A Term Loan Commitment, Total B Term
Loan Commitment or the Total Revolving Commitment pursuant to this Section 3.03
(or pursuant to Section 4.02) shall apply proportionately to the A Term
Commitment, B Term Commitment or the Revolving Commitment, as the case may be,
of each Lender with such a Commitment.
SECTION 4. Payments.
--------
4.01 Voluntary Prepayments. (a) The Borrower shall have the right
---------------------
to prepay Loans in whole or in part, without premium or penalty, from time to
time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent at the Payment Office written notice (or telephonic notice
promptly confirmed in writing) of its intent to prepay the
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<PAGE>
Loans, whether such Loans are A Term Loans, B Term Loans, Revolving Loans or
Swingline Loans, the amount of such prepayment and (in the case of Eurodollar
Loans) the specific Borrowing or Borrowings pursuant to which made, which notice
shall be given by the Borrower at least one Business Day prior to the date of
such prepayment with respect to Base Rate Loans (other than Swingline Loans,
with respect to which notice shall be given by the Borrower on the day of
prepayment) and at least two Business Days prior to the date of such prepayment
with respect to Eurodollar Loans, which notice shall promptly be transmitted by
the Administrative Agent to each of the Lenders; (ii) (x) each partial
prepayment of any Borrowing (other than a Borrowing of Swingline Loans) shall be
in an aggregate principal amount of at least $1,000,000 and (y) each partial
prepayment of any Borrowing of Swingline Loans shall be in an aggregate
principal amount of at least $50,000, provided that no partial prepayment of
--------
Eurodollar Loans made pursuant to a Borrowing shall reduce the aggregate
principal amount of the Loans outstanding pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount applicable thereto; (iii) at the
time of any prepayment of Eurodollar Loans pursuant to this Section 4.01 on any
date other than the last day of the Interest Period applicable thereto, the
Borrower shall pay the amounts required pursuant to Section 1.11; (iv) each
prepayment in respect of any Loans made pursuant to a Borrowing shall be applied
(except as provided in clause (b) below) pro rata among the Lenders which made
--- ----
such Loans, provided, that at the Borrower's election in connection with any
--------
prepayment of Revolving Loans pursuant to this Section 4.01(a), such prepayment
shall not be applied to any Revolving Loans of a Defaulting Lender; and (v) each
prepayment of Term Loans pursuant to this Section 4.01(a) shall reduce the
remaining Scheduled Repayments on a pro rata basis (based upon the then
--- ----
remaining principal amount of each such Scheduled Repayment) or, at the
Borrower's election, all or any portion of such prepayment shall reduce, in
direct order of maturity, up to the first four consecutive Scheduled Repayments
due on or after the date of such prepayment.
(b) In the event of a refusal by a Lender to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Lenders as (and to the
extent) provided in Section 12.12(b), the Borrower may, upon five Business Days'
prior written notice to the Administrative Agent at the Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Lenders)
repay all Loans of, together with accrued and unpaid interest, Fees and other
amounts owing to, such Lender in accordance with, and subject to the
requirements of, said Section 12.12(b) so long as (A) the entire Revolving
Commitment, if any, of such Lender is terminated concurrently with such
repayment pursuant to Section 3.02(b) (at which time Annex I shall be deemed
modified to reflect the changed Revolving Commitments) and (B) the consents
required under Section 12.12(b) in connection therewith have been obtained.
4.02 Mandatory Prepayments.
---------------------
(A) Requirements:
------------
(a) (i) If on any date the sum of the aggregate outstanding principal
amount of Revolving Loans made by Non-Defaulting Lenders, Swingline Loans and
the Letter of Credit Outstandings, exceeds the Adjusted Total Revolving
Commitment as then in effect, the Borrower shall repay on such date the
principal of Swingline Loans, and if no Swingline Loans are or remain
outstanding, Revolving Loans of Non-Defaulting Lenders, in an aggregate amount
equal
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<PAGE>
to such excess. If, after giving effect to the repayment of all outstanding
Swingline Loans and Revolving Loans of Non-Defaulting Lenders, the aggregate
amount of Letter of Credit Outstandings exceeds the Adjusted Total Revolving
Commitment then in effect, the Borrower shall pay to the Administrative Agent an
amount in cash and/or Cash Equivalents equal to such excess (up to the aggregate
amount of the Letter of Credit Outstandings at such time) and the Administrative
Agent shall hold such payment as security for the obligations of the Borrower
hereunder pursuant to a cash collateral agreement to be entered into in form and
substance reasonably satisfactory to the Administrative Agent (which shall
permit certain investments for the benefit of the Borrower in Cash Equivalents
reasonably satisfactory to the Administrative Agent).
(ii) If on any date the aggregate outstanding principal amount of the
Revolving Loans made by a Defaulting Lender exceeds the Revolving Commitment of
such Defaulting Lender, the Borrower shall repay principal of Revolving Loans of
such Defaulting Lender in an amount equal to such excess.
(b) On each date set forth below, the Borrower shall be required to
repay the principal amount of A Term Loans in a principal amount set forth
opposite such date (each such repayment, as the same may be reduced as provided
in Sections 4.01 and 4.02(B), a "Scheduled A Repayment"):
Principal Amount
----------------
Scheduled A Repayment Date of A Term Loans
-------------------------- ---------------
December 31, 2000 $1,250,000
March 31, 2001 $1,250,000
June 30, 2001 $1,250,000
September 30, 2001 $1,250,000
December 31, 2001 $1,875,000
March 31, 2002 $1,875,000
June 30, 2002 $1,875,000
September 30, 2002 $1,875,000
December 31, 2002 $2,500,000
March 31, 2003 $2,500,000
June 30, 2003 $2,500,000
September 30, 2003 $2,500,000
December 31, 2003 $3,125,000
March 31, 2004 $3,125,000
June 30, 2004 $3,125,000
September 30, 2004 $3,125,000
December 31, 2004 $3,750,000
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<PAGE>
Principal Amount
----------------
Scheduled A Repayment Date of A Term Loans
-------------------------- ---------------
March 31, 2005 $3,750,000
June 30, 2005 $3,750,000
A Maturity Date $3,750,000
(c) On each date set forth below, the Borrower shall be required to
repay the principal amount of B Term Loans in a principal amount set forth
opposite such date (each such repayment, as the same may be reduced as provided
in Sections 4.01 and 4.02(B), a "Scheduled B Repayment"):
Principal Amount of
-------------------
Scheduled B Repayment Date B Term Loans
-------------------------- ------------
December 31, 1999 $275,000
March 31, 2000 $275,000
June 30, 2000 $275,000
September 30, 2000 $275,000
December 31, 2000 $275,000
March 31, 2001 $275,000
June 30, 2001 $275,000
September 30, 2001 $275,000
December 31, 2001 $275,000
March 31, 2002 $275,000
June 30, 2002 $275,000
September 30, 2002 $275,000
December 31, 2002 $275,000
March 31, 2003 $275,000
June 30, 2003 $275,000
September 30, 2003 $275,000
December 31, 2003 $275,000
March 31, 2004 $275,000
June 30, 2004 $275,000
September 30, 2004 $275,000
December 31, 2004 $275,000
March 31, 2005 $275,000
June 30, 2005 $275,000
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<PAGE>
Principal Amount of
-------------------
Scheduled B Repayment Date B Term Loans
-------------------------- ------------
September 30, 2005 $ 275,000
December 31, 2005 $25,850,000
March 31, 2006 $25,850,000
June 30, 2006 $25,850,000
B Maturity Date $25,850,000
(d) On the Business Day following the date of receipt thereof by the
Borrower and/or any of its Subsidiaries, if any, of the Cash Proceeds from any
Asset Sale, an amount equal to 100% of the Net Cash Proceeds from such Asset
Sale shall be applied as a mandatory repayment of principal of the then
outstanding Term Loans on a pro rata basis to the A Term Facility and the B Term
--- ----
Facility and to reduce future scheduled amortization payments for each Term
Facility on a pro rata basis (and to the extent in excess thereof, to reduce the
--- ----
Revolving Commitment), provided that (i) up to an aggregate of $1,000,000 of Net
--------
Cash Proceeds from Asset Sales shall not be required to be used to so repay Term
Loans to the extent the Borrower elects, as hereinafter provided, to cause such
Net Cash Proceeds to be reinvested in Reinvestment Assets (a "Reinvestment
Election"), and provided further, that (1) if all or any portion of such Net
-------- -------
Cash Proceeds not so applied to the repayment of the then outstanding Term Loans
are not so used (or contractually committed to be used to purchase assets)
within 360 days, such remaining portion shall be applied on the last day of such
period as a mandatory repayment of principal of outstanding Term Loans as
provided above in this Section 4.02(A)(d) and (2) if all or any portion of such
Net Cash Proceeds are not required to be applied on the 360th day referred to in
clause (1) above because such amount is contractually committed to be used and
subsequent to such date such contract is terminated or expires without such
portion being so used, then such remaining portion shall be applied on the date
of such termination or expiration as a mandatory repayment of principal of
outstanding Term Loans as provided above in this Section 4.02(A)(d). The
Borrower may exercise its Reinvestment Election (within the parameters specified
in the preceding sentence) with respect to an Asset Sale if (x) no Default or
Event of Default then exists and (y) the Borrower delivers a Reinvestment Notice
to the Administrative Agent on the Business Day following the date of the
consummation of the respective Asset Sale, with such Reinvestment Election being
effective with respect to the Net Cash Proceeds of such Asset Sale equal to the
Anticipated Reinvestment Amount specified in such Reinvestment Notice.
(e) On the Business Day after the date of the receipt thereof by the
Borrower and/or any of its Subsidiaries, if any, an amount equal to 100% of the
proceeds (net of underwriting discounts and commissions and other reasonable
costs associated therewith) of the incurrence of Indebtedness by the Borrower
and/or any of its Subsidiaries, if any, (other than Indebtedness permitted by
Section 8.04), shall be applied as a mandatory repayment of principal of the
then outstanding Term Loans on a pro rata basis to the A Term Facility and the B
--- ----
Term Facility and to reduce future scheduled amortization payments for each Term
Facility on a pro rata basis (and to the extent in excess thereof, to reduce the
--- ----
Revolving Commitment).
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<PAGE>
(f) On the Business Day after the date of the receipt thereof by the
Borrower or any of its Subsidiaries, if any, an amount equal to 100% of the cash
proceeds (net of underwriting discounts and commissions and other reasonable
costs associated therewith) from any capital contribution or any sale or
issuance of its equity (other than cash proceeds received (i) as part of the
Equity Financing, (ii) from equity issued to management and other employees of
the Borrower and its Subsidiaries, if any, as provided for in Section 8.08(iii)
or (iii) from additional equity issued to any Initial Shareholder) an amount
equal to 100% of any amount of cash received by the Borrower in connection with
such capital contribution or sale or issuance of equity shall be applied as a
mandatory repayment of principal of the then outstanding Term Loans on a pro
---
rata basis to the A Term Facility and the B Term Facility and to reduce future
- ----
scheduled amortization payments for each Term Facility on a pro rata basis (and
--- ----
to the extent in excess thereof, to reduce the Revolving Commitment).
Notwithstanding anything to the contrary contained above in this Section
4.02(f), 100% of any Capital Call Amount paid to the Borrower pursuant to the
Capital Call Agreement shall be immediately applied as a mandatory repayment of
principal of the then outstanding Term Loans on a pro rata basis to the A Term
--- ----
Facility and the B Term Facility and to reduce future scheduled amortization
payments for each Term Facility on a pro rata basis (and to the extent in excess
--- ----
thereof, to reduce the Revolving Commitment) or, at the Borrower's election, all
or any portion of such prepayment shall reduce, in direct order of maturity, up
to the first eight consecutive Scheduled Repayments due on or after the date of
such prepayment.
(g) Within 30 days following each date on which the Borrower or any
of its Subsidiaries, if any, receives any proceeds from any Recovery Event, an
amount equal to 100% of the proceeds of such Recovery Event (net of reasonable
costs and taxes incurred in connection with such Recovery Event) shall be
applied as a mandatory repayment of principal of the Term Loans, provided that
--------
so long as no Default or Event of Default then exists, such proceeds shall not
be required to be so applied on such date to the extent that (x) the Borrower
has delivered a certificate to the Administrative Agent on or prior to such date
stating that such proceeds shall be used to replace or restore any properties or
assets in respect of which such proceeds were paid within 360 days following the
date of the receipt of such proceeds (which certificate shall set forth the
estimates of the proceeds to be so expended) and (y) the aggregate amount of
proceeds received from Recovery Events in respect of which the Borrower has
delivered a certificate to the Administrative Agent pursuant to the preceding
clause (x) does not exceed $5,000,000, and provided further, that (i) if all or
-------- -------
any portion of such proceeds not required to be applied to the repayment of Term
Loans pursuant to the preceding proviso are not so used (or contractually
committed to be used) within 360 days after the date of the receipt of such
proceeds, such remaining portion shall be applied on the last day of such period
as a mandatory repayment of principal of the Term Loans as provided above in
this Section 4.02(A)(g) and (ii) if all or any portion of such proceeds are not
required to be applied on the 360th day referred to in clause (i) above because
such amount is contractually committed to be used and subsequent to such date
such contract is terminated or expires without such portion being so used, then
such remaining portion shall be applied on the date of such termination or
expiration as a mandatory repayment of principal of outstanding Term Loans as
provided in this Section 4.02(A)(g).
(h) On each date which is 90 days after the last day of each fiscal
year of the Borrower (commencing with the fiscal year ending on December 31,
2000), (i) 75% of Excess Cash Flow, if the Total Leverage Ratio is greater than
or equal to 4.00:1, (ii) 50% of Excess Cash
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<PAGE>
Flow, if the Total Leverage Ratio is greater than or equal to 3.00:1 but less
than 4.00:1, or (iii) zero, if the Total Leverage Ratio is less than 3.00:1
(such amount, the "ECF Prepayment Amount") of the Borrower and its Subsidiaries,
if any, for the fiscal year then last ended shall be applied as a mandatory
repayment of principal of the then outstanding Term Loans on a pro rata basis to
--- ----
the A Term Facility and the B Term Facility and to reduce future scheduled
amortization payments for each Term Facility on a pro rata basis (and to the
--- ----
extent in excess thereof, to reduce the Revolving Commitment) or, at the
Borrower's election, all or any portion of such mandatory payment shall reduce,
in direct order of maturity, up to the first four consecutive Scheduled
Repayments due on or after the date of such repayment.
(i) On the Reinvestment Prepayment Date with respect to a
Reinvestment Election, an amount equal to the Reinvestment Prepayment Amount, if
any, for such Reinvestment Election shall be applied as a repayment of the
principal amount of the then outstanding Term Loans on a pro rata basis to the A
--- ----
Term Facility and the B Term Facility and to reduce future scheduled
amortization payments for each Term Facility on a pro rata basis (and to the
--- ----
extent in excess thereof, to reduce the Revolving Commitment).
(j) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, (i) all then outstanding Swingline Loans shall be repaid in full
on the Swingline Expiry Date and (ii) all other then outstanding Loans shall be
repaid in full on the Maturity Date for such Facility.
(k) On the date on which any Change of Control occurs, the
outstanding principal amount of the Loans, if any, shall become due and payable
in full, unless the Required Lenders otherwise agree.
(B) Application:
-----------
With respect to each prepayment of Loans required by Section 4.02, the
Borrower may designate the Types of Loans which are to be prepaid and the
specific Borrowing(s) under the affected Facility pursuant to which made,
provided that (i) Eurodollar Loans may so be designated for prepayment pursuant
- --------
to this Section 4.02 only on the last day of an Interest Period applicable
thereto unless all Eurodollar Loans made pursuant to such Facility with Interest
Periods ending on such date of required prepayment and all Base Rate Loans made
pursuant to such Facility have been paid in full; (ii) if any prepayment of
Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Loans made pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount for such Borrowing, such Borrowing shall be immediately
converted into Base Rate Loans; (iii) each prepayment of any Revolving Loans
made by Non-Defaulting Lenders pursuant to a Borrowing shall be applied pro rata
--- ----
among the Lenders which made such Revolving Loans; and (iv) each prepayment of
any Revolving Loans made by Defaulting Lenders pursuant to a Borrowing shall be
applied pro rata among the Defaulting Lenders which made such Revolving Loans.
--- ----
In the absence of a designation by the Borrower as described in the preceding
sentence, the Administrative Agent shall, subject to the above, make such
designation in its sole discretion with a view, but no obligation, to minimize
breakage costs owing under Section 1.11.
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<PAGE>
4.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable (based on its pro rata share) account of
--- ----
the Lenders entitled thereto, not later than 12 noon (New York time) on the date
when due and shall be made in immediately available funds and in lawful money of
the United States of America at the Payment Office, it being understood that
written notice by the Borrower to the Administrative Agent to make a payment
from the funds in the Borrower's account at the Payment Office shall constitute
the making of such payment to the extent of such funds held in such account.
Any payments under this Agreement which are made later than 12 noon (New York
time) shall be deemed to have been made on the next succeeding Business Day.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
4.04 Net Payments. (a) All payments made by the Borrower hereunder,
------------
or by any Guarantor on behalf of any Borrower, under any Note or any other
Credit Document, will be made without setoff, counterclaim or other defense.
Except as provided for in Section 4.04(b), all such payments will be made free
and clear of, and without deduction or withholding for, any present or future
taxes, levies, imposts, duties, fees, assessments or other charges of whatever
nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein (but excluding, except as
provided in the second succeeding sentence, any tax imposed on or measured by
the net income (or any franchise tax that is measured by net income) of a Lender
pursuant to the laws of the jurisdiction in which the principal office or
applicable lending office of such Lender is located or under the laws of any
political subdivision or taxing authority of any such jurisdiction in which the
principal office or applicable lending office of such Lender is located) and all
interest, penalties or similar liabilities with respect thereto (collectively,
"Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the
full amount of such Taxes and such additional amounts as may be necessary so
that every payment of all amounts due hereunder, under any Note or under any
other Credit Document, after withholding or deduction for or on account of any
Taxes, will not be less than the amount provided for herein or in such Note or
in such other Credit Document. If any amounts are payable in respect of Taxes
pursuant to the preceding sentence, then the Borrower shall also reimburse each
Lender, upon the written request of such Lender, for taxes imposed on or
measured by the net income of such Lender pursuant to the laws of the
jurisdiction in which such Lender is organized or in which the principal office
or applicable lending office of such Lender is located or of any political
subdivision or taxing authority of any such jurisdiction and for any Taxes as
such Lender shall determine are payable by, or withheld from, such Lender in
respect of amounts paid to or on behalf of such Lender pursuant to this or the
preceding sentence. The Borrower will furnish to the Administrative Agent
within 45 days after the date the payment of any Taxes, or any withholding or
deduction on account thereof, is due pursuant to applicable law certified copies
of tax receipts evidencing such payment by the Borrower or Guarantor. The
Borrower agrees to indemnify and hold harmless each Lender lending to such
Borrower, and reimburse such Lender upon its written request, for the amount of
any Taxes so levied or imposed and paid by such Lender. In addition, the
Borrower agrees to pay any present and future stamp, documentary taxes or any
other excise, property, transfer or similar taxes, and any charges relating
thereto, arising from any payment made hereunder or from the execution, delivery
enforcement or registration of, or otherwise in connection with, this Agreement.
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(b) Each Lender that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes
agrees to deliver to the Borrower and the Administrative Agent on or prior to
the Initial Borrowing Date, or in the case of a Lender that is an assignee or
transferee of an interest under this Agreement pursuant to Section 12.04, on the
date of such assignment or transfer to such Lender, (i) two accurate and
complete original signed copies of Internal Revenue Service Form W-8ECI or Form
W-8BEN (with respect to a complete exemption under an income tax treaty) (or
successor forms) certifying to such Lender's entitlement as of such date to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any Note, or (ii) if the Lender is not
a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot
deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect
to a complete exemption under an income tax treaty) pursuant to clause (i)
above, (x) a certificate substantially in the form of Exhibit D (any such
certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8BEN (with
respect to the portfolio interest exemption) (or successor form) certifying to
such Lender's entitlement as of such date to a complete exemption from United
States withholding tax with respect to payments of interest to be made under
this Agreement and under any Note. In addition, each Lender agrees that (a)
from time to time after the Initial Borrowing Date, when a lapse in time or
change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits
of any income tax treaty), Form W-8BEN (with respect to the portfolio interest
exemption) and a Section 4.04(b)(ii) Certificate, or any successor form, as the
case may be, and such other forms as may be required in order to confirm or
establish the entitlement as of such date of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify the
Borrower and the Administrative Agent of its inability to deliver any such form
or certificate in which case such Lender shall not be required to deliver any
such form or certificate pursuant to this Section 4.04(b). Notwithstanding
anything to the contrary contained in Section 4.04(a), but subject to Section
12.04(b) and the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Lender which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
federal income tax purposes to the extent that such Lender has not provided to
the Borrower U.S. Internal Revenue Service forms that establish a complete
exemption from such deduction or withholding and (y) the Borrower shall not be
obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to
such Lender, or to indemnify and hold harmless or reimburse such Lender, in
respect of income or similar taxes imposed by the United States if (I) such
Lender has not provided to the Borrower the Internal Revenue Service forms
required to be provided to the Borrower pursuant to this Section 4.04(b) or (II)
in the case of a payment, other than interest, to a Lender described in clause
(ii) above, to the extent that such forms do not establish a complete exemption
from withholding of such taxes. Notwithstanding anything to the contrary
contained in the preceding sentence or elsewhere in this Section 4.04 and except
as set forth in Section 12.04(b), the Borrower agrees to pay additional amounts
and to indemnify each Lender in the manner set forth in Section 4.04(a)
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<PAGE>
(without regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any Taxes deducted or withheld by it as described in
the immediately preceding sentence as a result of any changes that are effective
after the Effective Date in any applicable law, treaty, governmental rule,
regulation, guideline or order, or in the interpretation thereof, relating to
the deducting or withholding of such Taxes.
(c) If the Borrower pays any additional amount under this Section
4.04 to a Lender and such Lender determines in its sole discretion that it has
actually received or realized in connection therewith any refund or any
reduction of, or credit against, its Tax liabilities in or with respect to the
taxable year in which the additional amount is paid (a "Tax Benefit"), such
Lender shall pay to the Borrower an amount that the Lender shall, in its sole
discretion, determine is equal to the net benefit, after tax, which was obtained
by the Lender in such year as a consequence of such Tax Benefit; provided,
--------
however, that (i) any Lender may determine, in its sole discretion consistent
- -------
with the policies of such Lender, whether to seek a Tax Benefit; (ii) any Taxes
that are imposed on a Lender as a result of a disallowance or reduction
(including through the expiration of any tax credit carryover or carryback of
such Lender that otherwise would not have expired) of any Tax Benefit with
respect to which such Lender has made a payment to the Borrower pursuant to this
Section 4.04(c) shall be treated as a Tax for which the Borrower is obligated to
indemnify such Lender pursuant to this Section 4.04 without any exclusions or
defenses; and (iii) nothing in this Section 4.04(c) shall require the Lender to
disclose any confidential information to the Borrower (including, without
limitation, its tax returns).
SECTION 5. Conditions Precedent.
--------------------
5.01 Conditions Precedent to Loans on the Initial Borrowing Date.
-----------------------------------------------------------
The obligation of the Lenders to make Loans, and of Letter of Credit Issuers to
issue Letters of Credit, on the Initial Borrowing Date is subject to the
satisfaction of the following conditions at such time:
(a) Effectiveness. The Effective Date shall have occurred.
-------------
(b) Opinions of Counsel. The Administrative Agent shall have
-------------------
received opinions, addressed to the Administrative Agent, and each of the
Lenders and dated the Initial Borrowing Date, from (i) Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to Kelso and the Borrower, which opinion shall cover
the matters contained in Exhibit E-1 hereto, (ii) White & Case LLP, special
counsel to the Administrative Agent, which opinion shall cover the matters
contained in Exhibit E-2 hereto and (iii) from such local counsel, if any,
satisfactory to the Administrative Agent as the Administrative Agent may
request, which opinions shall cover the perfection of the security interests
granted pursuant to the Security Documents and such other matters incident to
the transactions contemplated herein as the Administrative Agent may reasonably
request and shall be in form and substance satisfactory to the Administrative
Agent.
(c) Corporate Proceedings. (i) The Administrative Agent shall have
---------------------
received from the Borrower a certificate, dated the Initial Borrowing Date,
signed by the President or any Executive Vice-President of the Borrower in the
form of Exhibit F with appropriate insertions and deletions, together with (x)
copies of the certificate of incorporation, the by-laws, or other organizational
documents of the Borrower and (y) the resolutions, or such other administrative
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<PAGE>
approval, of the Borrower referred to in such certificate and all of the
foregoing (including the certificate of incorporation and by-laws) shall be
satisfactory to the Administrative Agent and (iii) a statement that all of the
applicable conditions set forth in this Section 5.01 (d), (e), (f), (i), (j) and
(k) and 5.02 exist as of such date.
(ii) On the Initial Borrowing Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Documents shall be
satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of all
certificates, documents and papers, including good standing certificates and any
other records of corporate proceedings and governmental approvals, if any, which
the Administrative Agent may have requested in connection therewith, such
documents and papers, where appropriate, to be certified by proper corporate or
governmental authorities.
(d) Adverse Change, etc. From December 31, 1998, nothing shall have
--------------------
occurred (and neither the Lenders nor any Agent shall have become aware of any
facts or conditions not previously known) which any Agent or the Required
Lenders shall determine (i) has had, or is reasonably likely to have, a material
adverse effect on the rights or remedies of the Lenders or the Agents hereunder
or under any other Credit Document, or on the ability of the Credit Parties
taken as a whole to perform their obligations to them, or (ii) has had, or is
reasonably likely to have, a Material Adverse Effect.
(e) Litigation. There shall be no actions, suits or proceedings
----------
pending or, to the knowledge of the Borrower, threatened in writing (i) with
respect to this Agreement or any other Credit Document or (ii) which any Agent
or the Required Lenders shall determine has had, or is reasonably likely to have
(except as and to the extent described in Annex III), (x) a Material Adverse
Effect or (y) a material adverse effect on the rights or remedies of the Lenders
or the Agents hereunder or under any other Credit Document or on the ability of
the Borrower to perform its obligations under the Credit Documents.
(f) Approvals. All material necessary governmental and third party
---------
approvals in connection with the Transaction, the transactions contemplated by
the Documents and/or the Credit Documents shall have been obtained and remain in
effect (other than any such approvals with respect to the Recapitalization which
the Borrower reasonably believes both individually and in the aggregate are not
material to the operations of the Borrower), and all applicable waiting periods
shall have expired or shall have been terminated or waived without any action
being taken by any competent authority which restrains or prevents such
transactions or imposes, in the reasonable judgment of any Agent, materially
adverse conditions upon the consummation of the Transaction. Additionally,
there shall not exist any judgment, order, injunction or other restraint issued
or filed or a hearing seeking injunctive relief or other restraint pending or
notified prohibiting or imposing materially adverse conditions upon the
consummation of the Transaction or the making of Loans or the issuance of the
Letters of Credit.
(g) Security Documents. The Borrower shall have duly authorized,
------------------
executed and delivered a Security Agreement substantially in the form of Exhibit
G (as modified, supplemented or amended from time to time in accordance with the
terms thereof and hereof, the
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<PAGE>
"Security Agreement") covering all of the Borrower's present and future Security
Agreement Collateral, together with:
(I) executed copies of Financing Statements (Form UCC-1) in
appropriate form for filing under the UCC of each jurisdiction as may be
necessary to perfect the security interests purported to be created by the
Security Agreement;
(II) certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, each of recent date listing all effective
financing statements that name the Borrower, Acquisition Sub or Unilab Finance
as debtor and that are filed in the jurisdictions referred to in clause (I),
together with copies of such financing statements (none of which shall cover the
Collateral except (x) those with respect to which appropriate termination
statements executed by the secured lender thereunder have been filed or
delivered to the Collateral Agent and (y) to the extent evidencing Permitted
Liens);
(III) evidence of the completion of all other recordings and filings
of, or with respect to, the Security Agreement as may be necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect the security
interests intended to be created by the Security Agreement or acceptable
arrangements to effect such recordings and filings have been taken; and
(IV) evidence that all other actions necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect and protect the security
interests purported to be created by the Security Agreement have been taken or
acceptable arrangements to effect such actions have been taken;
and the Security Agreement shall be in full force and effect.
(h) Capital Call Agreement. On or prior to the Initial Borrowing
----------------------
Date, Kelso shall have duly authorized, executed and delivered the Capital Call
Agreement in the form of Exhibit H (as amended, modified or supplemented from
time to time, the "Capital Call Agreement") and Kelso's obligations in respect
thereof shall have been assigned to the Collateral Agent for the benefit of the
Lenders in a manner satisfactory to the Collateral Agent.
(i) Solvency. The Borrower shall have delivered, or shall cause to
--------
be delivered to the Administrative Agent, a solvency letter in the form of
Exhibit I hereto dated the Initial Borrowing Date from Murray, Devine & Co.
(j) Consummation of the Recapitalization; Equity Financing, etc. (i)
-----------------------------------------------------------
On the Initial Borrowing Date, the Recapitalization shall have been consummated,
(x) pursuant to which Acquisition Sub shall have merged with and into the
Borrower, with the Borrower as the surviving corporation of such merger (the
"Merger") and (y) as a result of which (immediately after giving effect thereto)
(A) Kelso and its Affiliates and the other Initial Shareholders shall own
approximately 93.0% of the issued and outstanding shares of Common Stock,
provided that Kelso and its Affiliates shall own at least 75% of the issued and
- --------
outstanding shares of Common Stock, (B) the Management Investors shall retain
shares of Common Stock with an aggregate value of at least $1,000,000, and (C)
holders of Common Stock (other than the Management Investors and Kelso) shall
retain such Common Stock with an aggregate value of at least $10,500,000.
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<PAGE>
(ii) On the Initial Borrowing Date, the Borrower shall have (before
giving effect to the financing transactions pursuant to this Agreement and
described herein) at least $18,000,000 of cash on hand, all of which cash on
hand shall be utilized to make payments owing in connection with the Transaction
prior to the utilization of any proceeds of Loans for such purpose.
(iii) On the Initial Borrowing Date, Acquisition Sub shall have
received cash proceeds in an aggregate amount equal to at least $139,500,000
from the issuance of common stock of Acquisition Sub to Kelso and its Affiliates
and the other Initial Shareholders as described in (i) of this Section 5.01(j)
and the full amount of such cash proceeds shall have been utilized to make
payments owing in connection with the Transaction prior to the utilization of
any proceeds of Loans for such purpose; provided that the aggregate amount of
--------
such cash proceeds may be reduced by an amount equal to the extent (if any) the
aggregate value of the shares of Common Stock retained by the Management
Investors pursuant to Section 5.01(j)(i)(B) exceeds $1,000,000.
(iv) On or prior to the Initial Borrowing Date, Unilab Finance shall
have received the entire net cash proceeds from the issuance of the Senior
Subordinated Notes in the aggregate amount of at least $150,000,000 free and
clear of any liens (and the escrow agreement in respect thereof, except for the
Sections entitled Indemnity and Concerning the Escrow Agent contained therein,
shall have terminated) and the Borrower shall have assumed the obligations of
Unilab Finance under the Senior Subordinated Notes and shall have utilized the
full amount of such cash proceeds to make payments owing in connection with the
Transaction prior to utilizing any proceeds of Loans for such purpose.
(v) On the Initial Borrowing Date, the Administrative Agent shall
have received true and correct copies of all Documents certified as such by an
appropriate officer of the Borrower, and the foregoing Documents, and all terms
and conditions thereof (including, without limitation, in the case of the Senior
Subordinated Notes Documents, amortization, maturities, interest rates,
limitation on cash interest payable, covenants, defaults, remedies, conversion
features and subordination provisions), as well as the structure of the
Transaction and the ownership interests in Acquisition Sub and the Borrower
prior to and after giving effect to the Transaction, shall be in form and
substance satisfactory to the Agents and the Required Lenders. All conditions
precedent to the consummation of the transaction as set forth in the Documents
entered into on or prior to such date in connection with the Transaction shall
have been satisfied, and not waived unless consented to by the Agents and the
Required Lenders, to the reasonable satisfaction of the Agents and the Required
Lenders. Each of the Recapitalization, the Equity Financing and the issuance of
the Senior Subordinated Notes shall have been consummated in accordance with the
terms and conditions of the applicable Documents and all applicable law.
(k) Refinancing, etc. (i) On the Initial Borrowing Date (after
----------------
having given effect to the Recapitalization) and concurrently with the
incurrence of Loans on such date, approximately $145,000,000 of Indebtedness of
the Borrower as previously identified to the Lenders shall have been repaid in
full, together with all fees and other amounts owing thereon (the "Refinanced
Indebtedness").
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<PAGE>
(ii) On the Initial Borrowing Date and concurrently with the
incurrence of Loans on such date, all security interests in respect of, and
Liens securing, the Refinanced Indebtedness shall have been terminated and
released, and the Administrative Agent shall have received all such releases as
may have been requested by the Administrative Agent, which releases shall be in
form and substance satisfactory to the Agents and the Required Lenders. Without
limiting the foregoing, there shall have been delivered to the Administrative
Agent (x) proper termination statements (Form UCC-3 or the appropriate
equivalent) for filing under the UCC of each jurisdiction where a financing
statement (Form UCC-1 or the appropriate equivalent) was filed with respect to
the Borrower or any of its Subsidiaries in connection with the security
interests created with respect to the Refinanced Indebtedness and the
documentation related thereto and (y) terminations or reassignments of any
security interest in, or Lien on, any patents, trademarks, copyrights, or
similar interests of the Borrower or any of its Subsidiaries on which filings
have been made.
(iii) On the Initial Borrowing Date and after giving effect to the
Transaction, the Borrower shall have no Indebtedness outstanding other than (x)
the Loans, (y) the Senior Subordinated Notes, and (z) certain other indebtedness
existing on the Initial Borrowing Date as listed on Annex IV (with the
Indebtedness described in this sub-clause (z) being herein called the "Existing
Indebtedness"). On and as of the Initial Borrowing Date, all of the Existing
Indebtedness and the terms and documentation evidencing such Existing
Indebtedness (including Existing Indebtedness in respect of assumed Capital
Lease Obligations in an aggregate outstanding principal amount not to exceed
$4,500,000, the "Existing Indebtedness Agreements") shall be satisfactory to the
Administrative Agent and shall remain outstanding after giving effect to the
Transaction and the other transactions contemplated hereby without any material
default or event of default existing thereunder or arising as a result of the
Transaction and the other transactions contemplated hereby (except to the extent
amended or waived by the parties thereto on terms and conditions satisfactory to
the Agents and the Required Lenders), and there shall not be any amendments or
modifications to the Existing Indebtedness Agreements other than as requested or
approved by the Agents or the Required Lenders.
(iv) The Administrative Agent shall have received evidence in form,
scope and substance reasonably satisfactory to the Agent and the Required
Lenders that the matters set forth in this Section 5.01(k) have been satisfied
on the Initial Borrowing Date.
(l) Insurance Policies. The Collateral Agent shall have received
------------------
evidence of insurance complying with the requirements of Section 7.03 for the
business and properties of the Borrower in form and substance satisfactory to
the Agent and, with respect to all casualty insurance, naming the Collateral
Agent as an additional insured and loss payee.
(m) Fees. On the Initial Borrowing Date, the Borrower shall have
----
paid to the Agents and the Lenders all Fees and expenses agreed upon by such
parties to be paid on or prior to such date.
(n) Consent Letter. On the Initial Borrowing Date, the
--------------
Administrative Agent shall have received a letter from CT Corporation System,
presently located at 111 Eighth Avenue, New York, New York 10011, substantially
in the form of Exhibit J, indicating its
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<PAGE>
consent to its appointment by the Borrower or the Borrower's agent to receive
service of process as specified in Section 12.08.
(o) Employee Benefit Plans; Shareholders' Agreements; Management
------------------------------------------------------------
Agreements; Employment Agreements; Collective Bargaining Agreements; Material
- -----------------------------------------------------------------------------
Contracts; Tax Allocation Agreements. On or prior to the Initial Borrowing
- ------------------------------------
Date, there shall have been delivered to the Administrative Agent true and
correct copies, certified as true and complete by an appropriate officer of the
Borrower of the following documents, in each case as same will be in effect on
the Initial Borrowing Date after the consummation of the Transaction:
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information), and for each Plan
that is a "single-employer plan," as defined in Section 4001(a)(15) of
ERISA, the most recently prepared actuarial valuation therefor) and any
other "employee benefit plans," as defined in Section 3(3) of ERISA, and
any other material agreements, plans or arrangements, with or for the
benefit of current or former employees of the Borrower or any ERISA
Affiliate (provided that the foregoing shall apply in the case of any
--------
Multiemployer Plan, only to the extent that any document described therein
is in the possession of the Borrower or any ERISA Affiliate) (collectively,
the "Employee Benefit Plans");
(ii) all agreements (including, without limitation, shareholders'
agreements, subscription agreements and registration rights agreements)
entered into by the Borrower governing the terms and relative rights of its
capital stock and any agreements entered into by shareholders relating to
any such entity with respect to its capital stock (collectively, the
"Shareholders' Agreements");
(iii) all material agreements with members of, or with respect to,
the management of the Borrower after giving effect to the Transaction
(collectively, the "Management Agreements");
(iv) any material employment agreements entered into by the Borrower
after giving effect to the Transaction (collectively, the "Employment
Agreements");
(v) all collective bargaining agreements applying or relating to
any employee of the Borrower after giving effect to the Transaction
(collectively, the "Collective Bargaining Agreements");
(vi) all other material contracts and licenses (other than
certificates of need) of the Borrower after giving effect to the
Transaction (collectively the "Material Contracts"); and
(vii) any tax sharing or tax allocation agreements entered into by
the Borrower (collectively, the "Tax Allocation Agreements");
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<PAGE>
all of which Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Employment Agreements, Collective Bargaining Agreements, Material
Contracts and Tax Allocation Agreements shall be in form and substance
reasonably satisfactory to the Agents and the Required Lenders and shall be in
full force and effect on the Initial Borrowing Date.
5.02 Conditions Precedent to All Credit Events. The obligation of
-----------------------------------------
each Lender to make Loans (including Loans made on the Initial Borrowing Date)
and the obligation of a Letter of Credit Issuer to issue any Letter of Credit is
subject, at the time of each such Credit Event, to the satisfaction of the
following conditions:
(a) Notice of Borrowing; Letter of Credit Request. The
---------------------------------------------
Administrative Agent shall have received a Notice of Borrowing meeting the
requirements of Section 1.03 with respect to the incurrence of Loans or a Letter
of Credit Request meeting the requirements of Section 2.03 with respect to the
issuance of a Letter of Credit.
(b) No Default; Representations and Warranties. At the time of each
------------------------------------------
Credit Event and also after giving effect thereto, (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties made by
any Credit Party contained herein or in the other Credit Documents shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event, except to the extent that such representations and warranties
expressly relate to an earlier date, in which case all such representations and
warranties shall be true and correct in all material respects as of such earlier
date.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to the Agents and each of the
Lenders that all of the applicable conditions specified in Section 5.01 (in the
case of the Credit Events occurring on the Effective Date) and/or 5.02, as the
case may be, exist as of that time. All of the certificates, legal opinions and
other documents and papers referred to in Section 5.01, unless otherwise
specified, shall be delivered to the Administrative Agent at its Notice Office
for the account of each of the Lenders and, except for the Notes, in sufficient
counterparts or copies for each of the Lenders and shall be satisfactory in form
and substance to the Agents.
SECTION 6. Representations, Warranties and Agreements. In order to
------------------------------------------
induce the Lenders to enter into this Agreement and to make the Loans and issue
and/or participate in Letters of Credit provided for herein, the Borrower makes
the following representations and warranties to, and agreements with, the
Lenders, all of which shall survive the execution and delivery of this Agreement
and the making of the Loans (with the making of each Credit Event thereafter
being deemed to constitute a representation and warranty that the matters
specified in this Section 6 are true and correct in all material respects on and
as of the date of each such Credit Event unless such representation and warranty
expressly indicates that it is being made as of any specific earlier date unless
stated to relate to a specific earlier date, in which case all representations
and warranties specifically relating to an earlier date shall be true and
correct in all material respects as of such earlier date):
6.01 Company Status. Each of the Borrower and its Subsidiaries, if
--------------
any, (i) is a duly organized and validly existing Company in good standing under
the laws of the jurisdiction
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<PAGE>
of its organization and has the Company power and authority to own its property
and assets and to transact the business in which it is engaged and presently
proposes to engage and (ii) has duly qualified and is authorized to do business
and is in good standing in all jurisdictions where it is required to be so
qualified and where the failure to be so qualified would have a Material Adverse
Effect.
6.02 Company Power and Authority. Each Credit Party has the Company
---------------------------
power and authority to execute, deliver and carry out the terms and provisions
of the Credit Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents to which it is a party. Each Credit Party has duly executed and
delivered each Credit Document to which it is a party and each such Document
constitutes the legal, valid and binding obligation of such Person enforceable
in accordance with its terms, except to the extent that the enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws generally affecting creditors' rights and by
equitable principles (regardless of whether enforcement is sought in equity or
at law).
6.03 No Violation. Neither the execution, delivery and performance
------------
by any Credit Party of the Credit Documents to which it is a party nor
compliance with the terms and provisions thereof, nor the consummation of the
transactions contemplated therein (i) will contravene any applicable provision
of any law, statute, rule, regulation, order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will materially conflict with or be
inconsistent with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or (other than
pursuant to the Security Documents) result in the creation or imposition of (or
the obligation to create or impose) any Lien upon any of the property or assets
of the Borrower or any of its Subsidiaries, if any, pursuant to the terms of any
indenture, mortgage, deed of trust, agreement or other instrument to which the
Borrower or any of its Subsidiaries, if any, is a party or by which it or any of
its property or assets are bound or to which it may be subject or (iii) will
violate any provision of the certificate of incorporation, by-laws, certificate
of partnership, partnership agreement, certificate of limited liability company,
limited liability company agreement or equivalent organizational document, as
the case may be, of the Borrower or any of its Subsidiaries.
6.04 Litigation. Except as set forth on Annex III, there are no
----------
actions, suits or proceedings pending or threatened with respect to the Borrower
or any of its Subsidiaries, if any, (i) that are likely to have a Material
Adverse Effect or (ii) that could reasonably be expected to have a material
adverse effect on the rights or remedies of the Lenders or on the ability of any
Credit Party to perform its obligations to them hereunder and under the other
Credit Documents to which it is a party. Additionally, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the occurrence of any Credit Event.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all A
-----------------------------------
Term Loans and B Term Loans shall be utilized on the Initial Borrowing Date (i)
to finance a portion of the Refinancing of certain existing Indebtedness of the
Borrower in an aggregate amount not to exceed $145,000,000 and (ii) to finance a
portion of the Recapitalization and to pay certain fees and expenses relating
thereto in an aggregate amount not to exceed $48,400,000.
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(b) The proceeds of all Revolving Loans shall be used for the general
corporate and working capital purposes of the Borrower and its Subsidiaries, if
any; provided, however, that proceeds of Revolving Loans in an aggregate amount
-------- -------
not to exceed $3,000,000 may be utilized by the Borrower for the purposes
described in Section 6.05(a) above.
(c) The proceeds of all Swingline Loans shall be utilized for the
general corporate and working capital purposes of the Borrower and its
Subsidiaries, if any.
(d) Neither the making of any Loan hereunder, nor the use of the
proceeds thereof, will violate or be inconsistent with the provisions of
Regulation T, U or X of the Board of Governors of the Federal Reserve System and
no part of the proceeds of any Loan will be used to purchase or carry any Margin
Stock in violation of Regulation U or to extend credit for the purpose of
purchasing or carrying any Margin Stock.
6.06 Governmental Approvals. Except for filings and recordings in
----------------------
connection with the Security Documents and SEC filings no order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any foreign or domestic governmental or
public body or authority, or any subdivision thereof, is required to authorize
or is required in connection with (i) the execution, delivery and performance of
any Credit Document or (ii) the legality, validity, binding effect or
enforceability of any Credit Document.
6.07 Investment Company Act. Neither the Borrower nor any of its
----------------------
Subsidiaries, if any, is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
6.08 Public Utility Holding Company Act. Neither the Borrower nor any
----------------------------------
of its Subsidiaries, if any, is a "holding company", or a "subsidiary company"
of a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.09 True and Complete Disclosure. All factual information (taken as
----------------------------
a whole) heretofore or contemporaneously furnished by or on behalf of the
Borrower or any of its Subsidiaries, if any, or Acquisition Sub in writing to
any Agent or any Lender for purposes of or in connection with this Agreement or
any transaction contemplated herein is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of any such Person in
writing to any Lender will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information (taken as
a whole) not misleading at such time in light of the circumstances under which
such information was provided. The projections and pro forma financial
--- -----
information contained in such materials are based on good faith estimates and
assumptions believed by such Persons to be reasonable at the time made, it being
recognized by the Lenders that such projections as to future events are not to
be viewed as facts and that actual results during the period or periods covered
by any such projections may differ from the projected results. There is no fact
known to the Borrower which would have a Material Adverse Effect, which has not
been disclosed herein or in such other documents, certificates and
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statements furnished to the Lenders for use in connection with the transactions
contemplated hereby.
6.10 Financial Condition; Financial Statements. (a) On and as of the
-----------------------------------------
Initial Borrowing Date, on a pro forma basis after giving effect to the
--- -----
Transaction and to all Indebtedness incurred, and to be incurred, and Liens
created, and to be created, by each Credit Party in connection herewith, (x) the
sum of the assets, at a fair valuation, of the Borrower and its Subsidiaries, if
any, taken as a whole will exceed its debts, (y) the Borrower and its
Subsidiaries, if any, taken as a whole will not have incurred or intended to, or
believe that they will, incur debts beyond their ability to pay such debts as
such debts mature and (z) the Borrower and its Subsidiaries, if any, taken as a
whole will not have unreasonably small capital with which to conduct its
business. For purposes of this Section 6.10, "debt" means any liability on a
claim, and "claim" means (i) right to payment whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (ii)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(b) (i) The consolidated balance sheet of the Borrower at
December 31, 1998 and June 30, 1999 and the related statements of operations and
cash flows of the Borrower for the fiscal year or the six-month period, as the
case may be, ended as of said dates, which, in the case of the December 31, 1998
statements, have been examined by Arthur Andersen & Co. independent certified
public accountants, who delivered an unqualified opinion in respect therewith,
and (ii) the pro forma balance sheet of the Borrower as of June 30, 1999, copies
--- -----
of which have heretofore been furnished to each Lender, present fairly the
financial position of such entities at the dates of said statements and the
results for the periods covered thereby (or, in the case of the pro forma
--- -----
balance sheet, presents a good faith estimate of the pro forma financial
--- -----
condition of the Borrower at the date thereof) in accordance with GAAP, except
to the extent provided in the notes to said financial statements and, in the
case of the June 30, 1999 statements, subject to normal and recurring year-end
audit adjustment. All such financial statements (other than the aforesaid pro
---
forma balance sheets) have been prepared in accordance with generally accepted
- -----
accounting principles and practices consistently applied except to the extent
provided in the notes to said financial statements. Nothing has occurred since
December 31, 1998 that has had or could reasonably be expected to have a
Material Adverse Effect.
(c) Except as fully reflected in the financial statements and the
notes thereto described in Section 6.10(b), the Indebtedness incurred under this
Agreement and the Senior Subordinated Notes, there were as of the Initial
Borrowing Date no liabilities or obligations with respect to the Borrower or any
of its Subsidiaries, if any, of a nature (whether absolute, accrued, contingent
or otherwise and whether or not due) which, either individually or in aggregate,
would be material to the Borrower and its Subsidiaries, if any, taken as a
whole, except as incurred in the ordinary course of business consistent with
past practices subsequent to December 31, 1998.
6.11 Security Interests. On and after the Initial Borrowing Date,
------------------
each of the Security Documents creates (or after the execution and delivery
thereof will create), as security for the Obligations purported to be secured
thereby, a valid and enforceable perfected security interest in and Lien on all
of the Collateral subject thereto, superior to and prior to the rights of
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all third Persons and subject to no other Liens (except that the Security
Agreement Collateral may be subject to the security interests evidenced by
Permitted Liens relating thereto), in favor of the Collateral Agent for the
benefit of the Lenders. No filings or recordings are required in order to
perfect the security interests created under any Security Document except for
filings or recordings required in connection with any such Security Document
(other than the Pledge Agreement which may be executed and delivered after the
Initial Borrowing Date) which shall have been made upon or prior to (or are the
subject of arrangements, satisfactory to the Administrative Agent, for filing on
or promptly after the date of) the execution and delivery thereof.
6.12 Tax Returns and Payments. Except as set forth on Annex V, the
------------------------
Borrower and each of its Subsidiaries, if any, has filed all federal income tax
returns and all other material tax returns, domestic and foreign, required to be
filed by it and has paid all material taxes and assessments payable by it which
have become due, other than those not yet delinquent and except for those
contested in good faith which are adequately disclosed and fully provided for on
the financial statements of the Borrower and its Subsidiaries, if any, in
accordance with GAAP. The Borrower and each of its Subsidiaries, if any, have
paid, or have provided adequate reserves (in the good faith judgment of the
management of the Borrower) for the payment of, all federal, state and foreign
income taxes applicable for all prior fiscal years and for the current fiscal
year to the date hereof. As of the Initial Borrowing Date there is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of the Borrower or any of its Subsidiaries, if any, threatened by any
authority regarding any taxes relating to the Borrower or any of its
Subsidiaries, if any. Neither the Borrower nor any of its Subsidiaries, if any,
has entered into an agreement or waiver or been requested to enter into an
agreement or waiver extending any statute of limitations relating to the payment
or collection of taxes of the Borrower or any of its Subsidiaries, if any, or is
aware of any circumstances that would cause the taxable years or other taxable
periods of the Borrower or any of its Subsidiaries, if any, not to be subject to
the normally applicable statute of limitations.
6.13 Compliance with ERISA. Each Plan is in substantial compliance
---------------------
with ERISA and the Code; no Reportable Event has occurred with respect to a
Plan; no Plan is insolvent or in reorganization; no Plan has an Unfunded Current
Liability; no Plan has an accumulated or waived funding deficiency, has
permitted decreases in its funding standard account or has applied for an
extension of any amortization period within the meaning of Section 412 of the
Code; neither the Borrower, nor any Subsidiary, if any, nor any ERISA Affiliate
has incurred any material liability to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code or expects to incur
any liability (including any indirect, contingent or secondary liability) under
any of the foregoing Sections with respect to any Plan; no proceedings have been
instituted to terminate or appoint a trustee to administer any Plan; no
condition exists which presents a material risk to the Borrower or any
Subsidiary, if any, or any ERISA Affiliate of incurring a liability to or on
account of a Plan pursuant to the foregoing provisions of ERISA and the Code;
using actuarial assumptions and computation methods consistent with Part 1 of
subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and
its Subsidiaries, if any, and its ERISA Affiliates to all Plans which are
multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of
a complete withdrawal therefrom, as of the close of the most recent fiscal year
of each such Plan ended prior to the date of the most recent Credit Event,
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<PAGE>
would not exceed $5,000,000; no lien imposed under the Code or ERISA on the
assets of the Borrower or any Subsidiary, if any, or any ERISA Affiliate exists
or is likely to arise on account of any Plan; and the Borrower and its
Subsidiaries, if any, do not maintain or contribute to any employee welfare
benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to
retired employees (other than as required by Section 601 of ERISA) or any
employee pension benefit plan (as defined in Section 3(2) of ERISA), except to
the extent that all events described in the preceding clauses of this Section
6.13 and then in existence would not, in the aggregate, have or be likely to
have a Material Adverse Effect. With respect to Plans that are multiemployer
plans (within the meaning of Section 4001(a)(3) of ERISA) the representations
and warranties in this Section 6.13 are made to the best knowledge of the
Borrower.
6.14 Subsidiaries. (a) The Borrower has no Subsidiaries on the
------------
Initial Borrowing Date.
(b) Prior to the consummation of the Transaction, Acquisition Sub had
no Subsidiaries.
(c) On and after the Initial Borrowing Date, there are no
restrictions on the Borrower or any of its Subsidiaries, if any, which prohibit
or otherwise restrict the transfer of cash or other assets from any Subsidiary,
if any, of the Borrower to the Borrower, other than prohibitions or restrictions
existing under or by reason of (i) this Agreement, the other Credit Documents or
the Senior Subordinated Note Documents, (ii) applicable law, (iii) customary
non-assignment provisions entered into in the ordinary course of business and
consistent with past practices, (iv) any restriction or encumbrance with respect
to a Subsidiary, if any, of the Borrower imposed pursuant to an agreement which
has been entered into for the sale or disposition of all or substantially all of
the capital stock or assets of such Subsidiary, so long as such sale or
disposition is permitted under this Agreement, and (v) any documents or
instruments governing the terms of any Indebtedness or other obligations secured
by Liens permitted by Section 8.03, provided that such prohibitions or
--------
restrictions apply only to the assets subject to such Liens.
6.15 Patents, etc. The Borrower and each of its Subsidiaries, if
-------------
any, have obtained all material patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their businesses taken as a whole as
presently conducted and as proposed to be conducted.
6.16 Environmental Matters. (a) Each of the Borrower and its
---------------------
Subsidiaries, if any, is in compliance with all applicable Environmental Laws
governing its business for which failure to comply is likely to have a Material
Adverse Effect, and neither the Borrower nor any of its Subsidiaries, if any, is
liable for any material penalties, fines or forfeitures for failure to comply
with any of the foregoing in the manner set forth above. All licenses, permits,
registrations or approvals required for the business of the Borrower and each of
its Subsidiaries, if any, as conducted as of the Initial Borrowing Date, under
any Environmental Law have been secured and the Borrower and each of its
Subsidiaries, if any, is in substantial compliance therewith, except such
licenses, permits, registrations or approvals the failure to secure or to comply
therewith is not likely to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries, if any, is in any respect in noncompliance with,
breach of or default under any
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<PAGE>
applicable writ, order, judgment, injunction, or decree to which the Borrower or
such Subsidiary is a party or which would affect the ability of the Borrower or
such Subsidiary to operate any real property and no event has occurred and is
continuing which, with the passage of time or the giving of notice or both,
would constitute noncompliance, breach of or default thereunder, except in each
such case, such noncompliance, breaches or defaults as are not likely to, in the
aggregate, have a Material Adverse Effect. There are as of the Initial
Borrowing Date no Environmental Claims pending or, to the best knowledge of the
Borrower, threatened, which (a) question the validity, term or entitlement of
the Borrower or any of its Subsidiaries, if any, for any permit, license, order
or registration required for the operation of any facility which the Borrower or
any of its Subsidiaries, if any, currently operates and (b) wherein an
unfavorable decision, ruling or finding would be reasonably likely to have a
Material Adverse Effect. There are no facts, circumstances, conditions or
occurrences on any Real Property or, to the knowledge of the Borrower, on any
property adjacent to any such Real Property that could reasonably be expected
(i) to form the basis of an Environmental Claim against the Borrower, any of its
Subsidiaries, if any, or any Real Property of the Borrower or any of its
Subsidiaries, if any, or (ii) to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real
Property under any Environmental Law, except in each such case, such
Environmental Claims or restrictions that individually, or in the aggregate, are
not reasonably likely to have a Material Adverse Effect.
(b) Hazardous Materials have not at any time been (i) generated,
used, treated or stored on, or transported to or from, any Real Property of the
Borrower or any of its Subsidiaries, if any, or (ii) released on any Real
Property, in each case where such occurrence or event individually or in the
aggregate is reasonably likely to have a Material Adverse Effect.
(c) Notwithstanding anything to the contrary in this Section 6.16,
the representations made in this Section 6.16 shall only be untrue if the
aggregate effect of all conditions, failures, noncompliance and Environmental
Claims, in each case of the types described above, would reasonably be expected
to have a Material Adverse Effect.
6.17 Properties. The Borrower and each of its Subsidiaries, if any,
----------
have good and marketable title to all properties owned by them other than as
otherwise permitted by Section 8.03. Annex VI contains a true and complete list
of each Real Property owned or leased by the Borrower or any of its
Subsidiaries, if any, on the Initial Borrowing Date and the type of interest
therein held by the Borrower or the respective Subsidiary, if any.
6.18 Labor Relations. No Credit Party is engaged in any unfair labor
---------------
practice that could reasonably be expected to have a Material Adverse Effect.
There is (i) no unfair labor practice complaint pending against any Credit Party
or threatened against any of them, before the National Labor Relations Board,
and no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against any Credit Party or
threatened against any of them, (ii) no strike, labor dispute, slowdown or
stoppage pending against any Credit Party or threatened against any Credit Party
and (iii) no union representation question existing with respect to the
employees of any Credit Party and no union organizing activities are taking
place, except with respect to any matter specified in clause (i), (ii) or (iii)
above, either individually or in the aggregate, such as is not reasonably likely
to have a Material Adverse Effect.
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<PAGE>
6.19 Senior Subordinated Notes. On and after the issuance thereof,
-------------------------
the subordination provisions contained in the Senior Subordinated Notes are
enforceable by the Lenders against the Borrower and the holders of such Senior
Subordinated Notes, and all Obligations of the Borrower are or will be within
the definition of "Senior Indebtedness" included in such provisions of the
Senior Subordinated Note Documents.
6.20 Existing Indebtedness. Annex IV sets forth a true and complete
---------------------
list of all Existing Indebtedness, in each case showing the aggregate principal
amount thereof and the name of the respective borrower (or issuer) and any other
entity which directly or indirectly guaranteed such debt.
SECTION 7. Affirmative Covenants. The Borrower covenants and agrees
---------------------
that on the Initial Borrowing Date and thereafter for so long as this Agreement
is in effect and until the Commitments have terminated, no Letters of Credit
(other than Letters of Credit, together with all Fees that have accrued and will
accrue thereon through the stated termination date of such Letters of Credit,
which have either been (a) cash collateralized in a manner satisfactory to the
respective Letter of Credit Issuer or (b) backstopped by a letter of credit or
other security acceptable to the respective Letter of Credit Issuer) or Notes
are outstanding and the Loans and Unpaid Drawings, together with interest, Fees
and all other Obligations (other than any indemnities described in Section 12.13
which are not then due and payable).
7.01 Information Covenants. The Borrower will furnish to each
---------------------
Lender:
(a) Annual Financial Statements. Within 90 days after the close of
---------------------------
each fiscal year of the Borrower, the consolidated balance sheet of the Borrower
and its Subsidiaries, if any, as at the end of such fiscal year and the related
consolidated statements of income and retained earnings and of cash flows for
such fiscal year, in each case setting forth comparative consolidated figures
for the preceding fiscal year, and examined by independent certified public
accountants of recognized national standing whose opinion shall not be qualified
as to the scope of audit and as to the status of the Borrower or any of its
Subsidiaries, if any, as a going concern, together with a certificate of such
accounting firm stating that in the course of its regular audit of the business
of the Borrower, which audit was conducted in accordance with generally accepted
auditing standards, such accounting firm has obtained no knowledge of any
Default or Event of Default which has occurred and is continuing or, if in the
opinion of such accounting firm such a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof.
(b) Quarterly Financial Statements. As soon as available and in any
------------------------------
event within 45 days after the close of each of the first three quarterly
accounting periods in each fiscal year, the consolidated balance sheet of the
Borrower and its Subsidiaries, if any, as at the end of such quarterly period
and the related consolidated statements of income and retained earnings and of
cash flows for such quarterly period and for the elapsed portion of the fiscal
year ended with the last day of such quarterly period, and in each case setting
forth comparative consolidated figures for the related periods in the prior
fiscal year, all of which shall be certified by the chief financial officer or
controller or other Authorized Officer of the Borrower, subject to changes
resulting from audit and normal year-end audit adjustments.
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(c) Monthly Reports. As soon as practicable, and in any event within
---------------
30 days, after the end of each monthly accounting period of each fiscal year
(other than the last monthly accounting period in such fiscal year) the
consolidated balance sheet of the Borrower and its Subsidiaries, if any, as at
the end of such period, and the related consolidated statements of income and
retained earnings for such period, setting forth comparative figures for the
corresponding period of the previous year to the extent available, all of which
shall be certified by the chief financial officer or controller or other
Authorized Officer of the Borrower subject to changes resulting from audit and
normal year-end audit adjustments.
(d) Budgets; etc. Not more than 60 days after the commencement of
------------
each fiscal year of the Borrower, a budget of the Borrower and its Subsidiaries,
if any, in reasonable detail for each of the twelve months of such fiscal year.
Together with each delivery of consolidated financial statements pursuant to
Section 7.01(a), (b) and (c), a comparison of the current year-to-date financial
results against the budgets required to be submitted pursuant to this clause (d)
shall be presented.
(e) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Section 7.01(a), (b) and (c), a certificate
of the chief financial officer, controller or other Authorized Officer of the
Borrower to the effect that no Default or Event of Default exists or, if any
Default or Event of Default does exist, specifying the nature and extent
thereof, which certificate, in the case of the certificate delivered pursuant to
Section 7.01(a) and (b), shall set forth the calculations required to establish
(I) the Total Leverage Ratio for the Relevant Test Period ending on the last day
of such fiscal year or period and (II) whether the Borrower and its
Subsidiaries, if any, were in compliance with the provisions of Sections 8.05,
8.07, 8.08(a) (but only to the extent the Borrower has made payments of the type
described in clause (ii) thereof in such period or year), 8.10 and 8.11 as at
the end of such fiscal period or year, as the case may be.
(f) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within three Business Days (or 10 Business Days in the case of clause (y) below)
after the Borrower obtains knowledge thereof, notice of (x) the occurrence of
any event which constitutes a Default or Event of Default which notice shall
specify the nature thereof, the period of existence thereof and what action the
Borrower proposes to take with respect thereto and (y) the commencement of or
any significant development in any litigation or governmental proceeding pending
against the Borrower or any of its Subsidiaries, if any, which is reasonably
likely to have a Material Adverse Effect or is likely to have a material adverse
effect on the ability of the Borrower or any Credit Party to perform its
obligations hereunder or under any other Credit Document.
(g) Auditors' Reports. Promptly upon receipt thereof, a copy of each
-----------------
other final report or "management letter" submitted to the Borrower by its
independent accountants in connection with any annual, interim or special audit
made by it of the books of the Borrower.
(h) Environmental Matters. Promptly after obtaining knowledge of any
---------------------
of the following (but only to the extent that any of the following could
reasonably be expected to have a Material Adverse Effect, either individually or
in the aggregate) written notice of:
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<PAGE>
(i) any pending or threatened Environmental Claim against the
Borrower or any of its Subsidiaries, if any, or any Real Property owned or
operated by the Borrower or any of its Subsidiaries, if any;
(ii) any condition or occurrence on any Real Property owned or
operated by the Borrower or any of its Subsidiaries, if any, that (x)
results in noncompliance by the Borrower or any of its Subsidiaries, if
any, with any applicable Environmental Law or (y) could reasonably be
anticipated to form the basis of an Environmental Claim against the
Borrower or any of its Subsidiaries, if any, or any such Real Property;
(iii) any condition or occurrence on any Real Property owned or
operated by the Borrower or any of its Subsidiaries, if any, that could
reasonably be anticipated to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability by the
Borrower or its Subsidiary, if any, as the case may be, of its interest in
such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real Property
owned or operated by the Borrower or any of its Subsidiaries, if any.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and the
Borrower's response or proposed response thereto. In addition, the Borrower
agrees to provide the Lenders with copies of all material communications by the
Borrower or any of its Subsidiaries, if any, with any Person, government or
governmental agency relating to any of the matters set forth in clauses (i)-(iv)
above, and such detailed reports relating to any of the matters set forth in
clauses (i)-(iv) above as may reasonably be requested by the Administrative
Agent or the Required Lenders.
(i) Other Information. Promptly upon transmission thereof, (i)
-----------------
copies of any filings and registrations with, and reports to, the Securities and
Exchange Commission or any successor thereto (the "SEC") by the Borrower or any
of its Subsidiaries, if any (ii) copies of any material complaints or
correspondence received from the Federal Trade Commission and/or the postal
service (x) regarding compliance with the Federal Trade Commission Act, as
amended (15 U.S.C. Subsection 45) or (y) in connection with advertising
materials distributed by the Borrower, and (iii) with reasonable promptness,
such other information or documents (financial or otherwise) as the
Administrative Agent or the Required Lenders may reasonably request from time to
time.
7.02 Books, Records and Inspections. The Borrower will, and will
------------------------------
cause its Subsidiaries, if any, to, permit, upon reasonable notice to the chief
financial officer, controller or any other Authorized Officer of the Borrower
(except when a Default or Event of Default has occurred and is continuing, in
which case, no notice shall be required) (x) officers and designated
representatives of any Agent or the Required Lenders to visit and inspect any of
the properties or assets of the Borrower and any of its Subsidiaries, if any, in
whomsoever's possession, and to examine the books of account of the Borrower and
any of its Subsidiaries, if any, and discuss the affairs, finances and accounts
of the Borrower and of any of its Subsidiaries, if any, with, and be advised as
to the same by, its and their officers and independent accountants, all at such
reason-
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able times and intervals and to such reasonable extent as any Agent or the
Required Lenders may desire and (y) if an Event of Default has occurred and is
continuing, any Agent, or a third party designated by such Agent, to conduct, at
the Borrower's expense, an audit of the accounts receivable and inventories of
the Borrower and its Subsidiaries, if any, at such times as such Agent shall
reasonably require.
7.03 Insurance. The Borrower will, and will cause each of its
---------
Subsidiaries, if any, to, at all times maintain in full force and effect
insurance in such amounts, covering such risks and liabilities and with such
deductibles or self-insured retentions as are in accordance with normal industry
practice. At any time that insurance at the levels described in Annex VII is
not being maintained by the Borrower and its Subsidiaries, if any, the Borrower
will notify the Lenders in writing thereof and, if thereafter notified by any
Agent to do so, the Borrower will, and will cause its Subsidiaries, if any, to,
obtain insurance at such levels at least equal to those set forth in Annex VII
to the extent then generally available or otherwise as are acceptable to such
Agent. The Borrower will, and will cause each of its Subsidiaries, if any, to,
furnish on the Initial Borrowing Date and annually thereafter to the
Administrative Agent a summary of the insurance carried together with
certificates of insurance and other evidence of such insurance, if any, naming
the Collateral Agent as an additional insured and/or loss payee.
7.04 Payment of Taxes. The Borrower will pay and discharge, and will
----------------
cause each of its Subsidiaries, if any, to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien or charge upon any properties of the Borrower or any of its
Subsidiaries, if any, provided that neither the Borrower nor any Subsidiary, if
--------
any, shall be required to pay any such tax, assessment, charge, levy or claim
which is being contested in good faith and by proper proceedings if it has
maintained adequate reserves (in the good faith judgment of the management of
the Borrower) with respect thereto in accordance with GAAP.
7.05 Consolidated Corporate Franchises. The Borrower will do, and
---------------------------------
will cause each Subsidiary, if any, to do, or cause to be done, all things
necessary to preserve and keep in full force and effect its existence, material
rights and authority except to the extent any such action or omission would not
be reasonably likely to have a Material Adverse Effect, provided that any
--------
transaction permitted by Section 8.02 will not constitute a breach of this
Section 7.05.
7.06 Compliance with Statutes, etc. The Borrower will, and will
------------------------------
cause each Subsidiary to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property other than those the non-compliance with which would not have a
Material Adverse Effect or would not have a material adverse effect on the
ability of any Credit Party to perform its obligations under any Credit Document
to which it is party.
7.07 ERISA. As soon as possible and, in any event, within 10 days
-----
after the Borrower or any of its Subsidiaries, if any, knows or has reason to
know of the occurrence of any of the following, the Borrower will deliver to
each of the Lenders a certificate of the chief financial officer of the Borrower
setting forth details as to such occurrence and such action, if
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<PAGE>
any, which the Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant (other than notices relating to an individual participant's
benefits) or the Plan administrator with respect thereto: that a Reportable
Event has occurred; that an accumulated funding deficiency has been incurred or
an application is reasonably likely to be or has been made to the Secretary of
the Treasury for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code with respect to a Plan; that a
Plan which has an Unfunded Current Liability has been or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA; that a
Plan has an Unfunded Current Liability and there is a failure to make a required
contribution, which gives rise to a lien under ERISA or the Code; that
proceedings are reasonably likely to be or have been instituted to terminate a
Plan which has an Unfunded Current Liability; that a proceeding has been
instituted pursuant to Section 515 of ERISA to collect a delinquent contribution
to a Plan; that the Borrower, any Subsidiary, if any, or any ERISA Affiliate
will or is reasonably likely to incur any liability (including any contingent or
secondary liability) to or on account of the termination of or withdrawal from a
Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with
respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or
Section 409, 502(i) or 502(l) of ERISA or that the Borrower or any Subsidiary,
if any, may incur any material liability pursuant to any employee welfare
benefit plan (as defined in Section 3(1) of ERISA) that provides benefits to
retired employees or other former employees (other than as required by Section
601 of ERISA) or any Plan (as defined in Section 3(2) of ERISA) and, in any such
case, such an event would not be reasonably likely to have a Material Adverse
Effect. Upon request of a Lender, the Borrower will deliver to such Lender a
complete copy of the annual report (Form 5500) of each Plan required to be filed
with the Internal Revenue Service. In addition to any certificates or notices
delivered to the Lenders pursuant to the first sentence hereof, copies of any
annual reports and any other material notices received by the Borrower or any
Subsidiary, if any, with respect to a Plan shall be delivered to the Lenders no
later than 10 days after the later of the date such notice has been filed with
the Internal Revenue Service or the PBGC, given to Plan participants (other than
notices relating to an individual participant's benefits) or received by the
Borrower or such Subsidiary.
7.08 Good Repair. The Borrower will, and will cause each of its
-----------
Subsidiaries, if any, to, ensure that its properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and, subject
to Section 8.05, that from time to time there are made in such properties and
equipment all needful and proper repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto, to the extent and in the manner
useful or customary for companies in similar businesses.
7.09 End of Fiscal Years; Fiscal Quarters. The Borrower will, for
------------------------------------
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', if any, fiscal years to end on December 31 of each year and (ii)
each of its, and each of its Subsidiaries', if any, fiscal quarters to end on
March 31, June 30, September 30 and December 31 of each year.
7.10 Use of Proceeds. All proceeds of the Loans shall be used as
---------------
provided in Section 6.05.
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<PAGE>
7.11 Additional Security; Further Assurances. (a) The Borrower
---------------------------------------
will, and will cause its Domestic Subsidiaries, if any, to, grant to the
Collateral Agent security interests and mortgages (each, an "Additional
Mortgage") in such owned Real Property of the Borrower and its Subsidiaries as
may be requested from time to time by the Administrative Agent. All such
security interests and mortgages shall be granted pursuant to documentation
reasonably satisfactory in form and substance to the Administrative Agent and
shall constitute valid and enforceable Liens superior to and prior to the rights
of all third Persons and subject to no other Liens except as are permitted by
Section 8.03. The Additional Mortgages or instruments related thereto shall
have been duly recorded or filed in such manner and in such places as are
required by law to establish, perfect, preserve and protect the Liens in favor
of the Collateral Agent required to be granted pursuant to the Additional
Mortgages and all taxes, fees and other charges payable in connection therewith
shall have been paid in full.
(b) The Borrower will, and will cause its Domestic Subsidiaries, if
any, to, at the expense of the Borrower, make, execute, endorse, acknowledge,
file and/or deliver to the Collateral Agent from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, real
property surveys, reports and other assurances or instruments and take such
further steps relating to the collateral covered by any of the Security
Documents as the Collateral Agent may reasonably require. Furthermore, the
Borrower shall cause to be delivered to the Collateral Agent such opinions of
counsel, title insurance and other related documents as may be requested by the
Collateral Agent to assure themselves that this Section 7.11 has been complied
with.
(c) The Borrower agrees that each action required above by this
Section 7.11 shall be completed as soon as possible, but in no event later than
60 days after such action is requested to be taken by the Collateral Agent or
the Required Lenders, provided that in no event shall the Borrower be required
--------
to take any action, other than using its reasonable commercial efforts without
any material expenditure, to obtain consents from third parties with respect to
its compliance with this Section 7.11.
7.12 Compliance with Environmental Laws. (a) (i) The Borrower will
----------------------------------
comply, and will cause each of its Subsidiaries, if any, to comply, with all
Environmental Laws applicable to the ownership, lease or use of all Real
Property now or hereafter owned, leased or operated by the Borrower or any
Subsidiary, if any, will promptly pay or cause to be paid all costs and expenses
incurred in connection with such compliance, and will keep or cause to be kept
all such Real Property free and clear of any Liens imposed pursuant to such
Environmental Laws and (ii) neither the Borrower nor any of its Subsidiaries
will generate, use, treat, store, release or dispose of, or permit the
generation, use, treatment, storage, release or disposal of Hazardous Materials
on any Real Property now or hereafter owned, leased or operated by the Borrower
or any of its Subsidiaries, or transport or permit the transportation of
Hazardous Materials to or from any such Real Property, except in compliance with
all Environmental Laws and except to the extent that the failure to comply with
the requirements specified in clause (i) or (ii) above, either individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect.
-44-
<PAGE>
(b) At the written request of the Administrative Agent, the Borrower
or any of its Subsidiaries will provide, at their sole cost and expense, an
environmental site assessment report concerning any of their Real Properties,
prepared by an environmental consulting firm approved by the Administrative
Agent, which approval shall not be unreasonably withheld, indicating the
presence or absence of Hazardous Materials and the potential cost of any removal
or remedial action in connection with any Hazardous Materials on such Real
Property, provided that such request shall be made only if either (i) there
--------
exists an Event of Default under Section 9.02 or 9.03 or (ii) the Lenders
receive notice under Section 6.16 or this Section 7.12. If the Borrower or its
Subsidiaries fails to provide such environmental site assessment report within
90 days after such request was made, the Administrative Agent may order the
same, and the Borrower and its Subsidiaries shall grant and hereby grant to the
Administrative Agent and the Lenders and their agents access to such Property
and specifically grants the Administrative Agent and the Lenders an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment, all at the Borrower's expense.
7.13 Interest Rate Agreements. The Borrower will, no later than the
------------------------
date occurring 90 days after the Initial Borrowing Date, enter into Interest
Rate Agreements which cover, together with any Indebtedness on which interest
accrues at a fixed rate, for the period from the date thereof to at least three
years from the Initial Borrowing Date, 50% or more of the aggregate outstanding
principal amount of Term Loans and Senior Subordinated Notes, in each case on
terms reasonably satisfactory to the Administrative Agent and the Borrower.
7.14 Year 2000 Compliance. The Borrower will ensure that its
--------------------
Information Systems and Equipment are at all times after November 30, 1999 Year
2000 Compliant in all material respects, and shall notify the Administrative
Agent and each Lender promptly upon detecting any material failure of the
Information Systems and Equipment to be Year 2000 Compliant. In addition, the
Borrower shall provide the Administrative Agent and each Lender with such
information about its year 2000 computer readiness (including, without
limitation, information as to contingency plans, budgets and testing results) as
the Administrative Agent or such Lender shall reasonably request.
SECTION 8. Negative Covenants. The Borrower hereby covenants and
------------------
agrees that as of the Initial Borrowing Date and thereafter for so long as this
Agreement is in effect and until the Commitments have terminated, no Letters of
Credit (other than Letters of Credit, together with all fees that have and will
accrue thereon through the stated termination date of such Letter of Credit,
which have either been (a) cash collateralized in a manner satisfactory to the
respective Letter of Credit Issuer or (b) backstopped by a Letter of Credit or
other security acceptable to the respective Letter of Credit) or Notes are
outstanding and the Loans and Unpaid Drawings, together with interest, Fees and
all other Obligations incurred hereunder, are paid in full:
8.01 Changes in Business. The Borrower will not, and will not permit
-------------------
any of its Subsidiaries, if any, to, materially alter the character of the
business of the Borrower and its Subsidiaries from that conducted at the Initial
Borrowing Date, provided that this Section 8.01 shall not restrict the making of
--------
any investment expressly permitted by Section 8.06.
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<PAGE>
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc. The
-------------------------------------------------------
Borrower will not, and will not permit any Subsidiary to, wind up, liquidate or
dissolve its affairs, or enter into any transaction of merger or consolidation,
sell or otherwise dispose of all or any part of its property or assets (other
than inventory or obsolete equipment or excess equipment no longer needed in the
conduct of the business in the ordinary course of business) or purchase, lease
or otherwise acquire all or any part of the property or assets of any Person
(other than purchases or other acquisitions of inventory, leases, materials and
equipment in the ordinary course of business) or agree to do any of the
foregoing at any future time (unless such agreement is expressed to be subject
to the consent of the requisite Lenders hereunder or provides for or
contemplates a contemporaneous repayment of the Obligations), except that the
following shall be permitted:
(a) any Subsidiary of the Borrower may be merged or consolidated
with or into, or be liquidated into, the Borrower or a Guarantor (so long
as the Borrower or such Guarantor is the surviving corporation), or all or
any part of its business, properties and assets may be conveyed, leased,
sold or transferred to the Borrower or any Guarantor (or any other
Subsidiary), provided that neither the Borrower nor any Guarantor may be a
--------
party to any merger, consolidation or liquidation otherwise permitted
by this clause (a) involving a Subsidiary that is not a Wholly-Owned
Subsidiary;
(b) capital expenditures to the extent within the limitations set
forth in Section 8.05 hereof;
(c) the investments, acquisitions and transfers or dispositions of
properties permitted pursuant to Section 8.06;
(d) each of the Borrower and the Guarantors may lease (as lessee)
real or personal property in the ordinary course of business (so long as
such lease does not create a Capitalized Lease Obligation not otherwise
permitted by Section 8.04(d));
(e) licenses or sublicenses by the Borrower and its Guarantors of
software, customer lists, trademarks and other intellectual property in the
ordinary course of business, provided, that such licenses or sublicenses
--------
shall not interfere with the business of the Borrower or any Guarantor;
(f) other sales or dispositions of assets in the ordinary course of
business, provided that (w) the aggregate Net Cash Proceeds received from
--------
all such sales and dispositions shall not exceed $500,000 in any fiscal
year of the Borrower, (x) each such sale shall be in an amount at least
equal to the fair market value thereof (as determined by the Board of
Directors of the Borrower in the case of sales in excess of $100,000) and
for proceeds consisting solely of not less than (A) 80% cash and (B) seller
indebtedness evidenced by promissory notes which notes shall be pledged and
delivered to the Collateral Agent pursuant to the Pledge Agreement, which
if not previously executed and delivered prior to the date of such Asset
Sale shall be then executed and delivered at the time thereof, and (y) the
Net Cash Proceeds of any such sale are applied to repay the Loans to the
extent required by Section 4.02(A)(d), and provided further, that the sale
----------------
or disposition of the capital stock of any Subsidiary of the Borrower shall
be prohibited
-46-
<PAGE>
unless it is for all of the outstanding capital stock of such
Subsidiary owned by the Borrower or any Guarantor;
(g) other sales or dispositions of assets in each case to the extent
the Required Lenders have consented in writing thereto and subject to such
conditions as may be set forth in such consent;
(h) any Subsidiary may be liquidated into the Borrower or a
Guarantor;
(i) acquisitions and dispositions of Permitted Joint Ventures in
accordance with Section 8.06(g);
(j) the Borrower or any Guarantor may make any (x) acquisition
(including by merger or consolidation) by a Credit Party of 100% of the
capital stock and other equity or ownership interests in a Person or (y)
acquisition of all or substantially all of the property and activities of a
Person or a business with the Person whose stock, other interest or
property are acquired or the business whose property and activities are
acquired to be engaged in the United States (each a "Permitted
Acquisition") to the extent that: (A) no Default or Event of Default
exists at the time of such acquisition or would result therefrom, (B) the
Borrower shall be in compliance at the time of such acquisition with
Sections 8.10 and 8.11 determined on a Pro Forma Basis as if such
--- -----
acquisition, and the incurrence of any Indebtedness to finance same, were
effected on the first day of the last Test Period then ended, (C) the
aggregate consideration paid in connection therewith (including the
principal amount of Indebtedness assumed in connection therewith or the
fair market value of capital stock or assets) of all such Permitted
Acquisitions shall not exceed $15,000,000 per annum in cash plus (I) the
----
fair market value of any capital stock of the Borrower issued as
consideration for any such Permitted Acquisition and (II) the cash proceeds
of any capital stock of the Borrower issued in connection with any such
Permitted Acquisition and (D) the chief financial officer of the Borrower
shall have provided to the Administrative Agent prior to consummation of
any such acquisition a detailed certificate setting forth compliance with
the foregoing clauses (A) through (D); and
(k) the consummation of the Merger and the Recapitalization.
8.03 Liens. The Borrower will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Borrower or any of its Subsidiaries) or assign any right to receive income, or
file or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute, except:
(a) Liens for taxes not yet due or Liens for taxes being contested
in good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Borrower) have been
established;
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<PAGE>
(b) Liens in respect of property or assets of the Borrower or any of
its Subsidiaries imposed by law which were incurred in the ordinary course
of business, such as carriers', warehousemen's and mechanics' Liens,
statutory landlord's Liens, and other similar Liens arising in the ordinary
course of business, and (x) which do not in the aggregate materially
detract from the value of such property or assets or materially impair the
use thereof in the operation of the business of the Borrower or any
Subsidiary or (y) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or sale of the property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement or the other
Credit Documents;
(d) Liens on assets of the Borrower and each Subsidiary, if any,
existing on the Initial Borrowing Date and listed on Annex VIII hereto,
without giving effect to any subsequent extensions or renewals thereof;
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.09;
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts, performance
and return-of-money bonds and other similar obligations incurred in the
ordinary course of business (exclusive of obligations in respect of the
payment for borrowed money);
(g) leases or subleases granted to others not interfering in any
material respect with the business of the Borrower or any of its
Subsidiaries;
(h) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(i) Liens arising from UCC financing statements regarding leases
permitted by this Agreement;
(j) purchase money Liens securing payables arising from the purchase
by the Borrower or any Guarantor of any equipment or goods in the normal
course of business, provided that such payables shall not constitute
--------
Indebtedness;
(k) any interest or title of a lessor under any lease permitted by
this Agreement;
(l) Liens arising pursuant to purchase money mortgages or security
interests securing Indebtedness representing the purchase price of assets
acquired by the Borrower or any Guarantor, provided that any such Liens
--------
attach only to the assets so acquired and
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<PAGE>
that all Indebtedness secured by Liens created pursuant to this clause (l)
shall not exceed $2,500,000 at any time outstanding;
(m) Liens created pursuant to Capital Leases permitted pursuant to
Section 8.04(d); and
(n) Liens securing Indebtedness not in excess of $4,000,000 at any
time outstanding.
8.04 Indebtedness. The Borrower will not, and will not permit any of
------------
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Indebtedness owing by (i) any Guarantor to another Guarantor or
the Borrower, (ii) any other Subsidiary to another Subsidiary that is not a
Guarantor and (iii) the Borrower to any Guarantor;
(c) Indebtedness of the Borrower incurred under the Senior
Subordinated Notes and the other Senior Subordinated Note Documents
delivered in connection therewith shall not exceed $155,000,000 at any
time;
(d) Capitalized Lease Obligations of the Borrower and each
Guarantor, provided that the aggregate Capitalized Lease Obligations under
--------
all Capital Leases entered into after the Initial Borrowing Date shall not
exceed $10,000,000;
(e) Existing Indebtedness, without giving effect to any subsequent
extension, renewal or refinancing thereof;
(f) Indebtedness under Interest Rate Agreements relating to the
Loans on terms and conditions satisfactory to the Agents to the extent
determined, in good faith by the Borrower, to be non-speculative in nature;
(g) Indebtedness of the Borrower represented by the obligations of
the Borrower (which are subordinated to the Obligations) to make payments
with respect to the cancellation or repurchase of certain stock of
officers, employees and directors (or their estates) of the Borrower and
its Subsidiaries, if any, to the extent permitted by Section 8.08;
(h) Indebtedness incurred pursuant to purchase money mortgages
permitted by Section 8.03(l); and
(i) additional Indebtedness of the Borrower and the Guarantors not
to exceed an aggregate outstanding principal amount of $20,000,000 at any
time.
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<PAGE>
8.05 Capital Expenditures. (a) The Borrower will not, and will not
--------------------
permit any of its Subsidiaries to, incur Consolidated Capital Expenditures,
provided that the Borrower and the Guarantors may make Consolidated Capital
- --------
Expenditures of up to $7,000,000 in any fiscal year.
(b) In the event that the maximum amount which is permitted to be
expended in respect of Consolidated Capital Expenditures during any fiscal year
pursuant to Section 8.05(a) (without giving effect to this clause (b)) is not
fully expended during such fiscal year, the maximum amount which may be expended
during the immediately succeeding fiscal year pursuant to Section 8.05(a) shall
be increased by such unutilized amount, provided that such increase shall not
--------
exceed $3,000,000 in any fiscal year.
(c) In addition to the foregoing, the Borrower may make Consolidated
Capital Expenditures in amounts in excess of those permitted under Sections
8.05(a) and (b), (i) constituting Reinvestment Assets acquired pursuant to
Section 4.02(A)(d) or resulting from Recovery Events acquired pursuant to
Section 4.02(A)(g) or (ii) in an amount not to exceed the Available Excess Cash
Flow Amount at the time of such additional Consolidated Capital Expenditure
(determined before giving effect to the making of such additional Consolidated
Capital Expenditure).
8.06 Advances, Investments and Loans. The Borrower will not, and
-------------------------------
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to any
Person, except:
(a) the Borrower or any Subsidiary may invest in cash and Cash
Equivalents;
(b) the Borrower and any Subsidiary may acquire and hold receivables
owing to them, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms
(including the dating of receivables and extensions of payment in the
ordinary course of business consistent with past practices) of the
Borrower;
(c) the intercompany Indebtedness described in Section 8.04(b) shall
be permitted;
(d) loans and advances to employees in the ordinary course of
business in an aggregate principal amount not to exceed $1,000,000 at any
time outstanding shall be permitted;
(e) the Borrower and each Guarantor, if any, may acquire and own
investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement
of delinquent obligations of, and other disputes with, customers and
suppliers arising in the ordinary course of business;
(f) Interest Rate Agreements permitted by Section 8.04(f) shall be
permitted;
(g) the Borrower or any Guarantor, if any, may make investments in
Permitted Joint Ventures not to exceed $2,500,000 (plus amounts returned to
the Borrower as a
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<PAGE>
result of sales of such investment or pursuant to a dividend payment
thereunder), in the aggregate plus the Available Excess Cash Flow Amount at
----
the time of the making thereof (before giving effect thereto);
(h) the Borrower may make contributions to an employee stock
ownership plan, provided such contributions are in Common Stock;
(i) the Borrower may hold the promissory notes acquired in
accordance with Section 8.02(f);
(j) the Borrower may make investments constituting Permitted
Acquisitions;
(k) the Borrower may consummate the Recapitalization; and
(l) the Borrower or any of its Subsidiaries may make additional
loans, advances and investments not covered by clauses (a) through (k) of
this Section 8.06 not to exceed an aggregate amount of $5,000,000 at any
time.
8.07 Prepayments of Indebtedness, etc. The Borrower will not, and
---------------------------------
will not permit any of its Subsidiaries, if any, to:
(a) other than with respect to the Refinanced Indebtedness, make (or
give any notice in respect thereof) any voluntary or optional payment or
prepayment or redemption or acquisition for value of (including, without
limitation, by way of depositing with the trustee with respect thereto
money or securities before due for the purpose of paying when due) or
exchange of the Senior Subordinated Notes or any Existing Indebtedness
(other than in connection with the exchange offer as contemplated by the
Senior Subordinated Notes Documents);
(b) amend or modify, or permit the amendment or modification of, any
provisions of the Senior Subordinated Note Documents;
(c) amend or modify, or permit the amendment or modification of, any
provisions of any of the Documents (other than the Senior Subordinated Note
Documents) entered into in connection with the Transaction if such
amendment or modification would have a Material Adverse Effect or a
Material Adverse Effect on the rights or remedies of the Lenders or the
Agents hereunder or under any other Credit Document, or on the ability of
the Credit Parties taken as a whole to perform their obligations to them;
and/or
(d) amend, modify or change in any manner materially adverse to the
interests of the Lenders the certificate of incorporation (including,
without limitation, by the filing of any certificate of designation) or by-
laws of the Borrower or any agreement entered into by the Borrower with
respect to its capital stock or enter into any new agreement in any manner
materially adverse to the interests of the Lenders with respect to the
capital stock of the Borrower.
8.08 Dividends. The Borrower will not, and will not permit any of
---------
its Subsidiaries, if any, to, declare or pay any dividends (other than dividends
payable solely in
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<PAGE>
Qualified Stock of such Person) or return any capital to, its stockholders or
authorize or make any other distribution, payment or delivery of property or
cash to its stockholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for a consideration, any shares of any class of
its capital stock now or hereafter outstanding (or any warrants for or options
or stock appreciation rights in respect of any of such shares), or set aside any
funds for any of the foregoing purposes, or permit any of its Subsidiaries to
purchase or otherwise acquire for consideration (other than consideration
payable solely in Qualified Stock) any shares of any class of the capital stock
of the Borrower or any other Subsidiary, as the case may be, now or hereafter
outstanding (or any options or warrants or stock appreciation rights issued by
such Person with respect to its capital stock) (all of the foregoing
"Dividends"), except that:
(i) any Subsidiary of the Borrower may pay dividends to the
Borrower or to a Guarantor;
(ii) any Subsidiary of the Borrower that is a Permitted Joint
Venture may pay cash Dividends to its shareholders or partners generally,
so long as the Borrower or its respective Subsidiary which owns the equity
interest or interests in the Subsidiary paying such Dividends receives at
least its proportionate share thereof (based upon its relative holdings of
equity interest in the Subsidiary paying such Dividends and taking into
account the relative preferences, if any, of the various classes of equity
interests in such Subsidiary or the terms of any agreements applicable
thereto); and
(iii) the Borrower may redeem or repurchase Common Stock (or
options to purchase such Common Stock) from (1) officers, employees and
directors (or their estates) upon the death, permanent disability,
retirement or termination of employment of any such Person or otherwise in
accordance with any stock option plan or any employee stock ownership plan,
or (2) other stockholders of the Borrower, so long as the purpose of such
purchase is to acquire Common Stock for reissuance to new officers,
employees and directors (or their estates) of the Borrower to the extent so
reissued within 12 months of any such purchase, provided that in all such
--------
cases (A) no Default or Event of Default is then in existence or would
arise therefrom and (B) the aggregate amount of all cash paid in respect of
all such shares so redeemed or repurchased in any calendar year does not
exceed $2,000,000 and, to the extent such maximum amount of cash permitted
to be expended in respect of any such redemption or repurchase during any
fiscal year is not fully expended during such fiscal year, the maximum
aggregate amount of cash which may be expended during the immediately
succeeding fiscal year shall be increased by such unutilized amount plus
----
(I) proceeds of key-man life insurance used for the purposes set forth in
subclause (2) and (II) the Available Excess Cash Flow Amount at the time of
any such redemption and repurchase (before giving effect thereto) and,
provided further, that in the event that the Borrower subsequently resells
-------- -------
to any member of its, or any Guarantors', management any shares
redeemed or repurchased pursuant to this clause (ii), the amount of
repurchases the Borrower may make from Management Investors pursuant to
this clause (ii) shall be increased by an amount equal to any cash received
by the Borrower upon the resale of such shares.
8.09 Transactions with Affiliates. The Borrower will not, and will
----------------------------
not permit any Subsidiary to, enter into any transaction or series of
transactions after the Initial Borrowing Date
-52-
<PAGE>
whether or not in the ordinary course of business, with any Affiliate other than
on terms and conditions substantially as favorable to the Borrower or such
Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time
in a comparable arm's-length transaction with a Person other than an Affiliate,
provided that the foregoing restrictions shall not apply to (i) transactions
- --------
with its Affiliates set forth in Annex IX hereto, (ii) employment arrangements
entered into in the ordinary course of business with officers of the Borrower
and its Subsidiaries, if any, (iii) customary fees paid to members of the Board
of Directors of the Borrower and of its Subsidiaries, if any, and (iv) dividends
permitted pursuant to Section 8.08.
8.10 Interest Coverage Ratio. The Borrower will not permit the
-----------------------
Interest Coverage Ratio for any Test Period ending on the date set forth below
to be less than the ratio set forth opposite such date:
Fiscal Quarter Ended Ratio
-------------------- -----
December 31, 1999 1.40:1.0
March 31, 2000 1.40:1.0
June 30, 2000 1.40:1.0
September 30, 2000 1.45:1.0
December 31, 2000 1.50:1.0
March 31, 2001 1.50:1.0
June 30, 2001 1.50:1.0
September 30, 2001 1.50:1.0
December 31, 2001 1.60:1.0
March 31, 2002 1.60:1.0
June 30, 2002 1.60:1.0
September 30, 2002 1.60:1.0
December 31, 2002 1.75:1.0
March 31, 2003 1.75:1.0
June 30, 2003 1.75:1.0
September 30, 2003 1.75:1.0
December 31, 2003 2.00:1.0
March 31, 2004 2.00:1.0
June 30, 2004 2.00:1.0
September 30, 2004 2.00:1.0
December 31, 2004 2.25:1.0
March 31, 2005 2.25:1.0
June 30, 2005 2.25:1.0
September 30, 2005 2.25:1.0
December 31, 2005 and thereafter 2.50:1.0
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<PAGE>
8.11 Total Leverage Ratio. The Borrower will not permit the Total
--------------------
Leverage Ratio for any Test Period ending on the date set forth below to be more
than the ratio set forth opposite such date:
Fiscal Quarter Ended Ratio
-------------------- -----
December 31, 1999 5.75:1.0
March 31, 2000 5.75:1.0
June 30, 2000 5.75:1.0
September 30, 2000 5.75:1.0
December 31, 2000 5.50:1.0
March 31, 2001 5.50:1.0
June 30, 2001 5.50:1.0
September 30, 2001 5.50:1.0
December 31, 2001 5.00:1.0
March 31, 2002 5.00:1.0
June 30, 2002 5.00:1.0
September 30, 2002 5.00:1.0
December 31, 2002 4.50:1.0
March 31, 2003 4.50:1.0
June 30, 2003 4.50:1.0
September 30, 2003 4.50:1.0
December 31, 2003 4.00:1.0
March 31, 2004 4.00:1.0
June 30, 2004 4.00:1.0
September 30, 2004 4.00:1.0
December 31, 2004 3.50:1.0
March 31, 2005 3.50:1.0
June 30, 2005 3.50:1.0
September 30, 2005 3.50:1.0
December 31, 2005 and thereafter 3.00:1.0
8.12 Issuance of Stock. The Borrower will not permit any of its
-----------------
Subsidiaries, directly or indirectly, to issue, sell, assign, pledge or
otherwise encumber or dispose of any shares of its capital stock or other
securities (or warrants, rights or options to acquire shares or other equity
securities) of such Subsidiary, except, to the extent permitted by Section 8.06,
to the Borrower or to qualify directors if required by applicable law. The
Borrower will not, directly or indirectly, issue or sell, any share of capital
stock, other than Common Stock or Permitted Preferred Stock.
-54-
<PAGE>
8.13 Limitation on Certain Restrictions on Subsidiaries. The
--------------------------------------------------
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock of any other
interest or participation in its profits owned by the Borrower, any Subsidiary
of the Borrower or pay any Indebtedness owed to the Borrower or a Subsidiary of
the Borrower, (b) make loans or advances to the Borrower or any of the
Borrower's Subsidiaries or (c) transfer any of its properties or assets to the
Borrower or any of its Subsidiaries except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) this Agreement and the
other Credit Documents, (iii) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the Borrower, or a
Subsidiary of the Borrower, (iv) customary provisions restricting assignment of
any licensing agreement entered into by the Borrower or a Subsidiary of the
Borrower in the ordinary course of business; (v) the Senior Subordinated Note
Documents and (vi) customary provisions restricting the transfer of assets
subject to Liens permitted under Section 8.03(l) and (m).
8.14 Limitation on Creation of Subsidiaries and Permitted Joint
----------------------------------------------------------
Ventures. Notwithstanding anything to the contrary contained in this Agreement,
- --------
the Borrower will not, and will not permit any of its Subsidiaries to,
establish, create or acquire after the Initial Borrowing Date any Subsidiary
(other than Permitted Joint Ventures permitted to be established in accordance
with the requirements of 8.06(g)); provided that the Borrower and its Wholly-
--------
Owned Subsidiaries shall be permitted to establish, create or, to the extent
permitted by this Agreement, acquire Wholly-Owned Subsidiaries so long as (i)
the capital stock or other equity interests of each such new Wholly-Owned
Subsidiary is pledged pursuant to, and to the extent required by, the Pledge
Agreement, which if not previously executed and delivered prior to the date of
such acquisition shall then be executed and delivered at the time thereof, and
the certificates representing such stock or other equity interests, together
with stock or other powers duly executed in blank, are delivered to the
Collateral Agent for the benefit of the Secured Creditors, (ii) each such new
Wholly-Owned Subsidiary executes and delivers to the Administrative Agent a
counterpart of the Guaranty, the Pledge Agreement and the Security Agreement and
(iii) each such new Wholly-Owned Subsidiary takes all actions required pursuant
to Section 7.11. In addition, each new Wholly-Owned Subsidiary shall execute
and deliver, or cause to be executed and delivered, to the Administrative Agent
all other relevant documentation of the type described in Section 5.01(b), (c)
and (g) as such new Wholly-Owned Subsidiary would have had to deliver if such
new Wholly-Owned Subsidiary were a Credit Party on the Effective Date.
SECTION 9. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each, an "Event of Default"):
9.01 Payments. The Borrower shall (i) default in the payment when
--------
due of any principal of the Loans or (ii) default, and such default shall
continue for five or more days, in the payment when due of any Unpaid Drawing,
any interest on the Loans or any Fees or any other amounts owing hereunder or
under any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or statement
---------------------
made by any Credit Party herein or in any other Credit Document or in any
statement or certificate
-55-
<PAGE>
delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made;
or
9.03 Covenants. Any Credit Party shall (a) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 7.11 or 8, or (b) default in the due performance or observance by it of
any term, covenant or agreement (other than those referred to in Section 9.01,
9.02 or clause (a) of this Section 9.03) contained in this Agreement and such
default shall continue unremedied for a period of at least 30 days after notice
to the defaulting party by the Administrative Agent or the Required Lenders; or
9.04 Default Under Other Agreements. (a) The Borrower or any of its
------------------------------
Subsidiaries, if any, shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) beyond the period of grace, if any,
applicable thereto or (ii) default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause any such Indebtedness to become due prior to its stated maturity; or (b)
any such Indebtedness of the Borrower or any of its Subsidiaries, if any, shall
be declared to be due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment, prior to the stated maturity thereof,
provided that it shall not constitute an Event of Default pursuant to this
- --------
Section 9.04 unless the principal amount of any one issue of such Indebtedness,
or the aggregate amount of all Indebtedness referred to in clauses (a) and (b)
above exceeds $7,500,000 at any one time; or
9.05 Bankruptcy, etc. The Borrower or any of its Material
----------------
Subsidiaries, if any, shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy", as now or hereafter in
effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against the Borrower or any of its Material Subsidiaries, if any,
and the petition is not controverted within 10 days, or is not dismissed within
60 days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substantially all
of the property of the Borrower or any of its Material Subsidiaries, if any; or
the Borrower or any of its Material Subsidiaries, if any, commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any
of its Material Subsidiaries, if any; or there is commenced against the Borrower
or any of its Material Subsidiaries, if any, any such proceeding which remains
undismissed for a period of 60 days; or the Borrower or any of its Material
Subsidiaries, if any, is adjudicated insolvent or bankrupt; or any order of
relief or other order approving any such case or proceeding is entered; the
Borrower or any of its Material Subsidiaries, if any, suffers any appointment of
any custodian or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of 60 days; or the Borrower or
any of its Material Subsidiaries, if any, makes a general assignment for the
benefit of creditors; or any corporate action is taken by the Borrower or any of
its Material Subsidiaries, if any, for the purpose of effecting any of the
foregoing; or
-56-
<PAGE>
9.06 ERISA. (a) A single-employer plan (as defined in Section 4001
-----
of ERISA) established by the Borrower, any of its Subsidiaries, if any, or any
ERISA Affiliate shall fail to maintain the minimum funding standard required by
Section 412 of the Code for any plan year or a waiver of such standard or
extension of any amortization period is sought or granted under Section 412 of
the Code or shall provide security to induce the issuance of such waiver or
extension, (b) any Plan is or shall have been or is likely to be terminated or
the subject of termination proceedings under ERISA or an event has occurred
entitling the PBGC to terminate a Plan under Section 4042(a) of ERISA, (c) any
Plan shall have an Unfunded Current Liability or (d) the Borrower or a
Subsidiary or any ERISA Affiliate has incurred or is likely to incur a material
liability to or on account of a termination of or a withdrawal from a Plan under
Section 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; and there shall result
from any such event or events described in the preceding clauses of this Section
9.06 the imposition of a Lien upon the assets of the Borrower or any Subsidiary,
the granting of a security interest, or a liability or a material risk of
incurring a liability to the PBGC or a Plan or a trustee appointed under ERISA
or a penalty under Section 4971 of the Code, in each case which would be
reasonably like to have, in the opinion of the Required Lenders, a Material
Adverse Effect; or
9.07 Security Documents. Except in each case to the extent resulting
------------------
from the failure of the Collateral Agent to retain possession of the applicable
Pledged Securities, any Security Document shall cease to be in full force and
effect, or shall cease to give the Collateral Agent any Lien encumbering assets
with an aggregate fair market value in excess of $100,000 (and, if encumbering
assets with a fair market value of less than $100,000, for a period greater than
thirty or more days), or any material rights, powers and privileges purported to
be created thereby in favor of the Collateral Agent or any Credit Party shall
default in any material respect in the due performance or observance of any
term, covenant or agreement on its part to be performed or observed pursuant to
any such Security Document; or
9.08 Guaranty. After the execution and delivery thereof, the
--------
Guaranty or any provision thereof shall cease to be in full force or effect, or
any Guarantor or any Person acting by or on behalf of any such Guarantor shall
deny or disaffirm such guarantor's obligations under such Guaranty or any such
Guarantor shall default in the due performance or observance of any material
term, covenant or agreement on its part to be performed or observed by it
pursuant to the Guaranty; or
9.09 Judgments. One or more judgments or decrees shall be entered
---------
against the Borrower or any of its Subsidiaries, if any, involving a liability
(to the extent not paid or not fully covered by insurance) of $7,500,000 or more
for all such judgments and decrees and all such judgments or decrees shall not
have been vacated, discharged or stayed or bonded pending appeal within 60 days
from the entry thereof; or
9.10 Capital Call Agreement. (a) The Capital Call Agreement or any
----------------------
provision thereof shall cease to be in full force and effect except in
accordance with the terms thereof, or Kelso or any Person acting by or on behalf
of Kelso shall deny or disaffirm its obligations under the Capital Call
Agreement or Kelso or any Person acting on or behalf of Kelso shall default in
the due performance or observance of any term, covenant or agreement on its part
to be performed or observed pursuant to the Capital Call Agreement or a Capital
Call Event of Default under, and as defined in, the Capital Call Agreement shall
occur; or
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<PAGE>
(b) Any representation, warranty or statement made (or deemed made)
by Kelso in the Capital Call Agreement shall prove to be untrue in any material
respect on the date as of which made or deemed made;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Lenders, by written notice to the Borrower, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Lender to enforce its claims against the Borrower,
except as otherwise specifically provided for in this Agreement (provided that,
--------
if an Event of Default specified in Section 9.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon the Commitment of each Lender shall forthwith
terminate immediately and any Commitment Commission shall forthwith become due
and payable without any other notice of any kind; (ii) declare the principal of
and any accrued interest in respect of all Loans and all obligations owing
hereunder (including Unpaid Drawings) and thereunder to be, whereupon the same
shall become, forthwith due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower; (iii)
enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any or
all of the Liens and security interests created pursuant to the Security
Documents; (iv) terminate any Letter of Credit which may be terminated in
accordance with its terms; (v) direct the Borrower to pay (and the Borrower
hereby agrees upon receipt of such notice, or upon the occurrence of any Event
of Default specified in Section 9.05 in respect of the Borrower, it will pay) to
the Collateral Agent at the Payment Office such additional amounts of cash, to
be held as security for the Borrower's reimbursement obligations in respect of
Letters of Credit then outstanding equal to the aggregate Stated Amount of all
Letters of Credit then outstanding and (vi) apply any cash collateral delivered
pursuant to this Agreement to the payment of outstanding Obligations.
SECTION 10. Definitions. As used herein, the following terms shall
-----------
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"A Maturity Date" shall mean the sixth anniversary of the Initial
Borrowing Date.
"A Term Commitment" shall mean, with respect to each Lender, the
amount, if any, set forth opposite such Lender's name on Annex I hereto directly
below the column entitled "A Term Commitment" as the same may be reduced or
terminated pursuant to Section 3.03 and/or 9.
"A Term Facility" shall mean the Facility evidenced by the Total A
Term Commitment.
"A Term Lender" shall mean at any time each Lender with an A Term
Commitment (or if the Total A Term Commitment has been terminated, outstanding A
Term Loans at such time).
"A Term Loan" shall have the meaning provided in Section 1.01(a).
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<PAGE>
"Acquisition Sub" shall mean UC Acquisition Sub, Inc., a wholly-owned
subsidiary of Kelso.
"Additional Mortgages" shall have the meaning provided in Section
7.11.
"Adjusted Cash Flow" for any fiscal year shall mean Consolidated Net
Income for such fiscal year (after provision for taxes) plus the amount of all
----
net non-cash charges (including, without limitation, depreciation, deferred tax
expense, non-cash interest expense, amortization of deferred customer
acquisition costs, write-downs of inventory and other non-cash charges) that
were deducted in arriving at Consolidated Net Income for such fiscal year, minus
-----
the amount of all non-cash gains and gains from sales of assets (other than
sales of inventory and equipment in the normal course of business) that were
added in arriving at Consolidated Net Income for such fiscal year.
"Adjusted RC Percentage" shall mean (x) at a time when no Lender
Default exists, for each RC Lender such RC Lender's Revolving Percentage and (y)
at a time when a Lender Default exists (i) for each RC Lender that is a
Defaulting Lender, zero and (ii) for each RC Lender that is a Non-Defaulting
Lender, the percentage determined by dividing such RC Lender's Revolving
Commitment at such time by the Adjusted Total Revolving Commitment at such time,
it being understood that all references herein to Revolving Commitments and the
Adjusted Total Revolving Commitment at a time when the Total Revolving
Commitment or Adjusted Total Revolving Commitment, as the case may be, has been
terminated shall be references to the Revolving Loan Commitments or Adjusted
Total Revolving Commitment, as the case may be, in effect immediately prior to
such termination, provided that (A) no RC Lender's Adjusted RC Percentage shall
--------
change upon the occurrence of a Lender Default from that in effect immediately
prior to such Lender Default if, after giving effect to such Lender Default and
any repayment of Revolving Loans and Swingline Loans at such time pursuant to
Section 4.02(A)(a) or otherwise, the sum of (i) the aggregate outstanding
principal amount of Revolving Loans of all Non-Defaulting Lenders plus (ii) the
aggregate outstanding principal amount of Swingline Loans plus (iii) the Letter
of Credit Outstandings, exceeds the Adjusted Total Revolving Loan Commitment;
(B) the changes to the Adjusted RC Percentage that would have become effective
upon the occurrence of a Lender Default but that did not become effective as a
result of the preceding clause (A) shall become effective on the first date
after the occurrence of the relevant Lender Default on which the sum of (i) the
aggregate outstanding principal amount of the Revolving Loans of all Non-
Defaulting Lenders plus (ii) the aggregate outstanding principal amount of the
Swingline Loans plus (iii) the Letter of Credit Outstandings is equal to or less
than the Adjusted Total Revolving Commitment; and (C) if (I) a Non-Defaulting
Lender's Adjusted RC Percentage is changed pursuant to the preceding clause (B)
and (ii) any repayment of such Lender's Revolving Loans, or of Unpaid Drawings
with respect to Letters of Credit or of Swingline Loans, that were made during
the period commencing after the date of the relevant Lender Default and ending
on the date of such change to its Adjusted RC Percentage must be returned to any
Borrower as a preferential or similar payment in any bankruptcy or similar
proceeding of such Borrower, then the change to such Non-Defaulting Lender's
Adjusted RC Percentage effected pursuant to said clause (B) shall be reduced to
that positive change, if any, as would have been made to its Adjusted RC
Percentage if (x) such repayments had not been made and (y) the maximum change
to its Adjusted RC Percentage would have resulted in the sum of the outstanding
principal of Revolving Loans made by such Lender plus such Lender's new
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<PAGE>
Adjusted RC Percentage of the outstanding principal amount of Swingline Loans
and of Letter of Credit Outstandings equaling such Lender's Revolving Commitment
at such time.
"Adjusted Revolving Commitment" for each RC Lender that is a Non-
Defaulting Lender shall mean at any time the product of such RC Lender's
Adjusted RC Percentage and the Adjusted Total Revolving Commitment.
"Adjusted Total Revolving Commitment" shall mean at any time the Total
Revolving Commitment less the aggregate Revolving Commitments of all Defaulting
Lenders.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.09.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agents" shall mean the Administrative Agent, the Collateral Agent and
the Syndication Agent.
"Agreement" shall mean this Credit Agreement, as the same may be from
time to time modified, amended and/or supplemented.
"Anticipated Reinvestment Amount" shall mean, with respect to any
Reinvestment Election, the amount specified in the Reinvestment Notice delivered
by the Borrower in connection therewith as the amount of the Net Cash Proceeds
from the related Asset Sale that the Borrower intends to use to purchase,
construct or otherwise acquire Reinvestment Assets.
"Applicable Margin" initially shall mean a percentage per annum equal
to (i) in the case of A Term Loans and Revolving Loans maintained as (x) Base
Rate Loans, 2.125% and (y) Eurodollar Loans, 3.125%, (ii) in the case of B Term
Loans maintained as (x) Base Rate Loans, 2.875% and (y) Eurodollar Loans,
3.875%, and (iii) in the case of the Commitment Commission, 0.50%. From and
after each day of delivery of any certificate delivered in accordance with the
first sentence of the following paragraph indicating a different margin than
that described in the immediately preceding sentence (each, a "Start Date") to
and including the applicable End Date described below, the Applicable Margin
shall (subject to any adjustment pursuant to the immediately succeeding
paragraph) be that set forth below opposite the Total Leverage Ratio indicated
to have been achieved in any certificate delivered in accordance with the
following sentence:
-60-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Revolving A Term A Term B Term B Term
Total Loan Revolving Loan Loan Loan Loan
Leverage Eurodollar Loan Base Eurodollar Base Rate Eurodollar Base Rate Commitment
Ratio Margin Rate Margin Margin Margin Margin Margin Commission
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Equal to or 3.375% 2.375% 3.375% 2.375% 3.875% 2.875% 0.50%
greater
than 5.25:1
- -----------------------------------------------------------------------------------------------------------------
Equal to or 3.125% 2.125% 3.125% 2.125% 3.875% 2.875% 0.50%
greater
than
4.75:1 but
less than
5.25:1
- -----------------------------------------------------------------------------------------------------------------
Equal to or 2.875% 1.875% 2.875% 1.875% 3.875% 2.875% 0.50%
greater
than
4.25:1 but
less than
4.75:1
- -----------------------------------------------------------------------------------------------------------------
Equal to or 2.50% 1.50% 2.50% 1.50% 3.50% 2.50% 0.375%
greater
than
3.75:1 but
less than
4.25:1
- -----------------------------------------------------------------------------------------------------------------
Equal to or 2.25% 1.25% 2.25% 1.25% 3.50% 2.50% 0.375%
greater
than
3.25:1 but
less than
3.75:1
- -----------------------------------------------------------------------------------------------------------------
Less than 2.00% 1.00% 2.00% 1.00% 3.50% 2.50% 0.25%
3.25:1
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Total Leverage Ratio shall be determined based on the delivery of
a certificate of the Borrower by an Authorized Officer of the Borrower to the
Administrative Agent (with a copy to be sent by the Administrative Agent to each
Lender), within 45 days of the last day of any fiscal quarter of the Borrower,
which certificate shall set forth the calculation of the Total Leverage Ratio as
at the last day of the Test Period ended immediately prior to the relevant Start
Date (but determined on a pro forma basis to give effect to any Permitted
Acquisition effected on or prior to the date of the delivery of such
certificate) and the Applicable Margins which shall be thereafter applicable.
The Applicable Margins so determined shall apply, except as set forth in the
succeeding sentence, from the relevant Start Date to the earliest of (x) the
date on which the next certificate is delivered to the Administrative Agent or
(y) the date which is 45 days following the last day of the Test Period in which
the previous Start Date occurred (such earliest date, the "End Date"), at which
time, if no certificate has been delivered to the Administrative Agent
indicating an entitlement to new Applicable Margins (and thus commencing a new
Start Date), the Applicable Margins shall be those set forth in the table above
determined as if the Total Leverage Ratio were greater than 5.25:1.0 (such
Applicable Margins as so determined, the "Highest Applicable Margins").
Notwithstanding anything to the contrary contained above in this definition, (x)
the Applicable Margins shall be the Highest Applicable
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Margins at all times during which there shall exist any Event of Default and (y)
prior to the date of delivery of the financial statements pursuant to Section
7.01(b) for the fiscal year ended March 31, 2000, in no event shall the
Applicable Margins be less than those described in the first sentence of this
definition.
"Asset Sale" shall mean the sale, transfer or other disposition by the
Borrower or any Subsidiary to any Person other than the Borrower or any
Guarantor of any asset of the Borrower or such Subsidiary (other than sales,
transfers or other dispositions in the ordinary course of business of inventory
and/or obsolete or excess equipment).
"Assignment Agreement" shall mean an Assignment Agreement
substantially in the form of Exhibit K (appropriately completed).
"Authorized Officer" shall mean any senior officer of the Borrower
designated as such in writing to the Administrative Agent by the Borrower in
each case to the extent acceptable to the Administrative Agent.
"Available Excess Cash Flow Amount" shall mean at any time, an amount
equal to (A) (i) 25% of Excess Cash Flow, if the Total Leverage Ratio is greater
than or equal to 4.00:1, (ii) 50% of Excess Cash Flow, if the Total Leverage
Ratio is greater than or equal to 3.00:1 but less than 4.00:1, or (iii) 100% of
Excess Cash Flow, if the Total Leverage Ratio is less than 3.00:1, determined
for each fiscal year of the Borrower (commencing with the fiscal year ending on
December 31, 2000) then ended less (B) the sum of (w) the aggregate amount of
----
the Available Excess Cash Flow Amount with which the Borrower has theretofore
made investments in Permitted Joint Ventures in accordance with Section 8.06(g),
(x) the aggregate amount of Consolidated Capital Expenditures theretofore made
pursuant to Section 8.05(c)(ii) hereof and (y) the aggregate amount of
redemptions and repurchases of the Borrower's Common Stock theretofore made
pursuant to Section 8.08(iii)(B)(II).
"B Maturity Date" shall mean the seventh anniversary of the Initial
Borrowing Date.
"B Term Commitment" shall mean, with respect to each Lender, the
amount, if any, set forth opposite such Lender's name on Annex I hereto directly
below the column entitled "B Term Commitment" as the same may be reduced or
terminated pursuant to Section 3.03 and/or 9.
"B Term Facility" shall mean the Facility evidenced by the Total B
Term Commitment.
"B Term Lender" shall mean at any time each Lender with a B Term
Commitment (or if the Total B Term Commitment has been terminated, outstanding B
Term Loans) at such time.
"B Term Loan" shall have the meaning provided in Section 1.01(b).
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
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"Base Rate" at any time shall mean the higher of, (i) the rate which
is 1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime
Lending Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the rates
provided in Section 1.08(a).
"Bear Stearns" shall mean BSCLAB Acquisition Corp., a Delaware
corporation.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrowing" shall mean the incurrence of (i) Swingline Loans by the
Borrower from BTCo on a given date or (ii) one Type of Loan pursuant to a single
Facility by the Borrower from all of the Lenders having Commitments with respect
to such Facility on a given date (or resulting from conversions or the
commencement of new Interest Periods on a given date), having in the case of
Eurodollar Loans the same Interest Period; provided that Base Rate Loans
--------
incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company in its individual capacity.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday, Sunday and any day which shall
be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capital Call Agreement" shall have the meaning provided in Section
5.01(h).
"Capital Call Amount" shall have the meaning provided in the Capital
Call Agreement.
"Capital Lease" as applied to any Person shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of the Borrower or any of its Subsidiaries, if any, in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit and bankers' acceptances of (x) any Lender,
(y) any domestic commercial bank of recognized standing having capital and
surplus in
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excess of $500,000,000 or (z) any bank (or the parent company of such bank)
whose short-term commercial paper rating from Standard & Poor's Ratings
Services, a division of McGraw-Hill, Inc. ("S&P") is at least A-1 or the
equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at
least P-1 or the equivalent thereof (any such bank, an "Approved Lender"), in
each case with maturities of not more than six months from the date of
acquisition, (iii) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (ii)
above, (iv) commercial paper issued by any bank or Approved Lender or by the
parent company of any bank or Approved Lender and commercial paper issued by, or
guaranteed by, any industrial or financial company with a short-term commercial
paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or
the equivalent thereof by Moody's (any such company, an "Approved Company"), or
guaranteed by any industrial company with a long term unsecured debt rating of
at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the
case may be, and in each case maturing within six months after the date of
acquisition and (v) investments in money market funds substantially all of whose
assets are comprised of securities of the type described in clauses (i) through
(iv) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale, the
aggregate cash payments (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, but only as and
when so received) received by the Borrower and/or any Subsidiary, if any, from
such Asset Sale.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq.
-- ----
"Change of Control" shall mean (i) prior to the date of an initial
registered public offering by the Borrower of its common stock, the Permitted
Holders shall cease to own on a fully diluted basis in the aggregate at least a
majority of the economic and voting interest in the Borrower's capital stock,
(ii) on or after the date of an initial registered public offering by the
Borrower of its common stock, (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act), other than one or more
Permitted Holders, is or becomes the "beneficial owner" (as defined below),
directly or indirectly, of more than 30% of the total voting power of the Voting
Stock of the Borrower unless the Permitted Holders "beneficially own" (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act as currently
in effect, it being agreed that for purposes of this clause (a) and clause (b)
below, the Permitted Holders shall be deemed to beneficially own any Voting
Stock of a corporation (the "specified corporation") held by any other
corporation (the "parent corporation") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of the parent corporation),
directly or indirectly, in the aggregate a greater percentage of the total
voting power of the Voting Stock of the Borrower than such other person or (b)
occupation of a majority of the seats of the Board of Directors of the Borrower
by Persons whose nomination for election by the stockholders of the Borrower was
not approved by either (x) a majority of the Permitted Holders or (y) a majority
of the directors of the Borrower whose election or nomination for election was
previously so approved or (iii) the occurrence of any "change of control" or
similar event under the Senior Subordinate Note Documents.
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"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the Effective
Date and any subsequent provisions of the Code, amendatory thereof, supplemental
thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in each of
the Security Documents.
"Collateral Agent" shall mean the Administrative Agent acting as
Collateral Agent for the Lenders.
"Collective Bargaining Agreements" shall have the meaning provided in
Section 5.01(o).
"Commitment" shall mean, with respect to each Lender, such Lender's A
Term Commitment, B Term Commitment and Revolving Commitment.
"Commitment Commission" shall have the meaning provided in Section
3.01(a).
"Common Stock" shall mean the common stock of the Borrower.
"Company" shall mean any corporation, limited liability company,
partnership or other business entity (or the adjectival form thereof, where
appropriate).
"Consolidated Capital Expenditures" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including in all events all amounts expended or capitalized under Capital
Leases but excluding any amount representing capitalized interest) by the
Borrower and its Subsidiaries, if any, during that period that, in conformity
with GAAP, are or are required to be included in the property, plant or
equipment reflected in the consolidated balance sheet of the Borrower and its
Subsidiaries.
"Consolidated Cash Interest Expense" shall mean, for any period,
Consolidated Interest Expense, but excluding, however, interest expense not
payable in cash and amortization of discount and deferred issuance and financing
costs.
"Consolidated Current Assets" shall mean, as to any Person at any
time, the current assets (other than cash and Cash Equivalents) of such Person
and its Subsidiaries, if any, determined on a consolidated basis.
"Consolidated Current Liabilities" shall mean, as to any Person at any
time, the current liabilities of such Person and its Subsidiaries, if any,
determined on a consolidated basis, but excluding all short-term Indebtedness
for borrowed money and the current portion of any long-term Indebtedness of such
Person or its Subsidiaries, in each case to the extent otherwise included
therein.
"Consolidated Debt" shall mean, at any time, the sum of (without
duplication) (i) all Indebtedness of the Borrower and its Subsidiaries, if any,
as would be required to be reflected on the liability side of a balance sheet of
such Person in accordance with GAAP as determined
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on a consolidated basis, (ii) all Indebtedness of the Borrower and its
Subsidiaries, if any, of the type described in clause (vii) of the definition of
Indebtedness, (iii) unreimbursed drawings on all letters of credit issued for
the account of the Borrower or any of its Subsidiaries, if any, and (iv) all
Contingent Obligations of the Borrower and its Subsidiaries, if any, in respect
of Indebtedness of other Persons (i.e., Persons other than the Borrower or any
----
of its Subsidiaries, if any) of the type referred to in preceding clauses (i),
(ii) and (iii) of this definition; provided that for purposes of this
--------
definition, the amount available to be drawn under letters of credit issued for
the account of the Borrower or any of its Subsidiaries, if any, (other than
unreimbursed drawings) shall be excluded in making any determination of
"Consolidated Debt".
"Consolidated EBIT" shall mean, for any period, (A) the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) provisions for
taxes based on income, (iii) Consolidated Interest Expense, (iv) amortization or
write-off of deferred financing costs to the extent deducted in determining
Consolidated Net Income, (v) losses on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary losses, (vi) extraordinary,
unusual or non-recurring gains, losses, income or expense, and the related tax
effects and (vii) any customary and reasonable transaction expenses incurred in
connection with Permitted Acquisitions less (B) the amount for such period of
----
gains on sales of assets (excluding sales in the ordinary course of business)
and other extraordinary gains, all as determined on a consolidated basis in
accordance with GAAP.
"Consolidated EBITDA" shall mean, for any period, the sum of the
amounts for such period of (i) Consolidated EBIT, (ii) depreciation expense,
(iii) amortization expense, all as determined on a consolidated basis in
accordance with GAAP and (iv) other non-cash charges to the extent deducted in
arriving at Consolidated EBIT; provided that, for purposes of determining
--------
compliance with Section 8.11, Consolidated EBITDA for the fiscal quarter ending
on (x) March 31, 1999 shall be $15,300,000, (y) June 30, 1999 shall be
$17,100,000 and (z) September 30, 1999 shall be $14,800,000.
"Consolidated Interest Expense" shall mean, for any period, total
interest expense (including that attributable to Capital Leases in accordance
with GAAP) of the Borrower and its Subsidiaries, if any, on a consolidated basis
with respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements.
"Consolidated Net Income" shall mean for any period, the net income
(or loss) of the Borrower and its Subsidiaries, if any, on a consolidated basis
for such period taken as a single accounting period determined in conformity
with GAAP; provided that there shall be excluded (i) the income (or loss) of any
--------
Person (other than Subsidiaries, if any, of the Borrower) in which any other
Person (other than the Borrower or any of its Subsidiaries, if any) has a joint
interest, except to the extent of the amount of dividends or other distributions
actually paid to the Borrower or any of its Subsidiaries, if any, by such Person
during such period, (ii) other than any calculation on a Pro Forma Basis, the
--- -----
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary, if any, of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, if any, or that Person's assets are
acquired by the Borrower or any of its Subsidiaries, if any, (iii) the income of
any Subsidiary, if any, of the Borrower to the
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extent that the declaration or payment of dividends or similar distributions by
that Subsidiary, if any, of that income is not at the time permitted by
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary, (iv) Transaction Expenses and (v) non-cash compensation expense and
compensation expense resulting from the repurchase of any capital stock, options
and rights.
"Contingent Obligations" shall mean as to any Person any obligation of
such Person guaranteeing or intending to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided, however, that
-------- -------
the term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Credit Documents" shall mean this Agreement, the Notes, the Security
Documents, the Capital Call Agreement and, after the execution and delivery
thereof, the Guaranty.
"Credit Event" shall mean and include the making of a Loan or the
issuance of a Letter of Credit.
"Credit Party" shall mean the Borrower and each Guarantor, if any.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
"Designated Affiliate" shall mean any Affiliate of Kelso other than
any corporation or other Person (except for any corporation or other Person
engaged in a business similar, complementary or related to the nature or type of
the business of the Borrower and its Subsidiaries, if any) controlled by, or any
investment fund (other than Kelso Investment Associates VI, L.P. or any
investment fund that is not solely comprised of current and former professionals
of Kelso) managed by, Kelso.
"Dividends" shall have the meaning provided in Section 8.08.
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"Documents" shall mean and include (i) the Credit Documents, (ii) the
Senior Subordinated Note Documents, (iii) the Equity Financing Documents, (iv)
the Recapitalization Documents and (v) all other documents, agreements and
instruments executed in connection with the Transaction.
"Domestic Subsidiary" shall mean each Subsidiary, if any, of the
Borrower incorporated or organized in the United States or any state or
territory thereof.
"Effective Date" shall have the meaning provided in Section 12.10.
"Eligible Transferee" shall mean and include a commercial bank, mutual
fund, financial institution, a "qualified institutional buyer" (as defined in
Rule 144A of the Securities Act), any fund that invests in bank loans or any
other "accredited investor" (as defined in Regulation D of the Securities Act)
(other than an individual).
"Employee Benefit Plans" shall have the meaning provided in Section
5.01(o).
"Employment Agreements" shall have the meaning provided in Section
5.01(o).
"End Date" shall have the meaning provided in the definition of
Applicable Margin.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations (other than internal reports prepared
by the Borrower or any of its Subsidiaries, if any, solely in the ordinary
course of such Person's business and not in response to any third party action
or request of any kind) or proceedings relating in any way to any Environmental
Law or any permit issued, or any approval given, under any such Environmental
Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims
by governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" means any applicable Federal, state, foreign or
local statute, law, rule, regulation, ordinance, code, guide, policy and rule of
common law now or hereafter in effect and in each case as amended, and any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
health, safety or Hazardous Materials, including, without limitation, CERCLA;
RCRA; the Federal Water Pollution Control Act, as amended, 33 U.S.C. (S) 1251 et
--
seq.; the Toxic Substances Control Act, 15 U.S.C. (S) 7401 et seq.; the Clean
- ---- -- ----
Air Act, 42 U.S.C. (S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)
-- ----
3808 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq. and any
-- ---- -- ----
applicable state and local or foreign counterparts or equivalents.
"EOS" shall mean EOS Partners L.P., a Delaware limited partnership.
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"Equity Financing" shall mean a cash equity contribution to
Acquisition Sub by the Investors pursuant to the Equity Financing Documents.
"Equity Financing Documents" shall mean Agreement and Plan of Merger,
dated May 24, 1999, between the Borrower and Acquisition Sub, as amended, the
Capital Call Agreement, the Equity Commitment Letter, dated May 24, 1999, from
Kelso to Acquisition Sub and the Borrower, the Stock Subscription Agreements
between certain investors and Acquisition Sub and the Rollover Retention Letter,
each dated August 30, 1999 from Acquisition Sub to each of EOS and Pequot.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect as of
the Effective Date and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower, a Subsidiary, if any, or a Credit
Party would be deemed to be a "single employer" within the meaning of Sections
414(b), (c), (m) and (o) of the Code.
"Eurodollar Loans" shall mean each Loan bearing interest at the rates
provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each day during each
Interest Period for a Eurodollar Loan, (i) the offered rate for deposits in U.S.
dollars in the London interbank market for the relevant Interest Period which is
published by the British Bankers' Association and currently appears on Telerate
page 3750 as of 11:00 A.M. (London time) on the day which is two Business Days
prior to the first day of such Interest Period for a term comparable to such
Interest Period, provided that if, for any reason, such a rate is not published
--------
by the British Bankers' Association, the Eurodollar Rate shall be equal to a
rate per annum equal to the average rate (rounded upwards, if necessary, to the
nearest 1/100 of 1%) at which the Administrative Agent determines that U.S.
dollars in an amount comparable to the amount of the applicable Loans are being
offered to prime banks at approximately 11:00 A.M. (London time) on the day
which is two Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period for settlement in immediately available
funds by leading banks in the London interbank market selected by the
Administrative Agent divided (and rounded upward to the next whole multiple of
1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum
rate of all reserve requirements (including without limitation any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of Eurocurrency liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D).
"Event of Default" shall have the meaning provided in Section 9.
"Excess Cash Flow" shall mean, for any fiscal year, the remainder of
(i) the sum of (x) Adjusted Cash Flow for such fiscal year and (y)(I) the
decrease, if any, in Working Capital less (II) the decrease, if any, in the
principal amount of Revolving Loans, in each case from the
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first day to the last day of such fiscal year, plus (ii) to the extent not
included in (i) above, any amounts received by the Borrower and its
Subsidiaries, if any, in settlement of, or in payment of any judgments resulting
from, actions, suits or proceedings with respect to the Borrower and/or its
Subsidiaries, if any, from the first day to the last day of such fiscal year,
plus (iii) to the extent not included in (i) above, any amounts received by the
Borrower and/or its Subsidiaries, if any, in connection with the repayment or
redemption of any long-term promissory notes of other Persons held by them,
minus (iv) the sum of (x) the amount of Consolidated Capital Expenditures and
expenditures made in connection with Permitted Acquisitions (except to the
extent financed through the incurrence of Indebtedness) made during such fiscal
year and (y)(I) the increase, if any, in Working Capital less (II) the increase,
if any, in the principal amount of Revolving Loans, in each case from the first
day to the last day of such fiscal year and (z)(I) any repayments or prepayments
of the principal amount of A Term Loans, or B Term Loans, except prepayments of
the principal amount of A Term Loans, or B Term Loans made pursuant to Sections
4.02(A), (d), (e), (f), (g), (h) and/or (i), (II) any repayments or prepayments
of the principal amounts of any other Indebtedness of the Borrower or any
Subsidiary, if any (but in the case of a voluntary prepayment of revolving
loans, only to the extent accompanied by a voluntary reduction to the commitment
related thereto) and (III) any redemption or repurchase of capital stock by the
Borrower or any Subsidiary, if any.
"Existing Indebtedness" shall have the meaning provided in Section
5.01(k).
"Existing Indebtedness Agreements" shall have the meaning provided in
Section 5.01(k).
"Facility" shall mean any of the credit facilities established under
this Agreement, i.e., the A Term Facility, the B Term Facility or the Revolving
----
Facility.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Effective Rate" shall mean for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect on the date of this Agreement; it being
understood and agreed that determinations in accordance with GAAP for purposes
of Section 8, including defined terms as used therein, are subject (to the
extent provided therein) to Section 12.07(a).
"Guarantors" shall mean (i) each Domestic Subsidiary of the Borrower
on the Initial Borrowing Date, if any, and (ii) each Person that becomes a
Guarantor as required by Section 8.14.
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"Guaranty" shall mean a Guaranty substantially in the form of Exhibit
L (appropriately completed), as same may be amended, modified or supplemented
from time to time.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that
contained, electric fluid containing levels of polychlorinated biphenyls, and
radon gas and (b) any chemicals, materials or substances defined as or included
in the definition of "hazardous substances", "hazardous waste", "hazardous
materials", "extremely hazardous waste", "restricted hazardous waste", "toxic
substances", "toxic pollutants", "contaminants", or "pollutants", or words of
similar import, under any applicable Environmental Law.
"Indebtedness" of any Person shall mean, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such indebtedness has been assumed, (v) all Capitalized Lease Obligations
of such Person, (vi) all obligations of such Person to pay a specified purchase
price for goods or services whether or not delivered or accepted, i.e., take-or-
----
pay and similar obligations, (vii) all net obligations of such Person under
Interest Rate Agreements and (viii) all Contingent Obligations of such Person,
(other than Contingent Obligations arising from the guaranty by such Person of
the obligations of the Borrower and/or its Subsidiaries to the extent such
guaranteed obligations do not constitute Indebtedness and are otherwise
permitted hereunder), provided that Indebtedness shall not include trade
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payables and accrued expenses, in each case arising in the ordinary course of
business.
"Information Systems and Equipment" shall mean all computer hardware,
firmware and software, as well as other information processing systems, or any
equipment containing embedded microchips, whether directly owned, licensed,
leased, operated or otherwise controlled by the Borrower or any of its
Subsidiaries, if any, including through third-party service providers, and
which, in whole or in part, are used, operated, relied upon, or integral to, the
Borrower's or any of its Subsidiaries', if any, conduct of their respective
businesses.
"Initial Borrowing Date" shall mean the first date on which Loans are
made hereunder.
"Initial Shareholders" mean Kelso, the Kelso Designees, the Designated
Affiliates, EOS, Pequot, Bear Stearns and Maher.
"Interest Coverage Ratio" shall mean, for any Test Period, the ratio
of Consolidated EBITDA to Consolidated Cash Interest Expense for such Test
Period. All calculations of the Interest Coverage Ratio shall be made on a Pro
Forma Basis. In addition to the foregoing, for purposes of determining
compliance with Section 8.10 for the Test Period
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ending on December 31, 2000, the Interest Coverage Ratio for the fiscal quarter
of the Borrower ending on December 31, 2000 shall be calculated after giving
effect to any capital contributions made to the Borrower pursuant to the Capital
Call Agreement.
"Interest Period" with respect to any Loan shall mean the interest
period applicable thereto, as determined pursuant to Section 1.09.
"Interest Rate Agreement" shall mean any interest rate swap agreement,
any interest rate cap agreement, any interest rate collar agreement or other
similar agreement or arrangement designed to hedge the risks of the Borrower or
any Subsidiary in respect of interest rates.
"Investors" shall mean Kelso and any other Persons acceptable to the
Administrative Agent.
"Kelso" shall mean Kelso & Company, L.P., a Delaware limited
partnership doing business as Kelso & Company.
"Kelso Designees" means C.I. LLC, William A. Marquard, Dieter
Spethmann, John F. McGillicuddy, David M. Roderick, George L. Shinn, the Louis
and Patricia Kelso Trust, John Rutledge, Michel Rapoport, U. Bertram Ellis, Jr.
and Cardinal Court Investors LLC.
"Leasehold" of any Person means all of the right, title and interest
of such Person as lessee or licensee in, to and under leases or licenses of
land, improvements and/or fixtures.
"Lender" shall have the meaning provided in the first paragraph of
this Agreement.
"Lender Default" shall mean (i) the refusal (which has not been
retracted) of a Lender to make available its portion of any incurrence of Loans
or to fund its portion of any unreimbursed payment under Section 2.05(c) or (ii)
a Lender having notified the Administrative Agent and/or the Borrower that it
does not intend to comply with the obligations under Section 1.01 or under
Section 2.05(c).
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).
"Letter of Credit Issuer" shall mean BTCo (or any Affiliate of BTCo,
including, without limitation Deutsche Bank AG) or any Lender which at the
request of the Borrower and with the consent of the Administrative Agent agrees,
in such Lender's sole discretion, to become a Letter of Credit Issuer for
purposes of issuing Letters of Credit pursuant to Section 2.
"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in Section
2.03(a).
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"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" shall have the meaning provided in Section 1.01.
"Maher" shall mean Mr. James R. Maher.
"Majority Lenders" shall mean, with respect to any Tranche, those Non-
Defaulting Lenders which would constitute the Required Lenders under, and as
defined in, this Agreement if all outstanding Obligations of the other Tranches
under this Agreement were repaid in full and all Commitments, if any, with
respect thereto were terminated.
"Management Agreements" shall have the meaning provided in Section
5.01(o).
"Management Investor" shall mean certain members of management of the
Borrower previously identified and satisfactory to the Administrative Agent.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(e).
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean a material adverse effect on the
business, property, assets, liabilities, operations, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
"Material Contracts" shall have the meaning provided in Section
5.01(o).
"Material Subsidiary" shall mean, at any time, any Subsidiary, if any,
of the Borrower that (x) has assets at such time comprising 5% or more of the
consolidated assets of the Borrower and its Subsidiaries, if any, or (y) had net
income in the most recently ended fiscal year of the Borrower comprising 5% or
more of the consolidated net income of the Borrower and its Subsidiaries, if
any, for such fiscal year.
"Maturity Date", with respect to any Loan, shall mean the A Maturity
Date, the B Maturity Date, the Revolving Loan Maturity Date or the Swingline
Expiry Date, as the case may be.
"Maximum Swingline Amount" shall mean $5,000,000.
"Merger" shall have the meaning provided in Section 5.01(j)(i).
"Minimum Borrowing Amount" shall mean (i) for Revolving Loans
maintained as Base Rate Loans, $500,000, (ii) for Term Loans maintained as Base
Rate Loans, $1,000,000, (iii) for Revolving Loans maintained as Eurodollar
Loans, $500,000 and (iv) for Term Loans maintained as Eurodollar Loans,
$1,000,000.
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"Multiemployer Plan" shall mean any multiemployer plan as defined in
Section 4001(a)(3) of ERISA, which is maintained or contributed to by (or to
which there is an obligation to contribute of) the Borrower, a Subsidiary of the
Borrower or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest due on which the Borrower, a Subsidiary of the
Borrower or an ERISA Affiliate maintained, contributed to or had an obligation
to contribute to such plan.
"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the
Cash Proceeds resulting therefrom net of expenses of sale (including payment of
principal, premium and interest of Indebtedness secured by the assets the
subject of the Asset Sale and required to be, and which is, repaid under the
terms thereof as a result of such Asset Sale), and incremental taxes paid or
payable as a result thereof.
"Non-Defaulting Lender" shall mean each Lender other than a Defaulting
Lender.
"Note" shall have the meaning provided in Section 1.05.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent at
130 Liberty Street, New York, New York or such other office as the
Administrative Agent may designate to the Borrower from time to time.
"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Administrative Agent, the Collateral Agent, the Syndication Agent or any
Lender pursuant to the terms of this Agreement or any other Credit Document.
"Participant" shall have the meaning provided in Section 2.05(a).
"Payment Office" shall mean the office of the Administrative Agent at
130 Liberty Street, New York, New York or such other office as the
Administrative Agent may designate to the Borrower from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Pequot" shall mean the Pequot Scout Fund L.P., a Delaware limited
partnership.
"Permitted Acquisition" shall have the meaning provided in Section
8.02(j).
"Permitted Holders" means Kelso, the Designated Affiliates, the
Management Investors, any employee stock ownership plan established by the
Borrower for the benefit of the employees of the Borrower or any Subsidiary, if
any, and their Permitted Transferees.
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"Permitted Joint Venture" shall mean any Person (other than a
Subsidiary, if any) in which the Borrower or any Guarantor shall invest for the
purpose of engaging in clinical laboratory testing and services arrangements
other than those currently offered by the Borrower and its Subsidiaries.
"Permitted Liens" shall mean Liens described in clauses (a) to (n) of
Section 8.03.
"Permitted Preferred Stock" shall mean preferred stock of the Borrower
so long as the terms of any such preferred stock (i) do not contain any
mandatory put, redemption, repayment, sinking fund or other similar provision,
(ii) do not require the cash payment of dividends and (iii) are otherwise
reasonably satisfactory to the Administrative Agent.
"Permitted Transferees" means (i) in the case of Kelso, (A) any
Designated Affiliate, (B) any managing director, general partner, limited
partner, director, officer or employee of Kelso or any Designated Affiliate
(collectively, "Kelso Associates"), (C) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any Kelso Associate and (D)
any trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or partners of which, include only a Kelso Associate, his or her
spouse, parents, siblings, direct lineal descendants or adopted children, and
(ii) in the case of any Management Investors, (A) his executor, administrator,
testamentary trustee, legatee or beneficiaries, (B) his or her spouse, parents,
siblings, direct lineal descendants or adopted children or (C) a trust, the
beneficiaries of which, or a corporation or partnership, the stockholders or
partners of which, include only the Management Investor, as the case may be, and
his or her spouse, parents, siblings, direct lineal descendants and/or adopted
children.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary, if any, or an ERISA
Affiliate, and each such plan for the five year period immediately following the
latest date on which the Borrower, or a Subsidiary, if any, or an ERISA
Affiliate maintained, contributed to or had an obligation to contribute to such
plan.
"Pledge Agreement" shall mean a Pledge Agreement substantially in the
form of Exhibit M (appropriately completed), as same may be amended, modified or
supplemented from time to time.
"Pledged Securities" shall mean all the Pledged Securities as defined
in the relevant Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. BTCo may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
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"Pro Forma Basis" shall mean, in connection with any calculation of
compliance with any financial covenant or financial term, the calculation
thereof after giving effect on a pro forma basis to (x) the incurrence of any
Indebtedness (other than revolving Indebtedness, except to the extent same is
incurred to refinance other outstanding Indebtedness or to finance Permitted
Acquisitions) after the first day of the relevant Test Period as if such
Indebtedness had been incurred (and the proceeds thereof applied) on the first
day of the relevant Test Period, (y) the permanent repayment of any Indebtedness
(other than revolving Indebtedness) after the first day of the relevant Test
Period as if such Indebtedness had been retired or redeemed on the first day of
the relevant Test Period and (z) the Permitted Acquisition, if any, then being
consummated as well as any other Permitted Acquisition consummated after the
first day of the relevant Test Period and on or prior to the date of the
respective Permitted Acquisition then being effected, with the following rules
to apply in connection therewith:
(i) all Indebtedness (x) (other than revolving Indebtedness, except
to the extent same is incurred to refinance other outstanding Indebtedness
or to finance Permitted Acquisitions) incurred or issued after the first
day of the relevant Test Period (whether incurred to finance a Permitted
Acquisition, to refinance Indebtedness or otherwise) shall be deemed to
have been incurred or issued (and the proceeds thereof applied) on the
first day of the respective Test Period and remain outstanding through the
date of determination and (y) (other than revolving Indebtedness)
permanently retired or redeemed after the first day of the relevant Test
Period shall be deemed to have been retired or redeemed on the first day of
the respective Test Period and remain retired through the date of
determination;
(ii) all Indebtedness assumed to be outstanding pursuant to preceding
clause (i) shall be deemed to have borne interest at (x) the rate
applicable thereto, in the case of fixed rate indebtedness or (y) the rates
which would have been applicable thereto during the respective period when
same was deemed outstanding, in the case of floating rate Indebtedness
(although interest expense with respect to any Indebtedness for periods
while same was actually outstanding during the respective period shall be
calculated using the actual rates applicable thereto while same was
actually outstanding); and
(iii) in making any determination of Consolidated EBITDA, pro forma
effect shall be given to any Permitted Acquisition or any closure or
discontinuation of operations of any facility of the Borrower or its
Subsidiaries for the periods described above, taking into account factually
supportable and identifiable synergies, cost savings and expenses which
have been identified in writing by the chief financial officer of the
Borrower and found reasonable by the Administrative Agent.
"PSD Interest Period" shall mean an Interest Period commenced prior to
the Syndication Date, each of which Interest Periods must satisfy the
requirements of Section 1.09(v).
"Qualified Stock" shall mean Common Stock and Permitted Preferred
Stock.
"Quarterly Payment Date" shall mean the fifteenth Business Day of each
March, June, September and December.
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"RC Lenders" shall mean each Lender with a Revolving Commitment.
"RCRA" shall mean the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. (S) 6901 et seq.
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"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recapitalization" shall mean the Merger and recapitalization of the
Borrower pursuant to, and in accordance with the terms of, the Recapitalization
Documents.
"Recapitalization Agreement" shall mean the Agreement and Plan of
Merger dated as of May 24, 1999, as amended and as in effect on the Initial
Borrowing Date by and between the Borrower and Acquisition Sub.
"Recapitalization Documents" shall mean the Recapitalization Agreement
and all other agreements and documents relating to the Recapitalization.
"Recovery Event" shall mean the receipt by the Borrower or any of its
Subsidiaries, if any, of any insurance or condemnation proceeds payable (i) by
reason of theft, physical destruction or damage or any other similar event with
respect to any properties or assets of the Borrower or any of its Subsidiaries,
(ii) by reason of any condemnation, taking, seizing or similar event with
respect to any properties or assets of the Borrower or any of its Subsidiaries,
if any, and (iii) under any policy of insurance required to be maintained under
Section 7.03.
"Refinanced Indebtedness" shall have the meaning provided in Section
5.01(k).
"Refinancing" shall mean the refinancing transaction described in
Section 6.05(a).
"Register" shall have the meaning provided in Section 12.16.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing margin requirements.
"Reinvestment Assets" shall mean any assets to be employed in the
business of the Borrower and its Subsidiaries, if any, as described in Section
8.01.
"Reinvestment Election" shall have the meaning provided in Section
4.02(A)(d).
"Reinvestment Notice" shall mean a written notice signed by an
Authorized Officer of the Borrower stating that the Borrower, in good faith,
intends and expects to use all or a specified portion of the Net Cash Proceeds
of an Asset Sale to purchase, construct or otherwise acquire Reinvestment
Assets.
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"Reinvestment Prepayment Amount" shall mean, with respect to any
Reinvestment Election, the amount, if any, on the Reinvestment Prepayment Date
relating thereto by which (a) the Anticipated Reinvestment Amount in respect of
such Reinvestment Election exceeds (b) the aggregate amount thereof expended by
the Borrower and its Subsidiaries, if any, to acquire Reinvestment Assets.
"Reinvestment Prepayment Date" shall mean, with respect to any
Reinvestment Election, the earliest of (i) the date, if any, upon which the
Administrative Agent, on behalf of the Required Lenders, shall have delivered a
written termination notice to the Borrower, provided that such notice may only
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be given while an Event of Default exists, (ii) the date occurring one year
after such Reinvestment Election and (iii) the date on which the Borrower shall
have determined not to, or shall have otherwise ceased to, proceed with the
purchase, construction or other acquisition of Reinvestment Assets with the
related Anticipated Reinvestment Amount.
"Relevant Test Period" shall mean, at any time, the Test Period ending
on the last day of the then most recently ended fiscal quarter of the Borrower
with respect to which an officer's certificate has been delivered to the Lenders
pursuant to Section 7.01(e).
"Replacement Lender" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"Required Lenders" shall mean Non-Defaulting Lenders, the sum of whose
outstanding A Term Loans, B Term Loans and Revolving Commitments (or, if after
the Total Revolving Commitment has been terminated, Revolving Loans and Adjusted
RC Percentages of Swingline Loans and Letter of Credit Outstandings) constitute
an amount greater than 50% of the sum of (i) the total outstanding A Term Loans,
and B Term Loans of Non-Defaulting Lenders and (ii) the Adjusted Total Revolving
Commitment (or, if after the Total Revolving Commitment has been terminated, the
aggregate outstanding Revolving Loans, Swingline Loans and Letter of Credit
Outstandings).
"Revolving Commitment" shall mean, with respect to each Lender, the
amount set forth opposite such Lender's name in Annex I hereto directly below
the column entitled "Revolving Commitment", as the same may be (x) reduced from
time to time pursuant to Section 3.02, 3.03 and/or 9 or (y) adjusted from time
to time as a result of assignments to or from such Lender pursuant to Section
12.04.
"Revolving Facility" shall mean the Facility evidenced by the Total
Revolving Commitment.
"Revolving Loan" shall have the meaning provided in Section 1.01(c).
"Revolving Loan Maturity Date" shall mean the sixth anniversary of the
Initial Borrowing Date.
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"Revolving Percentage" shall mean at any time for each Lender with a
Revolving Commitment, the percentage obtained by dividing such Lender's
Revolving Commitment by the Total Revolving Commitment, provided that if the
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Total Revolving Commitment has been terminated, the Revolving Percentage of each
Lender shall be determined by dividing such Lender's Revolving Commitment
immediately prior to such termination by the Total Revolving Commitment
immediately prior to such termination.
"Scheduled A Repayment" shall have the meaning provided in Section
4.02(A)(b).
"Scheduled B Repayment" shall have the meaning provided in Section
4.02(A)(c).
"Scheduled Repayment" shall mean each Scheduled A Repayment and each
Scheduled B Repayment.
"SEC" shall have the meaning provided in Section 7.01(i).
"SEC Regulation D" shall mean Regulation D as promulgated under the
Securities Act of 1933, as amended, as the same may be in effect from time to
time.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning assigned that term in the
respective Security Documents.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in Section
5.01(g).
"Security Agreement Collateral" shall mean all "Collateral" as defined
in the relevant Security Agreement.
"Security Documents" shall mean the Security Agreement, the Pledge
Agreement, if any, each Guaranty, if any, and each Additional Mortgage, if any.
"Senior Subordinated Note Documents" shall mean and include each of
the documents, instruments (including the Senior Subordinated Notes) and other
agreements entered into by Unilab Finance (including, without limitation, the
Senior Subordinated Note Indenture) relating to the issuance by Unilab Finance
of the Senior Subordinated Notes as assumed by the Borrower and in effect on the
Initial Borrowing Date and as the same may be supplemented, amended or modified
from time to time in accordance with the terms hereof and thereof.
"Senior Subordinated Note Indenture" shall mean the Indenture entered
into by and between Unilab Finance and the Senior Subordinated Note Indenture
Trustee, as in effect on the Initial Borrowing Date and as the same may be
modified, amended or supplemented from time to time in accordance with the terms
hereof and thereof.
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"Senior Subordinated Notes" shall mean the 12 3/4% Senior Subordinated
Notes due 2009 issued by Unilab Finance under the Senior Subordinated Note
Indenture and assumed by the Borrower.
"Senior Subordinated Notes Indenture Trustee" shall mean HSBC Bank USA
and any successor thereto.
"Shareholders' Agreements" shall have the meaning provided in Section
5.01(o).
"Standby Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Start Date" shall have the meaning provided in the definition of
Applicable Margin.
"Stated Amount" of each Letter of Credit shall mean the maximum
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, if any, has more than a 50% equity interest at the time. Unless
otherwise expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Swingline Expiry Date" shall mean the date which is five Business
Days prior to the sixth anniversary of the Initial Borrowing Date.
"Swingline Loan" shall have the meaning provided in Section 1.01(d).
"Syndication Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Syndication Date" shall mean the earlier of (x) the date which is 90
days after the Initial Borrowing Date and (y) the date upon which the
Administrative Agent determines in its sole discretion (and notifies the
Borrower) that the primary syndication has been completed.
"Tax Allocation Agreements" shall have the meaning provided in Section
5.01(o).
"Tax Forms" shall have the meaning provided in Section 4.04(b).
"Taxes" shall have the meaning provided in Section 4.04(a).
"Term Commitment" shall mean, with respect to each Lender, the sum of
the amount, if any, set forth opposite such Lender's name on Annex I hereto
directly below the
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column entitled "A Term Commitment" and the amount, if any, set forth opposite
such Lender's name on Annex I hereto directly below the column entitled B Term
Commitment.
"Term Facility" shall mean the Facility evidenced by the Total Term
Commitment.
"Term Loan" shall mean each A Term Loan and each B Term Loan.
"Test Period" shall mean for (i) the determination of the Interest
Coverage Ratio for purposes of Section 8.10 for the first three Test Periods,
the periods beginning on December 31, 1999 and ending at first, second and third
fiscal quarters ending thereafter (in each case taken as one accounting period)
and (ii) any other determination, the four consecutive fiscal quarters of the
Borrower then last ended (taken as one accounting period).
"Total A Term Commitment" shall mean the sum of the A Term Commitments
of each of the Lenders.
"Total B Term Commitment" shall mean the sum of the B Term Commitments
of each of the Lenders.
"Total Commitment" shall mean the sum of the Total A Term Commitment,
the Total B Term Commitment and the Total Revolving Commitment.
"Total Leverage Ratio" shall mean, at any date of determination, the
ratio of Consolidated Debt (net of cash and Cash Equivalents) on such date to
Consolidated EBITDA for the Test Period most recently ended (taken as one
accounting period) and ending on such date. All calculations of the Total
Leverage Ratio shall be made on a Pro Forma Basis. In addition to the
foregoing, for purposes of determining compliance with Section 8.11 for the Test
Period ending on December 31, 2000, the Total Leverage Ratio for the fiscal
quarter of the Borrower ending on December 31, 2000 shall be calculated after
giving effect to any capital contributions made to the Borrower pursuant to the
Capital Call Agreement.
"Total Revolving Commitment" shall mean the sum of the Revolving
Commitments of each of the Lenders.
"Total Term Commitment" shall mean the sum of the Total A Term
Commitment and the Total B Term Commitment.
"Total Unutilized Revolving Commitment" shall mean, at any time, (i)
the Total Revolving Commitment at such time less (ii) the sum of the aggregate
principal amount of all Revolving Loans and Swingline Loans at such time plus
the Letter of Credit Outstandings at such time.
"Trade Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Tranche" shall mean the respective facilities and commitments
utilized in making Loans hereunder, with there being three separate Tranches
(i.e., A Term Loans, B Term Loans and Revolving Loans).
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"Transaction" shall mean, collectively, (i) the Recapitalization, (ii)
the Refinancing, (iii) the incurrence of loans on the Initial Borrowing Date,
(iv) the entering into of the Senior Subordinated Note Documents and the
issuance of the Senior Subordinated Notes pursuant thereto, (v) the Equity
Financing and (vi) the payment of fees and expenses in connection with the
Recapitalization.
"Transaction Expenses" shall mean all fees and expenses incurred in
connection with, and payable prior to or substantially concurrently with the
consummation of the Transaction, and including (i) all fees paid to any of the
Lenders, the Administrative Agent, and the Syndication Agent hereunder, (ii) all
fees paid to Kelso & Company or its Affiliates, (iii) all attorney's fees,
accountants' fees and consultant fees, paid in connection with the transactions
contemplated by this Agreement, (iv) all accrued interest, (v) severance costs,
and (vi) financial advisory fees. Transaction Expenses shall include the
amortization of any such fees and expenses that are capitalized and not
classified as an expense on the date incurred.
"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar Loan.
----
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the value of the accumulated plan benefits under the Plan
determined on a plan termination basis in accordance with actuarial assumptions
at such time consistent with those prescribed by the PBGC for purposes of
Section 4044 of ERISA, exceeds the fair market value of all plan assets
allocable to such liabilities under Title IV of ERISA (excluding any accrued but
unpaid contributions).
"Unilab Finance" shall mean Unilab Finance Corp., a Wholly-Owned
Subsidiary of Kelso.
"Unpaid Drawing" shall have the meaning provided in Section 2.04(a).
"Unutilized Revolving Commitment" for any Lender with a Revolving
Commitment at any time shall mean the excess of (i) the Revolving Commitment of
such Lender over (ii) the sum of (x) the aggregate outstanding principal amount
of Revolving Loans made by such Lender plus (y) an amount equal to such Lender's
Adjusted RC Percentage of the Letter of Credit Outstandings at such time.
"Voting Stock" shall mean, with respect to any corporation, the
outstanding stock of all classes (or equivalent interests) which ordinarily, in
the absence of contingencies, entitles holders thereof to vote for the election
of directors (or Persons performing similar functions) of such corporation, even
though the right so to vote has been suspended by the happening of such a
contingency.
"Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary, if
any, of such Person to the extent all of the capital stock or other ownership
interests in such Subsidiary, other than directors' qualifying shares, is owned
directly or indirectly by such Person.
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"Working Capital" shall mean the excess of Consolidated Current Assets
over Consolidated Current Liabilities.
"Year 2000 Compliant" shall mean that all Information Systems and
Equipment accurately process date data (including, but not limited to,
calculating, comparing and sequencing), before, during and after the year 2000,
as well as same and multi-century dates, or between the years 1999 and 2000,
taking into account all leap years, including the fact that the year 2000 is a
leap year, and further, that when used in combination with, or interfacing with,
other Information Systems and Equipment, shall accurately accept, release and
exchange date data, and shall in all material respects continue to function in
the same manner as it performs today and shall not otherwise impair the accuracy
or functionality of Information Systems and Equipment.
"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, facsimile transmission, telegraph or
cable.
SECTION 11. The Administrative Agent.
------------------------
11.01 Appointment. The Lenders hereby designate Bankers Trust
-----------
Company as Administrative Agent (for purposes of this Section 11, the term
"Administrative Agent" shall include BTCo in its capacity as Collateral Agent
pursuant to the Security Documents) to act as specified herein and in the other
Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of
any Note by the acceptance of such Note shall be deemed irrevocably to
authorize, the Administrative Agent to take such action on its behalf under the
provisions of this Agreement, the other Credit Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Administrative Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The
Administrative Agent may perform any of its duties hereunder by or through its
respective officers, directors, agents, employees or affiliates.
11.02 Nature of Duties. The Administrative Agent shall not have any
----------------
duties or responsibilities except those expressly set forth in this Agreement
and the Security Documents. Neither the Administrative Agent nor any of its
respective officers, directors, agents, employees or affiliates shall be liable
for any action taken or omitted by it or them hereunder or under any other
Credit Document or in connection herewith or therewith, unless caused by its or
their gross negligence or willful misconduct. The duties of the Administrative
Agent shall be mechanical and administrative in nature; the Administrative Agent
shall not have by reason of this Agreement or any other Credit Document a
fiduciary relationship in respect of any Lender or the holder of any Note; and
nothing in this Agreement or any other Credit Document, expressed or implied, is
intended to or shall be so construed as to impose upon the Administrative Agent
any obligations in respect of this Agreement or any other Credit Document except
as expressly set forth herein or therein.
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11.03 Lack of Reliance on the Administrative Agent. Independently
--------------------------------------------
and without reliance upon the Administrative Agent, each Lender and the holder
of each Note, to the extent it deems appropriate, has made and shall continue to
make (i) its own independent investigation of the financial condition and
affairs of the Borrower and its Subsidiaries, if any, in connection with the
making and the continuance of the Loans and the taking or not taking of any
action in connection herewith and (ii) its own appraisal of the creditworthiness
of the Borrower and its Subsidiaries, if any, and, except as expressly provided
in this Agreement, the Administrative Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to provide any Lender
or the holder of any Note with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter. The Administrative Agent shall not be responsible
to any Lender or the holder of any Note for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of this Agreement or any other Credit
Document or the financial condition of the Borrower and its Subsidiaries, if
any, or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any other Credit Document, or the financial condition of the Borrower and its
Subsidiaries, if any, or the existence or possible existence of any Default or
Event of Default.
11.04 Certain Rights of the Administrative Agent. If the
------------------------------------------
Administrative Agent shall request instructions from the Required Lenders with
respect to any act or action (including failure to act) in connection with this
Agreement or any other Credit Document, the Administrative Agent shall be
entitled to refrain from such act or taking such action unless and until the
Administrative Agent shall have received instructions from the Required Lenders;
and the Administrative Agent shall not incur liability to any Person by reason
of so refraining. Without limiting the foregoing, neither any Lender nor the
holder of any Note shall have any right of action whatsoever against the
Administrative Agent as a result of the Administrative Agent acting or
refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Lenders.
11.05 Reliance. The Administrative Agent shall be entitled to rely,
--------
and shall be fully protected in relying, upon any note, writing, resolution,
notice, statement, certificate, telex, teletype or telecopier message,
cablegram, radiogram, order or other document or telephone message signed, sent
or made by any Person that the Administrative Agent believed to be the proper
Person, and, with respect to all legal matters pertaining to this Agreement and
any other Credit Document and its duties hereunder and thereunder, upon advice
of counsel selected by the Administrative Agent (which may be counsel for the
Borrower).
11.06 Indemnification. To the extent the Administrative Agent is not
---------------
reimbursed and indemnified by the Borrower, the Lenders will reimburse and
indemnify the Administrative Agent, in proportion to their respective
"percentages" as used in determining the Required Lenders, for and against any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, costs, expenses or disbursements of whatsoever kind or nature which
may be imposed on, asserted against or incurred by the Administrative Agent in
performing its respective duties hereunder or under any other Credit Document,
in any way relating to or arising out of this Agreement or any other Credit
Document; provided that no Lender shall be liable for any portion
--------
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of such liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's gross negligence or willful misconduct.
11.07 The Administrative Agent in its Individual Capacity. With
---------------------------------------------------
respect to its obligation to make Loans under this Agreement, the Administrative
Agent shall have the rights and powers specified herein for a "Lender" and may
exercise the same rights and powers as though it were not performing the duties
specified herein; and the term "Lenders", "Required Lenders", "holders of Notes"
or any similar terms shall, unless the context clearly otherwise indicates,
include the Administrative Agent in its individual capacity. The Administrative
Agent and the Syndication Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with any Credit
Party or any Affiliate of any Credit Party as if it were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrower or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Lenders.
11.08 Holders. The Administrative Agent may deem and treat the payee
-------
of any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or endorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
11.09 Resignation by the Administrative Agent. (a) The
---------------------------------------
Administrative Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
15 Business Days' prior written notice to the Borrower and the Lenders. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Required Lenders shall
appoint a successor Administrative Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to the Borrower.
(c) If a successor Administrative Agent shall not have been so
appointed within such 15 Business Day period, the Administrative Agent, with the
consent of the Borrower, shall then appoint a successor Administrative Agent who
shall serve as Administrative Agent hereunder or thereunder until such time, if
any, as the Required Lenders appoint a successor Administrative Agent as
provided above.
(d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 20th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Required Lenders shall thereafter
perform all the duties of the Administrative Agent hereunder and/or under any
other Credit Document until such time, if any, as the Required Lenders appoint a
successor Administrative Agent as provided above.
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11.10 Syndication Agent. The Syndication Agent shall have no duties
-----------------
or liabilities under the Credit Documents in such capacity.
SECTION 12. Miscellaneous.
-------------
12.01 Payment of Expenses, etc. The Borrower agrees to: (i) whether
-------------------------
or not the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Agents in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (including, without limitation, the reasonable fees and
disbursements of White & Case LLP), (ii) pay all reasonable out-of-pocket costs
and expenses of each Agent and each of the Lenders in connection with the
enforcement of the Credit Documents and the documents and instruments referred
to therein and, after an Event of Default shall have occurred and be continuing,
the protection of the rights of each of the Agents and each of the Lenders
thereunder (including, without limitation, the reasonable fees and disbursements
of counsel for the Agents and the Lenders), provided that the Borrower shall be
--------
obligated to pay the fees and disbursements of only one counsel to the Agents
and the Lenders pursuant to this clause (ii) unless an Agent or Lender notifies
the Borrower that it reasonably believes that its legal position differs from
the other Agents or Lenders or that it may be subject to different claims or
defenses than the other Agents and Lenders, in which case the Company will also
pay the reasonable fees and disbursements of counsel of such Agent or Lender;
(iii) pay and hold each of the Lenders harmless from and against any and all
present and future stamp and other similar taxes with respect to the foregoing
matters and save each of the Lenders harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to such Lender) to pay such taxes; and (iv) indemnify
each Lender (including in its capacity as the Administrative Agent, the
Syndication Agent or a Letter of Credit Issuer), its officers, directors,
employees, representatives and administrative agents from and hold each of them
harmless against any and all losses, liabilities, claims, damages or expenses
incurred by any of them as a result of, or arising out of, or in any way related
to, or by reason of, (a) any investigation, litigation or other proceeding
(whether or not the Administrative Agent, the Syndication Agent or any Lender is
a party thereto and whether or not any such investigation, litigation or other
proceeding is between or among the Administrative Agent, the Syndication Agent,
any Lender, any Credit Party or any third Person or otherwise) related to the
entering into and/or performance of any Document or the use of the proceeds of
any Loans hereunder or the consummation of any transactions contemplated in any
Credit Document, and (b) any such investigation, litigation or other proceeding
relating to the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower, any of its
Subsidiaries, if any, or any Real Property owned or operated by them, or the
actual or alleged presence or release of Hazardous Materials on, under or from
any Real Property at any time owned or operated by Holdings or any of its
Subsidiaries, if any, and in each case including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).
12.02 Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, if an Event of
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<PAGE>
Default then exists, each Lender is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to any
Credit Party or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by such Lender
(including, without limitation, by branches and agencies of such Lender wherever
located) to or for the credit or the account of any Credit Party against and on
account of the Obligations and liabilities of such Credit Party to such Lender
under this Agreement or under any of the other Credit Documents, including,
without limitation, all interests in Obligations of such Credit Party purchased
by such Lender pursuant to Section 12.06(b), and all other claims of any nature
or description arising out of or connected with this Agreement or any other
Credit Document, irrespective of whether or not such Lender shall have made any
demand hereunder and although said Obligations, liabilities or claims, or any of
them, shall be contingent or unmatured.
12.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to a Credit Party, at
the address specified opposite its signature below or in the other relevant
Credit Documents, as the case may be; if to any Lender, at its address specified
for such Lender on Annex II hereto; or, at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall be mailed, telegraphed, telexed,
telecopied, or cabled or sent by overnight courier, and shall be effective when
received.
12.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, provided that the Borrower may not assign or
--------
transfer any of its rights or obligations hereunder without the prior written
consent of the Lenders. Each Lender may at any time grant participations in any
of its rights hereunder or under any of the Notes to another financial
institution, provided that in the case of any such participation, the
--------
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Lender in respect of
such participation to be those set forth in the agreement executed by such
Lender in favor of the participant relating thereto) and all amounts payable by
the Borrower hereunder shall be determined as if such Lender had not sold such
participation, except that the participant shall be entitled to the benefits of
Sections 1.10, 1.11, 2.06 and 4.04 of this Agreement to the extent that such
Lender would be entitled to such benefits if the participation had not been
entered into or sold, and, provided further, that no Lender shall transfer,
-------- -------
grant or assign any participation under which the participant shall have rights
to approve any amendment to or waiver of this Agreement or any other Credit
Document except to the extent such amendment or waiver would (i) extend the
final scheduled maturity of any Loan or Letter of Credit (unless such Letter of
Credit is not extended beyond the Revolving Loan Maturity Date) in which such
participant is participating (it being understood that any waiver of the
application of any prepayment or the method of any application of any prepayment
to, the amortization of the Term Loans shall not constitute an extension of the
final maturity date), or reduce the rate or extend the time of payment of
interest or Fees thereon (except in connection with a waiver of the
applicability of any post-default increase in interest rates), or reduce the
principal amount thereof, or increase such participant's participating interest
in any Commitment over the amount
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thereof then in effect (it being understood that a waiver of any Default or
Event of Default or of a mandatory reduction in the Total Commitment, or a
mandatory prepayment, shall not constitute a change in the terms of any
Commitment), (ii) release all or substantially all of the Guarantors from their
obligations under the Guaranty except in accordance with the terms thereof,
(iii) release all or substantially all of the Collateral except in accordance
with the terms of the Credit Documents or (iv) consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement.
(b) Notwithstanding the foregoing, (x) any Lender may assign all or a
portion of its outstanding A Term Loans, B Term Loans and/or Revolving
Commitment (and related outstanding Obligations) and its rights and obligations
hereunder to (i) its parent company and/or affiliates of such Lender which is at
least 50% owned by such Lender or its parent company or (ii) in the case of a
Lender that is a fund that invests in loans, any other fund that invests in
loans and is managed or advised by the same fund manager or investment adviser
of such Lender or an Affiliate of such fund manager or investment adviser of
such Lender, and (y) with the consent of the Administrative Agent and, so long
as no Event of Default is then in existence, the Borrower (which consents shall
not be unreasonably withheld or delayed), any Lender may assign all or a portion
of its outstanding A Term Loans, B Term Loans and/or Revolving Commitment and
its rights and obligations hereunder to one or more commercial lenders or other
financial institutions (including one or more Lenders). No assignment pursuant
to the immediately preceding sentence shall to the extent such assignment
represents an assignment to an institution other than one or more Lenders
hereunder, be in an aggregate amount less than $5,000,000 unless the entire
outstanding Loans and Commitment of the assigning Lender is so assigned. If any
Lender so sells or assigns all or a part of its rights hereunder or under the
Notes, any reference in this Agreement or the Notes to such assigning Lender
shall thereafter refer to such Lender and to the respective assignee to the
extent of their respective interests and the respective assignee shall have, to
the extent of such assignment (unless otherwise provided therein), the same
rights and benefits as it would if it were such assigning Lender. Each
assignment pursuant to this Section 12.04(b) shall be effected by the assigning
Lender and the assignee Lender executing an Assignment Agreement. At the time
of any such assignment, (i) either the assigning or the assignee Lender shall
pay to the Administrative Agent a nonrefundable assignment fee of $3,500, (ii)
Annex I shall be deemed to be amended to reflect the Commitment of the
respective assignee (which shall result in a direct reduction to the Commitment
of the assigning Lender) and of the other Lenders, and (iii) upon the request of
the assignee and/or assigning Lender, the Borrower will issue Notes to the
respective assignee and/or to the assigning Lender in conformity with the
requirements of Section 1.05. Each Lender and the Borrower agree to execute such
documents (including without limitation amendments to this Agreement and the
other Credit Documents) as shall be necessary to effect the foregoing. Nothing
in this clause (b) shall prevent or prohibit any Lender from pledging its Notes
or Loans to a Federal Reserve Bank in support of borrowings made by such Lender
from such Federal Reserve Bank. Notwithstanding anything to the contrary
contained in this clause (b), any Lender that is a fund that invests in bank
loans may (without the consent of the Borrower or the Administrative Agent)
pledge all or any portion of its rights in connection with this Agreement to the
trustee for, or other representative of, holders of obligations owed, or
securities issued, by such fund as security for such obligations or securities;
provided that any foreclosure or other exercise of remedies by such trustee
- --------
shall be subject to the provisions of this Agreement and the other Credit
Documents in all respects. No pledge
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described in the immediately preceding sentence shall release such Lender from
its obligations hereunder.
(c) Notwithstanding any other provisions of this Section 12.04, no
transfer or assignment of the interests or obligations of any Lender hereunder
or any grant of participation therein shall be permitted if such transfer,
assignment or grant would require the Borrower to file a registration statement
with the SEC or to qualify the Loans under the "Blue Sky" laws of any State.
(d) Each Lender initially party to this Agreement hereby represents,
and each Person that became a Lender pursuant to an assignment permitted by this
Section 12 will, upon its becoming party to this Agreement, represent that it is
a commercial lender, other financial institution or other "accredited" investor
(as defined in SEC Regulation D) which makes loans in the ordinary course of its
business and that it will make or acquire Loans for its own account in the
ordinary course of such business, provided that subject to the preceding clauses
--------
(a) and (b), the disposition of any promissory notes or other evidences of or
interests in Indebtedness held by such Lender shall at all times be within its
exclusive control.
12.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of the Administrative Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between any Credit Party and the Administrative Agent or any Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Lender would otherwise have. No notice to or demand
on any Credit Party in any case shall entitle any Credit Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or the Lenders to any other or
further action in any circumstances without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees that
-----------------
promptly after its receipt of each payment from or on behalf of any Credit Party
in respect of any Obligations of such Credit Party hereunder, it shall
distribute such payment to the Lenders (other than any Lender that has expressly
waived its right to receive its pro rata share thereof) pro rata based upon
--- ---- --- ----
their respective shares, if any, of the Obligations with respect to which such
payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or Lender's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
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Obligations of the respective Credit Party to such Lenders in such amount as
shall result in a proportional participation by all of the Lenders in such
amount, provided that if all or any portion of such excess amount is thereafter
--------
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 12.06(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.
12.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Borrower to the Lenders), provided that (x) except as otherwise
--------
specifically provided herein, all computations determining compliance with
Section 8, including definitions used therein, shall utilize accounting
principles and policies in effect at the time of the preparation of, and in
conformity with those used to prepare, the December 31, 1998 historical
financial statements of the Borrower delivered to the Lenders pursuant to
Section 6.10(b) and (y) that if at any time the computations determining
compliance with Section 8 utilize accounting principles different from those
utilized in the financial statements furnished to the Lenders, such financial
statements shall be accompanied by reconciliation work-sheets.
(b) All computations of interest and Fees hereunder shall be made on
the actual number of days elapsed over a year of 360 days.
12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of
-----------------------------------------------------------
Jury Trial. (a) This Agreement and the other Credit Documents and the rights
- ----------
and obligations of the parties hereunder and thereunder shall be construed in
accordance with and be governed by the law of the state of New York. Any legal
action or proceeding with respect to this Agreement or any other Credit Document
may be brought in the courts of the State of New York or of the United States
for the Southern District of New York, and, by execution and delivery of this
Agreement, each Credit Party hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. Each Credit Party further irrevocably consents to the service
of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to each Credit Party located outside New York City and by hand
delivery to each Credit Party located within New York City, at its address for
notices pursuant to Section 12.03, such service to become effective 30 days
after such mailing. Each Credit Party hereby irrevocably designates appoints
and empowers CT Corporation System, with offices on the date hereof located at
111 Eighth Avenue, New York, New York 10011, as its agent for service of process
in respect of any such action or proceeding. Nothing herein shall affect the
right of any Agent, any Lender or the holder of any Note to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against any Credit Party in any other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceedings arising out
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of or in connection with this Agreement or any other Credit Document brought in
the courts referred to in clause (a) above and hereby further irrevocably waives
and agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
(c) Each of the parties to this agreement hereby irrevocably waives
all right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this agreement, the other credit documents or the
transactions contemplated hereby or thereby.
12.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
12.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which the Borrower, the Administrative Agent, the
Syndication Agent and each of the Lenders shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to the
Administrative Agent at the Notice Office of the Administrative Agent or, in the
case of the Lenders, shall have given to the Administrative Agent telephonic
(confirmed in writing), written, telex or facsimile transmission notice
(actually received) at such office that the same has been signed and mailed to
it. The Administrative Agent will give the Borrower and each Lender prompt
written notice of the occurrence of the Effective Date.
12.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any
-------------------------
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Lenders, provided that no such change, waiver, discharge or termination
--------
shall, without the consent of each Lender (other than a Defaulting Lender) (with
Obligations being directly affected in the case of following clause (i)), (i)
extend the final scheduled maturity of any Loan or Note or extend the stated
expiration date of any Letter of Credit beyond the Revolving Loan Maturity Date,
or reduce the rate or extend the time of payment of interest or Fees thereon, or
reduce the principal amount thereof (except to the extent repaid in cash), (ii)
release all or substantially all of the Collateral (except as expressly provided
in the Credit Documents) under all the Security Documents or release all or
substantially all of the Guarantors from their obligations under the Guaranty
except in accordance with its terms, (iii) amend, modify or waive any provision
of this Section 12.12 (it being understood that, with the consent of the
Required Lenders, additional extensions of credit pursuant to this Agreement may
afford the holders thereof and/or the then existing Lenders additional rights of
consent), (iv) reduce the percentage specified in the definition of Required
Lenders (it being understood that, with the consent of the Required Lenders,
additional extensions of credit pursuant to this Agreement may be included in
the determination of the Required Lenders on substantially the same basis as the
extensions of Revolving Commitments
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<PAGE>
are included on the Effective Date) or (v) consent to the assignment or transfer
by the Borrower of any of its rights and obligations under this Agreement;
provided further, that no such change, waiver, discharge or termination shall
- ----------------
(u) without the consent of the Majority Lenders of each Tranche which is being
allocated a lesser prepayment, repayment or commitment reduction as a result of
the actions described below (or without the consent of the Majority Lenders of
each Tranche in the case of an amendment to the definition of Majority Lenders),
amend the definition of Majority Lenders or alter the required application of
any prepayments or repayments (or commitment reductions), as between the various
Tranches, pursuant to Section 4.01 or 4.02 (excluding Section 4.02(b)) (although
the Required Lenders may (1) waive, in whole or in part, any such prepayment,
repayment or commitment reduction, so long as the application, as amongst the
various Tranches, of any such prepayment, repayment or commitment reduction
which is still required to be made is not altered and (2) agree to additional
extensions of credit made after the Initial Borrowing Date (and not pursuant to
the Commitments as in effect on the Initial Borrowing Date) on substantially the
same basis as the other extensions of credit made pursuant to this Agreement),
(v) increase the Commitments of any Lender over the amount thereof then in
effect without the consent of such Lender (it being understood that waivers or
modifications of conditions precedent, covenants, Defaults or Events of Default
or of a mandatory reduction in the Total Commitment shall not constitute an
increase of the Commitment of any Lender, and that an increase in the available
portion of the Commitment of any Lender shall not constitute an increase of the
Commitment of any Lender, and that an increase in the available portion of any
Commitment of any Lender shall not constitute an increase in the Commitment of
such Lender), (w) without the consent of each Letter of Credit Issuer, amend,
modify or waive any provision of Section 2 or alter its rights or obligations
with respect to Letters of Credit, (x) without the consent of BTCo, alter its
rights or obligations with respect to Swingline Loans, (y) without the consent
of the Administrative Agent, amend, modify or waive any provision of Section 11
or any other provision as same relates to the rights or obligations of the
Administrative Agent or (z) without the consent of the Collateral Agent, amend,
modify or waive any provision relating to the rights or obligations of the
Collateral Agent.
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
clauses (i) through (v), inclusive, of the first proviso to Section 12.12(a),
the consent of the Required Lenders is obtained but the consent of one or more
of such other Lenders whose consent is required is not obtained, then the
Borrower shall have the right, so long as all non-consenting Lenders whose
individual consent is required are treated as described in either clauses (A) or
(B) below, to either (A) replace each such non-consenting Lender or Lenders with
one or more Replacement Lenders pursuant to Section 1.13 so long as at the time
of such replacement, each such Replacement Lender consents to the proposed
change, waiver, discharge or termination or (B) terminate such non-consenting
Lender's Revolving Commitment and repay outstanding Loans of such Lender in
accordance with Sections 3.02(b) and/or 4.01(b), provided that, unless the
--------
Commitments which are terminated, and Loans which are repaid pursuant to
preceding clause (B) are immediately replaced in full at such time through the
addition of new Lenders or the increase of the Commitments and/or outstanding
Loans of existing Lenders (who in each case must specifically consent thereto),
then in the case of any action pursuant to preceding clause (B) each Lender
(determined after giving effect to the proposed action) shall specifically
consent thereto, provided further, that in any event the Borrower shall not have
-------- -------
the right to replace a Lender, terminate its
-92-
<PAGE>
Commitment or repay its Loans solely as a result of the exercise of such
Lender's rights (and the withholding of any required consent by such Lender)
pursuant to the second proviso to Section 12.12(a).
12.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Section 1.10, 1.11, 2.06, 4.04, 11.07 or 12.01 shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans.
12.14 Domicile of Loans. Each Lender may transfer and carry its
-----------------
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Lender, provided that the Borrower shall not be responsible for costs
--------
arising under Section 1.10 or 4.04 resulting from any such transfer (other than
a transfer pursuant to Section 1.12) to the extent not otherwise applicable to
such Lender prior to such transfer.
12.15 Confidentiality. Subject to Section 12.04, the Lenders shall
---------------
hold all non- public information obtained pursuant to the requirements of this
Agreement which has been identified as such by the Borrower in accordance with
its customary procedure for handling confidential information of this nature and
in accordance with safe and sound banking practices and in any event may make
disclosure (i) reasonably required by (x) any actual or prospective bona fide
---- ----
transferee or participant in connection with the contemplated transfer of any
Loans or participation therein or (y) any direct or indirect contractual
counterparty of any Lender in swap agreements or such contractual counterparty's
professional advisor (so long as such transferee, participant, counterparty or
professional advisor agrees to be bound by the provisions of this Section
12.15), (ii) to the National Association of Insurance Commissioners or any
similar organization or any nationally recognized rating agency that requires
access to information about a Lender's investment portfolio in connection with
ratings issued with respect to such Lender or (iii) as required or requested by
any governmental agency or representative thereof or pursuant to legal process,
provided that, unless specifically prohibited by applicable law or court order,
- --------
each Lender shall notify the Borrower of any request by any governmental agency
or representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to disclosure of
such information, and provided further, that in no event shall any Lender be
----------------
obligated or required to return any materials furnished by the Borrower or any
Subsidiary.
12.16 Register. The Borrower hereby designates the Administrative
--------
Agent to serve as its agent, solely for purposes of this Section 12.16, to
maintain a register (the "Register") on which it will record the Commitments
from time to time of each of the Lenders, the Loans made by each of the Lenders
and each repayment in respect of the principal amount of the Loans of each
Lender. Failure to make any such recordation, or any error in such recordation,
shall not affect the Borrower's obligations in respect of such Loans. With
respect to any Lender, the transfer of any A Term Loan, B Term Loan or the
Revolving Commitment of such Lender and the rights to the principal of, and
interest on, any Loan made pursuant to such Revolving Commitment shall not be
effective until such transfer is recorded on the Register maintained by the
Administrative Agent with respect to ownership of such Commitment and/or Loans
and prior to such recordation all amounts owing to the transferor with respect
to such Commitment and/or Loans shall remain owing to the transferor. The
registration of assignment or transfer of all or part of any Commitment and/or
Loans shall be recorded by the Administrative Agent on the
-93-
<PAGE>
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment Agreement pursuant to Section 12.04(b). The
Borrower agrees to indemnify the Administrative Agent from and against any and
all losses, claims, damages and liabilities of whatsoever nature which may be
imposed on, asserted against or incurred by the Administrative Agent in
performing its duties under this Section 12.16.
* * *
-94-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
UNILAB CORPORATION,
18448 Oxnard Street as Borrower
Tarzana, CA 91356
Attention: Brian D. Urban
Telephone: (818) 758-6611 By /s/ David C. Weavil
Facsimile: (818) 757-3809 ---------------------------------------
Title: Chief Executive Officer
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By /s/ Mary Kay Coyle
---------------------------------------
Title: Managing Director
MERRILL LYNCH CAPITAL CORPORATION,
Individually and as Syndication Agent
By /s/ Julie Hallowell
---------------------------------------
Title: Vice President
FIRST UNION NATIONAL BANK
By /s/ Michael P. Doherty
---------------------------------------
Title: Senior Vice President
HELLER FINANCIAL, INC.
By /s/ Robert M. Reeg
---------------------------------------
Title: Assistant Vice President
<PAGE>
THE BROWN AND WILLIAMSON MASTER
RETIREMENT TRUST
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
EA/Cayman Unit Trust - EA/Mackay High Yield
Cayman Unit Trust
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
Mellon Bank N.A., solely in its capacity as
Trustee (or Custodian) for the Employees
Retirement Fund of the City of Forth Worth
as directed by MacKay-Shields Financial
Corporation, and not in its individual
capacity.
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
<PAGE>
POLICEMEN'S AND FIREFIGHTERS' RETIREMENT FUND
OF LEXINGTON-FAYETTE URBAN COUNTY
GOVERNMENT
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
TEACHER'S RETIREMENT SYSTEM OF
LOUISIANA
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
THE 1199 HEALTH CARE EMPLOYEES PENSION FUND
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
<PAGE>
POLICE OFFICERS PENSION SYSTEM OF THE CITY OF
HOUSTON
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
THE CITY OF MEMPHIS RETIREMENT SYSTEM
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
MAINSTAY VP SERIES FUND, INC., ON BEHALF OF
ITS HIGH YIELD CORPORATE BOND PORTFOLIO
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
<PAGE>
THE MAINSTAY FUNDS, ON BEHALF OF ITS HIGH
YIELD CORPORATE BOND FUND SERIES
By: MacKay Shields LLC
Its: Investment Advisor
By /s/ Robert A. Nisi
---------------------------------------
Title: General Counsel
MORGAN STANLEY DEAN WITTER PRIME INCOME TRUST
By /s/ Sheila A. Finnerty
---------------------------------------
Title: Vice President
KZH STERLING LLC
By /s/ Virginia Conway
---------------------------------------
Title: Authorized Agent
UNION BANK OF CALIFORNIA, N.A.
By /s/ Ronald A. Launsbach
---------------------------------------
Title: Vice President
<PAGE>
VAN KAMPEN PRIME RATE INCOME
TRUST
By: Van Kampen Investment Advisory Corp.
By /s/ Darvin D. Pierce
---------------------------------------
Title: Vice President
VAN KAMPEN SENIOR FLOATING RATE FUND
By: Van Kampen Investment Advisory Corp.
By /s/ Darvin D. Pierce
---------------------------------------
Title: Vice President
<PAGE>
ANNEX I
-------
COMMITMENTS
-----------
<TABLE>
<CAPTION>
A Term B Term Revolving
Lender Commitment Commitment Commitment
- ------ ---------- ---------- ----------
<S> <C> <C> <C>
Bankers Trust Company $25,000,000.00 $ 26,000,000.00 $12,500,000.00
Merrill Lynch Capital $15,000,000.00 $ 1,500,000.00 $ 7,500,000.00
Corporation
First Union National Bank $ 0 $ 10,000,000.00 $ 0
Heller Financial, Inc. $ 0 $ 10,000,000.00 $ 0
KZH Sterling LLC $ 0 $ 5,000,000.00 $ 0
The Brown and Williamson $ 0 485,000.00 $ 0
Master Retirement Fund
EA/Cayman Unit Trust - $ 0 $ 2,130,000.00 $ 0
EA/MacKay High Yield Cayman
Unit Trust
Mellon Bank, N.A. $ 0 $ 260,000.00 $ 0
Policemen's and Firefighters' $ 0 $ 195,000.00 $ 0
Retirement Fund of
Lexington-Fayette Urban
County Government
Teacher's Retirement System $ 0 $ 1,040,000.00 $ 0
of Louisiana
The 1199 Health Care $ 0 $ 1,195,000.00 $ 0
Employees Pension Fund
Police Officers Pension $ 0 $ 845,000.00 $ 0
System of the City of Houston
The City of Memphis $ 0 $ 680,000.00 $ 0
Retirement System
</TABLE>
<PAGE>
Annex I
Page 2
<TABLE>
<CAPTION>
A Term B Term Revolving
Lender Commitment Commitment Commitment
- ------ ---------- ---------- ----------
<S> <C> <C> <C>
Mainstay VP Series Fund, $ 0 $ 1,975,000.00 $ 0
Inc., on behalf of its High
Yield Corporate Bond
Portfolio
The Mainstay Funds, on behalf $ 0 $ 11,195,000.00 $ 0
of its High Yield Corporate
Bond Fund Series
Morgan Stanley Dean Witter $ 0 $ 17,500,000.00 $ 0
Prime Income Trust
Union Bank of California, N.A. $10,000,000.00 $ 5,000,000.00 $ 5,000,000.00
Van Kampen Prime Rate Income $ 0 $ 10,000,000.00 $ 0
Trust
Van Kampen Senior Floating $ 0 $ 5,000,000.00 $ 0
Rate Fund
Total: $50,000,000.00 $110,000,000.00 $25,000,000.00
============== =============== ==============
</TABLE>
<PAGE>
ANNEX II
--------
LENDER ADDRESSES
----------------
Bankers Trust Company 130 Liberty Street
New York, New York 10006
Attention: Mary Kay Coyle
Tel. No.: (212) 250-9094
Fax No.: (212) 250-7218
The Brown and Williamson Master 9 West 57th Street, 37th Floor
Retirement Fund New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
The City of Memphis Retirement System 9 West 57th Street, 37th Floor
New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
EA/Cayman Unit Trust - EA/MacKay High 9 West 57th Street, 37th Floor
Yield Cayman Unit Trust New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
The 1199 Health Care Employees Pension 9 West 57th Street, 37th Floor
Fund New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
First Union National Bank 301 South College St.
DC-5
Charlotte, NC 288288-0608
Attention: Charlie Frank
Tel. No.: (704) 374-3488
Fax No.: (704) 383-0202
<PAGE>
Annex II
Page 2
<TABLE>
<S> <C> <C>
Heller Financial, Inc. 500 West Monroe Street
Chicago, IL 60661
Attention: Linda Wolf
Tel. No.: (312) 441-7894
Fax No.: (312) 441-7357
KZH Sterling LLC 40 Fulton Street
10th Floor
New York, NY 10038
Attention: Kevin Steube
Tel. No.: (212) 406-3608
Fax No.: (212) 406-3710
The Mainstay Funds, on behalf of its High 9 West 57th Street, 37th Floor
Yield Corporate Bond Fund Series New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
Mainstay VP Series Fund, Inc., on behalf 9 West 57th Street, 37th Floor
of its High Yield Corporate Bond Portfolio New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
Mellon Bank, N.A. 1 Mellon Bank Center 9 West 57th Street, 37th Floor
Pittsburgh, PA 15258 New York, NY 10019
Attention: Carlos Pacheco Attention: Melanie Westerlund
Tel. No.: (412) 236-4227 Tel. No.: (212) 230-3902
Fax No.: (412) 236-4222 Fax No.: (212) 754-9187
Merrill Lynch Capital Corporation World Financial Center
250 Vesey Street
North Tower
New York, New York 10281
Attention: Paul Fox
Tel. No.: (212) 449-9579
Fax No.: (212) 738-1649
Morgan Stanley Dean Witter Two World Trade Center
72nd Floor
New York, NY 10048
Attention: Jinny Kim
Tel. No.: (212) 392-2883
Fax No.: (212) 392-5345
</TABLE>
<PAGE>
Annex II
Page 3
Policemen's and Firefighters' 9 West 57th Street, 37th Floor
Retirement Fund of Lexington- New York, NY 10019
Fayette Urban County Government Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
Police Officers Pension System of the 9 West 57th Street, 37th Floor
City of Houston New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
Teacher's Retirement System of Louisiana 9 West 57th Street, 37th Floor
New York, NY 10019
Attention: Melanie Westerlund
Tel. No.: (212) 230-3902
Fax No.: (212) 754-9187
Union Bank of California, N.A. 445 South Figueroa Street
16th Floor
Los Angeles, CA 90071
Attention: Ron Launsbach
Tel. No.: (213) 236-6428
Fax No.: (213) 629-5328
Van Kampen Prime Rate Income Trust One ParkView Plaza
Oakbrook Terrace, IL 60181
Attention: Brian Buscher
Tel. No.: (630) 684-6283
Fax No.: (630) 684-6740
Van Kampen Senior Floating Rate Fund One ParkView Plaza
Oakbrook Terrace, IL 60181
Attention: Brian Buscher
Tel. No.: (630) 684-6283
Fax No.: (630) 684-6740
<PAGE>
EXHIBIT 4.5
CAPITAL CALL AGREEMENT
----------------------
CAPITAL CALL AGREEMENT (as amended, supplemented or modified from time
to time, this "Agreement"), dated as of November 23, 1999, made by and among
Kelso & Company, L.P. ("Kelso"), Unilab Corporation (the "Borrower"), and
Bankers Trust Company, as agent (the "Administrative Agent") for the benefit of
the various lenders (the "Lenders") from time to time party to the Credit
Agreement referred to below. Except as otherwise defined herein, all
capitalized terms used herein and defined in the Credit Agreement are used
herein as therein defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower, the Lenders, the Administrative Agent and
others have entered into a Credit Agreement, dated as of November 23, 1999 (as
amended, modified or supplemented from time to time, the "Credit Agreement");
WHEREAS, it is a condition precedent to the making of Loans to, and
the issuance of Letters of Credit for the account of, the Borrower under the
Credit Agreement that Kelso, the Borrower and the Administrative Agent shall
have executed and delivered this Agreement; and
WHEREAS, Kelso and the Borrower will obtain benefits as a result of
the making of Loans to, and the issuance of Letters of Credit for the account
of, the Borrower under the Credit Agreement and, accordingly, desire to execute
and deliver this Agreement in order to satisfy the condition described in the
preceding paragraph;
NOW, THEREFORE, it is agreed:
1. Certain Defined Terms. As used herein, the following terms shall
---------------------
have the following meanings:
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Agreement" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Capital Call Amount" shall mean an amount equal to the lesser of (A)
$50,000,000 and (B) that amount necessary to be applied to reduce Consolidated
Debt to result in the Total Leverage Ratio of the Borrower for the Test Period
ending on December 31, 2000 to be less than or equal to 5.00 to 1.00.
<PAGE>
Page 2
"Capital Call Event" shall mean the Total Leverage Ratio of the
Borrower in respect of the Test Period ending on December 31, 2000 being greater
than 5.00 to 1.00; it being understood and agreed, however, that if the Total
Leverage Ratio of the Borrower for the Test Period ending on December 31, 2000
is less than or equal to 5.00 to 1.00 (without giving effect to the contribution
of the Capital Call Amount), then a Capital Call Event shall not thereafter
occur and this Agreement shall be terminated in accordance with Section 15
hereof.
"Credit Agreement" shall have the meaning provided in the first
recital of this Agreement.
"Consolidated Debt" shall mean, at any time, the sum of (without
duplication) (i) all Indebtedness of the Borrower and its Subsidiaries, if any,
as would be required to be reflected on the liability side of a balance sheet of
such Person in accordance with GAAP as determined on a consolidated basis, (ii)
all Indebtedness of the Borrower and its Subsidiaries, if any, of the type
described in clause (vii) of the definition of Indebtedness, (iii) unreimbursed
drawings on all letters of credit issued for the account of the Borrower or any
of its Subsidiaries, if any, and (iv) all Contingent Obligations of the Borrower
and its Subsidiaries, if any, in respect of Indebtedness of other Persons (i.e.,
----
Persons other than the Borrower or any of its Subsidiaries, if any) of the type
referred to in preceding clauses (i), (ii) and (iii) of this definition;
provided that for purposes of this definition, the amount available to be
- --------
drawn under letters of credit issued for the account of the Borrower or any of
its Subsidiaries, if any, (other than unreimbursed drawings) shall be excluded
in making any determination of "Consolidated Debt".
"Consolidated EBIT" shall mean, for any period, (A) the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) provisions for
taxes based on income, (iii) Consolidated Interest Expense, (iv) amortization or
write-off of deferred financing costs to the extent deducted in determining
Consolidated Net Income, (v) losses on sales of assets (excluding sales in the
ordinary course of business) and other extraordinary losses, (vi) extraordinary,
unusual or nonrecurring gains, losses, income or expense, and the related tax
effects and (vii) any customary and reasonable transaction expenses incurred in
connection with Permitted Acquisitions less (B) the amount for such period of
----
gains on sales of assets (excluding sales in the ordinary course of business)
and other extraordinary gains, all as determined on a consolidated basis in
accordance with GAAP.
"Consolidated EBITDA" shall mean, for such period, the sum of the
amounts for such period of (i) Consolidated EBIT, (ii) depreciation expense,
(iii) amortization expense, all as determined on a consolidated basis in
accordance with GAAP and (iv) other non-cash charges to the extent deducted in
arriving at Consolidated EBIT.
"Consolidated Interest Expense" shall mean, for any period, total
interest expense (including that attributable to Capital Leases in accordance
with GAAP) of the Borrower and its Subsidiaries, if any, on a consolidated basis
with respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements.
<PAGE>
Page 3
"Consolidated Net Income" shall mean for any period, the net income
(or loss) of the Borrower and its Subsidiaries, if any, on a consolidated basis
for such period taken as a single accounting period determined in conformity
with GAAP; provided that there shall be excluded (i) the income (or loss) of any
--------
Person (other than Subsidiaries, if any, of the Borrower) in which any other
Person (other than the Borrower or any of its Subsidiaries, if any) has a joint
interest, except to the extent of the amount of dividends or other distributions
actually paid to the Borrower or any of its Subsidiaries, if any, by such Person
during such period, (ii) other than any calculation on a Pro Forma Basis, the
--- -----
income (or loss) of any Person accrued prior to the date it becomes a
Subsidiary, if any, of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries, if any, or that Person's assets are
acquired by the Borrower or any of its Subsidiaries, if any, (iii) the income of
any Subsidiary, if any, of the Borrower to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary, if any, of
that income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary, (iv) Transaction Expenses
and (v) non-cash compensation expense and compensation expense resulting from
the repurchase of any capital stock, options and rights.
"Investment" shall mean a capital contribution to the Borrower by one
or more Qualified Investors in the amount of 100% of the proceeds of the
issuance of the Borrower's common stock or Permitted Preferred Stock to such
Qualified Investors.
"Lenders" shall have the meaning provided in the first paragraph of
this Agreement.
"Permitted Preferred Stock" shall mean preferred stock of the Borrower
so long as the terms of any such preferred stock (i) do not contain any
mandatory put, redemption, repayment, sinking fund or other similar provision,
(ii) do not require the cash payment of dividends and (iii) are otherwise
reasonably satisfactory to Bankers Trust Company and/or Deutsche Bank.
"Pro Forma Basis" shall mean, in connection with the calculation of
the Total Leverage Ratio, the calculation thereof after giving effect on a pro
forma basis to (x) the incurrence of any Indebtedness (other than revolving
Indebtedness, except to the extent same is incurred to refinance other
outstanding Indebtedness or to finance Permitted Acquisitions) after the first
day of the relevant Test Period as if such Indebtedness had been incurred (and
the proceeds thereof applied) on the first day of the relevant Test Period, (y)
the permanent repayment of any Indebtedness (other than revolving Indebtedness)
after the first day of the relevant Test Period as if such Indebtedness had been
retired or redeemed on the first day of the relevant Test Period and (z) the
Permitted Acquisition, if any, then being consummated as well as any other
Permitted Acquisition consummated after the first day of the relevant Test
Period and on or prior to the date of the respective Permitted Acquisition then
being effected, with the following rules to apply in connection therewith:
(i) all Indebtedness (x) (other than revolving Indebtedness, except to
the extent same is incurred to refinance other outstanding Indebtedness or
to finance Permitted
<PAGE>
Page 4
Acquisitions) incurred or issued after the first day of the relevant Test
Period (whether incurred to finance a Permitted Acquisition, to refinance
Indebtedness or otherwise) shall be deemed to have been incurred or issued
(and the proceeds thereof applied) on the first day of the respective Test
Period and remain outstanding through the date of determination and (y)
(other than revolving Indebtedness) permanently retired or redeemed after
the first day of the relevant Test Period shall be deemed to have been
retired or redeemed on the first day of the respective Test Period and
remain retired through the date of determination;
(ii) all Indebtedness assumed to be outstanding pursuant to preceding
clause (i) shall be deemed to have borne interest at (x) the rate
applicable thereto, in the case of fixed rate indebtedness or (y) the rates
which would have been applicable thereto during the respective period when
same was deemed outstanding, in the case of floating rate Indebtedness
(although interest expense with respect to any Indebtedness for periods
while same was actually outstanding during the respective period shall be
calculated using the actual rates applicable thereto while same was
actually outstanding); and
(iii) in making any determination of Consolidated EBITDA, pro forma
effect shall be given to any Permitted Acquisition or any closure or
discontinuation of operations of any facility of the Borrower or its
Subsidiaries for the periods described above, taking into account factually
supportable and identifiable synergies, cost savings and expenses which
have been identified in writing by the chief financial officer of the
Borrower and found reasonable by Bankers Trust Company and/or Deutsche
Bank.
"Proportionate Share" of each Lender at any time shall mean a fraction
(x) the numerator of which is the sum of (I) the aggregate principal amount of
all Loans made by such Lender then outstanding plus (II) the amount (if any) of
such Lender's participation at such time in outstanding Swingline Loans and
Letter of Credit Outstandings and (y) the denominator of which is the sum of (I)
the aggregate principal amount of all Loans then outstanding plus (II) the
aggregate amount of all Letter of Credit Outstandings at such time.
"Qualified Investor" shall mean any Permitted Holder and any other
Person designated by Kelso and reasonably acceptable to the Administrative
Agent.
"Total Leverage Ratio" shall mean, at any date of determination, the
ratio of Consolidated Debt (net of cash and Cash Equivalents) on such date to
Consolidated EBITDA for the Test Period most recently ended (taken as one
accounting period) and ending on such date. All calculations of Consolidated
EBITDA for purposes of determining the Total Leverage Ratio shall be made on a
Pro Forma Basis.
"Test Period" shall mean, for any date of determination, the four
fiscal quarters of the Borrower then last ended (taken as one accounting
period).
2. Required Contributions to the Borrower; etc. (a) Kelso hereby
--------------------------------------------
absolutely, irrevocably and unconditionally agrees that upon the occurrence of a
Capital Call Event, Kelso will promptly, and in any event no later than April
30, 2001, make or cause to be made an
<PAGE>
Page 5
Investment in the Borrower in an amount equal to the applicable Capital Call
Amount; provided that if any such Investment in the Borrower cannot be made by
--------
any reason whatsoever (including the occurrence of an Event of Default under
Section 9.05 of the Credit Agreement), then the Investment shall instead be made
by means of the purchase by the Qualified Investors from each of the Lenders of
a subordinated participation in such Lenders' outstanding Loans (and, to the
extent provided below, such Lenders' participations in outstanding Swingline
Loans and Letter of Credit Outstandings), pro rata among the Lenders based on
--- ----
their respective Proportionate Shares at such time, with such participations to
be evidenced by a subordinated participation agreement in form and substance
reasonably satisfactory to the Administrative Agent. In the event that
participations are purchased as provided in this Section 2, then (i) the Total
Unutilized Revolving Commitment pursuant to the Credit Agreement shall
immediately terminate as provided therein and (ii) the participations purchased
from each Lender shall be allocated ratably to the outstanding Loans and
participations in Swingline Loans and Letter of Credit Outstandings of the
various Lenders, although each Lender with a Revolving Commitment shall instead
allocate any amounts received in respect of Swingline Loans or Letter of Credit
Outstandings first to Revolving Loans, with any excess above the amount of
outstanding Revolving Loans to be held by the Administrative Agent as cash
collateral for the participations purchased in outstanding Swingline Loans and
Letter of Credit Outstandings; provided further, that to the extent the
-------- -------
respective Swingline Loans are repaid by the Borrower or the Letter of Credit
Outstandings are reduced or repaid without requiring the funding by the
respective Lender participating in same (and thereby eliminating the need to use
the collateral for the purchased participation therein), any excess funds on
deposit with the Administrative Agent as a result of the purchase of
participations in such contingent obligations shall be reallocated (at the time
and to the extent the Administrative Agent determines that excess amounts are
then held by it) to purchase participations as otherwise required by the
immediately preceding sentence.
(b) The Borrower hereby acknowledges, confirms and agrees that
immediately upon receipt of the Capital Call Amount it shall apply such amounts
as a mandatory repayment of Loans in accordance with the provisions of Sections
4.02A(f) and (B) of the Credit Agreement.
3. Payments. All payments required to be made pursuant to this
--------
Agreement shall be made in Dollars and in immediately available funds, and shall
be made on the same basis as provided in Sections 4.03 and 4.04 of the Credit
Agreement.
4. Obligations Independent. The obligations of Kelso hereunder are
-----------------------
independent of the obligations of any Guarantor which may execute a Guaranty
after the execution and delivery hereof, the Borrower or any other party, and a
separate action or actions may brought and prosecuted against Kelso whether or
not an action is brought against any Guarantor which may execute a Guaranty
after the execution and delivery hereof, the Borrower or any other party and
whether or not any Guarantor which may execute a Guaranty after the execution
and delivery hereof, the Borrower or any other party shall be joined in any such
action or actions. Kelso waives, to the fullest extent permitted by law, the
benefit of statute of limitations affecting its liability hereunder or the
enforcement hereof.
<PAGE>
Page 6
5. Certain Waivers by Kelso. Kelso hereby waives notice of
------------------------
acceptance of this Agreement and notice of any liability to which it may apply,
and waives presentment, demand of payment, protest, notice of dishonor, or
nonpayment of any such liability, suit or taking of other action by the
Borrower, the Administrative Agent or any Lender against, and any other notice
to, Kelso or any other party liable thereon.
6. Actions Relating to Obligations Under Credit Agreement. The
------------------------------------------------------
Administrative Agent or the Lenders (or any of the Lenders) may (except as shall
be required by applicable statute and cannot be waived) at any time and from
time to time without the consent of, or notice to, Kelso, without incurring
responsibility to Kelso, without impairing or releasing the obligations of Kelso
hereunder, upon or without any terms or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, alter or increase any of the Obligations,
any security therefor, or any liability incurred directly or indirectly in
respect thereof;
(b) take and hold security for the payment of the Obligations and
sell, exchange, release, impair, surrender, realize upon or otherwise deal with
in any manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, the Obligations or any liabilities
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against the
Borrower, any other Credit Party or others or otherwise act or refrain from
acting;
(d) settle or compromise any of the Obligations, any security
therefor or any liability (including any of those hereunder) incurred directly
or indirectly in respect thereof or hereof, and may subordinate the payment of
all or any part thereof to the payment of any liability (whether due or not) of
the Borrower to creditors of the Borrower other than the Secured Creditors;
(e) except as otherwise expressly provided herein, apply any sums by
whomever paid or however realized to any liability or liabilities of the
Borrower to the Administrative Agent or the Lenders regardless of what liability
or liabilities of Kelso or the Borrower remain unpaid;
(f) release or substitute any one or more endorsers, guarantors,
Credit Parties or other obligors;
(g) consent to or waive any breach of, or any act, omission or
default under, any of the Credit Documents or any of the instruments or
agreements referred to therein, or otherwise amend, modify or supplement any of
the Credit Documents or any of such other instruments or agreements;
<PAGE>
Page 7
(h) act or fail to act in any manner referred to in this Agreement
which may deprive Kelso of any right of subrogation against the Borrower to
recover any payments made pursuant to this Agreement;
(i) pursue its rights and remedies under this Agreement and/or under
any guaranty of all or any part of the Obligations in whatever order, or
collectively, and the Administrative Agent and the Lenders shall be entitled to
Kelso's performance hereunder, notwithstanding any action taken (or not taken)
by the Administrative Agent and the Lenders to enforce any of its rights or
remedies against Kelso or any other Person, for all or any part of the
Obligations or any payment received under this Agreement or any other such
guaranty; and/or
(j) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of Kelso
from its liabilities under this Agreement.
7. Invalidity, Etc., of Obligations. No invalidity, irregularity or
--------------------------------
unenforceability of all or any of the Loans and/or any of the other Obligations
or of any security therefor shall affect, impair or be a defense to this
Agreement, and the obligations of Kelso hereunder shall be absolute and
unconditional notwithstanding the occurrence of any event or the existence of
any circumstance, including, without limitation, any bankruptcy or insolvency
proceeding with respect to Kelso, the Borrower or any of its Subsidiaries, if
any, or any event or circumstance which would constitute a legal or equitable
discharge, except payment in full in cash of all Obligations in accordance with
the Credit Agreement.
8. Representations, Warranties and Agreements. In order to induce
------------------------------------------
the Lenders to enter into the Credit Agreement, Kelso makes the following
representations, warranties and agreements:
(i) Kelso is a duly organized and validly existing limited
partnership in good standing under the laws of the State of Delaware and has the
power and authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage.
(ii) Kelso has the power and authority to execute, deliver and
perform the terms and provisions of this Agreement and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement. Kelso has duly executed and delivered this Agreement, and this
Agreement constitutes its legal, valid and binding obligation enforceable
against it in accordance with its terms, except to the extent that the
enforceability hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).
(iii) Neither the execution, delivery or performance by Kelso of this
Agreement, nor compliance by it with the terms and provisions hereof, nor the
consummation of the transactions contemplated herein, (x) will contravene any
provision of any applicable law, statute, rule or regulation or any applicable
order, writ, injunction or decree of any court or
<PAGE>
Page 8
governmental instrumentality, (y) will conflict with or result in any breach of
any of the terms, covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition of (or the obligation to
create or impose) any Lien upon any of the property or assets of Kelso pursuant
to the terms of any indenture, mortgage, deed of trust, credit agreement, loan
agreement or any other material agreement, contract or instrument to which Kelso
is a party or by which it or any of its property or assets is bound or to which
it may be subject or (z) will violate any provision of any of the organizational
documents of Kelso.
(iv) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (x) the execution,
delivery and performance of this Agreement or (y) the legality, validity,
binding effect or enforceability of this Agreement.
(v) There are no actions, suits or proceedings pending or, to the
knowledge of Kelso, threatened (x) with respect to this Agreement or (y) that
could reasonably be expected to (I) materially and adversely effect the
business, operations, property, assets, liabilities or condition (financial or
otherwise) of Kelso or (II) have a material adverse effect on the rights or
remedies of the Lenders or the Administrative Agent hereunder or on the ability
of Kelso to perform its obligations to the Lenders or the Administrative Agent
hereunder.
(vi) Kelso is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property.
(vii) Kelso or the general partner thereof has the right to call cash
capital contributions from the partners of Kelso or its affiliates in amounts,
and at times, sufficient to fund in a timely manner all obligations of Kelso
under this Agreement.
9. Maintain Ability to Fund Obligations. Each of Kelso and the
------------------------------------
general partner thereof agrees to take all action as may be necessary so that,
at all time prior to the satisfaction and release of all obligations of Kelso
under this Agreement pursuant to Section 15 hereof, Kelso and/or the general
partner thereof shall have caused its affiliates to reserve capital in amounts
sufficient to fund in a timely manner all obligations of Kelso under this
Agreement.
10. Capital Call Event of Default. The following shall constitute a
-----------------------------
"Capital Call Event of Default":
Kelso shall commence a voluntary case concerning itself under Title 11
of the United States Code entitled "Bankruptcy," as now or hereafter in effect,
or any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against Kelso, and the petition is not controverted within 10 days, or
is not dismissed within 60 days, after commencement of the case; or a custodian
(as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of Kelso, or Kelso commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Kelso,
<PAGE>
Page 9
or there is commenced against Kelso any such proceeding which remains
undismissed for a period of 60 days, or Kelso is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or Kelso suffers any appointment of any custodian or the
like for it or any substantial part of its property to continue undischarged or
unstayed for a period of 60 days; or Kelso makes a general assignment for the
benefit of creditors; or any corporate action is taken by Kelso for the purpose
of effecting any of the foregoing.
11. Waivers of Failures; Delays; Etc. No failure or delay on the
--------------------------------
part of the Administrative Agent, any Lender, Kelso, the Borrower or any other
Credit Party in exercising any right, power or privilege hereunder and no course
of dealing between Kelso, the Administrative Agent, any Lender, the Borrower or
any other Credit Party shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights, powers and remedies herein expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the
Administrative Agent or any Lender would otherwise have. No notice to or demand
on Kelso in any case shall entitle Kelso to any other further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or any Lender to any other or further action in any
circumstances without notice or demand.
12. Benefit of Agreement. This Agreement shall be binding upon Kelso
--------------------
and the Borrower, and their successors and assigns (including, without
limitation, any executors or administrators) and shall inure to the benefit of
the Administrative Agent and the Lenders and their successors and assigns. Each
of Kelso and the Borrower acknowledges and agrees that this Agreement is made
for the benefit of the Administrative Agent and the Lenders and that the
Administrative Agent and/or the Lenders may enforce all of the obligations of
Kelso and the Borrower hereunder directly against them. Neither Kelso nor the
Borrower may assign any of its rights or obligations hereunder without the
consent of the Required Lenders.
13. Amendments; Waivers. Neither this Agreement nor any provision
-------------------
hereof may be changed, modified, amended or waived except with the written
consent of Kelso, the Borrower and the Administrative Agent (with the consent of
the Required Lenders).
14. Notices. All notices and other communication hereunder shall be
-------
made at the addresses, in the manner and with the effect provided in Section
12.03 of the Credit Agreement, provided that, for this purpose, the address of
Kelso shall be the address specified opposite its signature below.
15. Termination of Agreement. This Agreement shall terminate and be
------------------------
of no further force and effect (except to the extent any party's obligations, if
any, arising prior to such time hereunder have not theretofore been fulfilled)
upon the earliest of (i) the date on which the Administrative Agent gives
written notice to Kelso and the Borrower that their obligations under this
Agreement have been fulfilled or terminated, (ii) the date on which all
Commitments and Letters of Credit under the Credit Agreement have been
terminated and all Obligations under the
<PAGE>
Page 10
Credit Agreement have been repaid in full in cash in accordance with the
requirements of the Credit Agreement, (iii) investments in the aggregate amount
of the applicable Capital Call Amount shall have been made pursuant to Section
2(a) hereof and (iv) the delivery by the Borrower of the audited annual
financial statements for its fiscal year ending December 31, 2000 which
financial statements demonstrate that the Total Leverage Ratio for the Test
Period ending December 31, 2000 was less than or equal to 5.00 to 1.00.
16. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury
----------------------------------------------------------------
Trial. (a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF KELSO, THE
- -----
BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREUNDER SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK AND, BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, EACH OF KELSO AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH OF KELSO
AND THE BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH
COURTS LACK JURISDICTION OVER SUCH PERSON, AND AGREES NOT TO PLEAD OR CLAIM, IN
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT BROUGHT IN ANY OF
THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER SUCH PERSON.
EACH OF KELSO AND THE BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PERSON, AT ITS ADDRESS FOR NOTICES
PURSUANT TO SECTION 12.03 OF THE CREDIT AGREEMENT OR AS SET FORTH OPPOSITE ITS
SIGNATURE BELOW, AS THE CASE MAY BE, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. EACH OF KELSO AND THE BORROWER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER
THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT, ANY LENDER OR THE HOLDER OF
ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST KELSO OR THE BORROWER IN ANY
OTHER JURISDICTION.
(c) EACH OF KELSO AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT BROUGHT IN THE
<PAGE>
Page 11
COURTS REFERRED TO IN CLAUSE (B) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY HERETO FURTHER IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY
JURY IN ANY COURT OR JURISDICTION, INCLUDING, WITHOUT LIMITATION, THOSE REFERRED
TO IN CLAUSE (B) ABOVE, IN RESPECT OF ANY MATTER ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
17. Costs of Enforcement; Indemnity. (a) Kelso hereby agrees to pay
-------------------------------
all reasonable out-of-pocket costs and expenses of each of the Administrative
Agent and each Lender in connection with the enforcement of this Agreement and
Kelso agrees to pay all out-of-pocket costs and expenses of the Administrative
Agent in connection with any amendment, waiver or consent relating hereto
(including, without limitation, in each case, the reasonable fees and
disbursements of counsel employed by the Administrative Agent and each Lender,
as the case may be).
(b) Kelso hereby agrees to indemnify and hold the Administrative
Agent and each Lender free and harmless from and against all loss, cost, damage,
and expense, by reason of the inaccuracy costs, which it shall at any time have
actually sustained by reason of the inaccuracy or breach of any of the foregoing
representations, warranties and covenants.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with Kelso, the Borrower and
the Administrative Agent.
19. Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
<PAGE>
Page 12
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered as of the date first above written.
Addresses:
320 Park Avenue KELSO & COMPANY, L.P.
Sixth Floor
New York, New York 10022 By: Kelso & Company, Inc., its
general partner
Telephone: (212) 751-3939
Telecopier: (212) 223-2379 By: James J. Connors II
-------------------------------
Attention: James J. Connors II Title: VP and General Counsel
18448 Oxnard Street UNILAB CORPORATION
Tarzana, CA 91356
Telephone: (818) 758-6611 By: /s/ David C. Weavil
--------------------------------
Telecopier: (818) 757-3809 Title: Chief Executive Officer
Attention: Brian D. Urban
Accepted and Agreed to:
BANKERS TRUST COMPANY,
as Administrative Agent for the Lenders
By: /s/ Mary Kay Koyle
-------------------------------
Title: Managing Director
<PAGE>
EXHIBIT 5.1
December 30, 1999
Unilab Corporation
18448 Oxnard Street
Tarzana, California 91356
Re: Unilab Corporation
12 3/4% Senior Subordinated Notes due 2009
Registration Statement on Form S-4
------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Unilab Corporation, a Delaware
corporation (the "Company"), in connection with the offering of $155,000,000
aggregate principal amount of the Company's 12 3/4% Senior Subordinated Notes
due 2009 (the "Notes"). The Notes are to be issued pursuant to an exchange offer
(the "Exchange Offer") in exchange for a like principal amount of the
outstanding 12 3/4% Senior Subordinated Notes due 2009 of the Company (the "Old
Notes"), under the Indenture (as defined below).
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Company's
Registration Statement as filed with the Securities and Exchange Commission (the
"Commission") on the date hereof (the "Registration Statement"); (ii) an
executed copy of the Indenture, dated as of September 28, 1999 (the "Original
Indenture"), between Unilab Finance Corp., a Delaware corporation ("Unilab
Finance"), and HSBC Bank USA, as Trustee (the "Trustee"), as supplemented by the
Supplemental Indenture, dated as of November 23, 1999 (the "Supplemental
Indenture" and,
<PAGE>
Page 2
together with the Original Indenture, the "Indenture"), among the Company,
Unilab Finance and the Trustee, each of which has been filed as an exhibit to
the Registration Statement; (iii) the form of the Notes; (iv) the Certificate of
Incorporation of the Company, as currently in effect; (v) the By-Laws of the
Company, as currently in effect; (vi) the Form T-1 of the Trustee filed as an
exhibit to the Registration Statement; and (vii) certain resolutions of the
Board of Directors of the Company relating to the issuance of the Notes, the
Indenture and related matters. We have also examined originals or copies,
certified or otherwise identified to our satisfaction, of such records of the
Company and such agreements, certificates of public officials, certificates of
officers or other representatives of the Company and others, and such other
documents, certificates and records as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of executed documents, we have assumed that the parties thereto,
other than the Company, had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties of such documents and the validity and binding effect thereof on such
parties. As to any facts material to the opinions expressed herein which we
have not independently established or verified, we have relied upon statements
and representations of officers and other representatives of the Company and
others.
Our opinions set forth herein are limited to Delaware corporate law
and the laws of the State of New York which are normally applicable to
transactions of the type contemplated by the Indenture and the Notes and, to the
extent that judicial or regulatory orders or decrees or consents, approvals,
licenses, authorizations, validations, filings, recordings or registrations
with governmental authorities are relevant, to those required under such laws
(all of the foregoing being referred to as "Opined on Law"). We do not express
any opinion with respect to the law of any jurisdiction other than the foregoing
jurisdictions relating to Opined on Law or as to the effect of any such non
opined law on the opinions herein stated.
<PAGE>
Page 3
Based upon and subject to the foregoing and the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that when the Notes have been duly executed and authenticated in
accordance with the terms of the Indenture and have been delivered upon
consummation of the Exchange Offer against receipt of Old Notes surrendered in
exchange therefor in accordance with the terms of the Exchange Offer, the Notes
will be valid and binding obligations of the Company entitled to the benefits of
the Indenture and enforceable against the Company in accordance with their
terms, except to the extent that enforcement thereof may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
In rendering the opinion set forth above, we have assumed that the
execution and delivery by the Company of the Notes and the Indenture and the
performance by the Company of its obligations thereunder do not and will not
violate, conflict with or constitute a default under any agreement or instrument
to which the Company or its properties is subject, except for those agreements
and instruments which were identified to us by the Company as being material to
it and which are listed as exhibits to the Company's Annual Report on Form 10-
K/A for the year ended December 31, 1998.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
<PAGE>
EXHIBIT 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
This Amendment to Employment Agreement is entered into on November 23,
1999, by and between UNILAB CORPORATION, a Delaware corporation ("Unilab") and
DAVID C. WEAVIL ("Weavil") with reference to the following:
A. On January 20, 1997, Unilab and Weavil entered into an employment
agreement (the "Employment Agreement") defining the terms of Weavil's employment
by Unilab.
B. Weavil and Unilab desire to amend certain provisions of the
Employment Agreement.
NOW THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF
WHICH IS HEREBY ACKNOWLEDGED, the parties agree as follows:
1. Section 7 of the Employment Agreement is amended to read as
follows:
"7. SEVERANCE PAYMENT
(a) If Executive's employment is terminated by The Company without
Cause and not associated with a Change of Control, the Executive will
receive (i) 18 months of compensation as defined in Sections 3(a), (b) and
(d) payable on the same basis and in the same manner as base salary was
paid prior to termination and (ii) continued participation for 18 months
following the date of such termination in The Company's life, accident,
disability and health insurance programs on the same terms and conditions
as in effect on the date of termination, or if continued participation in
The Company's programs is not available, participation in comparable,
alternate programs.
(b) If Executive's employment is terminated by The Company without
Cause in association with a Change in Control then, notwithstanding anything to
the contrary herein, (i) such termination of employment shall not constitute a
breach of this Agreement, (ii) on the effective date of such termination of
employment, Executive shall be paid in cash (A) the $400,000 bonus previously
authorized by the Board of Directors of the Company, (B) his vested $166,711.10
benefit pursuant to the Unilab Corporation Deferred Compensation Arrangement,
and (C) $2,128,000 in cancellation of the portion of his vested stock options
which Executive has not agreed to roll over into UC Acquisition, (iii) Executive
shall not have any rights to any severance or other payments or benefits under
this Agreement, and (iv) his vested benefit pursuant to the Unilab Corporation
Executive Retirement Plan shall be paid in accordance with its terms and the
Company agrees that such termination shall be termination for "Good Reason"
under the plan."
<PAGE>
Existing sections 7(d) and 7(e) shall remain and become sections 7(c)
and 7(d) respectively.
2. Section 8 of the Employment Agreement is deleted in its entirety.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on November 23, 1999.
UNILAB CORPORATION, a Delaware
corporation
By: /s/ Mark L. Bibi
--------------------------------
Mark L. Bibi, Executive Vice
President, Secretary, and General
Counsel
/s/ David C. Weavil
-----------------------------------
DAVID C. WEAVIL
<PAGE>
AGREEMENT
---------
This Agreement is entered into by and between UNILAB CORPORATION, a
Delaware corporation ("Unilab") and DAVID C. WEAVIL ("Weavil") with respect to
the following:
A. Weavil is the President, Chief Executive Officer, and Chairman of
the Board of Directors of Unilab.
B. On January 20, 1997, Weavil and Unilab entered into an employment
agreement which sets forth the terms under which Weavil is employed by Unilab.
C. On May 25, 1999, Unilab agreed to merge with UC Acquisition in a
leveraged recapitalization transaction (the "Recapitalization") in which Unilab
survives and the business of Unilab continues.
D. Weavil and UC Acquisition have agreed that effective upon the
closing of the Recapitalization, Weavil will cease to be employed by Unilab as
its President and Chief Executive Officer.
E. Unilab wants to ensure that Weavil will not (a) enter into an
employment or other similar arrangement during the two-year period following
the closing of the Recapitalization that would result in Weavil competing with
Unilab under certain circumstances, and (b) solicit customers and employees of
Unilab during the five-year period following the closing of the
Recapitalization, and Weavil is willing to enter into such a non-compete and
non-solicitation agreement, all as described in this Agreement and the Non
Compete and Non Solicitation Agreement.
NOW THEREFORE, the parties to this Agreement agree as follows:
1. Amendment to Employment Agreement. Contemporaneously with the
---------------------------------
execution of this Agreement, and in consideration of the Non Compete Agreement,
Weavil and Unilab will execute an amendment to Weavil's Employment Agreement by
which Section 7 will be amended to delete subsection 7(c) in its entirety, to
delete Section 8 in its entirety, and to amend subsection 7(b) to read in its
entirety as follows:
"(b) If Executive's employment is terminated by The Company without
Cause in association with a Change in Control then, notwithstanding
anything to the contrary herein, (i) such termination of employment shall
not constitute
<PAGE>
a breach of this Agreement, (ii) on the effective date of such termination
of employment, Executive shall be paid in cash (A) the $400,000 bonus
previously authorized by the Board of Directors of the Company, (B) his
vested $166,711.10 benefit pursuant to the Unilab Corporation Deferred
Compensation Arrangement, and (C) $2,128,125 in cancellation of the portion
of his vested stock options which Executive has not agreed to roll over
into UC Acquisition, (iii) Executive shall not have any rights to any
severance or other payments or benefits under this Agreement, and (iv) his
vested benefit pursuant to the Unilab Corporation Executive Retirement Plan
shall be paid in accordance with its terms and the Company agrees that such
termination shall be a termination for "Good Reason" under the plan."
Existing sections 7(d) and 7(e) shall remain and became sections 7(c) and
7(d) respectively.
2. Non Compete and Non Solicitation Agreement. Contemporaneously
------------------------------------------
with the execution of this Agreement, and in consideration of the Amendment to
the Employment Agreement, Weavil and Unilab will execute a Non Compete and Non
Solicitation Agreement under which Weavil will (a) agree not to compete with
Unilab for the two-year period immediately following the closing of the
Recapitalization, and (b) not to solicit customers and employees of Unilab for
the five-year period immediately following the closing of the Recapitalization,
both in exchange for Unilab's payment at the closing of Two Million Five Hundred
Thousand Dollars ($2,500,000).
3. Effective Date. The Amendment to Employment Agreement described
--------------
in Paragraph 1 and the Non Compete and Non Solicitation Agreement described in
Paragraph 2 shall each be effective upon the execution of this Agreement, the
Amendment to Employment Agreement, and the Non Compete and Non Solicitation
Agreement.
4. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
5. Entire Agreement. This Agreement and the Amendment to Employment
----------------
Agreement and Non Compete and Non Solicitation Agreement described in Paragraphs
1 and 2 constitute the entire understanding between the parties with respect to
the subject matter hereof, superseding all negotiations, prior discussions, and
preliminary agreements not specifically included in the terms and conditions of
this Agreement and the Amendment to Employment Agreement and Non Compete and Non
Solicitation Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on November 23, 1999.
UNILAB CORPORATION, a Delaware
corporation
By: /s/ Mark L. Bibi
---------------------------------
Mark L. Bibi
Executive Vice President,
Secretary, and General Counsel
/s/ David C. Weavil
------------------------------------
DAVID C. WEAVIL
<PAGE>
EXHIBIT 10.4
CONSULTING AGREEMENT
--------------------
This Agreement is entered into effective as of December 1, 1999, by and
between DAVID C. WEAVIL ("Consultant") and UNILAB CORPORATION, a Delaware
corporation ("Unilab") with reference to the following:
A. Consultant has served as President, Chief Executive Officer and
Chairman of the Board of Unilab since January 20, 1997.
B. Consultant has been a leading executive in the clinical laboratory
industry for more than a decade.
C. On May 25, 1999, Unilab agreed to merge with UC Acquisition Sub, Inc.,
a Delaware corporation, in a leveraged recapitalization transaction (the
"Recapitalization") in which Unilab survives and its business continues.
D. Unilab desires to continue to have the benefit of Consultant's
experience and knowledge of the clinical laboratory industry following the
termination of Consultant's employment as President and Chief Executive Officer
of Unilab, and Consultant desires to be retained by Unilab as a consultant.
NOW THEREFORE, in consideration of the material covenants and agreements
set forth herein, the parties hereto covenant and agree as follows:
1. Engagement of Consultant. Unilab hereby engages Consultant to advise
------------------------
and consult with Unilab's senior management and, if and when requested by
Unilab's Board of Directors, its Board of Directors with respect to laboratory
industry developments, investment opportunities, financing possibilities, client
development, and laboratory operations (collectively, the "Consulting
Services"). Consultant represents and warrants to Unilab that he has no
commitments, arrangements, or other agreements with any other clinical
laboratory companies and that there are no restrictions under applicable law or
licensing regulations which might preclude the carrying out of his obligations
under this Agreement.
2. Term. The term of this Agreement shall be for a sixty (60)
----
consecutive month period commencing upon the Closing of the Recapitalization,
unless sooner terminated as provided herein.
-1-
<PAGE>
3. Compensation.
------------
(a) Unilab shall pay Consultant One Million One Hundred Thousand
Dollars ($1,100,000) for the Consulting Services, payable in sixty (60)
equal monthly installments of Eighteen Thousand Three Hundred Thirty-Three
Dollars and Thirty-Three Cents ($18,333.33) on the last day of each
calendar month during the Term. Consultant shall make himself available to
provide up to twenty-five (25) hours per month of Consulting Services
during normal business hours, at Unilab's request.
(b) During the Term, Consultant shall be entitled to (i) office space
and secretarial and administrative support services, (ii) continued car
allowance on terms equivalent to Consultant's current allowance, and (iii)
reimbursement for out-of-pocket expenses related to the Consulting Services
rendered.
4. Equity Participation in Unilab. Consultant shall be entitled to
------------------------------
receive options to acquire in the aggregate Two Hundred Fifty Six Thousand Four
Hundred Ten (256,410) shares of stock of the surviving corporation in the
Recapitalization. Such options shall be granted to Consultant on substantially
the same terms as options granted to management of the surviving corporation at
such time, including exercise price, vesting provisions, and performance
criteria, including continued employment criteria applicable to the options
granted to management of the surviving corporation; provided, however, that such
-------- -------
continued employment criteria shall be deemed satisfied so long as this
Agreement is not terminated by reason of a Default by Consultant hereunder.
5. Indemnification.
---------------
(a) Consultant agrees to defend, indemnify, and hold Unilab, its
subsidiaries, directors, officers, employees, and agents, wholly harmless
from and against any and all costs (including reasonable attorney's fees,
including advancement of fees) liabilities, claims, losses, lawsuits,
settlements, demands, causes, judgements, and expenses arising from the
performance of this Agreement to the extent that such costs and liabilities
result from the fraudulent misconduct of Consultant as determined by a
court of competent jurisdiction.
(b) Unilab agrees to defend, indemnify, and hold Consultant, his
employees, and agents, wholly harmless, to the fullest extent permitted by
law (and as if Consultant were still an officer of Unilab) from and against
any and all costs (including reasonable attorney's fees, including
advancement of fees) liabilities, claims, losses, lawsuits, settlements,
demands, causes, judgements, and expenses arising from the performance of
this Agreement, except to the extent that such costs and liabilities result
from the fraudulent misconduct of Consultant as determined by a court of
competent jurisdiction.
-2-
<PAGE>
6. Termination. This Agreement shall terminate on the occurrence of any
-----------
of the following conditions:
(a) Five (5) years from the date Consultant's employment as President
and Chief Executive Officer of Unilab is terminated.
(b) In the event of a Default (as defined below) of this Agreement by
either party hereto, the other party shall have the right immediately to
begin cancellation proceedings of this Agreement by giving written notice
of cancellation to the defaulting party (the "Default Notice"). The non-
defaulting party shall give a thirty (30) day cure period during which the
defaulting party may have the opportunity to cure the breach to the
satisfaction of the non-defaulting party. Nothing herein shall eliminate
the non-defaulting party's right to damages for the Default, in addition to
the remedies described herein.
(c) For purposes of this Agreement, Consultant shall be deemed to be
in Default hereunder upon (i) Consultant having been convicted by a court
of competent jurisdiction of any felony involving moral turpitude, (ii) the
material violation by Consultant of any material provision of this
Agreement, or (iii) Consultant having been found by a court of competent
jurisdiction to have engaged in conduct constituting fraud against Unilab.
In the event of a termination of this Agreement by Unilab under this
Paragraph 5(c), Consultant shall be entitled only to payment of
compensation accrued and earned hereunder through the date of such
termination.
(d) For purposes of this Agreement, Unilab shall be deemed to be in
Default hereunder upon (i) the willful malfeasance or gross negligence by
Unilab in the performance of its duties hereunder, (ii) material violation
by Unilab of any material provision of this Agreement, or (iii) Unilab or
any of its officers or directors having been found by a court of competent
jurisdiction to have engaged in conduct constituting fraud against
Consultant. In the event of a termination of this Agreement by Consultant
under this Paragraph 6(d), Consultant shall still be entitled to payment of
all compensation that otherwise would have been payable to Consultant
during the remainder of the Term at the times and the installments provided
for herein.
7. Confidential Information.
------------------------
(a) Consultant shall not directly or indirectly disclose to anyone
who is not authorized by Unilab to receive such information, or use or
appropriate for his own benefit or the benefit of anyone other than Unilab,
any documents, materials, or information relating to Unilab's clinical
laboratory business (the "Business") or its customers which Consultant
obtained during his employment or which Consultant obtain during the Term
of this Agreement, including files, Business descriptions, Business
relationships and accounts, pricing policies, customer lists, computer
software and hardware, or any other materials relating to the Business or
its customers or any trade secrets or confidential information including,
without limitation, any Business methods, know-how, processes, financial or
other performance data, plans, policies and/or personnel of Unilab, whether
generated by Consultant or any employee of Unilab; provided, however, that
confidential information shall not include any information generally known
to the public (other than as a direct or indirect result of unauthorized
disclosure by Consultant).
-3-
<PAGE>
(b) At no time during or after the Term of this Agreement shall
Consultant remove or cause to be removed from the premises of Unilab any
record, file, memorandum, document, equipment, or any like item relating to
the Business of Unilab, except in furtherance of his duties hereunder or
with the permission of Unilab. In the event that any such items are removed
or caused to be removed by Consultant, such items shall be returned
promptly and in no event later than the expiration of this Agreement.
8. Independent Contractor. It is understood that Consultant's services
----------------------
hereunder are to be rendered in the capacity of an independent contractor and
that Consultant is not in any respect or under any circumstances an employee of
Unilab. Neither party has authority to enter into contracts or assume any
obligations for or on behalf of the other party or to make any warranties or
representations for or on behalf of the other party. Consultant shall be solely
responsible for any taxes imposed on the performance of services or the payment
for such services, including withholding of state and federal income, sales or
ad valorem, unemployment compensation, worker's compensation, Federal Insurance
Contributions Act, Federal Unemployment Tax Act, or other, taxes, costs, or
expenses incurred in the performance of any engagement hereunder. Consultant
expressly indemnifies and holds Unilab harmless from any such liabilities.
9. Miscellaneous.
-------------
(a) Severability. Each provision of this Agreement shall be treated
------------
as a separate and independent clause, and the unenforceability of any one
clause shall in no way impair the enforceability of any of the other
clauses herein. If one or more of the provisions contained in this
Agreement shall, for any reason, be held to be unenforceable, such
provision shall be construed by an appropriate judicial body by limiting
and reducing it, so that this Agreement shall be enforceable to the maximum
extent compatible with the applicable law as it shall then appear.
-4-
<PAGE>
(b) No Waiver. No waiver of any Breach of failure by any party to enforce
---------
any of the terms or conditions of this Agreement at any time shall, in any
manner, limit or waive such party's right thereafter to enforce and to compel
strict compliance with every term and condition hereof.
(c) Assignment. This Agreement is not assignable in whole or in part by
----------
either party without the prior written consent of the other party. This
Agreement shall be binding upon and shall inure to the benefit of any successors
or assigns of Unilab, whether by merger, consolidation, sale of all or
substantially all of its assets, or otherwise.
(d) Applicable Law. This Agreement is to be governed by and construed under
--------------
the laws of the State of Delaware.
(e) Captions and Paragraph Headings. Captions and paragraph headings used
-------------------------------
herein are for convenience only and are not a part of this Agreement and will
not be used in construing it.
(f) Entire Agreement. This Agreement contains the entire agreement of the
----------------
parties with respect to the subject matter contained herein and supersedes any
and all other agreements, either oral or in writing, between the parties hereto.
Each party to this Agreement acknowledges that no representations, inducements,
promises, or agreements, oral or otherwise, have been made by any party, or
anyone acting on behalf of any party, which are not embodied herein, and that no
other agreement, statement, or promise not contained in this Agreement will be
valid or binding.
(g) Modification. This Agreement may not be modified or amended by oral
------------
agreement, but only by an agreement in writing signed by Consultant and Unilab.
(h) Notices. All notices, requests, demands, and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, by nationally recognized overnight delivery service, or
mailed by certified or registered mail, postage prepaid, addressed as follows:
-5-
<PAGE>
If to Consultant: David C. Weavil
16868 Calle Sarah
Pacific Palisades, CA 90272
With a copy to: Steven L. Guise, Esq.
Munger, Tolles & Olson LLP
355 S. Grand Avenue, 35th Floor
Los Angeles, CA 90071
If to Unilab: Unilab Corporation
18448 Oxnard Street
Tarzana, CA 91356
Attn: Corporate Secretary
With a copy to: Unilab Corporation
401 Hackensack Avenue
Hackensack, NJ 07601
Attn: Legal Department
The above addresses for the purpose of receiving notices hereunder may be
changed by giving written notice of such change in the manner provided
herein for giving notices.
IN WITNESS WHEREOF, this Agreement has been executed at Tarzana,
California on December 1, 1999.
/s/ David C. Weavil
--------------------------------------------
DAVID C. WEAVIL
UNILAB CORPORATION, a Delaware corporation
By: /s/ Mark L. Bibi
-----------------------------------------
Mark L. Bibi, Executive Vice President,
Secretary, and General Counsel
-6-
<PAGE>
EXHIBIT 10.5
NON COMPETE AND NON SOLICITATION AGREEMENT
------------------------------------------
This Non Compete Agreement is entered into on November 23, 1999, by
and among UNILAB CORPORATION, a Delaware corporation ("Unilab"), UC Acquisition
Sub, Inc., a Delaware corporation ("UC Acquisition"), and DAVID C. WEAVIL
("Weavil") with reference to the following:
A. Weavil is the President, Chief Executive Officer, and Chairman of
the Board of Directors of Unilab.
B. On May 25, 1999, Unilab agreed to merge with UC Acquisition in a
leveraged recapitalization transaction (the "Recapitalization") in which Unilab
survives and the business of Unilab continues.
C. Weavil and UC Acquisition have agreed that effective upon the
closing of the Recapitalization, Weavil will cease to be employed by Unilab as
its President and Chief Executive Officer.
D. UC Acquisition and Unilab want to ensure that Weavil will not (a)
enter into an employment or any other similar arrangement during the two-year
period following the closing of Recapitalization that would result in Weavil
competing with Unilab under certain circumstances, or (b) solicit customers and
employees of Unilab during the five-year period following the closing of the
Recapitalization, and Weavil is willing to enter into such a non-compete and
non-solicitation agreement, all as described in this Agreement.
NOW THEREFORE, the parties to this Agreement agree as follows:
1. Non-Compete and Non-Solicitation. Weavil agrees that, following
--------------------------------
termination of Weavil's employment with Unilab upon the closing of the
Recapitalization.
(a) during the twenty-four (24) consecutive month period commencing
on the closing of the Recapitalization, he will not become employed by, or
enter into any similar agreement as a director, employee, independent
contractor, consultant, agent, partner, member, or otherwise with,
Laboratory Corporation of America, Quest Diagnostic Inc., or Smith-Kline
Clinical Laboratories, or any entity affiliated with any of Laboratory
Corporation of America, Quest Diagnostic Inc., or Smith-Kline Clinical
Laboratories, or any other person, firm, or entity that competes, directly
or indirectly, with Unilab, whether or not so competing in the same
geographic area as Unilab, or any company or entity affiliated therewith,
and
<PAGE>
(b) during the sixty (60) consecutive month period commencing on the
closing of the Recapitalization, he will not, directly or indirectly, for his
benefit of the benefit of any other person, firm, or entity, do any of the
following:
(i) solicit from any customer doing business with Unilab as of
Weavil's termination of employment with Unilab, business of the same
or of a similar nature to the business of Unilab with such customer;
(ii) solicit from any known potential customer of Unilab
business of the same or of a similar nature to that which has been the
subject of a known written or oral bid, offer, or proposal by Unilab,
or of substantial preparation with a view to making such a bid, offer,
or proposal within six (6) months prior to Weavil's termination of
employment with Unilab;
(iii) solicit the employment or services of, or hire, any person
who was known to be employed by or was a known consultant to Unilab
upon the termination of Weavil's employment with Unilab or within six
(6) months prior thereto; or
(iv) otherwise interfere with the business or accounts of
Unilab.
2. Payment. In consideration of Weavil's non-compete and
-------
non-solicitation agreement described in Paragraph 1, Unilab shall pay to Weavil,
solely for his agreement not to compete with Unilab, the sum of Two Million Five
Hundred Thousand Dollars ($2,500,000) immediately following the closing of the
Recapitalization.
3. Breach. Weavil shall be deemed to have breached his obligations
------
under this Agreement (a) if, at any time during the twenty-four (24) consecutive
month period described in Paragraph 1, he violates his agreement not to compete,
or (b) if, at any time during the sixty (60) consecutive month period described
in Paragraph 1, he violates his agreement not to solicit customers and employees
as described in Paragraph 1. In the event of any such breach, and without
limiting any other remedies available to Unilab, Weavil shall promptly repay the
entire Payment specified in Paragraph 2 to Unilab. Unilab shall be deemed to
have breached its obligations under this Agreement if the Payment specified in
Paragraph 2 is not made in good funds to Weavil immediately following the
closing of the Recapitalization.
4. Severability. In the event that any one or more of the
------------
provisions of this Agreement shall be held to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remainder of
this Agreement shall not in any way be
<PAGE>
affected or impaired thereby. Moreover, if any one or more of the provisions
contained in this Agreement shall be held to be excessively broad as to
duration, activity, or subject, such provisions shall be construed by limiting
and reducing them so as to be enforceable to the maximum extent allowed by
applicable law.
5. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware.
6. Entire Agreement. This Agreement constitutes the entire
----------------
understanding between the parties with respect to the subject matter hereof,
superceding all negotiations, prior discussions, and preliminary agreements not
specifically included in the terms and conditions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on November 23, 1999.
UNILAB CORPORATION, a Delaware corporation
By: /s/ Mark L. Bibi
----------------------------------
Mark L. Bibi, Executive Vice
President, Secretary, and General
Counsel
UC ACQUISITION SUB, INC., a Delaware
corporation
By: __________________________________
/s/ David C. Weavil
--------------------------------------
DAVID C. WEAVIL
<PAGE>
EXHIBIT 10.9
===========================================================
STOCKHOLDERS AGREEMENT
UNILAB CORPORATION
Dated as of November 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I RESTRICTIONS ON TRANSFER OF COMMON STOCK...................... 2
1.1 General Restriction on Transfer by Stockholders...................... 2
1.2 Permitted Transferees................................................ 2
ARTICLE II RIGHTS OF MANAGEMENT TO SELL.................................. 4
2.1 Management Stockholders' Right to Sell............................... 4
2.2 Notice............................................................... 5
2.3 Payment.............................................................. 5
2.4 Termination of Right to Sell......................................... 6
2.5 Postponement, etc.................................................... 6
ARTICLE III PURCHASES BY THE COMPANY...................................... 7
3.1 Right to Purchase Shares from Management Stockholders................ 7
3.2 Notice............................................................... 8
3.3 Payment.............................................................. 8
3.4 Postponement, etc.................................................... 9
ARTICLE IV PURCHASE PRICE................................................ 10
4.1 Fair Market Value.................................................... 10
(a) Appraisal....................................................... 10
(b) Fair Market Value............................................... 10
(c) Notice to Stockholders.......................................... 11
4.2 Carrying Value....................................................... 11
4.3 Certain Defined Terms................................................ 12
(a) Cause........................................................... 12
(b) Good Reason..................................................... 12
(c) Disability...................................................... 13
ARTICLE V PROHIBITION ON PURCHASES...................................... 13
5.1 Prohibited Purchases................................................. 13
ARTICLE VI SALES TO THIRD PARTIES........................................ 15
6.1 General.............................................................. 15
6.2 Right of First Refusal............................................... 16
6.3 Agreements to Be Bound............................................... 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
6.4 Involuntary Transfers................................................ 18
6.5 Tag and Drag Along Rights............................................ 18
(a) Tag-Along Rights................................................ 19
(b) Drag-Along Rights............................................... 20
ARTICLE VII REGISTRATION RIGHTS.......................................... 22
7.1. Demand Registration.................................................. 22
7.2. Piggyback Registration............................................... 24
7.3. Expenses............................................................. 26
7.4. Holdback and Other Agreements........................................ 26
ARTICLE VIII CHARTER DOCUMENTS AND BOARD OF DIRECTORS..................... 26
8.1 Charter Documents.................................................... 27
8.2 Board of Directors................................................... 27
ARTICLE IX TERMINATION.................................................. 29
9.1 Cessation of Ownership of Common Stock............................... 29
9.2 Other Termination Events............................................. 29
ARTICLE X MISCELLANEOUS PROVISIONS..................................... 30
10.1 Stock Certificate Legend............................................. 30
10.2 Option Plan.......................................................... 30
10.3 New Management Stockholders.......................................... 31
10.4 Fee.................................................................. 31
10.5 Future Sales of Capital Equity by the Company........................ 31
10.6 No Other Arrangements or Agreements.................................. 31
10.7 Amendment and Modification........................................... 32
10.8 Assignment........................................................... 32
10.9 Recapitalizations, Exchanges, etc. Affecting the Common Stock........ 33
10.10 Transfer of Common Stock............................................ 33
10.11 Further Assurances.................................................. 34
10.12 Governing Law....................................................... 34
10.13 Invalidity of Provision............................................. 34
10.14 Notices............................................................. 34
10.15 Headings; Execution in Counterparts................................. 35
10.16 Entire Agreement; Effect on Certain Other Agreements................ 36
10.17 Injunctive Relief................................................... 36
10.18 Attorneys' Fees..................................................... 36
</TABLE>
ii
<PAGE>
================================================================================
STOCKHOLDERS AGREEMENT
UNILAB CORPORATION
Dated as of November 23, 1999
<PAGE>
STOCKHOLDERS AGREEMENT
----------------------
STOCKHOLDERS AGREEMENT, dated as of November 23, 1999, among UNILAB
CORPORATION, a Delaware corporation (the "Company"), Kelso Investment Associates
VI, L.P., a Delaware limited partnership ("KIA VI"), KEP VI, LLC, a Delaware
limited liability company ("KEP VI" and, together with KIA VI, "Kelso"), Persons
(as defined in Section 10.22) who are parties to this Agreement pursuant to
Section 10.21 of this Agreement, including, to the extent included thereby, Eos
Partners, L.P., a Delaware limited partnership and stockholder of the Company
("Eos") and Pequot Scout Fund L.P., a Delaware limited partnership and
stockholder of the Company ("Pequot", and together with Eos, the "Roll-Over
Investors"; the Roll-Over Investors, together with other such Persons if they
are or become parties to this Agreement pursuant to Section 10.21 of this
Agreement and each of their respective permitted transferees, are referred to
herein, collectively, as the "Third Party Investors") and the stockholders and
optionholders of the Company listed in the Schedule of Management Stockholders
attached hereto (such management stockholders and optionholders, together with
any persons who become parties to this Agreement pursuant to Sections 10.2 and
10.3 of this Agreement and each of their respective permitted transferees, are
referred to herein, collectively, as the "Management Stockholders"). Such
Schedule shall be updated from time to time to include each Management
Stockholder who becomes a party to this Agreement after the date hereof. Kelso,
the Third Party Investors and the Management Stockholders are hereinafter
referred to collectively as the "Stockholders".
WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of May
24, 1999, between the Company and UC Acquisition Sub, Inc., a Delaware
corporation and a direct wholly owned subsidiary of Kelso ("Merger Sub"), as
amended on July 8, 1999, July 30, 1999 and August 10, 1999 (the "Merger
Agreement"), Merger Sub will merge with and into the Company, pursuant to which
holders of Common Stock, par value $.01, of the Company (the "Common Stock"),
other than the Roll-Over Stockholders in respect of their Roll-Over Shares (as
such terms are defined in the Merger Agreement), will receive $5.85 in cash per
<PAGE>
share, and the Roll-Over Stockholders will retain all or a portion of their
outstanding shares of Common Stock (the "Recapitalization");
WHEREAS, concurrently with or after the consummation of the
Recapitalization on the date hereof (the "Closing"), the Company may offer and
sell additional shares of Common Stock to certain other persons and to employees
of the Company and its subsidiaries, including upon the exercise of employee
stock options, both currently outstanding and hereinafter granted, and it is
contemplated that such persons and employees will become parties to this
Agreement pursuant to Sections 10.2, 10.3 and 10.21 hereof; and
WHEREAS, the Stockholders believe it to be in their respective best
interests and in the best interests of the Company that they enter into this
Agreement providing for certain rights and restrictions with respect to the
shares of Common Stock owned by them or their permitted transferees.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, the parties hereto agree as follows:
ARTICLE I
RESTRICTIONS ON TRANSFER
OF COMMON STOCK.
1.1 General Restriction on Transfer by Stockholders. (a) Prior to
-----------------------------------------------
the closing of a bona fide public offering pursuant to an effective registration
statement, other than a registration statement on Form S-4 or S-8 or any
successor forms and other than a registration statement registering the sale of
shares of Common Stock only to employees of the Company (a "Registration"),
under the Securities Act of 1933 (the "Act"), filed after the Closing that
covers shares of Common Stock (an "IPO"), no shares of Common Stock now or
hereafter owned by any Stockholder or any interest therein may, directly or
indirectly, be sold, assigned, mortgaged, transferred,
2
<PAGE>
pledged, hypothecated or otherwise disposed of or transferred (collectively
"Transferred"), except for (i) Transfers to a transferee pursuant to Section 1.2
(a "Permitted Transferee"), (ii) sales of shares of Common Stock to the Company
or Kelso, or to their designees pursuant to Article II or III, (iii) Transfers
by any of KIA VI, KEP VI or any of their Permitted Transferees to any Person of
shares of Common Stock, provided that such Transfers shall comply with Article
--------
VI to the extent expressly provided therein or (iv) Transfers to a third party
by a Third Party Investor after the fifth anniversary of the Closing to the
extent permitted by, and in accordance with, Article VI.
(b) The period of time from the date of this Agreement until the
earlier of the fifth anniversary of the Closing and an IPO shall hereinafter be
referred to as the "Restricted Period".
1.2 Permitted Transferees. (a) Subject to paragraph (b) of this
---------------------
Section 1.2,
(i) each of KIA VI and KEP VI may Transfer any shares of Common
Stock or any interest therein or its rights to subscribe for the same to
any of its affiliates (as defined in Section 1.2(c));
(ii) any Management Stockholder may Transfer any shares of Common
Stock or any interest therein or his rights to subscribe for the same, if
any, (A) to a trust, partnership, limited liability company or corporation
the beneficiaries, partners, members or stockholders of which are such
Management Stockholder, his spouse, parents, members of his immediate
family or his lineal descendants provided that the foregoing shall be
--------
subject to the limitation that the Company's Board of Directors (the
"Board") acting in good faith does not conclude that such Transfer together
with all other Transfers made after the Closing could result in or create a
"significant risk" that the Company may become subject to, or after any
Registration will continue by reason thereof to be subject to, the informa-
3
<PAGE>
tional requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")or the registration requirements of the Investment Company
Act of 1940 (the "40 Act") and provided, further that a Management
-------- -------
Stockholder shall give advance notice to the Company in the event of any
Transfer to any permitted transferee set forth in this clause (A), (B) in
case of his death, by will, by transfer in trust or by the laws of
intestate succession to executors, trustees, administrators, testamentary
trustees, legatees or beneficiaries, or (C) with the prior written consent
of the Board and Kelso, to any transferee, including, without limitation,
to one or more Management Stockholders or to any employee who is, in the
judgment of the Board, a current member of management of the Company or any
of its subsidiaries, provided that any such Transfer pursuant to this
--------
clause (C) shall, unless Kelso and the Company determine otherwise in the
case of a transferee who is an employee, or is to become an employee, of
the Company, be subject to the provisions of Section 6.2;
(iii) each of the Third Party Investors may Transfer (A) any
shares of Common Stock or any interest therein or its rights to subscribe
for the same to any of its affiliates (as defined in Section 1.2(c)) or (B)
a total of 25% of the shares of Common Stock held by it on the date hereof
to a charitable organization qualifying under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended;
provided, however, that all or any portion of the shares of Common Stock owned
- -------- -------
by any Stockholder may be pledged to the Company or Kelso and any such shares
may be otherwise transferred to the Company or Kelso pursuant to any such
pledge. In addition to the foregoing, any transferee of a Stockholder described
above may Transfer shares of Common Stock back to such Stockholder or to another
Permitted Transferee of such Stockholder. For the purposes of this Section 1.2,
a "significant risk", as referred to above, shall be deemed to arise when the
number of "holders of record" (as determined in accor-
4
<PAGE>
dance with the Exchange Act and the rules and regulations thereunder or the
registration requirements of the 40 Act) is greater than 80% of the number of
"holders of record" that would cause the application or continued application of
the informational requirements of the Exchange Act under the then existing
circumstances.
(b) Any Transfer of shares of Common Stock made pursuant to paragraph
(a) of this Section 1.2 to a Permitted Transferee shall be permitted and shall
be effective only if such Permitted Transferee shall agree in writing to be
bound by the terms and conditions of this Agreement in the same manner and
capacity as its transferor, unless such Permitted Transferee is already a
Stockholder, pursuant to an instrument of assumption reasonably satisfactory in
form and substance to the Company.
(c) An "affiliate" of, or a person "affiliated" with, a specified
person, is a person that directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, the person specified. In addition, in the case of KIA VI or KEP VI, the
term "affiliate" shall be deemed to include, without limitation, any partner of
such entity or any director, officer or employee of Kelso & Company, Inc., any
individual retirement account of any such partner, director, officer or
employee, any family member of any such partner, director, officer or employee,
or any trust or family partnership for the benefit of any such partner,
director, officer or employee or family member thereof. In the case of the
Third Party Investors, affiliate shall be deemed to include any partner or
member of such Person or any director, officer or employee of such Person, any
individual retirement account of any such partner, director, officer or
employee, any family member of any such partner, director, officer or employee
or any trust or family partnership for the benefit of any such partner,
director, officer or employee or family member thereof.
5
<PAGE>
ARTICLE II
RIGHTS OF MANAGEMENT TO SELL
2.1 Management Stockholders' Right to Sell. Subject to all provisions
--------------------------------------
of this Article II and Article V, each Management Stockholder shall have the
right to sell to the Company, and the Company shall have the obligation to
purchase (or, in the event that such purchase is not made by the Company, Kelso
(or its designee(s)) shall have the option, but not the obligation, within 10
days of such failure, to purchase) from such Management Stockholder, all, but
not less than all, of such Management Stockholder's shares of Common Stock
(a) at the fair market value of such shares, as determined
pursuant to Section 4.1 ("Fair Market Value") if the employment of
such Management Stockholder with the Company and all subsidiaries
thereof is terminated as a result of (i) the retirement of such
Management Stockholder upon or after reaching the age of 65 or, if
different, the Company's normal retirement age ("Retirement"),(ii) the
death or Disability (as defined in Section 4.3) of such Management
Stockholder, (iii) the termination by the Company of such employment
of such Management Stockholder without Cause (as defined in Section
4.3), or (iv) the resignation of such Management Stockholder for Good
Reason (as defined in Section 4.3);
(b) at the lesser of (i) the Fair Market Value of such shares,
and (ii) the Carrying Value (as defined in Section 4.2) of such shares
if such Management Stockholder's employment with the Company and all
subsidiaries thereof is terminated as a result of the resignation of
such Management Stockholder without Good Reason.
6
<PAGE>
Notwithstanding anything to the contrary herein, David C. Weavil shall have no
rights pursuant to the foregoing provisions of this Section 2.1 to sell to the
Company the shares of Common Stock held by him at or after such time as his
consulting contract with the Company expires pursuant to its terms or the terms
of any renewal thereof.
2.2 Notice. If any Management Stockholder intends to sell shares of
------
Common Stock pursuant to Section 2.1, he (or his estate, as the case may be)
shall give the Company and Kelso notice of such intention not more than 30 days
or, in the case of a termination under clause (ii) of Section 2.1(a), 90 days,
after the occurrence of the event giving rise to such Management Stockholder's
right to sell his shares of Common Stock and shall therein specify the number of
shares of Common Stock such Management Stockholder owns and, subject to Section
2.3, is selling to the Company.
2.3 Payment. (a) Subject to Article V and Section 2.6, payment for
-------
shares of Common Stock sold by a Management Stockholder pursuant to Section 2.1
shall be made on the date that is the 15th business day following the date of
the determination of Fair Market Value pursuant to Section 4.1.
(b) Any payments based on Fair Market Value required to be made by
the Company under this Section 2.3 shall accrue interest at 6% simple interest
per annum from the date of termination of employment to the date the Company (or
Kelso or its designee(s)) makes such payments.
2.4 Termination of Right to Sell. A Management Stockholder's right
----------------------------
to sell to the Company and the Company's obligation to purchase such Management
Stockholder's shares of Common Stock pursuant to Section 2.1 shall terminate on
the closing of an IPO.
7
<PAGE>
2.5 Postponement, etc. The date of payment and closing of any
------------------
purchase and sale under this Article II may be postponed to the extent necessary
to permit such purchase and sale under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations promulgated thereunder
(the "HSR Act"). No party shall be required to consummate any purchase and sale
under this Article II until such time as such transaction would not violate
applicable law, other than violations which would not have a direct or indirect
material adverse effect on such party.
2.6 Pre-existing Options. The provisions of this Article II shall
---------------------
apply to Pre-existing Options (as defined in Section 4.1) held by a Management
Stockholder to the same extent Article II applies to such person's shares of
Common Stock, subject to any limitations contained herein, in the relevant stock
option plan governing such Pre-existing Options or in such Pre-existing Options
themselves.
ARTICLE III
PURCHASES BY THE COMPANY
3.1 Right to Purchase Shares from Management Stockholders. Subject
-----------------------------------------------------
to all provisions of this Article III, the Company shall have the right to
purchase (and, if the Company does not exercise such right by giving notice
within the 30-day period referred to in Section 3.2, Kelso (or its designee(s))
shall have the right by giving notice not later than the end of the succeeding
10-day period to purchase) from a Management Stockholder, and such Management
Stockholder shall have the obligation to sell to the Company (or Kelso or its
designee(s) if such right is exercised by Kelso or its designee(s)), all, but
not less than all, of such Management Stockholder's shares of Common Stock:
(a) at the Fair Market Value of such shares if such Management
Stockholder's employment with the Company and all subsidiaries thereof is
terminated as a result of (i) the
8
<PAGE>
termination by the Company of such employment without Cause, (ii) the
resignation of such Management Stockholder for Good Reason, (iii) the
Retirement of such Management Stockholder, or (iv) the death or Disability
of such Management Stockholder;
(b) at the lesser of (i) the Fair Market Value of such shares,
and (ii) the Carrying Value (as defined in Section 4.2) of such shares if
such Management Stockholder's employment with the Company and all
subsidiaries thereof is terminated as a result of the resignation of such
Management Stockholder without Good Reason; and
(c) at the lesser of the Fair Market Value and Carrying Value
(as defined in Section 4.2) of such shares, if such Management
Stockholder's employment with the Company and all subsidiaries thereof is
terminated as a result of the termination by the Company of such employment
with Cause.
Notwithstanding anything to the contrary herein, the Company shall have no
rights pursuant to the foregoing provisions of this Section 3.1 to purchase from
David C. Weavil the shares of Common Stock held by him at or after such time as
his consulting contract with the Company expires pursuant to its terms or the
terms of any renewal thereof.
3.2 Notice. If the Company desires to purchase shares of Common
------
Stock from a Management Stockholder pursuant to Section 3.1, it shall notify
such Management Stockholder (or his estate, as the case may be) not more than
45 days after the occurrence of the event giving rise to the Company's right to
acquire such Management Stockholder's shares of Common Stock. If the Company
does not deliver such notice within such 45-day period and Kelso (or its
designee(s)) desires to purchase such shares, then Kelso (or its designee(s))
shall notify
9
<PAGE>
such Management Stockholder (or his estate, as the case may be) not later than
the end of the succeeding 10-day period.
3.3 Payment. (a) Subject to Section 3.6 and Article V, payment for
-------
shares of Common Stock purchased pursuant to Section 3.1 shall be made on the
date that is the 15th business day following the date of the determination of
Fair Market Value pursuant to Section 4.1.
(b) Any payments based on Fair Market Value required to be made by
the Company under this Section 3.3 shall accrue interest at 6% simple interest
per annum on the amounts not paid from the date of termination of employment to
the date the Company (or Kelso or its designee(s)) makes such payments.
3.4 Postponement, etc. The date of payment and closing of any
-----------------
purchase and sale under this Article III may be postponed to the extent
necessary to permit such purchase and sale under the HSR Act. No party shall be
required to consummate any purchase and sale under this Article III until such
time as such transaction would not violate applicable law, other than violations
which would not have a direct or indirect material adverse effect on such party.
3.5 Pre-existing Options. The provisions of this Article III shall
---------------------
apply to Pre-existing Options (as defined in Section 4.1) held by a Management
Stockholder to the same extent Article III applies to such person's shares of
Common Stock, subject to any limitations contained herein, in the relevant stock
option plan governing such Pre-existing Options or in such Pre-existing Options
themselves.
ARTICLE IV
PURCHASE PRICE
4.1 Fair Market Value.
-----------------
(a) Appraisal. The Company shall, at the request of Kelso, engage,
---------
to the extent practicable, on an annual basis or otherwise from time to time as
required, an independent valuation consultant or
10
<PAGE>
appraiser of recognized national standing (an "Appraiser") satisfactory to Kelso
and the Company (it being agreed that Houlihan, Lokey, Howard & Zukin, Inc. is
satisfactory to Kelso and the Company) to appraise the Fair Market Value of the
shares of Common Stock as of the last day of the fiscal year then most recently
ended or as of any more recent date (the "Appraisal Date") and to prepare and
deliver a report to the Company describing the results of such appraisal (the
"Appraisal").
(b) Fair Market Value. For the purposes of this Agreement, the "Fair
-----------------
Market Value" of any share of Common Stock being purchased by or sold to the
Company, Kelso or their respective designees, pursuant to this Agreement shall
be the fair market value of the entire Common Stock equity interest of the
Company taken as a whole, divided by the number of outstanding shares of Common
Stock, all calculated on a fully diluted basis, without additional premiums for
control or discounts for minority interests or restrictions on transfer, and
shall be determined by Appraisal as of the applicable date of termination of
employment with the Company or the date of transfer to an Involuntary Transferee
(as defined in Section 6.4) (each of such dates, a "Determination Date"), which
Appraisal the Company shall have caused to have been undertaken, in accordance
with Section 4.1(a), promptly but no later than 30 days following (i) the date
of receipt by the Company of the notice described in Section 2.2 (in the case of
purchases of Common Stock pursuant to Article II), (ii) the date on which the
Company gives the notice described in Section 3.2 (in the case of purchases by
the Company of Common Stock pursuant to Article III) or the date on which Kelso
(or its designees) gives the notice described in Section 3.1 (in the case of
purchases of Common Stock by Kelso (or its designees) pursuant to Section 3.2)
and (iii) the date of receipt by the Company of the Notice described in Section
6.4 (in the case of purchases of Common Stock pursuant to Section 6.4);
provided, however, that the Fair Market Value will be determined as of the most
- -------- -------
recent existing Appraisal unless (i) such existing Appraisal is not as of a date
within 6 months of the applicable Determination Date and the relevant repurchase
involves more than one percent (1%) of the Common Stock outstanding, in which
case the Company shall order an additional Appraisal under Section 4.1(a) or
(ii) in the Company's judgment there has been a material change in the Company,
its
11
<PAGE>
operations or its value since such existing Appraisal, in which case the Company
may, in its sole discretion, order an additional Appraisal. Fair Market Value of
an employee stock option issued prior to the Closing or issued in exchange for
an option issued prior to the Closing ("Pre-existing Option") but which has not
been exercised at the time of the relevant calculation is the Fair Market Value
of the Common Stock underlying such Pre-existing Option minus the aggregate
exercise price of such Pre-existing Option (the "Spread").
(c) Notice to Stockholders. After notice has been given pursuant to
----------------------
Section 2.2, 3.2 or 6.4, the Company shall promptly deliver a copy of the letter
as to value included with the most recent existing Appraisal or any Appraisal
thereafter received, as the case may be, to Kelso and to each Stockholder whose
Common Stock or Pre-existing Options are to be purchased pursuant to Section
2.1, 2.6, 3.1, 3.5 or 6.4.
(d) Withdrawal of Exercise Following Appraisal. Any party to this
------------------------------------------
Agreement who has exercised its option either to purchase or sell shares of
Common Stock or Pre-existing Options, pursuant to Article II or Article III, may
withdraw its notice or demand to purchase or sell such shares within 10 business
days following the receipt of the letter referred to in Section 4.1(c) or the
determination of the Fair Market Value as set forth in Section 4.1(b).
4.2 Carrying Value. For the purposes of this Agreement, "Carrying
--------------
Value" of any share of Common Stock, other than shares issued upon the exercise
of Pre-existing Options, being purchased by the Company shall be equal to the
price paid by the selling Management Stockholder for any such share ("Cost")
plus simple interest at a rate per annum equal to 6% which shall be deemed to be
the carrying cost, from the date of the acquisition of the Common Stock by the
Management Shareholders through the date of such purchase pursuant to Article II
or III, less the amount of dividends paid to such Management Stockholder in
respect of any such share (to the extent that the amount of such dividends does
not exceed such simple interest). Notwithstanding anything to the contrary
herein, (i) in the case of any share of Common Stock outstanding prior to, and
which remains outstanding following, the Closing or that was
12
<PAGE>
issued in exchange for any share of Common Stock outstanding prior to the
Closing, Cost shall be deemed to be $5.85, and the Carrying Value shall be
calculated as set forth above commencing from the date of the Closing through
the date of purchase by the Company pursuant to Article II or III, (ii) in the
case of any Pre-existing Option which has not been exercised at the time of the
calculation of the Cost thereof, Cost shall be deemed to be the product of (x)
$5.85 minus the per share exercise price of such Pre-existing Option (the "Cost
Spread") and (y) the number of shares of Common Stock subject thereto, and the
Carrying Value shall be calculated as set forth above commencing from the date
of the Closing through the date of purchase by the Company pursuant to Article
II or III and (iii) in the case of any share of Common Stock that was issued
upon the exercise of any Pre-Existing Option, Cost shall be deemed to be $5.85
and the Carrying Value shall be calculated as set forth above, except that
interest shall accrue from the date of Closing through the date of exercise on
the Cost Spread of such Pre-existing Option and shall accrue on $5.85 from the
date of exercise through the date of purchase by the Company pursuant to Article
II or III.
4.3 Certain Defined Terms. As used in this Agreement, the following
---------------------
terms shall have the meanings ascribed to them below (which meanings shall be
independent of and unaffected by the meanings of similar terms used in any
employment contracts between the Company and Management Stockholders, in the
event such latter meanings differ from those following):
(a) Cause. The term "Cause" used in connection with a termination of
-----
employment of a Management Stockholder (other than David C. Weavil) shall mean a
termination of such Management Stockholder's employment by the Company or any of
its subsidiaries due to (i) the continued willful failure, after reasonable
advance written notice specifying details of such failure, by such Management
Stockholder substantially to perform his duties with the Company or any of its
subsidiaries (other than any such failure resulting from incapacity due to
reasonably documented physical or mental illness), or (ii) the engaging by such
Management Stockholder in fraudulent, willful or bad faith conduct that causes,
or in the good faith judgment of the Board may cause, harm (financial or
otherwise) material to the
13
<PAGE>
Company or any of its subsidiaries or harm material to the conduct of such
Management Stockholder's employment, including, without limitation, the improper
or unlawful disclosure of material secret, proprietary or confidential
information of the Company or any of its subsidiaries. In the case of David C.
Weavil, the term "Cause" used in connection with a termination of his employment
shall mean the termination or cancellation by the Company of his consulting
contract with the Company pursuant to Section 6 thereof and "without Cause"
shall mean the termination or cancellation by the Company of his consulting
contract with the Company other than pursuant to Section 6 thereof.
(b) Good Reason. A termination of a Management Stockholder's
-----------
employment with the Company or any of its subsidiaries shall be for "Good
Reason" if such Management Stockholder (other than David C. Weavil) voluntarily
terminates his employment with the Company or any of its subsidiaries as a
result of either of the following:
(i) without the Management Stockholder's prior consent, a
material reduction by the Company or any of its subsidiaries in his current
salary, other than any such reduction which is part of a general salary
reduction or other concessionary arrangement affecting all employees or
affecting the group of employees of which the Management Stockholder is a
member; or
(ii) the taking of any action by the Company or any of its
subsidiaries that would substantially diminish the aggregate value of the
benefits provided him under the Company's or any such subsidiary's medical,
health, accident, disability, life insurance, thrift and retirement plans
in which he was participating on the date of his execution of this
Agreement, other than any such reduction which is (A) required by law, (B)
implemented in connection with a general concessionary arrangement
affecting most employees or affecting substantially the entire group of
employees of which the Management Stockholder is a member, (C) generally
applicable to all beneficiaries of such plans or (D) a result of a
14
<PAGE>
decrease in the value of the Company or its equity; or
(iii) a substantial and material reduction in his then
current duties, authority or responsibilities.
In the case of David C. Weavil, the termination of his employment shall be for
"Good Reason" if he terminates or cancels his consulting contract with the
Company pursuant to Section 6 thereof, and the termination of his employment
shall be "without Good Reason" if he terminates or cancels his consulting
contract with the Company other than pursuant to Section 6 thereof.
(c) Disability. The termination of the employment of any Management
----------
Stockholder by the Company or any of its subsidiaries shall be deemed to be by
reason of a "Disability" if, as a result of such Management Stockholder's
incapacity due to reasonably documented physical or mental illness, such
Management Stockholder shall have been unable for more than six months within
any 12 month period to perform his duties with the Company or any of its
subsidiaries on a full time basis and within 30 days after written notice of
termination has been given to such Management Stockholder, such Management
Stockholder shall not have returned to the full time performance of his duties.
The date of termination in the case of a termination for "Disability" shall be
the last day of the aforementioned 30-day period.
ARTICLE V
PROHIBITION ON PURCHASES
5.1 Prohibited Purchases. Notwithstanding anything to the contrary
--------------------
herein, the Company shall not be obligated to purchase any shares of Common
Stock from a Management Stockholder pursuant to Section 2.1 to the extent (i)
the Company is prohibited from purchasing such shares (or incurring debt to
finance the purchase of such shares) by any debt instruments or other agreements
(the "Agreements") entered into by the Company or any of its subsidiaries or by
applicable law, (ii) an event of default under any Agreement has occurred and is
15
<PAGE>
continuing or a condition exists which would, with notice or lapse of time or
both, result in an event of default under any Agreement or (iii) the purchase of
such shares (including the incurrence of any debt which in the judgment of the
Board is necessary to finance such purchase) (A) could in the judgment of the
Board result in the occurrence of an event of default under any Agreement or
create a condition which would or might, with notice or lapse of time or both,
result in an event of default under any Agreement, (B) would, in the judgment of
the Board, be imprudent in view of the financial condition (present or
projected) of the Company and its subsidiaries, taken as a whole, or the
anticipated impact of the purchase of such shares on the Company's or any of its
subsidiaries' ability to meet their respective obligations, including under any
Agreement, or to satisfy and make their planned capital and other expenditures
and projections or (C) could, in the judgment of the Board, constitute a
fraudulent conveyance or transfer or render the Company insolvent under
applicable law or violate limitations in the Delaware General Corporation Law on
repurchases of stock. If shares of Common Stock which the Company has the right
or obligation to purchase on any date exceed the total amount permitted to be
purchased on such date pursuant to the preceding sentence (the "Maximum
Amount"), the Company shall purchase on such date only that number of shares of
Common Stock up to the Maximum Amount (and shall not be required to purchase
more than the Maximum Amount) in such amounts as the Board shall in good faith
determine, applying the following order of priority:
(a) first, the shares of Common Stock of all Management Stockholders
whose shares of Common Stock are being purchased by the Company by
reason of termination of employment due to death or Disability up to
the Maximum Amount and, to the extent that the number of shares of
Common Stock that the Company is obligated to purchase from such
Management Stockholders exceeds the Maximum Amount, such shares of
Common Stock pro rata among such Management Stockholders on the basis
of the number of shares of Common Stock held by each of such
Management Stockholders that the Company is obligated or has the right
to purchase, and
16
<PAGE>
(b) second, to the extent that the Maximum Amount is in excess of the
amount the Company purchases pursuant to clause (a) above, the shares
of Common Stock of all Management Stockholders whose shares of Common
Stock are being purchased by the Company by reason of termination of
employment without Cause or due to Retirement or resignation for Good
Reason up to the Maximum Amount and, to the extent that the number of
shares of Common Stock that the Company is obligated to purchase from
such Management Stockholders exceeds the Maximum Amount, such shares
of Common Stock pro rata among such Management Stockholders on the
basis of the number of shares of Common Stock held by each of such
Management Stockholders that the Company is obligated or has the right
to purchase, and
(c) third, to the extent the Maximum Amount is in excess of the
amounts the Company purchases pursuant to clauses (a) and (b) above,
the shares of Common Stock of all other Management Stockholders whose
shares of Common Stock are being purchased by the Company up to the
Maximum Amount and, to the extent that the number of shares of Common
Stock that the Company is obligated to purchase from such Management
Stockholders exceeds the Maximum Amount, the shares of Common Stock of
such Management Stockholders in such order of priority and in such
amounts as the Board in its sole discretion shall in good faith
determine to be appropriate under the circumstances.
For the purposes of the foregoing (a), (b) and (c), Pre-existing Options shall
be treated, at the Company's election, as the equivalent of the Common Stock
underlying such Pre-existing Options.
Notwithstanding anything to the contrary contained in this Agreement,
if the Company is unable to make any payment when due to any Management
Stockholder under this Agreement by reason of this Article V, the Company shall
make such payment at the earliest practicable date permitted under this Article
V and any
17
<PAGE>
such payment shall accrue simple interest (or if such payment is accruing
interest at such time, shall continue to accrue interest) at 6% per annum from
the date such payment is due and owing to the date such payment is made;
provided, however, that such interest shall be reduced by the amount of any
- -------- -------
interest otherwise accruing on such payment by the Company by reason of the
definition of "Carrying Value" set forth in Section 4.2. All payments of
interest accrued hereunder shall be paid only at the date of payment by the
Company for the shares of Common Stock being purchased.
ARTICLE VI
SALES TO THIRD PARTIES
6.1 General. An "Excluded Transaction" shall mean any Transfer by
-------
KIA VI or KEP VI or any of their Permitted Transferees to any affiliate (as
defined in Section 1.2(c) thereof) or any Permitted Transferee thereof, or
pursuant to an IPO.
6.2 Right of First Refusal. (a) If a Third Party Investor or
----------------------
Management Stockholder (the "Offering Stockholder") who is entitled to sell
shares of Common Stock to third parties pursuant to Section 1.1 shall have
received a bona fide offer or offers from a third party or parties to purchase
for cash any shares of Common Stock (other than from any Permitted Transferee of
such stockholder, except in the case of clause (C) of Section 1.2 (a)(ii), or by
reason of the application of Sections 6.5 (a), 6.5 (b) or 7.2), then prior to
selling such shares of Common Stock to such third party or parties such Offering
Stockholder shall deliver to the Company a letter signed by such Offering
Stockholder setting forth:
(i) the name or names of the third party or parties;
(ii) the prospective purchase price per share of Common Stock;
(iii) all material terms and conditions contained in the offer of
the third party or parties;
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(iv) the Offering Stockholder's offer (which shall be
irrevocable by its terms for 30 days following receipt) to sell to the
Company or, if the Company declines such offer, to Kelso, all, but not less
than all, of the shares of Common Stock covered by the offer of the third
party or parties, for a purchase price per share of Common Stock, and on
other terms and conditions, not less favorable to the Company or Kelso, as
the case may be, than those contained in the offer of the third party or
parties (an "Offer"); and
(v) closing arrangements and a closing date (not less than 45
nor more than 60 days following the date of such letter) for any purchase
and sale that may be effected by the Company or Kelso, as the case may be,
or any of their assignees pursuant to this Section 6.2.
The Company or its designee(s) shall, within 10 days following receipt of such
letter, have the right to elect to purchase such shares of Common Stock. To the
extent the Company declines such offer, Kelso shall have until the later of (i)
5 days from the end of such ten day period and (ii) 10 days from the day Kelso
receives notification in writing from the Company that it is declining such
offer being made to the Company to elect to purchase such shares of Common
Stock. In the event the Company declines the offer set forth in the letter, the
Company shall promptly notify Kelso and the Offering Stockholder in writing of
its decision.
(b) If, upon the expiration of 30 days following receipt by the
Company of the applicable letter described in Section 6.2(a), neither the
Company nor Kelso, as applicable, on behalf of itself or any designee(s)
thereof, shall have accepted the Offer in full, the Offering Stockholder may
sell to such third party or parties all (but not less than all) of the shares of
Common Stock covered by the Offer, for the purchase price and on the other terms
and conditions contained in the Offer. If the Company or Kelso, as applicable,
on behalf of itself or its designee(s), shall accept such Offer, the closing of
the purchase and sale pursuant to such acceptance shall take place as set forth
in the letter of such Stockholder to the Company pursuant to subparagraph (v) of
Section 6.2(a).
19
<PAGE>
6.3 Agreements to Be Bound. Notwithstanding anything contained in
----------------------
this Section 6, any sale to a third party or any Involuntary Transfer (as
defined in Section 6.4) to an Involuntary Transferee (as defined in Section 6.4)
shall be permitted under the terms of this Agreement only if such third party or
Involuntary Transferee, as the case may be, shall agree in writing to be bound
by the terms and conditions of this Agreement pursuant to an instrument of
assumption reasonably satisfactory in form and substance to the Company.
6.4 Involuntary Transfers. In the case of any transfer of title or
---------------------
beneficial ownership of shares of Common Stock upon default, foreclosure,
forfeit, divorce, court order, or otherwise than by a voluntary decision on the
part of a Stockholder (an "Involuntary Transfer"), the Company shall have the
right to purchase such shares pursuant to this Section 6.4. Upon the
Involuntary Transfer of any shares of Common Stock, such Stockholder shall
promptly (but in no event later than two days after such Involuntary Transfer)
furnish written notice (the "Notice") to the Company indicating that the
Involuntary Transfer has occurred, specifying the name of the person to whom
such shares have been transferred (the "Involuntary Transferee") and giving a
detailed description of the circumstances giving rise to, and stating the legal
basis for, the Involuntary Transfer. Upon the receipt of the Notice, and for 30
days thereafter, the Company (or its designee(s)) shall have the right to
purchase, and the Involuntary Transferee shall have the obligation to sell, all,
but not less than all, of the shares of Common Stock acquired by the Involuntary
Transferee for a purchase price equal to (subject to the following paragraph)
the lesser of (i) the Fair Market Value of such shares of Common Stock on the
date of transfer to the Involuntary Transferee and (ii) the amount of the
indebtedness or other liability that gave rise to the Involuntary Transfer plus
the excess, if any, of the Carrying Value of such shares of Common Stock over
the amount of such indebtedness or other liability that gave rise to the
Involuntary Transfer.
Notwithstanding the foregoing, the Board may, for good cause shown by
the Stockholder who made the Involuntary Transfer, determine that payment of a
purchase price equal to the Fair Market Value of such
20
<PAGE>
shares of Common Stock on the date of transfer to the Involuntary Transferee
would be appropriate under the circumstances, and direct that payment be made in
such amount.
6.5 Tag and Drag Along Rights.
-------------------------
(a) Tag-Along Rights. None of KIA VI, KEP VI and their Permitted
----------------
Transferees (collectively, the "Kelso Group") shall, individually or
collectively, in any one transaction or any series of related transactions,
Transfer any shares of Common Stock in an amount which when taken together with
all previous Transfers by them would exceed 10% of the Common Stock held by them
at the time of the transaction in question(which in the case of a series of
related transactions is the most current transaction in such series), except
pursuant to an Excluded Transaction or pursuant to Section 6.5(b), to any third
party or parties that are not affiliates of Kelso & Company, L.P or any
investment fund organized by or at the direction of Kelso & Company, L.P. (a
"Third Party"), unless the Management Stockholders, the Third Party Investors,
and their respective Permitted Transferees (collectively, the "Offerees"), are
offered the right, at the option of each Offeree, to include in such Transfer to
the Third Party such number of shares of Common Stock owned by each such Offeree
as determined in accordance with this Section 6.5(a). If any member of the
Kelso Group receives from a Third Party a bona fide offer or offers to Transfer,
or proposes to Transfer to a Third Party, shares of its or their Common Stock,
such member (the "Transferor") shall provide written notice (the "Tag-Along
Notice") to each of the Offerees, setting forth the consideration per share to
be paid by such Third Party and the other material terms and conditions of such
transaction. The Tag-Along Notice shall offer the Offerees the opportunity to
participate in the proposed Transfer of shares to the Third Party according to
the terms and conditions of this Section 6.5(a) and for the same type of
consideration and for an amount of consideration per share not less than that
offered to the Transferor by the Third Party. At any time within 15 days after
its receipt of the Tag-Along Notice, each of the Offerees may irrevocably (but
subject to the terms and conditions of such offer) accept the offer included in
the Tag-Along Notice for up to such number of shares of Common Stock as is
determined in accordance with the
21
<PAGE>
provisions of this Section 6.5(a) by furnishing written notice of such
acceptance to the Transferor. Promptly following such acceptance by an Offeree,
each such Offeree shall deliver to the Transferor the certificate or
certificates representing the shares of Common Stock to be Transferred pursuant
to such offer by such Offeree, together with a limited power-of-attorney
authorizing the Transferor to sell or otherwise dispose of such shares of Common
Stock pursuant to the proposed Transfer to the Third Party.
Each Offeree shall have the right to participate in the proposed
Transfer to the Third Party by Transferring in connection therewith shares of
Common Stock equal to the product of (x) the total number of shares to be
acquired by the Third Party, times (y) a fraction, the numerator of which shall
be the total number of shares of Common Stock owned by such Offeree, and the
denominator of which shall be the number of shares of Common Stock owned by the
Kelso Group plus the total number of shares of Common Stock owned by all
Offerees in the aggregate. The maximum number of shares of Common Stock that
may be Transferred by each Offeree to the Third Party in accordance with this
Section 6.5(a) shall be the total number of shares of Common Stock then owned by
such Offeree.
If within 15 days after the delivery of the Tag-Along Notice, any
Offeree has not accepted the offer contained in the Tag-Along Notice, such
Offeree will be deemed to have waived any and all rights with respect to, or to
participate in, the Transfer of Common Stock described in the Tag-Along Notice.
The Transferor shall have 45 days following such delivery in which to Transfer
Common Stock held by it plus any Common Stock of any Offerees who accept the
offer described in the Tag-Along Notice in accordance with the provisions of
this Section 6.5(a), in the aggregate not more than the amount of Common Stock
described in the Tag-Along Notice, for an amount and type of sales price
consideration per share not more favorable to the Transferor than was set forth
in the Tag-Along Notice, provided that the type of consideration to be received
--------
by the Transferor may be different than the type set forth in the Tag-Along
Notice so long as it is not materially more favorable to the Transferor. The
number of shares of Common Stock held by the Transferor which the Transferor is
entitled to
22
<PAGE>
transfer pursuant to this Section 6.5(a) shall not be subject to reduction by
reason of any Offeree who has not accepted the offer described in the Tag-Along
Notice. If, at the end of 60 days following the delivery of the Tag-Along
Notice, the Transferor has not completed the Transfer of Common Stock of the
Transferor and Common Stock of any Offeree, the Transferor shall return to such
Offeree all certificates representing shares of Common Stock which such Offeree
delivered for Transfer pursuant to this Section 6.5(a), and all the restrictions
on sale or other disposition contained in this Agreement with respect to Common
Stock owned by the Transferor shall again be in effect.
To the extent practicable, all Offerees whose shares of Common Stock
are to be Transferred in accordance with this Section 6.5(a) shall receive the
consideration in respect of their shares substantially simultaneously with the
receipt by the Transferor of the consideration in respect of the shares of
Common Stock of the Transferor. In the event that the Offerees do not receive
their consideration substantially simultaneously with the Transferor, as
promptly as practicable (but in no event later than 10 days) after the
consummation of the Transfer of Common Stock of the Transferor and Common Stock
of the Offerees to the Third Party in accordance with this Section 6.5(a), the
Transferor shall notify the Offerees thereof, shall remit to each of the
Offerees the total consideration in respect of the shares of Common Stock of
such Offeree which were so Transferred, and shall furnish such other evidence of
the completion and time of completion of such Transfer and the terms thereof as
may be reasonably requested by the Offerees.
(b) Drag-Along Rights. If any member or members of the Kelso Group
-----------------
shall, individually or collectively, propose to Transfer at least 75% of all
shares of Common Stock collectively owned by the Kelso Group to a Third Party,
then (in addition to the rights of the Management Stockholders, the Third Party
Investors, and their respective Permitted Transferees to participate in such
Transfer pursuant to Section 6.5(a) hereof) the Kelso Group may, at its option,
require the Management Stockholders, the Third Party Investors, and their
respective Permitted Transferees (collectively, the "Remaining Holders") to
include in such Transfer to the Third Party such number of shares of Common
Stock owned
23
<PAGE>
by each of them, as determined in accordance with this Section 6.5(b); provided
--------
that if the Kelso Group sends the Drag-Along Notice referred to below, Section
6.5(a) shall not apply to the Transfer.
The Kelso Group shall send written notice (the "Drag-Along Notice") of
the exercise of their rights pursuant to this Section 6.5(b) to each of the
Remaining Holders, setting forth the sales price consideration per share to be
paid by the Third Party and the other material terms and conditions of such
transaction. The Drag-Along Notice shall state that the Remaining Holders shall
be required to participate in the proposed Transfer of shares to the Third Party
according to the terms and conditions of this Section 6.5(b) and for the same
type of sales price consideration and for an amount of sales price consideration
per share not less than that offered to any member of the Kelso Group by the
Third Party. Within 15 days following the receipt of the Drag-Along Notice, each
of the Remaining Holders shall deliver to a representative of the Kelso Group
designated in the Drag-Along Notice certificates representing all shares of
Common Stock held by such Remaining Holder, duly endorsed, together with all
other documents required to be executed in connection with such transaction. In
the event that any Remaining Holder should fail to deliver such certificates to
the Kelso Group, the Company shall cause the books and records of the Company to
show that such shares are bound by the provisions of this Section 6.5(b) and
that such shares may be Transferred only to the Third Party.
Each Remaining Holder shall be required to participate in the proposed
Transfer to the Third Party by Transferring in connection therewith shares of
Common Stock equal to the product of (x) the total number of shares to be
acquired by the Third Party, times (y) a fraction, the numerator of which shall
be the total number of shares of Common Stock owned by such Remaining Holder,
and the denominator of which shall be the total number of shares of Common Stock
owned by the Kelso Group plus the total number of shares of Common Stock owned
by all Remaining Holders in the aggregate. The maximum number of shares of
Common Stock that may be Transferred by each Remaining Holder to the Third Party
in accordance with this Section 6.5(b) shall be the total number of
24
<PAGE>
shares of Common Stock then owned by such Remaining Holder.
If, within 90 days after the Kelso Group gave the Drag-Along Notice,
they shall not have completed the Transfer of all the shares of Common Stock of
the Remaining Holders in accordance with this Section 6.5(b), the Kelso Group
shall return to each of the Remaining Holders all certificates representing
shares of Common Stock that such Remaining Holder delivered for Transfer
pursuant hereto and that were not purchased pursuant to this Section 6.5(b);
provided that the Kelso Group shall be permitted, but not obligated, to complete
- --------
the sale by all non-defaulting Remaining Holders if one or more of the Remaining
Holders default; provided further that completion of the sale by the Kelso Group
-------- -------
and/or such Remaining Holders shall not relieve a defaulting Remaining Holder of
liability for its breach.
The obligations of the Remaining Holders pursuant to this Section
6.5(b) are subject to the satisfaction of the following conditions:
(i) if any Stockholder is given an option as to the form and amount of
consideration to be received, all Stockholders will be given the
same option (except that the Third Party Investors shall not be
required in any circumstance to accept consideration in a form other
than cash, cash equivalents or securities listed for trading on any
national securities exchange or traded on the National Market System
of NASDAQ);
(ii) no Remaining Holder shall be required to make any out-of-pocket
expenditure prior to the consummation of such transaction (excluding
expenditures for its own postage, copies, etc. and the fees and
expenses of its own counsel and other advisors retained by it, which
amounts shall be the sole responsibility of such Remaining Holder in
any event), and no Remaining Holder shall be obligated to pay more
than its or his pro rata share (based upon the consideration to be
received in such transaction) of expenses incurred by
25
<PAGE>
the Company or for the benefit of all Stockholders, provided that a
Remaining Holder's liability for its or his pro rata share of such
allocated expenses shall in no event exceed the total purchase price
received by such Remaining Holder in such transaction;
(iii) in the event that the Remaining Holders are required to provide any
representations or warranties in connection with such transaction,
each Remaining Holder shall only be required to represent and
warrant as to its or his title to its or his Stock to be Transferred
and such holder's authority, power, and right to enter into and
consummate such transaction without violating any other agreement or
legal requirement and other matters relating to such holder, and in
the event that the Remaining Holders are required to provide any
indemnities in connection with such transaction, then each Remaining
Holder shall not be liable for more than his or its pro rata share
(based upon the amount of consideration to be received in such
transaction) of any liability for indemnity and such liability shall
not exceed the total purchase price received by such Remaining
Holder in such transaction; provided that, with respect to the
--------
foregoing representations or warranties given by the Remaining
Holders, a Remaining Holder may be liable for any and all losses
resulting from a breach of such representations or warranties and
there shall be no cap by reason of this Agreement on the liability
of the relevant Remaining Holder with respect to breaches of such
representations or warranties.
To the extent practicable, all Remaining Holders whose shares of Common
Stock are to be Transferred in accordance with this Section 6.5(b) shall receive
the consideration in respect of their shares substantially simultaneously with
the receipt by the
26
<PAGE>
Kelso Group of the consideration in respect of the shares of Common Stock of the
Kelso Group Transferred. In the event that the Remaining Holders do not receive
their consideration substantially simultaneously with the Kelso Group, promptly
(but in no event later than 10 days) after the consummation of the Transfer of
Common Stock of the Kelso Group and Remaining Holders pursuant to this Section
6.5(b), the Kelso Group shall give notice thereof to the Remaining Holders,
shall remit to each of the Remaining Holders the total consideration in respect
of the shares of Common Stock of such Remaining Holder which were so
transferred, and shall furnish such other evidence of the completion and time of
completion of such Transfer and the terms thereof as may be reasonably requested
by such Remaining Holders.
ARTICLE VII
REGISTRATION RIGHTS
7.1. Demand Registration. (a) Upon written notice from Kelso, the
-------------------
Company shall use its reasonable best efforts to effect at the earliest possible
date and maintain the registration under the Act of offers and sales of Common
Stock by Kelso, any of its Permitted Transferees, any other Holders pursuant to
Section 7.2, and any underwriter with respect to such stock (and no offers and
sales of any other securities by any other Person shall be registered with such
Common Stock of Kelso without Kelso's prior consent, unless such Person is a
Holder who exercises rights under Section 7.2), in accordance with the intended
method or methods of disposition specified by Kelso (including, but not limited
to, an offering on a delayed or continuous basis pursuant to Rule 415 (or any
successor rule of similar effect) promulgated under the Act); provided, however,
-------- -------
that if, after a registration request pursuant to this Section 7.1 has been
made, the general counsel of the Company has determined in good faith that (i)
the filing of a registration request would require the disclosure of material
information which the Company has a bona fide business purpose for preserving as
confidential or (ii) the Company is then unable to comply with requirements of
the Securities and Exchange Commission (the "SEC"), the Company shall not be
obligated to effect a registration pursuant to this Section 7.1 until the
earlier of (A) the
27
<PAGE>
date upon which such material information is disclosed to the public or ceases
to be material or the Company is able to so comply with SEC requirements, as the
case may be, or (B) 30 days after the general counsel of the Company makes such
good faith determination. Kelso will have the right to request registration
pursuant to this Section 7.1 an aggregate of four (4) times, excluding from such
number any exercise by Kelso of its rights pursuant to Section 7.2(f); provided,
--------
however, that a registration requested by Kelso pursuant to this Section 7.1
- -------
shall not be deemed to have been effected (and, therefore, not requested for
purposes of this Section 7.1), (i) unless it has become effective, (ii) if after
it has become effective such registration is interfered with by any stop order,
injunction or other order or requirement of the SEC or other governmental agency
or court for any reason other than a misrepresentation or an omission by Kelso
and, as a result thereof, the amount of Common Stock requested to be registered
by Kelso for its own account cannot be completely or timely distributed in
accordance with the plan of distribution set forth in the related registration
statement or (iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied or waived other than by reason or some act or
omission by Kelso. In connection with any registration requested pursuant to
this Section 7.1, the Company shall take such other actions, including, without
limitation, listing such shares for trading on any securities exchange or inter-
dealer quotation system and registering or qualifying such shares under state
securities laws, as may be reasonably requested by Kelso or any underwriter in
connection with such registration; provided, further that if the amount of
-------- -------
Common Stock to be registered by Kelso pursuant to this Section 7.1 is reduced
by reason of the exercise of piggyback rights and the priorities set forth in
Section 7.2 (the aggregate amount of such reductions, the "Shortfall"), Kelso
shall be given such additional rights to request registration pursuant to this
Section 7.1 as is necessary to provide for the registration of Common Stock of
Kelso in the aggregate amount of all such Shortfalls.
(b) If Kelso consents to the inclusion of offers and sales of any
other securities in a registration of Common Stock by Kelso pursuant to this
28
<PAGE>
Section 7.1 or any Person which is a Holder exercises rights under Section 7.2
to include securities in such registration and Kelso or the underwriter in
connection with such registration later determines that such offering might be
materially and adversely affected by the inclusion of such securities, including
by reason of the identity of the Holder thereof or the fact that such Holder is
an employee of the Company, Kelso may in its sole discretion exclude all or, in
such manner and number as Kelso in its sole discretion deems appropriate, some
of such securities from such offering; provided, however, that the Third Party
-------- -------
Investors shall not be cut back by a greater percentage, relative to the number
of shares which they desire to sell in such offering, than Kelso is cut back.
7.2. Piggyback Registration. If the Company proposes to register any
----------------------
of its Common Stock or any other of its common equity securities (collectively,
"Other Securities") under the Act (other than a registration on Form S-4 or S-8
or a successor form), whether or not for sale for its own account, including a
registration pursuant to Section 7.1, in a manner which would permit
registration of shares of Common Stock owned by Kelso, the Third Party
Investors, any Management Stockholders, or any of their respective Permitted
Transferees (each, a "Holder") for sale for cash to the public under the Act, it
will at such time give prompt written notice to each Holder of its intention to
do so and of the rights of such Holder under this Section 7.2, at least 15 days
prior to the anticipated filing date of the registration statement relating to
such registration. Such notice shall offer each such Holder the opportunity to
include in such registration statement such number of shares of Common Stock as
such Holder may request, in accordance with this Section 7.2. Upon the written
request of a Holder made within 10 days after the receipt of the Company's
notice (which request shall specify the number of shares of Common Stock
intended to be disposed of and the intended method of disposition thereof), the
Company will use its reasonable best efforts to effect, in connection with the
registration of the Other Securities, the registration under the Act of all
shares of Common Stock which the Company has been so requested to register, to
the extent required to permit the disposition (in accordance with such intended
methods of
29
<PAGE>
disposition) of such shares of Common Stock so requested to be registered,
provided that:
- --------
(a) if, at any time after giving such written notice of its intention
to register any Other Securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register the Other Securities, the Company
may, at its election, give written notice of such determination to the Holders,
and thereupon the Company shall be relieved of its obligation to register the
shares of Common Stock requested to be registered in connection with the
registration of such Other Securities, without prejudice, however, to the rights
of Kelso immediately to request that such registration be effected as a
registration under Section 7.1;
(b) if the registration referred to in the first sentence of Section
7.2 is to be an underwritten registration other than pursuant to Section 7.1,
and the managing underwriter(s) advises the Company and Kelso in writing that,
in such firm's opinion, such offering would be materially and adversely affected
by the inclusion therein of the Common Stock requested to be included therein,
the Company shall include in such registration: (i) first, up to all securities
the Company proposes to sell for its own account ("Company Securities"), (ii)
second, up to the full number of shares of Common Stock requested to be included
in such registration by all Holders (including Kelso) exercising rights under
this Section 7.2 ("Piggyback Stock") and which are not in excess of the number
or dollar amount of Company Securities which, in the good faith opinion of such
firm, can be so sold without so materially and adversely affecting such offering
(and, if less than the full number of such shares of Piggyback Stock are
included, allocated pro rata among the Holders of such Piggyback Stock on the
basis of the number of shares of Piggyback Stock requested to be included
therein by each such Holder; provided, that if Kelso or the underwriter later
--------
determines that such offering would be materially and adversely affected by the
inclusion of such Piggyback Stock, including by reason of the identity of the
Holders thereof or that any such Holders are employees, Kelso may in its sole
discretion exclude all or, in such manner and number as Kelso in its sole
discretion deems appropriate,
30
<PAGE>
some of such Piggyback Stock from such offering; provided, further, that the
-------- -------
Third Party Investors shall not be cut back by a greater percentage, relative to
the number of shares which they desire to sell in such offering, than Kelso is
cut back) and (iii) third, an amount of other securities, if any, requested to
be included therein in excess of the number or dollar amount of Company
Securities and Piggyback Stock which, in the opinion of such firm, can be so
sold without materially and adversely affecting such offering (allocated among
the holders of such other securities in such proportions as the Company may
determine, subject to any contractual obligations it may have to such holders);
(c) the Company shall have no obligation under this Section 7.2 to
use its reasonable best efforts to effect any registration of any shares of
Common Stock which any Third Party Investor or Management Stockholder has
requested be registered, unless shares of Common Stock owned by Kelso or its
Permitted Transferees shall be included in such registration or unless Kelso
determines otherwise;
(d) the Company shall not be required to effect any registration of
Common Stock under this Section 7.2 incidental to the registration of any of its
securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock option or other
executive or employee benefit or compensation plans;
(e) no registration of Common Stock effected under this Section 7.2
shall relieve the Company of its obligation to effect a registration of shares
of Common Stock pursuant to Section 7.1.; and
(f) in the event of an underwritten IPO covering shares of Common
Stock for the account of the Company, Kelso shall have the right by written
notification to the Company at any time to convert such registration into a
registration of shares of Common Stock pursuant to and governed by the
provisions of Section 7.1.
7.3. Expenses. The Company will pay all expenses in connection with
--------
any registration pursuant to Article VII (including any registration deemed not
to be
31
<PAGE>
"effected" under Section 7.1(a) or not consummated as contemplated by Section
7.2(a)) and any other actions that may be taken in connection with any such
registration as contemplated by Article VII; provided, however, that the Company
-------- -------
will not be obligated to pay underwriting discounts or commissions or transfer
taxes, if any, relating to the sale or disposition of shares sold pursuant to
any such registration other than for its own account.
7.4. Holdback and Other Agreements. In connection with any offering
-----------------------------
of securities of the Company, including, without limitation, any offering
contemplated by this Article VII, each Holder agrees that it will consent and
agree to comply with any "hold back" restriction, relating to Common Stock or
any other securities of the Company then owned by such Holders, that may be
requested by the underwriter(s) or placement or other selling agent(s) of such
offering from KIA VI and KEP VI to the extent they own Common Stock or such
other securities. Any release from any "hold back" restriction shall be
substantially pro rata except to the extent any Holder consents otherwise. In
addition, in connection with any offering contemplated by Section 7.1, the
Company agrees that it will consent and agree to comply with any "hold back"
restriction, relating to Common Stock or any other securities of the Company,
that may be requested by the underwriter(s) or placement or other selling
agent(s) of such offering. In connection with any offering of securities of the
Company contemplated by this Article VII, the Company shall take such other
actions in connection therewith as may be necessary or appropriate, including,
without limitation, entering into customary underwriting arrangements containing
representations and warranties and such other provisions, including
indemnification (including, without limitation, indemnification in favor of any
Holder selling Common Stock in such offering) and contribution provisions, as
shall be reasonably acceptable to the Company. Notwithstanding anything to the
contrary set forth in this Article VII, Kelso, in its sole discretion, shall
select the underwriters of any offering of securities of the Company pursuant to
Section 7.1.
32
<PAGE>
ARTICLE VII
CHARTER DOCUMENTS AND
BOARD OF DIRECTORS
8.1 Charter Documents. The Company has previously furnished to the
-----------------
Stockholders copies of its Certificate of Incorporation and Bylaws, each as in
effect on the date hereof (the "Charter Documents"). From and after the date
hereof, each Stockholder shall vote its shares of voting stock of the Company,
at any regular or special meeting of stockholders of the Company or in any
written consent executed in lieu of such a meeting of stockholders, and shall
take all actions necessary, to ensure that the Charter Documents do not, at any
time, conflict with the provisions of this Agreement.
8.2 Board of Directors. (a) The Stockholders other than the Roll-
------------------
Over Investors (the "Section 8 Stockholders") agree and understand that
immediately following the consummation of the Merger the Board will consist of
five directors, one of whom shall be the Chief Executive Officer of the Company
(the "CEO"), if such office is filled at such time, and the remainder of who are
persons designated by Kelso (and who may be affiliates of Kelso). From and
after such time, the number of directors of the Company and the persons who will
serve as such shall be determined in accordance with the Charter Documents and
applicable law and may change from time to time; provided that the CEO shall be
a member of the Board. The Section 8 Stockholders shall vote their shares of
voting stock, at any regular or special meeting of the stockholders of the
Company called for the purpose of filling positions on the Board, or in any
written consent executed in lieu of such a meeting of stockholders, and shall
take all lawful actions as may be reasonably necessary, to ensure the election
to the Board of the Nominees. Kelso nominees and the CEO are collectively
referred to herein as the "Nominees" and individually as a "Nominee".
To effectuate the provisions of this Section 8.2(a), the Secretary of
the Company, or if there be no Secretary such other officer of the Company as
the Board may appoint to fulfill the duties of Secretary (the "Secretary"),
shall not record any vote or consent
33
<PAGE>
contrary to or inconsistent with the terms of this Section 8.2(a).
(b) If, prior to his or her election to the Board pursuant to Section
8.2(a), any Nominee shall be unable or unwilling to serve as a director of the
Company, the Stockholder or Stockholders who nominated any such Nominee shall be
entitled to nominate a replacement (the selection of which shall be consistent
with Section 8.2(a)) who shall then be a Nominee for purposes of this Section
8.2. If, following election to the Board pursuant to Section 8.2(a), any
Nominee shall resign or be removed or be unable to serve for any reason prior to
the expiration of his or her term as a director of the Company, the Stockholder
or Stockholders who nominated such Nominee shall within 30 days of such event,
notify the Board in writing of a replacement Nominee (the selection of which
shall be consistent with Section 8.2(a)), and each Section 8 Stockholder shall
vote its shares of voting stock, at any regular or special meeting called for
the purpose of filling positions on the Board, or in any written consent
executed in lieu of such meeting of stockholders, and shall take all actions
necessary (including, without limitation, using its best efforts to cause its
Nominee(s) to elect such replacement Nominee as herein provided), to ensure the
election to the Board of such replacement Nominee to fill the unexpired term of
the Nominee whom such new Nominee is replacing. If a Stockholder or
Stockholders shall fail to so notify the Board, the Board, in its sole
discretion, may nominate any other person to fill the vacancy.
(c) Each Section 8 Stockholder hereby agrees to vote all of the shares
of voting stock owned or held of record by such Stockholder for, or to take all
actions by written consent in lieu of any such meeting necessary to cause, the
removal (with or without cause) of any director designated and elected pursuant
to Section 8.2(a) if such director is a Management Stockholder and, during such
director's term as director, such director ceases to be the CEO.
(d) Each Stockholder hereby agrees that any director shall be removed
for Cause if the holders of a majority of the outstanding shares of voting stock
held by Stockholders consent in writing to such removal.
34
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Solely for the purposes of this Section 8.2(d), "Cause" shall mean the
commission by a director of an act of fraud or embezzlement against the Company
or any of its subsidiaries or a conviction for a felony (or a plea of nolo
contendere thereto) or guilty plea of such director.
(e) In order to effectuate the provisions of this Article VIII, each
Section 8 Stockholder hereby agrees that when any action or vote is required to
be taken by such Stockholder pursuant to this Agreement, such Stockholder shall
use its reasonable best efforts, if a special or annual meeting of stockholders
of the Company is not called, to execute or cause to be executed a consent in
writing in lieu of any such meetings pursuant to Section 228(a) of the General
Corporation Law of the State of Delaware to effectuate such stockholder action.
(f) In order to effectuate the provisions of this Section 8.2 and in
addition to and not in lieu of Sections 8.2(a) through (e) hereof, the
Management Stockholders and the other Section 8 Stockholders (and any of their
respective Permitted Transferees thereof which own Common Stock subject to this
Agreement) hereby grant to each of KIA VI and KEP VI a proxy to vote at any
annual or special meeting of stockholders all of the shares of voting stock
owned or held of record by such stockholder and subject to this Agreement solely
for (i) the election of directors designated in accordance with Section 8.2(a),
(ii) the removal of directors in accordance with Sections 8.2(c) and 8.2(d) and
(iii) any action necessary or appropriate, in Kelso's judgment, in accordance
with Section 8.1.
(g) Each Section 8 Stockholder agrees to vote in favor of any business
combination, merger, consolidation, stock swap or sale of all or substantially
all of the assets of the Company or similar transaction involving the Company if
Kelso so directs and such transaction results in a change or conversion of more
than 75% of the Common Stock held by Kelso at such time provided that (A) the
--------
conditions set forth in subclauses (i), (ii) and (iii) of Section 6.5(b) hereof
are satisfied with respect to such transaction and (B) such Stockholder is to
receive an amount of sales price consideration per share in the transaction not
less than that to be received by Kelso in the transaction. In the
35
<PAGE>
event of any such proposed transaction (and provided the foregoing conditions
are satisfied), upon the request of Kelso, each of the Section 8 Stockholders
shall use its respective best efforts to vote in favor of such proposed
transaction all of the shares of Common Stock owned or held of record by such
Stockholder, at each regular or special meeting of the stockholders of the
Company called for the purpose of voting on such matter, or in any written
consent executed in lieu of such a meeting of stockholders, and shall take all
actions reasonably necessary, to ensure that all necessary stockholder approvals
for such transaction are obtained.
8.3 Related Party Transactions. Unless otherwise consented to by the
---------------------------
Third Party Investors, the Company shall not, and the Company shall cause its
subsidiaries not to, enter into any transaction with Kelso or any of its
affiliates other than (a) any transaction approved by a majority of directors of
the Company that are not employees, officers or affiliates of Kelso & Company,
L.P., (b) any transaction that is contemplated by or consummated pursuant to and
in accordance with the express provisions of the Merger Agreement or this
Agreement, including without limitation the fee, the financial advisory
agreement and related indemnification agreement referred to in Section 10.4
hereof, or the commitment letters entered into by any Third Party Investor with
Merger Sub and/or Kelso & Company, L.P. and (c) any transaction, including the
declaration and payment of any dividend, in which all shares of Common Stock are
treated substantially identically.
ARTICLE IX
TERMINATION
9.1 Cessation of Ownership of Common Stock. Any party to, or Person
--------------------------------------
who is subject to, this Agreement which ceases to own shares of Common Stock or
any interest therein shall cease to be a party to, or Person who is subject to,
this Agreement and thereafter shall have no rights or obligations hereunder.
36
<PAGE>
9.2 Other Termination Events. Notwithstanding anything to the
------------------------
contrary contained herein, every provision of this Agreement, other than the
provisions contained in Article VII and Section 10.4, shall terminate upon the
earlier of (i) the tenth anniversary of the Closing or (ii) the closing of an
IPO. This Agreement in its entirety shall terminate at the election of Kelso
upon any business combination, merger, consolidation, stock swap or sale of all
or substantially all of the assets of the Company or similar transaction
involving the Company.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Stock Certificate Legend. A copy of this Agreement shall be
------------------------
filed with the Secretary of the Company and kept with the records of the
Company. Each certificate representing shares of Common Stock owned by the
Stockholders shall bear upon its face the following legend:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF
COUNSEL TO THE HOLDER, WHICH COUNSEL MUST BE, AND THE FORM
AND SUBSTANCE OF WHICH OPINION ARE, SATISFACTORY TO THE
ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION,
TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR
IS OTHERWISE IN COMPLIANCE WITH THE ACT, SUCH LAWS AND THE
STOCKHOLDERS AGREEMENT, DATED AS OF NOVEMBER 23, 1999."
All Stockholders shall be bound by the requirements of such legends to
the extent that such legends are applicable. Upon a registration under the Act
of any shares of Common Stock or sale of any shares of Common Stock pursuant to
Rule 144 or any other exemption from registration where the removal of the
37
<PAGE>
legend is appropriate, the certificate representing such shares shall be
replaced, at the expense of the Company, with certificates not bearing the
legend required by this Section 10.1.
10.2 Option Plan. If the Company establishes a stock option plan (the
-----------
"Option Plan") the Company shall have the right, but not the obligation, to
require that optionees thereunder be required to become parties to this
Agreement upon exercise of options granted thereunder and that they will be
"Management Stockholders" hereunder with respect to such shares. In addition,
the Company with the prior written consent of Kelso and notwithstanding any
requirement set forth in Section 10.7, can determine that any options granted
pursuant to the Option Plan and outstanding and vested as of the option holder's
termination of employment with the Company and its subsidiaries shall be deemed
to be Common Stock for purposes of Articles II, III, VI and VII; provided,
--------
however, that appropriate adjustments shall be made to reflect the existence of
- -------
an exercise price for such options; provided, further, that the foregoing shall
-------- -------
not limit any provisions set forth in the Option Plan including with respect to
puts, calls, cancellations or repurchases of options.
10.3 New Management Stockholders. Each of the Stockholders hereby
---------------------------
agrees that the Company may require that any employee of the Company or any of
its subsidiaries who after the date of this Agreement is offered shares of
Common Stock or employee stock options shall, as a condition precedent to the
acquisition of such shares of Common Stock or options, become a party to this
Agreement by executing the same and delivering it to the Company at its address
specified in Section 10.14. Upon such execution and delivery, such employee
shall be a "Management Stockholder" for all purposes of this Agreement.
10.4 Fee. The parties hereto acknowledge and agree that at the
---
Closing Kelso will be paid a fee of $6,000,000 (six million dollars) and that
the Company and Kelso will enter into a financial advisory agreement and related
indemnification agreement (which agreements may be amended from time to time)
pursuant to which Kelso & Company, L.P. will provide financial advisory services
to the Company each year following the Closing until the
38
<PAGE>
Company and Kelso mutually agree to terminate such arrangement.
10.5 Future Sales of Capital Equity by the Company. In connection
---------------------------------------------
with providing any additional equity financing to the Company required pursuant
to the terms of any bank credit agreement or any other agreement with other
sources of financing or in connection with any refinancing of indebtedness of
the Company, Kelso or any affiliate and, if consented to by Kelso, any Third
Party Investor shall be entitled to purchase Common Stock of the Company in
connection therewith for an amount per share not greater than the Cash Election
Price (as defined in the Merger Agreement), subject to adjustment by reason of
any stock split, dividend or similar transaction after the Closing.
10.6 No Other Arrangements or Agreements. Each Management Stockholder
-----------------------------------
hereby represents and warrants to each other Stockholder that, except, if
applicable, for any written management stock subscription agreement with the
Company and any option plan of the Company and the written options issued
thereunder, he has not entered into or agreed to be bound by any other
arrangements or agreements of any kind with any other party with respect to the
shares of Common Stock, including, but not limited to, arrangements or
agreements with respect to the acquisition, disposition or voting of shares of
Common Stock (whether or not such agreements and arrangements are with the
Company, other Stockholders or holders of Common Stock that are not parties to
this Agreement). Each of KIA VI, KEP VI and each Other Stockholder represents
and warrants to each other Stockholder that it has not entered into or agreed to
be bound by any voting agreements with respect to its shares of Common Stock.
10.7 Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented only with the written consent of (i) Kelso and (ii) if
such amendment modifies (A) any Section of this Agreement in a manner adverse to
them in their capacity as stockholders of the Company (x) without adversely
affecting Stockholders owning a majority of the outstanding Common Stock in
their capacity as stockholders of the Company or (y) and in a manner different
than Stockholders owning a majority of outstanding Common Stock are adversely
39
<PAGE>
affected by such amendment, modification or supplement, the Third Party
Investors, (B) any of Sections 2.1 through 2.4, 2.6, 3.1 through 3.3 or 3.5 in a
manner materially adverse to the Management Stockholders, the stockholders
owning a majority of the outstanding Common Stock owned by all Management
Stockholders and (C) any other Section of this Agreement, the Company and
Stockholders owning a majority of the outstanding Common Stock. Notwithstanding
anything to the contrary herein, Kelso may add any additional third party to
this Agreement or eliminate any party from this Agreement as Kelso sees fit,
subject to the consent of such affected party. Upon receipt of the consents
required by this Section 10.7, the Company shall notify all Stockholders
promptly after such amendment, modification or supplement shall take effect.
10.8 Assignment. The provisions of this Agreement shall be binding
----------
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that none of
-------- -------
the Company, the Third Party Investors or any Management Stockholder shall
assign any of its rights or obligations pursuant to this Agreement without the
prior written consent of Kelso. In the case of Permitted Transferees, third
parties and Involuntary Transferees, such Permitted Transferees, third parties
or Involuntary Transferees, as the case may be, shall be deemed the Stockholder
hereunder for purposes of obtaining the benefits or enforcing the rights of such
Stockholder hereunder; provided, however, that no Permitted Transferee, third
-------- -------
party or Involuntary Transferee, as the case may be, shall derive any rights
under this Agreement unless and until such Permitted Transferee, third party or
Involuntary Transferee, as the case may be, has delivered to the Company a valid
undertaking to become, and becomes, bound by the terms of this Agreement to
which the transferring Stockholder is subject.
10.9 Recapitalizations, Exchanges, etc. Affecting the Common Stock.
-------------------------------------------------------------
Except as otherwise provided herein, the provisions of this Agreement shall
apply to the full extent set forth herein with respect to (i) the shares of
Common Stock and (ii) any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
40
<PAGE>
assets or otherwise), which may be issued in respect of, in exchange for, or in
substitution for the shares of Common Stock, by reason of any stock dividend,
split, reverse split, combination, recapitalization, reclassification, merger,
consolidation or otherwise. Except as otherwise provided herein, this Agreement
is not intended to confer upon any person, except for the parties hereto, any
rights or remedies hereunder.
10.10 Transfer of Common Stock. If at any time the Company purchases
------------------------
any shares of Common Stock pursuant to this Agreement, the Company may pay the
purchase price determined under this Agreement for the shares of Common Stock it
purchases by wire transfer of funds or Company check in the amount of the
purchase price, and upon receipt of payment of such purchase price or, pursuant
to Section 2.3, Section 3.3 or Article V, any portion thereof, the selling
Stockholder shall deliver to the Company the certificates representing the
number of shares of Common Stock being purchased in a form suitable for
transfer, duly endorsed in blank, and free and clear of any lien, claim or
encumbrance. In the event that any Stockholder refuses or otherwise fails to
deliver, in accordance with the preceding sentence, certificates representing
the number of shares of Common Stock being purchased, the shares of Common Stock
purchased from such Stockholder shall (notwithstanding such refusal or failure)
be deemed, upon receipt by such Stockholder of the purchase price therefor, to
not be outstanding for any purposes. Notwithstanding anything in this Agreement
to the contrary, the Company shall not be required to make any payment for
shares of Common Stock purchased hereunder until delivery to it of the
certificates representing such shares. If the Company is purchasing less than
all the shares of Common Stock represented by a single certificate, the Company,
after making such purchase, shall deliver to the selling Stockholder a
certificate for any unpurchased shares of Common Stock.
10.11 Further Assurances. Each party hereto or Person subject hereto
------------------
shall do and perform or cause to be done and performed all such further acts and
things and shall execute and deliver all such other agreements, certificates,
instruments and documents as any other party hereto or Person subject hereto may
reasonably request in order to carry out the intent and accomplish
41
<PAGE>
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
10.12 Governing Law. This Agreement and the rights and obligations of
-------------
the parties hereunder and the persons subject hereto shall be governed by, and
construed and interpreted in accordance with, the law of the State of Delaware,
without giving effect to the choice of law principles thereof.
10.13 Invalidity of Provision. The invalidity or unenforceability of
-----------------------
any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.
10.14 Notices. All notices and other communications hereunder shall
-------
be in writing and, unless otherwise provided herein, shall be deemed duly given
if delivered personally, telecopied (which is confirmed) or sent by registered
or certified mail (postage prepaid, return receipt requested) or by Federal
Express or other similar courier service to the parties at the following
addresses (or at such other address as the Person to whom notice is given may
have previously furnished to the others in writing as set forth in this Section
10.14 (provided that any change of address shall be effective only upon receipt
thereof)):
(a) If to the Company, to it at:
Unilab Corporation
18448 Oxnard Street
Tarzana, CA 91356
Attention: _Mark Bibi
Telecopy No.: (201) 525-1331
with a copy to:
Kelso & Company, Inc.
320 Park Avenue, 24th Floor
New York, New York 10022
Attention: James J. Connors, II
Telecopy No.: (212) 223-2379
42
<PAGE>
(b) If to a Management Stockholder, as listed on the signature
page hereto, or, if not so listed, to it at its address as
reflected in the stock records of the Company, or as such
Management Stockholder shall designate to the Company in
writing, with a copy to Kelso at its address indicated below
(provided that any such designation shall be effective only
upon receipt thereof).
(c) If to Kelso, to it at:
Kelso Investment Associates VI, L.P.
KEP VI, LLC
c/o Kelso & Company, Inc.
350 Park Avenue, 21st Floor
New York, New York 10022
Attention: James J. Connors, II
Telecopy No.: (212) 223-2379
(d) If to Eos, to it at:
Eos Partners
310 Park Avenue, 22/nd/ Floor
New York, New York 10022
Attention: Brian Young
Telecopy No.: (212) 838-5915
(e) If to Pequot, to it at:
Pequot Scout Fund, L.P.
500 Nyala Farm Road
Westport, Connecticut 06880
Attention: David J. Malat
Telecopy No.: (203) 429-2410
(f) If to a Third Party Investor, other than EOS or Pequot, as
listed on the signature page hereto, or, if not so listed,
to it at its address as reflected in the stock records of
the Company, or as such Third Party Investor shall designate
to the Company in writing, with a copy to
43
<PAGE>
Kelso at its address indicated above (provided that any such
designation shall be effective only upon receipt thereof).
10.15 Headings; Execution in Counterparts. The headings and captions
-----------------------------------
contained herein are for convenience and shall not control or affect the meaning
or construction of any provision hereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and
which together shall constitute one and the same instrument.
10.16 Entire Agreement; Effect on Certain Other Agreements. This
----------------------------------------------------
Agreement and management stock subscription agreements with the Company entered
into by the Management Stockholders embody the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings relating to the shares of Common Stock, other than
those expressly set forth or referred to herein, any management stock
subscription agreement with the Company or any option plan of the Company or any
written option issued thereunder. This Agreement supersedes all prior agreements
and understandings among the parties with respect to such subject matter.
10.17 Injunctive Relief. The shares of Common Stock cannot readily be
-----------------
purchased or sold in the open market, and for that reason, among others, the
Company and the Stockholders shall be irreparably damaged in the event this
Agreement is not specifically enforced. Each of the parties therefore agrees
that in the event of a breach of any provision of this Agreement, the aggrieved
party may elect to institute and prosecute proceedings in any court of competent
jurisdiction to enforce specific performance or to enjoin the continuing breach
of this Agreement. Such remedies shall, however, be cumulative and not
exclusive, and shall be in addition to any other remedy which the Company or the
Stockholders may have. Each Stockholder hereby irrevocably submits to the non-
exclusive jurisdiction of the state and federal courts in New York and Delaware
for the purposes of any suit,
44
<PAGE>
action or other proceeding arising out of or based upon this Agreement or the
subject matter hereof. Each Stockholder hereby consents to service of process by
mail made in accordance with Section 10.14.
10.18 Attorneys' Fees. If any legal action or any arbitration or
---------------
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover such reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled, as may be ordered in connection with such
proceeding.
10.19 Third Party Beneficiaries. The headings and captions contained
-------------------------
herein are for convenience of reference only and shall not control or affect the
meaning or construction of any provisions hereof. Except as otherwise expressly
provided herein, the covenants, agreements and other provisions contained in
this Agreement are for the sole benefit of the parties hereto and their
permitted successors and assigns, and they shall not be construed as conferring,
and are not intended to confer, any rights, remedies or other benefits hereunder
on any other persons. Neither this Agreement nor any purchase or sale of Company
Stock shall create, or be construed or deemed to create, any right of employment
in favor of a Management Stockholder or any other person by the Company or any
subsidiary of the Company.
10.20 Sales to Competitors. Notwithstanding anything to the contrary
--------------------
in this Agreement (other than Section 6.5(a) and 6.5(b)), the Third Party
Investors may not, without the prior written consent of Kelso and the Company,
sell any shares of Common Stock that the Third Party Investors beneficially own
to any Person that competes with or is engaged in any lines of business of the
Company whether or not so competing or engaged in the same geographic area as
the Company.
10.21 Third Party Investors. Each of the Stockholders hereby agrees
---------------------
that the Company may require
45
<PAGE>
that any party, other than an employee of the Company or any of its subsidiaries
(who is dealt with in Section 10.3), who immediately prior to the Closing
purchases capital stock of Merger Sub or substantially contemporaneously with
the Closing purchases shares of Common Stock, shall become a party to this
Agreement by executing the same and delivering it to the Company at its address
specified in Section 10.14. Upon such execution and delivery, such party shall
be deemed to be a "Third Party Investor" for all purposes of this Agreement.
10.22 Persons. For all purposes of this Agreement, "Person" means an
-------
individual, corporation, partnership, limited liability partnership, limited
liability company, association, trust or any unincorporated organization.
10.23 Pre-existing Options. Any Management Stockholder who owns any
--------------------
Pre-existing Option will not have any rights or obligations by reason of such
Pre-existing Option under Articles VI, VII or VIII prior to the exercise of such
Pre-existing Option, unless and until they exercise such Pre-existing Option, in
which case such Management Stockholder shall be deemed a holder of Common Stock
for the purposes of those Articles.
10.24 Other Agreements. Nothing in this Agreement shall limit the
----------------
ability of the Company to enter into any agreement with any Management
Stockholder or any other employee with respect to the purchase and/or sale of
the shares of Common Stock and/or options exercisable into Common Stock on terms
different than as set forth in this Agreement.
10.25 Stub Equity. Unless the Company and Kelso determine otherwise,
-----------
this Agreement shall apply in the same manner and with the same effect if Common
Stock remains publicly traded immediately following the Merger (as defined in
the Merger Agreement).
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
UNILAB CORPORATION
By: /s/
-------------------------
Name:
Title:
47
<PAGE>
KELSO INVESTMENT
ASSOCIATES VI, L.P.
By: Kelso GP VI, LLC,
General Partner
By: /s/
----------------------------
Managing Member
KEP VI, LLC
By: /s/
----------------------------
General Partner
48
<PAGE>
EOS PARTNERS, L.P.
By: /s/
----------------------------
49
<PAGE>
PEQUOT SCOUT FUND L.P.
By: /s/
----------------------------
50
<PAGE>
BSCLAB Acquisition Corp.
By: /s/
-----------------------------
51
<PAGE>
By: /s/
--------------------------
Mr. James R. Maher
52
<PAGE>
MAGNETITE ASSET INVESTORS L.L.C.
By: BLACKROCK FINANCIAL
MANAGEMENT, INC.
As Managing Member
BY: /s/
-------------------------------
Name: Dennis M. Schaney
Title: Managing Director
53
<PAGE>
CI, LLC
By: Laurence D. Fink,
As Managing Member
BY: /s/
---------------------------
54
<PAGE>
The undersigned, by its signature below hereby becomes a party to the
Stockholders Agreement, dated as of November 23, 1999, among Unilab Corporation
and certain of its stockholders (the "Stockholders Agreement") pursuant to
Section 10.3 thereof and agrees to be bound by the terms of the Stockholders
Agreement and, for all purposes thereof, to be a "Management Stockholder".
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
the _______ day of _________, 1999.
___________________________
Signature
___________________________
Print Name
55
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I RESTRICTIONS ON TRANSFER OF COMMON STOCK................................ 2
1.1 General Restriction on Transfer by Stockholders................................... 2
1.2 Permitted Transferees............................................................. 2
ARTICLE II RIGHTS OF MANAGEMENT TO SELL............................................ 4
2.1 Management Stockholders' Right to Sell............................................ 4
2.2 Notice............................................................................ 5
2.3 Payment........................................................................... 5
2.4 Termination of Right to Sell...................................................... 6
2.5 Postponement, etc................................................................. 6
ARTICLE III PURCHASES BY THE COMPANY................................................ 7
3.1 Right to Purchase Shares from Management
Stockholders...................................................................... 7
3.2 Notice............................................................................ 8
3.3 Payment........................................................................... 8
3.4 Postponement, etc................................................................. 9
ARTICLE IV PURCHASE PRICE.......................................................... 10
4.1 Fair Market Value................................................................. 10
(a) Appraisal.................................................................... 10
(b) Fair Market Value............................................................ 10
(c) Notice to Stockholders....................................................... 11
4.2 Carrying Value.................................................................... 11
4.3 Certain Defined Terms............................................................. 12
(a) Cause........................................................................ 12
(b) Good Reason.................................................................. 12
(c) Disability................................................................... 13
ARTICLE V PROHIBITION ON PURCHASES................................................ 13
5.1 Prohibited Purchases.............................................................. 13
ARTICLE VI SALES TO THIRD PARTIES.................................................. 15
6.1 General........................................................................... 15
6.2 Right of First Refusal............................................................ 16
6.3 Agreements to Be Bound............................................................ 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
6.4 Involuntary Transfers............................................................ 18
6.5 Tag and Drag Along Rights........................................................ 18
(a) Tag-Along Rights............................................................ 19
(b) Drag-Along Rights........................................................... 20
ARTICLE VII REGISTRATION RIGHTS
7.1. Demand Registration.............................................................. 22
7.2. Piggyback Registration........................................................... 24
7.3. Expenses......................................................................... 26
7.4. Holdback and Other Agreements.................................................... 26
ARTICLE VIII CHARTER DOCUMENTS AND BOARD OF DIRECTORS................................ 26
8.1 Charter Documents................................................................ 27
8.2 Board of Directors............................................................... 27
ARTICLE IX TERMINATION............................................................. 29
9.1 Cessation of Ownership of Common Stock........................................... 29
9.2 Other Termination Events......................................................... 29
ARTICLE X MISCELLANEOUS PROVISIONS................................................ 30
10.1 Stock Certificate Legend......................................................... 30
10.2 Option Plan...................................................................... 30
10.3 New Management Stockholders...................................................... 31
10.4 Fee.............................................................................. 31
10.5 Future Sales of Capital Equity by the Company.................................... 31
10.6 No Other Arrangements or Agreements.............................................. 31
10.7 Amendment and Modification....................................................... 32
10.8 Assignment....................................................................... 32
10.9 Recapitalizations, Exchanges, etc. Affecting the
Common Stock..................................................................... 33
10.10 Transfer of Common Stock........................................................ 33
10.11 Further Assurances.............................................................. 34
10.12 Governing Law................................................................... 34
10.13 Invalidity of Provision......................................................... 34
10.14 Notices......................................................................... 34
10.15 Headings; Execution in Counterparts............................................. 35
10.16 Entire Agreement; Effect on Certain Other
Agreements...................................................................... 36
10.17 Injunctive Relief............................................................... 36
10.18 Attorneys' Fees................................................................. 36
</TABLE>
ii
<PAGE>
EXHIBIT 12.1
Unilab Corporation
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Nine Months Ended Year Ended Year Ended
Year Ended December 31 30-Sep Dec. 31 Sept. 30
1994 1995 1996 1997 1998 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (Loss) Before
Income Taxes,
Extraordinary Item
and Equity in
Earnings of
Affiliate $ 3,945 $(40,293) $(89,493) $ 536 $10,703 $ 9,580 $18,007 $(32,616) $(2,381)
------------------------------------------------------------------------------------------------------
Fixed Charges:
Interest
Expense, net 5,192 8,333 12,122 14,068 13,538 10,068 11,244 37,468 27,930
Amortization -
Deferred Financing
Fees 252 412 545 638 626 469 437 -
Appropriate portion
of rentals 2,844 3,141 3,199 3,406 3,598 2,571 3,736 5,885 4,443
------------------------------------------------------------------------------------------------------
Total Fixed Charges 8,288 11,886 15,866 18,112 17,762 13,108 15,417 43,353 32,373
------------------------------------------------------------------------------------------------------
Income (Loss) Before
Income Taxes,
Extraordinary Item,
Equity Earnings of
Affiliate and
Fixed Charges 12,233 (28,407) (73,627) 18,648 28,465 22,688 33,424 10,737 29,992
Ratio of Earnings
to Fixed Charges 1.48 (A) (A) 1.03 1.60 1.73 2.17 (A) (A)
</TABLE>
(A) Earnings would have been insufficient to cover fixed charges by $40,293 and
$89,493 for the years ended December 31, 1995 and 1996, respectively.
(B) Earnings would have been insufficient to cover fixed charges by $32,616 and
$2,381 for the year ended December 31, 1998 and the nine months ended
September 30, 1999 (pro forma), respectively.
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
December 27, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use of this Registration Statement on Form S-4 of
Unilab Corporation of our report dated November 12, 1998 relating to the
consolidated financial statements of Meris Laboratories, Inc. and our report
dated July 16, 1999 relating to the consolidated financial statements of
Physicians' Clinical Laboratory, Inc. which appear in such Registration
Statement. We also consent to the references to us as experts under the heading
"Independent Auditors" in such Registration Statement.
/s/ Odenberg, Ullakko, Muranishi & Co.
ODENBERG, ULLAKKO, MURANISHI & CO. LLP
San Francisco, California
December 27, 1999
<PAGE>
EXHIBIT 23.3
We have issued our report dated August 31, 1998 except for Notes 3 and 5 as to
which the date is October 29, 1998 and for Note 17 as to which the date is
April 5, 1999, accompanying the financial statements of Physicians Clinical
Laboratory, Inc. contained in the Form S-4 Registration Statement and Prospectus
of Unilab Corporation for the registration of 12 3/4% $155,000,000 Senior
Subordinated Notes due 2009. We consent to the use of the aforementioned report
in the Registration Statement and Prospectus, and to the use of our names as it
appears under the caption "Independent Auditors."
GRANT THORNTON LLP
Sacramento, California
December 30, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" in the Registration Statement (Form S-4) and related Prospectus of
Unilab Corporation for the registration of 12 3/4% $155,000,000 Senior
Subordinated Notes due 2009, and to the use of and incorporation by reference
therein of our report dated May 9, 1997 with respect to the consolidated
financial statements of Physicians Clinical Laboratory, Inc. for the year ended
February 28, 1997 appearing in this Prospectus and Registration Statement and
included in Unilab Corporation's Current Report on Form 8-K/A dated November 10,
1999, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Sacramento, California
December 30, 1999
<PAGE>
EXHIBIT 25.1
CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
HSBC Bank USA
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, NY 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Warren L. Tischler
Senior Vice President
HSBC Bank USA
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-5167
(Name, address and telephone number of agent for service)
UNILAB CORPORATION
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 8071 95-4415490
(State or other jurisdiction) Primary standard industrial (I.R.S. employer
classification code number) identification No.)
</TABLE>
18448 Oxnard street
Tarzana, CA 91356
(818) 996-7300
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)
12 3/4% Senior Subordinated Notes due 2009
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
--------------------------
If the obligor is an affiliate of the trustee, describe
each such affiliation.
None
<PAGE>
Item 16. List of Exhibits
----------------
Exhibit
- -------
T1A(i) (1) Copy of the Organization Certificate of HSBC Bank USA.
T1A(ii) (1) Certificate of the State of New York Banking Department
dated December 31, 1993 as to the authority of HSBC
Bank USA to commence business as amended effective on
March 29, 1999.
T1A(iii) Not applicable.
T1A(iv) (1) Copy of the existing By-Laws of HSBC Bank USA as
adopted on January 20, 1994 as amended on October 23,
1997.
T1A(v) Not applicable.
T1A(vi) (2) Consent of HSBC Bank USA required by Section 321(b) of
the Trust Indenture Act of 1939.
T1A(vii) Copy of the latest report of condition of the trustee
(September 30, 1999), published pursuant to law or the
requirement of its supervisory or examining authority.
T1A(viii) Not applicable.
T1A(ix) Not applicable.
(1) Exhibits previously filed with the Securities and Exchange Commission
with registration No. 022-22429 and incorporated herein by reference
thereto.
(2) Exhibit previously filed with the Securities and Exchange Commission with
Registration No. 33-53693 and incorporated herein by reference thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HSBC Bank USA, a banking corporation and trust company organized under the laws
of the State of New York, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York and State of New York on the 28/th/ day of December, 1999.
HSBC BANK USA
By: /s/ Frank J. Godino
-------------------------------------
Frank Godino
Vice President
<PAGE>
Exhibit T1A (vii)
Board of Governors of the
Federal Reserve System
OMB Number: 7100-0036
Federal Deposit
Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller
of the Currency
OMB Number: 1557-0081
Federal Financial Institutions
Examination Council Expires March 31, 2000
- --------------------------------------------------------------------------------
Please refer to page i,
Table of Contents, for 1
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices--FFIEC 031
Report at the close of business September 30, 1999 (19980930)
------------
(RCRI 9999)
This report is required by law; 12 U.S.C. (S)324 (State member banks); 12 U.S.C.
(S)1817 (State nonmember banks); and 12 U.S.C. (S)161 (National banks).
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
- ------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report
10/25/99
- ------------------------------------------------------------------------------
Date of Signature
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it
has been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ Malcolm Burnett
- ------------------------------------------------------------------------------
Director (Trustee)
/s/ Bernard J. Kennedy
- ------------------------------------------------------------------------------
Director (Trustee)
/s/ Sal H. Alfieri
- ------------------------------------------------------------------------------
Director (Trustee)
- ------------------------------------------------------------------------------
Submission of Reports
Each Bank must prepare its Reports of Condition and Income either:
(a) in electronic form and then file the computer data file directly with the
banking agencies' collection agent, Electronic Data System Corporation
(EDS), by modem or computer diskette; or
(b) in hard-copy (paper) form and arrange for another party to convert the paper
report to automated for. That party (if other than EDS) must transmit the
bank's computer data file to EDS.
For electronic filing assistance, contact EDS Call report Services, 2150 N.
Prospect Ave., Milwaukee, WI 53202, telephone (800) 255-1571.
To fulfill the signature and attestation requirement for the Reports of
Condition and Income for this report date, attach this signature page to the
hard copy of the completed report that the bank places in its files.
- ------------------------------------------------------------------------------
FDIC Certificate Number | 0 | 0 | 5 | 8 | 9 |
-------------------------------
(RCRI 9030)
http://WWW.BANKING.US.HSBC.COM
- ------------------------------------------------------------------------------
Primary Internet Web Address of Bank (Home Page), if any (TEXT 4087)
(Example: www.examplebank.com)
HSBC Bank USA
- ------------------------------------------------------------------------------
Legal Title of Bank (TEXT 9010)
Buffalo
- ------------------------------------------------------------------------------
City (TEXT 9130)
N.Y. 14203
- ------------------------------------------------------------------------------
State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE>
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
HSBC Bank USA of Buffalo
- --------------------------------------------------------------------------------
Name of Bank City
in the state of New York, at the close of business September 30, 1999
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest-bearing balances currency and coin $ 866,729
Interest-bearing balances 2,218,984
Held-to-maturity securities -
Available-for-sale securities 3,287,909
Federal funds sold and securities purchased under agreements to resell 2,141,850
-----------
Loans and lease financing receivables:
Loans and leases net of unearned income $23,445,713
LESS: Allowance for loan and lease losses 358,494
LESS: Allocated transfer risk reserve -
-----------
Loans and lease, net of unearned income, allowance, and reserve $23,087,219
Trading assets 979,022
Premises and fixed assets (including capitalized leases) 197,729
Other real estate owned 1,875
Investments in unconsolidated subsidiaries and associated companies -
Customers' liability to this bank on acceptances outstanding 207,284
Intangible assets 482,189
Other assets 687,563
Total assets 34,158,353
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices 21,813,324
-----------
Non-interest-bearing 2,688,117
Interest-bearing 19,125,207
-----------
In foreign offices, Edge and Agreement subsidiaries, and IBFs 6,215,704
-----------
Non-interest-bearing -
Interest-bearing 6,215,704
-----------
Federal funds purchased and securities sold under agreements to repurchase 1,277,936
Demand notes issued to the U.S. Treasury 81,541
Trading Liabilities 56,045
Other borrowed money (including mortgage indebtedness and obligations under
capitalized leases):
With a remaining maturity of one year or less 721,040
With a remaining maturity of more than one year through three years 65,932
With a remaining maturity of more than three years 236,298
Bank's liability on acceptances executed and outstanding 207,284
Subordinated notes and debentures 698,215
Other liabilities 576,673
Total liabilities 31,949,992
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus -
Common Stock 205,000
Surplus 1,988,948
Undivided profits and capital reserves 46,167
Net unrealized holding gains (losses) on available-for-sale securities (31,754)
Accumulated net gain (losses) on cash flow hedges -
Cumulative foreign currency translation adjustments -
Total equity capital 2,208,361
Total liabilities and equity capital 34,158,353
-----------
</TABLE>
<PAGE>
EXHIBIT 99.1
------------
LETTER OF TRANSMITTAL
UNILAB CORPORATION
Offer for all Outstanding
12-3/4% Senior Subordinated Notes due 2009
in Exchange for
12-3/4% Senior Subordinated Notes due 2009
Which Have Been Registered Under
the Securities Act of 1933, As Amended,
Pursuant to the Prospectus, dated [date]
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON [DATE]
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- -------------------------------------------------------------------------------
Delivery To: HSBC Bank USA, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Overnight Courier:
[ADDRESS] [ADDRESS]
By Hand:
[ADDRESS]
</TABLE>
For Information Call:
[PHONE NUMBER]
By Facsimile Transmission
(for Eligible Institutions only):
[PHONE NUMBER]
Attention: Corporate Trust Department
Confirm by Telephone:
[PHONE NUMBER]
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
<PAGE>
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated [date] (the "Prospectus"), of Unilab Corporation, a Delaware
corporation (the "Company"), and this Letter of Transmittal (the "Letter"),
which together constitute the Company's offer (the "Exchange Offer") to exchange
an aggregate principal amount of up to $155,000,000 of the Company's 12-3/4%
Senior Subordinated Notes due 2009 (the "New Notes") which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of the Company's issued and outstanding 12-3/4% Senior
Subordinated Notes due 2009 (the "Old Notes") from the registered holders
thereof (the "Holders").
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from November 20, 1998. Accordingly, registered Holders of New Notes
on the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from September 28, 1999. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
This Letter is to be completed by a holder of Old Notes either if certificates
are to be forwarded herewith or if a tender of certificates for Old Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in "The Exchange Offer--Book-
Entry Transfer" section of the Prospectus. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- ---------------------------------------------------------------------------------------------
Aggregate
Principal Principal
Name(s) and Address(es) of Registered Holder(s) Certificate Amount of Amount
(Please fill in, if blank) Number(s)* Old Note(s) Tendered**
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL
of the Old Notes represented by the Old Notes indicated in column 2. See Instruction 2.
Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof. See Instruction 1.
- ---------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number __________________ Transaction Code Number _________________
[_] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution Which Guaranteed Delivery ______________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number __________________ Transaction Code Number _________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: __________________________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it
is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it acknowledges that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering such a prospectus the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. If the
undersigned is a broker-dealer that will receive New Notes, it represents that
the Old Notes to be exchanged for the New Notes were acquired as a result of
market-making activities or other trading activities.
3
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
as the undersigned's true and lawful agent and attorney-in-fact with respect to
such tendered Old Notes, with full power of substitution, among other things, to
cause the Old Notes to be assigned, transferred and exchanged. The undersigned
hereby represents and warrants that the undersigned has full power and authority
to tender, sell, assign and transfer the Old Notes, and to acquire New Notes
issuable upon the exchange of such tendered Old Notes, and that, when the same
are accepted for exchange, the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the Holder of such Old Notes nor any such other
person is participating in, intends to participate in or has an arrangement or
understanding with any person to participate in the distribution of such New
Notes and that neither the Holder of such Old Notes nor any such other person is
an "affiliate," as defined in Rule 405 under the Securities Act of the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement with any person
to participate in the distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in other circumstances. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of the Company, is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of the
New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could
not rely on the applicable interpretations of the staff of the SEC and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. If the undersigned is
a broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus meeting the
requirements of the Securities Act, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
4
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
<TABLE>
<S> <C>
- --------------------------------------------------------- ------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4) (See Instructions 3 and 4)
- --------------------------------------------------------- ------------------------------------------------------------------
To be completed ONLY if certificates for Old Notes not To be completed ONLY if certificates for Old Notes not ex changed
exchanged and/or New Notes are to be issued in the and/or New Notes are to be sent to someone other than the person
name of and sent to someone other than the person or or persons whose signature(s) appear(s) on this Letter above or
persons whose signa ture(s) appear(s) on this Letter to such person or persons at an address other than shown in the
above, or if Old Notes delivered by book- entry box entitled "Description of Old Notes" on this Letter above.
transfer which are not accepted for exchange are to
be returned by credit to an account maintained at the
Book-Entry Transfer Facility other than the account
indicated above.
Issue: New Notes and/or Old Notes to: Mail: New Notes and/or Old Notes to:
Name(s).................................................. Name(s) .................................................
(Please Type or Print) (Please Type or Print)
......................................................... .........................................................
(Please Type or Print) (Please Type or Print)
Address.................................................. Address..................................................
......................................................... .........................................................
(Zip Code) (Zip Code)
(Complete Substitute Form W-9)
[_] Credit unexchanged Old Notes delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below.
_________________________________________________________
(Book-Entry Transfer Facility
Account Number, if applicable)
- --------------------------------------------------------- ------------------------------------------------------------------
</TABLE>
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES
FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
5
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 below)
x.............................................. ........................, 1999
x.............................................. ........................, 1999
(Signature(s) of Owner) (Date)
Area Code and Telephone Number .................................................
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s): .......................................................................
................................................................................
(Please Type or Print)
Capacity: ......................................................................
Address: .......................................................................
................................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Instutution: .......................................................
(Authorized Signature)
................................................................................
(Title)
................................................................................
(Name and Firm)
Dated: ..................................................................., 1999
- --------------------------------------------------------------------------------
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer for the
12 3/4% Senior Subordinated Notes due 2009 of Unilab Corporation
in Exchange for the
12 3/4% Senior Subordinated Notes due 2009 of Unilab Corporation,
Which Have Been Registered Under the
Securities Act of 1933, As Amended
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures.
This Letter is to be completed by holders of Old Notes either if certificates
are to be forwarded herewith or if tenders are to be made pursuant to the
procedures for delivery by book-entry transfer set forth in "The Exchange Offer
- --Book-Entry Transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or who
cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer
- --Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such
procedures, (i) such tender must be made through an Eligible Institution, (ii)
prior to 5:00 P.M., New York City time, on the Expiration Date, the Exchange
Agent must receive from such Eligible Institution a properly completed and duly
executed Letter (or a facsimile thereof) and Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the Expiration Date, the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation,
as the case may be, and any other documents required by this Letter will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by this Letter, must be received by the Exchange Agent within three
NYSE trading days after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to noteholders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are to
be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes--Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
7
<PAGE>
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners, all
of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a firm which is a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion Program (each an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered: (i) by a registered holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a security position
listing as the holder of such Old Notes) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on this
Letter, or (ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Notes should indicate in the applicable box the name
and address to which New Notes issued pursuant to the Exchange Offer and or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
8
<PAGE>
5. Taxpayer Identification Number.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption from backup withholding, such tendering
holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, the Exchange Agent may be required to withhold 31% of the amount of
any reportable payments made after the exchange to such tendering holder of New
Notes. If withholding results in an overpayment of taxes, a refund may be
obtained.
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must provide
its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such holder must give the
Exchange Agent a completed Form W-8, Certificate of Foreign Status. These forms
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such holder should consult the
W-9 Guidelines for information on which TIN to report. If such holder does not
have a TIN, such holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write
"applied for" in lieu of its TIN. Note: Checking this box and writing "applied
for" on the form means that such holder has already applied for a TIN or that
such holder intends to apply for one in the near future. If the box in Part 2 of
the Substitute Form W-9 is checked, the Exchange Agent will retain 31% of
reportable payments made to a holder during the sixty (60) day period following
the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent
with his or her TIN within sixty (60) days of the date of the Substitute Form W-
9, the Exchange Agent will remit such amounts retained during such sixty (60)
day period to such holder and no further amounts will be retained or withheld
from payments made to the holder thereafter. If, however, such holder does not
provide its TIN to the Exchange Agent within such sixty (60) day period, the
Exchange Agent will remit such previously withheld amounts to the Internal
Revenue Service as backup withholding and will withhold 31% of all reportable
payments to the holder thereafter until such holder furnishes its TIN to the
Exchange Agent.
6. Transfer Taxes.
The Company will pay all transfer taxes, if any, applicable to the transfer of
Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
9
<PAGE>
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be accepted.
All tendering holders of Old Notes, by execution of this Letter, shall waive any
right to receive notice of the acceptance of their Old Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New York
City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written notice of
withdrawal must be received by the Exchange Agent at the address set forth above
prior to 5:00 P.M., New York City time, on the Expiration Date. Any such notice
of withdrawal must (i) specify the name of the person having tendered the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including certificate number or numbers and the principal amount of
such Old Notes), (iii) contain a statement that such holder is withdrawing his
election to have such Old Notes exchanged, (iv) be signed by the holder in the
same manner as the original signature on the Letter by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer to have the Trustee with respect to the Old Notes register
the transfer of such Old Notes in the name of the person withdrawing the tender
and (v) specify the name in which such Old Notes are registered, if different
from that of the Depositor. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes
that have been tendered for exchange but which are not exchanged for any reason
will be returned to the Holder thereof without cost to such Holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures set forth in "The Exchange Offer--Book-Entry Transfer" section of the
Prospectus, such Old Notes will be credited to an account maintained with the
Book-Entry Transfer Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to 5:00 P.M., New York City time, on the
Expiration Date.
10
<PAGE>
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests
for additional copies of the Prospectus and this Letter, and requests for
Notices of Guaranteed Delivery and other related documents may be directed to
the Exchange Agent, at the address and telephone number indicated above.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: HSBC BANK USA
<TABLE>
<S> <C> <C>
SUBSTITUTE Part 1--PLEASE PROVIDE YOUR TIN IN
THE BOX AT RIGHT AND CERTIFY BY TIN: ______________________________
Form W-9 SIGNING AND DATING BELOW. Social Security Number or
Employer Identification Number
Department of the Treasury ----------------------------------------------------------------------------
Internal Revenue Service Part 2--TIN Applied For [_]
----------------------------------------------------------------------------
Payor's Request for CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Taxpayer
Identification Number (1) the number shown on this form is my correct TIN (or I am waiting for a
("TIN") and number to be issued to me).
Certification (2) I am not subject to backup withholding either because: (a) I am exempt
from backup withholding, or (b) I have not been notified by the
Internal Revenue Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding, and
(3) any other information provided on this form is true and correct.
SIGNATURE ............................................... DATE ............
- -----------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified by the IRS that you are
subject to backup withholding because of underreporting of interest or dividends on your tax return and you
have not been notified by the IRS that you are no longer subject to backup withholding.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
- -------------------------------------- --------------------------------------
Signature Date
- --------------------------------------------------------------------------------
12
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
UNILAB CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Unilab Corporation (the "Company") made pursuant to the
Prospectus, dated [date] (the "Prospectus"), if certificates for the outstanding
12 3/4% Senior Subordinated Notes due 2009 of the Company (the "Old Notes") are
not immediately available or if the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach State Street Bank and Trust Company, as exchange agent (the "Exchange
Agent") prior to 5:00 P.M., New York City time, on the Expiration Date of the
Exchange Offer. Such form may be delivered or transmitted by facsimile
transmission, mail or hand delivery to the Exchange Agent as set forth below. In
addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 P.M., New York City time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
Delivery To: HSBC Bank USA, Exchange Agent
By Mail: By Overnight Courier:
[ADDRESS] [ADDRESS]
By Hand:
[ADDRESS]
For Information Call:
[phone number]
By Facsimile Transmission
(for Eligible Institutions only):
[phone number]
Attention: Corporate Trust Department
Confirm by Telephone:
[phone number]
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery.
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the accompanying
Letter of Transmittal, the undersigned hereby tenders to the Company the
principal amount of Old Notes set forth below pursuant to the guaranteed
delivery procedure described in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:*
$______________________________________
Certificate Nos. (if available):
If Old Notes will be delivered by
book-entry transfer to The Depository
Trust Company, provide account number.
_______________________________________
Total Principal Amount Represented by
Old Notes Certificate(s):
$______________________________________ Account Number________________________
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X _____________________________________________ _____________________________
X _____________________________________________ _____________________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:______________
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
Name(s): __________________________________________________________________
__________________________________________________________________
__________________________________________________________________
Capacity: __________________________________________________________________
Address(es): __________________________________________________________________
__________________________________________________________________
__________________________________________________________________
___________________
*Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
2
<PAGE>
EXHIBIT 99.3
UNILAB CORPORATION
Offer for all Outstanding
12 3/4% Senior Subordinated Notes due 2009
in Exchange for
12 3/4% Senior Subordinated Notes due 2009,
Which Have Been Registered Under
the Securities Act of 1933,
As Amended
To Our Clients:
Enclosed for your consideration is a Prospectus, dated February 16, 1999 (the
"Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Unilab
Corporation (the "Company") to exchange its 12 3/4% Senior Subordinated Notes
due 2009, which have been registered under the Securities Act of 1933, as
amended (the "New Notes"), for its outstanding 12 3/4% Senior Subordinated Notes
due 2009 (the "Old Notes"), upon the terms and subject to the conditions
described in the Prospectus and the Letter of Transmittal. The Exchange Offer is
being made in order to satisfy certain obligations of the Company contained in
the Registration Rights Agreement dated September 28, 1999, by and among the
Company and the initial purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes held by us for your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on [date], unless extended by the Company. Any Old Notes
tendered pursuant to the Exchange Offer may be withdrawn at any time before the
Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions to
the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Company will be paid by the Company, except as otherwise provided in the
Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 P.M., New York City time, on [date],
unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for information only
and may not be used directly by you to tender Old Notes.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Fisher
Scientific International Inc. with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account of
the undersigned, upon and subject to the terms and conditions set forth in the
Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
12 3/4% Senior Subordinated Notes due 2009 $____________________ (Aggregate
Principal Amount of Old Notes)
[_] Please do not tender any Old Notes held by you for my account.
Dated: ___________________, 1999
Signature(s): _________________________________________________________________
Print name(s) here: ___________________________________________________________
(Print Address(es)): __________________________________________________________
(Area Code and Telephone Number(s)): __________________________________________
(Tax Identification or Social Security Number(s)): ____________________________
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
<PAGE>
EXHIBIT 99.4
UNILAB CORPORATION
Offer for all Outstanding
12 3/4% Senior Subordinated Notes due 2009
in Exchange for
12 3/4% Senior Subordinated Notes due 2009,
Which Have Been Registered Under
the Securities Act of 1933,
As Amended
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Unilab Corporation (the "Company") is offering, upon and subject to the terms
and conditions set forth in the Prospectus, dated [date] (the "Prospectus"), and
the enclosed Letter of Transmittal (the "Letter of Transmittal"), to exchange
(the "Exchange Offer") its 12 3/4% Senior Subordinated Notes due 2009, which
have been registered under the Securities Act of 1933, as amended, for its
outstanding 12 3/4% Senior Subordinated Notes due 2009 (the "Old Notes"). The
Exchange Offer is being made in order to satisfy certain obligations of the
Company contained in the Registration Rights Agreement dated September 28, 1999,
by and among the Company and the initial purchasers referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated [date];
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if
certificates for Old Notes are not immediately available or time will not permit
all required documents to reach the Exchange Agent prior to the Expiration Date
(as defined below) or if the procedure for book-entry transfer cannot be
completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to HSBC Bank USA, the Exchange Agent for the
Exchange Offer.
Your prompt action is requested. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on [date], unless extended by the Company (the "Expiration
Date"). Old Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the Letter
of Transmittal and the Prospectus.
<PAGE>
If a registered holder of Old Notes desires to tender, but such Old Notes are
not immediately available, or time will not permit such holder's Old Notes or
other required documents to reach the Exchange Agent before the Expiration Date,
or the procedure for book-entry transfer cannot be completed on a timely basis,
a tender may be effected by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. The
Company will pay or cause to be paid all stock transfer taxes applicable to the
exchange of Old Notes pursuant to the Exchange Offer, except as set forth in
Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests for
additional copies of the enclosed materials, should be directed to HSBC Bank
USA, the Exchange Agent for the Exchange Offer, at its address and telephone
number set forth on the front of the Letter of Transmittal.
Very truly yours,
UNILAB CORPORATION
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON
AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER
PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM
WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE
PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
2
